[URBAN NOTE] "Costly City Housing Is an Economic Drag"

[rfmcdonald]

Jonathan J. Miller at the Bloomberg View makes the point that relatively and absolutely expensive housing in urban areas is an economic drag for cities.

Contrary to conventional wisdom, high and rising housing costs in the U.S.'s biggest cities are not ideal for an economic recovery. Just the opposite: When housing costs take a big bite out of incomes, it diverts money that could be spent on local goods and services or invested in new businesses that stimulate growth.

And based on what I can tell, it's getting worse. U.S. census data on housing costs is only available through 2013, but there's no doubt that the burden for city residents now is even higher, especially in places such as San Francisco and New York. Since December 2013 the S&P/Case-Shiller 20-City index has risen 7.7 percent.

Several forces converge to make urban housing costs a drag on the economy -- as well as for the people who live in cities. [. . . M]ost people don't own their own homes. For example, as the chart below shows, in New York, just 32 percent of residents own a home compared with about 64 percent for the U.S. as a whole.

[. . .]

Then there's the inherent drawback of renting. As the chart below shows, renters tend to pay a larger portion of their monthly household income toward housing costs than owners do. Many large cities have rent controls, which make housing even more costly for renters new to a city looking for job opportunities. According to Harvard University’s Joint Center for Housing Studies, many renters pay almost 50 percent of their income for housing compared with about a third for U.S. renters on average.