Not at all. Shipping over water is absurdly cheap, and the Mississippi is the best inland river for transporting goods of maybe any country in the world. It's held back by the regulatory costs of shipping between domestic ports and dredging the Mississippi Delta. Looking back at my post, I might also have given the impression I meant the state rather than the river. More likely it would be St Louis.
Part of the problem is that if you aggregate on the level of the entire metro, you're talking about thousands of square miles (3800mi² for the Detroit metro, 4800mi² for Los Angeles), of which relatively little (10% in LA, 4% in Detroit) is the actual municipality.
City limits are very arbitrary. Most cities consist of a core and a large suburban sprawl. Boston city limits are very small, it's essentially just the core of Boston with no suburbs.
Boston and its associated smaller cities are pretty interesting - arguably that's where the historical process of cities annexing surrounding smaller municipalities died in the US, so we're left with a whole bunch of intermingled borders that today come across as completely arbitrary. Looking at population, population density, and median home price for 2020 gives us this:
Boston: 675,647; 13,989/sq mi; $700k
Cambridge: 118,403; 18,500/sq mi; $938k
Somerville: 80,842; 19,656/sq mi; $870k
Brookline: 59,223; 9,347/sq mi; $1065k
Cambridge is a world-famous center of academia that's leveraged the startup pipeline for decades, Somerville is aggressively recovering from a post-industrial slump in the 80s, and Brookline is an experiment in how many country clubs can fit in an urban area. There's an easy story to tell here as to why the values are where they are, but you can't get it by density alone.
Daly City is an interesting thing to mention. It's really the same city as SF, but it's in a different county with it's own government. Walking from one to the other, you never get out of the city. It's not even suburbs, though once it was. So I'd say that CA has ONE.
Any list that has both SF and Daly City on it should raise eyebrows, and make us suspect that very unlike things are being compared in ways that obscure their differences.
"Density of a city" is a pretty meaningless number. A (physical) city is a big agglomeration of buildings which slowly peters out as you get towards the edges. The overall density of that "city" is dependent on exactly where you (somewhat arbitrarily) decide to draw a line that separates the city from the countryside.
In the US there's a concept of "city" which means "local government area" rather than corresponding to a physical city. Guttenberg NJ is supposedly the densest "city" in the United States but it's not a city in any physical sense, it's just a handful of blocks of the gigantic city which we could reasonably label New York.
That's not to say there's not a very real sense in which New York is more dense than Los Angeles, just that if you want to measure density you need more than one number. Plot an average density vs distance from city centre curve, and you might have something you can reasonable compare.
For Detroit I expect you'd see this curve flatten considerably over time as the city turns from a densely concentrated one to one in which the suburbs hold the majority of the population.
It turns out that, unless you consider scales << 1 km or >> 10 km, such curves for different cities tend to be roughly proportional to each other. (I'll post a link to a tweet I saw about this if I find it again.)
Right. The problem is that we want to include built-up areas that are contiguous with the rest of the city even if they're not all in the same municipality, and we want to exclude, e.g. random cornfields in the suburbs.
I think the core municipality is plausibly a better level to aggregate at than the metro area because policy generally gets set at the local level and it's most likely to be a binding constraint on new construction there than in other parts of the metro area, which are also not necessarily contiguous with the city.
The writer wasn't using metro areas, he was using urban areas, which are the urbanized portions of metro areas. There is a strong correlation between high housing prices and density at the urban area level.
Scale matters a lot here, so I'm confused why you want to disqualify the Tokyo example (or Seoul for that matter). Tokyo and Seoul make up a huge fraction of the populations of their respective countries (20-25%). It's true that _locally_ there are agglomeration effects so prices may move up, but if some place is YIMBY enough prices will move down. As far as I'm aware, _every_ locality that builds at the scale that the full-on YIMBYs want them to build as reduces prices.
You may disagree with turning the bay area into Tokyo. But I don't see how if the bay area built enough housing for 66 million people (20% of America) that prices wouldn't go down.
I agree if the Bay Area built 66 million new houses, prices would go down. I am only seeing debates about building 10,000 vs. 100,000 new houses; at that scale, I wouldn't expect prices to go down.
But why? We have good research showing that adding even a hundred new units lowers the trajectory of rents in existing stock in the immediate vicinity of where it's built, compared to the trajectory of rents on similar blocks that don't get a new building; and that adding those hundred units leads to move-chains that open up units even in lower-income neighborhoods. (See Evan Mast's research on this.) The fact that people filter up from poorer neighborhoods to richer ones fairly strongly suggests that the new building in the "gentrifying" neighborhood will also lower the trajectory of rents in farther-away neighborhoods, since fewer people "too wealthy" for that neighborhood will bid up the prices of units there. (But this effect would be smaller / more diffuse, compared to the local impact.)
I believe CA YIMBY maintains some resource lists about this stuff if you want references to more of the papers.
All you've observed is that there is no dense/in-demand US city where the market has been allowed to supply what is being demanded. Density is a signal that the location is desirable. Given Anglosphere style bad land use practices, desirability _partly_ translates into density, and partly translates into housing inflation. So of course you see correlation between those two things.
Edit: Aha, I think maybe I see the distinction you're making. You mean "go down in absolute terms", not "go down relative to what would otherwise happen". And yes, if you wanted prices to actually go down -- back down to the level of a healthy market where the median person's housing costs less than a third of the median income -- then the Bay Area would need to build on the order of 400-500k more units, in the next eight years, than what the RHNA process currently calls for.
I think the best case we can hope for is to accelerate building to the point that rents flatten out for long enough that incomes can catch up, so that rents will go down in _relative_ terms, but never absolute terms. Rents, like many types of price, are pretty sticky downwards. Less-so for corporate operated housing where people are more inclined to just set the market-clearing price. "Mom and pop landlords" operating a handful of units are much more willing to let a unit sit empty for six months rather than lowering the rent 10%.
I have absolutely seen cases where people own the unit outright (e.g. inherited) and behave in wildly irrational ways. I've also seen a ton of self-destructive behavior where people will be penny-wise, pound-foolish, with trying to avoid dealing with critical maintenance like roof repairs, where if the problem is not dealt with it will result in much more expensive long-term habitability issues.
Behavior in the small-landlord market is _extremely_ variable.
I've read about this effect also, particularly in San Francisco. This behavior seems to be driven by San Francisco's particular legal environment. Some of the relevant considerations:
* it's extremely difficult to raise rents if the housing market recovers, so you might be better off waiting for the rental market to move in your direction
* it's extremely difficult to evict a "bad" tenant (who doesn't pay the rent, damages the property, or repels "good" tenants), so owners may want to hold a vacant property in the hope of eventually selling it, occupying it, or re-developing it.
Outsiders' assessment of what sort of behavior is "rational" often depends heavily on unstated assumptions.
Sure, for towns that have rent control, waiting out a down cycle could be rational.
But seriously, I have seen multiple landlords just do stupid things, where it was clear they just were lazy and short-sighted, and would've been much better off getting a property management firm to take over. (In both the cases where I have direct experience -- the landlord my spouse had early on in our relationship, and one I had -- the landlord in question inherited the property. The Bay Area has a certain amount second- and third-generation landed gentry, who are exactly as smart about managing their properties as landed gentry are portrayed to be in a Jeeves and Wooster novel.)
Speaking hypothetically, but if I previously rented an apartment for $1000, I would probably refuse to rent it later for $900, for the reason that a person who has a problem paying $1000 a month is more likely to have a problem paying $900 a month.
Just like banks prefer to lend money to rich people, for landlords it is also safer to rent to rich people. Your greatest risk in this business is a person who suddenly starts paying *nothing*, is impossible to evict, and even destroys your property. Poor people are statistically more likely to do this... therefore, sadly, making your price more affordable is playing with fire.
> And yes, if you wanted prices to actually go down -- back down to the level of a healthy market where the median person's housing costs less than a third of the median income
Not sure 1/3 is always a good bar. Depending on your situation it can make sense to spend substantially more than that. Especially if it saves you from needing to commute, or you work remotely and spend a lot of time at home.
Once you have kids you probably need to get in that area, but kids are less and less common these days.
A) It almost certainly isn't the same house. People replace mechanicals, do minor projects etc. Most property seems some level of investment when occupied.
B) Sure it would be better if it was cheaper? it would be better still if it was free. But that money comes from somewhere, it doesn't fall out of the sky.
My father custom built this house to her specifications, she hasn't made any improvements besides those. It has had maintenance, certaintly, fresh coats of paint, she swapped out the interior door handles recently, but that's it. Nothing that would even remotely justify a tripling of price in two decades.
If you want to reproduce get a decent job. About 40% of societies problems are down to people having children they cannot support or raise effectively.
What if a move-chain is disrupted by someone moving to that city from elsewhere? That is, for big "destination" cities, if there exists a supply of people who would move there were it not for the difficulty of finding housing, then wouldn't adding more housing simply attract those people without affecting rents for anyone downstream on the move chain?
That's exactly the question Evan Mast's research was trying to address -- what portion of brand new units get occupied by locals, and once you open up new seats in the musical chairs game, as people shuffle around, how far down the income scale does the effect reach before affluent people from outside the metro area flow in?
He used postal service change of address data, and then made sure his modeled results were realistic by chasing down real-world move chains for various buildings in several metros.
The TL;DR is that his model says adding 100 units of market rate housing renting to affluent people will lead to around 70 middle-income units opening up, and around 40 units that rent to the lowest-income portion of the metro.
But real quick, it seems like his data comes from Chicago. Although I run the risk of attracting ire from its natives... I would not put Chicago in the same class as NY and SF. I think it entirely possible that there are a lot of people who would love to live in downtown NY or downtown SF who would not want to live in downtown Chicago.
I believe some of the details in that specific short summary focus on Chicago, but his work is much broader than that:
"I next sharpen focus to the migratory connections between new construction and low-income areas and track moves at the building level. I identify 686 large, new, market-rate multifamily buildings in 12 large central cities and track 52,000 of their current residents to their previous buildings of residence. I then find the tenants currently living in those buildings and track them to their previous residence, iterating for six rounds and, in order to focus on local connectivity, keeping only within-metro-area moves in each round."
And there was a team in I want to say Finland (it was definitely one of the Scandinavian countries) that replicated his work for at least one of their local metros.
No doubt, but what continues to evolve in central Chicago is if anything an underreported story. The change just during my lifetime is quite remarkable and is exceeding the most wild-eyed predictions of local urban-planning dreamers of my parents' generation. (My father worked during the 1960s for NE Illinois' regional planning agency and my elder siblings met some of those dreamers at our family's dinner table.)
Central Chicago (defined as the Loop+River North+South Loop+West Loop) has continued to steadily grow as a residential district for about three decades now. Demand growth, reflected in both prices and new construction, has had small pauses but has not meaningfully slowed through even major disruptions such as COVID and before it the 2007-2008 real estate crash. And demand is absolutely roaring right now: just in the South Loop another 1,000-foot all-residential building is under construction just steps from that area's first one which is right next to that area's first 700-footer (both full); as are at least a half-dozen others from 30 to 50 stories each. The West Loop has a fresh wave of new projects now underway as well and the new-construction boundary of that district appears to have extended at least another half-mile westward based on my drive through there the other day. Etc.
Just the small Loop business district, about 1.5 square miles which in the 1980s had fewer than 5,000 fulltime residents, is closing in now on 50,000. And there is fresh political focus locally in pushing that trend farther by encouraging/enabling residential conversion of Loop office buildings at a new scale.
Chicago's total population remains flat because of population losses elsewhere in the city. (E.g. Englewood had nearly 90K in 1970 and is now down near 40K and still falling.) The central area though -- roughly 12 square miles which as of 1980 housed fewer than 20,000 people -- is now approaching 200,000. And seems on track to by maybe 2040 be the densely-packed home to twice that many.
Also I think it's a mistake to think of this in terms of "a supply of people who would move there were it not for the difficulty of finding housing". Like, very few people move to a new metro _just because_. They move to the area for a job or school or family. What happens if somebody gets a six-figure job offer in Palo Alto and then finds that even on six figures, they can't afford to live in Palo Alto, is mostly not that they decide not to take the job. They just live in Fremont instead, and commute across the bridge. (And then somebody who works a service job in Fremont can't rent the unit that person takes -- and they commute in from Pleasanton. And somebody working a service job in Pleasanton ends up commuting from Tracy.)
The number of people who want to rent _somewhere_ in the Bay Area is short-term almost entirely price-insensitive. Long-term it is budging, very slowly, with out-migration, but the issue of jobs-housing balance is much more about city planning decisions. Each city individually finds that the way the property tax formulas break down, compared to who pays for stuff like schools versus who pays for transit systems and roads, it makes sense to try to attract offices -- you get more of the property tax revenue, while paying for less of the incremental services involved in supporting activity for that building. But of course if _every_ city tries to encourage investment in office parks, while expecting _somebody else_ to build the housing for those office workers, you have a problem. The RHNA process tries to solve that, but for 40 years the whole thing was a joke, with no enforcement.
(Well, I turned down a job in the Bay Area partly because I didn't want to deal with the Molochian housing market there. I had other offers of comparable quality elsewhere, and took one of them. But I'm probably weird like that.)
I wouldn't consider it weird to include cost of living into the evaluation of a job offer.
We have a similar situation in Germany. In southern Germany salaries offered are substantially higher than in northern and eastern Germany. However, cost of living there essentially negates this for all but the highest paying jobs.
So very often the additional burden of having to move isn't offset by those wage offers.
Unless you need to accept a specific job offer to advance your carrier, financially it's very often a good idea to evaluate the entire package instead of just comparing wages, even if we ignore all other considerations (like friends and family left behind).
Lots of people consider location and housing as a primary factor, especially when they are married and have kids at home. Young people right out of college tend to look at straight cash income more, often to their detriment.
My sister wanted to live in SF. It was too expensive so she lived in Oakland. Then she had to move for a job, and chose Portland over higher pay elsewhere. I think some people DO choose a location that fits their lifestyle.
My sister would not take a job in some small town in TX or maybe even a big city. Maybe Austin. Because she needs to be in a "cool" left wing environment.
Let me refine the point: Sure, there will at the margin be some people who decide not to move to the area, or to leave the area, because of this factor, but if some company does decide to add high-end engineering jobs, they _will_ be able to fill those jobs, in reasonably short order.
Silicon Valley companies have started griping about cost of living here making it harder to recruit, but for the most part they haven't taken the housing issue seriously enough to take public positions on it.
Elon moved Tesla HQ to Texas, but then quietly moved "engineering headquarters" back to Palo Alto because it turns out that very few of the employees in CA wanted to move to TX, and the pool of engineering talent here is much deeper, and he cared more about having more in-person work -- which honestly for the hands-on mechanical engineering stuff is probably fair! -- than he cared about trying to keep office rental costs low.
It's also an open secret that a fair number of the Fremont Factory employees commute in each week from as far away as Nevada, and sleep in the parking lot during the week. Better housing conditions there would make it easier to recruit, and would mean higher real standard of living for employees, even at a lower cash pay level. Yet the Tesla Government Affairs office has taken no interest in lobbying cities around the factory (Fremont, Milpitas, Union City) to make it easier to build workforce housing.
Patrick Collison has put some money into backing YIMBYs in the region, but far less than he easily could. Marc Andreesen talks a good game about the importance of letting people build, but then turns out to be personally quite NIMBY when it come to his own town of Atherton.
And all of this makes sense because, despite the gripes, when push comes to shove, all of these folks _can_ still hire. Maybe they pay marginally more, but it's peanuts compared to the actual value a good employee produces for the company, and there are tons of highly-talented people who want the good weather and great cultural amenities on offer.
To a first approximation, the number of highly-paid jobs directly determines the number of high-income people competing for housing in the region, with no elasticity at all -- if Apple or Google or Facebook or Tesla decides they're going to open another thousand reqs, those reqs will get filled. If the number of "nice" / "luxury" units falls short of the number of high-paid workers, then they enter the market for older units, and bid up the prices, pushing middle-income people into long commutes or sub-standard housing, and pushing low-income people into homelessness.
So, would you agree with a rough simple model like this:
Take a bell curve, and chop off the left quarter. NY and SF are somewhere in the new left third, on the left side of the peak. There's a pool of people who would like to move in, and we can order them from high-income to low-income. Right now, adding more housing means that more high-income people will move in, so at best there's no effect on housing costs, and at worst they go up because having more high-income people living in the area will raise property values. But eventually, if we build enough housing, we'll have skimmed off all the higher-income people, and start getting to the middle-income people who want to move there, at which point housing costs will decrease (or there will be vacant housing).
The move-chain formulation may appear not to apply in particular jurisdictions, but that's a result of the jurisdictions not being aligned with the metropolitan area. (For example, people living in northwest Indiana may count as part of the Chicago metropolitan area.) Thus, building more housing in Manhattan may not affect housing costs in Manhattan (yet), but will affect housing costs in the greater NY metro area, and will eventually, if enough housing is built in Manhattan, start to affect housing costs in Manhattan.
(This all assumes a free market in housing, with no rent control or tenants' rights laws that incentivize keeping housing vacant rather than renting it to the current best available tenants.)
My model says that if you add a relatively small number of new units, the people who move into those new units will be high-income people in brand new units. So _their units_ obviously are moving the average upwards. But the average for the region as a whole will rise slower than it otherwise would've, and if you do this in enough places, the average of the region as a whole will even turn around and start going down, _even if_ the average for each little two-block radius around one of those new "luxury" buildings goes up.
