Americans aren’t as mobile as they used to be. This would not be particularly problematic if it weren’t for the fact that, historically, interstate migration helped to reduce income inequality. Last week, Timothy Noah had a great piece in the Washington Monthly describing the consequences of declining mobility:
Noah points out that housing costs have a lot to do with the drop-off in migration from low to high-income states. The Peter Ganong and Daniel Shoag research that he cites suggests that tighter land use restrictions are a key reason for higher housing prices in America’s most productive areas. Regulations in places like the New York and San Francisco make it very difficult to build new housing, increasing the price of housing (often dramatically) by artificially constraining its supply.
According to Ganong and Shoag, sharply rising house prices in the country’s most productive locales reduced the return to moving for lower-skill workers. As a result, migration from relatively low-wage areas to relatively high-wage areas has all but ground to a halt. Regional income disparities have correspondingly worsened.
Though I mostly enjoyed and agreed with Noah’s piece, I was a bit puzzled by his conclusion from all of this. He argues that the problem is not so much housing costs as it is the incomes of middle class workers. Noah argues that the American labor market is inefficient, rewarding corporate raiders and investment bankers too richly while giving short shrift to teachers and construction workers. Noah might be right that these differentials in compensation reflect inefficiencies in the American economy. But what’s not clear, at least from this piece, is how he would increase the incomes of teachers and construction workers vis-à-vis corporate titans and bankers.
Of course, one way to raise the real incomes of teachers and construction workers is to lower the cost of housing in the areas where they can earn the highest nominal incomes. Regulatory barriers to new housing in America’s most productive areas are reducing both the economic mobility of low and middle income workers as well as their real incomes. This, it seems to me, was the crucial policy takeaway from Ganong and Shoag’s research.
If it were easier to build new units in metros like San Francisco, New York, or Washington, D.C., housing would not be out of reach for would-be migrants. An increase in the supply of housing would cause housing prices to fall (or, at the very least, rise more slowly). With lower housing costs, low and middle income workers in these areas could devote more of their paychecks to other things. Peoples’ real incomes—the amount of goods and services that their paychecks can buy—would increase, effectively increasing their compensation. What’s more, lower housing prices in America’s most economically productive areas would once again increase the return to migration from relatively low-wage areas to relatively high-wage areas. The resulting up-tick in interstate migration would help to reduce income disparities, just as it did in the period from 1940 to 1980.
This is an important point and one that I wish Noah would have given more emphasis. Whether its exclusionary zoning in the suburbs or overzealous landmark preservation in the city, the obstacles to new housing development in America’s most productive metros comes at a cost: higher house prices, less mobility, and larger income disparities at the national level—tradeoffs that we should consider more explicitly when making local land use decisions.
Tile image courtesy of Chrystian Guy.