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Why a severe housing shortage means reduced wages for workers

According to a new report, more than 40 million American households are spending a third of their income on rent, and housing shortages in major cities such as New York and San Francisco may ultimately lead to billions of dollars in lost economic productivity. Special correspondent Duarte Geraldino reports on the origins of the problem and why it has progressed to such a drastic level.

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  • HARI SREENIVASAN:

    The cost of buying or renting a home in key American cities keeps on rising. A new study out finds more than 40 million households are spending a third of their income on rent.

    And the housing shortage in cities like New York, Washington and San Francisco may be costing more than 100 million American workers thousands of dollars in lost wages.

    Special correspondent Duarte Geraldino explains why as part of our weekly series on Making Sense of financial news.

  • DUARTE GERALDINO:

    You can hear so much in this old building, every sort of step.

  • BRIAN HANLON:

    Yes, it's like every creak.

  • DUARTE GERALDINO:

    Brian Hanlon has multiple graduate degrees, a steady job and a middle-class income.

  • BRIAN HANLON:

    This is it right here. It probably hasn't been renovated since the Eisenhower administration.

  • DUARTE GERALDINO:

    Yet, at 34 years old, he's the subtenant of a woman lucky enough to have a rent-controlled apartment. But Hanlon's time is running out.

  • BRIAN HANLON:

    I have been in this room for about four-and-a-half years.

  • DUARTE GERALDINO:

    Four-and-a-half years?

    He worries the owner of his apartment house will offer the actual leaseholder a lot of money to move, meaning Hanlon will have to pay a lot more to live in this Mission District neighborhood.

  • BRIAN HANLON:

    Well, so market rate for this place, I'm guessing, is probably — it would probably be about $5,000 a month.

  • DUARTE GERALDINO:

    Five thousand dollars a month?

  • BRIAN HANLON:

    A three-bedroom in the Mission? Sure.

  • DUARTE GERALDINO:

    The situation is forcing a growing number of people low-, medium- and high-income workers into ever tighter living conditions, and some, with no income, out of their homes altogether.

  • CLAUDIA ROCHA:

    I got here because I don't have nowhere to go.

  • DUARTE GERALDINO:

    Claudia Rocha has lived on this sidewalk since losing her assembly line job last year. And it was on this rapidly gentrifying, but still gritty street that she says she almost lost her life.

    How tall were the flames?

  • CLAUDIA ROCHA:

    Oh, it was big. It was like this building. It took those windows.

  • DUARTE GERALDINO:

    A huge fire started by someone throwing gasoline on her tent at 3:00 a.m., with her inside.

  • CLAUDIA ROCHA:

    I just see the fire, boom, like a devil. Can't touch me. I just — I was panicked, and I get up and I run with no shoes, nothing. Everything inside get in fire. It's like — it's ugly. It's really ugly.

  • DUARTE GERALDINO:

    Helping Rocha or Hanlon find a stable place to live is complicated by a long list of roadblocks faced by developers who want to construct high-density homes.

  • LAURA CLARK, growsanfrancisco.org:

    I run GrowSF.

  • DUARTE GERALDINO:

    Housing activist Laura Clark founded a group called Grow San Francisco to push for fewer restrictions, which even she admits were designed with good intention.

  • LAURA CLARK:

    It comes historically from a very good place. Originally, there was a lot of really good work done to say, we shouldn't be blasting highways through our cities. We really need to take an environmentalist perspective about a lot of the urban rejuvenation we were doing. And then it kind of went to kind of a toxic place.

  • DUARTE GERALDINO:

    One example?

  • LAURA CLARK:

    Shadow studies.

  • DUARTE GERALDINO:

    Shadow studies?

  • LAURA CLARK:

    Yes, where we research where all the shadows are going to fall.

  • DUARTE GERALDINO:

    It was hard to believe shadows, and other seemingly minor factors, could actually prevent the construction of new housing in a city that, by some estimates, needs tens, if not hundreds of thousands more homes.

    So we tracked down Jeff Buckley at San Francisco city hall. He's the mayor's senior housing adviser.

  • JEFF BUCKLEY, San Francisco Mayor’s Office:

    As part of a voter mandate which was established in the '80s, there are some public open spaces that cannot have shadows in them and others where they have a shadow budget.

  • DUARTE GERALDINO:

    A shadow budget?

  • JEFF BUCKLEY:

    Correct, which is a small amount of shadow that is allowed in those areas during certain times.

