On Inequality, Blame Upper Middle Homeowners, Not 1-Percenters

By Albert Gustafson

As kids returned to school over the past couple weeks, their entire future was riding on their experience.

In my neighborhood, kids’ journeys mainly began in two- and three-gabled houses with ample, shady lawns and ran through neighborhoods with well-tended gardens and “crime watch” signs. A stay-at-home parent often waited with their children for the bus. They at last arrived at sleek, contemporary buildings along with their mostly-white neighbors and friends, and received moderately attentive and capable instruction.

If you’re a white middle-class person like me, it’s easy to think that story is every American kid’s story. But for about 10 million children in the United States, going back to school often means walking through some of the most dangerous neighborhoods in the country, attending some of the worst schools in the U.S., and returning to single-parent homes with little communal support.

Harvard economist Raj Chetty’s research demonstrates that neighborhoods’ “social capital” (by which economists mean two-parent families, good schools, active churches, etc.) largely determines whether children who grow up there will succeed or fail. That means for these kids’ futures, it’s not just school, but the whole neighborhood that counts.

So why does anyone live in these places? Why not move out of impoverished neighborhoods and into the suburbs or other, more prosperous areas of their cities?

Many would like to. But zoning policies that restrict new development in almost every city have made the most upwardly mobile places also some of the least accessible. Zoning policies are usually either environmentally-motivated, like mandated green spaces, or financially-motivated, like minimum lot sizes, which prevent developers from building smaller, more affordable housing in a neighborhood to keep out “riff-raff” that reduce property values. To suburbanites, “riff-raff” usually means poor and/or non-white individuals.

A 2016 paper from the Obama administration highlights how zoning policies increase the cost of living in America’s most prosperous cities. By increasing the cost of living, zoning laws hurt the poor immediately by shrinking their already small disposable income, and hurt their long-term prospects of leaving poverty by barring them from areas that offer better schools and communities.

The economics behind cities’ zoning rules is simple: if you constrict the supply of housing by prohibiting development projects in certain areas, the price of housing goes up in that city. The politics behind those zoning rules, however, is not. Whether motivated by environmentalism or economic interest, zoning laws are a political juggernaut.

Environmentalists often laud Portland, Oregon as a model city for sustainability and green development policy. But its mandated green spaces near the city center and restrictive building codes come at a high cost in land prices – costs which are disproportionately felt by the poor. With less new housing being built in Portland, the price of living anywhere in the city inflates, and poorer Portlandians are barely able to afford their own neighborhoods, let alone better ones.

Cities across the U.S. also suffer from this sort of environmental NIMBYism, whose name comes from its mantra, “not in my back yard.” But many environmental groups suggest that, in addition to hurting the urban poor, NIMBYism may hurt the environment.

While most cities may not suffer from delusions of green heroism, almost all cities in America have zoning rules with similar effects. Here, the economics is the same (more restrictions equals higher prices), but the motivations are different.

Minimum lot sizes are the most common offender in the litany of mandates that hurt the poor, but many city zoning laws operate with basically the following formula. Current homeowners have an incentive to hike up housing prices because they own houses. Continually inflating land prices mean current homeowners – a generally older, middle class demographic – own continually appreciating assets that the poor can’t afford. In other words, middle class homeowners gain at poor renters’ expense.

Meanwhile, in Houston, Texas, a city with one highest demand markets for housing in the country, has some of lowest land prices. Houston’s lack of zoning laws has resulted in a growing, racially integrated, relatively cheap city.

Many economists have likewise noted that historically, America’s geographic mobility has contributed to its economic mobility. Today, the barriers our cities have raised between their poor urban centers and the wealthy suburbs play a key role in widening inequality. Tearing down bad zoning laws may narrow that gap significantly.

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