US Democratic Party Shoots Itself in the Foot

The United States Democratic Party has a problem. Following the 2010 Census, which showed strong population growth in Republican held states, six House of Representative seats and Electoral College votes are to be reapportioned toward states won by John McCain (the 2008 Republican candidate) from states won by President Barrack Obama (see below map).

This loss of votes to Republican heartland is clearly something that the Democrats will want to arrest.

A recent article in New Geography explains some of the drivers underpinning the population shift. Essentially, it argues that America’s major cities are following two different and competing models.

On one side, you have the “high quality” model. These cities typically focus on high wage activities, including finance, high technology, and luxury consumption. Under the quality model, traditional growth in areas like population, jobs, and/or size are less important and even seen as a negative. Many of these “quality” cities focus on growing vertically, and residents often oppose growth due to increased traffic, infrastructure spending, and other challenges associated with growth.

In effect, the anti-growth agenda that dominates the culture of many of these places is not based simply on environmental concern, but the economic interests of their dominant regional elites…

On measures of urban quality such as economic output and income, most are clearly doing very well. Most of these places generate GDP per capita far above the US metro average of $41,737. With the exception of Chicago, they are also growing at a pace that beats the US average. These cities also boast incomes – although often a cost of living – generally well above average…

[But] many of them have anemic population growth, albeit from a large base. And virtually all of them actually destroyed jobs in the last decade…

Below is a table, from the New Geography article, showing the performance of the “high quality” cities by various metrics.

By contrast, America’s “high quantity” cities tend to provide the bulk of the jobs for America’s middle class as well as a lower cost of living; although, they tend to lack the high-end business and glamorous lifestyles of America’s premier cities.

These cities fare well on quantity measures such as population growth, where they crush the US average of 8.8%, and job growth, where several of them actually managed to post double-digit gains during the generally anemic 2000s.

But all is not well with these cities just because they are adding jobs and people. Their GDP per capita is generally above average, but is growing slowly. Their per capita income may be lower than some, but their cost of living is rock bottom, enabling a high quality of life…

The below table, again from New Geography, shows the performance of the “high quantity” cities by various metrics.

According to New Geography:

These two dynamics [quality versus quantity] reflect what has happened throughout America, from retail to media, where there has been a great “hour glassing” effect in the marketplace. A small but significant high end is thriving, almost everywhere but particularly in the quality oriented cities. The low end is also doing well, particularly in the quantity oriented cities.

A recent article in the Wall Street Journal, The Great Lone Star Migration, also explains the recent population shift towards the Republican states.

[An] area that was written off by demographers 40 years ago but that has come roaring back is the Interior South, the Southern states west of the South Atlantic and east and north of Texas. They grew 26% in 1930-70, nearly 40 points below the national average, but they have grown 39% in 1970-2010, only 12 points below the national average.

One reason is that black outmigration halted just as the 1960s civil rights acts were passed and enforced. Instead we have been seeing black in-migration in the South in recent years. The South has become a good place to do business. Alabama and Tennessee, with their non-unionized plants, have become major auto producers. Memphis boasts not only Graceland but FedEx. And with a low cost of living, the region is home to many retirement centers.

Finally there is Texas. In 1930 there were (rounded off) six million people in the Lone Star State versus 13 million in New York. In 1970 there were 11 million in Texas and 18 million in New York: Each had grown by about five million. But in 2010 there were 25 million in Texas and 19 million in New York.

Back in the 1930-70 period, liberal political scientists hoped and expected that America would become less like Texas and more like New York, with bigger government, higher taxes and more unions… [But] Americans have been voting with their feet for the Texas model, with its low tax rates, light regulation and openness to new businesses and enterprises.

Today one out of 12 Americans lives in Texas—the same proportion that lived in New York City in 1930. Metropolitan Dallas and metropolitan Houston, with about six million people each, threaten to overtake our fourth largest metro area, San Francisco Bay (population about seven million), in the next decade.

In 1930 half of all Americans lived in New England, Megalopolis and the Foundry, and 40 years later 46% did. Now only one-third of Americans live in those three regions, the same proportion as live in the South Atlantic, Interior South and Texas.

Clearly, Texas appears to have been the big winner from America’s population shift, with its two largest centres, Houston and Dallas-Fort Worth, managing to achieve both higher than average incomes and low cost of living, in spite of rapid population growth.

