December 27, 2012

Environmentalism adds to inequality

Part of my project of noticing what's in front of one's nose is to finally incorporate real estate into intellectual discourse, front and center Most people spend a lot of time thinking about where they'd like to live and and how much it would cost, the interesting implications of this natural human obsession were largely ignored in high-end intellectual discourse in the later years of the 20th Century. Too mundane, or something.

In this century, we see a few academics start to tug at various corners of this over-arching web of causality.

Much of the current Red-Blue divide in how states vote for President evolved only over the last generation. The Gap now closely correlates with housing prices by state: e.g., the expensive San Francisco Bay area votes Democratic and the cheap Dallas-Fort Worth metroplex votes Republican.

But, differences in housing prices were not so striking in the past. For example, homes in Los Angeles were no more expensive than the national average up through 1975. 

An article in the Harvard Magazine overlooks the political implications, but does track history of differences in housing prices to a divergence in land use regulation in the 1970s:
Immobile Labor 
by Ashley Pettus 
January-February 2013 
FOR 100 YEARS, the United States experienced a steady decline in income disparities between the richest and poorest states—with Mississippi and Alabama, for example, beginning to catch up to the more prosperous Connecticut and New York. But this equalizing trend ceased after 1980. Why? According to Daniel Shoag, assistant professor of public policy at the Kennedy School’s Taubman Center for State and Local Government, housing prices explain a large part of the puzzle. In a recent working paper coauthored with doctoral candidate in economics Peter Ganong, Shoag found that land-use restrictions in high-income locales have created barriers to entry for less-skilled workers, exacerbating inequality and threatening labor mobility—a key component of a healthy economy. 
Economists have long viewed the leveling of U.S. regional incomes as a prime example of “convergence”—the principle that, in a market system, poor economies will grow faster than rich economies as capital moves in search of greater productivity gains. Yet this “capital mobility” theory doesn’t explain why the nation’s wealth gap stopped closing 30 years ago, leaving poor states still a sizable distance behind. 
Shoag and Ganong posited that something more than mobile capital had to be involved to account for the end of the convergence effect. By digging into census records, they found that a pattern of directed labor migration (people moving to more productive places in search of higher earnings) could explain 40 percent to 75 percent of the century-long growth in economic equality among states. As more workers moved into higher-income areas, wages there began to fall, and human capital began to even out, while in the areas that were losing workers, wages began to rise, drawing more people into the workforce and increasing average incomes. “When this directed migration stopped,” Shoag explains, “income convergence also stopped.” 
He and Ganong suspected that housing markets might explain why people stopped moving. What they found startled them. “Of course, rich places have always had higher housing prices than poor places,” Shoag notes, “but after 1980, the slope doubles.” The steep rise in housing costs in places like New York City, Boston, and San Francisco has had a direct impact on migration patterns and, hence, on convergence. Even though highly skilled workers in fields like finance or high tech have continued to move to these cities, low-skilled workers no longer have an incentive to do so because the higher cost of living now outweighs the likely income gains. Instead of poorer people moving to New York, pushing down wages there, while bidding up wages in poor areas, and skills equilibrating across places, “What you now get is skill sorting,” Shoag explains. “High-skilled people continue to move in, while poor people start moving out.”
What caused housing markets to change? The researchers created an index of regulation that could predict the flexibility of housing supply in different states in response to demand. Using an online database, they measured the number of times the phrase “land use” appeared in appellate court cases by state and year, and found that land-use restrictions became more common nationwide in the 1970s, but that not all states became strict regulators.

The Have places (e.g., Northern California) had gone heavily for land use regulations while the Have Less places (e.g., Northern Texas) had not.
The frequency of “land use” references in a state’s legal history proved a good predictor of whether a state would develop a high-regulation housing economy with constrained supply. By measuring regulation levels, Shoag and Ganong were able to test their hypothesis: they found that regulations limit housing supply by reducing the number of permits for new construction, and raising prices. This lowers net migration, and thus slows human-capital convergence and income convergence.

It's worth noting an important distinction in regulations on land use between new construction (which are enforced with severity) and land use regulations on existing construction (which often get a wink and a nod). Recall how The Edge of U2 has hired half the ex-legislators in Sacramento in his struggle to build five houses on a ridge in Malibu. In contrast, 20 miles away in Northridge, a resident of an illegal boarding house holding 17 people in a one family home murdered four other people.

