Housing and poverty
By Scott Sumner
The traditional definition of poverty in America has been criticized for ignoring factors such as government benefit programs and regional variation in the cost of living. Now the Census Bureau has released new estimates of poverty, which account for various types of benefit programs and cost of living differences. For some states the figures are about the same, whereas for others they are substantially different. Here are a few examples:
State — Original poverty rate — Adjusted poverty rate
California —— 16.0% ———– 23.4%
Massachusetts 11.5% ———— 13.8%
New York —– 16.0% ———– 17.5%
Texas ——— 17.2% ———– 15.9%
In the unadjusted figures, Texas looks the worst of these 4. The adjusted figure for Texas is exactly equal to the national average, but I’ll argue that in fact it’s far better than the national average, which partly explains why so many people are moving to Texas.
Let’s compare Texas to California, which comes in dead last in the adjusted figures. Both states are “majority-minority,” with non-Hispanic whites being less than 50% of the population. Both states have huge Hispanic minorities. The main difference between the two is that in Texas blacks are the second largest minority group by a wide margin, while in California it’s Asians, with blacks a distant third. Because Asians tend to earn more than blacks, just looking at demographics you’d predict Texas to have more poverty. Instead it has far less.
If you are liberal the news gets worse. California has one of the most generous welfare states in the country, and Texas has one of the stingiest. And yet Texas has far less poverty.
Indeed if you adjusted for demographics, I’d guess Texas actually has less poverty than the US as a whole, and probably even less than heavily white Massachusetts.
So what explains the Texas success in race-adjusted poverty rates? There are probably many factors, but the housing market is almost certainly the biggest difference from California. Housing regulations (often enacted by well-intentioned liberals) are one of the biggest causes of poverty in America. And these regulations don’t just hurt progressive areas. Elsewhere I’ve argued that the biggest problem with otherwise free market Hong Kong is the restrictive building regulations, which keep housing prices absurdly high. I don’t have any data for Hong Kong, but I’d guess that much of the poverty level consumption in that city is due to the high housing prices, caused by restrictive housing regulations.
In the modern developed world most people have enough to eat (partly due to food stamps.) Indeed obesity is now a problem among the poor. Clothing is now really cheap, as are many basic home appliances like TVs and washers. There’s free public education and Medicaid. The main cause of poverty is housing costs, and more specifically restrictive zoning laws that make it hard to build. Fix that and you fix much of the problem—focus on welfare, minimum wages, etc., and you are likely to be disappointed.