Woof, Housing Costs are Killing Mobility in America

Not as risky as you'd think (simply marvelous)

Not as risky as you'd think (simply marvelous)

An article last week in The Atlantic titled "How America Lost Its Mojo" discussed two troubling trends in the US - the long-term decline in geographical mobility and the first drop in productivity in three decades.  The author makes a strong argument about why rising housing costs are contributing to both.  

Americans, across all ages and regions, simply are not moving as much as they used to. In fact, the number of Americans moving between states declined by more than half from 3.5% in 1970 to 1.4% in 2010.  

(Though this article is about geographical mobility, I do want to briefly mention social mobility since the two are increasingly intertwined in America. Though there is a debate about whether social mobility is decline in the US, or at least about how it is measured, I believe that the division between high-skill and low-skill jobs already negatively impacts social mobility and will continue to do so.)

This can partly explain why productivity is set to drop for the first time since 1979, a stunning data point given the innovation emerging in certain pockets of the economy. As the US population ages, a decline in productivity will make it harder to increase living standards, so this is something economists and policy makers must watch closely.

The first problem is the lack of high-paying low-skill jobs and the second problem is where jobs are forming in general. These two problems show just how important housing policy is to the overall health of the American economy. Simply put, if it's too expensive for most workers to live in high-productivity places, economic inequality and stagnation will continue to create economic and social unrest.

Wagons east? (foundation for economic freedom)

Wagons east? (foundation for economic freedom)

As much as America prides itself on being a frontier nation, our expansion was always more about urban industrialization than land acquisition. (Which is not to discount the brutal reality of being a frontier nation, which was a 300 year racial war between white settlers, the US Military, and a number of Native American tribes.)

Whether it was made through emigration or immigration, the decision by millions of people - representing wildly different ethnic and racial backgrounds over countless generations - to move was less about having nothing to lose than it was about having a huge amount to gain.  

Though certainly some people left one place for the other for the sake of being a frontiersmen or for personal freedom - most did not.  Whether it was white farmers moving to the midwest after the Civil War or black southerners moving to northern cities in the middle of the twentieth century - these individuals and families had just enough money to be able to make that move and just enough social capital to know where there was economic opportunity to move to (obviously for radically different reasons under radically different circumstances.)

As a result, generally speaking, it used to be true that poor workers moved from low-productivity places to high-productivity places. Traditionally, poor workers were low-skill workers, but in the age of industrialization, high-productivity places (urban factory cities and towns) were centers for lots of high-paying low-skill jobs.  A paper from Harvard last year on this topic shows the historical example of a janitor moving from Alabama to New York because you could make more money as a janitor in NY than in AL and also experience higher living standards.  This trend was true in the US for over a century until the 1980s.

But starting in the 1980s through today, forces (sometimes referred to as Late Capitalism) started to change dramatically. Poor people stopped moving to high-productivity places. This seems counter-intuitive until you understand that productive places increasingly rely on fewer high-skill/high-paying jobs and that low-skill/high-paying jobs have largely disappeared from our economy (the shale oil boom in North Dakota was a blip more than a trend). 

This reversal is true across the country and as much as some politicians claim to be able to return good-paying factory and manufacturing jobs throughout, the simple truth is those jobs are increasingly rare across the board even in emerging economies. Because of automation and developments in IT solutions, among other factors, highly-paid low-skill jobs are not a by-product of the modern economy. There are highly-paid high-skill jobs and there are increasingly low-skill low-paying jobs and that's it. This also 'traps' poorer workers because they can't afford to move (even though there aren't many options to seek better economic opportunity even if they could.)

That brings up the second problem that the janitor example demonstrates - the post-industrial economy is rewarding a very small amount of high-skill/paying jobs in a highly concentrated number of urban areas. This puts enormous pressure on low-skill/pay workers to be able to afford to live in these productive places yet also increases the economic and social costs of not being able to.   A janitor in NY now makes less than a janitor in AL because the northern janitor on average pays 52% of their income on housing, while the southern janitor pays a fraction of that. NY is one of the most productive places in the country, but the high cost of living is making it impossible for low-skill low-paying workers to take advantage of it. Yet, the southern janitor is increasingly isolated socially and economically as the economy continues to evolve technologically.  Janitors everywhere are feeling the hurt with these trends and as a nation, we lose the productivity gains that these workers could provide.

The Economic Innovation Group has a truly startling graph that shows that only 73 US counties (2.5% of all counties) created over half of all jobs from 2010-2014. And they were all some of the most expensive counties to live in:

Where over half of all job creation happened in the US 2010-2014. (economic innovation group)

Where over half of all job creation happened in the US 2010-2014. (economic innovation group)

If there inverse were true - if high-skill/paying jobs were more geographically diversified - there would be a greater spread of productivity to low-skill/paying jobs to provide complimentary products and services in those areas.  But it's not true, and in fact high-skill workers are competing for housing with other high-skill workers and low-skill workers, pushing out the low skill workers.  This doesn't eliminate the need for those products and services, it just puts a significant burden on those workers to provide them, decreasing their standards of living by forcing them to pay a higher percentage of their wages to housing or by enduring higher transportation costs by moving farther away.

It's not surprising why productivity as a nation is stagnant when you see how concentrated economic growth actually is now. In geographical terms and technological terms, productivity gains are being captured by a tiny fraction of the working population and we've only just begun to see the social and political implications as a country.  If we can't bring productive work to more places and more people (which, obviously we should), we must make it easier for people to get to those places and to live comfortably there.  

As I've often said, housing policy alone can't address these broader issues.  I won't get into an argument about how policy shapes the economy and vice versa here, but given how much the economy has changed over the last 30 years, the inability of national and regional policy to change with it is one of the great scandals in America today.  And as angry as voters are across the country, there is simply not enough discussion about what needs to be done.

But we must have a national discussion about dramatically lowering the cost of housing. The US is already re-clustering around these select high-productivity urban centers that expose artificial regional and state boundaries, making the lack of national discussion astonishingly short-sighted. Many of these urban centers (NYC and SF are prime examples) have geographical limitations to growth and must organize greater regional resources devoted to increasing the ease and lowering the cost of public transit around and between these cities. Finally, land-use policies across all these cities must adapt to the need for density and height if they are to continue to prosper and provide economic diversity.

We may only have been a frontier country if you believe that the frontier is any place where people meet economic opportunity that allows them to build lives for themselves and their families.  But if we make it harder for people to access that opportunity, whether it's around the corner or across the country, we risk becoming someplace less prosperous, someplace less free.  Indeed, we risk becoming the type of place that many of our ancestors fled from.