Americans, used to having a certain standard of living, move out of regions with strict regulations against new construction and unenforced limits on overcrowding existing construction. Foreigners, who will live 17 to a single family home, move in.
The authors have yet to investigate why increased regulation took hold in certain states, but they do know that land restrictions preceded the concentrations of wealth.

Land use regulations tended to take off first in places like Northern California where you have a combination of really nice land hemmed in by deep water, lots of local high-end wealth producing businesses, and a post-Puritan tradition conducive to elitism.

From the working paper:
During the period of strong convergence prior to 1980, population flowed from poor to rich states, and changes in population were also well-predicted by initial income. Figure 3 plots the relationship between the twenty year changes in log population and initial log income per-capita for the period 1940-1960. Over those decades, a doubling in initial income per capita was associated with an 1.6 percentage point higher annual growth rate in population. Four states – Arizona, California, Florida, and Nevada – had high average incomes and grew extremely quickly.

Hey, those states that grew both in population and wealth in the good old days --  Arizona, California, Florida, and Nevada -- where have we ever heard of them before? Oh, yeah, they are Michael Lewis's Sand States, the one's where the popping of the Housing Bubble set of the current recession. Funny how new arrivals in the Sand States did so well in 1960-1980, but not so hot in the 21st Century. I wonder what changed?
In the last thirty years, this pattern has largely disappeared. ... As an example, from 2000 to 2010 Utah’s population grew by 24% wheareas Massachusetts’s populaion grew by just 3%. This occured even though per capita incomes in Massachusetts were 55% higher in 2000.

And, funny thing is, people in Massachusetts like getting richer without getting more crowded. They like improving the quality of newcomers. Now, it's hard to fit Massachusetts' successful policies of snobbism in with Massachusetts' loudly proclaimed ideology of equality, but such is the way of the world.

34 comments:

Bostonian said...

When Hispanics eventually take power in California, won't they roll back land use regulations?

sunbeam said...

" As more workers moved into higher-income areas, wages there began to fall, and human capital began to even out, while in the areas that were losing workers, wages began to rise, drawing more people into the workforce and increasing average incomes. "

This is the most interesting part of this article.

I think the crux of the question is exactly the mechanics of how the high income areas in question have appropriated a greater share of income earned in the US.

There's not just one reason, nor do I think it is all attributable to "merit," however anyone cares to define it.

I think this portends some serious troubles ahead aside from all the other ones we face.

Simon said...

Australia is an extreme case, where there are is no escape from left wing land regulation. The median house price of a home in Sydney is $620,000 US.

The social implications of high land prices caused by restrictions combined with high immigration are very rarely discussed in Australia. The banking industry has profited very handsomely from the massive mortgages encouraged by such an arrangement!

Anonymous said...

High real estate prices have more to do with land value taxation than environmentalism and land use regulations. Land value taxation is very low, and this encourages speculation, absentee ownership, landlords, etc. and drives up prices. If land rents were largely taxed away, being a middle-man would no longer be worth the bother. Prices would fall to what more people can afford.

Anonymous said...

It's amazing to me that some Cal State university doesn't hire Steve as a lecturer or professor. He is far more intellectually productive than 99% of the CS faculty and I bet his courses would pack in students and auditors. Think about those Chicano dumbos taking up space at Cal State Chico who can't defend even a simple point of their scholarship, that America was founded by white savages who committed genocide, with an undergraduate, so they feel the need to file a harassment complaint against a polite well mannered student (Neil O'Brien) who showed up during office hours. One of those salaries could be lining Steve's pocket.

In fact, Steve would make an absolutely fabulous Chicano Studies professor who would actually do significant research into the lives and history of Latinos living in America.

Anonymous said...

"Property Tax Shift Successes

WHERE THE PROPERTY TAX SHIFT HAS WORKED:
26 CASE SUMMARIES"

http://www.progress.org/archive/geono05.htm

"California, 1890s. Back then, many farmers and miners went without water because cattlemen like Henry Miller owned 1,000,000 acres of land. Miller could drive his herds from Mexico to Oregon and spend every night on his own land. In 1886 Miller won full rights to the water of the Kern River.