The average for the units in the immediate neighborhood _excluding the new ones_ actually should be deflected downwards more than the downward push on the region as a whole, since "other stuff within a few blocks" obviously has some level of substitutability with the new stuff; but some of the benefit of the new units, in terms of lowering the trajectory of the regional average, is "leaking out" to other neighborhoods, including, as you say, out to really far-flung extensions of the metro. Like, to refer back to the example I gave earlier, if the guy taking a job in Palo Alto _could_ find a decent place in a new twenty-story building on top of the Palo Alto Caltrain, then he doesn't instead rent a place in Fremont; and that means somebody who wanted to be in Fremont doesn't go to Pleasanton, and somebody that wanted to be in Pleasanton doesn't go to Tracy. So some of the benefit from the new units in Palo Alto has been transmitted sixty miles out to the exurban fringe of the East Bay.
But the place I disagree with your description is that it's not like you have to fully saturate the higher end of the market before you start seeing _some_ benefits move down to lower-income people. Again this is what the migration chain research is getting at. When you add new market rate units -- what Noah Smith has jokingly called Yuppie Fishbowls -- the fact that new people move into those _instead of_ trying to move into and renovate older units, does provide an immediate reduction in price pressure on people who live in older / more run-down units nearby.
So building a relatively small number of new units in Manhattan (say, increasing stock by 1%) would put the price of _existing_ units in Manhattan on a lower trajectory (so maybe they rise by 3% instead of 5%). But it may not in the short term lower the _average_ price of units at all relative to what they would've been, and will probably _raise_ the average of the immediate neighborhood, because the new units will be premium stuff that costs 2-3x the average. To actually put prices of existing units onto a track of absolute reductions, you'd have to build a _lot_ of new units. Plus you'd then run smack into the way that real estate undergirds our financial system. It's probably safer to just aim to make it so prices are stable, or at least rising slower than wages, so that people can see some real income growth instead of having people below like the 80th percentile in high-wage markets feeling like any progress they make on wages is immediately clawed away by the housing market.
So I think your article may be conflating density of two things:
1) Density of jobs
2) Density of housing
These are often highly correlated! But, increasing jobs (while holding housing constant) will raise housing prices, while increasing housing (while holding jobs constant) will decrease housing prices.
Network effects encourage both growing together, but things like Prop 13 encourage zoning for jobs over housing, because jobs bring in more tax revenue while houses bring in more expenses for the city, notably providing public schools.
If you build a cornucopia of housing without also building jobs to go along with it, you will end up with widespread poverty, food deserts, and other symptoms of urban decay.
I think you have that history backwards, nowhere (in US at least) have large tracts of housing been built without the rise, or anticipated rise, in the job market. That dysfunction you point to is from housing being built in concert with booming job markets, the job market then collapses and you see a cascading exodus leaving so much vacant housing that the value of the unit falls below the price of maintenance, resulting is cascading ruination and disinvestment in other infrastructure as municipal budget obligations fall behind revenue.
Think St. Louis or Detroit or most other rust belt cities that were hollowed by deindustrialization and suburbinization.
The jobs were subtracted from whole cities, housing was not added to empty cities.
Additionally, a large part of this construction was driven not even by the expectation of future jobs - it was the result of actions taken by local governments to meet aggressive growth targets set by the central government, combined with cheap credit for developers. It didn't matter whether the units would be occupied because the construction was the point. The wild thing is that a large proportion of these empty units did actually sell: combined with the lack of a property tax, this made real estate an attractive, ever-appreciating investment for those who could afford it, so many of those properties were sold at high prices before they were even constructed. And then when the central government started to get nervous about all this debt and tighten things up, that triggered a liquidity crisis in which Evergrande and other mega-developers defaulted on some of their debt.
I don't understand your argument here. Suppose more housing doesn't cause even a short term decrease in price for housing of a given quality (size/amenities). Absent that decrease in price what induces the demand? If prices stay the same how do these mobile people know to move there?
I doubt they are looking at the total number of available units and using that to estimate how desierable the city is to live in. So maybe there is eventually an induced demand effect but that's going to happen at a longer time scale.
Or maybe that's your claim. It is plausible that in the long term (though dunno if true) that more housing increases overall prices in the city but in short term it's got to reduce it.
(tho reason it's increasing prices in long term is by making it better to live there so ...)
> Absent that decrease in price what induces the demand?
Agglomeration effects could induce that demand.
> Or maybe that's your claim. It is plausible that in the long term (though dunno if true) that more housing increases overall prices in the city but in short term it's got to reduce it.
Yes, but that short term might be very short indeed.
> (tho reason it's increasing prices in long term is by making it better to live there so ...)
Yes, exactly. Especially 'better' in the sense of economic productivity. New York is not more or less pleasant in an absolute sense than podunk, but it's a lot easier to find a high paying job in the big city.
Agglomeration effects don't materialize until agglomeration has occured, I.e., you've increased total residents relative to the counterfactual. I agree that in the 'long' term that might happen but the causation has to go from: more houses -> cheaper to move their (than in counterfactual w/o) -> higher population -> agglomeration effects. So at least briefly you need to get lower prices.
Regarding how long long term is, I highly doubt that it can be less than a year. I think a good lower bound comes from looking at the length of time between, say, high income people starting to move into an area and substantial changes in the nearby stores. Usually that takes a few years (I admit it might be less in areas where one developer can create a massive mixed use complex in one go but I presume here we just discussing pure housing construction).
I guess that's short term as far as the debate is concerned.
> Agglomeration effects don't materialize until agglomeration has occured, I.e., you've increased total residents relative to the counterfactual. I agree that in the 'long' term that might happen but the causation has to go from: more houses -> cheaper to move their (than in counterfactual w/o) -> higher population -> agglomeration effects. So at least briefly you need to get lower prices.
Not necessarily, because economic actors can anticipate predictable future price movements.
So even if the real agglomeration effects only materialize in X years, prices might already go up today.
> Regarding how long long term is, I highly doubt that it can be less than a year. I think a good lower bound comes from looking at the length of time between, say, high income people starting to move into an area and substantial changes in the nearby stores. Usually that takes a few years (I admit it might be less in areas where one developer can create a massive mixed use complex in one go but I presume here we just discussing pure housing construction).
Any real discussion would need more details, and we would need to nail down scales.
An example where I would expect almost immediate effects:
Mountain View in California, where Google is headquartered, has about 80k inhabitants. Many well paid people live out of town and commute long hours.
If they housing for another 10k residents tomorrow, people would move in almost immediately. Local shops would probably expand almost immediately as well. Eg restaurants can perhaps hire and cram in a few more cooks in the same space they already have.
In this example, the high income people convert from commuters to residents. They already have jobs in the area. But after the conversion they presumably spend more money and time in Mountain View than before. Those effects are predictable to other local businesses, and thus they can expand even before they actually observe the effects, almost as soon as they reliably learn of the coming expansion.
I agree that for many other places the process would likely to slower, as they don't have that pent-up Google-employee demand.
Sure, economic actors can anticipate future changes but people looking to buy a home aren't looking at the number of new apartments built and deciding where to live on those grounds.
Anyone can move to the city provided they willing to pay market rate. Essentially (holding other factors fixed) the net migration is a function of the housing cost. Yes, if they build another 10k houses more people move in almost immediately *because* those new houses are a better deal for the ppl moving in than they could have gotten before they came on the market.
Might be they are 1% cheaper. Or maybe they are priced the same as existing units but offer nicer amenities or are just closer to where the buyers work that units prev available for that price but that still means someone who had wanted to be x miles from work and live in this nice a place (it's rarely) going to be 0 units like that b4) is now paying less for those conviencies.
This may in some sense be a verbal dispute since I'm not necessarily claiming the average price on Zillow goes down, merely the average price on Zillow for something that offers that buyer features they rate as subjectively similar.
--
Yes, I grant that sometimes a big buisness may move in as part of a large property development believing they can now house their employees but absent those kind of large development deals (which I agree may be different) new restaurants are rarely opening up before anyone moves in bc they anticipate the new people in a small number of units. They are going to react to that movement.
I suspect that what tends to happen is that in practice the "price decrease" really comes in the form of better fit between buyer and unit (ohh look I can now move to SF and I can afford the kind of place I like near my employer) or simply the fact the unit is new (that's more desierable) so there isn't any decrease in anything like cost per square foot as a result of these small increases in the number of units but the cost per unit of subjective value to buyer has decreased. And that the agglomeration effects and the anticipation of them you mention can kick in before it results in any decrease in actual cost per square foot.
But you need something that makes the city more appealing to people who are thinking of moving in/out to have a net pop increase and I don't believe they are looking at number of units built and predicting that there will be future benefits to agglomeration as a result of the new units.
If ppl really did that on net this discussion wouldn't be so full of disagreement.
I think you're neglecting search costs. Twenty prospective occupants competing for two vacancies produce a lot more noise in relevant channels than twenty competing for ten, and bad signal-to-noise ratio makes life difficult for everyone involved without changing the nominal rent price at all.
I don't think search costs are going to vary independently of actual costs. People often need (or at least really want) to sell their house within some period of time (eg to move for a job or to accommodate a new kid). If more houses enter the market so your house doesn't sell in the originally expected period of time you reduce the price. If all the houses you see during 2 months of looking that are acceptable are a certain cost per unit of desierability you accept that you'll need to pay more for that.
But see the thread above. I agree that this argument doesn't imply you see a change in the median price relative to the counterfactual. For instance, it might be that many people would like to move to the city but only if they can get a place that's above average in size or centrality. So the price to get those amenities may decrease in a way that actually causes the average sale price to go up.
But I'd still call that a decrease in price in the same way that you can say the price for computing power has decreased hugely even though most families probably spend more on computers than they did 20 years ago.
Can’t speak for others, but as a YIMBY I would, if it was within the window of political feasibility, be arguing for converting most downtowns into loosely woven arcologies. But you have to tackle this problem in bites because people are reluctant to let you even build a duplex, let alone bulldoze all the single family and row houses in SF to build a series of terraced megatowers.
I would suggest something much simpler and hands-off: abolish Euclidean zoning (and perhaps move to something like Japanese zoning, if you want zoning at all), and abolish rules like mandatory minimum parking requirements.
Then let the market sort it out. If they want 'loosely woven arcologies', I'm sure someone will build them.
Yes, Euclidean zoning is very confusingly named. Yet another reason to ban it.
Btw, Euclidean zoning is a big philosophical dilemma for me:
On the one hand, Euclidean zoning is obviously bonkers.
On the other hand, I believe in subsidiarity. The notion that (political) decisions should be made at the most local level they can be made. See https://en.wikipedia.org/wiki/Subsidiarity
Of course the most local level possible is to let the land owner decide what to do with her land. But I find it hard to justify on principled grounds giving the federal or state level control here, even if it is just to ban Euclidean zoning.
I guess in a democracy communities get exactly the kind of bad governance they vote for?
Not all democracies have bad zoning, not even all federal democracies. Eg Japan and Germany are doing just fine in this respect as far as I can tell.
Perhaps if you allowed American communities to straight up ban poor people (eg via an income or wealth threshold), they would do that, instead of having to hide that desire behind restrictive zoning?
The best level, under “subsidiarity,” is not the federal, the state, or the neighborhood, but the commuting urban region, which could be the county or a super-county.
I mean, it's probably a variant on the Liquidity Trap, right? Once you get to high enough home prices, building more houses doesn't lower their prices *unless* you very publicly and very believably commit to building houses until the prices go down. If the state of California said, "We are going to build homes as quickly as possible until their price falls by 20%" and in some way demonstrated that this was unequivocally going to happen, the price of homes would fall over night before a single house was built.
Because homes are in the terrible position of being both a necessary good and a personal investment, they get affected by both basic supply and demand as well as the weird economic traps that result from speculation. If you want homes to be cheap, you have to both meet demand and convince people that there are better investment opportunities.
I think the first mistake in the housing discussion is talking in hard numbers. You can't say, "We're going to build 100,000 new houses", you have to say, "We're going to build houses until the median price is X."
I'm not even sure that "if the Bay Area built 66 million new houses, prices would go down." The demand for housing seems to be fairly inexhaustible. Everyone always wants more of it. If the YIMBYs win, and in the future there are enough apartments that everyone has at least one each, then the second apartment will start to go up in value. Slightly bigger apartments will seem even more attractive.
Housing seems more like TV than like beer. If you produce too much beer, you'll have to flog it at a discount. But there doesn't seem to be the same limitation on the amount of video entertainment that people can produce.
If true, that seems like it would be good problem to have.
Plenty of blue collar jobs in construction to be had. All the extra GDP will lead to extra tax revenue to finance your favourite boondoggle or pay off government debt, etc.
Right? I mean, that's pretty much what the 20th century looked like in the USA, isn't it? And the last 40 years in China, where I live. A lot of housing got built, house prices went up, and everyone got a lot richer. And despite the big crash in 2008, house prices have continued to rise.
It's fine to say "there must be a limit" - and I suppose there must be, somewhere. But I don't see any reason to think that current levels of housing supply/density are anywhere near the limit where house prices will suddenly start to go down.
Yes, absolutely. I certainly don't think that if you just build a bunch of houses, everyone would get magically rich! It would have to be part of a general development, including new work, new places to work, new entertainment, and everything. But I don't see any reason to think that new jobs and new technology and all the other things wouldn't appear.
I just worked on a comment on this article for an hour and then accidentally CTRL-W'd myself. I want to die.
tl;dr: Additions to housing stock decrease rents at the margin, holding all else fixed. Second-order effects include increased wealth/capita (unless you assume new residents have negative wealth), leading to increased demand for goods and services in the same fixed area, thereby leading to increased supply of amenities which directly increases the attractiveness of the city's housing stock. The whole feedback loop is also affected by the mobile-yuppie hypothesis you mention, especially because higher-income high-skilled Americans are disproportionately mobile. However, very dense cities with less concentrated wealth, e.g. Union City (or Manila, or Bnei Brak in Israel) have nowhere near the same effect. That mobile-yuppie hypothesis ties into the role of cities as a productivity multiplier for high-skilled jobs, scaling with density: see The New Geography of Jobs by Enrico Moretti.
I wrote two comments (combined 70+ minutes of writing) on this and accidentally CTRL-W'ed myself twice. I hate myself and would very much like to die.
tl;dr; Yes, second-order and third-order effects from housing stock increases can increase rents, even though the first-order effects (ceteris paribus, etc) is to lower rents. Primary driver is increased wealth/capita, which is especially a factor for cities which are already large, dense, and attractive to high-skilled workers (partially validating your mobile-yuppie hypothesis). Causal pathway: More housing -> more residents/capita -> more demand for amenities per capita -> increased attractiveness of city -> higher housing costs. Please just reply to this if you have any questions.
I think you have to consider rents not so much as a function of density but as a function of density plus time. If Oakland doubled its housing stock tomorrow rents in Oakland would go way down. Rents going down would cause some people to move to Oakland, and the low rent would make it a very attractive place for workers to live, which would cause many more companies to move there and open offices there, and those companies would hire workers who would move there. All the people moving to Oakland would increase demand for all sorts of goods and services in Oakland, which would cause more businesses to move to Oakland or be started there, which in turn increases wages causing more people to move to Oakland, and eventually all the extra housing is filled and Oakland is a much larger and denser and economically important city, maybe similar to Seattle, with higher rents to match.
But crucially, this process would take a lot of time. Just because Oakland suddenly became much denser does not mean that people will immediately start treating it like New York or San Francisco. The network effects that make large dense cities highly in demand and therefore expensive to live in take quite some time to develop, so the effect in the short and even medium term would be to reduce rents in Oakland.
Now obviously you can’t just double the Oakland housing stock overnight. In reality, the housing stock increases slowly, both because of burdensome regulations that are the bane of YIMBYs (which slow down housing construction that would happen in a sensibly regulated market) but also precisely because the network effects that increase the demand for housing take so long. But the same effect still happens on a much smaller scale, which is why you get all those studies saying that building some more housing causes rents nearby to drop a little bit. Building more housing generally causes rents to go down in the short term, but in the long term network effects dominate and large dense cities become more expensive. The only way to reduce rents in the long term is to build more housing everywhere, like you said.
I think a lot of the confusion might stem from ambiguity in the word "prices".
Consider a city with a set {X} of existing homes and a proposal to build a set {Y} of new homes, where ||Y||<<||X||. Most/all of {Y} will be luxury units, so the average price of {Y} will be higher than the average price of {X} was prior to the new construction. But, at least in the very short run, the average price of {X} alone should drop for basic supply & demand reasons.
The relationship between the average prices of {X U Y} after new construction and the average price of {X} before construction is indeterminate from just this stylized scenario; I suspect a lot of clashing intuitions are due to this.
Japan overall has fairly YIMBY policies, so no, it's not a discontinuity. But the fact that Western countries are suffering from high prices while the densest island with the densest city has cheap abundant housing, suggests that policy is the relevant factor.
Immigration policy, in this case, is probably the most relevant factor. Japan has cheap housing now because the population is declining due to low birth rates and an extremely restrictive immigration policy. In a game of musical chairs with more chairs than people, there's not much pushing and shoving. Why would you need to increase density when you have fewer people each year?
Back in the 80s-90s when the Japanese population was still growing and urbanising, Tokyo real estate was insanely expensive, and there was an often-repeated factoid that the gardens of the Imperial Palace were worth more than all the real estate in California.
