First is median income, relative to the US median. Second is median income after rent, relative to the US median. We can see that Washington, DC is an outlier, and actually has been an outlier for some time. The Washington, DC MSA has much higher income than any of the other large MSAs. (If we expanded the list a bit, San Jose would be close.) Washington is also different, in that incomes aren't eaten up by a bidding war for housing. Suburban residential building is strong enough that the median household can find acceptable housing for a typical portion of their income. They might need to make some compromises, in terms of size or location, relative to residents in open access cities like Houston or Dallas, but those compromises aren't so severe that average Washington residents have been driven to allowing their total housing expenditures to increase as a portion of their budgets.
That is not the case among many of the other MSAs. For some cities, incomes before and after rent are similar, but for some cities, incomes after rent are significantly lower than gross incomes, relative to the rest of the country.
The next graph, below these, is a stark picture of the primary source of our 21st century malaise.
|As % of Median US Income|
|As % of Median US Income after Rent|
This next graph is an average of median incomes, before and after rent, in these cities (weighted by population). We can see the surge in metropolitan incomes in the 1980s. During that time, rents rose at the same rate as incomes, so income in these cities, before and after rent, exhibited similar behavior. I think some of the problems these cities have with housing were already in play. However, I think they were still in the sort of position that Washington, DC is in today (along with other marginally problematic cities like Seattle). Workers moving to those cities in a bid for higher incomes had to reduce their real housing consumption in order to keep their housing budget within a comfortable range. But, housing supply hadn't yet become so constrained that the median household needed to increase their housing budget just to maintain minimum acceptable housing.
Here we can see signs of several of our economic problems. We can see the sharp effect of the urban housing supply problem coincident with rising prices in the 2000s. We can see rising income inequality, yet with the sense that the typical family can't get ahead. And, putting these factors together, we can see how mistaking deprivation for monetary excess led us to invoke all the wrong attempted solutions, exacerbating the problem of rising costs.
That graph understates the effect, because there has been a divergence of outcomes between these cities over the past two decades, depending on their local housing policies. In the next graph, I compare these same measures between what I call the Open Access cities and the Closed Access cities. In the Open Access cities, where the Housing Starts portion of the housing boom took place, relative median incomes after rent are higher than relative incomes before rent. Where housing starts were high, there was no unsustainable increase in housing expenditures. Those housing starts mostly were facilitating the in-migration of households from the Closed Access cities - households which tended to skew to lower incomes.
In the Closed Access cities, where the Home Price portion of the housing boom took place, relative median incomes after rent have been low for many years, and beginning in the late 1990s, began to diverge from gross incomes even more. Where housing constraints are severe, home prices were boosted by sharply rising rents. The housing bust made this problem much worse. Now it looks like cities representing around 15% of the country's population have incomes around 25% above average, but all of those above-average incomes are being eaten up by housing expenses. (Even for owner-occupiers, this represents an opportunity cost of their capital.)