This has enormous implications for the country as a whole, leading to a stratification of America, in which the wealthy and skilled live in certain amenity-rich cities and low-income people are increasingly stuck in places with few opportunities. “The American Dream is, at its core, that people who are looking for economic opportunity can pick up and move to that opportunity,” Ganong told me. “That is cast into doubt when places with economic opportunity also have crazy expensive housing.”
I spoke with a woman named Veronica Cantu, who recently left San Jose, where she made $26 an hour as a home health aide, for Merced, where her hourly wage was $10.65 until she lost her job in September. The differences in rent and quality of life made the move worth it despite the lower wages, she told me. Her family had been paying $1700 a month for a three-bedroom duplex in the town of Morgan Hill near Silicon Valley. In Merced, they’re paying $800 a month for a four-bedroom house. “For us, I guess, money wasn't the biggest thing to chase after,” she said, when explaining her motivation for leaving Silicon Valley behind.
Of course, high-income cities have always had higher housing prices than low-income areas. But prices in a handful of areas have gotten astronomically higher in recent decades, enough so that they offset the relatively higher wages they offer to low-skilled residents. Though historical Census data does not exist for home values at the city level, there is data showing growing disparities among states. Between 1940 and 1980, housing prices in California were, on average, just 35 percent higher than those in the rest of the country, even though millions of people were pouring into the state, according to another recent working paper by the economists Kyle Herkenhoff, Lee Ohanian, and Edward Prescott. By 1990, though, prices in California were 262 percent higher than those in the rest of the country.
What changed? According to Ganong, the reason is that certain cities have increased regulations on development, slowing the construction of new units. “It used to be when a lot of people move to places, we build more houses,” he said. “Now, we don't build more houses, and instead, poor people move out.” Ganong and Shoag find that places where the term “land use” has become more and more frequently used in state supreme and appellate court cases—an indication of when cities implement controversial new tactics to restrict construction, and those tactics are then litigated—are also those with the largest growth in housing prices.
These building restrictions are varied—they may increase the amount of time it takes to get a building permit, mandate that housing has space set aside for parking, or simply restrict the number of units that can be built on a certain parcel of land. They both make the cost of construction more expensive and restrict the number of units that can be built. These restrictions are a relatively recent phenomenon, the result of what Ed Glaeser, an economist at Harvard, calls a “property-rights revolution” since the 1960s in which homeowners increasingly oppose development in their neighborhoods, and pass regulations to limit growth.