Some people concerned with justice figured the cattlemen had gone far enough. The state government passed the 1887 Wright Act which allowed communities to create by popular vote irrigation districts to build dams and canals and pay for them by taxing the resultant rise in land value. Once irrigated, land was too valuable to use for grazing, and the tax made it too costly for hoarding. So cattlemen sold off fields to farmers and at prices the farmers could afford.

In ten years, the Central Valley was transformed into over 7,000 independent farms. Over the next few decades, those tree-less, semi-arid plains became the "bread basket of America", one of the most productive areas on the planet."

sunbeam said...

Didn't Henry George have something about that? I think I've read about him, or at least his ideas referenced in some odd places, though I've never understood what his idea was.

Anonymous said...

no country for naked men

http://www.sfgate.com/bayarea/nevius/article/Castro-naked-guys-have-gone-too-far-3867094.php#ixzz26YwSB2PW

Anonymous said...

When Hispanics eventually take power in California, won't they roll back land use regulations?

No, but it will be possible to circumvent them, e.g., bribery, influence, organized squatter movements.

Cennbeorc

Anonymous said...

Well, the most equal state is Vermont heavily into the enviromental movement. Some of the least equal are Texas not as much into the enviroment. Immirgation not much more so than enviromental caused inequality.

Anonymous said...






































Housing prices maybe at the most 50,000 thru enviromental control. Most caused by loose lending. Orange County would only cost 250,000 average if it was just enviromental. The 450,000 average came because of the loose lending of the 2002 to 2008 period.




Anonymous said...

"When Hispanics eventually take power in California, won't they roll back land use regulations?

No, but it will be possible to circumvent them, e.g., bribery, influence, organized squatter movements."

I agree that Hispanics will not abolish regulations or regulatory authorities. There is nothing a person with Spanish blood enjoys more than sitting at a desk and imposing convoluted and nonsensical rules -- it gives them joy and a sense of potency sending you to the back of the line with vague instructions on how to properly fill out a ten page form to get your lawn clippings picked up from the front of your house on Tuesday.

Anonymous said...

"In ten years, the Central Valley was transformed into over 7,000 independent farms. Over the next few decades, those tree-less, semi-arid plains became the "bread basket of America", one of the most productive areas on the planet."

It may still be the most productive area on the planet, but there is now another interesting side of the story:



"Census shows Central Valley areas among poorest in nation"

"In California, one in six residents lived in poverty. ...

"We have an issue of skills mismatch,"..."





http://www.economist.com/node/15331478

"California's Central Valley: The Appalachia of the West"

"California’s agricultural heartland threatens to become a wasteland...

A big problem is that the workforce in the Central Valley is badly educated...

These demographic trends, combined with the water shortage, are causing worry."


This is somewhat related to the "17 people living in one house." There seem to often be scandals in the Central Valley and Monterey Bay areas over migrant ag workers living in caves:

Farm Workers Claim They Must Live in Caves, File Suit, September 24, 1985

No news here, just more of same:

Authorities Find Squalid Migrant Camps, Caves, Sep. 10, 1991

What say the good professors about the cost of a good cave, dugout, soddy, or lean-to?

Anonymous said...

Well, South Texas is one of the poorest regions in the Us, houses are shacks or old mobile homes. Some parts didn't have sewer or electricity similar to living in Mexico. In fact a lot of the workforce of Brownsville Texas comes from the otherside in Mexico. No enviromential regulations like Ca but similar to California Imperial Valley. Rural with few paying jobs about 25,000.Unemployment lower than Imperial Valley. There are 500,000 in the Texas Colony area of South Texas and almost all of them are Mexcians.

Anonymous said...

Not all but some of south Texas still has difficulty with sewage and electricity.

JR said...

I think this all adds up to saying: Land use regulations are used to keep the poor out -- which is nearly self-evident

Anonymous said...

Land usage doesn't always keep the poor out, La had lots of apartments and older tract houses that rent to more than one family. In fact, zoning is not enforce in California since the ACLU sue the cities in La County and Orange County over it 30 years ago saying you can't force poor people to only house 10 people or less. However, the good needs for La rent is skyhigh so more Hispanics are moving to the Inland empire whose rent is closer to the national average. La would probably now be 60 percent hispanic if the rent didn't go up as much its now only 48 percent.

Anonymous said...

