America today faces a two-headed problem: economic inequality and housing inequality. The former has soared to heights not seen since the Gilded Age. The latter, as home prices spike in coastal superstar cities and lag in much of the country’s middle, has become a main feature of our divided, winner-take-all geography.
The two phenomena are intertwined and mutually reinforcing. Together, they act as a brake on the performance of the economy and limit both migration and upward mobility.
Those are the big takeaways from a new working paper by researchers at the International Monetary Fund (IMF). Tamim Bayoumi and Jelle Barkema examine the connections between economic inequality and housing inequality on the one hand, and migration and economic mobility on the other, across the two-decade period spanning 1996 to 2016. Their data on housing inequality comes from Zillow’s Home Value Database, which tracks housing values for more than 500 regions of the country; on income inequality, from the U.S. Census Bureau and U.S. Bureau of Labor Statistics; and on migration, from detailed Internal Revenue Service statistics on the flow of households by income.
The chart above captures the big picture. Between 1981 and 2016, income divergence—the orange line on the graph—has increased, while the divergence in housing prices—the blue line—has increased even more. Over the whole period, the ratio of housing prices to income (based on the study’s measures of logarithms of their median values) went up by nearly 40 percent, driven by the clustering of high-skilled industries and jobs and the dramatic run-up in housing prices in leading tech hubs and superstar cities. Meanwhile, the migration rate—the gray line—nose-dived, literally dropping by half.
The rise of housing inequality forms the first part of America’s core economic challenge. The widening gap in housing prices between superstar and other cities has thrown a monkey-wrench into a potential equalizer: moving to economic opportunity. This is particularly true for less skilled and less educated workers in lagging parts of the country. These folks have homes that are worth less—many of them were underwater during the Great Recession—so they are unable to foot the bill to live in dynamic and expensive cities.