Regulation

How Housing Regulation Increases Class Segregation

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Virginia Postrel has a sharp column at Bloomberg today. Here's an excerpt:

Well, maybe not its greatness. But its affordability, sure.

The states with the highest incomes also used to have the fastest-growing populations, as Americans moved to the places where they could earn the most money. Over time, that movement narrowed geographic income differences. In 1940, per-capita income in Connecticut was more than four times that in Mississippi. By 1980, Connecticut was still much richer, but the difference was only 76 percent. In the two decades after World War II, [Daniel] Shoag and [Peter] Ganong find, migration explains about a third of the convergence of average incomes across states.

But migration patterns changed after 1980. "Instead of moving to rich places, like San Francisco or New York or Boston, the population growth is happening in mid-range places like Phoenix or Florida," Shoag says. Lower-skilled people, defined as those with less than 16 years of education, are actually moving away from high-income states.

The problem isn't that they can't find "good-paying" jobs. Even people without college degrees still make more in high-income states. But that money buys less than it would elsewhere. The high cost of housing more than eats up the extra earnings a mechanic, medical-billing clerk or hairdresser can make in a place such as New York or Los Angeles….

As I have argued elsewhere, there are two competing models of successful American cities. One encourages a growing population, fosters a middle-class, family-centered lifestyle, and liberally permits new housing. It used to be the norm nationally, and it still predominates in the South and Southwest. The other favors long-term residents, attracts highly productive, work-driven people, focuses on aesthetic amenities, and makes it difficult to build. It prevails on the West Coast, in the Northeast and in picturesque cities such as Boulder, Colorado and Santa Fe, New Mexico. The first model spurs income convergence, the second spurs economic segregation. Both create cities that people find desirable to live in, but they attract different sorts of residents.

You should read the rest of the article, which describes the relevant research, considers the consequences of such social sorting, and raises the possibility that "the best-educated, most-affluent, most politically influential Americans…see segregation as a feature, not a bug."

Related: "Where Incomes Are High and Prices Are Low."