The Impact of High Costs on Livability

by David Levine, CEO/President

In his Atlantic article from last summer, the author Matthew Stewart pointed to a number of trends in the new economy. One of his conclusions was that the appreciation in real estate values is responsible for the increase in wealth concentration over the past half century.  

We all have seen the escalating real estate prices in major urban centers. But Stewart also notes a paradox in the numbers. Along with the escalation in real estate values, the rents have increased, too, and have forced out people living in these high-cost areas.

Stewart states this finding in his article: “From 2000 to 2009, the San Francisco Bay Area had some of the highest salaries in the nation, and yet it lost 350,000 residents to lower-paying regions.” We’ve often heard about the impact of high costs on livability, including the ability to maintain housing. This is the first I’ve seen where it is quantified.

But there are other costs from the out-migration from high-cost urban centers. Enrico Moretti, a UC Berkeley economics professor, has often talked about the “Great Divergence” in this San Francisco Federal Reserve video clip.  According to Moretti, in the last few decades, the country has divided between productive, innovation-driven, highly educated municipalities and less productive, formerly industrial centers.

The point is that the innovation centers add to our overall growth and productivity. There is a reason Amazon chose Crystal City — which is located in the center of a productive and highly educated workforce — for its new HQ2 headquarters. By relocating here and drawing on our workforce, Amazon will boost its own productivity and bottom line.

Still, when high livability costs drive out residents from these innovation centers, our overall productivity suffers. It means that housing affordability (rental and owned housing) is key to our own economic growth. It was revealing to see the numbers on paper.