Blame housing prices for America's yawning income gap

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Business Insider

By:  Jill Krasny

October 17, 2012

Income inequality has hit a crescendo, soaring past levels seen in the Great Depression.

Citing Jonathan D. Ostry of the International Monetary Fund, Anne Lowrey writes in the Times that "growth becomes more fragile" when we see such glaring disparities. 

But Americans would be wrong to pin the blame solely on Wall Street or the haves and have nots, according to a new paper by researchers at Harvard University. The real culprit here is housing, and the trend's been evolving for thirty years.

The professors argue that the more it costs to live in a city, the more low-income workers will be priced out. While this makes sense on the surface, they point out that it wasn't always the case in this country.

From 1940-1969, low-income people gradually moved from poorer metros to ones promising economic growth, bringing their talent to various industries and boosting their paychecks in the process. The trend was convergent, meaning that as the workers' paychecks and opportunities grew, so too did the cities' populations. Arizona, California, Florida and Nevada did exceptionally well.

However, between 1981-2010, the flow of the poor to the wealthy states began to subside. "As an example, from 2000 to 2010 Utah's population grew by 24 percent whereas Massachusetts' population grew by just 3 percent," wrote Peter Ganong, a doctoral student in economics, who wrote the paper with Daniel Shoag, a professor of public policy. "This occurred even though per capita incomes in Massachusetts were 55 percent higher in 2000."

Now that "the difference in housing prices between rich and poor areas has become increasingly large relative to the differences in income ... low-skilled workers are especially sensitive to changes."

We're seeing this trend play out on the micro level: In New York, Mayor Bloomberg launched a contest for architects to build eco-chic mini-dwellings for young professionals, and in San Francisco, millennial entrepreneurs are relocating from the suburbs of Menlo Park to hipper digs in the city in an effort to attract top-shelf coders (via / Inc.).

And for the people who stand to benefit, all of these sound like savvy moves. But seeing as America's poor can barely afford to rent an apartment much less a single-family home, it's beginning to look like poor people will be forced to stay put or settle for lackluster area codes. 

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This page contains a single entry by CFED published on October 18, 2012 4:21 PM.

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