From the WaPo (click on link to see some good comments too):
Americans have been migrating from coastal states such as New York and California to Sunbelt mainstays such as Texas for quite some time now. But why? Are wealthy New Yorkers fleeing from oppressive tax rates? Are poorer residents in cities such as San Francisco being priced out?
Alon Levy sifts through the IRS data to get a better sense of who are actually packing their bags. And most of the migration, it turns out, appears to involve middle-class families who are seeking affordable housing: “The people moving to the Sunbelt,” he concludes, “really are being priced out.”
A few noteworthy tidbits in Levy’s data: First, richer coastal residents, when they do leave, tend to migrate to other coastal states, not to the Sunbelt, suggesting that high taxes aren’t necessarily scaring them off.
Second, in a state like California, the households that depart tend to be slightly bigger than households coming in—but still much smaller than the average household. As Levy notes, “This is only partially consistent with the explanation that those regions attract singles and [childless couples] and turn away families.”
Still, the main conclusion seems to be that housing policies on the coasts that make it harder to build and hence keep prices high are driving middle-class families southward. But why should California care?
Ryan Avent, whose new book, “The Gated City,” makes the economic case for less-restrictive housing policies, offers a case study. In the 1990s, sky-high home prices appeared to have put a major crimp on the dot-com boom in Silicon Valley, as housing costs rose faster than wages and forced workers to leave the area. That, in turn, “reduced the potential economic impact of the tech boom” and—because those tech workers were unlikely to be quite as productive outside Silicon Valley—“reduced national productivity.”
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Click here: a case study, for an excerpt from his book. Here’s an excerpt from the excerpt:
And what did that mean for the American economy? The workers that moved elsewhere didn’t give up working. They found employment in other metropolitan areas, many of which developed thriving tech sectors. Those sectors weren’t fallow fields for new firm creation; entrepreneurship rates, remember, were higher nationally than in the Bay Area. But what the economics of metropolitan geography tell us is that many small collections of firms will often be less productive and less innovative than fewer, larger firm clusters.
The forces that repelled workers from Silicon Valley, which was the intellectual heart of the country’s tech industry, reduced the potential economic impact of the tech boom. And in a not unimportant side effect, it reduced national productivity and total compensation in the economy.
During one of the great innovative periods in America’s recent history, high housing costs poured a bucket of cold water on the nation’s entrepreneurial capacity. That’s a problem. And what’s especially troubling about this example is that it wasn’t an isolated incident.
On the contrary, the same forces that drove workers away from Silicon Valley during the tech boom appear to operate in a systematic fashion, undermining the productive potential of America’s great cities and holding back the country’s job creation machine. For two decades now, the country’s internal migration has amounted to a move away from productivity, and toward stagnation.
By now, the American economy should have come farther, developed more online business models, and created more jobs. The internet has been underexploited, if you can believe it. We have been wasting years and opportunities — in part because of things like the price of a 3 bedroom house in Santa Clara.
In his book does he compare our economic migrations to non-migrating populations/economies outside the US? That is, does his theory work elsewhere?
I have a different theory,
Underwater homes limit entrepreneurship and business start ups.
Most small businesses start with a home equity loan.
I bet my theory has a lot more logic behind it.
Agreed.
I’m not so sure about his assumption that by being in bigger groups means you are more innovative. I come up with all my stuff, and it’s just little old me sitting in my bunker.
Just another reason to get Jim TV up on the web: livestream, Justin tv, etc.
Good post Jim, and good comment Jiji.
Nonsense. If anything, development restrictions were too soft. Take one look at the sea of rooftops east of I5 across all of San Diego (hell, east of I15!!!), or try driving around Santa Clara during rush hours.
Besides, prices have fallen. Does that now solve the problem?
I suppose the author meant this in a purely economic way, not taking into account the reduction in quality of life from congestion, overburdened infrastructure, loss of open space/greenbelts, etc. He MAY be right in that sense, but I’m not sold. Part of the digital age’s benefit was the ability to reduce the need for geographic proximity. Things like video conferencing, etc., makes formerly imposing distances pretty moot.
I can’t speak to the entirety of coastal CA, but I can’t recall any time in the past 40 years when the price or availability of homes was considered the main driver behind any slowdown in Silicon Valley. On the contrary, home prices are a traditional INDICATOR of economic health in the valley, home prices rising because of booms in the local jobs market and falling because the booms go bust.
The fuel that powers the Silicon Valley innovation and job creating engine is VENTURE CAPITAL, and not once have I ever heard of a VC firm deciding not to invest in a start-up because its workers wouldn’t be able to afford a home in Silicon Valley. Most VC bankers don’t care if a company’s workers are living in packing crates in Shanghai (in fact, if they were it would probably be considered a plus).
People leave otherwise desirable areas because they’re chasing disappearing jobs and shrinking salaries, not the other way around.
It sounds to me as if the person writing that book still believes that housing is an engine capable of driving the economy. Or maybe owns some land on the San Mateo County Midcoast he can’t develop because of the Coastal Commission.
GeneK is correct. Even back in the 1950’s, it was impossible to buy a house in Berkeley. the then-center of the technical world. I remember a professor friend of my parents moving to a department head position at the brand new UC San Diego and being able to buy a much nicer house in La Jolla for what they were selling the Berkeley Hills house. Everyone wanted to be where the action was.
Palo Alto was pricey, but you could buy nearby inexpensively. As land filled up and entrepreneurs and the venture capital types shifted to the other side of the bay, Palo Alto and the neighboring towns became the price leaders.
Over the last 30 years, the theory became the most highly paid and key folks would live at the center of the tech universe (and would pay the cost, no matter what it was) and the rest of the well paid employees would live near, but not at the center. Back office people would live and work elsewhere and manufacturing would go to the location offering the cheapest labor.
We are already feeling the effects of the impending IPO’s of the juggernauts such as Facebook. Sky high prices and bidding wars are back in Palo Alto and nearby areas. No matter what the State of California does to destroy business formation, Silicon Valley is still the center of technical innovation and job creation. And the venture capitalists of Sand Hill Road are not moving anytime soon.
True. My wife’s classmate’s husband works for Facebook. We visited them last month as they were looking to leave (not sell mind you) their $1,500,000 home and move up to a $4,000,000 to $6,000,000 home nearby which we toured with them. The $4 & $6 million dollar homes were nice. Their existing $1.5 was much like a older $500,000 home in San Diego.