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How NIMBYs make your paycheck smaller

This is a nice craftsman house, but Palo Alto needs density.
This is a nice craftsman house, but Palo Alto needs density.
David Sawyer

One of the really big and disturbing economic trends of the past 15 years has been a steep decline in the share of national income going to workers, in the form of wages and benefits, as opposed to going to owners of capital. A new report from the White House focused on a larger question about "economic rents" sheds some interesting light on the specific mechanics of how this shift is happening.

Council of Economic Advisors

This phenomenon — a decline in the labor share of income — hadn't really happened before. In fact, economists had kind of convinced themselves that it couldn't happen, and that the labor share was something like a fixed property of the economy.

But obviously that was wrong. And the most natural interpretation of why it's wrong is that the bosses are getting one over on the rest of us. Maybe it's globalization, maybe it's automation, maybe it's the decline of labor unions, maybe it's neoliberal hegemony (why not), or maybe it's something to do with workplace skills. But whatever it is, it means that the American worker's power to bargain for wages and benefits has declined, hence the declining share of income going to workers' wages and benefits.

Except that's wrong, too. Check out this chart — it shows that the rise in the share of national income going to the owners of businesses has only nudged up very slightly. The rise is in the share of income going to the owners of houses.

Council of Economic Advisors

That's something people definitely used to think couldn't happen. After all, if owning houses becomes more lucrative, then people should respond to market incentives by building more houses. There's no way houses could just get more and more and more valuable. Except, of course, a house isn't just a house. It's also a place. Location, location, location, as the realtors say. A house that's within a decent commuting distance of Google or JP Morgan is worth a lot more than a similarly sized house in San Antonio or Memphis or Cleveland. You can always make more houses, but you can't make more land.

The pioneering 18th-century economist David Ricardo thought this scarce supply of land spelled long-term immiseration for working people. Over time, as the population grew, it was landlords — the people who owned the most useful land — who were going to reap all the gains.

But what Ricardo had in mind was agricultural land. He was writing before the Industrial Revolution (to say nothing of the internet), so what he meant by useful land was good land to grow crops or raise sheep. After all, even way back in Ricardo's day it was technologically possible to fit a whole bunch of people on a parcel of land by constructing adjoining houses rather than separate ones each on their own lot. And with modern technology, we can even stack homes vertically and use elevators to access dwellings hundreds of feet in the air.

Except across the vast majority of America's valuable land we've made it illegal to build rowhouses or apartment buildings. And so the land's value only increases, the rents going to its owners accumulate, and workers lose out.

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