Median living standards would be higher and inequality would be lower with better zoning regulations

Kevin Erdmann at Idiosyncratic Whisk has done a number of analyses using median income. For example, below are two graphs showing an analysis of the distribution of median income across US metropolitan areas. The three lines on the graphs show that America got more unequal in each year from 1979 to 1995 to 2015.  By 2015, the median income in the richest metropolitan area was 40% higher than the median for the nation as a whole and the poorest metropolitan area was 40% poorer than the median for the nation.

The point of his analysis is to point out how much of the inequality in median income is disguised by differences in rent. For most cities, he says,

the change in income distribution after rent is the reverse of the change before rent. The poorest cities actually gained on the average, and high income cities lost. In other words, workers in the high income cities were paying all of their income gains, and more, to their landlords…

The irony is that the best policy we could institute for reducing all these forms of economic inequality between workers and capital is to build hundreds of thousands of high end housing units in the core areas of San Francisco, San Jose, and New York City. In fact, this is the only policy that can accomplish that task.

Our housing market is causing problems in two ways. First, we aren’t building enough housing in cities like in silicon valley where the job market is expanding rapidly. Second, we aren’t building enough housing for middle and low income people. This refutes the idea that we just need to build more high end housing units. A lot of people argue that we should help the middle class afford housing by allowing developers to build more high-end housing for the affluent who move up to more gentrified housing and leave vacant units for less wealthy people. I agree that this is a good idea, but the benefits of expanded housing supply don’t necessarily trickle down to everyone. Fed economists Jonathan McCarthy and Richard Peach write that

As one moves down the rent level distribution, increases in the supply of housing increasingly come from previously higher-rent units, which may still have rents above the average of the incumbent units, pushing up rents more in such segments.

Patrick Clark at Bloomberg summarizes their research that trickle down housing hasn’t been enough:

In big, expensive cities such as New York and Los Angeles, rising rental costs are straining middle-class budgets. Historically, though, rents have hit low-income tenants the hardest… From 1993 to 2013, the cost of the cheapest 20 percent of U.S. rental units has increased more than 10 percent a year, according to the New York Fed analysis of data from the Census Bureau’s American Housing Survey. Meanwhile, the rents of apartments and houses in the priciest 20 percent were flat over time.

The big reason why we aren’t building housing to help boost real living standards for the median American is zoning regulations that make it expensive to build housing in places like silicon valley and that make it hard to build housing for anyone except elites. Perhaps this is why we are selling more detached housing than in the past even though multi-unit housing is more efficient and affordable than detached single-family homes.