Rate Watch #1105 – Lack of Housing Hurts the Economy
October 23, 2017
by Dick Lepre
I have spent time recently researching the issue of why housing is so unaffordable in some places. In a month or so I will share the work that myself and other have been doing on this topic.
Take a look at this article which describes how many hours one would have to work to pay for an average mortgage in various cities https://www.visualcapitalist.com/hours-americans-pay-mortgage-map/
On Saturday October 21 the local newspaper noted that the San Francisco Bay Area lost 4,700 jobs in September making it the worst month for jobs since February 2010. The article noted that one thing constraining Bay Area jobs is the lack of affordable housing. The term “affordable housing” usually refers to cities making builders build so many units in a development designated to be sold at below market rates to folks whose income are less than a certain amount. In reality what this usually does is make the other homes in the development more expensive. I am not talking about that kind of affordable housing.
What is happening in the Bay Area is that jobs are being created and potential employers are not able to find people who can afford to buy or rent close enough to those jobs.
“Housing is the chain on the dog that is chasing a squirrel,” said Christopher Thornberg, principal economist and founding partner with Beacon Economics. “Once that chain runs out, it yanks the dog back.” It also has a great quote from a potential jobholder: “Growing up in Silicon Valley, I never pictured this for myself. I always thought that if I went into the tech industry. I could create a prosperous future for myself. But who wants to commute six hours a day? You should be able to afford a place to live near where you have to work.”
I have personally spoken with local restaurant owners who express their dismay at not being able to find waitstaff and cooks who can afford to work close enough to potential jobs to be able to get there in a reasonable time.
The problem is simple to describe: if we create jobs in San Francisco or Silicon Valley and the people who have the skills for those jobs cannot afford to live close enough to get to work in a reasonable time then those jobs will eventually go elsewhere.
It is not the case that there is not enough room to build sufficient housing in the Bay Area. Land use regulations especially zoning restrain supply driving prices up to levels unaffordable for the area’s available jobs.
Land use regulations need to be relaxed. It makes no more sense to change regulations after the problem surfaces than it would to build fire stations after fires break out. Zoning changes should be in place so that when the demand for housing exceeds the supply developers can act. Housing will not be built unless there is a demand or a perceived demand.
Lack of housing affordable to the jobs created in an area is an excellent way to hold back economic growth and deprive people of discretionary spending after they pay their housing expenses.