Peter Ganong and Daniel Shoag write,
Though lawyers still earn much more in the New York area in both nominal terms and net of housing costs, janitors now earn less in the New York area after housing costs than they do in the Deep South. This sharp difference arises because for lawyers in the New York area, housing costs are equal to 21 percent of their income, while housing costs are equal to 52 percent of income for New York area janitors. While it may still be “worth it” for skilled workers to move to productive places like New York, for unskilled workers New York’s high housing prices offset the nominal wage gains.
Once again, land-use regulation is accused of being a major culprit. And along those lines, discussing Tokyo, Alex Tabarrok writes,
Rising housing prices are not an inevitable consequence of growth and fixed land supply–high and rising housing prices are the result of policy choices to restrict land development.
However, note that in a post devoid of politics or vitriol, Paul Krugman writes,
In today’s world, core headquarters functions – the stuff done by top executives and highly paid experts – can be unbundled from the more mundane operations of a company. These high-end functions are also the ones that benefit most from the agglomeration economies of a big city; not to mention the amenities such a city offers to people whose salaries are enough to let them afford decent housing despite high prices.
Meanwhile, it’s no longer necessary to have all the back-office operations in the same place, requiring that a lot of less-well-paid workers deal with high rents even as they suffer on the long subway ride in from Queens.
Pointer from Mark Thoma.
The point is that with modern communications technology, the upper echelons no longer have to be close to all of their mid-level staff.
This particular form of unbundling may or may not be the major factor. However, I think that patterns of specialization have shifted in ways that allow the affluent to invade some major cities and drive out the less-affluent. My view is that, as with colleges, affluent residents are a powerful attraction to other affluent residents, so that you head toward an outcome in which there is competition for “admission” to the high-end cities. For a variety of reasons, including differences in tastes, many of the less-affluent do not enter this competition.