It Screws Up Everything When Cities Allow Jobs To Greatly Exceed Available Housing

The SF-Bay Area illustrates why allowing a massive expansion of jobs without requiring an equal expansion of housing is a very bad idea

Image by gabrielborgius from Pixabay

By David Grace (Amazon PageDavid Grace Website)

Local Governments Only Consider Increases In Gross Tax Receipts

Local governments are generally driven by:

  • The insatiable desire for more gross tax revenue, and
  • The self-interested desires of developers, commercial real estate owners, and the lawyers who work for them

This causes local governments to perpetually strive for more development and more jobs in the mistaken belief that both are always a good thing. They are not.

Why Allowing New Jobs & Development In Excess Of Existing Housing Is A Bad Idea

The civic authorities’ pro-development and pro-jobs attitude that allows the balance between jobs and housing to get massively out of whack has caused huge problems in places like San Francisco, the entire S.F. Bay Area, Manhattan and some other urban localities.

When the number of jobs in comparison to the number of housing units near those jobs (near in commute time) gets horribly out of proportion, you see exorbitant housing prices, traffic gridlock, long commute times, and poor air quality.

The flaws in the cities’ “More jobs without first requiring more housing” attitude:

  • The initial flaw in the cities’ reasoning is just looking at gross tax revenue from the projects and failing to calculate the net revenue the city will have after the costs of increased city services, infrastructure, crime, pollution, congestion, schools, etc. caused by the increase in jobs, buildings, traffic and population are taken into account.
  • The second flaw is not considering the upward pressure the additional jobs will have on housing and commercial rents
  • The third flaw is not considering the upward pressure that the increased cost of housing and rents will have on prices and on the salaries of government employees.
  • The fourth flaw is not considering the city’s inability to hire the required new city employees because of the high cost of housing
  • The fifth flaw is not considering the effect the increased cost of housing will have the general cost of living across the entire city.
  • The sixth flaw is not considering the effect the increased population will have on the transportation infrastructure, environment, open space, etc.

What Cities Should Do But Don’t

When confronted with a request for a zoning variance or a development approval, as a condition for granting the requisite approvals the civic authorities should first require the developer to demonstrate that housing already exists for these new workers within a half hour’s commute time of the project, but the cities don’t.

Put differently, if the rule was “Verify Housing & Transportation First, Then Approve Development Second” these problems could have been avoided, but let’s be realistic.

You will likely get nowhere trying to tell City Councils that they should not allow more buildings, more shopping centers or more jobs unless and until housing and transportation for those new workers already exists.

The council-members’ short-term thinking, greed, and self-interest are just too great for them to say “No.”

This “More Jobs Are Always A Good Idea” fallacy has caused many problems, one of the most serious of which is the gap between wages and the new, much higher cost of housing.

Why High Housing Costs Raise Wages

The imbalance between jobs and housing means that the cost of housing in the city becomes very high and the commute time from cheaper housing to the city also becomes extremely long and costly.

If the commute is two hours each way (yes, many people in the Bay Area actually do that) then the employee is dedicating 12 hours per day to perform a job that only pays him/her for 8 hours of work, so the worker will want a daily pay that compensates him/her for the 12 hours (plus out-of-pocket commute costs) that they are spending each day in order to perform that job.

If they don’t commute they will need additional income to cover the high cost of housing closer to the job.

Sure, you can shrug and say that high labor costs go with the territory of working in that locality and they go with the territory of running a business in that locality.

You can say that both the worker and the employer have to take the good with the bad, that it’s all part of the cost of being employed in and being an employer in that more-jobs-than-housing location.

