Moving to a new city, particularly in your 20s or 30s, can be a defining moment in your life. Yet people in the U.S. are moving at historically low rates, and you don’t need to look far to see why.
Housing prices are back up
If you haven’t noticed, housing prices are back up to peak levels. Back to the sort of prices we saw before the market came crumbling down in 2008. Some areas have skyrocketed more than others.
The standard chalkboard economics tells us that housing prices go up in certain areas when demand for homes increases and the supply of homes doesn’t keep up. The increased demand and subsequent prices are often attributed to outside influencers like the neighborhood being close to a lucrative industry hub and/or having access to cool amenities (i.e. parks, nightlife, transportation).
Despite the increases in housing prices, the rate Americans are moving to other states has decreased by 50 percent, dropping from 3 to 1.5 percent per year. Though there’s nothing wrong with staying in your comfy hometown, this trend is worrying.
Low levels of mobility are a telltale indication that the economy is getting “stiffer,” thus making it hard for people to move to locations with good jobs. This also implies that there are other forces pushing up prices.
It’s a headache, but at least you’re not guessing as much
Before Google, moving to another city and finding a place to live was much more of a guessing game. If the guessing game wasn’t your thing, for an extra fee you could put all your trust in a real estate agent.
Today, when thinking about making the move, one of the first things we do is hop on the Internet to check out what the area is like. We can look up the “Walk Score” which ranks how close we are to everything, from schools to shopping and dining locations.
A higher “Walk Score” also means that you are more likely to pay more for being so close to all the action. However, a new study from the Journal of Urban Economics shows that user rating sites, like Yelp, are contributing to price hikes. The study finds that it isn’t just having a bunch of stuff nearby that makes housing expensive, but the quality of the stuff, as well.
By looking at Washington D.C. and Yelp restaurant reviews, the economist found that, “A doubling of the number of restaurants rated over 3.4 stars within a mile from the home is associated with an 11.5 percent increase in the home’s value.”
Restaurants that are cheap, yet highly rated, contribute significantly to the increase in housing prices over the last decade.
Before Internet services like Yelp, it was hard for sellers and buyers of homes to incorporate the quality of the amenities in their area. Now, that information is being built into the price.
Rent control isn’t helping
Coincidentally, these desirable areas, like Washington D.C, California, and New York, have stringent rent control policies in place. Even though rent control sounds like it protects the little guy, it has serious negative consequences.
Mercatus Center scholar Adam Millsap describes in a blog post the detrimental economic effects of rent controls. Rent controls keep home builders — or the supply of homes — from keeping up with demand. Rent controls actually create a shortage because suppliers don’t want to sell in a market in which they can’t make as much money as they want.
Millsap writes, “Trying to find an economist who doesn’t think that rent control is a bad idea is like trying to find a cheap apartment in a city with rent control; it can be done, but you have to spend a lot of time looking.”
Technology is coming through, helping reduce our search costs and providing us with information that can lead us to making better decisions. It is also contributing to the increase in prices as sellers can now account for the quality of the surrounding amenities.
What’s more is that in places where the “good jobs” and fun amenities are, rent control and land use restrictions seem to be slowing down the rate at which homes can get built to meet the increasing demand, increasing the price of homes around the area.
Only folks that are able to afford, or willing to bet their college education on, the move into these highly productive cities are making the move, leaving the poor behind.
Building more housing is the only cure to expensive housing, but the housing policies in these cities are preventing this from happening. As a result, we aren’t moving like we used to and it could have lasting effects on our economy.
Previously posted at GenFKD.