Stable Housing is a Key Tool for Economic Stability

by Chris Lehman

Boston[1]This term is used flexibly in this essay. Many of our points apply more to Boston proper than to its surroundings, but Boston has always been inextricably linked both culturally and economically with … Continue reading is a phenomenal city. Not only has it played an integral role in the political and intellectual development of the United States, it has reinvented itself commercially time and again, staying abreast of changing trends in the global economy by virtue of its educated, adaptable workforce. 

Today, it has an incredible concentration of knowledge industries, especially in healthcare and biotechnology. Their output is invaluable for the world; Cambridge-based Moderna’s COVID vaccine is the most famous recent example, but countless other inventions and innovations are produced here and applied globally every year. The revenue generated by this output allows the firms that produce it to pay high salaries that attract highly skilled workers from across the world to keep the innovation going. In addition to this economic pull, Boston’s growing cultural attractions help make the city a desirable place to live.

But this economic pull doesn’t exist in a vacuum. Housing supply and prices play a major role in people’s decisions on where to live, and Boston and many other large, expensive metros are currently performing well below their potential on this front. The populations of the Boston, New York, and San Francisco metro areas, each of which is anchored by one of the country’s five most expensive cities[2]

https://www.investopedia.com/articles/personal-finance/080916/top-10-most-expensive-cities-us.asp

, grew by 8.5%, 6.6%, and 9.5%[3]

https://www.businessinsider.com/2020-census-fastest-growing-and-shrinking-metro-areas-2021-8

respectively between 2010 and 2020, despite the benefits that all three received from the concurrent tech boom. Meanwhile, Dallas, Houston, and Orlando all grew by over 20%, and Austin, which also has a thriving tech sector, grew by 33%. 

The key differentiating factor between these two groups of cities is the cost of living. Average one-bedroom rental prices in Boston, SF, and NY are $2,530, $2,800, and $3100, compared to $1,470 in Austin and Orlando, $1,410 in Dallas, and $1,220 in Houston.[4]

https://www.zumper.com/blog/rental-price-data

Differences in rental prices have a huge impact on overall quality of life for all but the richest individuals and families, which creates a strong incentive for people to move to cheaper areas. 

Why is Boston so expensive, and why does the cost of living here keep increasing?[5]

https://fred.stlouisfed.org/series/CUURA103SEHA

High demand generated by the city’s world-beating industries play a role, but so does the supply of housing. It’s here where Boston’s policy shortcomings become obvious, especially relative to its high-growth competitors elsewhere in the country. Zoning and other land use regulations have a major impact on a city or region’s ability to build new housing–in general, the stricter the regulations, the harder it is to increase the housing supply. A 2006 Wharton study[6]

https://realestate.wharton.upenn.edu/wp-content/uploads/2017/03/558.pdf

found Boston to be the second most regulated metro area in the country, and while its regulatory ranking has improved[7]

https://www.nber.org/system/files/working_papers/w26573/w26573.pdf

since then, it still lags far behind other large metros[8]

https://constructioncoverage.com/research/cities-investing-the-most-in-new-housing-2020

in terms of new housing construction. 

If Boston continues to fail to build enough new housing to meet growing demand, prices will only continue to rise, making Boston a less attractive place to live for both new and existing residents. More and more people will choose to move to more affordable cities or decide to embrace remote work and eschew cities altogether. 

So, what can Boston do to reduce (or even reverse) this unsustainable housing price trend? Well, first we build more housing. Then, we build more housing. After that, we build some more housing. This may sound overly simplistic, but it’s genuinely the best solution. Economists agree that overly restrictive zoning rules are the primary factor holding back cities from growing–it’s estimated that if just New York, San Francisco, and San Jose were to bring their housing regulations in line with those of the median US city, national GDP would increase by 8.9%.[9]

https://www.nber.org/system/files/working_papers/w21154/w21154.pdf

If we don’t address this problem, the market price of housing in high-demand cities will continue to rise, either forcing middle- and low-income people out or necessitating increasingly high government spending to subsidize the cost of housing (an approach that, in addition to resulting in increased taxes or deficits, exacerbates the underlying prices by increasing the total pool of money spent on housing). 

Changing these policies isn’t just important for the long-term economic health of the Boston area; it would also have significant positive implications for geographic inequality and for the environmental sustainability of the country as a whole. 

