Urban Density and Productivity: A Slightly Wonky Gripe About the Whole Enterprise

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

This post is going to be sort of boring, but I might as well get it off my chest. It’s an illustration of the kind of quicksand that some of the urban densification arguments are built on.

James Pethokoukis writes today about housing shortages in Seattle and notes in passing that land-use regulations have “smothered wage and gross domestic product growth in American cities by a stunning 50 percent over the past 50 years.” So I click the link and get this:

How Local Housing Regulations Smother the U.S. Economy

By Chang-Tai Hsieh and Enrico Moretti

Land-use restrictions are a significant drag on economic growth in the United States. The creeping web of these regulations has smothered wage and gross domestic product growth in American cities by a stunning 50 percent over the past 50 years. Without these regulations, our research shows, the United States economy today would be 9 percent bigger — which would mean, for the average American worker, an additional $6,775 in annual income.

There’s something wrong there, but instead of spending time on it I just go straight to the research paper, which says this:

We find that the increased spatial misallocation of labor due to housing supply constraints in cities with high productivity growth rates lowered aggregate growth between 1964 and 2009 by a significant amount. In particular, we calculate that increasing housing supply in New York, San Jose, and San Francisco by relaxing land use restrictions to the level of the median US City would increase the growth rate of aggregate output by 36.3%. In this scenario, US GDP in 2009 would be 3.7% higher, which translates into an additional $3,685 in average annual earnings.

We’re already down from 50 percent to 36.3 percent! But even that seems hard to reconcile with their statement that GDP would be 3.7 percent higher. Here’s the arithmetic:

  • Real GDP in 1964: $3,734 trillion
  • Real GDP in 2009: $14,418 trillion
  • Growth rate: 3.05 percent per year
  • Real GDP in 2009 if it’s 3.7 percent higher: $14,951 trillion
  • Growth rate using higher GDP: 3.13 percent

So how do they figure that looser land-use regs would “increase the growth rate of aggregate output” by 36.3 percent? Simple: by defining this as the “growth of residual real per capita earnings.” Beyond that, the paper makes use of a wildly complex model that requires a ton of estimated inputs—employment, wages, union density, local amenities, total factor productivity, housing prices, labor demand, specialization by city, elasticity of housing supply, welfare effects, labor mobility, gender, race, education level, and more—any of which could probably change their results significantly.

I’m not trying to dismiss this study because it uses a complex model. A recent Fed study that strikes me as the best research we have on city density and productivity is also filled with difficult math. But the Hsieh-Moretti study relies on a truly huge number of estimates, some of them difficult to calculate, that probably make the error bars on the whole enterprise bigger than the effect they found. What’s more, their results are conditioned on relaxing land-use regs in New York, San Francisco, and Silicon Valley¹ to the US median, which is an enormous change that would be a massive political lift. I think most urbanists would be pretty happy if they could do a tenth of that, and so far they haven’t been able to. So in the end, they find that (a) an enormous change would (b) increase the growth rate of output, conventionally defined, by about 2.6 percent and (c) only if you trust that their model and all the inputs they used are collectively accurate to begin with.

This is the kind of thing that’s made me wary of these productivity studies.

¹Why only these three cities? Unless I misread something, the reason is that land-use regs didn’t have a negative impact on any other cities in America. Those three were it. (As of 2009, anyway.)

WE'LL BE BLUNT:

We need to start raising significantly more in donations from our online community of readers, especially from those who read Mother Jones regularly but have never decided to pitch in because you figured others always will. We also need long-time and new donors, everyone, to keep showing up for us.

In "It's Not a Crisis. This Is the New Normal," we explain, as matter-of-factly as we can, what exactly our finances look like, how brutal it is to sustain quality journalism right now, what makes Mother Jones different than most of the news out there, and why support from readers is the only thing that keeps us going. Despite the challenges, we're optimistic we can increase the share of online readers who decide to donate—starting with hitting an ambitious $300,000 goal in just three weeks to make sure we can finish our fiscal year break-even in the coming months.

Please learn more about how Mother Jones works and our 47-year history of doing nonprofit journalism that you don't find elsewhere—and help us do it with a donation if you can. We've already cut expenses and hitting our online goal is critical right now.

payment methods

WE'LL BE BLUNT

We need to start raising significantly more in donations from our online community of readers, especially from those who read Mother Jones regularly but have never decided to pitch in because you figured others always will. We also need long-time and new donors, everyone, to keep showing up for us.

In "It's Not a Crisis. This Is the New Normal," we explain, as matter-of-factly as we can, what exactly our finances look like, how brutal it is to sustain quality journalism right now, what makes Mother Jones different than most of the news out there, and why support from readers is the only thing that keeps us going. Despite the challenges, we're optimistic we can increase the share of online readers who decide to donate—starting with hitting an ambitious $300,000 goal in just three weeks to make sure we can finish our fiscal year break-even in the coming months.

Please learn more about how Mother Jones works and our 47-year history of doing nonprofit journalism that you don't find elsewhere—and help us do it with a donation if you can. We've already cut expenses and hitting our online goal is critical right now.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate