Housing and inequality

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It's a truism to say that housing costs are one cause of inequality in developed societies and that some places - London, San Francisco, Auckland, Sydney and New York for example - have reached the point where housing unaffordability is undermining growth and development. It's also resulting in exploitative landlord practices, higher levels of homelessness, overoccupation and 'sofa surfing'.

We also know the reasons for this unaffordability - restrictive planning and land use policies. Every study tells us that this is the case yet politicians in all these places claim that can wave some sort of magic wand and build loads of extra housing without changing zoning policies or other restrictions on land availability and development.

One result of this restrictive policy environment is that poorer people are moving to less well of places - against the historic (and beneficial) direction of travel away from poorer places:

It used to be that poor people moved to rich places. A janitor in New York, for example, used to earn more than a janitor in Alabama even after adjusting for housing costs. As a result, janitors moved from Alabama to New York, in the process raising their standard of living and reducing income inequality. Today, however, after taking into account housing costs, janitors in New York earn less than janitors in Alabama. As a result, poor people no longer move to rich places. Indeed, there is now a slight trend for poor people to move to poor places because even though wages are lower in poor places, housing prices are lower yet.

The result of this - plus the evidence that internal migration to richer places has slowed - is that geographical inequalities are heightened, social mobility is reduced and economic growth is slowed.

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