You might be surprised to know then that despite Japan's low birthrate and low immigration and rapidly declining population, they build far more new homes per capita every year than the US does. As a result, the average Japanese home is very new and the average house is torn down and replaced after a relatively short 30 years. They're living in nice new homes for cheaper. All because they mastered the dark art of building drywall boxes
In a country with a declining population, you would expect that fewer homes are being built per capita because there's little to no competition for existing homes. But it's exactly the opposite! Japan builds far more homes per capita than the US does, despite their declining population. That should really make you stop and think what's going on here.
I don't really get your point about "building new homes" vs "replacing existing homes". Like, if I build a new townhouse in Osaka and then someone in the country side demolishes an older home, then mine doesn't count as new? I think you're just saying that anywhere with a declining population can't "build new homes".
The new homes are sometimes built on land that previously had a different structure there. I guess if you want to call that "rebuilding", then you can try to rationalize it away. But you would expect that a country with a declining population would do less rebuilding because there's no need to. But in fact, the opposite is the case. Japan builds almost twice as many homes per capita as the US and the average home is demolished after only 30 years. People there treat used homes like used cars and don't think of them as an "investment".
I can see from this and your other responses here that you're really not doing this in good faith and you're just looking for any reason to be opposed to free market housing, but your arguments are pretty bad and you should at least try harder.
The argument is about housing prices not whether you personally can make friends. I recommend attending a local meetup for people with similar interests.
Exactly! Tokyo just like SF or NYC or London is experiencing net population growth. It’s irrelevant whether that’s from international immigration or migration from your own (otherwise declining) domestic population. The difference is that Tokyo has an urban housing and planning model that privelages housing affordability over restricting new construction.
Just want to note that despite Japan's low birthrate, they actually build almost twice as many homes per capita as the US and the average Japanese home is torn down and replaced after only 30 years. It's not really a matter of population growth vs shrinkage. They just build new houses for the same reason we build new cars or new refrigerators: new stuff is nice.
Your assumption is unfortunately wrong. Japan, despite having a shrinking population, builds almost twice as many homes per capita as the US. This is exactly the opposite of what you would expect! As a result, the average Japanese home is torn down and replaced after just 30 years. I'm not going to tell you this is super great for the environment or something, but it is really great for people's living standards. Even a relatively poor person can afford to live in a nice new apartment in a desirable neighborhood.
I think there's a significant chance that this is a weird effect of modern zoning (or maybe service economies?) cities used to be where poor people lived! *Downtown* used to be full of poor people! There are major cases of high-density dirt cheap living (like tenements). It seems at the very least plausible that
It looks like you haven't finished your comment, but what you're describing is essentially the same thing as the local vs global prices, if you don't just look at the housing price average for a city. If you build 10,000 more houses, all built to code with modern materials and insulation, those houses might be so expensive that they drive up the average for the city, but they might cause wealthy people already living in the city to move there, causing the prices for all the other houses in the city to decrease. If all new housing is objectively better value for money than old housing (which is likely untrue given the weird zoning you mentioned) and all people move to better housing given the opportunity, it's the lowest quality housing that ends up becoming cheaper, and thus your city attracts more poor people.
So building more housing attracts more (rich and poor) people? Existing demand consumes new supply.
But even if current demand would includes millions of more residents moving to that city who can’t currently afford it, that demand is not infinite (if only because the human population is finite). You would eventually hit a point of increasing vacancy where prices would be forced down to compete for consumers who can more easily shop around. This would be especially true if you increased the supply of housing across multiple high demand cities at the same time by say, for example, deregulating zoning restrictions at the state or federal level.
I think it's more likely to be due to deindustrialization and transitioning to a service economy. During the industrial revolution there was a huge migration to cities because they were the centers of industry and provided lots of jobs for poor people. Now cities provide jobs + status for college educated people, and have to become more desirable in order to actually attract those people. This results in lower income workers getting squeezed because they are competing for housing with people on professional salaries.
NYC/SF are expensive because there are MANY good jobs there and people WANT to live there. Not because of the density of housing. You could build 500,000 homes in the middle of your empty field in North Dakota, and it wouldn't do much for the demand there. You aren't going to create Manhattan by magicking 3.5 million housing units of similar quality into the Red Lake Indian reservation in Northern Minnesota.
But overall you are right, that in the real world local density increases can/often lead to local gentrification/rising prices, and the benefits tend to be for the wider area. But the actual impacts depend a lot on the particulars and the services/jobs available.
There are good jobs there because the cities are dense; jobs go where employees are, and vice versa, in a cycle. There aren't hundreds of thousands of good jobs in a Manhattan-sized area of a random plain in North Dakota (unless that plain has oil!) , because that plain isn't dense enough to support the businesses that create jobs.
Yes but a housing unit isn't an employee. We are talking about the impacts of building more units, not more employees. Our rapid cloning tech isn't that far along yet. :)
It takes years (and even generations) for institutions to build up and for something like Manhattan to grow. Absolutely there are many places in the country (especially during the last housing crisis), where it was built, and no one came. This isn't the field of dreams. It is very possible to over build demand (at least in most places, I do shudder to think of what that would look like in Manhattan).
Maybe I’m wrong, but weren’t most of those development flops green field suburbs in Vegas or vacation condos in Miami, i.e. dependent on rising income and continued growth in speculative real estate markets? Commercial real estate woes might be more associated with the Covid shock to work patterns.
I think all these have in common that they’re something of an economic monoculture and are much less resilient to economic shocks. Mixed use neighborhoods are much less likely to go bust because there’s no single employer or investor that can pull the rug out, residents are more likely to have roots and networks that mitigate flightiness and there’s sufficient density of infrastructure and other jobs that they can adapt without moving away. Density means there’s always going to be a minimum customer base to keep more street level businesses viable through a downturn.
Yeah that is the point. A bunch of houses out in the middle of nowhere can attract no one. We are literally debating whether "housing alone" is enough. I am saying no.
So what's the argument for big cities that fall apart, like Detroit? It does seem like there's some employment-related piece in here - Oakland is going to have some limits on who it attracts because it's not going to pull a ton of finance people from NY, etc.
You need way less people for transshipment with containers then when everything was break bulk and had to be handled out of the hold by longshoremen. You also need way less ships (and therefore docks) and warehouses for the volume of cargo.
This is way more efficient for the economy as a whole, since you're dramatically dropping the price of shipping, but it's damn hard on the neighborhood around the docks, which grew up to support the huge number of longshoremen previously required.
Tangential to this, the drop in shipping costs also affect a lot of other places than just the docks. The Rust Belt--containing steel mills and the like--formed because it was at a nice transport juncture. The least-valuable-by-weight part of making steel, the iron ore, could be shipped from the mines in Minnesota and the Upper Peninsula by water, the cheapest shipping option. Limestone for flux, also very dense and not all that valuable, could come by water from Wisconsin. Meanwhile, coal for coking fuel came up from Pennsylvania and West Virgina on a more expensive but shorter journey via rail. These all came together on the shores of the Great Lakes. Then, once the city has formed, inertia kept them going: a lot of cities continue to exist because they have a long tradition of existence, which means people are willing to move there.
However, transport is so cheap in general nowadays that there's not a huge advantage for that location. Making the steel overseas with cheap labor can take advantage of the cheap shipping, so the margins for the Rust Belt got super thin, and once a demand shock killed a bunch of firms, it was no longer "the place to go" to build a new steel plant, and the area decayed.
On an even bigger tangent, but still kinda related to the OP as long as I'm writing, it's a lot more difficult for a small town to form and become a big town today than it probably was in the past, because transport is cheap. I came from one of the mining towns in the Upper Peninsula that would have supplied the Rust Belt. It formed to support an iron ore mine, which has since closed and the town is dying. However, if CCI were to reopen that mine, it probably wouldn't save the town: back in the late 19th century, you really had no choice but to live pretty much right on the mine headframe. When a mine formed you formed a town, and if it lasted long enough it accreted enough ancillary business and population to build schools and the like, so that the "has a long tradition of existence" might allow it to keep going as long as the mine was still providing a job base.
However, if you were to found a mine on that exact spot today, 1) you're going to have way fewer miners than you would have in the past, because machinery, and 2) the miners can live in a town that's not dying and drive to work from a much larger catchment.
About a 30 minute commute today would get you to a somewhat struggling, but not outright dying town, and 45 minutes gets you to Marquette, with Northern Michigan University to anchor it as well as a bunch of other amenities. It's not a major city, but not getting hollowed out, and therefore has better schools for your kids. Compare this commute to a story from a local UP author who grew up in the '40s in the town I discuss. When he was a kid, going to Marquette was literally such a major trip--requiring his mother to dip into their rainy day fund to get train tickets--that it made it to a book of stories. A miner damn sure wasn't *commuting* to work from that far away at that time. But they can now, and that means the town is not likely to come back. The conditions that created the town were more than just "had a mine", it was the entire transportation economy that existed at that time, and those conditions aren't coming back.
Containerization and the cheap shipping that resulted disrupted a lot of existing economic networks, making them susceptible to shocks. Sic transit gloria mundi.
> You need way less people for transshipment with containers then when everything was break bulk and had to be handled out of the hold by longshoremen.
Something that intrigues me is that the classical world (and the pre-classical world!) shipped their goods around mostly in giant sealed clay jars. This obviously reaps all the benefits of containerization, right down to the use of dedicated machines to make loading and unloading easier; it is containerization. Nobody's pocketing some grain from the big clay jar with a wax plug blocking it.
How did such an important -- and simple and intuitive -- technology get lost?
Before containers, loading and unloading the cargo was extremely labor intensive, and that was the kind of labor that required practically zero education, you only needed a strong back, two strong arms and two strong legs to be a dockworker. And since large cities both produced and required a lot of goods, they had to support a large population of urban poor that loaded and unloaded their ships.
With containers, you could build a large port away from the city where a few crane operators and their ground crew could unload a container ship and load the containers onto a waiting cargo train quicker than a thousand dockworkers could. Then the container would be unloaded and moved to a warehouse by a few more skilled tradesmen: a few more crane operators, a truck driver that would take it from the urban cargo train station to a warehouse, a forklift driver that would remove the pallets from the container. Suddenly, all these urban men who would support their family by carrying heavy sacks were redundant.
What if good jobs follow from density but with a delay? So if you build new houses now, prices temporarily decrease, then they increase in a decade or so once the jobs appear.
> There are good jobs there because the cities are dense
There are are some jobs there because the city is dense. But in SF the good jobs are tech, and tech isn't in SF just because it's dense but because it's a tech hub. There are plenty of other cities in the U.S. where you can have access to a much larger work force. Just not one specializing in tech.
I think you're modeling employees and employers as a homogenous blob, and assuming a city is the total market. But many companies clump together in industry cities/districts and produce value that is consumed across the nation.
Companies go where they can hire their specific type of an employee. It's the size of talent pool for that specific job not general density that drives that phenomenon. Facebook hiring site reliability engineer vs Halliburton hiring a petroleum engineer.
But I think what's happening is there an industry specific agglomeration effect. You want to start a start up in SF since it's easier to get funding because of previous successful exits. And once you're successful it'll be easier to hire for niche roles like a node.js site reliability engineer who has scaled an application to a billion users.
This leads to a clumping of certain industries like Tech in SF, Finance in NYC, Oil/Gas in Houston. Some of these industries pay high wages, and people like living next to where they work so this drives up price which can support higher density.
It's industry aggolomeration -> high density of high paying jobs -> high demand for real estate -> high prices/density.
There's a whole literature on generalist vs specialist agglomeration, which I mostly haven't read, much less have the ability to properly summarize, but a quick-and-dirty version goes something like this:
Employers tend to locate where there are employees. Some industries employ so many people that there are suitable employees in every city (e.g. lawyers, accountants, baristas). Some industries need lots of different skills and tend to end up only in the biggest cities where the labor market is deep enough for them to get all the specialists they need. This is "generalist agglomeration". Other industries need lots of people all from a single specialist skill and tend to cluster in one or a small number of cities (e.g. tech in Seattle and SF, biotech in Boston). This is "specialist agglomeration".
If you look at the most recent era of decline for big cities, ie the 1930s-1980s, part of the story was specialist agglomeration in manufacturing. Individual manufacturing industries each concentrated in a different smaller city (most famously, cars in Detroit). The result was that growth was mostly in the smaller cities, rather than in the biggest ones; when considering metro-area population the big cities levelled out rather than actually declining, but suburbanisation meant that urban core population was dropping and this had a dramatic effect on real estate prices in those urban cores.
While density does make generating economic growth easier, it is definitely possible for housing to outpace jobs and vice versa. Indeed, San Francisco, San Mateo, and Santa Clara Counties added significantly more jobs than housing in the last couple decades. Planners partly enabled this by green-lighting commercial real estate development (office towers downtown, big tech campuses down the peninsula) while restricting new residential. The resulting increase in housing demand then was absorbed by the East Bay and further inland, driving up prices.
I suppose deindustrialisation is also a part of this. You can pack workers much more tightly in an office than a factory, even before you start expanding upwards.
You've read Seeing Like a State, you *know* that just building a bunch of housing doesn't materialize people who want to live in it, or businesses to employ them.
Not so long ago, housing in Williston, North Dakota cost more per square foot than either NY or SF. And I can guarantee you that the average rental in Williston was rough, compared to what you got for comparable money in NY or SF.
That was when people were making well into the six figures, while living in their cars. Magical times.
I am sure that it wasn't because people just wanted to see the Williston Ballet.
As an aside, I knew a young woman, an Indian investment banker, who got transferred from Singapore to Williston. I wonder whom she pissed off and what she did to do make them that mad.
My niece recently moved from Heber, UT, which is one of the highest cost rental markets in the US—more than $6000/mo avg. Which is shocking when you're there because it's a little farming town. But its near ski resorts and there are enough hyper wealthy people in the world who think nothing about buying land there, so the whole housing market is whacked.
Definitely talked about less than major cities (and imo less important given their smaller populations) but resort towns from Jackson Hole Wyoming to Vail Valley of Colorado are among the best examples of wealthy NIMBYs cynically wielding zoning to make it unaffordable for the working class they rely on to live.
There aren't that many ultra wealthy people in the world who want to own a home in a ski town in Colorado. But there is a lot of land in rural Colorado. If you just went full libertarian and let people build whatever they want, you would pretty quickly saturate the market of ultra-wealthy individuals and prices would crash.
Perhaps it's too distant, but I was surprised not to see any discussion of Chinese cities here. There are hundreds of Chinese cities that have mega dense developments but didn't really see the changes proposed for Oakland, because just adding endless housing alone will not induce demand.
I think it’s a hard comparison to make given how radically different the Chinese economy operates and the migration restrictions imposed by the Hukou system.
The hukou system doesn't stop you from migrating. People do it all the time. What the hukou does is stop you from receiving government benefits when you're outside your native region.
Is migration of the elderly a normal phenomenon elsewhere? Where are the examples of countries with such free internal migration that young adults moving to the city bring their parents with them?
The price of housing in China has skyrocketed over the past few decades, as all those extra apartments have been built. I live in a pleasant but unremarkable southern city, and I paid London prices (about 4.5m yuan/$650k for a 1,300 sq ft flat). That seems to match Scott's hypothesis that high density leads to high prices. House prices here have risen much faster than incomes. They've risen in rural areas, too, but the increases in price in cities have been stratospheric.
For China you have to account for the very low rental yields. There people do not trust other other classes of assets which inflates purchase prices, but not rental prices. Rental prices in major Chinese cities are comparatively low in my experience, my rent was about half as much for my Shenzhen apartment compared to my roughly equivalent London one.
Crowd sourced cost of living data like numbeo.com seems to corroborate this.
You're conflating the price of buying a house and the price of renting one. House prices are subject to speculation just like any asset. Rents aren't subject to speculation because you can't profit by renting 5 units and hoping the rent goes up. Rents are the way we measure housing affordability and in China, rents are crazy low because of the oversupply and many mom and pop landlords can't find tenants for their apartments, so they sit vacant.
Yeah, I see what you mean. Rent variation isn't anything like as extreme as house price variation, that's true... but rent variation still follows the same pattern as house prices. You try to rent a nice flat in the big cities, and you'll still pay a lot. Smaller city, not much; in the countryside, there's no rental market. So, it's still the same graph, just a shallower gradient.
Take it to an extreme: I have built an apartment in a pocket dimension (TARDIS-style) in New York. It has effectively infinite capacity. What will this do to New York real estate pricing? Do we expect that the apartments next door to mine will become more expensive as a result?
the storefront next door was previously in the middle of the city. now it’s on the outskirts of the city. i can imagine that many occupants who previously used that store will now use an even “closer” store inside their complex instead.
depending on how you read “infinite density”, every unit inside this infinite density block is on equally prime real estate, and there’s infinite of it so the land portion of rent is driven to 0. the exterior storefront can’t become priceless, else they’d pay so much more on rent that they can’t be price competitive with the interior stores.
The comment I was replying to specifically said apartments, nothing about retail space. "Realistically" you're probably right but then it's unclear what's really "realistic" when we're talking about magical infinitely dense real estate.
The apartments will become cheaper as you've made yourself impossible to compete with. Other landlords will be forced to charge much less than you to give people a reason to rent from them rather than taking a space out of your infinite capacity. But, as you've just given the public-facing businesses in the area a massive number of additional potential customers, all the real estate that isn't housing will become more expensive.
