Housing USA: The complexity of urban inequality

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5 min read

By the reckoning of today’s pundits, wealth inequality is one of the seminal problems of our time. It has been called a “moral issue” by Bernie Sanders. Economist Thomas Piketty claimed it is a grand indictment against the global economic system, canceling out positives, like innovation and growth.

But urban inequality may be an inevitable result of thriving cities. Higher income people flood into an area and it can result in strong job markets and globalized demographics, which attracts poorer people. Inequality is a demographic byproduct of dynamism. Job growth leads to population growth, and population growth means the influx of opportunity seekers, rich and poor. The clashing together of the two groups makes cities ipso facto unequal. Divisions are even more pronounced in immigrant-oriented cities.

Different nations enjoy dramatically different living standards, after all; and when people from those nations move to the same U.S. city, their inequities surface.

Let’s define “inequality.” For several years, the Brookings Institution has published updates ranking inequality by U.S. city. Brookings uses Census data on “the 95th percentile of the distribution (i.e., where only five percent of households earn more) and the 20th percentile of the distribution (i.e., where 20 percent of households earn less).” Brookings then divides these figures to create a ratio between higher and lower earners. The greater that ratio, the more unequal the city.

The top of these lists are usually filled by the same dynamic cities. Five of the top seven 2018 spots were Miami, Boston, New York City, Washington, DC, and Atlanta, which placed first with an 18.1 figure. Bottom spots are generally consumed by quintessentially middle-class, middle-American cities, which this year included Jacksonville, FL, Allentown, PA and Virginia Beach, VA. Cities known for dysfunction, like Detroit, don’t have particularly high inequality, since both the upper and lower percentiles earn less.

Miami is, according to the United Nations, the world’s most international city, with a foreign-born population of 59 percent. Its immigrant profile is diverse, featuring First World investors, Third World refugees and folks in between. It is thus not surprising that Miami is unequal; nor does this inequality symbolize any wrongdoing by the city. A city can try to narrow the gap with municipal redistribution measures, such as funding roads and schools. But a Brazilian banker and a Haitian rafter are just going to have very different net wealth levels.

Miami and other dynamic U.S. cities don’t want to drive away wealth on behalf of achieving equality. Such wealth creates jobs, funds services, and spearheads the quality-of-life improvements that make cities worth entering to begin with. A Northwestern University study found a causal relationship between U.S. cities’ published patents and their inequality, suggesting that wealth nurtures innovation. Of the five aforementioned dynamic, unequal cities, all have bond ratings that are “high quality” or better, despite often having profligate governments. Although data is difficult to find, the wealthy, by paying property taxes, likely fund a higher share of municipal services, which benefit all residents. Miami’s high-rise downtown, for example, accounts for 40 percent of city revenue.

In fact, these five leading examples of dynamic, unequal cities—New York, San Francisco, DC, Atlanta and Miami —are all, in their own way, obvious urban success stories. They’re not only innovative, fiscally solvent and economically successful; but as I can attest having lived temporarily in each, they are safe, exciting and active at street level. The in-migration of wealth—via corporate relocation, foreign investment and professional-class population growth—has largely contributed to this.

In more equal cities like Virginia Beach, Allentown and various smaller Florida municipalities, life isn’t bad, but it isn’t superlative, either. People from around the world don’t pay premiums to live in them, nor do those places produce the agglomerations and innovations that drive the U.S. economy. Oxnard, CA (another equal city) isn’t about to become the next Silicon Valley.

Meanwhile, in cities that are more equal, life can be bleaker for all. Detroit, Cleveland and Milwaukee are the three cities that, according to Brookings, have the “poorest” wealthier people, with the upper five percentile of earners making just above $100,000 annually. This explains why they generally have weak job markets, rampant blight and shuttered services – because there’s little money to pay for anything.

There are, of course, ways that wealthier people can negatively impact poorer people in unequal cities. There will likely be cost-of-living increases, namely for housing. If cities receive the wealthy, but don’t allow significant housing growth, the rich will outbid the poor for units, causing gentrification, eviction and homelessness.

This is not totally a result of inequality, though; regulations also play a big role. The dynamic, unequal U.S. cities that have tight regulations—New York, San Francisco, Boston, and DC—struggle with affordability. Dynamic, unequal cities that have looser regulations—like Atlanta or Tampa, FL—have reasonable markets, with median home prices below $240,000. Portland, Denver and Seattle are three cities that have relatively less inequality, but dynamic growth and tight regulations. Their markets resemble Boston and New York, with price medians exceeding $400,000. The leading factor for home price growth seems, then, to originate from strict land-use regulations, not inequality.

Inequality in a city is complicated and conflicted. It is at once potentially dispiriting and beneficial. But, as long as U.S. cities remain lifestyle destinations for the rich and Opportunity Zones for the poor, they’ll be unequal. The major question, then, is how they respond. Will they use tax revenue from the rich to fund services benefiting the poor? Will they maintain low unemployment, as to suggest that multiple income groups can find jobs? And, most importantly, will they allow and encourage enough housing to prevent the rich and poor from fighting over the same limited stock?