The Effect Of High Housing Costs On Businesses & Jobs

But shrugging your shoulders and saying “Oh, well, too bad” doesn’t deal with the fundamental problems:

  • Businesses selling price-sensitive products and services cannot generate enough revenue to pay a wage that is high enough for their employees to be able to live within a reasonable commute distance,
  • There’s limit on how much a diner, stationary store, drug store, mini-mart, shoe store, etc. can charge, and when a living wage requires that the prices that employer will have to charge are so high that there are not enough customers who are willing to pay those prices to generate enough revenue to keep the business open then the employer is out of business and the employee is out of a job.
  • The people who do those jobs become unemployed when half their potential employers go out of business either because they cannot raise their prices high enough to allow them to pay a living wage or they cannot get enough employees who can afford to accept a wage that will allow them to stay in business in that locality.
  • How do you have a functioning community without the retail businesses that cannot pay a wage that is high enough to cover the huge cost of living because the prices they would have to charge would result in demand for their products being so drastically reduced that they would be unable to keep their doors open?

The laissez faire answer of doing nothing in response to city governments allowing jobs to massively exceed housing results in a city with:

  • a material decrease in grocery stores, drugs stores, restaurants, and other retail establishments,
  • schools, police forces, fire departments, etc. that either can’t hire enough people to perform necessary services or
  • wages of city employees have become so high that the tax rates become prohibitive.
  • expensive apartments, hotels, restaurants and shops for the highly-compensated workers, highly-paid municipal employees, and
  • a food and housing desert for everyone else save those who are willing and able to make a two to four-hour a day round-trip commute.

Not the kind of city any rational person wants.

Or, you could do something about it.

Strategies For Reducing The Imbalance Between Housing & Jobs

A Surtax On Large Employers To Encourage Them To Reduce In-City Employees

Levy a surcharge on companies employing more than some set number of people. Such a tax would encourage those companies to move some employees to satellite locations, work from home or move out of that locality entirely.

Fewer jobs would mean fewer people looking for housing, meaning rents would fall and the cost of living would decrease.

People who think that more jobs are always a good thing would be horrified by such a proposal, but those people who realize that jobs substantially in excess of available housing within a reasonable commute distance are actually a bad thing would seriously consider it.

Require Large Employers To Create New Housing Equal To Some Percentage Of Their In-City Employees

Require companies employing more than some number of people within the city limits to provide

  • a new housing unit for every additional employee they hired after a set date which might be either in the future or in the past, or
  • new housing units equal to XX% of their in-city employee total, for example 10%, so that a company employing 1,000 people who work in the city would be required to construct 100 new housing units or pay a very large tax for every housing unit they failed to construct.

This would either result in these companies creating more housing and/or having fewer employees working within the city.

Tax Large Employers To Subsidize Small Employers’ Labor Costs

Levy a surcharge on employers for each employee working within the city above some threshold number and use that surcharge to subsidize the payrolls of certain industries, e.g. restaurants and retail.

The small businesses would pay a wage they could afford and the City would use this tax to fund a wage subsidy to those employees.

For example, suppose that last month a small restaurant’s hourly payroll to workers earning $15/hour or less was 1,000 hours and given the high cost of housing the target hourly wage was $20/hour. That would mean a salary subsidy of $5/hour X 1,000 hours = $5,000.

The City would give that employer a $5,000 payment derived from the tax surcharge proceeds and the employer would be required to distribute that entire amount as compensation to those same hourly employees, thus raising their gross pay by $5/hour.

The workers would get a higher salary to cover increased housing and commute costs without that higher salary increasing the employer’s costs, thus allowing the employer to keep prices lower without causing any additional tax burden on the general fund.

Moreover, this surcharge would be an incentive for the large employers to reduce the number of employees working within the city which would lead to a consequent reduction in the demand for housing and an eventual lowering of the cost of housing.

No Magic Solution

Are any of these responses perfect? No, but “perfect” isn’t an intelligent person’s goal in life. “Net Better” is the smart goal.

The question to be answered is: “On balance, will this strategy make things materially better than they are now? Will the benefits materially exceed the total of the direct, secondary and collateral costs?”

If there is another tactic that will make things “net better” in a reasonable period of time let’s hear it.

Doing nothing and letting nature take its course in the hope that in ten or twenty years things will somehow fix themselves isn’t it.

— David Grace (Amazon PageDavid Grace Website)

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David Grace

David Grace

Graduate of Stanford University & U.C. Berkeley Law School. Author of 16 novels and over 400 Medium columns on Economics, Politics, Law, Humor & Satire.