UC Berkeley study; NY and SF's Tight Housing Markets Are Hurting the National Economy

[YSL]

Limited housing is keeping workers away from the cities where they could be most productive, and that's costing the U.S. economy.

Reducing land-use constraints in high-productivity New York, San Francisco and San Jose to the level of the median city would expand their labor forces, boosting U.S. gross domestic product by 9.5 percent, according to estimates from a new study by the University of California at Berkeley's Enrico Moretti and the University of Chicago's Chang-Tai Hsieh.

"A limited number of American workers can have access to these very high-productivity cities,'' Moretti said in an interview. A more efficient distribution would be "a general benefit for the entire economy."

"Places like New York and San Francisco need to be less exclusive, but building without limit may not be desirable either,"

http://www.bloomberg.com/news/articl...ng-the-economy

[BrownTown]

The writer of this article is making a fundamental economic blunder. He is confusing Nominal GDP and PPP GDP. Using Nominal GDP as a measure of productivity isn't correct. For an example of why this is wrong consider a software developer (or any other job) moving from Atlanta to NYC. His salary might increase from $80,000 to $100,000 even though he is doing the exact same job writing the exact same code. That's because the cost of living in NYC is much higher and companies have to pay more to attract the same level of employees. In terms of Nominal GDP this individuals contribution to the economy has gone up 25% even though he is not actually contributing anything more. This is why PPP measures should be used for GDP. Because the purchasing power of $100,000 in NYC is the same as $80,000 in Atlanta and so there won't be an erroneous increase in GDP simply because this individual moved. Expanding the housing market to allow more people to move from other locations to NYC and San Francisco won't make them any more productive, it will just make them SEEM more productive from a Nominal GDP point of view. I'd also like to note that there is no free lunch in this world and if more housing did become available in these expensive cities the average wages would drop to compensate for the reduced cost of living and so even from Nominal GDP terms there would only be a temporary bump in GDP until the wages dropped (and that would exist because wages are sticky in the downward direction).

[dimondpark]

Originally Posted by BrownTown

The writer of this article is making a fundamental economic blunder. He is confusing Nominal GDP and PPP GDP. Using Nominal GDP as a measure of productivity isn't correct. For an example of why this is wrong consider a software developer (or any other job) moving from Atlanta to NYC. His salary might increase from $80,000 to $100,000 even though he is doing the exact same job writing the exact same code. That's because the cost of living in NYC is much higher and companies have to pay more to attract the same level of employees. In terms of Nominal GDP this individuals contribution to the economy has gone up 25% even though he is not actually contributing anything more. This is why PPP measures should be used for GDP. Because the purchasing power of $100,000 in NYC is the same as $80,000 in Atlanta and so there won't be an erroneous increase in GDP simply because this individual moved. Expanding the housing market to allow more people to move from other locations to NYC and San Francisco won't make them any more productive, it will just make them SEEM more productive from a Nominal GDP point of view. I'd also like to note that there is no free lunch in this world and if more housing did become available in these expensive cities the average wages would drop to compensate for the reduced cost of living and so even from Nominal GDP terms there would only be a temporary bump in GDP until the wages dropped (and that would exist because wages are sticky in the downward direction).

I dont see how we can do PPP comparisons within a single nation because while the cost of living and wages may vary even greatly in some cases, the standard of living is pretty much the same. In this instance, we are not comparing developed vs developing vs undeveloped.

Furthermore, you contradict yourself by insisting that productivity of places like New York is just an illusion and really, Atlanta is just as productive, but thats not true.

As a matter of fact, some areas of the country are just more productive than others due to their concentration of more profitable industries. Finance and Tech are extremely lucrative.

[mrsmartman]

There are not many tall buildings in LES and the outer boros. Lots of room for redevelopment if profitable.

[chris08876]

Many large scale developers are eying the outer boroughs. Much of NYC construction occurs in Queens and Brooklyn. Towers will be the norm, especially bordering the East River and the proxies adjacent to it. Its still profitable to build in Manhattan, but its very difficult and expensive. The trend will be to create housing near or somewhat close to major subway stops.

