Chang-Tai Hsieh (UChicago & NBER) and Enrico Moretti (UC Berkeley & NBER) just published an important research study, Housing Constraints and Spatial Misallocation. The study examines and quantifies how a limited housing supply damages not just the local economy, but the ENTIRE country’s economy due to externalities.

This is the abstract — “We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009.”

Wow, this is hard to believe. Again, this isn’t just the Bay Area’s economy — it’s the entire country’s — crippled due to a lack of housing.

We know this isn’t going to change the anti-housing stance. We’ve all seen the faux-gressives’ narrative — resting on beliefs like a religion — rejecting the laws of supply and demand and insisting that building housing doesn’t work. There’s really not much room to argue with someone if they reject fundamental laws of economics.

But in any event at least the research is clear. Here are some more excerpts from the study below:

“…New York, San Francisco and San Jose…adopted land use restrictions that significantly constrained the amount of new housing that can be built…since the 1960s coastal U.S. cities have gone through a property rights revolution which has significantly reduced the elasticity of housing supply…In some areas it feels as if every neighbor has veto rights over every project.”

“Misallocation arises because the constraints on housing supply in the most productive US cities effectively limit the number of workers who have access to such high productivity. Instead of increasing local employment, productivity growth in housing-constrained cities primarily pushes up housing prices and nominal wages. The resulting misallocation of workers lowers aggregate output and welfare of workers in all US cities.”

“In a spatial equilibrium, aggregate output and welfare growth are not simply the sum of local shocks in each city. If workers can move across cities, a localized productivity shock in a city affects wages and employment not only in that city but also in other cities.”

“We use data from 220 metropolitan areas in the US from 1964 to 2009…the growing spatial dispersion of housing prices is largely driven by strict zoning laws in cities such as New York and the San Francisco Bay Area with strong productivity growth. We find that the increased spatial misallocation of labor due to housing supply constraints in cities with high productivity growth rates lowered aggregate growth by almost 50% between 1964 and 2009.”

“We conclude that local land use regulations that restrict housing supply in dynamic labor markets have important externalities on the rest of the country. Incumbent homeowners in high productivity cities have a private incentive to restrict housing supply. By doing so, these voters de facto limit the number of US workers who have access to the most productive of American cities. In general equilibrium, this lowers income and welfare of all US workers.”

The Bay Area’s housing crisis is limiting the country’s economy. In this context, the YIMBY’s work has only become more important.