  • DUARTE GERALDINO:

    Shadows, noise, environmental concerns, these are issues community groups and even individuals use to block new construction, often targeting market-rate or luxury housing.

    But San Francisco is trying to cut the red tape and has an ambitious goal of adding 30,000 new housing units by 2020, half of them subsidized.

    There are a lot of critics who will say, you should just be focused on total supply and not necessarily affordability.

  • JEFF BUCKLEY:

    Well, I think that works well in an economist think-tank, but in the reality of politics and the policy-making in an urban environment, you need to figure out, not just a total unit amount, but how to make those units affordable for people who live here in the city.

  • DUARTE GERALDINO:

    But, as economists point out, more total housing would lower rents for everyone.

    ENRICO MORETTI, University of California, Berkeley: One of the most progressive policies that this progressive city could adopt would be to build more housing.

  • DUARTE GERALDINO:

    Enrico Moretti is an economist at U.C. Berkeley, where he studies the relationship between housing and employment.

  • ENRICO MORETTI:

    I think this is a perfect example of how broken the planning process is in San Francisco. There's a developer who would like to add 345 units on the top of the Walgreens and Burger King there.

  • DUARTE GERALDINO:

    Yet protesters have blocked this Mission District project for years, in part, yes, because of the shadows it would cast. The same goes for a 250-unit project on Market Street, which would replace this low-rise building and parking lot.

  • ENRICO MORETTI:

    The net result is that very few housing units get built in San Francisco relative to the demand.

  • DUARTE GERALDINO:

    And that, says Moretti, has far-reaching effects.

    He and colleagues at the University of Chicago took a mathematical model normally used to study the economic effects of immigration restrictions between countries and applied it within the United States. Crunching decades' worth of data from 220 U.S. metro areas, they found five American cities didn't contribute as much to U.S. economic growth as they would have if they'd had more housing.

    According to the research, the housing crunch in the Bay Area and in New York, Boston and Washington is not just stressing local renters, but also shrinking the incomes of every American worker, some 100 million people.

  • ENRICO MORETTI:

    There's a loss for the entire nation.

  • DUARTE GERALDINO:

    We met Moretti at the San Francisco Federal Reserve, where he's a fellow. He says restrictive land use policies are keeping people out of cities like San Francisco.

    How much money would the average American worker actually earn if these policies weren't in place in these five cities?

  • ENRICO MORETTI:

    We estimate about $5,000 in additional earnings for the average worker.

  • DUARTE GERALDINO:

    Five thousand dollars in lost wages, $500 billion in missed GDP.

  • ENRICO MORETTI:

    Yes, if these five American cities were to lower the level of land use regulation to the level of the median American city, we would see increased economic growth, increased GDP, and higher wages, and not just in those cities, but across the country.

  • DUARTE GERALDINO:

    According to Moretti, these five cities are places where specialized workers cluster, making each member more productive and therefore better paid.

    If they loosened development restrictions, so more homes could be built, rents would fall, making it easier for newcomers with high earning potential to break into the club.

  • ENRICO MORETTI:

    More people would relocate from different parts of the country to take advantage of this high productivity and these high wages. This would benefit those who move, because they would have better-paying jobs.

  • DUARTE GERALDINO:

    It would also benefit those who stay behind.

  • ENRICO MORETTI:

    Because there will be more available jobs in those communities than there is now.

  • DUARTE GERALDINO:

    But, as it stands, that is not happening. And even the most highly educated workers in cities like San Francisco are concerned about the roof over their heads.

  • KYLE HUEY, Software Engineer:

    I have a one-bedroom apartment. And, you know, if you want to have a family or something, that's kind of limiting.

  • DUARTE GERALDINO:

    Kyle Huey is a highly paid software engineer who feels stuck in his small, rent-regulated apartment.

  • KYLE HUEY:

    Simply to rent my current place would cost so much more money now that trading up to a better place seems, you know, even more — even more daunting.

  • LAURA CLARK:

    Everybody talks poorly about the techies. The techies are also living with roommates or in converted living rooms. Yes, it's kind of ridiculous. Even the people who you want to hate who are making hundreds and thousands of dollars are struggling to find housing in this city. It's a real crisis.

  • DUARTE GERALDINO:

    So Kyle Huey can't trade up. Brian Hanlon may be pushed out.

  • BRIAN HANLON:

    There's a real chance that I would just leave the Bay Area.

  • DUARTE GERALDINO:

    And millions of American workers may be taking a $5,000 hit they are not even aware of.

    In San Francisco, Duarte Geraldino for the "PBS NewsHour."

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