What’s happened to U.S. housing inequality?
Over the past year or so, economists have been paying more attention to the role of housing in economic inequality in the United States. Many have pointed to the value of housing as the prime reason for the decline in the share of income going to labor. Research by Matt Rognlie of the Massachusetts Institute of Technology finds that the increase in the share of income going to capital since 1948 has gone entirely to housing. Because the distribution of housing is more equal than the distribution of other forms of capital, income shifting toward housing instead of other capital has a less severe effect on income and wealth inequality. But what’s happened to the distribution of the value of housing over this time?
A new research paper by David Albouy of the University of Illinois at Urbana-Champaign and Mike Zabek at the University of Michigan looks at the path of housing inequality in the United States from 1930 to 2012. The two economists use data from U.S. Census surveys that asked respondents about the value of their home or the amount of rent they paid. Their results show a fall and rise of housing inequality that follows the same U-shaped pattern found in studies of income and wealth inequality over the same time period. Housing inequality in the United States declined from 1930 through 1970 and then started to increase.
What explains this increase? There are multiple possible explanations. The first is that the rich may be moving into bigger or higher-quality houses or apartments than the rest of the population. The economists look at this by seeing how much housing inequality would have increased if the characteristics of U.S. households and housing units hadn’t changed since 1970. The result is that housing inequality would be slightly lower, but the difference is, as the authors say, “vanishingly small.”
Another possible explanation is that housing inequality has risen as different areas of the country saw the value of their homes and land increase quicker than other areas. But Albouy and Zabek point out that housing inequality has risen mostly within cities, not between them.
Instead, it looks as though the main driver of the rise in the housing inequality is the value that people are putting on different neighborhoods. Increased housing segregation seems to be the main culprit, as the rich decide to use their increased income to live in rich neighborhoods, which in turn increases housing inequality.
If this truly is the dynamic pushing up housing inequality, this means there is a tight relationship between income inequality and housing inequality. Higher income inequality translates into more income segregation. This means more housing inequality, which increases the level of wealth inequality.
The inequality of housing is still lower than the inequality of, say, stock ownership. But if our concerns about the shifting of income away from labor to housing are to be assuaged by the lower level of housing inequality, we should be aware that housing inequality is on the rise. And that may continue to be the case unless something is changed.