California has long been held up as a place of opportunity, whether or not it’s delivered on its promises.
This image has been a lure for younger generations and a catalyst for constant change and growth, through the entertainment, music, and tech industries. Today, as California’s cultural capital looms large, the state’s magnetism persists.
But California’s golden reputation has been tarnished in recent years by its high cost of living. According to a survey released last week by the Luskin School of Public Affairs at UCLA, residents of Los Angeles County have become increasingly anxious about housing costs, especially young adults. That comes as no surprise to those following the state’s rising housing costs, as well as recent legislative efforts to make California more affordable, like California senate bill SB 827, which would allow more development near transit lines.
But that’s not the entire problem. Spiraling housing costs, and the land-use restrictions that often accelerate unaffordability, don’t just push people out, but keep others out as well. Housing costs are keeping many Americans from moving to opportunity.
The Luskin study found that amid the many reasons for a decline in optimism among young Angelenos, and corresponding lower ratings on quality-of-life indexes, housing costs drove the most negative sentiment. That’s especially among people of color, who face even more pressure around rising rents and the challenges of achieving homeownership. According to a report from the California Legislative Analyst’s office, between 2007 and 2016, a million more people have left the state than have moved in from other states.
”[The rating] has been dropping like a rock these last few years,” Zev Yaroslavsky, a lecturer and survey organizer, told the Los Angeles Times. “Housing is driving the low rating. This is not shocking news, but it continues to drop.”
Today’s affordability debate rightfully focuses on the economic burdens high housing costs place on current residents, and those being driven out who can no longer afford to stay in expensive urban neighborhoods.
“Mobility of all sorts has fallen over the last 50 years; even mobility across neighborhoods has fallen,” says David Schleicher, a Yale Law professor who wrote a research paper called “Stuck: The Law and Economics of Residential Stability” about the mobility crisis. “You’ve seen a pretty big change in the ability of people to move to opportunity.”
According to data from the U.S. Census Bureau, the percentage of Americans moving over a one-year period fell to an all-time low of 11.2 percent in 2016, and the rate of domestic migration has halved since 1965. The broad economic shift toward a service economy only accentuates the value of being in larger population centers. That makes the ability to move to new jobs and find new homes even more important to growth.
The U.S. housing market, especially in expensive coastal cities, has reacted in the opposite way economic conditions dictate, restricting new supply and keeping workers away from jobs.
“When people talk about SB 827 and other [California] housing bills, they often talk about them exclusively in terms of affordability,” says Schleicher. “But that’s missing a key part of the debate. It’s also about the impact on economic output.”
A nation on the move finds itself stuck in place
Migration has long been an engine of U.S. economic growth. But in recent years, inequality has grown across regions, making finding a job that offers a chance at socioeconomic mobility in an affordable city that much more difficult.
Additionally, the rate of new business formation has slowed down: “Dynamism in Retreat,” a report by the Economic Innovation Group, shows a steep decrease in the number of new businesses being established. This slowdown is compounded by an increased concentration of opportunity in certain cities and regions, which fuels demand for housing in those regions, and accelerating what Richard Florida calls the New Urban Crisis: inequality.
According to a 2016 study by Peter Ganong, assistant professor of public policy at the University of Chicago, and Daniel Shoag, associate professor of public policy at Harvard, migration helped mediate the wealth gap between richer and poorer parts of the country for much of the 20th century. Those leaving low-income areas for high-income regions pulled down wages in the cities where they arrived, and by leaving, made the job market in their older homes more favorable to workers, boosting wages.
That equilibrium has been disrupted by strict land-use regulations, which didn’t start showing up until the ’80s, not coincidentally when it started become more difficult for poorer states to catch up to richer states. These restrictions “boosted housing costs in richer states so that migration was no longer an attractive option for low-skill, low-wage workers,” the report found, but that didn’t stop wealthier migrants and high-skilled workers from moving to wealthy places.
