Since one of the arguments against rent control is that economists say that it’s terrible, here’s what the economists from the White House say about land use regulations. Land use regulations, according to some folks that are vehemently against rent control, are acceptable because they preserve “quality of life.” But, of course, that quality of life comes with a cost which includes the lack of affordable housing, but also a reason why incomes for the middle class are stagnant.
[C]ities make things worse with zoning and other land-use restrictions that discourage production, said Jason Furman, chairman of the White House Council of Economic Advisers, in a speech Friday at a housing conference co-hosted by CoreLogic, a data company, and the Urban Institute, a think tank.
“Artificial constraints” on housing supply hinders mobility, and increasing mobility “is going to be an important part of the solution of increasing incomes and increasing incomes across generations,” Mr. Furman said. Zoning rules, of course, aren’t distributed randomly across the country, which means they’re “actually correlated with those places that have higher inequality,” he said.
This feeds a cycle in which cities that have more restrictions on land use have higher inequality, which further constrains mobility, which further exacerbates inequality, and so on.
Mr. Furman drew attention to two papers that tie declining geographic mobility to land-use regulations. The first, by Federal Reserve economist Raven Molloy, shows how an increase in labor demand in cities with greater land-use restrictions results in less new housing construction, higher home prices, and lower long-run employment.
And then in areas — like the Bay Area — where the housing supply is limited there is a larger income gap:
The second paper, by Peter Ganong and Daniel Shoag of Harvard University, examines the slowdown in income convergence—that is, the rate at which incomes in places with lower incomes catch up with those in places with higher incomes. The paper found that income convergence was more common in states during the 1960s and 1970s regardless of constraints on housing supply. By the 1990s, states with more constrained housing supplies saw far less income convergence than those with less constrained housing supplies.
One reason for the breakdown in convergence, said Mr. Furman, is that only high-income workers can afford to relocate to those high-productivity cities that have tighter land-use regulations.
Of course this isn’t the first (or probably the last) time we’ll hear about the lack of supply to meet the demand based on artificial constraints. But getting folks to acknowledge that there is a problem is a first step that a lot of people have yet to take, despite the mounting evidence.