Report examines relationship between housing costs and mobility. Harder than ever to “follow the opportunities.”

Cullum Clark sums up one of today’s starkest urban challenges.

More and more Americans are moving to less expensive regions of the country, or, more commonly, settling for the limited opportunities available in struggling communities… These changes in the economic geography of American cities have far-reaching implications for upward mobility and economic growth.

In his New Geography article, Clark identifies two trends underlying this change from historical mobility patterns: 

First, for much of the 20th century, Americans were more willing to move in pursuit of economic betterment than people in any other advanced country, and the dominant flow of people was from poorer to wealthier locations…

This pattern has now reversed.  Mobility across state lines has fallen almost by half since the 1980s. In addition, virtually all the highest-income metro areas have experienced net domestic population outflows.

Second, the decades between the 1920s and 1980s saw a pronounced tendency towards economic convergence across geographies, as household income levels in lower-income states and cities grew faster than in high-income locations. This trend, too, has reversed, with the richest places growing richer at a faster pace than elsewhere and leaving less fortunate places behind. 

The tech-centric metros – Silicon Valley and Seattle leading among them – illustrate well his second point. Though, as we’ve written, Seattle has bucked the growth trend he identifies in his first point. We think, however, that it would be a mistake to assume the region’s exceptional is irreversible. In June, we wrote that housing price increases in the state’s largest metro were approaching a national record. The most recent economic and revenue update reports residential construction is slowing, which does not augur well for improved affordability.

Clark writes,

Historically, local economic booms led to housing booms. New construction would address the needs of arriving workers, and competition would keep house prices close to the cost of building new homes…

But in today’s high-income “star” metros – above all the Bay Area and New York but also Boston, Seattle, and Southern California – this pattern has broken down. New construction in these cities is running as much as 80 percent below the peak levels reached in the 1960s.

This anemic pace of construction is not driven by building costs...

The premise that these places are too dense to allow much construction also turns out to be a myth. Even in metros with densely-populated urban cores, the wider metro areas contain abundant low-density neighborhoods and indeed vacant space. Glaeser notes that the county containing his home in Cambridge, Massachusetts, has lower population density than Houston. 

Rather, the evidence suggests the main factor constraining housing supply in today’s star cities is increasingly burdensome land-use regulation. Critics point to a variety of rules, including minimum lot sizes (as in Boston’s suburbs), urban boundaries (as in Portland), stringent environment rules (especially in California), long building permit times, and caps on the number of permits. 

Regulation matters. Clark draws a conclusion and recommends a solution:

 Today’s star cities and neighborhoods will likely keep outpacing the rest of the country in productivity growth and wages.

This premise points to a clear conclusion: Smart policy should focus on bringing more people to where the opportunities are. Doing so will require:

• Relaxing many of the excessive land-use rules constricting the housing supply in thriving cities and neighborhoods;
• Large changes in tax and other policies, since so many policies are essentially designed to drive up housing values;
• Greater use of innovative transportation strategies, starting with multi-rider Lyft and Uber networks; and 
• A technological revolution in housing to reduce construction costs in dense areas. Helpfully, Google, Amazon, and various startups are starting to experiment in this area.

Makes sense, but there’s a problem:

The thorniest challenge in addressing this issue is that local governments in star cities have little incentive to look after the interests of people who would benefit from moving there but can’t afford to do so. Moreover, they have little incentive to pursue policies that would maximize economic growth and opportunity but would impose unwanted changes on current residents.

It’s a matter of getting the incentives to align to expand opportunities generally. We recommend Clark’s article. It doesn’t provide all the answers, by any means, but it’s touching on all the right questions.