Housing Constraints and Spatial Misallocation

We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009. ∗We are grateful to Klaus Desmet, Rebecca Diamond, Daniel Fetter, Cecile Gaubert, Ed Glaeser, Erik Hurst, Pat Kline, Steve Redding, Jose Vasquez and several seminar participants for useful suggestions. We thank Jihoon Sung for research assistance. An earlier version of this paper circulated under the title ”Why Do Cities Matter? Local Growth and Aggregate Growth.” SPATIAL MISALLOCATION 1