I spent Sunday and Monday in Manhattan, so I’ve been thinking about population density, the extent of the market and what it means for the division of labor, and the deadweight losses of land use. I was pleased, therefore, when this article popped up on my Twitter feed: Matt Yglesias proposes land-use liberalization as a policy that would “cure” wage stagnation. The direct benefit comes from the fact that there’s a lot of construction that would start happening if it were easier to build in Manhattan and San Francisco. The indirect, longer-run benefits come from labor productivity gains from higher population density. Larger markets mean a finer division of labor and, therefore, higher productivity and more innovation.

I can see where proposals to liberalize land use regulations would run into political opposition. The first source of opposition would come from people who own real estate that is artificially valuable because of the restrictions. The second source of opposition would come from those who mistakenly think they’re saving the planet by preventing new construction in places like San Francisco and Manhattan. As Edward Glaeser points out, allowing more construction in California (for example) would actually be a much greener choice than having extensive land-use regulations that instead make it relatively cheaper for people to build houses in places where energy use is much higher.