What New York City Can Learn From North Dakota

Photo: Jerry Driendl/Getty, Illustration by Neil Klugman Close

Photo: Jerry Driendl/Getty, Illustration by Neil Klugman

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Photo: Jerry Driendl/Getty, Illustration by Neil Klugman

The U.S. unemployment rate is 8.3 percent. In North Dakota, however, it was just 3.3 percent in December, the latest month for which figures are available. There’s no mystery about why North Dakota is booming: They’ve struck oil!

Production has increased more than fourfold since the beginning of 2008 and shows no signs of slowing down. And where there’s an oil boom, a jobs boom follows.

Needless to say, North Dakota’s workforce is still relatively tiny. The rest of America’s unemployed workers can’t just pick up and move there. Besides, people have lots of perfectly valid reasons not to want to move to North Dakota -- family members with local work or school relationships, “underwater” mortgages, or just the basic fact that North Dakota is cold and remote. Still, not many people would need to move there in order to narrow the national and regional unemployment gap.

So why don’t they? The first reason is housing costs. So many people have already moved to North Dakota that there’s no place to put them. Browsing Craigslist recently, I saw an ad offering a 27-square-foot trailer for $1,800 a month. An actual two-bedroom, 1,400-square-foot house in Minot can be yours for $3,900 per month. The Wal-Mart in Williston recently announced that it will no longer be letting people squat in its parking lot.

No Vacancy

To make a long story short, North Dakota is full. It may be a big state, but its stock of available housing is too small.

While North Dakota’s critical housing shortage has fascinated the national news media, the long-running story of the housing shortage on the coasts has largely gone neglected. Consider this striking finding from the 2010 census: Of the 10 counties that added the most people during the aughts, exactly zero were located in one of America’s 10 richest metropolitan areas. The Phoenix metropolitan statistical area, home to one of the fastest- growing counties in the country, is, according to the Brookings Institution’s State of Metropolitan America report, below average in terms of median household income.

There’s something odd going on here. People cross the U.S.-Mexico border illegally to take advantage of higher U.S. wages. Logic would dictate that people should be moving to Fairfax County in Virginia (median household income: $105,416) rather than Arizona’s Maricopa County ($55,054). After all, the legal, linguistic and logistical barriers between moving from Phoenix to Northern Virginia are tiny compared to those involved in moving from Mexico to the U.S.

The issue is housing. Real estate in Phoenix is cheap compared real estate on either coast -- Northern Virginia or, for that matter, coastal California. In April 2007, the nationwide average sale price for a home was $135 per square foot, according to the real estate site Zillow.com. That same month, the price in the Phoenix metro area was $161 per square foot. By April 2011, national prices had declined to $105 per square foot and Phoenix was down to $80. The comparable figure for April 2007 in Los Angeles, by contrast, was $395, and in San Francisco it was an amazing $449. By April 2011, prices had declined in both areas, but still remained more than double the national average.

And so it goes across the board. High-income metro areas such as New York, San Jose (California), Boston and Washington all feature real estate prices well above the national average, while high-growth metro areas such as Raleigh (North Carolina), Las Vegas and even Riverside County in Southern California feature prices at or below the national average.

Supply and Demand

In other words, it’s North Dakota all over again. But there’s an important difference. North Dakota is undersupplied with housing because the oil boom has been so sudden and unexpected. Demand has surged and supply hasn’t kept pace. In major coastal metropolitan areas, by contrast, demand for housing has been strong for decades.

Housing costs are high and supply is scarce not because nobody wants to build, but because getting regulatory permission to do so is extremely difficult. Land near major cities is very expensive. The natural solution is to construct multifamily housing -- deploying the advanced technology of the elevator if necessary -- in order to fit a large quantity of people into scarce land.

Yet throughout the high-cost coastal regions, zoning restrictions commonly mandate single-family detached houses, short buildings, generous provision of parking, minimum lot sizes, and other barriers to density. Older cities on the East Coast are full of neighborhoods -- Georgetown in Washington, for example -- that are so dense and diverse (in terms of housing stock, at least) that they would be illegal if built today. Meanwhile, in the suburbs, increased demand usually leads to rising prices, not necessarily more dense development.

The bursting of the housing bubble presents us with a good opportunity to re-examine the proposition that expensive houses are a good thing. Expensive land is, of course, a benefit to those who own it. But scarce -- and therefore expensive -- houses are a barrier to opportunity. In an economy where tradeable production can take place overseas, or increasingly be done by machines, access to the high-wage, high-productivity labor markets of America’s richest cities is more important than ever.

That means housing construction in the places where demand is highest and homes are most expensive. Relaxing the anti-density regulations that stop it from happening would be a powerful short-term boost to an economy still suffering from mass unemployment of construction workers. More important, a construction boom in high-cost, high- income metro areas would lay the groundwork for higher wages and better living standards in decades to come.

Paying Manhattan rents to live in a trailer in North Dakota sounds absurd. What’s really crazy, however, is that it costs so much to live in New York in the first place.

(Matthew Yglesias, who writes about business and economics for Slate, is the author of “The Rent Is Too Damn High.” The opinions expressed are his own.)

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To contact the writer of this article: Matthew Yglesias at myglesias@gmail.com.

To contact the editor responsible for this article: Michael Newman at mnewman43@bloomberg.net.

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