$1.6 Trillion a year. That’s the amount of lost economic output that America loses due to restrictive housing policy.
A new paper, “Why Cities Matter: Local Growth and Aggregate Growth” by economists Chang-Tai Hsieh (University of Chicago) and Enrico Moretti (UC Berkeley) has, for the first time, put a dollar figure on the detrimental impacts of restrictive urban policy in America’s cities.
The research uses statistical models and data developed by other economists to pose the question: if American workers could live in an alternate universe where they could easily and affordably move to any US city that would maximize their economic output, what would the economic impact be? Think about rural worker with expertise in bio engineering, but is unwilling to move to the closest city because she does not want to pay exorbitant housing costs. In the researchers’ model, that engineer is able to affordably move to the city, collect a higher paycheck, and pay a reasonable amount on housing.
In Texas, we know this real-life story well from the consistent stream of Californians moving to Texas for a a different housing market. (Side note: I am one of these ex-Californians :).
In this alternate universe of affordable housing, US GDP would be boosted by 13.5% as wages flow from housing costs to Americans’ pockets. The average worker would see an annual income boost of over $8,000.
As a remedy, the paper offers few specifics, but clearly falls on the side of economists advocating reducing local housing restrictions in order to bring about a large increase in housing supply.
McKinsey & Company released its own California-drive research that similarly found $140 billion in lost economic output in California because of restrictive housing policies. The paper emphasized that low and middle income families bear the brunt of these policies, sometimes paying well over 50% of family income on housing costs.
Although there haven’t been any comprehensive studies done in Texas, it’s not hard to see that major Texas cities are seeing similar housing shortages, putting a strain on the state’s workers. In Austin, the CodeNext initiative is bringing about a renewed battle in housing code that will drive supply and housing prices for decades to come. In San Antonio, which was named one of the most affordable cities in America, the city still struggles with making sure that its housing boom can match the equally strong demand for new housing in the city.
At Nest Mortgage, we believe in the power of the open market to deliver affordable housing and wealth creation for all Americans. In Austin, San Antonio, and around the country, we will continue to advocate for policy that welcomes new investments and minimizes potential for NIMBYs to unfairly restrict housing supply. It’s one of the reasons that we want to reduce friction in the home buying process and make buying a home a clear and attainable goal for all.