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David Schleicher, Stuck! The Law and Economics of Residential Stability, 127 Yale L.J. (forthcoming, 2017), available at SSRN.

The principal goal of local zoning has been to assure existing residents a stable and comfortable community in which, above all, home values would be protected. In recent years, scholars have focused on whether this cozy arrangement fosters class-based and racial exclusion, and whether it detracts from a sustainable environment. Yet, some leading economists suggest an additional concern—that restrictive local land use and other regulations harm the national economy. In a new article, David Schleicher performs an important service in analyzing, from a legal and public policy perspective, why people are “stuck” in place.

Schleicher’s title reflects his main points that rates of interstate mobility are falling even though people often get better job opportunities when they move, and that this lack of mobility harms the national economy as well as the individuals involved.

We often ignore the interstate consequences of government regulations and subsidies. However, the actions of government at all levels affect the ability of people and industries to adjust in a dynamic and intertwined economy.

In 2001, economist Bill Fischel referred to people casting their ballots so as to protect the value of their houses as “homevoters.”1 By 2016, Fischel was warning that homevoters had seized upon 1970s and 80s concerns about the stability of inflation-driven increases in housing prices, and also newly heightened environmental awareness. The result was these homevoters derailing the pro-development “growth machine” coalition through the enactment of stringent local land use regulations in prosperous cities and affluent suburbs.2 Also in 2016, economists Peter Ganong and Daniel Shoag published a landmark article analyzing how the decline in the historic convergence of income in poor and wealthy parts of the county coincided with rising housing prices in the most productive areas.3

Some of the path breaking work on which Schleicher builds was done by international trade economists like as Robert Mundell, who asked how price inflation and unemployment are related in areas sharing a common currency.4 We are fortunate being in a continental dollar zone, but, as Schleicher put it: “State and local laws that limit labor mobility clearly reduce the degree to which the U.S. is an OCA [Optimal Currency Area]. These policies can prevent monetary policy from matching the needs of tight markets with rising prices (like San Francisco) and slack ones with falling prices and high employment (like Atlantic City).” (P. 13.)

In discussing what makes certain cities highly productive, Schleicher is guided by work, including his own, in the fairly new field of agglomeration economics.5 The basic insights are that some favorable condition leads an industry to develop first in one area or another and that thereafter, firms and individuals specializing in that industry, flock to that location, each building upon the supply of potential employers, employees, and, above all, ideas that are present.

While earlier examples of agglomeration in America include the auto industry in Detroit, areas that are the focus of finance, science, and engineering have become the leaders today. Schleicher notes that “[t]he cities and metro areas that have thrived in the last forty years have been those with advantages rooted in other agglomeration economies, particularly deep labor markets in high-end service industries, deep consumption markets, attractive amenities, and useful information spillovers both inside and between industries.” (P. 16.)

Why, then, are people so rooted in unproductive places? Why don’t they move to cities where they might do their best work? Schleicher notes that there has been little scholarship on the advantages of moving to distant cities. A principal reason why people find it hard to leave depressed areas is that officials have great incentives to keep safety net expenditures local. Also, many workers, especially public employees, are locked in by defined benefit pension plans that impose great costs on workers who move in mid-career. Many are impeded from moving because housing prices in declining areas have decreased, and especially if their mortgage balances exceed the value of their homes.

On the receiving end, government mandates that make the labor market “sticky” bar many potential residents. These include state occupational licensing regulations that sometimes impose vastly different and complex requirements for training, education, and examinations.

As Schleicher explains, “[T]he difficulty in transferring licenses across states makes moving to opportunity harder, harming the national economy.” (P. 25.) Ironically, “research suggests that such positive effects of licensing requirements remain uncertain at best and are often minimal to non-existent.” (P. 30.)

Perhaps the most important barrier to moving to better opportunities is the high cost of housing in prosperous areas, including as a result of restrictions on new housing construction.

He cites research by Chang-Tai Hsieh and Enrico Moretti, who estimated that America’s gross domestic product (GDP) would be 13.5 percent higher if workers could move to productive areas, and that GDP would go up by 9.5 percent if they could move to just three such areas, Silicon Valley, San Francisco and New York.6

Schleicher concludes by offering thoughts about solutions, such as tying federal tax incentives such as the home mortgage interest deduction to less restrictive zoning, providing federal assistance to interstate moves by workers, or facilitating the shrinking of distressed cities through more enlightened municipal bankruptcy laws. (P. 50–54.)

All of these are good ideas, but unlikely to be fruitful in the short term. Americans treasure local control of land uses, and inner-city residents who resist “gentrification,” like affluent suburbanites who resist “densification,” will fight to preserve their communities and ways of life.

Similarly, those who value the ethos (and incomes) of their trades and professions are not apt to submit readily to centralized occupational controls. While federal regimes such as those in the U.S. and Europe find it hard to remove impediments to mobility and prosperity, even highly centralized nations such as France (the cradle of dirigisme), do not do notably better.

None of this is to take away from the power of Professor Schleicher’s cogent observations. We have little chance of dealing with contemporary problems unless we see their patterns and interactions, and Stuck! is a notable achievement in defining the issues we must face.

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  1. William A. Fischel, The Homevoter Hypothesis (2001). []
  2. William A. Fischel, The Rise of Homevoters: How OPEC and Earth Day Created Growth-Control Zoning that Derailed the Growth Machine, in Bringing It All Back Home: Evidence and Innovation in Housing Law & Policy (Lee Fennell ed., forthcoming, 2017). []
  3. Peter Ganong & Daniel Shoag, Why Has Regional Income Convergence in the U.S. Declined?, HKS Working Paper No. RWP12-028 (2016), available at SSRN. []
  4. Robert A. Mundell, A Theory of Optimum Currency Areas, 51 Am. Econ. Rev. 657 (1961). []
  5. See, e.g., Edward L. Glaeser, Cities, Agglomeration and Spatial Equilibrium (2008); Edward Glaeser, Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier (2011); David Schleicher, City Unplanning, 122 Yale L.J. 1670 (2013). []
  6. Chang-Tai Hsieh & Enrico Moretti, Why do Cities Matter, Local Growth and Aggregate GrowthNational Bureau of Economic Research Working Paper No. 21154 (2015). []
Cite as: Steve Eagle, Regulations Hinder Mobility and the National Economy, JOTWELL (September 15, 2017) (reviewing David Schleicher, Stuck! The Law and Economics of Residential Stability, 127 Yale L.J. (forthcoming, 2017), available at SSRN), https://property.jotwell.com/regulations-hinder-mobility-and-the-national-economy/.