In terms of economic activity, these areas are heavy spheres of activity. Even in places like China, this same concept in the study is often said when it comes to certain areas absorbing most of the economic output while others drag. Example: Beijing not getting a bigger slice of the action versus Shanghai or how the Guangdong Providence hurts the Northeast Cities as its a powerhouse. Its expected as it occurs in every other country to an extent. Always a place or two that are light years ahead.

Competition is what makes redistribution of worker pools difficult.

[tablemtn]

SF's building constraints arise from values other than maximizing theoretical GDP. I don't think that argument is very compelling to a lot of people in SF, because GDP is a secondary/tertiary/etc. factor compared to the others.

[mrsmartman]

Generally, megacities gain the momentum for perpetual growth by some positive reinforcement. This is the opposite to a downward spiral.

As seen from the city's skyline, there is a lot of room in the area between downtown and midtown. The area is quite convenient in terms of location.

[Ant131531]

In other words, we should continue to concentrate all of the country's msot lucrative employees in two or three cities creating extremely wealthy enclaves.

[chris08876]

The free market dictates where employers and employees migrate too. We can't force them to go somewhere unless they see its of benefit to them or some sort of interest. This isn't a U.S. problem either, its global.

In the case of SF and NY, they have been for a while magnets of the rich and enclaves (well, in NY, Manhattan really as most of the city isn't Loui Vuitton paradise), but there are other cities that steal employees from other states due to their economy and influence. Houston, Dallas, LA, Seattle, ect.; all powerhouses in their respected industries.

[YSL]

Originally Posted by Ant131531

In other words, we should continue to concentrate all of the country's msot lucrative employees in two or three cities creating extremely wealthy enclaves.

Upwardly mobile, wealthy people can chose to migrate to wherever it is they want. And the fact that an outsized proportion of these wealthy, highly educated people (and their corporations) still go to, cluster and stay in expensive New York and San Francisco means it's where they want to be.

Working on their exclusionary housing policies would prove to be a positive thing to the economy, as the article says.

[tech12]

Originally Posted by chris08876

In the case of SF and NY, they have been for a while magnets of the rich and enclaves (well, in NY, Manhattan really as most of the city isn't Loui Vuitton paradise)

Most of SF isn't a "Louis Vuitton paradise" either. There are wealthy areas, middle class areas, poor areas, public housing, etc. Of course market rate housing prices are so insanely high right now that only the well-off can afford it, but the majority of SF residents have been living here since times when things were cheaper, and the majority of SF's existing housing units have rent control.

[chris08876]

Well yea, thats my point. I only said NY because I'm more familiar with it, but the same applies to cities where there's a enclave of wealth. Exception of Monaco. Thats one place I've been that is not affordable at all. Not even close.

Beautiful place, but unless one is a servant living for free in a servent room/closet, good luck renting there much less buying.

I think with these cities it comes down to being wise about which unit somebody rents. Even In Manhattan, if somebodies prudent and looks wisely, they can get some good deals.

[dc_denizen]

Originally Posted by Ant131531

In other words, we should continue to concentrate all of the country's msot lucrative employees in two or three cities creating extremely wealthy enclaves.

lol, exactly.

the eventual ROI of rebuilding Detroit's residential and commercial stock in and around downtown would far exceed spending the equivalent amount in Manhattan.

[mhays]

Concentration and cross-pollination can help industries advance. That should be a large point here.

It's a common point when companies talk about where they're locating -- being in the #1 spot for a given field, or from campus to urban district, so people from different companies and related areas of expertise can run work together, run into each other, etc., companies have better/bigger worker pools, etc.

Also on the company level, a lot of firms locate in the #1 center so they get access to "star" employees, who happen to be well-paid and can afford it. But they can be hamstrung by their rank-and-file employees having difficult commutes, or a lot of potential employees considering themselves unable to afford the whole metro. That can hurt a company's growth. Some of their market might instead go to smaller US cities, and some might go overseas.

[Crawford]

The problem with economists is that they're economists. Decisions about land-use planning, thankfully, involve a broader array of interests, or there would nothing left in the world but social housing and McMansions.

[Crawford]

Originally Posted by mrsmartman

As seen from the city's skyline, there is a lot of room in the area between downtown and midtown. The area is quite convenient in terms of location.

