Abstract
Housing and economic opportunity are inextricably linked. The coronavirus-2019 (COVID-19) pandemic and the public policy response have shown how deeply the connection between housing, opportunity, and economic security are tied. While these dynamics have been brought to the forefront by the pandemic, there has been a relatively less deep study of the links between housing policy and economic development policy. This special issue, titled “The Impact of Housing Affordability on Economic Development and Regional Labor Markets,” aims to contribute to our understanding of these dynamics. The conference on the Impact of Housing Affordability on Economic Development and Regional Labor Markets took place February 26–28, 2020 in Miami, Florida—a partnership between the W.E. Upjohn Institute for Employment Research, Economic Development Quarterly, and the Federal Reserve Bank of Atlanta. Even at the time, many participants felt a growing uncertainty about the fledging pandemic and what it could mean personally and for society. In time, between sessions and discussions, participants may have mentioned some worry about disruption of upcoming travel or concern about what might happen given the potential for some public health challenges. Ultimately, participants greatly underestimated the changes and challenges that the world and country would experience because of the pandemic. For many of the participants, the trip to Miami was the last flight they were on before the onset and massive closures caused by the COVID-19 pandemic. Much of life has yet to return to normal as of the summer of 2021.
The articles and research presented in this special issue serve somewhat as a time capsule. The work was largely developed by February 2020. It certainly has advanced through the editing and review process—we thank the authors, editors, and reviewers for the hard work that they did to finalize this important research. This issue highlights the state of affairs as we entered a world-changing event.
While this introduction will not venture to completely capture how the world has changed, I hope to highlight some of the developments over the course of the pandemic that have further linked housing affordability and economic development and aim to suggest how the research presented helps inform these dynamics and, in some cases, suggest future areas of study to further advance our understanding of the relationship between economic development and housing affordability. For a longer look at the conference that was the basis for this special issue, Sarah Miller and Katherine Townsend Kiernan wrote the proceedings of the February conference, which begin this issue.
The pandemic caused a shock to the labor market that the world had not before experienced. Unemployment in February 2020 was 3.5% and it skyrocketed to 14.8% by April 2020 (U.S. Bureau of Labor Statistics, 2021). In absolute terms, employers cut over 22 million jobs. Stay-at-home orders across the country and mass business and school closures led to losses of employment before unseen. The immediate response to layoffs included significant housing protections—including a Congressional eviction moratorium followed by a moratorium enacted by the Centers for Disease Control (Liptak, 2021).
The moratoriums augmented more traditional economic stimulus and aid to communities. Several rounds of direct stimulus payments occurred throughout 2020 and 2021. Unemployment insurance was extended significantly, including increased payments to better cover wage losses for workers unable to return to work (Miller & Townsend, 2020). The benefits were also extended to employees not traditionally covered by unemployment insurance—including contract or “gig” workers, workers with short tenures on the job, and workers with too few hours to otherwise qualify for unemployment compensation.
As part of its response to the pandemic, Congress also authorized billions of dollars in rental and housing assistance. Early reviews suggest that these programs significantly reduced the potential economic harm to households (Casselman, 2021). Yet despite over $5 trillion in stimulus in response to the pandemic, the American housing market is on divergent paths. In The State of the Nation's Housing 2021, the Joint Center for Housing Studies (2021) suggested that individuals and households less affected and distressed by the crisis—typically those who were more affluent—were bidding up housing prices on the limited supply, further excluding less affluent individuals and households from homeownership. Modest rentals are out of reach for most minimum wage workers (National Low Income Housing Coalition, 2021).
Research in this issue suggests that these affordability challenges will ultimately lead to economic development challenges as well. Several papers in this volume explore these challenges. To open the special issue, Uche Oluku and Shaoming Chen's analysis suggests that housing affordability affects business growth. Their study looked at three sectors—Retail, Information, and Professional Services. They found in their county-level analysis evidence that increased housing costs led to declines in growth in all three sectors. The pandemic affected the Retail sector differently than Information or Professional Services—and further post-pandemic study could shed further light on this dynamic.
