The Double Whammy: Housing and Income Inequality

A man looks at listings of homes for sale in Los Angeles.

A man looks at listings of homes for sale in Los Angeles. AP Photo/Jae C. Hong

 

Connecting state and local government leaders

New research shows how housing and income inequality reinforce one another, effectively splitting the U.S. into two different economies.

America today faces a two-headed problem: economic inequality and housing inequality. The former has soared to heights not seen since the Gilded Age. The latter, as home prices spike in coastal superstar cities and lag in much of the country’s middle, has become a main feature of our divided, winner-take-all geography.

The two phenomena are intertwined and mutually reinforcing. Together, they act as a brake on the performance of the economy and limit both migration and upward mobility.

Those are the big takeaways from a new working paper by researchers at the International Monetary Fund (IMF). Tamim Bayoumi and Jelle Barkema examine the connections between economic inequality and housing inequality on the one hand, and migration and economic mobility on the other, across the two-decade period spanning 1996 to 2016. Their data on housing inequality comes from Zillow’s Home Value Database, which tracks housing values for more than 500 regions of the country; on income inequality, from the U.S. Census Bureau and U.S. Bureau of Labor Statistics; and on migration, from detailed Internal Revenue Service statistics on the flow of households by income.

The chart above captures the big picture. Between 1981 and 2016, income divergence—the orange line on the graph—has increased, while the divergence in housing prices—the blue line—has increased even more. Over the whole period, the ratio of housing prices to income (based on the study’s measures of logarithms of their median values) went up by nearly 40 percent, driven by the clustering of high-skilled industries and jobs and the dramatic run-up in housing prices in leading tech hubs and superstar cities. Meanwhile, the migration rate—the gray line—nose-dived, literally dropping by half.

The rise of housing inequality forms the first part of America’s core economic challenge. The widening gap in housing prices between superstar and other cities has thrown a monkey-wrench into a potential equalizer: moving to economic opportunity. This is particularly true for less skilled and less educated workers in lagging parts of the country. These folks have homes that are worth less—many of them were underwater during the Great Recession—so they are unable to foot the bill to live in dynamic and expensive cities.

Indeed, the big decline in overall migration is mainly due to the decline in the mobility of less-skilled workers moving out of trailing regions, according to the IMF study. Even as overall mobility has declined, more educated and skilled workers—those with a college degree—continue to have higher rates of inter-state mobility and are about twice as likely as others to move.

Based on detailed and granular IRS data, the study finds that “while migration out of metro areas in the lowest quartile of median income fell by 25 percent, the reductions get progressively smaller as median income rises, culminating in a fall of only 10 percent for metro areas in the top quartile.” Ultimately, the researchers’ statistical models explain as much as two-thirds of the decline in the migration of Americans between lagging and leading metros across the country.  

The consequence of this is that less skilled workers in less dynamic areas are essentially trapped there. “The key insight is a marked asymmetry in the behavior of people moving from poorer to richer metro areas compared to those moving in the reverse direction,” the authors write:

The discouragement to moving from a poor to a rich metro area coming from wider divergences in house prices has outpaced the positive impacts to migration from greater differences in incomes—the centrifugal effects of rising wealth inequality dominate the centripetal effects of more income inequality, providing a direct link between rising inequality and the problems of those “left behind.”

The divergence in incomes, or more specifically the widening geographic gap in the location of high-tech industries and high-skill jobs, forms the second part of problem. This paper adds an important wrinkle to our understanding of the relationship between skills and mobility. Other economic studies have seen a convergence in jobs and skills around the U.S., pinning the blame for declining mobility on the fact that job markets overall have become increasingly similar across cities. But the IMF study finds much greater divergence in the location of high-skill, high-tech jobs, which cluster in leading hubs and superstar cities. This lends support to the concerns of economic geographers Michael Storper and Andrés Rodríguez-Pose, who argue that spatial inequality is driven by the uneven distribution and clustering of industries and skill.

Bayoumi and Barkema contend that these two dimensions of America’s growing spatial inequality act as twin blades of a double-edged sword. On the one hand, the gap in housing prices effectively locks less advantaged people in less advantaged places, denying them the opportunities that would come from more dynamic job markets. On the other, the uneven distribution of industries and skills makes it financially infeasible for higher-skilled workers to move to second-tier cities because they lack the right jobs.

The consequence is a Darwinian sorting process, whereby more advantaged and highly skilled workers crowd into the tech hubs and superstar cities where those jobs are. “Metro areas with high house price due to limited space attract skilled workers at the expense of the unskilled,” the researchers observe. “This gentrification accumulates over time as the ratio of skilled workers in the overall work force rises, further raising wage and home price inequality.” It isn’t just that there’s too little housing, it’s that the skill composition of the economy is uneven and unbalanced. All of this spills over into crucial public services and amenities.

The places that attract more skilled, better-paid workers also gain the revenues needed to fund better schools and parks and museums and bolster their amenities. All of these things become harder to keep up in less advantaged places, exacerbating the gap between different parts of the country over time.

These two forces feed off of and reinforce each other as housing prices grow more unequal and jobs and skills continue to concentrate in a small subset of cities. “Increasing divergences in returns to land (house prices) is discouraging migration to prosperous areas even as widening divergences in returns to labor (earnings) is reducing migration in the opposite direction,” Bayoumi and Barkema add. “Prices are moving, not people.”

Hardest hit are the least advantaged, least educated, and least skilled Americans, left with no way out. The end result is the creation of two separate and geographically distinct U.S. economies, with limited interaction between them—a divide that pulls America apart culturally and politically as well.

Ultimately, this study helps us better understand the debate between market urbanists, who argue that housing forms the root of our economic challenges and who see the way out in zoning reform and increased housing supply, and others like Storper and Rodríguez-Pose, who say the problem stems from the highly skewed distribution of economic activity and skill, and who argue for place-based policies to bolster the economies of lagging areas.

As the IMF research shows, America faces a double economic challenge of housing and income inequality. There are no quick fixes or magic-bullet solutions. It requires a broad and holistic mix of policy tools, spanning economic development, the promotion of clusters and hubs, place-making, mobility, worker training, and job creation and upgrading, as well as housing and zoning reform.

Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic.

FEATURED CASE STUDIES
Powered By The Atlas
MN Water District and High School Collaborate on Stormwater and Education
Forest Lake, MN, USA
New Parking Plaza Adds Capacity & Embraces Sustainability at San Diego Airport
San Diego, CA, USA
Integrating Complete and Green Streets for Climate-Resilient Sustainable Streets
San Mateo County, CA, USA

NEXT STORY: The Whiter, Richer School District Right Next Door

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.