Rich Cities Created the Housing Shortage

‘Closed-access cities’ raise the cost of shelter and drive out the middle class

By Kevin Erdmann of Mercatus. Excerpts:

"The first overlooked factor in the crash was the urbanization triggered by the information economy. Four main urban centers—New York, Los Angeles, Boston and San Francisco—share two important characteristics: They’re centers of new economic opportunity, and they permit new housing at rates much lower than their successful peers. Call them closed-access cities.

These metro areas had—and still have—a lid on the number of families that could access their lucrative labor markets. The lack of adequate housing, especially in prosperous urban centers, led to a stagnant job market. The mounting mortgage debt before the crisis was the result of a bidding war for access to limited urban prosperity.

At the height of the boom, closed-access cities lost more than 200,000 households each year on net as families were forced to withdraw their bids for access to metropolises. Most of those were lower-income residents who decamped for places like Arizona and Florida. Their arrival created a new housing bubble."

"When the Federal Reserve tried to deflate the bubble by raising interest rates, one of the first unintended consequences was the collapse of the reverse gold rush. Net migration from Los Angeles to Phoenix had grown to about 16,000 residents annually in 2005. By 2008, it was less than 1,500 and continued to fall."