High housing prices have caused concerns among policy makers as well as the public in many U.S. regions. There is a general belief that unaffordable housing could drive businesses away and thus impede job growth. However, there has been little empirical evidence that supports this view. In this paper, we clarify how housing affordability is linked to employment growth and why unaffordable housing could negatively affect employment growth. We empirically measure this effect using data on California municipalities and U.S. metropolitan areas and counties.
It is argued that for various reasons a simple correlation between unaffordable housing and employment growth should not be interpreted as causal. We therefore develop some empirical strategies and employ statistical techniques to estimate the causal effect of unaffordable housing on employment growth. Our results provide consistent evidence that indeed unaffordable housing slows growth in local employment. We discuss policy implications of these findings.
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