That is the topic of my latest Bloomberg column, here are some bottom line results:
What would “Yes in My Backyard” even mean in the context of commercial real estate?
A new economic research paper offers a hint of an answer: Most likely, there would be taller buildings, more mixed-use neighborhoods and considerably more wealth.
One way to approach this question is to look at less regulated cities. According to one widely used index, the least regulated metro area in the US is Midland, Texas. Midland isn’t particularly large or well-known, with a population of about 132,000, yet one of its nicknames is the “Tall City” because of its downtown skyline. When there is freedom to build, going vertical often is most cost-effective…
The research paper estimates the total social gains if every US city deregulated to the level of Midland, including the evening out of regulations within each city. The gains are strikingly large (though with some caveats): National output would rise by between 3% and 6%, and the gains in well-being would be in the range of 3% to 9% of lifetime consumption. Think of it as Americans getting a lifetime raise of at least 3%.
Another caveat is that the data behind these estimates is based on 2018 numbers, when a little more than 5% of the work force worked from home. Under one more recent estimate, 12.7% of all full-time employees work fully from home. (Hybrid work is more common yet, but that typically still requires office space.)
So the researchers ran their model again, this time assuming that 40% of workers were at home full-time. They still found a 1.5% output gain. Of course, given that the US is not currently close to 40% work from home, the actual gains from commercial real estate deregulation, circa 2023, lie somewhere between 1.5% and the larger numbers — the 3% to 6% output boost — I cited earlier. The researchers suggest that the gains from deregulation are almost linear in the share of workers who need offices, so the larger measured gains should be closer to the truth.
Here is the underlying research by Fil Babalievsky, Kyle F. Herkenhoff, Lee E. Ohanian, and Edward C. Prescott.