And Texas’ low cost of living, attributable mostly to its affordable housing from its liberal land-use policies, has been credited for much of Texas’ success. A recent article in Forbes explained this dynamic:

In most regions, the vast preponderance of homebuyers are either natives or long-term migrants. Their less glamorous tastes — notably access to affordable single-family dwellings — drives migration  from one region to another. Over the past decade, and even since the crash, this has meant a general trend of migration from high-end, unaffordable markets to less expensive regions. In the U.S., for example, people have been flocking to the South, particularly the large metropolitan areas of Texas…

[In most] cases affordability has promoted economic and demographic growth.  Generally speaking, affordable markets tend to draw migrants from overpriced ones, for example to Houston or Austin from Los Angeles or New York…

Indeed, the housing market is one of the great contradictions of American politics. Although the Democratic Party is traditionally viewed as the party that looks after the working classes’ interests, the Democratic states are typically those with the most unaffordable housing caused, to a large extent, by restrictive land-use  policies that prevent new low-cost housing from being built. By contrast, the Republican Party, which is traditionally viewed as the party for the wealthy, typically has affordable housing within its heartland, largely brought about by its less-restrictive land-use policies.

Ultimately, a region’s growth is highly correlated with the increase in the number of homes. And if you do not build, you won’t grow your population. The Democratic Party needs to awaken to this fact. Otherwise it risks losing more House of Representative seats and Electoral College votes to the Republicans.

Cheers Leith

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Leith van Onselen
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Comments

  1. America is becoming more Hispanic, and they are responsible for most of the population growth. When they bother to vote, they tend to vote Democrats because the Republicans have a reputation of being anti-immigrants. The long term picture is not good for the Republicans, and Texas will turn blue if the population trend continues.

  2. Texas is CHEAP! We have family there and you can get a nice family home for 200k and a full takeaway texmex family meal for 30 bucks!

  3. I remain unconvinced by the restrictive land use policy argument. Not everywhere with “tight” regulations appears to have had a run up in prices and other places with such regulations still managed to successfully build more houses than anyone needed to live in.

    Certainly in Australia at least, those mostly driving the price escalation – investors – aren’t interested in building more houses, as you yourself have clearly demonstrated. They overwhelmingly desire to purchses pre-existing dwellings.

    I submit that those who are building houses – those who desire only owner-occupiership – are building them as fast as they are needed. Regulations are not constraining actual need.

    The main problem lies with the behaviour of investors who are disinterested in adding to the housing stock but desire to buy up second-hand houses faster than new ones are being built. We have a serious problem here since second-hand houses cannot come into existence faster than new ones are added. This has been pushing up the price all round.

    You could roll back land use regulations – but would it make much difference in our case? The excessive demand is not for new constructions but for pre-existing ones. Why would deregulating make owner occupiers want to start building more houses than they can live in? And why would it change the beaviour of investors en masse? It’s certainly easier to buy a pre-existing dwelling for investment rather than go to the bother of building something you’re not going to live in.

    *We don’t have a physical shortage of housing.

    *We don’t have a problem caused by overly tight planning regulations.

    *We DO have a serious excess of speculators in the housing market. They’ve increased in number to now make up one in every seven or eight mortgage holders and now account for around one in every three property purchases, most of which represent pre-existing dwellings being snapped up.

    Unless you can demonstrate that attacking planning regulations will cause investors to change their behaviour en masse and start building the houses they want for investment rather than buying up all the existing stock then I think we should just leave planning alone – there are often very good reasons for it’s existence – and go after negative gearing and the like, the things that create so much incentive for so many more people than historically normal to veiw housing as a vehicle for speculation rather than a home.

    • Lefty. I suggest you read my Truth about the US Housing Market article, which provides ample evidence on the effects of planning on prices/speculation in the USA. States that operated liberal land-use regimes never bubbled/busted whereas those that operated Australian-style restrictive planning did. This is despite all states in the US having effectively the same access to credit and the same ability to speculate.

      You need to ask yourself this: why weren’t the speculators attracted to the deregulated markets? Answer: because the rapid supply response muted price increases, which discouraged the speculators. There’s not much point speculating if this will only lead to more houses being built and minimal price growth.

      You are deluding yourself if you believe that restricting quantity (supply) doesn’t have adverse price impacts. Of course it does, just like price controls affect quantity.

      I think I have explained myself more than adequately in my numerous posts on this issue. It is time for you to provide evidence to the contrary rather than empty rhetoric.

    • The absence of regulation means the market can respond quicker to demand. If supply proves to meet demand in quick time, it will take away the extraordinary profit, thus speculators will not demand the commodity in the first place. I see where Leith is coming from. If the scenario is “Sh*t, everytime I buy an established house, the government builds a new one as well, and it diminishes my capital gain. I won’t be bothered playing this game any more. Thus demand is effectively reduced to its natural level, not its speculative level.

  4. Along with migration between states, there is also fertility.

    Put simply, the more professional/middle-class/higher income, better educated – in short – the more inteligent you are, the fewer children you have.

    In round terms for every welfare recipient in Australia there are three children, but for every four professionals in Australia, there is only one child being born to replace them.

    Not only is this causing to a dumbing down of society (and hence politics) but also the hollowing-out of the middle, as mart people get rarer and hence able to demand higher incomes.

    Why? Professional men don’t want to become fathers anymore – they know it means long years of long hours paying off the mortgage, followed by divorce and seeing their kids and homes fed to the lawyers. Why become a father when it leads only to pain?

