A graphic shows soaring home prices in California compared to national figures. “There’s no great mystery about why this is happening: It’s because of housing. California is very much a NIMBY state, maybe even a banana (build absolutely nothing anywhere near anyone) state,” writes The New York Times opinion columnist Paul Krugman. (Federal Reserve Economic Data via The New York Times)

A graphic shows soaring home prices in California compared to national figures. “There’s no great mystery about why this is happening: It’s because of housing. California is very much a NIMBY state, maybe even a banana (build absolutely nothing anywhere near anyone) state,” writes The New York Times opinion columnist Paul Krugman. (Federal Reserve Economic Data via The New York Times)

The gentrification of blue America

‘The failure to add housing, no matter how high the demand, has collided with the tech boom’

By Paul Krugman

New York Times

In my latest column, motivated by the California recall, I pointed out that the Golden State’s left turn on policy hasn’t produced the economic collapse that conservatives predicted. On the contrary, the state’s economy has boomed, even as it keeps getting trash-talked by the business press: Between the election of Jerry Brown and the COVID-19 pandemic, both output and employment grew about as fast in California as they did in Texas.

It has, however, been a peculiar kind of boom, one in which more Americans have moved out of California than have moved in.

Economists trying to understand the rise and fall of regions within a country often rely on some form of economic base analysis. The idea is that a region’s overall growth is determined by the performance of its export industries — that is, industries that sell mainly to customers outside the region, such as the technology firms of Silicon Valley and the Los Angeles entertainment complex (or, here in New York, the financial industry). Growth in these industries, however, generates a lot of growth in other sectors, from health care to retail trade, driven by the local spending of the base industries’ companies and employees.

But base analysis suggests that when a state has a booming export sector, as California does, it should be seeing growth in more or less everything. Instead, what we see in California is that while highly educated workers are moving in to serve the tech boom, less-educated workers are moving out.

There’s no great mystery about why this is happening: It’s because of housing. California is very much a NIMBY state, maybe even a banana (build absolutely nothing anywhere near anyone) state. The failure to add housing, no matter how high the demand, has collided with the tech boom, causing soaring home prices, even adjusted for inflation.

And these soaring prices are driving less-affluent families out of the state.

One way to think about this is to say that California as a whole is suffering from gentrification. That is, it’s like a newly fashionable neighborhood where affluent newcomers are moving in and driving working-class families out. In a way, California is New York City’s Brooklyn Heights writ large.

Yet it didn’t have to be this way. I sometimes run into Californians asserting that there’s no room for more housing — they point out that San Francisco is on a peninsula, Los Angeles ringed by mountains. But there’s plenty of scope for building up.

If we look at population-weighted density — the population density of the neighborhood in which the average person lives — we find that greater New York is 2 1/2 times as dense as the San Francisco and Los Angeles metro areas, with more than 30,000 people per square mile in New York and only around 12,000 in both California metros. This doesn’t mean that every New Yorker lives in a high-rise (the metro area includes plenty of leafy green suburbs), it only means that those who choose to live in multistory apartment buildings can do so. If California were willing to offer that choice, it wouldn’t have its housing crisis.

Personal aside: My New York apartment is in a neighborhood that, according to census data, has 60,000 residents per square mile, with many 10-plus-story buildings. It’s not a teeming sea of humanity; it’s surprisingly quiet and genteel!

The thing is, California’s housing problem, while especially extreme, isn’t unique.

Since the 1980s, America has experienced growing regional divergence. We have become a knowledge economy driven by industries that rely on a highly educated workforce, and firms in those industries, it turns out, want to be located in places where there are a lot of highly educated workers already — places such as the Bay Area.

Unfortunately, most of these rising knowledge-industry hubs also severely limit housing construction; this is true even of greater New York, which is much denser than any other U.S. metropolitan area but could and should be even denser. As a result, housing prices in these metros have soared, and working-class families, instead of sharing in regional success, are being driven out.

The result is that there are now, in effect, two Americas: the America of high-tech, high-income enclaves that are unaffordable for the less affluent, and the rest of the country.

And this economic divergence goes along with political divergence, mainly because education has become a prime driver of political affiliation.

It may seem hard to believe now, but as recently as the early 2000s, college graduates leaned Republican. Since then, however, highly educated voters — who have presumably been turned off by the GOP’s embrace of culture wars and its growing anti-intellectualism — have become overwhelmingly Democratic, while non-college-educated whites have gone the other way.

As a result, the two Americas created by the collision of the knowledge economy and NIMBYism correspond fairly closely to the blue-red division: Democratic-voting districts have seen a big rise in incomes, while GOP districts have been left behind.

Again, this didn’t have to happen, at least not to this extent. True, the growing concentration of knowledge industries in a few metropolitan areas reflects deep economic forces that are hard to fight. But not building enough housing to accommodate this concentration and share its benefits is a policy choice, one that is deepening our national divisions.

There are hints of movement toward less-restrictive housing policy; California’s legislature has just passed a bill that would, in essence, force suburbs to accept some two-unit buildings alongside single-family homes. Even this modest measure would make it possible to add around 700,000 housing units — roughly the same number added in the whole state between 2010 and 2019.

We need much more of this. Restrictive housing policy doesn’t get nearly as much attention in national debates as it deserves. It is, in fact, a major force pulling our nation apart.

This article originally appeared in The New York Times.

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