Home Prices Drive Migration

The Laffer curve is the gift that keeps on giving good laughs. According to Stephen Moore: "The idea [of the Laffer curve] is that lowering the tax rate on production, work, investment and risk-taking will spur more of these activities and thereby will often lead to more tax revenue collections for the government rather than less."

Arthur Laffer and Stephen Moore try to explain everything ad nauseam with the Laffer curve. They recently wrote an article (subscription required) arguing that businesses and individuals follow the Laffer curve by migrating to more "prosperous" states. Interesting idea, but how can any study involving migration that does not consider home prices since 1980 be taken seriously?

Laffer and Moore wrote a report for a conservative organization -- the American Legislative Exchange Council -- to offer their views on migration and taxes. The report is full of sweeping generalizations like the following:

At a time when most of America has grown more traditionally conservative, more dismissive of big government command-and-control policy prescriptions, and more economically prosperous, the heavily-unionized, economically exhausted, industrial Northeast has edged ever further to the left.

Polls and statistics do not support these statements. The Republican Party has diminished, not grown, over the past few years, and fewer people have expressed interest in reducing the size of government.

A bigger factor than taxes and labor policy in recent migration trends is home prices. We can survey historical prices in states that Laffer and Moore find are winners and losers in the "war" between states over migration. They use statistics from the U.S. Census Bureau. Winners are: Florida, Arizona, Texas, Georgia, North Carolina, Nevada, Tennessee, South Carolina, Colorado and Washington. Losers are: New York, California, Illinois, New Jersey, Louisiana, Ohio, Massachusetts, Michigan, Pennsylvania and Connecticut.

I turn to the Office of Federal Housing Enterprise and Oversight (OFHEO), which keeps statistics on home prices

going back to 1980. Looking at the chart, we see that the Northeast, which Laffer and Moore refer to as a vast "black hole," has witnessed massive appreciation in home prices over the past three decades. California kept pace on the opposite coast.

Florida and Washington appear as anomalies. Florida is easily explains itself by a long-term trend of New Yorkers leaving for warmer weather, often heading to retirement communities. Golfing year-round sounds great to me.

Washington has also long attracted migrants fleeing California. But home prices there started to increase faster in the 1990s when MicrosoftMSFT starting spewing out millionaires at a rapid pace. This accelerated after former Fed Chairman Alan Greenspan lowered rates in 2001 and 2002.

Old manufacturing states such as Michigan, Illinois and Ohio might come closer to describing the phenomenon Laffer and Moore discuss. But lumping all the losers in together defeats their central point about high taxes and labor laws. And, you will notice that home prices remain more expensive in those states than in Arizona or Texas.

I spoke with William Frey, a demographer at the Brookings Institution. Frey commented, "One has to be careful making one particular factor a major reason to explain migration patterns." He continued: "But 10 years ago, home prices increasingly became a dominant factor."

Population Losers Lead in Home Price Appreciation Since 1980
Winners	HPI Change*	Losers	HPI Change*
Florida	478.13	New York	657.89
Arizona	286.24	California	625.43
Texas	227.92	Illinois	383.44
Georgia	338.09	New Jersey	580.09
North Carolina	345.00	Louisiana	251.63
Nevada	402.44	Ohio	268.4
Tennessee	321.29	Massachusetts	703.09
South Carolina	324.89	Michigan	305.62
Colorado	370.17	Pennsylvania	413.21
Washington	511.89	Connecticut	477.45
*Home Price Index 1980 to 2007 Q3 (source: Office of Housing Enterprise and Oversight) (1980 Q1 = 100)