If its capacity is truly infinite, and is to be auctioned off or otherwise used in a profit-maximizing way, then the limiting factor on occupancy would appear to be congestion at the inter-dimensional transit point. The apartments next door to yours will be expropriated to build transport infrastructure meant to support getting through the bottleneck, and compensation for that is a legal and political question. It suggests that the whole analogy is rather too far afield to be useful.
You can kind of make the analogy work. If you build a large skyscraper in the middle of Mountain View, you would need to also improve transportation infrastructure to make that viable and some of that burden would fall on the government who might use eminent domain to sieze neighboring land to expand the road or build a new subway station.
Or more likely, the government would just say "we don't feel like building transportation infrastructure, so you can't build your TARDIS apartment".
1. It's the only one in NYC because after he built it, the city introduced a new interdimensional permit process that takes 10^23 years.
2. It's technically mobile, but relocating it to a new site requires a new environmental impact review for each relocation, even back to the original site, so in practice, it's stationary.
3. Yes, but because the weather has to be the same for all tenants, there's a complicated process with 3 different agencies having oversight over the weather setting process to ensure fairness, accountability, transparency, and equity.
4. The MTA is still in the design phase for building a subway line. Despite being in a pocket dimension, the janitors' union doesn't want to share a break room with the engineers' union, so interagency discussions are ongoing.
4a. Time in the TARDIS is also omni-parallel, so technically everything is happening all at once. But city code requires an 18 month notice and public comment period, so no, they don't plan to finish before 2045.
The doorway is the bottleneck. Even with a clever traffic management system I can't see how you could reasonably accommodate more than ~10,000 people, and even then you'd probably be facing long lines to enter/leave at peak hours (in which case you might as well be commuting in from Connecticut).
So I'm sure you could make some good money but I doubt it would significantly affect the real estate market.
Supposing _everyone_ could have a Tardis-apartment (but that these Tardis apartments are not moveable) then I guess you'd completely revolutionise real estate. Land would become less valuable but the right to place your doorway in an in-demand location would become valuable. Cities could easily accommodate populations of many millions, all within a short walk of each other, so urban life would be very different, just a bunch of corridors.
Rather than a single fixed door, suppose the development is shaped a bit like the Mandelbrot set, an irregular hyperbolic manifold in higher-dimensional space, perhaps some distant cousin to the Eldar Webway or https://questden.org/wiki/Haze_Town , and residents can freely teleport to or from any otherwise-open public roadway on the same continent as the central anchor point... but the teleportation process takes up to an hour per mile 'as the crow flies,' so realspace travel is still faster when possible at all.
As to legalities, let's say it was formally recognized as the embassy of some alien empire, and installed near the UN building, before the whole teleportation thing was well understood by relevant policymakers. Forcibly removing it would be an act of war, and systematic action against "applicants for refugee status" (as renters in the fractal embassy are technically classified) would be thwarted by bureaucratic gridlock even if it was somehow logistically possible. However, the alien empire is also sufficiently corrupt, or at least lax in enforcement of extraterritoriality, that it poses no significant obstacle to the NYPD or other local authorities when they've got a court order to look for someone or something specific.
Now, how you want to manage your TARDIS aparment is by first offering super cheap rents to drive down the rents of all the competing apartments in the area. Then buy them out at low prices, then jack up the rents and rake in monopoly profits!
What do we expect would happen? The government would tell you that you can't build your TARDIS apartment there because you didn't get an interdimensional permit and also it would have an impact on street parking.
The important thing is to uncouple housing and land. Density increases the value of the land. But it also allows more units to occupy an existing parcel of land, which decreases the per-unit cost of housing.
So here is what you expect to see happen when new units are added at the margin:
1) Cost of all nearby buildings go up (this is actually the land value increasing, but we usually bundle land and building)
2) Value of existing single-family homes increases for the same reason as (1)
3) Cost to move into the neighborhood goes down because there are now more places to live.
It doesn't always happen precisely this way, but this is broadly what you'd expect.
I don't have the link handy, but Matt has argued before specifically that existing single-family homeowners should expect to see their house values go up in neighborhoods that become more dense, even as the cost of housing per unit goes down. This is part of his case for why homeowners should in general be less worried about YIMBY policies.
The value of their house may go up, but also their quality of life may go down. And it really does depend a bit on who is moving in there.
In a mixed income post industrial urban SF-home area with a lot of rentals and poor people scattered about, creating a bunch of density is probably going to help the homeowners financially. They already need to lock their doors, and put away their valuables, etc.
In some area with little to no poor people, and very high quality of life and good services/little crime, creating a bunch of density can be catastrophic to the quality of life. It is pretty situational/granular.
One person is like OMG I would love it if there was a trendy bar across the street even if it means I need to park a block further away. Another doesn't like fancy bars and thinks the dive bar 2 blocks away is fine, and the trendy bar going in across the street is a 100% negative.
The frustrating thing to me about posts like this is that the whole NIMBY vs. YIMBY dynamic is at least as much cultural and aesthetic as it is economic. You can explain the dynamics of real estate valuation to me all day; That doesn't change the fact that if the woods around my suburban home were to be razed and replaced with apartment blocks my quality of life would go down palpably.
A sea of two story single-family units might not be optimally efficient but there are reasons why the people in those neighborhoods chose to live in that arrangement.
I mean, the value of your land would go up appreciably, you would be able to sell for a nice capital gain, and buy a nice suburban home for cheaper elsewhere. So you end up with the suburban living you desire + a bunch more money.
Some people have sentimental attachment to the land, the environment, and the community of people who lived there. And sometimes, when they put a dollar value on all of that, the loss is more than the gain.
Unaffordable housing annihilates family formation. Billions of people have and do raise families in apartments when large enough apartments are sufficiently affordable and there are integrated services that families need.
2) This immediately increases the value of all that land (since there is now more freedom in how that land is used)
3) Owners now owe more in taxes
4) Owners have three options: eat the tax increase, take advantage of the upzoning to make more money off their property, or sell to someone with a plan to take advantage of the upzoning
5) This leads to a virtuous cycle of land improvement -> increased value -> land improvement
6) The money captured through the LVT can then be distributed throughout the community as makes sense. Anyone who feels they've lost out due to the transformation of the area can in theory be compensated out of this revenue stream.
Honestly agreed, I don't think Georgism is a practical political program. This is just my prediction of what would happen if it were magically implemented.
Assessing land accurately at scale already happens across the world. Several countries already have LVTs: Denmark, Estonia, Lithuania, Singapore, and Taiwan.
Implementing it is a solved problem. Getting it through a vetocracy I guess isn't.
What I'm always a bit surprised about is that America is *so productive*, even with such terrible land use. Imagine productivity with dense cities? If the Bay Area has such agglomoration as it is, imagine what it could built if it densified to London levels? Paris? Barcelona?
I think I've understood Matt's view and am taking this into account. I agree that price per acre of ground-floor land will increase faster than price per housing unit, but I think price per housing unit also increases. This is why the cost of 1000 square feet of living area is higher in Manhattan than North Dakota.
In a perfectly competitive market, market price should just be equivalent to the marginal cost.
Marginal cost of building housing (NOT land) is slightly higher in denser areas because cost of labor is higher. But that's not what's causing the delta between North Dakota and Manhattan.
Oh a lot more than just the cost of labor is higher. More regulations, more zoning, harder to work on build sites, inability to store materials on site, etc.
Well but some of those aren't just "obstacles from crazy bureaucrats", but actual rules you need about building codes and rules for construction etc. when the nearest building is 3ft away and the nearest residents 6ft away instead of 500. And there are 4,000 people passing on the sidewalk out front instead of 3.
There are certainly regulations that are unneeded, but most of them are needed. They are built into the reality of the level of density already existing in those places. More stakeholders, with more harms doled out.
Even in an imaginary perfectly competitive large city, a large, high-density apartment block will need to devote more of its square footage to things like elevators, leaving less (proportional) square footage for actual housing. Also, building a 50-unit high rise apartment will cost much more than building a 50-unit 2-story block with external access to all units.
It’s never just the cost of construction, it’s always also (often mostly in expensive areas) the cost of the land to build on. Also construction costs go up non linearly based on fire protection, elevator, and structural requirements. Building a 20 story building is way more than 2x the cost of a 10 story building and waaay more than 4x the cost of a 5 story building.
Hmm. I do see what you're saying. But I think this conflates a second-order effect with a first-order effect.
The primary drivers of demand for living in NYC are the specific opportunities available in NYC. It is true that on long time horizons, one of the reasons these opportunities have tended to collect in NYC is that it is a dense place. But those aren't the only reasons - NYC is much more important than other, bigger cities in other parts of the world for complex historical reasons. Even if a catastrophe were to wipe out half the city, there would still be a great deal of demand to live near important institutions like Broadway, Wall Street, Port of NY & NJ, Columbia, etc (assuming those institutions survived the catastrophe).
Increasing the number of housing units has a very mechanical impact on how many people can live in the place. But it has only a second-order impact on the types of institutions that drive demand to live in the city. People don't just generically crave to live near other people for the most part (a handful of urbanist freaks like myself excepted).
The Bay Area is a great example of this. It is much less populated than other much cheaper cities. Density isn't why people want to live there - it's access to a specific culture and specific institutions. Demand for that is not simply a function of density - some people want to be part of Bay Area culture and others don't. Adding more units will induce some demand as a second-order effect, but will bring prices down as a first-order effect.
To relate this to your model: we might be able to say that the country has a certain number of abstract "culture points" that have been allocated to different cities by various historical forces. Each culture point a city has increases demand to live in that city by a certain amount. Adding more people to the city may allow it to generate additional culture points over time, or acquire culture points from other cities, but this doesn't happen right away, and is determined by a host of factors other than just density.
Under this model, we expect a place like NYC to always cost much more than North Dakota (since NYC possesses a large number of culture points), but we would also expect that adding additional housing units to NYC would bring costs down (since there are now additional housing units per culture point). Perhaps this process will over time allow NYC to steal away some culture points from Chicago, Boston, or other cities, but this is a secondary effect.
Price per square foot in Manhattan will always be higher than in North Dakota just because building skyscrapers is more expensive than building single-story wood frame houses. But in a free market, the difference might be 1.5-2x, not 10x.
I think there are amenities that aren't available in Manhattan that put a floor on the price per square foot, as you wrote in the text.
But I think there are simpler supply/demand calculations. Chicago used to have ~1,000,000 more residents than it does now and that abundance of supply is why I live in an industrial conversion here with five bathrooms for about the same price a 2br in Brooklyn. And the median value of a home in Chicago's worst neighborhood--Austin--is higher than the median price of a home in Metro Detroit, where supply greatly exceeds demand.
I believe it's a multivariable problem, that's supply/demand + fashion + (external value of shared amenities) + (price for dividends from aggregation economics.)
In a perfectly competitive environment, price of housing (not land, the literal house) would be driven down near to what it cost to build. Denser cities usually have more productive people, so labor costs are higher.
Land is also fixed, so that does scale with amenities. Land close to amenities is valued higher, all else equal.
Wouldn’t cities having more productive people make labor costs *lower* rather than higher, assuming that higher productivity included the building trades? Or are you implicitly assuming Baumol’s cost disease here?
In this theory, how would something like California upzoning everywhere work? Would the local effect drive prices up? (California is one of 50 states) Or would the global effect drive prices down? (All cities doing it together)
Same question if the US upzones. Same question if a city upzones. This local vs global dichotomy seems poorly thought out.
I think two apartments in the same city in California are almost perfect substitutes, an apartment in LA and an apartment in SF are partial substitutes, an apartment in LA and an apartment in NYC are weaker substitutes, and an apartment in LA and a house in the country are very weak substitutes. You would have to check empirically how strong the substitution is in each case.
I think it's plausible that California upzoning everywhere could decrease prices (because it absorbs a substantial amount of the demand to live in California), or increase prices (because it directs people who would otherwise want to live in NYC to live in California instead). I think most likely at that scale it would decrease prices, but I'm not sure.
Why would 2 apartments in the same city be a near perfect substitute? People have very strong neighborhood preferences and city politics is hyperlocal. I would propose that housing is endlessly fractal such that this local/global dichotomy really breaks down and you're left with a contradiction. Does upzoning one parcel lower price per sqft on that parcel? One block? One neighborhood? One city? One region? One state? One country? One planet? (ok, I'm kidding about the planet)
Also, just want to add that the mechanism for this local price increase is presumably something along the lines of "X place is hip, therefor I want to live there instead of Y place". Call it the "SoDoSoPa effect". I think it's tempting to think that everyone else is a hipster, but in reality, most people are boring people looking for a boring house near their boring job. Maybe with good schools.
"Identical", how? Square feet and cost of furnishings? Then no, they're not perfect substitutes. One's near the Orpheum, one's near Golden Gate Park, and another is in China Basin.
Another one is on a Bart line that doesn't get too crowded.
Location, location, location is often a matter of tenths of a mile, not tens of miles
I think you should read Matt's take on the case against induced demand. He's responding to the same argument I think you're making. "What if building housing lures in more rich people?"
I linked this article on the top of the post. But I'm not sure my argument has anything to do with class or how rich anybody is - it would still apply in a world where everyone had exactly the same income.
I think your estimates of elasticities of substitution are a little off. I understand you're abstracting away from neighborhood amenities at a city level and just thinking about broad location, as others have quibbled with, but still there's a lot lacking. It seems that your mental model assumes everyone has a desired location to live in, and demand for housing is mostly driven by urban amenities. But demand for housing is really mostly driven by employment. If I work in downtown San Francisco, and I like my job and want to keep it, then I'm not substituting towards apartments in LA or NYC, but rather apartments in Oakland or houses in Tiburon or wherever.
For most people who aren't fully remote workers, in order to live in a city you need to find a job there, and the jobs available in different cities can vary based on industry composition. So if you work in, say, the film industry, you probably need to live in LA, maybe NYC, or a few other metro areas. Those effects will drive measured rates of substitution.
I think if we repealed the Jones Act and the Foreign Dredge Act, one of the Mississippi cities would organically develop that way.
Not at all. Shipping over water is absurdly cheap, and the Mississippi is the best inland river for transporting goods of maybe any country in the world. It's held back by the regulatory costs of shipping between domestic ports and dredging the Mississippi Delta. Looking back at my post, I might also have given the impression I meant the state rather than the river. More likely it would be St Louis.
He's probably looking at this: http://www.usa.com/rank/us--population-density--metro-area-rank.htm
Part of the problem is that if you aggregate on the level of the entire metro, you're talking about thousands of square miles (3800mi² for the Detroit metro, 4800mi² for Los Angeles), of which relatively little (10% in LA, 4% in Detroit) is the actual municipality.
Feel free to look here instead:
https://en.wikipedia.org/wiki/List_of_United_States_cities_by_population
New Jersey has three cities in the top 10 by density (Jersey City, Patterson, and Newark).
CA has "two" (SF and Daly City)
MA has "two" (Cambridge and Boston)
New York, Miami, and Chicago are the rest of the top 10.
Boston is surprising to me, but only because I don't know much about it. Other this tracks my intuitions.
City limits are very arbitrary. Most cities consist of a core and a large suburban sprawl. Boston city limits are very small, it's essentially just the core of Boston with no suburbs.
Boston and its associated smaller cities are pretty interesting - arguably that's where the historical process of cities annexing surrounding smaller municipalities died in the US, so we're left with a whole bunch of intermingled borders that today come across as completely arbitrary. Looking at population, population density, and median home price for 2020 gives us this:
Boston: 675,647; 13,989/sq mi; $700k
Cambridge: 118,403; 18,500/sq mi; $938k
Somerville: 80,842; 19,656/sq mi; $870k
Brookline: 59,223; 9,347/sq mi; $1065k
Cambridge is a world-famous center of academia that's leveraged the startup pipeline for decades, Somerville is aggressively recovering from a post-industrial slump in the 80s, and Brookline is an experiment in how many country clubs can fit in an urban area. There's an easy story to tell here as to why the values are where they are, but you can't get it by density alone.
Daly City is an interesting thing to mention. It's really the same city as SF, but it's in a different county with it's own government. Walking from one to the other, you never get out of the city. It's not even suburbs, though once it was. So I'd say that CA has ONE.
There's a reason why I put "two" in parens for CA and MA :-)
Any list that has both SF and Daly City on it should raise eyebrows, and make us suspect that very unlike things are being compared in ways that obscure their differences.
Could be why they put "two" in quotations.
Thank you for noticing
"Density of a city" is a pretty meaningless number. A (physical) city is a big agglomeration of buildings which slowly peters out as you get towards the edges. The overall density of that "city" is dependent on exactly where you (somewhat arbitrarily) decide to draw a line that separates the city from the countryside.
In the US there's a concept of "city" which means "local government area" rather than corresponding to a physical city. Guttenberg NJ is supposedly the densest "city" in the United States but it's not a city in any physical sense, it's just a handful of blocks of the gigantic city which we could reasonably label New York.
That's not to say there's not a very real sense in which New York is more dense than Los Angeles, just that if you want to measure density you need more than one number. Plot an average density vs distance from city centre curve, and you might have something you can reasonable compare.
For Detroit I expect you'd see this curve flatten considerably over time as the city turns from a densely concentrated one to one in which the suburbs hold the majority of the population.
