The two Austins

From the conclusion to Job Creation and Housing Construction: Constraints on Metropolitan Area Employment Growth, by a Federal Reserve Board of Governors economist:

Housing supply regulations have a substantial impact on housing and labor market dynamics in metropolitan areas across the United States.  By raising the marginal cost of construction, land use restrictions and other government regulations lower the elasticity of housing supply.  Thus, these regulations change the geographic distribution of relative housing prices and alter the pattern of labor migration.  As a result, employment growth is lower in places where the housing supply is more constrained.

Indeed, metropolitan areas with constrained housing markets respond differently to a labor demand shock than less restricted locations.  Raising the degree of housing supply regulation by one standard deviation results in 17 percent less residential construction and twice as large growth in housing prices in response to an increase in labor demand.  Moreover, housing supply regulations have a lasting effect on metropolitan area employment.  In the long run, an increase in labor demand results in 20 percent less employment in metropolitan areas with a low elasticity of housing supply.  These results demonstrate that the interaction between the housing supply and local labor markets is an important determinant of regional patterns of employment growth.

Put simply, job growth requires low-cost housing.  Here's more:

As places with a large degree of regulation experience rising housing prices, these restrictions may also have an impact on the composition of the population within metropolitan areas.  Because young people and minorities have a higher propensity to move, areas with many housing supply constraints may end up with a smaller fraction of people in these groups.  Furthermore, high housing prices may mean that only rich people can afford to move into an area and that poorer people are forced out, leading to higher income inequality within the area.  As housing prices influence the types of people who live in a location, changes in the availability of workers with different levels of skills may also lead to changes in the industrial composition of local firms.

I don't think the first two paragraphs apply to Austin, at least not yet.  Metropolitan Austin is still affordable by conventional measures.  For example, the median home price in the metropolitan area was only 2.8 times the median family income in 2005.  (By comparison, it was 11.2 in LA.)  Austin can house new workers.

The last paragraph certainly applies to central Austin.  Austin really is two towns.  There is central Austin, increasingly dominated by homeowners with a taste for California-style regulation.  They import our regulations from places like Palo Alto (see the McMansion ordinance) and relegate dense development to high-cost projects on transit corridors.  Because new multi-family housing has slowed to a trickle, Austin's "urban" core is now out of the reach of the low- to moderate-income.

Then there is everywhere else.  Outside of central Austin, development is tolerated or even welcomed.  As a result, there are still relatively inexpensive homes in suburbs like Round Rock, Pflugerville, Cedar Park, Hutto and Manor.  There is cheap single-family and multi-family housing even in Austin -- mainly in neighborhoods on the other side of 183 or south of Stassney.  These are the places we count on to absorb job growth.

I suppose someone can up with some justification for this "two-Austin" policy other than enriching central Austin's incumbent homeowners.  I just haven't seen it yet. 

Comments

[ccosart]

I like the "two Austins" description. I've been trying articulate basically that same thing. Why did you choose Stassney as the dividing line? Just curious.

[AC]

I used Stassney as the dividing line because prices have really spiked to the north of Stassney. The homes just south of Central Market fetch a good premium these days.