Gallup has released a report called, No Recovery: An Analysis of Long-Term U.S. Productivity Decline that explains that even with modest job and productivity growth post-recession, the productivity of the country is down overall. A big part of the reason for this stagnation and decline is because of the disproportionate growth in costs and decline in value in education, health care, and housing. The Gallup report tells the story that many of us have been repeating for years: we need more housing options. But local governments in fast growing cities have resisted housing production with zoning regulations.
What’s happening with housing that’s affecting productivity? The Gallup report argues makes the case that Americans are paying more for less, spending an average of 28 percent on housing costs compared to 19 percent over thirty years ago. Part of this is the size of units is getting smaller, which is not necessarily a bad thing. Many people are choosing to live in smaller spaces with higher per square foot costs. The Urban Land Institute produced a report on micro housing, A Macro View on Micro Housing, that found many people chose smaller space because while the square foot cost of housing for smaller units is higher, over all rent is less.
From Urban Land Institute Report, Macro View on Micro Units, Page 24
But the Gallup report lays the real blame squarely on local elected officials and the influence of incumbent homeowners that constrain supply with aggressive zoning.
The core problem with the housing market is that it is not allowed to function as a market at all. In a healthy market, an increase in demand for a product leads to a greater supply and prices stay the same. In housing markets, demand increases as new households are formed, which results from natural population growth and immigration. The problem is that new supply is massively restricted, leading to inflation (Page 98).
Americans are facing, especially in cities, is housing scarcity that is pushing up prices and consuming their incomes. The money lost to higher prices is money not saved, not invested in new ventures, or education, or meeting other needs. People want to live and work and cities because that’s where the opportunity is; but the report found that zoning is making it harder for new people to live in cities. Here’s a devastating indictment of zoning (emphasis mine):
Local zoning boards and planning agencies have almost complete discretion over what gets built where, and they are under intense political pressure from homeowners’ associations and other groups to block development in high-priced, low-density areas for cultural and economic reasons. Culturally, homeowners clamor to preserve what they regard as the “character” of their communities, by which they mean things like traffic, the race and social status of their neighbors, and environmental amenities like green space and scenic views. Additionally, homeowners have strong economic interests in restricting the supply of housing in their neighborhood for two reasons: having more people, especially people with young children, requires a higher tax rate on property, and even more fundamentally, greater housing supply in their neighborhood lowers the value of their unit relative to the prevailing scarcity. Thus, even as housing prices increased, U.S. population density actually fell from 2000 to 2010 for metropolitan area residents as newer housing units were pushed further out into the distant suburbs (Page 99).
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But here’s what Gallup doesn’t say: progressive political rhetoric and policies blaming developers and building owners for higher prices provides the political cover to enact these kinds of measures that actually hurt poor people. And this is truly the scandal of the last three decades, that incumbent single-family homeowners have used the suffering of poor people to argue for policies that benefit their own financial interests while making life worse for people with the fewest dollars to spend on housing in the city, the very people that they claim to be worried about.
Gallup says it isn’t done but will be producing more detailed ideas on solutions. The housing solution will have to require that local politicians and officials stop implementing policies that appear redistributive at the expense of developers and landlords, but that only make things worse for people seeking housing (see Seattle Mayor Murray’s Mandatory Inclusionary Zoning scheme). Ironically the fees and taxes wrung out of the production of much needed housing will only raise its price, funneling the money raised into a manifestly inefficient system of housing production. As Margaret Thatcher famously pointed out, all these apparently socialist policies using taxes, fees, and zoning do is make the “poor poorer” while ensuring current homeowners see themselves get richer and richer.