How restrictive zoning slows economic growth

Had an interesting conversation with a good friend re the impact of zoning on the economy.

In the midst of discussing the growth of Silicon Beach, I had kind of an epiphany.

Because of how we control land use around the beach (including the Coastal Commission, the Mello Act, specific plans, etc.), we are dramatically under-building in the areas where there is strong tech job growth.

What does this mean?

In part because housing is so expensive on the westside, the tech companies need to pay very high salaries to their workers.

This causes rental inflation, because there are more dollars chasing the same number of units.

The beneficiaries of this rental inflation are, of course, the property owners in the area, who are generating outsized rents and, therefore, returns.

In an unregulated real estate market, capital would simply flow in to compete away the returns by building more units. But, because you can’t build in those areas, capital can not work its magic on the supply side.

So, the result is that rentiers (eg current property owners) are able to use the law to extract very large amounts of money from highly productive companies via the salaries those companies pay their employees.

There is no way that this is not slowing economic growth on the Westside and, when you generalize it across the expensive coastal markets, the whole country.