The Permission Bottleneck
How a quiet crisis in municipal administration is distorting the American economy, driving migration, and deciding where the future gets built.
By Will Maclean
Try listing the reasons why American economic dynamism feels fragile. You might cite inflation, political polarization, or the skills gap. These issues contribute to a sense of national malaise. However, a singular, mechanical failure underpins many of them: the inability to secure permission to build.
Western housing shortages do not merely frustrate potential homebuyers. They act as a throttle on national productivity, a driver of wealth inequality, and a primary cause of carbon-intensive sprawl. We often discuss housing as a market of assets, but it is more accurately the physical operating system of the economy. When that system freezes, as it has in the nation's most productive coastal cities, the people—and the future—must go elsewhere.
The Cost of Stasis
The most productive regions of the United States—the Bay Area, New York, Boston—have effectively stopped building. In these markets, the price of housing has detached completely from the cost of construction. This "regulatory wedge," composed of zoning restrictions, discretionary reviews, and third-party appeals, adds 30 to 40 percent to the cost of a home.
This premium is not a natural feature of the market. It is a policy choice. When a city makes the process of building uncertain, it imposes a tax on its own future. The developer who faces a five-year timeline to break ground on an apartment complex in San Francisco is not engaging in capitalism; they are engaging in a gamble on political winds. As a result, capital flees.
The Migration to Competence
This flight of capital and talent helps explain the sudden ascent of the "Yes" cities. Consider Knoxville, Tennessee. Ten years ago, it was a modest college town. Today, it projects to be a primary migration destination for 2026. Knoxville's success does not stem from a massive tax incentive or a sudden technological breakthrough. The differentiator is administrative competence.
In Knoxville, a standard residential project moves from application to approval in weeks. In California, the same blueprint enters a purgatory of subjective design committees and environmental lawsuits that can last years.
This disparity creates a powerful arbitrage opportunity. Builders who can turn their capital over three times in the Tennessee Valley during the time it takes to entitle a single project in Silicon Valley will rationally choose the former. They are voting with their excavators.
The Productivity Drain
The consequences of this shift extend beyond real estate developer profits. Economists have long understood that cities function as labor market accelerators: bringing smart people together makes them smarter and more productive. This is the phenomenon of agglomeration.
However, when housing supply is artificially constrained in high-productivity hubs, the mechanism breaks. A software engineer in Palo Alto might generate immense value, but if the local zoning code forbids the construction of an apartment for them, that value is lost. The engineer moves to a lower-productivity region where housing is legal, and the overall output of the national economy shrinks.
Research by economists Chang-Tai Hsieh and Enrico Moretti suggests that housing constraints in just three major US cities lowered aggregate US growth by 36 percent between 1964 and 2009. We are effectively choosing to be poorer by choosing to make building difficult.
The Anatomy of Reform
The cities benefiting from this exodus—Knoxville, Raleigh, Salt Lake City, Bentonville—are not simply lucky. They are structurally distinct. They have retained or restored the ability to build the "Missing Middle": the duplexes, triplexes, and townhomes that mid-century zoning reforms erased from American life.
These cities share a specific DNA:
- By-Right Development: If a project meets the code, it proceeds. There are no subjective "beauty contests" or neighborhood vetoes regarding character.
- Predictability: The rules are written down, they are clear, and they are binding on the city as well as the builder.
- Speed: Time is treated as a cost.
Minneapolis recently eliminated single-family zoning citywide, resulting in a 12 percent increase in housing stock and a flattening of rents while the rest of the country saw spikes. This proves that policy is not destiny; reform is possible.
A Choice of Futures
We often frame the housing crisis as a complex knot of subsidies, interest rates, and labor shortages. Those factors matter. Yet the most powerful lever remains the simplest: permission.
If we continue to allow our most productive cities to function as gated communities for the incumbent wealthy, the American economy will continue to fragment. Talent will continue to flow not necessarily to where it is most productive, but simply to where it can be housed.
The rise of builder-friendly cities offers a clear lesson. The municipalities that treat the creation of housing as a public harm to be mitigated will manage their own decline. The cities that treat building as a necessary function of a living organism will define the next era of growth. The future belongs to the places that actually allow it to be built.