Tuesday, January 18, 2011

Fast metro growth predicts lower incomes, and why that's a good thing

Houston Tomorrow recently featured a story about a study claiming that faster urban growth leads to lower incomes and higher poverty and unemployment.  I find the whole assertion deeply flawed, as does UH professor Peter Bishop in his comment.

Here's what's happening:
  • A city gets to the point it's difficult to add new housing to meet demand.  It might be because of regulations, geography, or transportation limitations (or probably all three), but regardless, the effect is the same.  In the U.S., this is the case in cities like NYC, LA, SF, Boston, and others.
  • Of course, if new housing is hard to add, then growth must slow.
  • Since housing supply is now constrained, prices go up, sometimes way, way up.
  • Poorer people can no longer afford to live in the city.  Lower incomes move out (or are generally displaced as their neighborhoods gentrify).  Unemployed move out (or just don't come in in the first place looking for new work).  
  • Voila, the average income in the city increases as the poor and unemployed move out.  Note that their situation didn't get any better (in fact, it probably got worse), but they're just no longer counted in that city's statistics.
Now, I think most people would agree this is not a very healthy scenario or a model for cities across the country (if every city did it, where exactly would we move all the poor people?).  But now an academic comes along and finds a simple correlation between slow growth and high incomes, so slow growth must be the prescription for a better city, right?  Quick, let's pass some laws banning employers from adding any new jobs.  I'm sure our incomes will start taking off in no time.  See the absurdity?

The reality is that high growth cities are opportunity cities, and people move there (inc. poor and unemployed people) to take advantage of those opportunities (inc. affordable housing) so they can improve their and their family's lot in life.  Doesn't that seem like a better model?  In fact, in this economy, wouldn't you think that should be the model for all our cities?

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At 4:05 PM, January 18, 2011, Blogger Peter said...

When I was 24 years old in 1985, I made $600 per month. I was poor... but I was a grad student. I was about to get my MS degree and get hired by a multinational.

But, just looking at income does not differentiate between me and a $600 per month laborer.

I propose that INCOME is a nonsense indicator.

Ironically, I just came back yesterday from Delhi, India. I think Delhi would definitely qualify as a low income, high growth city in a very bad kind of way!

At 8:58 PM, January 18, 2011, Blogger Rail Claimore said...

Sort of like how Atlanta's per capita GDP went down last decade, and so did income to a large extent due to high-wage jobs being lost. But could it be that many of those jobs now pay less simply due to the number of college grads for companies to choose from living in the area?

I still think income stats are flawed unless they adjust for cost of living or PPP. There was a list of states ranked by per capita GDP as well as median household income by PPP instead of nominal, meaning they took into account cost of living differences. IIRC, Georgia and Texas were both in the top ten, and many "poor" Southern states such as Tennessee and Alabama went up to being roughly average. The biggest drop was experienced by NY.

At 3:33 AM, January 20, 2011, Blogger Alon Levy said...

One of the things any PPP analysis misses is how relative costs of living differ by class. For the traditional middle class, the Northeast-South living cost differential is huge, because of the desires for cars and large houses. For the lower class, it's not true: a car is a burden, and social benefits and rent controls are important. And let's not get into hipsters, intellectuals, the upper class, etc.

The PPP numbers are a good average for interregional comparisons, but what they won't tell you is that the segment of American society that's most likely to migrate to the South is the one for which the South offers the best value proposition in terms of living costs. For example: people who migrate to California actually have lower incomes than people who migrate out of it. California imports poor Mexicans and exports a middle class. In Texas, the incomes of immigrants and emigrants are about the same - Texas is a magnet for both immigrants from poorer countries and middle-class Americans.

At 7:57 AM, January 20, 2011, Blogger Tory Gattis said...

Alon, that would at least partially explain the articles and data I've seen pointing out that these older, slower growth cities tend to be sharply bifurcated between the well off and the poor, with a relatively smaller middle class (who have mostly left, as you point out). High growth opportunity cities like Houston keep a larger middle class, which is certainly better for social mobility.

At 9:45 AM, January 20, 2011, Anonymous Martin said...


