Today’s Policy Agenda: Regulation Explains a Lot of the Variation in Price of Housing

by Callie Gable

Obamacare’s growing costs to businesses is bad for some workers and consumers.

Rove and Co. has a report on the results of the 2014 Empire State Manufacturing Survey and the Business Leaders Survey, conducted by the Federal Reserve Bank of New York, which included a supplement on the effects of Obamacare on businesses.

About 80 percent of manufacturing leaders and 73 percent of business leaders surveyed said they expected the law to increase their costs in 2015, and the chart below shows how they expect to offset the new cost:

Some business and manufacturing employers will decrease the total amount of workers they employ, make more positions part time, and reduce wages. But the most popular choice: 36.4 and 25 percent of manufacturing leaders and business leaders respectively, said prices for consumers would rise. 

Is the skills gap a myth?

At FiveThirtyEight, Andrew Flowers reports on a National Bureau of Economic Research working paper arguing that the U.S. workforce doesn’t lack the skills employers need:

Overall, the available evidence does not support the idea that there are serious skill gaps or skill shortages in the US labor force. The prevailing situation in the US labor market, as in most developed economies, continues to be skill mismatches where the average worker and job candidate has more education than their current job requires.

There is a prevailing narrative that the U.S. labor market has a lot of open positions because workers lack the skills to fill them. But in the NBER paper, Penn professor Peter Cappelli argues that most people are actually over-qualified for their jobs, and suggests other reasons for why employers complain of a skills shortage when there isn’t one.

One of Cappell’s explanations: Employers are perpetuating this narrative to shift the responsibility of skills acquisition away from the on-the-job-training model and to individuals and the government.

The hidden housing construction cost: building regulations

In the Washington Post, Jeff Guo explains how building regulations further raise the cost of housing in some of America’s most expensive cities, citing a study by University of Michigan economists. 

The chart below suggests that much of the difference in housing prices has to do with regulations, not just, say, the price of land and materials:

The line represents the predicted cost of housing based on the land and construction costs in different cities, while the dots represent the actual costs — as you can see, cities like San Francisco are above that line, meaning regulation has raised their prices higher than you’d expect based on fundamentals.

These excessive regulations drive up the cost of housing for everyone: The regulations make new construction cost prohibitive, leading to housing shortages that keep prices high, while developers who need to sell new construction at high costs to compensate for the price of regulations focus on luxury housing.