Economic Seesaw: Housing vs. Growth

After World War II, the United States witnessed a massive internal migration of its citizens to sunny California where economic opportunities were exploding: manufacturing jobs, particularly in what became the aerospace industry, real estate development and an entirely new trading connection with the Far East. The entire west coast benefited from this transitional moment. The automotive industry also benefited as returning soldiers found great jobs in Detroit and the surrounding neighborhoods and states.

But the world slowly changed. Foreign competition slammed many of the hard manufacturing industries, and while the tech industry seemed to save California from suffering too much in the “rust belt decline,” the newfound wealth created another massive problem for Californians in the big “cool” cities: the cost of housing skyrocketed. San Francisco and the Silicon Valley are among the most expensive cities in the world right now. In fact, the City of San Francisco just passed the $1 million average home price sales threshold (enjoy the 800 square feet it can buy you!). Wall Street and corporate America pushed New York housing costs through the roof as well.

But the conservative South has been touting that its low taxes and pro-business stance, its aversion to regulation, has been the “job creation” driving force in the next “new” migration from North to the warmer and seemingly friendlier South. But as New York Times columnist, economist Paul Krugman notes, the job picture in the South is hardly rosy; it is not false “job creation” policies but the cost of housing seems to be the real driver. The jobs in the South tend to be a source of cheap labor for companies not particularly concerned with anything more than a bottom line with reduced costs.

“It turns out, however, that wages in the places within the United States attracting the most migrants are typically lower than in the places those migrants come from, suggesting that the places Americans are leaving actually have higher productivity and more job opportunities than the places they’re going. The average job in greater Houston pays 12 percent less than the average job in greater New York; the average job in greater Atlanta pays 22 percent less.

“So why are people moving to these relatively low-wage areas? Because living there is cheaper, basically because of housing. According to the Bureau of Economic Analysis, rents (including the equivalent rent involved in buying a house) in metropolitan New York are about 60 percent higher than in Houston, 70 percent higher than in Atlanta.” New York Times, August 24^th.

Krugman argues that if we want strong job growth in a people-friendly community, the emphasis has to be a very clear focus on encouraging massive new affordable housing. The next time you visit high cost cities like New York or San Francisco, ask yourself how and where the lower echelon of the workforce lives? Clerks. Secretaries. Cooks. Construction workers. Cab drivers. Etc. Public housing? Where it exists. Distant communities where commuting is a bitch? Sharing rentals, stacked like sardines? Living in closet-sized apartments?  

Unless and until expensive communities deal with the lack of affordable housing in their communities, they can expect to see a continued exodus of the worker bees to friendlier regions. The cost of local services will continue to soar in those expensive communities. Restaurants will cost more. Hotels will cost more. Local transportation will rise far faster than the national cost of living increases. Etc. Etc.

I’m Peter Dekom, and if we want our highest value-creation communities to continue to attract solid workers and prosper, we really have to deal with the elephant in the room: affordable housing.