High housing costs pushing Americans out of the northeast
Despite what Rick Perry might argue, it’s housing policy that explains growth in southern states
Texas governor Rick Perry will likely run for the US presidency on the basis that he knows how to create prosperity. Photograph: Doug Mills/The New York Times
What I’d like to do, instead, is take advantage of Perry’s ambitions to talk about one of my favourite subjects: inter-regional differences in economic and population growth.
You see while Perry’s hardline stances and religiosity may be selling points for the Republican Party’s base, his national appeal, if any, will have to rest on claims that he knows how to create prosperity.
And it’s true that Texas has had faster job growth than the rest of the country. So have other Sunbelt states with conservative governments. The question, however, is why?
The answer from the right is, of course, that it’s all about avoiding regulations that interfere with business and keeping taxes on rich people low, thereby encouraging job-creators to do their thing.
But it turns out that there are big problems with this story, quite aside from the habit that economists pushing this line have of getting their facts wrong.
To see the problems, let’s tell a tale of three cities.
One of these cities is the place those of us who live in its orbit tend to call simply “the city”. And these days it’s a place that’s doing pretty well on a number of fronts. But despite the inflow of immigrants and hipsters, enough people are still moving out of greater New York – a metropolitan area that, according to the census, extends into Pennsylvania on one side and Connecticut on the other – that its overall population rose less than 5 per cent between 2000 and 2012.
Over the same period greater Atlanta’s population grew 27 per cent, and greater Houston’s grew almost 30 per cent.
America’s centre of gravity is shifting south and west. But why?
Is it, as people like Perry assert, because pro-business, pro-wealthy policies like those he favours mean opportunity for everyone? If that were the case we’d expect all those job opportunities to cause rising wages in the Sunbelt, wages that attract ambitious people away from moribund blue states.
It turns out, however, that wages in the places within the United States attracting the most migrants are typically lower than in the places those migrants come from, suggesting that the places Americans are leaving actually have higher productivity and more job opportunities than the places they’re going to.
The average job in greater Houston pays 12 per cent less than the average job in greater New York; the average job in greater Atlanta pays 22 per cent less.
Low-wage areasSo why are people moving to these relatively low-wage areas? Because living there is cheaper, basically because of housing.
According to the Bureau of Economic Analysis, rents (including the equivalent rent involved in buying a house) in metropolitan New York are about 60 percent higher than in Houston, 70 percent higher than in Atlanta.
In other words,what the facts really suggest is that Americans are being pushed out of the northeast (and, more recently, California) by high housing costs rather than pulled out by superior economic performance in the Sunbelt.
But why are housing prices in New York or California so high?
Population density and geography are part of the answer. For example, Los Angeles, which pioneered the kind of sprawl now epitomised by Atlanta, has run out of room and become a surprisingly dense metropolis.
However, as Harvard’s Edward Glaeser and others have emphasised, high housing prices in slow-growing states also owe a lot to policies that sharply limit construction.
Limits on building height in the cities, zoning that blocks denser development in the suburbs and other policies constrict housing on both coasts; meanwhile, looser regulation in the south has kept the supply of housing elastic and the cost of living low.
So conservative complaints about excess regulation and intrusive government aren’t entirely wrong, but the secret of Sunbelt growth isn’t being nice to corporations and the 1 per cent; it’s not getting in the way of middle- and working-class housing supply.
Wrong wayAnd this, in turn, means that the growth of the Sunbelt isn’t the kind of success story conservatives would have us believe. Yes, Americans are moving to places like Texas, but, in a fundamental sense, they’re moving the wrong way, leaving local economies where their productivity is high for destinations where it’s lower. And the way to make the country richer is to encourage them to move back, by making housing in dense, high-wage metropolitan areas more affordable.
So Perry doesn’t know the secrets of job-creation or even of regional growth. It would be great to see the real key – affordable housing – become a national issue. But I don’t think Democrats are willing to nominate Mayor Bill de Blasio for president just yet.