New York Times Columnist Paul Krugman reflects on the effects of NIMBYism in California.
Economists trying to understand the rise and fall of regions within a country often rely on some form of economic base analysis. The idea is that a region’s overall growth is determined by the performance of its export industries — that is, industries that sell mainly to customers outside the region, such as the technology firms of Silicon Valley and the Los Angeles entertainment complex (or, here in New York, the financial industry). Growth in these industries, however, generates a lot of growth in other sectors, from health care to retail trade, driven by the local spending of the base industries’ companies and employees.
But base analysis suggests that when a state has a booming export sector, as California does, it should be seeing growth in more or less everything. Instead, what we see in California is that while highly educated workers are moving in to serve the tech boom, less-educated workers are moving out:
There’s no great mystery about why this is happening: It’s because of housing. California is very much a NIMBY state, maybe even a BANANA (build absolutely nothing anywhere near anyone) state. The failure to add housing, no matter how high the demand, has collided with the tech boom, causing soaring home prices, even adjusted for inflation:
And these soaring prices are driving less affluent families out of the state.
One way to think about this is to say that California as a whole is suffering from gentrification. That is, it’s like a newly fashionable neighborhood where affluent newcomers are moving in and driving working-class families out. In a way, California is Brooklyn Heights writ large. Read more here.
