Wealth migration

I spend a lot of time thinking about gentrification.

Poor and/or working class communities begin to develop a hip vibe. College grads not ready for the suburbs move in. Artists can afford the rent. Start up business can afford the low capital costs as well.

Pretty soon, everyone wants to live there and folks from that community can’t afford to live there any more.

But gentrification is a complicated story.

Sometimes it’s called revitalization.Sometimes there’s high crime and no jobs. Sometimes a community needs a little something to make it better. Sometimes that’s what the residents want. Sometimes the residents who leave a community are cashing out – glad of the retirement plan secured by their now-valuable house.

I’ve always looked at gentrification from within the view of my communities. Somerville, MA is rapidly gentrifying. Parts of Oakland, CA are gentrified and other parts…could use a little revitalization (I say with love).

But what does gentrification look like on a larger scale? Where are all these new people in my community coming from and perhaps more importantly…what happens to the communities they leave behind?

A recent paper, Why Has Regional Income Convergence in the U.S. Declined?, which I saw presented by co-author Daniel Shoag, Assistant Professor of Public Policy, Harvard Kennedy School, got at this question.

Shoag compares state-level economic snapshots over time with an eye towards understanding how people migrate within the U.S. over time.

I won’t go through his math in detail here, but essentially he argued that in 1960, a state where you could earn 1% more for your work cost 1% more to live in. And that was true across job and skill types. This created income convergence as people from all classes migrated to “wealthier” cities.

Comparatively, in 2010, a state where you could earn 1% more for your work costs an average of about 2% more to live in. This leads to “skill sorting” as “high skilled” (white collar) workers move to wealthier areas while lower income workers move out.

Shoag traces this all back to the increase in housing regulations of the 1970’s – leading to dramatically increased housing costs in “wealthy” cities.

That’s doubtless a piece of the puzzle, though I’m not sure whether it’s the ultimate cause. Either way, though, it’s important to think about this greater sorting happening around us.

In Somerville, MA poor people might be getting pushed out, but in Flint, MI they might wish for such “revitalization.”

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