the static sector consists of the protected services (a big chunk of health care, education and government jobs), and the dynamic sector is heavily represented in U.S. exports, often consisting of goods and services rooted in tech, connected to tech, or made much more productive by tech innovations. Piece by piece, bit by bit, we Americans are replicating the two-tiered developing economy model, albeit from a much higher base level of wealth and productivity.
So, instead of the Great Stagnation, call it the Great Baumolization.
Read the whole thing. One more excerpt:
housing expenses will be the biggest remaining economic problem for the poor. Many lower earners will make do with lower-quality housing, or housing more distant from work, than most Americans are used to. Currently even the American poor commonly have more living space than the typical Swiss family; this may change as poorer individuals move to smaller living quarters as one way to save money.
Really? America has so much land. In Kansas City, Rebecca Wilder and I walked to a fancy neighborhood, and she later looked up the prices of two mansions that were for sale. 4200 square feet, with a 6-car (!) garage, was offered for $1.2 million, the price of a small apartment in Manhattan. The other house was listed at $475,000, which is probably less than one-fourth of what it would cost if it were in Tyler’s part of Northern Virginia.
To me, the implication of being poor will be that you are priced out of about 100 zip codes in the U.S., but if you are willing to locate away from the major metropolitan areas you won’t have to live in cramped quarters. Furthermore, with De-materialization, I can imagine that many people at all wealth levels will actually come to prefer smaller housing units.
READER COMMENTS
Norman Pfyster
Apr 3 2012 at 9:22am
Unless economic growth and jobs (re)urbanize. Tyler did say that housing may become more distant from work. I think he is assuming that work centers will become fewer and/or more centralized than they are currently.
aretae
Apr 3 2012 at 9:40am
And your example isn’t especially cheap. Outside Austin, TX, I’ve recently found a few 4000 Sq. Ft. places for rent for $1500/mo. To buy, it looks like 2500 square feet for $150K means you’re paying too much.
And Austin is one of the fast-growing cities in the country.
DW
Apr 3 2012 at 9:57am
You don’t buy a big house because you have too much stuff.
You buy stuff because you have too much house.
John
Apr 3 2012 at 11:16am
I lived in Japan for nine years. My Japanese wife, whom I met in Japan, had a 54 square meter apartment (581 sq. ft.–3 rooms plus bathroom) in Tokyo that she paid the equivalent of $490, 000 for. I (actually) my company) rented a house in Tokyo in the late 1980s that was about 1,700 sq feet and it cost about $12,000 per month in rent. Just a different perspective.
Peter H
Apr 3 2012 at 11:21am
Cowen says lower income earners will have lower quality or less convenient housing. Neither of these are functions of the total land area of the US.
Lower quality housing:
Any housing has maintenance costs required to keep it habitable. These costs are proportional to square footage, as well as type of structure. The per square foot maintenance on an apartment complex is much less than that of a single family home, for example. Having alot of land doesn’t mean that a poor person can afford maintenance and utilities on a single family home. And while some people prefer living in an apartment complex to a single family home, most do not, and for those who would prefer single family but are stuck with an apartment, it’s reasonable to say their housing is lower quality.
Less convenient housing:
I think your example concedes Tyler’s point here. If only the poor would move somewhere that’s much less convenient for them, they could have great housing! Demand for housing in the metro areas where there is lower unemployment has barely abated, and rents are on the rise in much of the country. Sure, you can get a super cheap foreclosure in the outskirts of Tampa, but you’ll have a very long commute (which is expensive both in time and dollars) and likely give up many of the money saving social safety nets that come from living near family and friends. And you have to find a job in a depressed area of the country.
AMW
Apr 3 2012 at 12:04pm
I can imagine that many people at all wealth levels will actually come to prefer smaller housing units.
That’s me. A few weeks ago I moved my family of six from a 2200 sq. ft. house to a 1500 sq. ft. house, and I actually prefer the smaller place. (Granted, the new house is in much better condition.)
Mike W
Apr 3 2012 at 12:21pm
Prof. Cowen tries too hard to support his point on “insourcing” by comparing first quarter 2010 MFGWatch data to that of the fourth quarter 2011. There doesn’t actually appear to be any significant change in a same quarter year-over-year comparison.
Becky Hargrove
Apr 3 2012 at 12:34pm
While Austin is cited as very affordable for the middle classes, lower income people had already begun moving far from the city center prior to the 21st century in search of affordable housing, and that was before the jump in housing prices. Lots of lower income people now are seeking to do just the opposite (live closer to town) as they find it difficult to own and maintain automobiles.
kiwi dave
Apr 3 2012 at 1:51pm
Definitely. The size of houses built over the last 20 years or so in America — at least outside of the biggest metros — is remarkable. What struck me about the mansion you linked to is that it is 4200 square feet yet has only three bedrooms! Since making kids share bedrooms is, these days, basically considered a form of abuse, that means a maximum of four people rattling around an absolutely vast house. What do you do with that much house? Looks a lot like conspicuous consumption to me. With incomes stagnating, and the trend towards smaller households, I can’t imagine many people choosing to spend scarce resources on housing of that scale.
Liberal Roman
Apr 3 2012 at 5:42pm
“To me, the implication of being poor will be that you are priced out of about 100 zip codes in the U.S., but if you are willing to locate away from the major metropolitan areas you won’t have to live in cramped quarters.”
But unfortunately for the poor, those 100 zip codes is where the most productive work will take place. The answer should be to allow more development, more density and simply an increase in the supply of housing to bring down the price.
kiwi dave
Apr 3 2012 at 5:56pm
Liberal Roman:
Which is the thesis of Ryan Avent in “The Gated City,” basically, that America has lost out on a great deal of economic growth because zoning laws and other barriers to development have prevented people from being able to afford to live in economically productive areas, and incented them to live in economically moribund backwaters.
Comments are closed.