Ganong and Shoag discovered that the barriers created by land-use policy created a significant cost for low-income workers. It made hourly wage inequality 10 percent worse between 1980 and 2010.
The housing barrier is one of the more prevalent roadblocks among a number of economic factors discouraging migration. Noncompete clauses make it more difficult to switch jobs; occupational licensing fees and requirements have multiplied. In 1950, these regulations impacted 5 percent of jobs. Now, they affect anywhere from a quarter to a third of Americans, a number that includes more workers than labor unions.
“We have gone from a nation that moved—that followed economic opportunity—to a nation that has been fixed in place, and too often in underperforming parts of the American economy,” says Ed Glaeser, a Harvard professor who focuses his research on urban policy and economic growth.
As the Lutkin California survey found, young adults are feeling the pain. While stories about urban rebirth and renewal often talk about the scores of millennials flocking to urban centers, and it’s assumed that graduates starting to build their careers will bounce between cities and jobs in their 20s and 30s, data suggests that young adults face an uphill climb economically and aren’t moving at nearly the rates of their parents and grandparents.
The Census Bureau found that, even with full-time employment, young adults earn, on average, $2,000 less in real dollars than their peers made in 1980. And the National Household Travel Survey found that driving has increased among lower-income millennials, who have often been pushed by housing costs to live farther from employment.
According to Pew Research Center data, 25- to 35-year-olds are relocating at rates well below historical norms. In 2016, 20 percent of millennials moved sometime in the last year. When older generations were the same age as millennials now, they moved at higher rates: Gen X was at 26 percent, as was the generation between 1925 and 1942.
In an economy that demands mobility, housing regulations haven’t kept up
This slowdown in overall mobility coincides with a “sorting out” at the metro level, with expensive cities like San Francisco receiving more migrants with higher incomes than those moving about, accelerating issues of housing affordability and opportunity.
Characteristics of Domestic Cross-Metropolitan Migrants, a recent paper by BuildZoom economist Issi Romem, analyzed U.S. Census and Zillow data from 2005 to 2016 to track migration patterns. Romem found that continued stratification between expensive superstar urban centers and the rest of the country has created a larger form of gentrification. Between 2010 and 2014, 5 percent of metro areas accounted for half of U.S. job growth.
In the last few decades, cities built around tech and high-end services have prospered in ways that cities built around manufacturing haven’t. And cities embracing these changes, as well as making room for new arrivals, allow more employees to be near more potential clients—and take advantage of opportunity.
One of the reasons Texas cities are growing, and doing so with much more affordable housing stock, is a lack of regulations holding back developers. While Houston, Dallas, and increasingly pricy Austin haven’t solved the lack of affordable housing by any stretch, and sprawl is a side effect of growth, those cities are having an easier time providing more housing because developers are less constrained.
“The reason population flows into cities such as Houston and Phoenix are so large is that these cities allow you to build houses, which means you can afford to live there,” Schleicher told Curbed. “People want to live in San Francisco, but the city doesn’t accommodate their demands.”
But even some of the burgeoning Sunbelt metros, former bright spots in terms of inter-state economic mobility, have lost some of their shine. The fastest-growing states in 2017 weren’t Georgia and North Carolina, which expanded quickly in the ’90s and 2000s. As Conor Sen wrote for Bloomberg View, “their growth is slowing as they grapple with affordability and congestion problems brought about by decades of unbridled growth.”
One of the United States’s great economic advantages has been the ability of its workers to move where they could prosper. When government doesn’t address the affordable housing shortage, and workers can’t move where the economy is booming, it’s also not addressing the opportunity shortage.
Making that explicit connection not only highlights the affordability issues at the heart of many of today’s housing debates, but shows how, in the long term, continued urban growth needs more investments in human capital.
“Even where people support housing, they’re not talking about it in terms of economic growth,” says Schleicher. “[New York City mayor] Bill de Blasio, and candidates for mayor, may talk about how increasing housing is good for affordability, but they should also talk about how it’ll directly impact economic growth. Separating housing from growth is a mistake.”