Thursday, January 19, 2017

Housing: Part 201 - The new urbanization wave

A central theme that has developed in my research is a sort of unstoppable force meets immovable object story.  Technologically and culturally, we have entered a new wave of urbanization.  Whether one sees this as a net positive or negative, it seems inevitable.  We can't stop it any more than we could have stopped urbanization in the wake of mechanized agriculture.

But, politically and culturally, cities in the developed world are incapable of providing the residential density that this wave of urbanization demands.

Here is a graphic from this Bloomberg article by David Ingold.


The problem is that many of these cities cannot grow their populations as quickly as they grow their economies.  It's sort of a self-imposed Malthusianism.  Chicago, Dallas, Houston, Atlanta, Phoenix, Denver, and many of the Florida cities can grow.  Seattle and Portland still do ok, although there are local forces there that may lead them into Closed Access governance.  But, the California cities and the northeastern cities max out at about the national average.  They can grow their economies faster than the national average, but not their populations.

Since the mortgage market collapsed in 2007, population growth has been stifled across the country.  So, now, this problem affects the entire country.  We have had a decade of geographical employment shifts while households are stuck in place because we shut down the market that feeds the supply of homes.

So, now, for lower middle class households, cost is the marginal determinant for labor market shifts.  Strong local economies can't create a boost in housing that would accommodate the supply of labor that those economies demand, because working class households can't get mortgages.  So the whole country is now a Closed Access country where opportunity is locked behind a gate, and the highest bidder wins.  This creates a country of haves and have nots.  Your access to opportunity is governed by your pre-existing access to resources.  You don't pass up on that move to the city because there aren't opportunities there.  You pass it up because it's too expensive.

The problem at the heart of all of this is housing.  There is a consensus against solving that problem, because there is a consensus that low-tier mortgages are predatory.  Until we unlearn that false lesson, we will continue to impose this stagnation on the country's working class.

Here is a great paper (pdf) from Peter Ganong and Daniel Shoag on this problem.  In their conclusion: "First, we find that tighter regulations raise the extent to which income differences are capitalized into housing prices. Second, tighter regulations impede population flows to rich areas and weaken convergence in human capital. Finally, we find that tight regulations weaken convergence in per capita income... Indeed, though there has been a dramatic decline in income convergence nationally, places that remain unconstrained by land use regulation continue to converge at similar rates." (emphasis mine)

They find that historically households moved to income opportunities.  Households with high skills still do.  But, recently, there has been a shift in low-skill/low-income migration.  Those households now migrate to where costs are low.  This is because Closed Access housing policies create a self-imposed Malthusian limit on access to opportunity.  Housing policy - now both through local supply constraints and through mortgage rationing - is creating a Darwinian context.  This is the central problem.  Everything else is noise.

6 comments:

  1. Dead on.

    I am sad to say that the American macroeconomists have ossified into uselessness, still seeking unemployment to hold down inflation, rather than elimination of property zoning or other measures to radically increase the supply of housing, where needed.

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  2. Dead on.

    I am sad to say that the American macroeconomists have ossified into uselessness, still seeking unemployment to hold down inflation, rather than elimination of property zoning or other measures to radically increase the supply of housing, where needed.

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  3. Fantastic post Kevin!
    I wish I knew how to get this information in front of more eyes! I hope you do a book tour and get on all the Sunday shows. I pray that somebody with enough clout can see the conclusions you have illustrated and can champion these ideas in the halls of power.

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  4. If I'm understanding this study correctly, people are staying put after Googling job listings in other states and discovering that moving there wouldn't yield big bump in income. No mention of housing costs at all, beyond referencing the Ganong and Shoag paper.

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    1. Interesting. You know, there may be a sort of paradox here. It looks like the main difference between Closed Access cities and other cities is that CA in-migration is low. This leads to persistent net out-migration. On net, then, there is a permanent segregation happening through migration.
      So, segregation is happening through a pattern of migration - migration is coming to define the distribution of incomes and opportunity in the US. But this isn't coming from a new migration, it's coming from the decline in an existing migration.
      The paradox: since people aren't moving as much, migration is defining the country.

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