Well, outside of the Bay Area most of the high rent and housing took place under George W Bush. In the 1990's La and Orange and San Diego cost of living was above the national average but less than the eastcoast and the Bay area, once George W Bush became president and lowered the downpayment requiremnts tract housing cost exploded from houses in La around 250,000 to 550,000. Rent currently I think average is 1,700, granted it can be under 1,000 in the barrio for studios and one bedrooms but it can be well in the 2,000's in a half nice place.

Anonymous said...

Another thing that wasn't always considered in pricing of housing driven up by foreign buyers, in the late 1980's or early 1990's Japan had several people with foreign investment now its people from China mainly for California and people from Canada for Arizona.

Anonymous said...

High real estate prices have more to do with land value taxation than environmentalism and land use regulations. Land value taxation is very low, and this encourages speculation, absentee ownership, landlords, etc. and drives up prices. If land rents were largely taxed away, being a middle-man would no longer be worth the bother. Prices would fall to what more people can afford.

Yeah, that is right. Taxes on a $1 million house in California are lower than taxes on a $250k house in Texas. California has income tax which is easier to avoid than property tax. Property tax also gets those in the cash economy because even if they pay their rent in cash, the owner still passes on the taxes. So an illegal in Texas is paying far more tax than an illegal in California.

Anthony said...

Lower property taxes from Prop 13 explain California's housing price boom of the early 80s. Housing price booms since then can't be blamed on lowering property taxes.

pat said...

Forty years ago when I was in school and read a lot of Science Fiction, the future of real estate looked very different.

We are all living in the future that we had read about when we were younger. Often this realization elicits the question - Where are all the personl helicopters?. My question is - Where are the arcologies?

No one really ever thought that we could use helicopters or planes to commute to work. That whole notion only lived on "Popular Science" magazine covers. It doesn't survive even the most cursory contemplaion. But arcologies were in many serious Sci Fi novels and stories. People took the idea seriously.

The idea was that all humnans would be jammed into these mountain size buildings and the land would be human free. The world would look empty everywhere.

No more. Not only are there no arcologies but there are not even any arcology stories. It's an idea that came and went.

Albertosaurus

Anonymous said...

"My question is - Where are the arcologies?"

Weren't these often dystopias? I can't think of arcologies without recalling Asimov's The Caves of Steel. To me these seemed really unpleasent. The sort of thing that a New Yorker might think of as attractive, but I found like the description of a prison. Of course, that may have just been my bias reading Asimov. I never did like his ultra-PC characters with no names that could be traced to ethnicity; his characters seemed cardboard.

If not near-prisons, these arcologies often seemed "last survivor" redoubts. SF authors liked those. For instance, the one in Arthur Clarke's The City and the Stars.

Anonymous said...

Anon 7:08, try Niven and Pournelle's Oath of Fealty. A bit more positive about arcologies.

Anonymous said...

Well, illegals tend to not own property compared to whites, looking at the most illegal immirgation area of Santa Ana 69 percent are now renters since the housing bust. Now in Texas property is cheaper so yes they may be more likely to be property owners.

ben tillman said...

Thorstein Veblen explained this already in 1899.

Anonymous said...

Well, I do think you have a point Texas has no income tax, so property tax is heavily while California is the opposite and taxes tend to be progressive. on the other hand, Florida and Nevada with no state income did get hit. I try to get folks in California to shift from income tax to propety taxes as an idea but they benefit a lot from prop 13 but they are also the types that move to Texas.

Anonymous said...

Grover Norqust encourages legalizaton for cheap labor and in 2020 Welfare state grows more than ever.

Anonymous said...

It's been nearly 20 years since California Gov. Pete Wilson won re-election by tying his campaign to the anti-illegal immigrant measure Proposition 187. Ads featuring grainy images of presumably young Hispanic males crossing the border energized a largely white electorate terrified of being overwhelmed, financially and socially, by the incoming foreign hordes.

Essentially, immigration into the L.A. Basin fell 27.5 percent while immigration nationwide remained essentially stable; the numbers of Houston, Dallas, Seattle, Washington and New York, in contrast, remained level or grew.

Anonymous said...

Particularly troubling has been the relative decline in Asian immigrants, whose numbers (http://tiny.cc/4z3xpw) now surpass Hispanics, and who also tend to be better educated than other newcomers. An analysis of migration of Asians (http://tiny.cc/x13xpw) conducted by demographer Wendell Cox, shows Asians heading increasingly to places like Houston, Dallas-Fort Worth, Raleigh, N.C., and Nashville, Tenn. Still home to the largest concentration of Asian-Americans, the L.A. Basin's growth rate is now among the lowest in the nation, 24 percent in the past decade, compared with 39 percent in New York, and more than 70 percent in Dallas-Fort Worth and Houston.