There's almost no room for significant growth between downtown and midtown. That would be absolutely the least likely place in the entire city to house more workers. Jamaica, Queens, yeah. East NY, Brooklyn, yeah. Flatiron District, hell no, that will only be occupied by the super-wealthy in sliver towers and boutique projects.

Again, this is the problem with economists. No, we aren't going to bulldoze Greenwich Village to build housing projects. No, we aren't turning SoHo into Kowloon. There's no point to demolishing the city's best neighborhoods just because they aren't at maximum theoretical economic efficiency.

[mousquet]

Different contexts, urban habits and situations, but I have a feeling some large Euro cties, esp the largest and Paris in particular are facing the same challenge.

I think the best is to leave the most desirable areas pretty much alone, since they're usually full of nimbys, and to massively invest in inner rings. That should mean both an increase of density and the development of the necessary mass transit means. It's pretty expensive and ambitious, but cities are meant to be so.

[BrownTown]

Originally Posted by dimondpark

I dont see how we can do PPP comparisons within a single nation because while the cost of living and wages may vary even greatly in some cases, the standard of living is pretty much the same. In this instance, we are not comparing developed vs developing vs undeveloped.

People do this all the time. There are charts comparing cost of living in different states and cities everywhere. GSA rates vary wildly by location. Pretty much anyone getting a new job looks at the cost of living adjustment to see what their real salary increase will be. For instance I just got a $19,000 "raise" to move to New Jersey from a state that has no income tax and cheap property values and it turns out to be not much of a raise at all when you adjust for purchasing power.

Originally Posted by dimondpark

Furthermore, you contradict yourself by insisting that productivity of places like New York is just an illusion and really, Atlanta is just as productive, but thats not true.

I never said that all cities are as productive as each other, I said people don't become more productive moving from one place to another. An engineer isn't more productive moving from Atlanta to NYC, but the distribution of jobs isn't even between the two cities. For an extreme example consider some rural farming community and Silicon Valley. Of course Silicon Valley is more productive, but moving a farmer from a rural area won't magically turn him into a tech genius. Skilled people from all across the country migrate to Silicon Valley which is why it is more productive, but if the price of living there is too high it won't make these people less productive, it will just meant they migrate to Austin or some other city instead. Like many people have said, these cities essentially suck much of the talent away from other cities, but they don't CREATE the talent.

Originally Posted by dimondpark

As a matter of fact, some areas of the country are just more productive than others due to their concentration of more profitable industries. Finance and Tech are extremely lucrative.

The area isn't more productive, the people are. If people thought Topeka was a trendier city to live in than San Francisco then suddenly Topeka would be way more productive. Take the oil boom in North Dakota for example. North Dakota's economy has been doing the best in the country, but it's not because people moving to North Dakota suddenly become more productive, it's because productive people were suddenly moving to North Dakota. This article has the Correlation right, but the Causation wrong.

[lio45]

Originally Posted by Crawford

No, we aren't going to bulldoze Greenwich Village to build housing projects.

There are better ideas than that out there...

https://www.google.com/maps/@40.8878.../data=!3m1!1e3

https://www.youtube.com/watch?v=AbSRCjG-VLk

[Crawford]

Originally Posted by BrownTown

People do this all the time. There are charts comparing cost of living in different states and cities everywhere. GSA rates vary wildly by location. Pretty much anyone getting a new job looks at the cost of living adjustment to see what their real salary increase will be. For instance I just got a $19,000 "raise" to move to New Jersey from a state that has no income tax and cheap property values and it turns out to be not much of a raise at all when you adjust for purchasing power.

People do it all the time, but it's meaningless. If you move to NJ and your pay increases by 19k, then you are 19k richer. Saying "yeah but NJ is more desirable than previous state so housing costs will be higher, therefore I am poorer" is nonsensical. Obviously people adjust to their environment, and housing burden isn't usually higher in higher cost states. If your housing costs are higher, then you may carry a greater proportion of your wealth in real estate assets, but that's entirely your choice, and it's still wealth.

Someone living in Manhattan isn't becoming "richer" by moving to rural Kansas. They may have lower housing costs, but that's up to them, and it doesn't mean more money in their pocket. It just means that the market perceives the local housing to be a less valuable asset.