Housing prices and their growth can have effects on business formation and entrepreneurship as well. Nicholas Kacher and Luke Petach explore the different dynamics that housing can play in creating opportunities for entrepreneurs. They find that absolute higher housing costs create barriers to entry for entrepreneurs and predict lower levels of business formation, while increased growth in housing prices predicts increased formation and business starts, presumably due to wealth effects of increased housing values. Housing is an important asset for people looking to start a firm, but also a liability and barrier for others; affordability, with some healthy housing-price growth, can create opportunities for wealth accumulation that leads to more robust entrepreneurial activity in a market. Regulation is a critical component in housing affordability.
Articles in the issue explore the mechanisms that drive affordability challenges. John Landis and Vincent Reina studied the role that land-use regulations play in driving housing costs up and affordability down. They find that the policy environment in which developers operate does indeed affect affordability. Their analysis suggests that creating by-right development opportunities by relaxing building regulations could greatly increase production of housing units and affordability. They also suggest that some level of federal oversight to monitor the nexus between land regulations and health and welfare of a community could help localities eliminate regulations that unnecessarily drive up housing costs. Robert Wassmer's article in this issue provides concurring analysis and suggests that local land-use regulations can drive up housing costs while triggering the exit of highly productive workers from labor markets in which they are well matched. This suggests that land regulation helps facilitate suboptimal economic activity as productive workers trade out of high cost and highly productive regional economies. Wassmer also suggests federal oversight of land-use regulations and concludes that NIMBYism
Affordability challenges identified in these two papers are likely more acute since the pandemic—supply of existing housing is certainly limited. The pandemic also facilitated a massive shift to remote work, creating arrangements once thought impossible. Could remote work arrangements further facilitate workers leaving high-cost markets, yet remain with the same employer? Who would log benefits or costs from new work arrangements—employers, workers, or state and local governments? These are pressing issues that further link housing and economic development post-pandemic and seem like fruitful areas of further study.
The pandemic further highlighted economic challenges for people of color. This issue touches on one such topic—the matching of African American populations to high-demand and high-growth metro areas. Xi Yang studied metro areas between 1980 and 2010 and found that land-use regulations predicted disproportionately low growth of African American populations, and sometimes declines in African American populations. High regulation areas tended to be high demand as well. Short-term economic shocks—particularly layoffs, job separations, and long-term unemployment—from the pandemic were disproportionately felt by Blacks and African Americans (Townsend Kiernan & Miller, 2021). Long-term challenges for Black and other minority workers go beyond disparate impacts from economic shocks and include broader challenges like discrimination and unequal policing (Bozarth, 2018). There are economic costs to racism (Bostic, 2020). The economic development field may not be able to address these policies alone, but the economic development research community would do well to further explore the costs of structural racism for regional labor markets and better understand the economic benefits of inclusion and equity.
Finally, this special issue explores the role that economic development activity has on housing costs. Growth in local economic activity and productivity can start creating many of the affordability challenges noted earlier in the issue. Karen Chapple and Jae Sik Jeon explore the San Francisco housing market and the role that increasingly large tech-firm campuses can play in housing affordability. The case study is instructive to any community or municipality dealing with significant redevelopment or corporate campus developments. As tech firms fan out across the country and establish satellite headquarters in cities like Washington, D.C., Atlanta, and Nashville, economic developers and urban planning departments can learn from these examples to understand the potential effects on housing and prepare for them. Researchers may look to better document the roles of economic development on housing needs. Research that reaches beyond housing-price outcomes is instructive to planners and municipalities that are grappling with growth and dimming the prospects of inclusion and affordability for their frontline and middle-income workforces.
Much has happened since February 2020 and in many ways the world feels intrinsically different. Yet in many ways challenges remain the same—potentially more acute, potentially more urgent, potentially more in flux. This appears to be the case as we aim to better understand the relationship between housing affordability and economic development. We understand that housing prices and economic growth are related—local dynamics and policies like land-use regulation fan the flames on hot housing markets and reduce affordability. Regulation may exclude workers of color. Limited housing affordability can lead to limited entrepreneurial activity and the departure of highly productive workers. The papers in this issue help demonstrate these findings. This information can inform practice and responses to the challenges of the pandemic today. I stand excited to see how this work advances the field and how studies in the future build upon these as we, hopefully soon, have the pandemic further in the rearview mirror and we gain even greater perspective on housing affordability, economic development, and opportunity.