Bloomberg Business highlighted a great new study by Enrico Moretti on power of the regulatory restrictions on land supply to destroy wealth.
Moretti focused on the impact that restrictions on land supply have on the ability of workers to move to higher productivity cities. Moretti is the second best urban economist working at the moment. The best is Ed Glaeser. Moretti concluded that
A limited number of American workers can have access to these very high-productivity cities
He concluded that a more efficient distribution would be “a general benefit for the entire economy.”
The secret of his analysis was to look at how different US cities, the high productivity cities, contributed to national economic growth. He then explore the implications of fewer and fewer workers been able to move to these cities to take advantage of the great productive potential. The barrier to them moving was high housing prices and high rents.
For example, labour productivity grew quickly in San Francisco, New York and San Jose overt 45-years. All of these cities are famous for their human capital-intensive industries including technology and finance. These cities weren’t America’s growth engine:
The reason is that the main effect of the fast productivity growth in New York, San Francisco, and San Jose was an increase in local housing prices and local wages, not in employment.
Despite the large difference in local GDP growth between New York, San Jose, and San Francisco and the Rust Belt cities, both groups of cities had roughly the same contribution to aggregate output growth.
The drivers of US growth between 1964 and 2009 were southern U.S. cities and 19 other large cities. These cities attracted many residents because of good weather and abundant supply of cheap housing.
The lesson both the US and for New Zealand, and Auckland in particular, is this reallocation of population away from the expensive cities with restricted land supply reduced national output because these population movements bring workers to cities "where the marginal product of labour is low."
In a technology boom town such as San Francisco, it is now what like New Zealand will be as Generation Rent runs its course – 65% of residents are renters:
Over the past year, the City and County of San Francisco boasted the second strongest labour market in the nation, adding 25,000 new jobs. Yet only 2,548 new housing units were permitted and even fewer were built.
Just think: 25,000 new workers and their families have been knocking on San Francisco doors, but there are new units for less than 10 percent of them. It is not surprising that apartment prices get bid up.
Utopia, you are standing in it! 
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