Housing and innovation: evidence from Germany

There’s an old idea that cities are engines of innovation in large part because they cluster together lots of innovators; these innovators make each other more productive via a variety of mechanisms. Across US cities, a 10% increase in the population of inventors is associated with a 2% increase in the per-person patent output on average (see Wiebe 2026, Table A12, column 7). We’ve always been interested in this idea, because it (partially) informs how valuable housing is: if zoning reform increases the housing stock of a city by 10%, do its inventors eventually become 2% more productive?

Unfortunately, correlation is not causation and pinning down just how real this relationship is has been tricky (see item #4 in this post for an example). So I was interested to find a 2024 working paper by Brian C. Fujiy at the US Census Bureau which looks at this question afresh. Fujiy looks at the unification of East and West Germany as an event that created a large amount of sudden and unanticipated cross-city movement from inventors. Using a variety of approaches to try and control for potential confounders, he eventually estimates that a 10% increase in the inventor population leads to a 4% increase in the productivity of the population’s inventors.