I took a lot of guff for that.
Bad interviews aside, the point is that places like New York have always been more expensive than Alabama; that's true. However, they are much more expensive relative to the poor places than they used to be. They used to be a place with 1% higher wages and 1% higher housing prices. That is now double in the last few years.
The consequence of this is that it has very different effects on high-education and high-income workers and low-education and low-income workers. That's because housing takes up a much larger share within a city of low-income budgets. You can take two occupations, let's say janitors and lawyers. Fifty years ago both occupations paid 50% more in New York than they did in the south, and that was true before and after adjusting for housing prices. Today, both occupations pay 40% more in New York than in the south. When you take out housing prices, for the lawyer it goes down to about 35% more in New York than in the south. For janitors it goes the other way. They actually have more income net of housing costs in the south than in New York. That's because housing just takes up a huge chunk of lower education wages in New York.
As you would expect, this jump in housing prices in the places that offer the highest wage really changed migration patterns. College-educated workers are still moving to San Francisco and New York, but less-educated workers are moving out. It's not that they don't want the higher wages. It's just that with that net of housing costs, these places offer them a bad job. This sorting of skills leads to segregation. It keeps less-educated workers from their best opportunities and the places that would offer them the highest-paid jobs. It increases income inequality and stops that regional income catch-up or convergence that I began by discussing.
To recap, I argue that there is a change in housing markets in America's richest cities that changed regional migration patterns and income catch-up. Why did housing markets change? I think the answer is pretty clear here too. When prices are rising and the quantity is static or falling, it's a supply issue, and when you look at the data, it's pretty clear that there are restrictions in place. Construction costs actually don't differ that much. Brick prices don't differ that much city to city. Cities like Boston, where I live, are not actually that much more densely populated than the cheaper places like Houston, or in fact not at all. Therefore, it's not the physical space that limits. The culprit is really regulations and restrictions that prevent development.
I feel this personally. Until two years ago, my wife and I lived with our kids in an apartment in Brookline, which is a nicer neighbourhood in Boston. You might know a famous resident, Tom Brady, who doesn't live in a small apartment like we do.