I'm not so sure that the benefits of the "slower growth cities" should be so quickly discounted. For the young and ambitious, being in New York has HUGE benefits career-wise for example. You get to work with these "elites" and are exposed to their world. This allows one to gain access to their more powerful social network which, lets be honest here, is the most important driver in an individual job. This also leads to social mobility.

At 12:03 PM, January 20, 2011, Blogger David said...

The study was of "metropolitan areas," as the title says, so most of this post's comments about "cities" is off the mark, even beside the point.

At 1:11 PM, January 20, 2011, Blogger Tory Gattis said...

In this post, I used 'city' and 'metro' interchangeably. In posts where the distinction is important I use it, but since this was comparisons between metros, I mix them.

At 11:06 PM, January 21, 2011, Blogger Tory Gattis said...

Martin: the career benefits of being in NYC come from the industries centered there, esp. finance and media. It has nothing to do with fast vs. slow growing. Those same benefits would be there if NYC cut development regulations and improved transportation and was somehow able to become a fast-growing city again.

At 4:27 PM, January 22, 2011, Blogger Alon Levy said...

A central city simply can't grow at the same rate as the Houston suburbs - there's no space. The problem for old large cities is that they're ringed by wealthy suburbs, which have plenty of room for densification, but keep density low through zoning in order to prop up property values. The exurbs beyond them could grow fast, but they're too far away. Greater New York's fastest-growing county is 70-75 miles from Manhattan, versus 40-45 for Greater Houston.

At 9:51 AM, January 24, 2011, Blogger Michael said...

The New York metro area still added about 1 million people over the past 10 years, so although it is growing slowly from a percentage standpoint, its still adding roughly the same number of people as "fast-growing" areas as Houston. And the LA area added more people than Houston over the same period... so I'm not sure it's always fair to just look at percentage growth. A town of one doubling in size is really not so impressive.

At 10:04 AM, January 24, 2011, Blogger Tory Gattis said...

I think they're talking about in-migration growth, not natural growth from births.

At 10:28 AM, January 24, 2011, Blogger Michael said...

>>I think they're talking about in-migration growth, not natural growth from births.

Last I knew - New York and LA are still very strong in terms of in-migration growth too, just not domestic in-migration - I forget where I saw this. I understand your point that Houston is better because we also attract the domestic middle class, but I don't think it is fair to say that LA / NYC are not growing substantially at the same time. To read this blog sometimes makes it sound like these are decaying metropolises when in fact they are growing - just differently than Houston is - and in raw numbers sometimes faster than Houston is.

I'm not sure I buy that they are growing "better" or "worse" than Houston - that seems to depend on your perspective - whether you are an immigrant (perceived advantage NYC), a fabulously wealthy person (perceived advantage NYC), or middle class (perceived advantage Houston).

At 4:44 PM, January 24, 2011, Blogger Alon Levy said...

NYC has negative net migration, total. But it's slightly misleading because its birth rate is increasing, since it's attracting more (disproportionately super-rich) families of childbearing age than it used to, now that its schools are passable.

Greater NY is the highest-inequality metro area in the US, but Houston isn't far behind. After NY and Miami, the next few metro areas are in the Deep South or Gulf region - Houston, Birmingham, Memphis, New Orleans. But Atlanta has average inequality for the US, which surprised me, and Dallas has below-average inequality. Coastal metro areas other than New York are all over - generally above average (but Portland is among the lowest), but still less than Houston.

The Sunbelt's appeal may not be to people who are generically middle-income, or else there would be a chasm in inequality between the Northeast/California and the Sunbelt. The appeal is more to people who are traditionally middle-class, socially, as opposed to hipsters who are middle-income but still find San Francisco and Portland more appealing.

At 6:59 PM, January 24, 2011, Blogger Rail Claimore said...

Alon, where can one find stats on income inequality within metro areas?

At 6:45 PM, January 26, 2011, Blogger Alon Levy said...

The Census Factfinder website has a table on inequality by state, county, and metro area.

At 2:06 PM, February 10, 2011, Anonymous Mike3 said...

Only 22% of Texas' growth between 2000 and 2010 is from domestic in-migration. 54% is from births. 85% is Hispanic.



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