In recent years, the rising cost of housing in many desirable urban areas has emerged as a potent and controversial political issue. The issue was at the forefront of some of 2018’s highest profile state– and city-level electoral races, and it’s expected to feature prominently in the 2020 presidential contest. The impetus for all this attention is simple: Between 1960 and 2016, inflation-adjusted rents increased by 61 percent, and home values by 112 percent, according to Harvard University’s Joint Center for Housing Studies. During that same period, median renter incomes increased by only 5 percent, while homeowner incomes increased by only 50 percent.
Coverage of this crisis typically focuses primarily on how the cost of housing burdens individuals and households, making it difficult for them to save money or pay for health care or other necessities. A new data feature from the Urban Institute’s Christina Stacy, Brady Meixell, and Serena Lei, however, provides yet another reason for everyone, including those who aren’t themselves rent-burdened, to take the housing crisis seriously: In many locations, it’s interfering with the labor market and maybe even economic growth.
Rising rents, which force workers out of certain neighborhoods and into others, contribute to “spacial mismatch”—zip codes with an oversupply of either job postings or job seekers. Using data from Snag, which is the country’s biggest online job search site for hourly workers, the Urban Institute researchers studied the distance between job seekers and the jobs they applied for in 2017, across 16 different metropolitan statistical areas.
They found that spatial mismatch is common across all of the MSAs they studied. The specifics, however, vary across cities. In San Francisco, for example, most of the zip codes had too many jobs and not enough job seekers. In Columbus, Ohio, by contrast, some neighborhoods had too many jobs, but others had too many seekers. And in Atlanta, Miami, Detroit, and Austin, Texas, most regions had too many job seekers and not enough jobs.
The chart below illustrates the mismatch:
The data points to an important reality that often goes overlooked in discussions of affordable housing. When rising rents drive workers to live too far from available jobs to apply for them, businesses and the economy suffer as well. It’s not hard, after all, to imagine a coffee shop or restaurant that forgoes business, and economic growth, because it isn’t able to hire the workers it needs to provide adequate customer service.
“I think that what this shows is that this issue is not important just for the individual or the job seeker or the household that can’t afford to live there,” says Christina Stacy, one of the authors of the feature. “You need people to work at the coffee shop or the restaurant. And if you don’t have a vibrant and diverse population in these neighborhoods, you’re not going to be able to find employees in a lot of these neighborhoods.”
What’s more, the cities where mismatch is a large problem are not doing enough to ameliorate the problem.
When a region has too many seekers of housing, and not enough housing, the price of housing will increase. Over time, however, simple economic models of supply and demand would predict that developers would respond to this by building more housing, driving the price back down. What the Urban Institute research shows is that, in many of the most economically desirable and vibrant areas of the country, however, this final step hasn’t happened, or hasn’t happened in a meaningful way. And while some regions do face geographic barriers (e.g. oceans) that can limit spaces to build new housing, most economists point to a policy choice—restrictive zoning and land-use regulations that effectively limit new building—as a significant driver of the housing-affordability crisis.
Economists have begun to amass evidence that these policies, which are often very popular among local homeowners, are having meaningful negative effects on the overall economy. In a forthcoming paper in the American Economic Journal, economists Chang-Tai Hsieh and Enrico Moretti examine the economic effects of spatial mismatch across United States cities (rather than within cities, like the Urban Institute). They estimate that strict regulations in places like New York and San Francisco “lowered aggregate US growth by 36% from 1964 to 2009.”
In another paper on the topic published by the Journal of Monetary Economics, Kyle F. Herkenhoff, Lee E. Ohanian, and Edward C. Prescott conclude that restrictive regulations in high productivity regions of the country have disrupted the regional reallocation of people that has historically accompanied economic growth in the U.S., and has led to too few people relocating to California and New York. They estimate that “deregulating just California and New York back to their 1980 land-use regulation levels would raise aggregate productivity by as much as 7 percent and consumption by as much as 5 percent.”
The Urban Institute report highlights a number of steps cities can take to ease these problems. Zoning reform, such as the type recently undertaken by Minneapolis is, of course, one of the most important changes needed. Improvements to infrastructure and public transit—to reduce commute times—are another. But Stacy also points out that some cities have begun to work on improving the quality of these low-wage jobs—by creating career pathways or improving scheduling practices—so that workers are more willing to travel to these jobs.
“This is particularly important for those low-wage jobs,” Stacy says. “If you’re making a lot of money, you’re willing to travel all the way across town or to relocate. They’re going to need to increase the quality of the jobs in these neighborhoods so people are willing to travel to get to them.”
