Recent stories in Business Insider and the Wall Street Journal suggest trouble in Austin’s housing market. Austin’s rents are down a staggering 7% from last year. The latter took a particularly bleak tone in describing the city’s trajectory, claiming that it is “running in reverse.” The examples it cites to back up this foreboding assertion–including landlords offering deals to current tenants and, drawn by low rents, new people moving to Austin–seems to contradict its thesis. Rather than “running in reverse,” people are running toward Austin precisely because the increased housing supply makes it more attractive.
According to the Harvard Joint Center for Housing Studies, 42 million (or 32% of) American households are cost-burdened, including a record 22.4 million renters. Austin’s share of cost-burdened households is 36%, a 6% decline from 2010. At the same time, the city grew its population by 19%, and from 2017-2022, it grew its metro area GDP by 57%.
This is what economically sustainable growth looks like. When a city adds homes alongside jobs like Austin has, it thrives. But when a city doesn’t add homes while it adds jobs, residents get squeezed by high housing costs and start wondering if leaving for somewhere with more housing options and fewer jobs would be better for their pocketbooks.
This phenomenon, especially in places like California and New York that don’t build enough housing, contradicts historic American migration patterns, where people move to areas with more jobs. When housing costs rise to the point where people with a choice start to leave, it should alarm local policy makers.
Part of the problem is the perception that high housing prices have been linked to economic dynamism for the past few decades. Home prices in Los Angeles are higher than in Flint, Michigan. Therefore (the thinking goes) Los Angeles must be more prosperous.
Yet, this is only a part of the complete picture of economic opportunity and prosperity in these two cities. To better understand that full picture, we can consider a hypothetical scenario: A line cook at a middle-of-the-road restaurant in Flint can expect to earn $31,870 annually. Their counterpart in Los Angeles can expect $39,360 annually (a 23% premium). In Flint, the line cook can rent the median apartment for $9,600 per year (30% of their gross pay). In Los Angeles, the line cook likely cannot afford to rent the median apartment, since the annual rent of $33,000 amounts to 83% of their gross pay. With these housing costs, many talented, early-career cooks simply cannot afford the opportunity to prove themselves in a prestigious market like Los Angeles–to the detriment of the city’s culinary scene.
This is an example of how high housing costs are an undesirable side effect of constraining prosperity, stifling economic growth, and causing people and employers to stay away or relocate to more affordable places despite the large number of available jobs in the high-cost city.
In a healthy housing market, prices can sustain the maintenance or replacement of buildings without undercutting ordinary livelihoods. Maximizing home prices only through tight zoning and land use rules doesn’t boost returns to citywide property owners in the long run. It risks displacing the people and firms that make cities valuable in the first place.
Austin has achieved unqualified success, bucking the conventional wisdom that prosperity is only possible if housing costs rise. Rather than serve as a cautionary tale, Austin shows that reducing housing costs by allowing new supply can coexist with economic growth and accommodate those seeking a good deal in a prosperous place.