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It’s abundantly clear that in today’s economy, the ability to attract and mobilize highly educated people—so-called human capital—is the key factor in the the wealth of nations as well of that of cities. But the driving force of talent in economic growth also contributes to our worsening divides. While metropolitan areas with more educated people have higher levels of income, they also have higher housing costs. And the burden of those costs falls hardest on the less educated.

A working paper by urban economist Richard Green, of the University of Southern California, and Jung Choi, of the Urban Institute takes, a deep dive into this conundrum, using detailed data from the U.S. Census, the American Community Survey, and the longitudinal Panel Study of Income Dynamics to track the impact of college graduates on wages and rents across U.S. metros. The data spans the more-than-three-decade period from 1980 to 2013.

First, the good news: Having more college graduates in a metro means higher wages for everyone. A 1 percent increase in the share of college graduates brings a 1.4 percent increase in wages across the board, even after controlling for sorting—that is, an individual’s choice to move to an area with lower rents or higher paying jobs, or because of other factors.

But these wages gains accrue disproportionately to college grads. A 1 percent increase in the share of college graduates leads to a 1.7 percent increase in hourly earnings for the same group. Meanwhile, those with a high school degree or less see an increase of less than 0.7 percent.

Now the bad news: The increase in wages associated with college grads tends to translate into higher housing costs. Although college grads tend to earn more than enough to cover these costs, less advantaged, less educated groups end up spending a far greater share of their income on housing.

 

Source: citylab.com

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