It turns out that, unless you consider scales << 1 km or >> 10 km, such curves for different cities tend to be roughly proportional to each other. (I'll post a link to a tweet I saw about this if I find it again.)
Right. The problem is that we want to include built-up areas that are contiguous with the rest of the city even if they're not all in the same municipality, and we want to exclude, e.g. random cornfields in the suburbs.
I think the core municipality is plausibly a better level to aggregate at than the metro area because policy generally gets set at the local level and it's most likely to be a binding constraint on new construction there than in other parts of the metro area, which are also not necessarily contiguous with the city.
But even the densest square kilometer in Detroit (well, officially, Hamtramck) is an order of magnitude less dense than the densest (or even tenth-densest) square kilometer in Manhattan (or Barcelona or Paris). See https://garrettdashnelson.github.io/square-density/ (and https://twitter.com/undertheraedar for the EU analogs).
The writer wasn't using metro areas, he was using urban areas, which are the urbanized portions of metro areas. There is a strong correlation between high housing prices and density at the urban area level.
Scale matters a lot here, so I'm confused why you want to disqualify the Tokyo example (or Seoul for that matter). Tokyo and Seoul make up a huge fraction of the populations of their respective countries (20-25%). It's true that _locally_ there are agglomeration effects so prices may move up, but if some place is YIMBY enough prices will move down. As far as I'm aware, _every_ locality that builds at the scale that the full-on YIMBYs want them to build as reduces prices.
You may disagree with turning the bay area into Tokyo. But I don't see how if the bay area built enough housing for 66 million people (20% of America) that prices wouldn't go down.
I agree if the Bay Area built 66 million new houses, prices would go down. I am only seeing debates about building 10,000 vs. 100,000 new houses; at that scale, I wouldn't expect prices to go down.
Got it. Given the Overton window, YIMBYs can't successfully argue for 1M+ new houses in Oakland. There's some political finagling going on here.
That being said, the serious YIMBYs want 1-3.5M extra housing units in CA by 2025: https://cayimby.org/how-many-new-homes-should-california-build/ . I suspect given agglomeration the real number is higher.
But why? We have good research showing that adding even a hundred new units lowers the trajectory of rents in existing stock in the immediate vicinity of where it's built, compared to the trajectory of rents on similar blocks that don't get a new building; and that adding those hundred units leads to move-chains that open up units even in lower-income neighborhoods. (See Evan Mast's research on this.) The fact that people filter up from poorer neighborhoods to richer ones fairly strongly suggests that the new building in the "gentrifying" neighborhood will also lower the trajectory of rents in farther-away neighborhoods, since fewer people "too wealthy" for that neighborhood will bid up the prices of units there. (But this effect would be smaller / more diffuse, compared to the local impact.)
I believe CA YIMBY maintains some resource lists about this stuff if you want references to more of the papers.
All you've observed is that there is no dense/in-demand US city where the market has been allowed to supply what is being demanded. Density is a signal that the location is desirable. Given Anglosphere style bad land use practices, desirability _partly_ translates into density, and partly translates into housing inflation. So of course you see correlation between those two things.
Edit: Aha, I think maybe I see the distinction you're making. You mean "go down in absolute terms", not "go down relative to what would otherwise happen". And yes, if you wanted prices to actually go down -- back down to the level of a healthy market where the median person's housing costs less than a third of the median income -- then the Bay Area would need to build on the order of 400-500k more units, in the next eight years, than what the RHNA process currently calls for.
https://medium.com/yimby/planning-to-fail-4e832012a020
Also: If you're graphing statistics about the housing market, this one is pretty good to consider.
https://twitter.com/JeremiahDJohns/status/1615352365040766976
I think the best case we can hope for is to accelerate building to the point that rents flatten out for long enough that incomes can catch up, so that rents will go down in _relative_ terms, but never absolute terms. Rents, like many types of price, are pretty sticky downwards. Less-so for corporate operated housing where people are more inclined to just set the market-clearing price. "Mom and pop landlords" operating a handful of units are much more willing to let a unit sit empty for six months rather than lowering the rent 10%.
Last part is false. People who one 1-4 extra houses and rent them out _need_ 100% occupancy to pay the extra mortgages.
Agreed. They will happily take the market rate. This is not commercial property.
I have absolutely seen cases where people own the unit outright (e.g. inherited) and behave in wildly irrational ways. I've also seen a ton of self-destructive behavior where people will be penny-wise, pound-foolish, with trying to avoid dealing with critical maintenance like roof repairs, where if the problem is not dealt with it will result in much more expensive long-term habitability issues.
Behavior in the small-landlord market is _extremely_ variable.
I've read about this effect also, particularly in San Francisco. This behavior seems to be driven by San Francisco's particular legal environment. Some of the relevant considerations:
* it's extremely difficult to raise rents if the housing market recovers, so you might be better off waiting for the rental market to move in your direction
* it's extremely difficult to evict a "bad" tenant (who doesn't pay the rent, damages the property, or repels "good" tenants), so owners may want to hold a vacant property in the hope of eventually selling it, occupying it, or re-developing it.
Outsiders' assessment of what sort of behavior is "rational" often depends heavily on unstated assumptions.
Sure, for towns that have rent control, waiting out a down cycle could be rational.
But seriously, I have seen multiple landlords just do stupid things, where it was clear they just were lazy and short-sighted, and would've been much better off getting a property management firm to take over. (In both the cases where I have direct experience -- the landlord my spouse had early on in our relationship, and one I had -- the landlord in question inherited the property. The Bay Area has a certain amount second- and third-generation landed gentry, who are exactly as smart about managing their properties as landed gentry are portrayed to be in a Jeeves and Wooster novel.)
Speaking hypothetically, but if I previously rented an apartment for $1000, I would probably refuse to rent it later for $900, for the reason that a person who has a problem paying $1000 a month is more likely to have a problem paying $900 a month.
Just like banks prefer to lend money to rich people, for landlords it is also safer to rent to rich people. Your greatest risk in this business is a person who suddenly starts paying *nothing*, is impossible to evict, and even destroys your property. Poor people are statistically more likely to do this... therefore, sadly, making your price more affordable is playing with fire.
> And yes, if you wanted prices to actually go down -- back down to the level of a healthy market where the median person's housing costs less than a third of the median income
Not sure 1/3 is always a good bar. Depending on your situation it can make sense to spend substantially more than that. Especially if it saves you from needing to commute, or you work remotely and spend a lot of time at home.
Once you have kids you probably need to get in that area, but kids are less and less common these days.
Why would it be better to spend more money on housing than less if we're talking about the same quality of housing?
My Mother's house was worth $300,000 new in 2004, it's worth a million now. How is that good in any way? It's the same house, just older.
A) It almost certainly isn't the same house. People replace mechanicals, do minor projects etc. Most property seems some level of investment when occupied.
B) Sure it would be better if it was cheaper? it would be better still if it was free. But that money comes from somewhere, it doesn't fall out of the sky.
My father custom built this house to her specifications, she hasn't made any improvements besides those. It has had maintenance, certaintly, fresh coats of paint, she swapped out the interior door handles recently, but that's it. Nothing that would even remotely justify a tripling of price in two decades.
Surely you understand how "most people cannot afford to reproduce" could be a problem over the longer term?
If you want to reproduce get a decent job. About 40% of societies problems are down to people having children they cannot support or raise effectively.
If there are only ten "decent jobs" being offered, what is your advice to the eleventh prospective worker? https://acoup.blog/2023/04/28/collections-academic-ranks-explained-or-what-on-earth-is-an-adjunct/
What if a move-chain is disrupted by someone moving to that city from elsewhere? That is, for big "destination" cities, if there exists a supply of people who would move there were it not for the difficulty of finding housing, then wouldn't adding more housing simply attract those people without affecting rents for anyone downstream on the move chain?
That's exactly the question Evan Mast's research was trying to address -- what portion of brand new units get occupied by locals, and once you open up new seats in the musical chairs game, as people shuffle around, how far down the income scale does the effect reach before affluent people from outside the metro area flow in?
You can read his results here: https://research.upjohn.org/cgi/viewcontent.cgi?article=1012&context=up_policybriefs
He used postal service change of address data, and then made sure his modeled results were realistic by chasing down real-world move chains for various buildings in several metros.
The TL;DR is that his model says adding 100 units of market rate housing renting to affluent people will lead to around 70 middle-income units opening up, and around 40 units that rent to the lowest-income portion of the metro.
Thanks, I'll take a look a that later tonight.
But real quick, it seems like his data comes from Chicago. Although I run the risk of attracting ire from its natives... I would not put Chicago in the same class as NY and SF. I think it entirely possible that there are a lot of people who would love to live in downtown NY or downtown SF who would not want to live in downtown Chicago.
I believe some of the details in that specific short summary focus on Chicago, but his work is much broader than that:
"I next sharpen focus to the migratory connections between new construction and low-income areas and track moves at the building level. I identify 686 large, new, market-rate multifamily buildings in 12 large central cities and track 52,000 of their current residents to their previous buildings of residence. I then find the tenants currently living in those buildings and track them to their previous residence, iterating for six rounds and, in order to focus on local connectivity, keeping only within-metro-area moves in each round."
And there was a team in I want to say Finland (it was definitely one of the Scandinavian countries) that replicated his work for at least one of their local metros.
Yeah, here we go: https://research.aalto.fi/en/publications/1ed11876-eb87-4a2c-a9a6-4a02a58825bd
They basically found very similar effects tracking migration chains in the Helsinki metro.
No doubt, but what continues to evolve in central Chicago is if anything an underreported story. The change just during my lifetime is quite remarkable and is exceeding the most wild-eyed predictions of local urban-planning dreamers of my parents' generation. (My father worked during the 1960s for NE Illinois' regional planning agency and my elder siblings met some of those dreamers at our family's dinner table.)
Central Chicago (defined as the Loop+River North+South Loop+West Loop) has continued to steadily grow as a residential district for about three decades now. Demand growth, reflected in both prices and new construction, has had small pauses but has not meaningfully slowed through even major disruptions such as COVID and before it the 2007-2008 real estate crash. And demand is absolutely roaring right now: just in the South Loop another 1,000-foot all-residential building is under construction just steps from that area's first one which is right next to that area's first 700-footer (both full); as are at least a half-dozen others from 30 to 50 stories each. The West Loop has a fresh wave of new projects now underway as well and the new-construction boundary of that district appears to have extended at least another half-mile westward based on my drive through there the other day. Etc.
Just the small Loop business district, about 1.5 square miles which in the 1980s had fewer than 5,000 fulltime residents, is closing in now on 50,000. And there is fresh political focus locally in pushing that trend farther by encouraging/enabling residential conversion of Loop office buildings at a new scale.
Chicago's total population remains flat because of population losses elsewhere in the city. (E.g. Englewood had nearly 90K in 1970 and is now down near 40K and still falling.) The central area though -- roughly 12 square miles which as of 1980 housed fewer than 20,000 people -- is now approaching 200,000. And seems on track to by maybe 2040 be the densely-packed home to twice that many.
Also I think it's a mistake to think of this in terms of "a supply of people who would move there were it not for the difficulty of finding housing". Like, very few people move to a new metro _just because_. They move to the area for a job or school or family. What happens if somebody gets a six-figure job offer in Palo Alto and then finds that even on six figures, they can't afford to live in Palo Alto, is mostly not that they decide not to take the job. They just live in Fremont instead, and commute across the bridge. (And then somebody who works a service job in Fremont can't rent the unit that person takes -- and they commute in from Pleasanton. And somebody working a service job in Pleasanton ends up commuting from Tracy.)
The number of people who want to rent _somewhere_ in the Bay Area is short-term almost entirely price-insensitive. Long-term it is budging, very slowly, with out-migration, but the issue of jobs-housing balance is much more about city planning decisions. Each city individually finds that the way the property tax formulas break down, compared to who pays for stuff like schools versus who pays for transit systems and roads, it makes sense to try to attract offices -- you get more of the property tax revenue, while paying for less of the incremental services involved in supporting activity for that building. But of course if _every_ city tries to encourage investment in office parks, while expecting _somebody else_ to build the housing for those office workers, you have a problem. The RHNA process tries to solve that, but for 40 years the whole thing was a joke, with no enforcement.
(Well, I turned down a job in the Bay Area partly because I didn't want to deal with the Molochian housing market there. I had other offers of comparable quality elsewhere, and took one of them. But I'm probably weird like that.)
I wouldn't consider it weird to include cost of living into the evaluation of a job offer.
We have a similar situation in Germany. In southern Germany salaries offered are substantially higher than in northern and eastern Germany. However, cost of living there essentially negates this for all but the highest paying jobs.
So very often the additional burden of having to move isn't offset by those wage offers.
Unless you need to accept a specific job offer to advance your carrier, financially it's very often a good idea to evaluate the entire package instead of just comparing wages, even if we ignore all other considerations (like friends and family left behind).
Lots of people consider location and housing as a primary factor, especially when they are married and have kids at home. Young people right out of college tend to look at straight cash income more, often to their detriment.
My sister wanted to live in SF. It was too expensive so she lived in Oakland. Then she had to move for a job, and chose Portland over higher pay elsewhere. I think some people DO choose a location that fits their lifestyle.
My sister would not take a job in some small town in TX or maybe even a big city. Maybe Austin. Because she needs to be in a "cool" left wing environment.
Let me refine the point: Sure, there will at the margin be some people who decide not to move to the area, or to leave the area, because of this factor, but if some company does decide to add high-end engineering jobs, they _will_ be able to fill those jobs, in reasonably short order.
Silicon Valley companies have started griping about cost of living here making it harder to recruit, but for the most part they haven't taken the housing issue seriously enough to take public positions on it.
Elon moved Tesla HQ to Texas, but then quietly moved "engineering headquarters" back to Palo Alto because it turns out that very few of the employees in CA wanted to move to TX, and the pool of engineering talent here is much deeper, and he cared more about having more in-person work -- which honestly for the hands-on mechanical engineering stuff is probably fair! -- than he cared about trying to keep office rental costs low.
It's also an open secret that a fair number of the Fremont Factory employees commute in each week from as far away as Nevada, and sleep in the parking lot during the week. Better housing conditions there would make it easier to recruit, and would mean higher real standard of living for employees, even at a lower cash pay level. Yet the Tesla Government Affairs office has taken no interest in lobbying cities around the factory (Fremont, Milpitas, Union City) to make it easier to build workforce housing.
Patrick Collison has put some money into backing YIMBYs in the region, but far less than he easily could. Marc Andreesen talks a good game about the importance of letting people build, but then turns out to be personally quite NIMBY when it come to his own town of Atherton.
And all of this makes sense because, despite the gripes, when push comes to shove, all of these folks _can_ still hire. Maybe they pay marginally more, but it's peanuts compared to the actual value a good employee produces for the company, and there are tons of highly-talented people who want the good weather and great cultural amenities on offer.
To a first approximation, the number of highly-paid jobs directly determines the number of high-income people competing for housing in the region, with no elasticity at all -- if Apple or Google or Facebook or Tesla decides they're going to open another thousand reqs, those reqs will get filled. If the number of "nice" / "luxury" units falls short of the number of high-paid workers, then they enter the market for older units, and bid up the prices, pushing middle-income people into long commutes or sub-standard housing, and pushing low-income people into homelessness.
So, would you agree with a rough simple model like this:
Take a bell curve, and chop off the left quarter. NY and SF are somewhere in the new left third, on the left side of the peak. There's a pool of people who would like to move in, and we can order them from high-income to low-income. Right now, adding more housing means that more high-income people will move in, so at best there's no effect on housing costs, and at worst they go up because having more high-income people living in the area will raise property values. But eventually, if we build enough housing, we'll have skimmed off all the higher-income people, and start getting to the middle-income people who want to move there, at which point housing costs will decrease (or there will be vacant housing).
The move-chain formulation may appear not to apply in particular jurisdictions, but that's a result of the jurisdictions not being aligned with the metropolitan area. (For example, people living in northwest Indiana may count as part of the Chicago metropolitan area.) Thus, building more housing in Manhattan may not affect housing costs in Manhattan (yet), but will affect housing costs in the greater NY metro area, and will eventually, if enough housing is built in Manhattan, start to affect housing costs in Manhattan.
(This all assumes a free market in housing, with no rent control or tenants' rights laws that incentivize keeping housing vacant rather than renting it to the current best available tenants.)
My model says that if you add a relatively small number of new units, the people who move into those new units will be high-income people in brand new units. So _their units_ obviously are moving the average upwards. But the average for the region as a whole will rise slower than it otherwise would've, and if you do this in enough places, the average of the region as a whole will even turn around and start going down, _even if_ the average for each little two-block radius around one of those new "luxury" buildings goes up.
The average for the units in the immediate neighborhood _excluding the new ones_ actually should be deflected downwards more than the downward push on the region as a whole, since "other stuff within a few blocks" obviously has some level of substitutability with the new stuff; but some of the benefit of the new units, in terms of lowering the trajectory of the regional average, is "leaking out" to other neighborhoods, including, as you say, out to really far-flung extensions of the metro. Like, to refer back to the example I gave earlier, if the guy taking a job in Palo Alto _could_ find a decent place in a new twenty-story building on top of the Palo Alto Caltrain, then he doesn't instead rent a place in Fremont; and that means somebody who wanted to be in Fremont doesn't go to Pleasanton, and somebody that wanted to be in Pleasanton doesn't go to Tracy. So some of the benefit from the new units in Palo Alto has been transmitted sixty miles out to the exurban fringe of the East Bay.
