Monday, April 14, 2014

Liberal Cities and the High (Median Rent/Median Household Income) Ratio

The NY Times  reports that there are many liberal cities where the median rent divided by the median household income is greater than 30%.  The Times interprets this fact that the middle class can't afford to live in a series of cities ranging from Los Angeles, to Miami to San Francisco to NYC.   Interestingly, College Station Texas also has a high ratio.

Why might liberal cities be increasingly unaffordable?    Recall that the ratio has median rent in the numerator.  Liberal cities tend to be desirable places in terms of quality of life (in part because of all of those wise urban planning policies) and this raises demand but they are also very hard places to build in (because of all of those wise urban planning policies).  You do not need to be an A+ student in intro econ to know if demand is high and supply is low that market rents will be high.   What about the denominator?  Liberal cities have high a series of regulations that make it difficult for businesses to thrive and this may inhibit middle class income growth.

So, if the NY Times is serious that it is urgent for major cities to reduce their rent to income ratio then it should endorse a relaxation of restrictions on real estate developers and on local businesses.  This is how the free market would address this social challenge.  What is the NY Times' preferred solution?

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