As a general rule, if you hold most of your wealth in diamonds, you do not want the market to be flooded with diamonds.
In fact, if you’re smart, you’ll oppose the exploration of any new diamond mines, and soon be rolling in money. Sure, a diamond shortage might be unwelcome news for starry-eyed couples seeking engagement rings. But it would be great news for you.
And that, in a nutshell, is the story of housing in this country.
“Outside of something like housing, we don’t allow incumbents who have a financial interest in restricting supply to restrict supply,” says Jenny Schuetz, an economist who studies housing at the Brookings Institute, a nonprofit public policy organization based in Washington, D.C. “And that’s exactly what we’re doing with homeownership.”
Which has resulted, of course, in skyrocketing prices. In just the two years between 2019 and 2021, prices for single-family homes in Massachusetts surged nearly 28 percent.
So, how did the market for homes become so different from the market for almost anything else, from cars to pizza to watches?
First, politicians have long told Americans that homeownership is — to quote former president George W. Bush — “an important part of the American Dream.”
And we didn’t need much convincing. “Two-thirds of American households,” Schuetz writes in “Fixer-Upper: How to Repair America’s Broken Housing Systems,” her recent book, “own their own home.” And most of their money is locked up in that home.
Second, state governments decided to delegate lots of their authority on construction to local authorities. And local authorities, in turn, decided to delegate much of the decision-making to groups of current residents, who were generally not interested in adding a raft of new houses to town.
Many of those residents also understood that they were in possession of a limited resource, and the more limited it was, the more valuable it would become.
For homeowners in Massachusetts, intricate and restrictive zoning policies have been a bonanza. And not just during the pandemic-induced housing mania. Over the last 10 years, home prices in the state have risen close to 70 percent, according to the Federal Reserve.
Katherine Levine Einstein, a political scientist at Boston University who studies housing, notes that Massachusetts now has “some of the most expensive housing in the country.” And the crunch has gotten so bad, she says, that it’s starting to mirror the San Francisco and Los Angeles markets (where 1,800-square-foot homes routinely sell for more than $2 million).
Essentially, we’re living in our diamonds. And for a lot of people, it feels fantastic.
But, says Schuetz, this creates a terrible irony: In areas where people talk a lot about fixing inequality (like Boston, New York, and San Francisco), real estate prices have erected higher and higher barriers between existing and aspiring homeowners.
Already, Massachusetts is one of the most unequal states in the country, in terms of income: The Economic Policy Institute pegs us as the sixth-most unequal. The top 1 percent of earners earn almost $2 million a year, on average, while the other 99 percent earn an average of $62,000.
Shocking, perhaps. But that’s just for starters. Consider what happens when a wealthy person’s income is plowed into a lovely home in Dover or Lexington, which then surges in value.
Meanwhile, for someone making $62,000 a year and paying a huge chunk of that in rent, there is no nest egg. No appreciation. And little hope of ever breaking into an insanely hot housing market.
“It’s a really difficult problem,” Schuetz told me, “when you have people who say that they care about inequality. They say that they care about racial justice ... And yet they are not willing to make changes in their own life, or to accept changes in their personal environment that would make equity better, that would reduce racial segregation.
“So there’s sort of this paradox that a lot of the really Democratic-leaning places have some of the most restrictive zoning and are fighting the hardest against things like building a low-income apartment building in an affluent neighborhood, which is exactly the kind of thing we need to do if we want to make progress on racial equity.”
And, she says, it’s a self-perpetuating cycle.
Lovely towns with great schools generally feature limited — and pricey — houses. Those homes net lots of taxes for the town. The taxes are then funneled into services like parks and schools. And as schools get better and better, people are willing to pay more and more for homes, putting these towns further and further out of the reach of mere mortals.
Einstein emphasizes that “in a lot of these bedroom suburban communities, the crown jewel ... are the school systems. And so in many ways, the failure to build enough housing in many of our suburban communities is a way of hoarding exclusive access to highly ranked public school systems. And that is a profound equity issue.”
There are almost-unending ripples that radiate out from this cycle. Opportunity Insights, a group led by Harvard economist Raj Chetty, argues that there is “clear scientific evidence that you can dramatically change kids’ outcomes just based on where they grow up.”
In the 1990s, a group of low-income families in Baltimore were given vouchers to move to richer neighborhoods with their children. By the time those children were adults, Chetty noted, they were “earning 30 percent more. They’re 27 percent more likely to go to college, something like 30 percent less likely to have a teenage pregnancy.”
Living in a nice area — and especially owning your own place — can alter social mobility, mental health, and the ability to transfer wealth to the next generation.
And white families are far more equipped to make that transfer than Black families. More than two-thirds of white households own their own homes, Schuetz notes, versus less than half of Black families. And even if you only compare white and Black homeowners to each other, white households have almost twice as much equity in their homes ($100,000 vs. $56,000), often because they were able to afford a house in a fancier town, where housing prices tend to appreciate more.
“If we stick with our current systems,” Schuetz says, “things will get worse. . . . We will have even more racial and economic segregation than we have now and a bigger gap in household wealth.”
In many red states, like Texas and Georgia, housing has traditionally been greenlit faster, which makes it more plentiful and cheaper, and has helped fuel migration to those states.
Though, Schuetz argues, if some of the worst-performing states change (including California, New York, New Jersey, and Massachusetts), they could help bend the current trajectory of inequality.
But change may not be imminent.
People like the places they live. They like them to stay the way they remember them. Often, they don’t want more traffic, or more kids in the school. They don’t want trees cut down, and they don’t want apartment buildings to sprout up. On an individual level, that’s totally understandable. At a state — or national — level, it can be disastrous.
Which is why a part of the economic development bill passed into law in Massachusetts last year has proven so controversial.
It requires 175 towns with public transit (or bordering towns with public transit) to build more high-density housing, and Schuetz told me that this kind of legislation is a step in the right direction. Governor Charlie Baker seems to agree with her, but dozens of the towns that would have to build the housing don’t.
Einstein believes that the state must exert its authority, instead of delegating that authority to individual cities and towns — though she singles out the City of Boston for forging ahead on new housing.
“State-level solutions are really important for overcoming local aversion to change,” Einstein says. “Because there are very few communities who are voluntarily, like, ‘We want to change ourselves!’ It’s human nature for people to like things to stay as they are.”
And having any sort of conversation about policy shifts is hard, as other states with restrictive zoning and costly housing have discovered. “Once housing gets very, very expensive,” Schuetz says, “the politics just become so toxic that it’s hard to do very much.”
Though, if we opt not to do very much, that, in and of itself, will shape the future of Massachusetts.
Follow Kara Miller @karaemiller.