TO FREE ECONOMY, FREE HOUSING WATSON,

A new study by two U. S. economists suggests excessive regulation may be behind the high housing costs that are gumming up the U. S. economy. Canadians are bound to think the same thing is happening here as, at least until recently, housing prices in Toronto and Vancouver soared crazily.

In a normally functioning economy people move from where their wages are lower to where they’re higher. Generally speaking, we want them to do that. Higher wages usually result from higher productivity. We want people to move to where their productivity is highest.

The economists, Daniel W. Shoah from the Kennedy School of Government at Harvard and Peter Ganong from the Harris School of Public Policy at the University of Chicago, look at migration patterns in the U. S. going back to the 1940s. They find that until the 1980s movement was largely in line with what you’d both want and expect. People moved from places where the income they could earn at their job was lower to where it was higher.

But since the 1980s the pattern has changed. People in typically high- wage jobs still do move to where their wages are even higher. But people in lower- wage jobs are moving in the opposite direction — to where their wages are lower. Overall, there’s no longer any relation between the wage differences between places and whether and how much people move between them. Economics isn’t always natural but: That just doesn’t seem natural.

What’s going on, Ganong and Shoah think, is that housing costs are blocking this natural adjustment. In higher- income cities, property values are way, way up — more than twice as high as they were in previous decades relative to income differences between places. People’s income advantages are being capitalized in house, condo and apartment values. That doesn’t prevent high- income people from moving. In fact, the rise in values is partly due to their moving. It wouldn’t happen i f they didn’t. But high housing costs often are an insurmountable obstacle f or many l ower- i ncome people, who find that even if their income is higher i f they move to a highincome metropolis, their standard of living is lower, once the cost of housing is included.

It used to be that everyone moved to a big, successful place like New York, lawyers and janitors alike. But while lawyers still do move to New York, janitors are moving out. Housing costs are 21 per cent of the average New York lawyer’s income, but 52 per cent of the average New York janitor’s income. If only richer people can move to richer cities, that perpetuates and maybe even worsens inequality across cities and regions.

Why are housing costs more responsive to the influx of high- income people than they used to be? Because housing supply is less responsive than it used to be. If price rises prompted offsetting increases in supply, migration patterns would still be as they once were. But, increasingly, the response to an influx of people is just higher prices, without any increase in supply, which means lower- income people get shut out.

What’s the problem? Here’s where the study gets very interesting and also a little iffy. The authors believe housing regulation has become more restrictive than it used to be, with the result that it’s harder for builders to bring new housing stock to market. That’s not actually surprising. It’s lot harder to build anything these days. ( We’re waiting on a municipal permit to change our front door, very modestly, I assure you, councillors. I’m thinking for most of history a man’s front door was his castle: You didn’t have to ask your town for permission to change it. Not any more.)

But how do you make anecdotal evidence of increasing regulation more systematic, so it can be lined up with hard evidence of migration patterns, to see if there’s a correlation that might suggest an explanation? Shoah and Ganong come up with a new index of housing regulation based on the number of state appeals and supreme court decisions that include the words “land use.” In general, there are many more now than there used to be. It sounds more than a little wonky but in fact this new index does exhibit the same regional variations as other measures of housing regulation across states.

And when they correlate their migration data with their homemade index of housing regulation they find it lines up they way they expect: Screwy migration is more common into and out of jurisdictions that have more housing regulation.

How much is perverse migration — people moving to where their productivity is lower, not higher — gumming up the U. S. economy? That’s very hard to say. But almost certainly some. So if you want the economy to work better, go easier on housing restrictions.

PEOPLE IN LOWER-WAGE JOBS ARE MOVING TO WHERE THEIR WAGES ARE LOWER.