    • Wow! What amazes me about that map is the huge disparity between average listing prices and median sale prices in some states – in some of them the average listing price is over three times higher! Leith, you may care to comment – while I realise some of this is driven by the average vs median comparison, surely such a large disparity is unusual?

      • Hi Alex. This is no surprise at all. The difference relates predominantly to the disperate planning regimes operated. The states with liberal (deregulated) land-use policies are relatively affordable whereas those with prescriptive (Australian-style) planning regimes are expensive.

        Check out the planning maps in this article to compare planning against prices. Not surprisingly, there is a very high correlation between the intensity of planning regimes and home prices.

        • I think you may have misunderstood my question. I was observing that some states have an average listing price which is over three times the median sale price for the same state. Obviously some of this is due to the use of average (mean) for the listing prices and median for the sale prices. But this seems unlikely to account for such a large difference.

  5. “Americans have been voting with their feet for the Texas model, with its low tax rates, light regulation and openness to new businesses and enterprises”

    I think this is the key quote from the article. Big governments simply make the place less desirable to live and do business therefore people naturally go to places with more freedom and less government.

    Lets hope Australian politicians learn this lesson…

  6. Latinos vote democratic??

    Go ask the Cubans down in Miami who they vote for? They are republican for sure

  7. The price of the land goes up usually in tandom with the quality and usability of the infrastructure. The value of the structure/home goes down regardless of its location. The price of land in Texas is more evenly spread because of better, more widespread and more extensive infrastructure. This is a regulation for all new planning of estates and there is a levy/tax paid per year to maintain that infrastructure and utilities for every estate (essentially a leasing cost on the infrastruce and utilities for the land that is demanded by the developer and not the government). There is also no taxation incentives in Texas to invest or buy old and getting older homes under the ruse that such a huge gift in Negative Gearing of $3 billion to investors (as in Australia)is increasing land/housing affordability. Whether an Estate Developer or a Government creates the better Infrastucture probably equates differently to different circumstances. In Australia the money is already available through savings by scrapping Negative Gearing and through proper utitization of Government Council Rates (the partial equivilent of maintaining local/estate infrastructure as a mandatory cost in Texas). The government is far better advised to spend this housing Negative Gearing tax nonsense of $3 billion on better Infrastructure to all areas of the city to bring the price of land closer to each other and to bring it in reality down in the inner or more priveldged parts of our cities. Expansion on the fringes or lower desired areas should require infrastructure of the highest sustainable quality, and therefore create a more desireable location to live and therefore to increase its price relatively, and not allow the lowest quality infrastructure leading to obviously lower liveability and lower land prices as is the case in our cities.

  8. I have no Idea why houses are cheap in Texas but I can tell you that in Austin they build houses fast to respond to demand. Very little red tape.

    • Thanks Jwb. Apparently in Texas it takes only around 6 months to turn a greenfield site into a housing estate, compared with around 5 years in Melbourne (due to our complicated, bureacratic, and expensive planning processes). Accordingly, Texas’ home prices have remained stable and affordable, since supply quickly dampens demand, whereas Melbourne’s has risen sky high.

      Speculators are also not attracted to Texas, since their is little prospect of capital growth, whereas they are very attracted to Melbourne (and Australia’s) supply-restricted market(s).

  9. threedogsandakid

    In the US, the Democrats are largely darlings of the celebrity pack, the press, college educated humanities/law types, feted by readers of the NYT. A party for those aspiring to a certain intellectual and humanitarian superiority (at least in their own assessment). Once champion of equality, fairness, rights of the worker, etc. Over time the supporters move up the career ladder, become ensconced in mid-senior level roles in government, academia and various public purse payroll roles. Move into nice housing, preferably inner city, drink latte, frequent bookcaffes and congratulate each other on their mutual ‘philosophical’ superiority and rather pleasant existence loosely based on their post university summer sojourn to Europe. Of course, they, better than others, well appreciate the vibrant cultural life a civilized and determinedly urban educated populace offers. Eager to protect this ideological idyll they use their influence with policy makers (as in fact they themselves often are) to enact laws restricting change or growth to their protected enclave. They know what is in everyone’s best interest.

    The Republicans, darlings of some of the seriously rich, beloved by lovers of ‘traditional values’ and often of a military conservative bent, supported by the self-made individual and ‘a fair day’s work for a fair day’s pay’ worker. The seriously rich live in seriously wonderful houses in gorgeous locales, and others seek a decent house in an area with good schools and ideally a garden for dogs and kids(!). Recognizing all as individuals there is a preparedness to accept that whilst perhaps not to one’s own taste, there exists a right and subsequent opportunity to live wherever you wish, assuming affordability and practicality.

    An analogy of sorts is the Labor/Liberal demographic shift that has taken place in Australia over recent years.

    Just a thought ….