Yes to YIMBY for office buildings

Opinion editor's note: Star Tribune Opinion publishes a mix of national and local commentaries online and in print each day. To contribute, click here.

•••

The YIMBY movement has so far focused on the deregulation of the residential housing market. In California, for instance, a variety of legal changes have made it easier to build more densely. In the commercial market, there is no real YIMBY movement — and not just because offices tend not to have backyards. What would "Yes in My Backyard" even mean in the context of commercial real estate?

A new economic research paper offers a hint of an answer: Most likely, there would be taller buildings, more mixed-use neighborhoods and considerably more wealth.

One way to approach this question is to look at less regulated cities. According to one widely used index, the least regulated metro area in the U.S. is Midland, Texas. Midland isn't particularly large or well-known, with a population of about 132,000, yet one of its nicknames is the "Tall City" because of its downtown skyline. When there is freedom to build, going vertical often is most cost-effective.

Freedom to build for commercial construction would also mean more neighborhoods where office buildings, shops and residences stand next to each other, as is so frequently the case in East Asian cities such as Tokyo. In this context, more freedom to build means fewer restrictions on height, floor area ratios and setbacks.

The research paper estimates the total social gains if every U.S. city deregulated to the level of Midland, including the evening out of regulations within each city. The gains are strikingly large (though with some caveats): National output would rise by between 3% and 6%, and the gains in well-being would be in the range of 3% to 9% of lifetime consumption. Think of it as Americans getting a lifetime raise of at least 3%.

So what's the catch? There are a few.

First, many people may not enjoy living in this new, less regulated world. In Manhattan, for example, tall office buildings are concentrated in Midtown and near Wall Street. The Upper West Side and Upper East Side are relatively bereft of such structures. But with the deregulation of commercial real estate, tall office buildings would be more evenly distributed across the city. Those who live in relatively protected enclaves, such as the Upper East Side, might not be happy. Their views might be blocked, they might get less sunlight, their blocks might be colder.

Another caveat is that the data behind these estimates is based on 2018 numbers, when a little more than 5% of the workforce worked from home. Under one more recent estimate, 12.7% of all full-time employees work fully from home. (Hybrid work is more common yet, but that typically still requires office space.)

So the researchers ran their model again, this time assuming that 40% of workers were at home full-time. They still found a 1.5% output gain. Of course, given that the U.S. is not currently close to 40% work from home, the actual gains from commercial real estate deregulation, circa 2023, lie somewhere between 1.5% and the larger numbers — the 3% to 6% output boost — I cited earlier. The researchers suggest that the gains from deregulation are almost linear in the share of workers who need offices, so the larger measured gains should be closer to the truth.

There is another relevant point: The share of work-from-home employees is not fixed. If commercial real estate were cheaper and more plentiful, maybe there would be more in-person office work. That would help young people in particular, who might receive superior mentoring, thus boosting the U.S.'s longer-run productivity. The researchers don't try to measure this effect at all.