Two years ago, this blog noted that San Jose, California, had incredible upward mobility. But it also suggested that rising house prices put that upward mobility at risk, by reducing geographical mobility. That in turn might prevent people from taking advantage of educational and job opportunities.
Now, the Atlantic voices the same worry: “Today, young Americans increasingly have to choose one or the other—they can either settle in affordable but stagnant metros or live in economically vibrant cities whose housing prices eat much of their paychecks unless they hit it big.”
In California, for example, the problem has only gotten worse. The very same 3-bedroom apartment in Mountain View that we rented for $1,724 in 1993 (in 2015 dollars, $1,040 at the time) now rents for $3,750 — a real increase of 118%.
There are cities where housing is still within the grasp of young middle class people. For example, my 20-something cousin Adam and his girlfriend just purchased a very nice 2-bedroom townhouse in Philadelphia for what amounts to a monthly payment of roughly $1,700, before the interest deduction. But that is not as easy as it sounds. It is true that said monthly payment is basically flat (in real terms) since 1999. (The price of the house has risen by 124% in nominal terms, but interest rates were a lot higher back in 1999.) But because the nominal price of the house has more than doubled, you need a bigger down payment to qualify ... and student loan burdens are a lot heavier now.
Moreover, there are two other drawbacks. First, one of the reasons why housing is still affordable in that part of Philly is that the schools are awful (albeit improving). You want better schools — and upward mobility with it — you pay more either in housing or in tuition. Second, Philadelphia, for all its charms, is not a first-tier job market the way that Boston, New York and Washington have become. (Let alone San Francisco!) You have to give up other opportunities in order to have decent housing within reach of a normal 20-something income.
America’s coastal housing shortage is good for me, as a homeowner, but terrible for the country.