Excessive zoning is a major factor driving up housing costs and inequality, and it also can causes housing bubbles and environmental damage, one of President Obama’s top economic advisers warned Friday.
In a speech delivered at the Urban Institute in Washington, Council of Economic Advisers Chairman Jason Furman warned that “excessive or unnecessary land use or zoning regulations have consequences that go beyond the housing market to impede mobility and thus contribute to rising inequality and declining productivity growth.”
Friday’s speech wasn’t the first time that Furman has drawn attention to economic issues beyond the normal partisan landscape and outside the federal government’s jurisdiction. Previously, he has highlighted the role that increasing occupational licensing has played in reducing opportunities for poor and unskilled workers.
In his speech, Furman took stock of evidence that excessive housing regulations have pushed up housing prices, such house prices rising faster than the cost of construction materials.
The trend has been particularly bad starting in 1970, Furman noted, speculating that the cause might be the racial tensions of the 1960s, which led many families to move out of dense cities and into highly regulated neighborhoods too expensive for poor families.
Homeowners can reap gains for themselves by zoning their neighborhoods to keep out construction, Furman argued, but doing so pushes up prices, a phenomenon that “can hit the poorest Americans the hardest.”
Furthermore, some of the cities with the most building restrictions, such as Boston and San Francisco, are also the most innovative and best places to work. Workers in those cities are better paid, but people in poorer areas are limited in their ability to move to those cities and take advantage of the higher wages by the high rents.
That’s not all, though. Furman also suggested that zoning and other land-use restrictions can exacerbate housing bubbles. By pushing people out of dense urban cores, they also force more commuting by driving, which is bad for the environment.
The administration can only play a limited role in addressing those problems, he acknowledged. But he cited the Department of Housing and Urban Development’s new rules finalized this summer that will involve sharing more data with states and cities about where minorities and low-income people have trouble finding affordable housing.
