Trulia’s Political Economy Lesson

by Reihan Salam

Trulia has a beautiful and useful interactive map illustrating its Rent:Buy ratios across major U.S. metros. Observe the extraordinarily high cost of housing in New York city, my hometown. Michael Bloomberg famously described New York city as a “luxury good,” making the point that while firms and households do indeed pay more to be in New York, they also get more. That is true to a point. For people who seek novelty and cultural stimulation, New York’s density and diversity are very valuable. The quality of public services in New York is uneven, but people will take a lot of abuse to live here because the city benefits from the accretion of cultural capital and human capital over hundreds of years. New York’s greatest amenities can’t be easily moved, so New York’s public officials can extract a lot of rents.

But there is a danger in pricing out upwardly mobile middle class families, including many for whom novelty and cultural stimulation are lower priorities than reasonable commutes, jobs, and decent schools. As Edward Glaeser observes in his wonderful forthcoming book Triumph of the City, reducing onerous land-use regulations in New York would, over time, bring housing costs in high-rise developments down to their construction costs, effectively halving the cost of a 1,200 square foot apartment. One can imagine a dramatic increase in New York city’s population as more novelty-lovers could afford to live in its dense core and as fewer middle-earners were deterred by high prices. A bigger Big Apple would have tremendous environmental benefits, as New Yorkers are highly energy efficient and leave a strikingly small carbon footprint relative to their compatriots. I mean, don’t hold your breath. NIMBYism will likely prevent us from achieving this utopia of sanity. But it would be great to see a mayoral candidate calling for a New York of 12 million people by 2025.

Glaeser also observes that after we correct for price differences, a two-earner family earning $60,000 in Houston has $31,250 after taxes, transportation and housing costs as opposed to $19,750 for a two-earner family earning $70,000 in Queens.

So: is it remotely surprising that a middle-class Queens resident might see the world differently from a middle-class Houston resident? Is it meaningful to suggest that these two families have the same economic interests? It is easy to imagine the Queens family wanting more transfers while the Houston family just wants to keep taxes low.