A new study by two economists out of UC Berkeley and the University of Chicago suggests that overall national growth, as in the gross domestic product, is being strangled by the insanely high rents being paid by workers in high-growth urban areas like San Francisco, San Jose, and New York. And the only real answer, they say, is to build more, and build higher.
Quartz reports on the new paper, which was written by Enrico Moretti of the University of California, Berekely, and University of Chicago’s Chang-Tai Hsieh. They note in the abstract that "Despite some of the strongest rate of local growth [between 1964 to 2009], New York, San Francisco and San Jose were only responsible for a small fraction of U.S. growth in this period. By contrast, almost half of aggregate US growth was driven by growth of cities in the South."
What they conclude is that the relatively high portions of individual salaries getting paid to landlords in rent is largely responsible for constraints on overall growth the thinking being that the money going into landlords' pockets is not benefiting the employees or the employers in their local economies, or helping maximize job growth. Instead, it's money being stowed away or funneled out of the local or even the national economy (in the case of billionaire landlords who may reside abroad part time).
In fact, they estimate that if New York, SF, and San Jose had done less to protect their "cute" three- and four-story townhouses and done more to build densely and vertically, thereby bringing down rents over the last several decades, the overall US economy would be 9.5% bigger than it is now.
This is some wild conjecture, of course, but fairly interesting in theory and pretty much everyone in San Francisco is more in favor of density now than they were when they passed things like the "Sunlight Ordinance" of 1984 to protect against tall buildings casting shadows on city parks. But I don't think anyone in New York or San Francisco would stand for mowing down our signature brownstones and Victorians in order to aid economic growth.
But now land values are so sky-high in these cities that developers need to fetch top dollar for as many units as possible in order to make projects pencil, which in the case of San Francisco has meant rent increases of 15 percent year over year.
And are they really saying that New York isn't dense enough?