Regions with better economies tend to have higher real-estate prices, but now, Virginia Postrel warns, elites in those regions have artificially pushed prices prohibitively high with land-use regulations:
As I have argued elsewhere, there are two competing models of successful American cities. One encourages a growing population, fosters a middle-class, family-centered lifestyle, and liberally permits new housing. It used to be the norm nationally, and it still predominates in the South and Southwest. The other favors long-term residents, attracts highly productive, work-driven people, focuses on aesthetic amenities, and makes it difficult to build. It prevails on the West Coast, in the Northeast and in picturesque cities such as Boulder, Colorado and Santa Fe, New Mexico. The first model spurs income convergence, the second spurs economic segregation. Both create cities that people find desirable to live in, but they attract different sorts of residents.
This segregation has social and political consequences, as it shapes perceptions — and misperceptions — of one’s fellow citizens and “normal” American life. It also has direct and indirect economic effects. “It’s a definite productivity loss,” Shoag says. “If there weren’t restrictions and you could build everywhere, it would be productive for people to move. You do make more as a waiter in LA than you do in Ohio. Preventing people from having that opportunity to move to these high-income places, making it so expensive to live there, is a loss.” That’s true not only for less-educated workers but for lower earners of all sorts, including the artists and writers who traditionally made places like New York, Los Angeles and Santa Fe cultural centers.
In their paper, Shoag and Ganong don’t look at why high- income states tightened their regulations, thereby increasing segregation by education level. One possible explanation is that as people get richer and cities get more crowded, the tradeoffs between cheaper housing for newcomers and a pleasant (or at least stable) environment for current residents look different. When postwar developers were turning California orange orchards into suburbs, residents focused on the new houses rather than the lost landscape. Now opposition to new construction is not only common but institutionalized. Well-organized residents fear losing the amenities that attracted them in the first place.
Another consideration is the difference between housing as consumption — a nice place to live — and housing as an investment, promising high returns over time. Making it hard to build new housing in a place people want to live drives up the price of the existing housing stock. Old-timers reap capital gains. Regulation, Shoag notes, “takes what should be the gain for the worker who wants to move in and turns it into the gain for the owner of the house.”
Finally, there’s the never-mentioned possibility: that the best-educated, most-affluent, most politically influential Americans like this result. They may wring their hands over inequality, but in everyday life they see segregation as a feature, not a bug. It keeps out fat people with bad taste. Paul Krugman may wax nostalgic about a childhood spent in the suburbs where plumbers and middle managers lived side by side. But I doubt that many of his fervent fans would really want to live there. If so, they might try Texas.