NIMBYism Is a Huge Drag on America's Economic Growth

Silicon Valley enjoys sky-high labor demand and soaring wages. Yet for such a significant global

nexus of economic activity, the population density in San Jose and San Francisco is incredibly low. Incumbent homeowners don’t want to share the wealth, so they enact housing policies that keep new workers out.

Protectionist housing policies are bad for people who’d like to work in Silicon Valley, of course. But NIMBYism is also bad for the nation as a whole. Even though labor productivity has grown the most over the last few decades in three specific U.S. cities—New York, San Francisco, and San Jose—that local growth hasn’t translated to greater national growth at all, thanks to a lack of housing.

In fact, NIMBY policies that restrict the supply of housing in those cities are a drag on the national economy. That’s the finding in a new paper by Chang-Tai Hsieh and Enrico Moretti released by the National Bureau of Economic Research. The researchers show that increased “wage dispersion” from 1964 to 2009 has held back U.S. GDP growth by a whopping 13.5 percent of what it could be.

“This amounts to an annual wage increase of $8,775 for the average worker,” the paper reads.

Hsieh and Moretti came up with a way to measure what local output and national growth would look like if wage dispersion were equalized. They proposed a model that lowered the regulatory housing constraints in New York, San Francisco, and San Jose to the level of a median city. If workers were able to cross over from low-wage cities to high-wage cities—that is, if New York, San Francisco, and San Jose were to lower barriers to new housing and let them in—then GDP could rise by 9.5 percent.

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Posted by Steve Sinai