The rise of a few ‘superstar cities’ hobbles the job and housing markets

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The view on street from the hill in San-Francisco.

America has fallen — and it can’t get up.

Surging home prices and rising income inequality are reducing migration and leaving some Americans “left behind” in stagnant communities, according to a research paper published in June. Even worse, those dynamics feed on themselves, making the problem more intractable.

Despite America’s history as a beacon of opportunity, upward mobility, and shifting frontiers, “the United States’ status as the global poster child of dynamic labor mobility is waning,” write the researchers in a paper published by the International Monetary Fund.

The paper’s authors use Census data on migration, the Zillow Home Value Database and income data from the Census and Labor departments to make their case, that a steep decline in interstate migration — it halved between 1980 and 2016 — can be attributed to what they call “increasing differences” in house prices. That discourages workers from leaving low-cost areas with fewer opportunities for “more productive ones with brighter prospects — the kind of mobility that best supports economic opportunity and vibrancy.”

See: As the housing market stagnates, American homeowners are staying put for the longest stretches ever

At the same time, there have been fewer incentives for people to move in the other direction – from higher-opportunity, higher-cost areas to communities that offer diminishing prospects but that offer cheaper housing. That’s intuitive, perhaps, and borne out by data and anecdotal evidence of people increasingly crammed into high-cost metros like San Francisco and Seattle, even if they have to live in the far-flung suburbs and bedroom communities and endure long commutes.

But the authors of the IMF paper add a twist. The dynamic described above is “self-reinforcing,” they argue. “Gentrification accumulates over time as the ratio of skilled workers in the overall work force rises, further raising wage and home price inequality,” they write. “As well-paid workers cluster in high-productivity metro areas, lower earnings and less attractive amenities elsewhere reduce migration to poorer areas.”

See: This chart shows the haves and have-nots of the housing market, and it’s getting worse

This trend doesn’t just have an impact on high-priced metro areas and on low-priced metro areas. It also shapes the entire labor force by discouraging “churn.”

“Since lower labor market churning leads to a less-efficient allocation of labor, it also reduces productivity and output,” the researchers write.

This is all happening within the context of an increasingly uneven playing field. The researchers note other factors which have contributed:

• The housing crisis a decade ago and subsequent distress in both housing and labor markets;

Job losses in manufacturing that have disproportionately impacted certain areas of the country;

• The pay gap between Americans with more and less education that has risen steadily, nudged by advances in technology and declining participation in labor unions that typically bring higher wages and better benefits;

• Increasingly scarce property in “superstar cities” reinforces inequality: “those with high future earnings potential have crowded into successful metro areas and gentrified them,” the researchers write. “As predicted by models of superstar cities, the increase in house price and income inequality are closely linked.”

Despite all that, the researchers are able to offer some policy prescriptions, though none will come easy. They recommend updating land-use regulations, and lowering economic and racial segregation, and point out that improving transportation and public transit would broaden the reach of prosperous metro areas. Past research, they write, has also determined that “targeted support that allows firms to adapt and workers to gain new skills is more effective than more general support.”

Related: The housing we want for America is still out of reach



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