On July 14th, the IRS held a public hearing for the debt-equity rule (section 385 of the IRS code) that the Treasury Department proposed last April. The hearing, which had as many as 16 speakers from various industries,...
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- Explaining Migration from Blue States Takes More Than Hou...
Explaining Migration from Blue States Takes More Than Housing Prices
Matt Yglesias at Vox today argues that migration out of “blue states” is caused by high housing prices, not taxes, and high housing prices are essentially a function of bad zoning laws in “blue” cities. Yglesias literally wrote the book on this topic, and his argument is backed up in some ways up by some compelling academic research, so it’s well worth taking seriously. And, as far as it goes, there’s an element of truth: virtually every academic studying migration would agree that cost of living factors, especially housing costs, have an important role in determining migration patterns.
But Yglesias’ “explainer” doesn’t offer a real explanation of what this means, and how housing prices relate to the broader migration debate. He suggests that the price map we created is merely a reflection of housing prices, yet doesn’t even offer a comparison to other price categories. The BEA makes available four different sets of price parities: all consumption, rents, goods, and other services. Our state and metro area maps presented just the parities for all consumption, but it’s easy enough to compare to other categories.
Yglesias, and others he cites, suggests that, because the amount of variation in rent price parities is very large (larger than other categories), it is therefore the only really important component. The problem, of course, is that this argument is wrong. While rent does vary more widely than prices for goods or other services, it varies in a systematically similar way. Even when no controls for housing policies are included, variation in service prices can explain 65 percent of the variation in housing prices, and while variation in goods can explain 58 percent. These are very high numbers for a single-variable explanation.
This suggests that we can’t just draw a line from housing policy to migration, because we can’t even draw a direct line from housing policy to price levels: areas with restrictive zoning policies are closely correlated with areas that also have restrictive geographies and other significant price effects. Migration and regional economics are too complicated to just blame housing policy. Zoning definitely drives up prices: but apparently a large part of high housing prices is explained by generally higher price levels for all kinds of goods.
The argument that housing prices are simply driven by high demand for high wages in areas of restrictive zoning is likewise complicated by the actual data on the subject. It may be that people move to New York City for high wages, and so demand for housing rises, thus prices rise. But it also may be that firms in DC have to offer high wages in order to persuade people to tolerate high rents, bad traffic, and crowded urban living.
In fact, if we look at price changes instead of price levels from 2008 to 2012, there is very little correlation between changes in nominal wages (a reasonably proxy for changes in labor demand, used in the academic research Yglesias cites) and changes in price levels, except in the most extreme cases. This suggests that, whatever the connection between local labor demand and housing prices, it isn’t as simple as Yglesias explains.
It’s true that housing prices matter. Local job creation likewise obviously impacts migration and prices. But, as we’ve pointed out, local fiscal policy can also impact housing prices. Furthermore, housing prices aren’t all that matter, especially for migration. People migrate for weather, for family, for jobs, for a better quality of life, and, yes, for a lower cost of living: including both lower housing costs and lower tax burdens. The trite suggestion that everybody wants to move into “blue state” cities, but is simply priced out by zoning laws, simply isn’t true. As surprising as it may be to Yglesias, not everyone wants to live in mid-rise apartment buildings surrounded like light rail and dog parks: people have widely varying preferences, and many people (this author included) enjoy rolling hills, open land, and cheap backyard barbecue.
Read more on migration here.
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