Pro-Growth Policies Will Help Local Governments Attract People Working From Home


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Covid-19’s impact on the labor market is still unfolding, but one of its biggest impacts so far has been on where people work. Prior to the pandemic, only about 5% of Americans typically worked from home. By the summer of 2020, 42% of the labor force was working from home full-time and many people still are. This new ability to work from home is causing people to reevaluate where they live. Communities outside expensive cities will benefit if they can keep their housing prices reasonable and provide amenities that attract workers.

Cities and towns trying to generate more economic growth have traditionally faced a chicken-or-the-egg problem—attract businesses that will then pull in talented workers or attract workers who will then start new businesses or attract employers eager to hire the new talent. Both workers and businesses are vital in the long run, so if a city can only attract one it is not going to be successful.

Over the last 20 years, local governments have traditionally targeted businesses first. But instead of creating stable, low-tax environments where all businesses can thrive, local governments and economic development offices around the country throw hundreds of millions of dollars of targeted tax incentives at companies, despite the lack of evidence that such incentives lead to economic growth.

In a world where people can work from anywhere, it is no longer necessary for local governments to attract workers and businesses simultaneously. Instead, local governments can shift their focus to making their cities and towns attractive places for workers to live since many workers can relocate while keeping their job. This is still a tall order for many places, but not impossible.

A recent Wall Street Journal article noted that several smaller cities, which it dubbed “Zoom towns”, are seeing an influx of new people along with falling vacancy rates and rising rents. Places like Greensboro, North Carolina; Boise, Idaho; and Fresno, California are benefitting from the greater ability to work from anywhere while bigger, more expensive cities like Boston, Washington D.C., and San Francisco are hurting.

Still, these changes may not last forever. More than two million people are being vaccinated per day in America and a return to pre-pandemic life is on the horizon, likely by this summer. It is not clear how committed employers are to having their workers scattered around the country or if workers will enjoy working from home long term.

Firms rely on having a culture that workers buy into, and as employment churn picks up—more hires and more fires—it may be difficult for employers to maintain their culture without an office where employees regularly mingle with one another.

It is also possible that people who have moved to lower-cost, smaller metro areas will discover they miss big city life. Development patterns and amenities differ across communities, even communities that are within the same region. Big cities tend to be denser, more walkable, and filled with mixed-use neighborhoods where retail, restaurants, office space, and residential uses exist side by side. Land use in suburban communities is typically more segregated, with retail and commercial space isolated from residential areas. People who like being able to walk to the neighborhood bar or store may be fine living in more suburban communities when businesses are closed or at half-capacity, but will they stay when things open up?

Of course, suburban communities can adapt to make themselves more attractive to workers looking to leave big cities. Smaller cities should keep competing on price by allowing housing to be built to accommodate demand, something many big coastal cities gave up on long ago. But cheaper housing alone is not enough. Many people also place a premium on walkable development that combines retail and residential space, and suburban communities should update their zoning codes to accommodate such development.

Successful communities also need housing of all types for people of different income levels and generic suburbs full of tract housing are unlikely to be the destination of choice for people leaving bigger cities.

Stafford County in Virginia is an example of an area that could benefit from more people working from home. Stafford is located 67 miles north of Richmond and 47 miles south of Washington D.C., and it has grown rapidly since 2000, from around 90,000 people to over 150,000. Its proximity to two major metropolitan areas means there are plenty of workers who could live in Stafford and still get to their offices in Washington or Richmond regularly. My wife and I moved to Stafford in the fall from Arlington, Virginia for this reason.

Rapid population growth can be messy and expensive—roads, sewer, and utility lines need to be expanded, schools built, and congestion dealt with. This makes it tempting to prevent development and push growth into a neighboring county or city rather than accommodate it. Stafford has allowed new development but housing values are rising, as shown in the figure below, which is a sign that demand is outpacing supply.   

There are also indications that the county is becoming less accommodating. The Board of Supervisors recently downzoned 90,000 acres of agricultural land from a three acre minimum lot size to six acres. This will make housing more expensive since bigger lots cost more money. Bigger lots also use more municipal resources when they are developed, not less, and there’s evidence that large lots do not bring in enough tax revenue to justify the cost of these resources.

Supporters of the downzoning said it was needed to limit sprawl and push growth towards the county’s handful of targeted growth areas. But trying to force population growth to a few areas ignores the fact that growth is driven by individual decisions made by people and families based on a variety of factors. Local governments can refuse to provide services or downzone land, but that does not mean people will move to targeted growth areas instead. If one government restricts growth in areas where people want to live, another one nearby can be more accommodating. Instead of getting growth exactly where they want it, restrictive governments may get little to no growth at all.

Zoning and land-use regulations are not the only way local governments can differentiate themselves. Prudent tax policy that raises money for core government services—keeping crime low, maintaining roads and parks, providing fire service—without stifling the economy will also attract people.

Local governments can also reduce regulation and cumbersome red tape to make it easier for people to start or grow businesses. This is a path Miami has taken and it looks to be helping it attract workers and firms from high-tax, high-regulation cities like New York City and San Francisco.

People are not problems to be solved. They innovate, create businesses, and form the backbone of communities. Places that spurn growth when it comes their way may not get a second chance, and ultimately population decline is a bigger problem than growth. Just ask the people of Detroit.

An article in Bloomberg suggested that people may be getting an itch to switch jobs to coincide with the one-year anniversary of Covid-19 and working from home. For some people, a new job may also include a move as workers reset expectations about working from home with their new employers. Local governments that want to capitalize on this shakeup in the labor market need to cultivate communities people want to live in and accommodate them with pro-growth housing and land-use policies.

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