Some, like USC's Dowell Myers (http://tiny.cc/ba3xpw), suggest slowing migration and population growth may actually be a positive, and claims "the demographic picture is brighter than it is has been in decades." He suggests that, rather than depend on the energy of newcomers, we now ride on "the skills of homegrown Californians."

Certainly, slower growth may help with our traffic problems and even provide a break on housing inflation, but the contours of our demographics appear less than favorable. Over the past decade, for example, virtually all the largest metropolitan areas – including Silicon Valley – have seen slower percentage growth in college graduates than the national average. The big exception has been Riverside-San Bernardino, which started from a low base but has appeared to attract some college-educated people from the more expensive coastal regions

Anonymous said...

In contrast, largest rate of growth in educated people has taken place in regions such as Raleigh, N.C.; Austin, Texas, Phoenix and Houston; all these cities have increased the number of bachelor's degrees at least one-third more quickly than the major California cities. Although California retains a strong educational edge, this is gradually eroding (http://tiny.cc/c93xpw), particularly among our younger cohorts. In the population over age 65, California ranks an impressive fourth in terms of people with bachelor's or higher degrees; but in the population under 35 our ranking falls to a mediocre 28th. If we are becoming more reliant on our native sons than in the past, we may be facing some serious trouble.

This pattern can also be seen in those with graduate educations, where we are also losing our edge, ranking 19th among the younger cohort. More worrying still is the dismal situation at our grade schools, where California now ranks an abysmal 50th in high school attainment. Our students now rank among the worst-performing in the nation (http://tiny.cc/lj3xpw) in such critical areas as science and math.

If these issues are not addressed forcefully, what then is our demographic trajectory? One element seems to be a decline in the numbers of children, particularly in the expensive coastal areas. Over the past decade, according to the Census, the Los Angeles-Orange County region has suffered among the most precipitous drops in its population under age 15 – more than 12 percent – than any large U.S. metropolitan area.

The numbers are staggering: in 2010 the region had 363,000 fewer people under age 15 than a decade earlier, while competitors such as Dallas-Fort Worth and Houston increased their youngsters by over 250,000 each. Orange County alone suffered an 8 percent decline in its under-15 population, a net loss of 54,000.

Anonymous said...


If current trends continue, we may not be able to rely on immigrants to make up for an nascent demographic or vitality deficit. In fact, demographer Ali Modarres (http://tiny.cc/5c3xpw) notes that L.A.'s foreign born-population is now older than the native-born, as their offspring head off for opportunities in lower-cost, faster-growing regions.

Ultimately the state's political and economic leadership needs to confront these demographic shifts, and the potential threat they pose to our prosperity. We can't just delude ourselves that we attract the "best and brightest" from other states without creating improving the basics critical to families, from other states and abroad, such as education, reasonable housing costs and business climate. California 's beauty, great weather and a bounteous legacy remain great assets, but the state can no longer rest on its laurels if it hope to attract, and retain, a productive population capable of rebuilding our state's now-faded promise.

Joel Kotkin is a Register editorial writer and a Distinguished Presidential Fellow in Urban Futures at Chapman University. He is the executive editor of www.newgeography.com.
Joel is a big supporter of lots of immirgation maybe the regulation isn't all bad.

Anonymous said...


1. New Mexico

1. New Mexico



2. Arizona

2. California



3. California

3. Georgia



4. Georgia

4. Mississippi



5. New York

5. Arizona



6. Louisiana

6. New York



7. Texas

7. Texas



8. Massachusetts

8. Oklahoma



9. Illinois

9. Tennessee



10. Mississippi

10. Louisiana



Greatest Increases in Income Inequality Between the Top and the Bottom
It doesn't matter Red versus Blue usually it seems to have to do with a large minority population or high costs in a few states.

Anonymous said...

"California 's beauty, great weather and a bounteous legacy remain great assets, but the state can no longer rest on its laurels if it hope to attract, and retain, a productive population capable of rebuilding our state's now-faded promise."

In many places these days, no longer empty frontiers, the idea of creating prosperity by attracting "high-class immigrants" seems like prostitution logic. Ultimately you need to pull your own weight in the world.