An important element of the US’s increasing economic inequality over the past few decades is its geographical component. The US’s largest cities have been growing dramatically in terms of population, economic output, and cost of living, while the economies of many smaller cities and rural areas have shrunk, leading to poverty and declining populations. Ideally, more workers in these areas would be able to pursue economic opportunities by moving to high-growth cities and finding jobs there. In practice, the artificially high cost of living in these cities keeps millions of potential residents locked out, suppressing both their individual earning potential and the country’s overall productivity (again, see the Hsieh and Moretti paper).[10]

https://www.nber.org/system/files/working_papers/w21154/w21154.pdf

With regard to environmental sustainability, consider the relative carbon output of urban versus suburban or rural living. Urban residents typically commute shorter distances, use lower-carbon transportation methods like walking, biking, or public transit, and have smaller living spaces that require less energy to heat or cool. These factors collectively amount to considerably lower carbon output in cities than elsewhere. Additionally, after controlling for income, households in the low-density, high-growth metro areas in the southern US have much higher carbon footprints than those in California or the northeast. This means that, despite opposition to new construction in cities like Boston, New York, or San Francisco frequently citing environmental factors, such opposition actually tends to push construction to other, less environmentally friendly parts of the country, increasing total carbon pollution. [11]

http://www.hawaiihousingalliance.org/docs/pubs/Other%20Housing%20Reports/Inclusionary%20Zoning/Housing%20Prices,%20Externalities,%20and%20Regulation%20in%20US%20Metropolitan%20Areas.pdf

[12]Households in the least dense census tracts use 69% more gasoline than households in the densest census tracts, and suburban households use 27% more electricity than urban households. For a more … Continue reading

The net takeaway here is that advocacy for reforming zoning restrictions and building more housing in cities like Boston isn’t just about growth for its own sake. It’s about removing artificial barriers to economic growth. It’s about making it easier for people across the country to pursue economic opportunities by living where they want. And it’s about abandoning the misguided idea that we can protect the environment by preventing construction in the greenest parts of the country. Boston’s recent elections saw considerable debate over how to make the city’s housing more affordable, with many candidates supporting policies like rent control and an eviction moratorium that benefit one group (tenants) at the expense of another (landlords). This kind of zero-sum thinking is inevitable when the total amount of housing resources available is stagnant, but it doesn’t have to be this way. When the housing supply expands at an appropriate rate, everyone can benefit; unit prices decrease for tenants, and property owners can derive income from a higher total number of units. 

Implementing these policy changes will be a complex process with many different interests to balance, but many organizations in Boston are committed to working together with policy makers, business leaders, and community members to ensure that Boston can be a place where anyone can live, work, and enjoy all of the attractions our city has to offer.

Return to December 2021 Newsletter Table of Contents

References

References
1 This term is used flexibly in this essay. Many of our points apply more to Boston proper than to its surroundings, but Boston has always been inextricably linked both culturally and economically with its surrounding towns and cities. Policies implemented in Boston have significant effects on its neighbors, and vice versa. Additionally, the cost of living in central cities tends to be a good proxy for costs in their respective metro areas.
2

https://www.investopedia.com/articles/personal-finance/080916/top-10-most-expensive-cities-us.asp

3

https://www.businessinsider.com/2020-census-fastest-growing-and-shrinking-metro-areas-2021-8

4

https://www.zumper.com/blog/rental-price-data

5

https://fred.stlouisfed.org/series/CUURA103SEHA

6

https://realestate.wharton.upenn.edu/wp-content/uploads/2017/03/558.pdf

7

https://www.nber.org/system/files/working_papers/w26573/w26573.pdf

8

https://constructioncoverage.com/research/cities-investing-the-most-in-new-housing-2020

9, 10

https://www.nber.org/system/files/working_papers/w21154/w21154.pdf

11

http://www.hawaiihousingalliance.org/docs/pubs/Other%20Housing%20Reports/Inclusionary%20Zoning/Housing%20Prices,%20Externalities,%20and%20Regulation%20in%20US%20Metropolitan%20Areas.pdf

12 Households in the least dense census tracts use 69% more gasoline than households in the densest census tracts, and suburban households use 27% more electricity than urban households. For a more thorough treatment of this argument, see chapter 8 of Ed Glaeser’s Triumph of the City.
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