The Corner

Economy & Business

Study: Land-Use Restrictions Drag the U.S. Economy Down

Something seems wrong with the American economy, despite strong headline numbers. Nine years into the expansion, GDP and productivity growth remain below their long-term trends. According to a working paper published by the National Bureau of Economic Research, restrictive land-use regulations in California and New York are a major reason why. The paper, by Kyle F. Herkenhoff, Lee E. Ohanian, and Edward C. Prescott, argues that “these restrictions have depressed macroeconomic activity since 2000.”

The basic idea is that land-use regulations artificially constrain the supply of land, driving up prices for housing and commercial rent — and that these regulations are the most restrictive in places where productive opportunities are plentiful. Take the Golden and Empire States, where, compared with the rest of the country, jobs abound and productivity is high. These states have extraordinarily restrictive zoning and development laws that drive up the price of land. Someone considering a move to San Francisco or Manhattan might find the cost of moving to be prohibitive and decide to continue living in a place with comparatively fewer job opportunities. Hence, the authors say, land-use regulations “raise land prices, slow interstate migration, and depress output and productivity relative to historical trends.”

That’s not a novel insight. Harvard economists Peter Ganong and Daniel Shoag, for instance, found a similar result in 2012. But these authors contribute to the literature by developing a general-equilibrium model that evaluates what the economic effects would be if restrictions on land use were eased.

And they would be significant. According to the model, “U.S. labor productivity would be 12.4 percent higher and consumption would be 11.9 percent higher if all states moved halfway from their current land-use regulation levels to the current Texas level.” Even if California and New York deregulated back to their 1980 levels, the authors find, “aggregate productivity” would rise “by as much as 7 percent and consumption by as much as 5 percent.”

Of course, this is an inexact exercise. Not everyone would pack up and move to San Francisco if it became a cheaper place to live. People have sentimental attachments to their homes and communities that no model can capture. But there are certainly people who would make the move, and these regulations benefit a small class of homeowners at their expense. Easing land-use restrictions would open up opportunities for ordinary Americans. According to this paper, it would also give a major boost to the U.S. economy.

Most Popular

Elections

Bernie’s Huge Victory

Bernie had a massive night in Nevada, with a diverse nomination-winning-type coalition. According to the entrance poll, he won whites and Hispanics and did well among blacks. He won men and women. He won college graduates and did particularly well with non-college graduates. He won Democrats and independents. ... Read More
Elections

Bernie’s Huge Victory

Bernie had a massive night in Nevada, with a diverse nomination-winning-type coalition. According to the entrance poll, he won whites and Hispanics and did well among blacks. He won men and women. He won college graduates and did particularly well with non-college graduates. He won Democrats and independents. ... Read More
U.S.

Women’s Sports Should Be Women’s Sports

Transgender sports policies make a mockery of women’s competition. Just look at the state of Connecticut. At the 2018 state open for women’s track and field, two young men identifying as transgender took first and second place in the 100m race. Their participation not only deprived young women of their ... Read More
U.S.

Women’s Sports Should Be Women’s Sports

Transgender sports policies make a mockery of women’s competition. Just look at the state of Connecticut. At the 2018 state open for women’s track and field, two young men identifying as transgender took first and second place in the 100m race. Their participation not only deprived young women of their ... Read More
Elections

Bernie’s Houses

Mike Bloomberg scored a hit -- a palpable hit -- in the debate this week when he pointed back at Bernie Sanders and said: “What a wonderful country we have, the best-known socialist in the country happens to be a millionaire with three houses.” Many conservatives laughed and cheered and wondered why Bernie ... Read More
Elections

Bernie’s Houses

Mike Bloomberg scored a hit -- a palpable hit -- in the debate this week when he pointed back at Bernie Sanders and said: “What a wonderful country we have, the best-known socialist in the country happens to be a millionaire with three houses.” Many conservatives laughed and cheered and wondered why Bernie ... Read More

Elon Musk’s Plan to Settle Mars

He who follows Freedom, let him leave his homeland, and risk his life. — Adam Mickiewicz, Polish poet, 1832 Last week my wife Hope and I traveled to Boca Chica, Texas, to meet with Elon Musk. While we talked inside the SpaceX onsite headquarters, a mariachi band played outside, providing entertainment for ... Read More

Elon Musk’s Plan to Settle Mars

He who follows Freedom, let him leave his homeland, and risk his life. — Adam Mickiewicz, Polish poet, 1832 Last week my wife Hope and I traveled to Boca Chica, Texas, to meet with Elon Musk. While we talked inside the SpaceX onsite headquarters, a mariachi band played outside, providing entertainment for ... Read More

Escape from Wuhan

The onset of the crisis in Wuhan startled me like a jump scare in a horror movie. You’ve seen the kind I mean. The audience is led to believe that the monster, psycho killer—or what have you—pursuing the intended victim is still distant. Then whatever it is stands up from behind, leaps out in front, bursts ... Read More

Escape from Wuhan

The onset of the crisis in Wuhan startled me like a jump scare in a horror movie. You’ve seen the kind I mean. The audience is led to believe that the monster, psycho killer—or what have you—pursuing the intended victim is still distant. Then whatever it is stands up from behind, leaps out in front, bursts ... Read More