Affordable housing can help crush the U.S. labor shortage

  • The housing crisis and labor shortages are linked. Fighting the former could help resolve the latter.
  • Numerous studies show that affordable housing improves job growth, while expensive housing can harm local economies.
  • Investing in disadvantaged neighborhoods and creating affordable housing in cities can increase employment throughout the United States.

San Francisco could learn something from Columbus, Ohio.

It’s a pretty simple concept: While the Bay Area boasts abundant jobs, housing to fill those jobs is not affordable. In Columbus, however, one can find affordable housing within a reasonable distance of the city’s largest job centers.

San Francisco’s problem reveals the link between the housing crisis and labor shortages. Columbus planning suggests a solution for both.

Across the United States, companies are struggling to fill job openings. The trend, now known as “labor shortages”, has changed the game for employers and employees. Americans are flexing unprecedented bargaining power and demanding higher wages to return to work. Those with jobs stop at record speeds for new opportunities in hopes of leveraging the overwhelming demand for workers.

It works. Average wages have risen at the fastest pace in decades as companies struggle to rehire. Yet the lack shows no signs of reassurance. More than 10 million job openings remained vacant at the end of August, signaling that the return to full employment will take some time.

At the same time, the US housing market is still glowing white. Lack of vacant housing has led to insane bidding wars and the fastest price growth in 45 years. More homes are on the market than below pandemic lows, but it is still well below what experts believe is needed to meet demand.

The shortage is two sides of the same coin. Cities with the most job openings do not have the affordable housing that many workers need. And areas with cheaper housing do not have the promising labor markets to make them attractive.

Determining the housing market may be the best way to combat labor shortages.

Housing and employment are fundamental to the American dream

The gap between affordable housing and job access already has a name: spatial mismatch. The trend has been studied for years, but the effects of the pandemic on the labor market brought the term back into the spotlight.

It also describes where San Francisco can learn from Columbus. A 2019 study from the Urban Institute showed that while the San Francisco Bay Area had a large number of job openings, there were not enough job seekers within a reasonable distance to fill them. It was only when looking far into the Bay Area’s surrounding neighborhoods that openings matched available workers. But it had more to do with fewer postings than more applicants.

The landscape is different in Columbus. While the city had more open jobs than people seeking work, the unemployed people tended to live at least within reasonable distance of work hubs. By creating affordable housing and placing it close to transit, Columbus was able to connect low-income residents with employment opportunities.

Similar effects could help close spatial discrepancies across the United States, Christina Stacy, a research assistant at the Urban Institute, told Insider.

“People need safe, stable and affordable housing in neighborhoods with great opportunities for upward economic mobility. Safe having affordable housing near jobs will help us get there,” she said.

The equation also works the other way around. Affordable housing has “significant negative effects” on local employment growth, researchers know

Federal Reserve
This is stated by the Bank of Boston in a paper from 2010.

For example, California’s cities are experiencing a two percentage point drop in employment growth for every one unit increase in the Fed’s affordable housing conditions (higher ratios mean poorer affordability). Metropolitan areas and counties faced a 10-point drop in job growth for every increase on a unit. Despite different housing markets across the country, the results are proving “to be remarkably consistent,” the team said.

Even housing insecurity can hurt local labor markets. A survey of nearly 700 Milwaukee workers found that experiencing a forced move increased the likelihood of losing work by up to 22 percentage points, according to a 2016 Harvard University study.

Improving affordability does not just promise job growth; It prevents workers from losing the jobs they have.

To move people to jobs and bring jobs to the people

Cities have long offered the best job opportunities, while poorer and less densely populated areas have been left out of the way. The effect snowballed through much of the post-war era as housing prices rose, low-income Americans were forced out, and richer workers brought new investment to gentrified neighborhoods.

The pandemic widened the gap even further. Housing prices have skyrocketed through 2021, as a widespread housing shortage gave rise to bidding wars across the United States. The rise in prices was most intense in the most populous areas, making job centers even less accessible to low-income workers.

Only eight states – including California, New York and Hawaii – had more unemployed workers than job openings at the end of August, the Bureau of Labor Statistics said Friday. The remaining states had far more job openings than workers to fill them, the defining characteristic behind the country’s labor shortages.

The solution must be twofold, Urban Institute’s Stacy said. City governments can leverage pandemic assistance to create and maintain affordable housing. Transportation options such as buses and train stops can connect affordable neighborhoods with job opportunities. And tenant protection can stave off gentrification and ensure neighborhoods remain accessible.

“As we invest in underinvested neighborhoods, we need to get in there and preserve affordable housing,” Stacy said. “Otherwise, you’re just moving people around, and that does not really help with justice or reduce poverty.”

At the other end of the spectrum, governments can pull jobs to areas where housing is affordable. Policies like New Markets Tax Credit and Opportunity Zone tax incentives can attract private companies to affordable areas, she said. Governments can also stimulate employment directly through training programs for labor and jobs in the public sector.

“The answer to all of this is that we have attacked everything from all angles,” Stacy said. “This is a good opportunity to rethink this and respond to all these demographic shifts.”

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