Matt Yglesias is a decent blogger, but this piece defies reason. I will grant that the exact cause and effect are murky, and that correlation does not prove causation, but housing prices historically--until the recent housing bubble--have tracked wages very well. Not general inflation, but wages.
This is for good reason: in a sensible marketplace (not a bubble) the amount of house a person can buy is very closely linked to their income. The mass of housing must, as a consequence, be priced to the income of the people who will be purchasing it. While house prices are more complex in that they are hyper-local, the wonders of large numbers takes care of the discrepancies between my neighborhood and the one 4 miles south.
If New York were to have the incredibly expensive housing it does but incomes that were half the national average, then the fact that no one could afford it would cause prices to crash as sellers tried to find a buyer. Rents would also plummet.
Now I will grant that there are other things that affect prices, and that the price to income ratio in New York is likely to always be higher than the national average due to land scarcity. Codes, accessibility, commute, along with land scarcity do affect prices, but those things don't change as much if at all, so the real determining factor for what housing will cost in an area is the income of the people that live there.
Maybe Matt really just means that housing prices and income actually are both tracking an area's productivity, which is true, but if that is what he was trying to say then he should have started with that and not the other garbage.
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