But the place I disagree with your description is that it's not like you have to fully saturate the higher end of the market before you start seeing _some_ benefits move down to lower-income people. Again this is what the migration chain research is getting at. When you add new market rate units -- what Noah Smith has jokingly called Yuppie Fishbowls -- the fact that new people move into those _instead of_ trying to move into and renovate older units, does provide an immediate reduction in price pressure on people who live in older / more run-down units nearby.
So building a relatively small number of new units in Manhattan (say, increasing stock by 1%) would put the price of _existing_ units in Manhattan on a lower trajectory (so maybe they rise by 3% instead of 5%). But it may not in the short term lower the _average_ price of units at all relative to what they would've been, and will probably _raise_ the average of the immediate neighborhood, because the new units will be premium stuff that costs 2-3x the average. To actually put prices of existing units onto a track of absolute reductions, you'd have to build a _lot_ of new units. Plus you'd then run smack into the way that real estate undergirds our financial system. It's probably safer to just aim to make it so prices are stable, or at least rising slower than wages, so that people can see some real income growth instead of having people below like the 80th percentile in high-wage markets feeling like any progress they make on wages is immediately clawed away by the housing market.
So I think your article may be conflating density of two things:
1) Density of jobs
2) Density of housing
These are often highly correlated! But, increasing jobs (while holding housing constant) will raise housing prices, while increasing housing (while holding jobs constant) will decrease housing prices.
Network effects encourage both growing together, but things like Prop 13 encourage zoning for jobs over housing, because jobs bring in more tax revenue while houses bring in more expenses for the city, notably providing public schools.
Side note, orthogonal to your main point:
If you build a cornucopia of housing without also building jobs to go along with it, you will end up with widespread poverty, food deserts, and other symptoms of urban decay.
I think you have that history backwards, nowhere (in US at least) have large tracts of housing been built without the rise, or anticipated rise, in the job market. That dysfunction you point to is from housing being built in concert with booming job markets, the job market then collapses and you see a cascading exodus leaving so much vacant housing that the value of the unit falls below the price of maintenance, resulting is cascading ruination and disinvestment in other infrastructure as municipal budget obligations fall behind revenue.
Think St. Louis or Detroit or most other rust belt cities that were hollowed by deindustrialization and suburbinization.
The jobs were subtracted from whole cities, housing was not added to empty cities.
You can see planned cities in China where housing was added where no jobs were located. They didn't work, and mostly sat empty.
Additionally, a large part of this construction was driven not even by the expectation of future jobs - it was the result of actions taken by local governments to meet aggressive growth targets set by the central government, combined with cheap credit for developers. It didn't matter whether the units would be occupied because the construction was the point. The wild thing is that a large proportion of these empty units did actually sell: combined with the lack of a property tax, this made real estate an attractive, ever-appreciating investment for those who could afford it, so many of those properties were sold at high prices before they were even constructed. And then when the central government started to get nervous about all this debt and tighten things up, that triggered a liquidity crisis in which Evergrande and other mega-developers defaulted on some of their debt.
I don't understand your argument here. Suppose more housing doesn't cause even a short term decrease in price for housing of a given quality (size/amenities). Absent that decrease in price what induces the demand? If prices stay the same how do these mobile people know to move there?
I doubt they are looking at the total number of available units and using that to estimate how desierable the city is to live in. So maybe there is eventually an induced demand effect but that's going to happen at a longer time scale.
Or maybe that's your claim. It is plausible that in the long term (though dunno if true) that more housing increases overall prices in the city but in short term it's got to reduce it.
(tho reason it's increasing prices in long term is by making it better to live there so ...)
> Absent that decrease in price what induces the demand?
Agglomeration effects could induce that demand.
> Or maybe that's your claim. It is plausible that in the long term (though dunno if true) that more housing increases overall prices in the city but in short term it's got to reduce it.
Yes, but that short term might be very short indeed.
> (tho reason it's increasing prices in long term is by making it better to live there so ...)
Yes, exactly. Especially 'better' in the sense of economic productivity. New York is not more or less pleasant in an absolute sense than podunk, but it's a lot easier to find a high paying job in the big city.
Agglomeration effects don't materialize until agglomeration has occured, I.e., you've increased total residents relative to the counterfactual. I agree that in the 'long' term that might happen but the causation has to go from: more houses -> cheaper to move their (than in counterfactual w/o) -> higher population -> agglomeration effects. So at least briefly you need to get lower prices.
Regarding how long long term is, I highly doubt that it can be less than a year. I think a good lower bound comes from looking at the length of time between, say, high income people starting to move into an area and substantial changes in the nearby stores. Usually that takes a few years (I admit it might be less in areas where one developer can create a massive mixed use complex in one go but I presume here we just discussing pure housing construction).
I guess that's short term as far as the debate is concerned.
> Agglomeration effects don't materialize until agglomeration has occured, I.e., you've increased total residents relative to the counterfactual. I agree that in the 'long' term that might happen but the causation has to go from: more houses -> cheaper to move their (than in counterfactual w/o) -> higher population -> agglomeration effects. So at least briefly you need to get lower prices.
Not necessarily, because economic actors can anticipate predictable future price movements.
So even if the real agglomeration effects only materialize in X years, prices might already go up today.
> Regarding how long long term is, I highly doubt that it can be less than a year. I think a good lower bound comes from looking at the length of time between, say, high income people starting to move into an area and substantial changes in the nearby stores. Usually that takes a few years (I admit it might be less in areas where one developer can create a massive mixed use complex in one go but I presume here we just discussing pure housing construction).
Any real discussion would need more details, and we would need to nail down scales.
An example where I would expect almost immediate effects:
Mountain View in California, where Google is headquartered, has about 80k inhabitants. Many well paid people live out of town and commute long hours.
If they housing for another 10k residents tomorrow, people would move in almost immediately. Local shops would probably expand almost immediately as well. Eg restaurants can perhaps hire and cram in a few more cooks in the same space they already have.
In this example, the high income people convert from commuters to residents. They already have jobs in the area. But after the conversion they presumably spend more money and time in Mountain View than before. Those effects are predictable to other local businesses, and thus they can expand even before they actually observe the effects, almost as soon as they reliably learn of the coming expansion.
I agree that for many other places the process would likely to slower, as they don't have that pent-up Google-employee demand.
Sure, economic actors can anticipate future changes but people looking to buy a home aren't looking at the number of new apartments built and deciding where to live on those grounds.
Anyone can move to the city provided they willing to pay market rate. Essentially (holding other factors fixed) the net migration is a function of the housing cost. Yes, if they build another 10k houses more people move in almost immediately *because* those new houses are a better deal for the ppl moving in than they could have gotten before they came on the market.
Might be they are 1% cheaper. Or maybe they are priced the same as existing units but offer nicer amenities or are just closer to where the buyers work that units prev available for that price but that still means someone who had wanted to be x miles from work and live in this nice a place (it's rarely) going to be 0 units like that b4) is now paying less for those conviencies.
This may in some sense be a verbal dispute since I'm not necessarily claiming the average price on Zillow goes down, merely the average price on Zillow for something that offers that buyer features they rate as subjectively similar.
--
Yes, I grant that sometimes a big buisness may move in as part of a large property development believing they can now house their employees but absent those kind of large development deals (which I agree may be different) new restaurants are rarely opening up before anyone moves in bc they anticipate the new people in a small number of units. They are going to react to that movement.
I suspect that what tends to happen is that in practice the "price decrease" really comes in the form of better fit between buyer and unit (ohh look I can now move to SF and I can afford the kind of place I like near my employer) or simply the fact the unit is new (that's more desierable) so there isn't any decrease in anything like cost per square foot as a result of these small increases in the number of units but the cost per unit of subjective value to buyer has decreased. And that the agglomeration effects and the anticipation of them you mention can kick in before it results in any decrease in actual cost per square foot.
But you need something that makes the city more appealing to people who are thinking of moving in/out to have a net pop increase and I don't believe they are looking at number of units built and predicting that there will be future benefits to agglomeration as a result of the new units.
If ppl really did that on net this discussion wouldn't be so full of disagreement.
I think you're neglecting search costs. Twenty prospective occupants competing for two vacancies produce a lot more noise in relevant channels than twenty competing for ten, and bad signal-to-noise ratio makes life difficult for everyone involved without changing the nominal rent price at all.
I don't think search costs are going to vary independently of actual costs. People often need (or at least really want) to sell their house within some period of time (eg to move for a job or to accommodate a new kid). If more houses enter the market so your house doesn't sell in the originally expected period of time you reduce the price. If all the houses you see during 2 months of looking that are acceptable are a certain cost per unit of desierability you accept that you'll need to pay more for that.
But see the thread above. I agree that this argument doesn't imply you see a change in the median price relative to the counterfactual. For instance, it might be that many people would like to move to the city but only if they can get a place that's above average in size or centrality. So the price to get those amenities may decrease in a way that actually causes the average sale price to go up.
But I'd still call that a decrease in price in the same way that you can say the price for computing power has decreased hugely even though most families probably spend more on computers than they did 20 years ago.
Can’t speak for others, but as a YIMBY I would, if it was within the window of political feasibility, be arguing for converting most downtowns into loosely woven arcologies. But you have to tackle this problem in bites because people are reluctant to let you even build a duplex, let alone bulldoze all the single family and row houses in SF to build a series of terraced megatowers.
What's a loosely woven arcology?
I would suggest something much simpler and hands-off: abolish Euclidean zoning (and perhaps move to something like Japanese zoning, if you want zoning at all), and abolish rules like mandatory minimum parking requirements.
Then let the market sort it out. If they want 'loosely woven arcologies', I'm sure someone will build them.
Ah, the term "Euclidean" comes from a city in Ohio.
I was thinking, "technically, since the Earth's surface is approximately a sphere..."
Yes, Euclidean zoning is very confusingly named. Yet another reason to ban it.
Btw, Euclidean zoning is a big philosophical dilemma for me:
On the one hand, Euclidean zoning is obviously bonkers.
On the other hand, I believe in subsidiarity. The notion that (political) decisions should be made at the most local level they can be made. See https://en.wikipedia.org/wiki/Subsidiarity
Of course the most local level possible is to let the land owner decide what to do with her land. But I find it hard to justify on principled grounds giving the federal or state level control here, even if it is just to ban Euclidean zoning.
I guess in a democracy communities get exactly the kind of bad governance they vote for?
Not all democracies have bad zoning, not even all federal democracies. Eg Japan and Germany are doing just fine in this respect as far as I can tell.
I wonder whether the apparent American love for restrictive zoning is just a 'second best' way to express a different preference? See https://en.wikipedia.org/wiki/Theory_of_the_second_best
Perhaps if you allowed American communities to straight up ban poor people (eg via an income or wealth threshold), they would do that, instead of having to hide that desire behind restrictive zoning?
The best level, under “subsidiarity,” is not the federal, the state, or the neighborhood, but the commuting urban region, which could be the county or a super-county.
I mean, it's probably a variant on the Liquidity Trap, right? Once you get to high enough home prices, building more houses doesn't lower their prices *unless* you very publicly and very believably commit to building houses until the prices go down. If the state of California said, "We are going to build homes as quickly as possible until their price falls by 20%" and in some way demonstrated that this was unequivocally going to happen, the price of homes would fall over night before a single house was built.
Because homes are in the terrible position of being both a necessary good and a personal investment, they get affected by both basic supply and demand as well as the weird economic traps that result from speculation. If you want homes to be cheap, you have to both meet demand and convince people that there are better investment opportunities.
I think the first mistake in the housing discussion is talking in hard numbers. You can't say, "We're going to build 100,000 new houses", you have to say, "We're going to build houses until the median price is X."
I'm not even sure that "if the Bay Area built 66 million new houses, prices would go down." The demand for housing seems to be fairly inexhaustible. Everyone always wants more of it. If the YIMBYs win, and in the future there are enough apartments that everyone has at least one each, then the second apartment will start to go up in value. Slightly bigger apartments will seem even more attractive.
Housing seems more like TV than like beer. If you produce too much beer, you'll have to flog it at a discount. But there doesn't seem to be the same limitation on the amount of video entertainment that people can produce.
If true, that seems like it would be good problem to have.
Plenty of blue collar jobs in construction to be had. All the extra GDP will lead to extra tax revenue to finance your favourite boondoggle or pay off government debt, etc.
Right? I mean, that's pretty much what the 20th century looked like in the USA, isn't it? And the last 40 years in China, where I live. A lot of housing got built, house prices went up, and everyone got a lot richer. And despite the big crash in 2008, house prices have continued to rise.
It's fine to say "there must be a limit" - and I suppose there must be, somewhere. But I don't see any reason to think that current levels of housing supply/density are anywhere near the limit where house prices will suddenly start to go down.
Yes. Though the extra construction is largely an effect of prosperity, and only partially a cause.
Yes, absolutely. I certainly don't think that if you just build a bunch of houses, everyone would get magically rich! It would have to be part of a general development, including new work, new places to work, new entertainment, and everything. But I don't see any reason to think that new jobs and new technology and all the other things wouldn't appear.
I just worked on a comment on this article for an hour and then accidentally CTRL-W'd myself. I want to die.
tl;dr: Additions to housing stock decrease rents at the margin, holding all else fixed. Second-order effects include increased wealth/capita (unless you assume new residents have negative wealth), leading to increased demand for goods and services in the same fixed area, thereby leading to increased supply of amenities which directly increases the attractiveness of the city's housing stock. The whole feedback loop is also affected by the mobile-yuppie hypothesis you mention, especially because higher-income high-skilled Americans are disproportionately mobile. However, very dense cities with less concentrated wealth, e.g. Union City (or Manila, or Bnei Brak in Israel) have nowhere near the same effect. That mobile-yuppie hypothesis ties into the role of cities as a productivity multiplier for high-skilled jobs, scaling with density: see The New Geography of Jobs by Enrico Moretti.
I wrote two comments (combined 70+ minutes of writing) on this and accidentally CTRL-W'ed myself twice. I hate myself and would very much like to die.
tl;dr; Yes, second-order and third-order effects from housing stock increases can increase rents, even though the first-order effects (ceteris paribus, etc) is to lower rents. Primary driver is increased wealth/capita, which is especially a factor for cities which are already large, dense, and attractive to high-skilled workers (partially validating your mobile-yuppie hypothesis). Causal pathway: More housing -> more residents/capita -> more demand for amenities per capita -> increased attractiveness of city -> higher housing costs. Please just reply to this if you have any questions.
In the interest of staying alive, maybe check out https://superuser.com/questions/882053/recover-text-on-reopen-closed-tab-in-chrome
I think you have to consider rents not so much as a function of density but as a function of density plus time. If Oakland doubled its housing stock tomorrow rents in Oakland would go way down. Rents going down would cause some people to move to Oakland, and the low rent would make it a very attractive place for workers to live, which would cause many more companies to move there and open offices there, and those companies would hire workers who would move there. All the people moving to Oakland would increase demand for all sorts of goods and services in Oakland, which would cause more businesses to move to Oakland or be started there, which in turn increases wages causing more people to move to Oakland, and eventually all the extra housing is filled and Oakland is a much larger and denser and economically important city, maybe similar to Seattle, with higher rents to match.
But crucially, this process would take a lot of time. Just because Oakland suddenly became much denser does not mean that people will immediately start treating it like New York or San Francisco. The network effects that make large dense cities highly in demand and therefore expensive to live in take quite some time to develop, so the effect in the short and even medium term would be to reduce rents in Oakland.
Now obviously you can’t just double the Oakland housing stock overnight. In reality, the housing stock increases slowly, both because of burdensome regulations that are the bane of YIMBYs (which slow down housing construction that would happen in a sensibly regulated market) but also precisely because the network effects that increase the demand for housing take so long. But the same effect still happens on a much smaller scale, which is why you get all those studies saying that building some more housing causes rents nearby to drop a little bit. Building more housing generally causes rents to go down in the short term, but in the long term network effects dominate and large dense cities become more expensive. The only way to reduce rents in the long term is to build more housing everywhere, like you said.
I think a lot of the confusion might stem from ambiguity in the word "prices".
Consider a city with a set {X} of existing homes and a proposal to build a set {Y} of new homes, where ||Y||<<||X||. Most/all of {Y} will be luxury units, so the average price of {Y} will be higher than the average price of {X} was prior to the new construction. But, at least in the very short run, the average price of {X} alone should drop for basic supply & demand reasons.
The relationship between the average prices of {X U Y} after new construction and the average price of {X} before construction is indeterminate from just this stylized scenario; I suspect a lot of clashing intuitions are due to this.
In other cases, Yglesias unabashedly does take that extreme position: see his book "One Billion Americans."
Agree that Tokyo can and maybe should be discussion point in terms of numbers
You excluded Tokyo from your dataset. Tokyo has much higher density than SF and much lower price per sqft.
Isn't that a different customer base? Is Tokyo a discontinuity from pricing/density in Japan?
I think the error here was actually mentioning London instead of just sticking to the US.
Japan overall has fairly YIMBY policies, so no, it's not a discontinuity. But the fact that Western countries are suffering from high prices while the densest island with the densest city has cheap abundant housing, suggests that policy is the relevant factor.
Immigration policy, in this case, is probably the most relevant factor. Japan has cheap housing now because the population is declining due to low birth rates and an extremely restrictive immigration policy. In a game of musical chairs with more chairs than people, there's not much pushing and shoving. Why would you need to increase density when you have fewer people each year?
