The Bad News About Rising Home Prices

Economists see America's recovering housing market as a positive indication of the country's economic health. But according to a new study, rising home prices "decrease income mobility and ultimately hurt the U.S. economy," reports Nicole Goodkind.
October 27, 2012, 11am PDT | Jonathan Nettler | @nettsj
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The study, authored by Daniel Shoag, associate professor of Public Policy at Harvard's Kennedy School, and colleague Peter Gangong, concludes that the high cost of housing in cities like New York and San Francisco are forcing low-skilled workers to migrate to cities like Las Vegas and Phoenix, increasing income inequality and slowing economic growth.  

What is to blame for the stagnant rate of income convergence? "An increase in land regulation in high-wage states and cities discourage development that would lower housing prices," says Shoag.

"It's surprising that local regulations can have such a big macroeconomic impact...that they can affect this process of income migration and conversion, which are long-standing macroeconomic relationships," he notes.

"Policies, however, can be reversed: Shoag has already been contacted by lawmakers in Washington in hopes of figuring out how to encourage new, affordable developments in high-wage places," adds Goodkind.

 

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Published on Thursday, October 25, 2012 in CNBC
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