Wednesday, November 18, 2015

Housing, A Series: Part 86 - Regional Inequality: The regime shift in American progress.

The subtitle of this article from the Washington Monthly (HT: EV) was so enticing: "Regional inequality is out of control. Here’s how to reverse it."  I first went to see if they would have any data on housing's role.  Soon, I realized I would have to read the whole thing only to confirm that they never mentioned housing.  They didn't.

They have properly identified the problem.  The author even recognizes the reversal of migration flows that now has households moving away from high income cities.  But, I will just say that the repeal of the Civil Aeronautics Board, the ICC's deregulation of interstate trucking routes, and the toleration of branch banking loom large in his list of causes.  I'm not kidding.  Click the link if you want more.

But, I mention the article because of this graph.  They truncated this graph to before 1980, when the convergence stopped.  This is out of BEA table SA1.  The regional inequality doesn't diverge again after the 1970's, so in all of the author's comparisons about recent rising regional income inequality, he compares cities like Houston and Atlanta to Washington, New York City, and San Francisco.

So, I downloaded the data to see how it looks after 1980.  On the regional level, I think we can see how the technological and commercial innovations that made the world a figuratively smaller place created a more equitable world.  (Or maybe it was the ICC, or 70% tax brackets.)  We are basically seeing the same phenomenon now, globally.

The regional inequality we have seen since then has been specific to cities.  But, on the scale of the metropolitan area, the added gross income for the highest income cities frequently goes to housing expenses.  I think much of the topic of the regime shift in income inequality before and after the 1970's relates to these factors.  Free economies naturally tend to produce convergence, and this was the case regionally until that convergence had generally played out.  Possibly, some divergence on the individual or household scale also tends to grow with economic expansion, and this was mitigated by those regional convergences until the 1970's.  A new phenomenon that seems to selectively infect cities across the Anglosphere is sharp limits on housing in high income cities.  So a regional phenomenon that reduced aggregate income inequality is largely played out, but a new localized phenomenon has caused aggregate income inequality to rise.

Convergence comes from free flow of capital and labor.  Everyone understands this, at least implicitly - this realization is a basis for nativism and protectionism.  When deregulation (unfettered immigration and trade) pulls the top 1% (the average American) down toward the mean, everyone understands how deregulated markets create income convergence.  (edit: This reflects the protectionist argument.  In most cases, I would argue that most or all of the convergence that comes from the flow of capital and labor is due to the mean rising.)

If we want to reduce measured inequality, we need to let labor flow to where it is valuable.  Here is a long term chart of population growth in selected urban counties.  There may have been a time when households were leaving for the suburbs.  But, nobody can argue today that these counties are not growing because nobody cares to move there.  In a way, this graph is a graph of American progress, or the lack of it.  An irony that makes this topic difficult to understand is that the cities that are impeding equitable progress are the cities with the highest gross incomes.

Maybe Bryan Caplan should be applying his open borders project to America's cosmopolitan cities.



    It just gets worse and worse. See above. A "moratorium on mega-projects" in Los Angeles. What they need is giganto-mega projects, especially for housing.

    So sad...the only intelligent commentary is made by the developers.

    Yet...the people in single-family detached housing districts are no better. Since no projects at all are even proposed for their cities or neighborhoods, they can sit pretty and tsk-tsk. No one even proposes a mega-project in Newport Beach or Santa Barbara as it would be a waste of time.

    Believe me, we could build 60-story condo projects along the water in OC for years and make tons of money. We are not allowed.

    Highest and best use means my neighborhood.

    1. Oh, for goodness sake. Los Angeles is approving half the permits they did in the 1980s, and the article refers to it as a building boom. Crazy.

  2. why would we want to build a hi value non-elective good when we really need to smite the currency manipulators so that we can once again lead the world in broom and sunglass manufacture?

    all of my friends who want the US to house more refugees and house the homeless and make sure longtime neighborhoods r not pushed from their houses by gentrification r deeply contemptuous of efforts to build new houses

    I tell you guys to give up on this front, but I can't deny that transplanting Japanese or Berliner land use policy to the US would appear likely to juice real wages, redistribute paradise, squash unemployment and living costs to extents that would markedly soothe the human condition*, condense genius networks, improve US foreign policy leverage vs OPEC (especially if it improved prospects for population growth), and reduce the carbon intensity of US GDP

    *see whitey suicides and drug use - the rental payment treadmill and the loose labor market customer service attitude exhaustion treadmills, lately joined by the obligatory defective health premium treadmill are SERIOUS threats to tranquility in the rank and file. loserdom also discourages household formation in some groups, with marriage checking out as quite positive for life satisfaction (possible confounding selection effects)

    1. I agree with you both about the huge range of problems that this housing issue touches and the seeming intransigence of the voters who are creating the problem. I am even more pessimistic because it seems to stretch across the entire Anglosphere. I wonder if it is a product of the individualism that fueled the rise of the Anglosphere, mixed with 20th century Progressivism. As a personal cultural statement and experience, throwing tea into the harbor to protest taxes is not that different than camping out on the streets of Manhattan to protest that other people should pay more taxes. Once Progressivism embraced the idea that activities which require capital are uniquely vulnerable to coercion for the public good, this sort of obstructionism became inevitable. And what more capital intensive activity surrounded by politically active Progressives is there than trying to build housing in a core metro area.

      There tend to be a lot of assumptions that developers and home owners are behind these limitations, for self interested reasons. But there are plenty of developers and home owners in Houston, Phoenix, Atlanta, and Dallas. This problem mostly happens in jurisdictions where a lot of activists and voters don't make much of a distinction between telling the government where to stick it and telling capitalists where to stick it.

      So, in some ways, that gives me some hope. On the one hand, you've got people literally cussing the builders in ignorance as they drive their U-Haul out of town for lack of housing. On the other hand, we have whole metro areas who are happy to build all day and night, even if that means a lot of low income in-migration. And the US may have more of those places than anywhere else.

      If nothing else, in a place like San Francisco and Silicon Valley, maybe it is possible that despite all the efforts to keep them out, the in-migrants will be pro-building enough and will eventually outnumber the obstructionists. Imagine the economic blossoming that would happen if millions of housing units were built in the Bay area.

      In the meantime, I'm just trying to get to the truth of the matter so it is out there ready to be utilized.