Back in the 80s-90s when the Japanese population was still growing and urbanising, Tokyo real estate was insanely expensive, and there was an often-repeated factoid that the gardens of the Imperial Palace were worth more than all the real estate in California.
You might be surprised to know then that despite Japan's low birthrate and low immigration and rapidly declining population, they build far more new homes per capita every year than the US does. As a result, the average Japanese home is very new and the average house is torn down and replaced after a relatively short 30 years. They're living in nice new homes for cheaper. All because they mastered the dark art of building drywall boxes
In a country with a declining population, you would expect that fewer homes are being built per capita because there's little to no competition for existing homes. But it's exactly the opposite! Japan builds far more homes per capita than the US does, despite their declining population. That should really make you stop and think what's going on here.
I don't really get your point about "building new homes" vs "replacing existing homes". Like, if I build a new townhouse in Osaka and then someone in the country side demolishes an older home, then mine doesn't count as new? I think you're just saying that anywhere with a declining population can't "build new homes".
Any tiny Tokyo apartment is much nicer than the spot under the freeway outside my Oakland window where a bunch of people sleep every night.
I think you are reversing cause and effect.
????
You're saying that you think a declining population causes them to build more houses?
So are they building, or rebuilding?
The new homes are sometimes built on land that previously had a different structure there. I guess if you want to call that "rebuilding", then you can try to rationalize it away. But you would expect that a country with a declining population would do less rebuilding because there's no need to. But in fact, the opposite is the case. Japan builds almost twice as many homes per capita as the US and the average home is demolished after only 30 years. People there treat used homes like used cars and don't think of them as an "investment".
Yes, the overall population of Japan is decreasing but the population of Tokyo is increasing. Tokyo has just matched supply to the demand.
I can see from this and your other responses here that you're really not doing this in good faith and you're just looking for any reason to be opposed to free market housing, but your arguments are pretty bad and you should at least try harder.
The argument is about housing prices not whether you personally can make friends. I recommend attending a local meetup for people with similar interests.
Exactly! Tokyo just like SF or NYC or London is experiencing net population growth. It’s irrelevant whether that’s from international immigration or migration from your own (otherwise declining) domestic population. The difference is that Tokyo has an urban housing and planning model that privelages housing affordability over restricting new construction.
Just want to note that despite Japan's low birthrate, they actually build almost twice as many homes per capita as the US and the average Japanese home is torn down and replaced after only 30 years. It's not really a matter of population growth vs shrinkage. They just build new houses for the same reason we build new cars or new refrigerators: new stuff is nice.
First, I didn't exclude Tokyo, I used a graph which only had US cities. Second, I discussed why I didn't think this example held in Footnote 1.
My assumption is that in 1989 Japan broke through the barrier of being supply constrained to being demand constrained
Your assumption is unfortunately wrong. Japan, despite having a shrinking population, builds almost twice as many homes per capita as the US. This is exactly the opposite of what you would expect! As a result, the average Japanese home is torn down and replaced after just 30 years. I'm not going to tell you this is super great for the environment or something, but it is really great for people's living standards. Even a relatively poor person can afford to live in a nice new apartment in a desirable neighborhood.
I think there's a significant chance that this is a weird effect of modern zoning (or maybe service economies?) cities used to be where poor people lived! *Downtown* used to be full of poor people! There are major cases of high-density dirt cheap living (like tenements). It seems at the very least plausible that
It looks like you haven't finished your comment, but what you're describing is essentially the same thing as the local vs global prices, if you don't just look at the housing price average for a city. If you build 10,000 more houses, all built to code with modern materials and insulation, those houses might be so expensive that they drive up the average for the city, but they might cause wealthy people already living in the city to move there, causing the prices for all the other houses in the city to decrease. If all new housing is objectively better value for money than old housing (which is likely untrue given the weird zoning you mentioned) and all people move to better housing given the opportunity, it's the lowest quality housing that ends up becoming cheaper, and thus your city attracts more poor people.
So building more housing attracts more (rich and poor) people? Existing demand consumes new supply.
But even if current demand would includes millions of more residents moving to that city who can’t currently afford it, that demand is not infinite (if only because the human population is finite). You would eventually hit a point of increasing vacancy where prices would be forced down to compete for consumers who can more easily shop around. This would be especially true if you increased the supply of housing across multiple high demand cities at the same time by say, for example, deregulating zoning restrictions at the state or federal level.
I think it's more likely to be due to deindustrialization and transitioning to a service economy. During the industrial revolution there was a huge migration to cities because they were the centers of industry and provided lots of jobs for poor people. Now cities provide jobs + status for college educated people, and have to become more desirable in order to actually attract those people. This results in lower income workers getting squeezed because they are competing for housing with people on professional salaries.
NYC/SF are expensive because there are MANY good jobs there and people WANT to live there. Not because of the density of housing. You could build 500,000 homes in the middle of your empty field in North Dakota, and it wouldn't do much for the demand there. You aren't going to create Manhattan by magicking 3.5 million housing units of similar quality into the Red Lake Indian reservation in Northern Minnesota.
But overall you are right, that in the real world local density increases can/often lead to local gentrification/rising prices, and the benefits tend to be for the wider area. But the actual impacts depend a lot on the particulars and the services/jobs available.
There are good jobs there because the cities are dense; jobs go where employees are, and vice versa, in a cycle. There aren't hundreds of thousands of good jobs in a Manhattan-sized area of a random plain in North Dakota (unless that plain has oil!) , because that plain isn't dense enough to support the businesses that create jobs.
Yes but a housing unit isn't an employee. We are talking about the impacts of building more units, not more employees. Our rapid cloning tech isn't that far along yet. :)
It takes years (and even generations) for institutions to build up and for something like Manhattan to grow. Absolutely there are many places in the country (especially during the last housing crisis), where it was built, and no one came. This isn't the field of dreams. It is very possible to over build demand (at least in most places, I do shudder to think of what that would look like in Manhattan).
Maybe I’m wrong, but weren’t most of those development flops green field suburbs in Vegas or vacation condos in Miami, i.e. dependent on rising income and continued growth in speculative real estate markets? Commercial real estate woes might be more associated with the Covid shock to work patterns.
I think all these have in common that they’re something of an economic monoculture and are much less resilient to economic shocks. Mixed use neighborhoods are much less likely to go bust because there’s no single employer or investor that can pull the rug out, residents are more likely to have roots and networks that mitigate flightiness and there’s sufficient density of infrastructure and other jobs that they can adapt without moving away. Density means there’s always going to be a minimum customer base to keep more street level businesses viable through a downturn.
Yeah that is the point. A bunch of houses out in the middle of nowhere can attract no one. We are literally debating whether "housing alone" is enough. I am saying no.
Housing alone in the middle of nowhere wouldn't be enough.
But adding lots of housing to NYC which already has an established job market, would be enough to grow that job market there, too.
So what's the argument for big cities that fall apart, like Detroit? It does seem like there's some employment-related piece in here - Oakland is going to have some limits on who it attracts because it's not going to pull a ton of finance people from NY, etc.
Absolutely. Job losses are often a huge part of the 'why' regarding "big cities that fall apart, like Detroit."
From Reuters in 2009 ...
https://www.reuters.com/article/us-usa-autos-migration/as-u-s-autos-decline-michigan-faces-worker-exodus-idUSTRE5595T920090610
Mostly deindustrialization, containerization of shipping, and massive federal subsidization automobile suburbs combined with “urban renewal” (see:
https://www.segregationbydesign.com/oakland )
Please explain why/how 'containerization of shipping' fits in here?
You need way less people for transshipment with containers then when everything was break bulk and had to be handled out of the hold by longshoremen. You also need way less ships (and therefore docks) and warehouses for the volume of cargo.
This is way more efficient for the economy as a whole, since you're dramatically dropping the price of shipping, but it's damn hard on the neighborhood around the docks, which grew up to support the huge number of longshoremen previously required.
Tangential to this, the drop in shipping costs also affect a lot of other places than just the docks. The Rust Belt--containing steel mills and the like--formed because it was at a nice transport juncture. The least-valuable-by-weight part of making steel, the iron ore, could be shipped from the mines in Minnesota and the Upper Peninsula by water, the cheapest shipping option. Limestone for flux, also very dense and not all that valuable, could come by water from Wisconsin. Meanwhile, coal for coking fuel came up from Pennsylvania and West Virgina on a more expensive but shorter journey via rail. These all came together on the shores of the Great Lakes. Then, once the city has formed, inertia kept them going: a lot of cities continue to exist because they have a long tradition of existence, which means people are willing to move there.
However, transport is so cheap in general nowadays that there's not a huge advantage for that location. Making the steel overseas with cheap labor can take advantage of the cheap shipping, so the margins for the Rust Belt got super thin, and once a demand shock killed a bunch of firms, it was no longer "the place to go" to build a new steel plant, and the area decayed.
On an even bigger tangent, but still kinda related to the OP as long as I'm writing, it's a lot more difficult for a small town to form and become a big town today than it probably was in the past, because transport is cheap. I came from one of the mining towns in the Upper Peninsula that would have supplied the Rust Belt. It formed to support an iron ore mine, which has since closed and the town is dying. However, if CCI were to reopen that mine, it probably wouldn't save the town: back in the late 19th century, you really had no choice but to live pretty much right on the mine headframe. When a mine formed you formed a town, and if it lasted long enough it accreted enough ancillary business and population to build schools and the like, so that the "has a long tradition of existence" might allow it to keep going as long as the mine was still providing a job base.
However, if you were to found a mine on that exact spot today, 1) you're going to have way fewer miners than you would have in the past, because machinery, and 2) the miners can live in a town that's not dying and drive to work from a much larger catchment.
About a 30 minute commute today would get you to a somewhat struggling, but not outright dying town, and 45 minutes gets you to Marquette, with Northern Michigan University to anchor it as well as a bunch of other amenities. It's not a major city, but not getting hollowed out, and therefore has better schools for your kids. Compare this commute to a story from a local UP author who grew up in the '40s in the town I discuss. When he was a kid, going to Marquette was literally such a major trip--requiring his mother to dip into their rainy day fund to get train tickets--that it made it to a book of stories. A miner damn sure wasn't *commuting* to work from that far away at that time. But they can now, and that means the town is not likely to come back. The conditions that created the town were more than just "had a mine", it was the entire transportation economy that existed at that time, and those conditions aren't coming back.
Containerization and the cheap shipping that resulted disrupted a lot of existing economic networks, making them susceptible to shocks. Sic transit gloria mundi.
Wow, there are a lot of run-on sentences in that that weren't apparent in the post window. I apologize.
> You need way less people for transshipment with containers then when everything was break bulk and had to be handled out of the hold by longshoremen.
Something that intrigues me is that the classical world (and the pre-classical world!) shipped their goods around mostly in giant sealed clay jars. This obviously reaps all the benefits of containerization, right down to the use of dedicated machines to make loading and unloading easier; it is containerization. Nobody's pocketing some grain from the big clay jar with a wax plug blocking it.
How did such an important -- and simple and intuitive -- technology get lost?
https://en.wikipedia.org/wiki/Pithos
This is a great comment. Thanks!
Before containers, loading and unloading the cargo was extremely labor intensive, and that was the kind of labor that required practically zero education, you only needed a strong back, two strong arms and two strong legs to be a dockworker. And since large cities both produced and required a lot of goods, they had to support a large population of urban poor that loaded and unloaded their ships.
With containers, you could build a large port away from the city where a few crane operators and their ground crew could unload a container ship and load the containers onto a waiting cargo train quicker than a thousand dockworkers could. Then the container would be unloaded and moved to a warehouse by a few more skilled tradesmen: a few more crane operators, a truck driver that would take it from the urban cargo train station to a warehouse, a forklift driver that would remove the pallets from the container. Suddenly, all these urban men who would support their family by carrying heavy sacks were redundant.
I'm amazed nobody mentioned crime, since Detroit fell apart when that surged and it experienced riots.
https://devinhelton.com/why-urban-decay
What if good jobs follow from density but with a delay? So if you build new houses now, prices temporarily decrease, then they increase in a decade or so once the jobs appear.
That seems plausible. Though I don't think the delay in NYC or SF would be a decade.
> There are good jobs there because the cities are dense
There are are some jobs there because the city is dense. But in SF the good jobs are tech, and tech isn't in SF just because it's dense but because it's a tech hub. There are plenty of other cities in the U.S. where you can have access to a much larger work force. Just not one specializing in tech.
I think you're modeling employees and employers as a homogenous blob, and assuming a city is the total market. But many companies clump together in industry cities/districts and produce value that is consumed across the nation.
Companies go where they can hire their specific type of an employee. It's the size of talent pool for that specific job not general density that drives that phenomenon. Facebook hiring site reliability engineer vs Halliburton hiring a petroleum engineer.
But I think what's happening is there an industry specific agglomeration effect. You want to start a start up in SF since it's easier to get funding because of previous successful exits. And once you're successful it'll be easier to hire for niche roles like a node.js site reliability engineer who has scaled an application to a billion users.
This leads to a clumping of certain industries like Tech in SF, Finance in NYC, Oil/Gas in Houston. Some of these industries pay high wages, and people like living next to where they work so this drives up price which can support higher density.
It's industry aggolomeration -> high density of high paying jobs -> high demand for real estate -> high prices/density.
There's a whole literature on generalist vs specialist agglomeration, which I mostly haven't read, much less have the ability to properly summarize, but a quick-and-dirty version goes something like this:
Employers tend to locate where there are employees. Some industries employ so many people that there are suitable employees in every city (e.g. lawyers, accountants, baristas). Some industries need lots of different skills and tend to end up only in the biggest cities where the labor market is deep enough for them to get all the specialists they need. This is "generalist agglomeration". Other industries need lots of people all from a single specialist skill and tend to cluster in one or a small number of cities (e.g. tech in Seattle and SF, biotech in Boston). This is "specialist agglomeration".
If you look at the most recent era of decline for big cities, ie the 1930s-1980s, part of the story was specialist agglomeration in manufacturing. Individual manufacturing industries each concentrated in a different smaller city (most famously, cars in Detroit). The result was that growth was mostly in the smaller cities, rather than in the biggest ones; when considering metro-area population the big cities levelled out rather than actually declining, but suburbanisation meant that urban core population was dropping and this had a dramatic effect on real estate prices in those urban cores.
While density does make generating economic growth easier, it is definitely possible for housing to outpace jobs and vice versa. Indeed, San Francisco, San Mateo, and Santa Clara Counties added significantly more jobs than housing in the last couple decades. Planners partly enabled this by green-lighting commercial real estate development (office towers downtown, big tech campuses down the peninsula) while restricting new residential. The resulting increase in housing demand then was absorbed by the East Bay and further inland, driving up prices.
I suppose deindustrialisation is also a part of this. You can pack workers much more tightly in an office than a factory, even before you start expanding upwards.
You've read Seeing Like a State, you *know* that just building a bunch of housing doesn't materialize people who want to live in it, or businesses to employ them.
Not so long ago, housing in Williston, North Dakota cost more per square foot than either NY or SF. And I can guarantee you that the average rental in Williston was rough, compared to what you got for comparable money in NY or SF.
That was when people were making well into the six figures, while living in their cars. Magical times.
This shows pretty clearly that demand for housing is driven mostly by jobs.
I am sure that it wasn't because people just wanted to see the Williston Ballet.
As an aside, I knew a young woman, an Indian investment banker, who got transferred from Singapore to Williston. I wonder whom she pissed off and what she did to do make them that mad.
My niece recently moved from Heber, UT, which is one of the highest cost rental markets in the US—more than $6000/mo avg. Which is shocking when you're there because it's a little farming town. But its near ski resorts and there are enough hyper wealthy people in the world who think nothing about buying land there, so the whole housing market is whacked.
Definitely talked about less than major cities (and imo less important given their smaller populations) but resort towns from Jackson Hole Wyoming to Vail Valley of Colorado are among the best examples of wealthy NIMBYs cynically wielding zoning to make it unaffordable for the working class they rely on to live.
There aren't that many ultra wealthy people in the world who want to own a home in a ski town in Colorado. But there is a lot of land in rural Colorado. If you just went full libertarian and let people build whatever they want, you would pretty quickly saturate the market of ultra-wealthy individuals and prices would crash.
Perhaps it's too distant, but I was surprised not to see any discussion of Chinese cities here. There are hundreds of Chinese cities that have mega dense developments but didn't really see the changes proposed for Oakland, because just adding endless housing alone will not induce demand.
I think it’s a hard comparison to make given how radically different the Chinese economy operates and the migration restrictions imposed by the Hukou system.
The hukou system doesn't stop you from migrating. People do it all the time. What the hukou does is stop you from receiving government benefits when you're outside your native region.
It doesn’t stop adult workers from coming, but my understanding is it does stop families (children and elderly) from migrating.
Is migration of the elderly a normal phenomenon elsewhere? Where are the examples of countries with such free internal migration that young adults moving to the city bring their parents with them?
The price of housing in China has skyrocketed over the past few decades, as all those extra apartments have been built. I live in a pleasant but unremarkable southern city, and I paid London prices (about 4.5m yuan/$650k for a 1,300 sq ft flat). That seems to match Scott's hypothesis that high density leads to high prices. House prices here have risen much faster than incomes. They've risen in rural areas, too, but the increases in price in cities have been stratospheric.
For China you have to account for the very low rental yields. There people do not trust other other classes of assets which inflates purchase prices, but not rental prices. Rental prices in major Chinese cities are comparatively low in my experience, my rent was about half as much for my Shenzhen apartment compared to my roughly equivalent London one.
Crowd sourced cost of living data like numbeo.com seems to corroborate this.
You're conflating the price of buying a house and the price of renting one. House prices are subject to speculation just like any asset. Rents aren't subject to speculation because you can't profit by renting 5 units and hoping the rent goes up. Rents are the way we measure housing affordability and in China, rents are crazy low because of the oversupply and many mom and pop landlords can't find tenants for their apartments, so they sit vacant.
Yeah, I see what you mean. Rent variation isn't anything like as extreme as house price variation, that's true... but rent variation still follows the same pattern as house prices. You try to rent a nice flat in the big cities, and you'll still pay a lot. Smaller city, not much; in the countryside, there's no rental market. So, it's still the same graph, just a shallower gradient.
Take it to an extreme: I have built an apartment in a pocket dimension (TARDIS-style) in New York. It has effectively infinite capacity. What will this do to New York real estate pricing? Do we expect that the apartments next door to mine will become more expensive as a result?
Not sure about the apartments but I expect the value of a storefront next door just became almost priceless.
the storefront next door was previously in the middle of the city. now it’s on the outskirts of the city. i can imagine that many occupants who previously used that store will now use an even “closer” store inside their complex instead.
depending on how you read “infinite density”, every unit inside this infinite density block is on equally prime real estate, and there’s infinite of it so the land portion of rent is driven to 0. the exterior storefront can’t become priceless, else they’d pay so much more on rent that they can’t be price competitive with the interior stores.
The comment I was replying to specifically said apartments, nothing about retail space. "Realistically" you're probably right but then it's unclear what's really "realistic" when we're talking about magical infinitely dense real estate.
The apartments will become cheaper as you've made yourself impossible to compete with. Other landlords will be forced to charge much less than you to give people a reason to rent from them rather than taking a space out of your infinite capacity. But, as you've just given the public-facing businesses in the area a massive number of additional potential customers, all the real estate that isn't housing will become more expensive.
If its capacity is truly infinite, and is to be auctioned off or otherwise used in a profit-maximizing way, then the limiting factor on occupancy would appear to be congestion at the inter-dimensional transit point. The apartments next door to yours will be expropriated to build transport infrastructure meant to support getting through the bottleneck, and compensation for that is a legal and political question. It suggests that the whole analogy is rather too far afield to be useful.
You can kind of make the analogy work. If you build a large skyscraper in the middle of Mountain View, you would need to also improve transportation infrastructure to make that viable and some of that burden would fall on the government who might use eminent domain to sieze neighboring land to expand the road or build a new subway station.
Or more likely, the government would just say "we don't feel like building transportation infrastructure, so you can't build your TARDIS apartment".
Some clarifying questions:
1. Is this the only TARDIS-apartment in the city/universe?
2. Is the TARDIS-apartment geographically fixed or mobile?
3. Is their sunlight and fresh air inside of the TARDIS-apartment?
4. Is the MTA planning to build a subway line inside of the TARDIS-apartment?
4a. Is the new line expected to open before 2045?
1. It's the only one in NYC because after he built it, the city introduced a new interdimensional permit process that takes 10^23 years.
2. It's technically mobile, but relocating it to a new site requires a new environmental impact review for each relocation, even back to the original site, so in practice, it's stationary.
3. Yes, but because the weather has to be the same for all tenants, there's a complicated process with 3 different agencies having oversight over the weather setting process to ensure fairness, accountability, transparency, and equity.
4. The MTA is still in the design phase for building a subway line. Despite being in a pocket dimension, the janitors' union doesn't want to share a break room with the engineers' union, so interagency discussions are ongoing.
4a. Time in the TARDIS is also omni-parallel, so technically everything is happening all at once. But city code requires an 18 month notice and public comment period, so no, they don't plan to finish before 2045.
The doorway is the bottleneck. Even with a clever traffic management system I can't see how you could reasonably accommodate more than ~10,000 people, and even then you'd probably be facing long lines to enter/leave at peak hours (in which case you might as well be commuting in from Connecticut).
So I'm sure you could make some good money but I doubt it would significantly affect the real estate market.
Supposing _everyone_ could have a Tardis-apartment (but that these Tardis apartments are not moveable) then I guess you'd completely revolutionise real estate. Land would become less valuable but the right to place your doorway in an in-demand location would become valuable. Cities could easily accommodate populations of many millions, all within a short walk of each other, so urban life would be very different, just a bunch of corridors.
Reminiscent of "Fall of Hyperion"'s Farcaster houses
Rather than a single fixed door, suppose the development is shaped a bit like the Mandelbrot set, an irregular hyperbolic manifold in higher-dimensional space, perhaps some distant cousin to the Eldar Webway or https://questden.org/wiki/Haze_Town , and residents can freely teleport to or from any otherwise-open public roadway on the same continent as the central anchor point... but the teleportation process takes up to an hour per mile 'as the crow flies,' so realspace travel is still faster when possible at all.
As to legalities, let's say it was formally recognized as the embassy of some alien empire, and installed near the UN building, before the whole teleportation thing was well understood by relevant policymakers. Forcibly removing it would be an act of war, and systematic action against "applicants for refugee status" (as renters in the fractal embassy are technically classified) would be thwarted by bureaucratic gridlock even if it was somehow logistically possible. However, the alien empire is also sufficiently corrupt, or at least lax in enforcement of extraterritoriality, that it poses no significant obstacle to the NYPD or other local authorities when they've got a court order to look for someone or something specific.
Now, how you want to manage your TARDIS aparment is by first offering super cheap rents to drive down the rents of all the competing apartments in the area. Then buy them out at low prices, then jack up the rents and rake in monopoly profits!
What do we expect would happen? The government would tell you that you can't build your TARDIS apartment there because you didn't get an interdimensional permit and also it would have an impact on street parking.
This is not actually Matt's view per se.
The important thing is to uncouple housing and land. Density increases the value of the land. But it also allows more units to occupy an existing parcel of land, which decreases the per-unit cost of housing.
So here is what you expect to see happen when new units are added at the margin:
1) Cost of all nearby buildings go up (this is actually the land value increasing, but we usually bundle land and building)
2) Value of existing single-family homes increases for the same reason as (1)
3) Cost to move into the neighborhood goes down because there are now more places to live.
It doesn't always happen precisely this way, but this is broadly what you'd expect.
I don't have the link handy, but Matt has argued before specifically that existing single-family homeowners should expect to see their house values go up in neighborhoods that become more dense, even as the cost of housing per unit goes down. This is part of his case for why homeowners should in general be less worried about YIMBY policies.
The value of their house may go up, but also their quality of life may go down. And it really does depend a bit on who is moving in there.
In a mixed income post industrial urban SF-home area with a lot of rentals and poor people scattered about, creating a bunch of density is probably going to help the homeowners financially. They already need to lock their doors, and put away their valuables, etc.
In some area with little to no poor people, and very high quality of life and good services/little crime, creating a bunch of density can be catastrophic to the quality of life. It is pretty situational/granular.
One person is like OMG I would love it if there was a trendy bar across the street even if it means I need to park a block further away. Another doesn't like fancy bars and thinks the dive bar 2 blocks away is fine, and the trendy bar going in across the street is a 100% negative.
The fact that density has both amenities and dis-amenities is a good argument against what Scott is saying here.
The frustrating thing to me about posts like this is that the whole NIMBY vs. YIMBY dynamic is at least as much cultural and aesthetic as it is economic. You can explain the dynamics of real estate valuation to me all day; That doesn't change the fact that if the woods around my suburban home were to be razed and replaced with apartment blocks my quality of life would go down palpably.
A sea of two story single-family units might not be optimally efficient but there are reasons why the people in those neighborhoods chose to live in that arrangement.
I mean, the value of your land would go up appreciably, you would be able to sell for a nice capital gain, and buy a nice suburban home for cheaper elsewhere. So you end up with the suburban living you desire + a bunch more money.
Some people have sentimental attachment to the land, the environment, and the community of people who lived there. And sometimes, when they put a dollar value on all of that, the loss is more than the gain.
Then buy the woods and maintain it.
Another doesn't want a bar across the street or down the block because they have children. Density annihilates family formation.
> Density annihilates family formation
Uh, citation please?
Unaffordable housing annihilates family formation. Billions of people have and do raise families in apartments when large enough apartments are sufficiently affordable and there are integrated services that families need.
https://twitter.com/BrentToderian/status/1255661763602690049
The Georgist perspective, I wonder how LVT would change this dynamic
A good theory should make predictions
Here's what I'd expect to happen under an LVT:
1) Upzone an area to allow more density
2) This immediately increases the value of all that land (since there is now more freedom in how that land is used)
3) Owners now owe more in taxes
4) Owners have three options: eat the tax increase, take advantage of the upzoning to make more money off their property, or sell to someone with a plan to take advantage of the upzoning
5) This leads to a virtuous cycle of land improvement -> increased value -> land improvement
6) The money captured through the LVT can then be distributed throughout the community as makes sense. Anyone who feels they've lost out due to the transformation of the area can in theory be compensated out of this revenue stream.
Honestly agreed, I don't think Georgism is a practical political program. This is just my prediction of what would happen if it were magically implemented.
Assessing land accurately at scale already happens across the world. Several countries already have LVTs: Denmark, Estonia, Lithuania, Singapore, and Taiwan.
Implementing it is a solved problem. Getting it through a vetocracy I guess isn't.
What I'm always a bit surprised about is that America is *so productive*, even with such terrible land use. Imagine productivity with dense cities? If the Bay Area has such agglomoration as it is, imagine what it could built if it densified to London levels? Paris? Barcelona?
I think I've understood Matt's view and am taking this into account. I agree that price per acre of ground-floor land will increase faster than price per housing unit, but I think price per housing unit also increases. This is why the cost of 1000 square feet of living area is higher in Manhattan than North Dakota.
In a perfectly competitive market, market price should just be equivalent to the marginal cost.
Marginal cost of building housing (NOT land) is slightly higher in denser areas because cost of labor is higher. But that's not what's causing the delta between North Dakota and Manhattan.
Oh a lot more than just the cost of labor is higher. More regulations, more zoning, harder to work on build sites, inability to store materials on site, etc.
"More regulations, more zoning"
I meant in a situation with none of those ("perfectly competitive")
Well but some of those aren't just "obstacles from crazy bureaucrats", but actual rules you need about building codes and rules for construction etc. when the nearest building is 3ft away and the nearest residents 6ft away instead of 500. And there are 4,000 people passing on the sidewalk out front instead of 3.
There are certainly regulations that are unneeded, but most of them are needed. They are built into the reality of the level of density already existing in those places. More stakeholders, with more harms doled out.
Even in an imaginary perfectly competitive large city, a large, high-density apartment block will need to devote more of its square footage to things like elevators, leaving less (proportional) square footage for actual housing. Also, building a 50-unit high rise apartment will cost much more than building a 50-unit 2-story block with external access to all units.
Also, I'm pretty sure the cost of building one 20-story unit is considerably higher than the cost of building 20 1-story units.
It’s never just the cost of construction, it’s always also (often mostly in expensive areas) the cost of the land to build on. Also construction costs go up non linearly based on fire protection, elevator, and structural requirements. Building a 20 story building is way more than 2x the cost of a 10 story building and waaay more than 4x the cost of a 5 story building.
Hmm. I do see what you're saying. But I think this conflates a second-order effect with a first-order effect.
The primary drivers of demand for living in NYC are the specific opportunities available in NYC. It is true that on long time horizons, one of the reasons these opportunities have tended to collect in NYC is that it is a dense place. But those aren't the only reasons - NYC is much more important than other, bigger cities in other parts of the world for complex historical reasons. Even if a catastrophe were to wipe out half the city, there would still be a great deal of demand to live near important institutions like Broadway, Wall Street, Port of NY & NJ, Columbia, etc (assuming those institutions survived the catastrophe).
Increasing the number of housing units has a very mechanical impact on how many people can live in the place. But it has only a second-order impact on the types of institutions that drive demand to live in the city. People don't just generically crave to live near other people for the most part (a handful of urbanist freaks like myself excepted).
The Bay Area is a great example of this. It is much less populated than other much cheaper cities. Density isn't why people want to live there - it's access to a specific culture and specific institutions. Demand for that is not simply a function of density - some people want to be part of Bay Area culture and others don't. Adding more units will induce some demand as a second-order effect, but will bring prices down as a first-order effect.
To relate this to your model: we might be able to say that the country has a certain number of abstract "culture points" that have been allocated to different cities by various historical forces. Each culture point a city has increases demand to live in that city by a certain amount. Adding more people to the city may allow it to generate additional culture points over time, or acquire culture points from other cities, but this doesn't happen right away, and is determined by a host of factors other than just density.
Under this model, we expect a place like NYC to always cost much more than North Dakota (since NYC possesses a large number of culture points), but we would also expect that adding additional housing units to NYC would bring costs down (since there are now additional housing units per culture point). Perhaps this process will over time allow NYC to steal away some culture points from Chicago, Boston, or other cities, but this is a secondary effect.
Price per square foot in Manhattan will always be higher than in North Dakota just because building skyscrapers is more expensive than building single-story wood frame houses. But in a free market, the difference might be 1.5-2x, not 10x.
I think there are amenities that aren't available in Manhattan that put a floor on the price per square foot, as you wrote in the text.
But I think there are simpler supply/demand calculations. Chicago used to have ~1,000,000 more residents than it does now and that abundance of supply is why I live in an industrial conversion here with five bathrooms for about the same price a 2br in Brooklyn. And the median value of a home in Chicago's worst neighborhood--Austin--is higher than the median price of a home in Metro Detroit, where supply greatly exceeds demand.
I believe it's a multivariable problem, that's supply/demand + fashion + (external value of shared amenities) + (price for dividends from aggregation economics.)
You need to disaggregate housing and land.
In a perfectly competitive environment, price of housing (not land, the literal house) would be driven down near to what it cost to build. Denser cities usually have more productive people, so labor costs are higher.
Land is also fixed, so that does scale with amenities. Land close to amenities is valued higher, all else equal.
Wouldn’t cities having more productive people make labor costs *lower* rather than higher, assuming that higher productivity included the building trades? Or are you implicitly assuming Baumol’s cost disease here?
In this theory, how would something like California upzoning everywhere work? Would the local effect drive prices up? (California is one of 50 states) Or would the global effect drive prices down? (All cities doing it together)
Same question if the US upzones. Same question if a city upzones. This local vs global dichotomy seems poorly thought out.
I think two apartments in the same city in California are almost perfect substitutes, an apartment in LA and an apartment in SF are partial substitutes, an apartment in LA and an apartment in NYC are weaker substitutes, and an apartment in LA and a house in the country are very weak substitutes. You would have to check empirically how strong the substitution is in each case.
I think it's plausible that California upzoning everywhere could decrease prices (because it absorbs a substantial amount of the demand to live in California), or increase prices (because it directs people who would otherwise want to live in NYC to live in California instead). I think most likely at that scale it would decrease prices, but I'm not sure.
Why would 2 apartments in the same city be a near perfect substitute? People have very strong neighborhood preferences and city politics is hyperlocal. I would propose that housing is endlessly fractal such that this local/global dichotomy really breaks down and you're left with a contradiction. Does upzoning one parcel lower price per sqft on that parcel? One block? One neighborhood? One city? One region? One state? One country? One planet? (ok, I'm kidding about the planet)
Also, just want to add that the mechanism for this local price increase is presumably something along the lines of "X place is hip, therefor I want to live there instead of Y place". Call it the "SoDoSoPa effect". I think it's tempting to think that everyone else is a hipster, but in reality, most people are boring people looking for a boring house near their boring job. Maybe with good schools.
Yes, sorry, I meant two identical apartments.
That's either a tautology, or wrong
"Identical", how? Square feet and cost of furnishings? Then no, they're not perfect substitutes. One's near the Orpheum, one's near Golden Gate Park, and another is in China Basin.
Another one is on a Bart line that doesn't get too crowded.
Location, location, location is often a matter of tenths of a mile, not tens of miles
I think you should read Matt's take on the case against induced demand. He's responding to the same argument I think you're making. "What if building housing lures in more rich people?"
https://www.slowboring.com/p/induced-demand
I linked this article on the top of the post. But I'm not sure my argument has anything to do with class or how rich anybody is - it would still apply in a world where everyone had exactly the same income.
I think your estimates of elasticities of substitution are a little off. I understand you're abstracting away from neighborhood amenities at a city level and just thinking about broad location, as others have quibbled with, but still there's a lot lacking. It seems that your mental model assumes everyone has a desired location to live in, and demand for housing is mostly driven by urban amenities. But demand for housing is really mostly driven by employment. If I work in downtown San Francisco, and I like my job and want to keep it, then I'm not substituting towards apartments in LA or NYC, but rather apartments in Oakland or houses in Tiburon or wherever.
For most people who aren't fully remote workers, in order to live in a city you need to find a job there, and the jobs available in different cities can vary based on industry composition. So if you work in, say, the film industry, you probably need to live in LA, maybe NYC, or a few other metro areas. Those effects will drive measured rates of substitution.
Increasing supply (mass California upzoning) causing *increased* prices (all else equal) would be very surprising!
Do those intuitions still hold when you reverse the hypothetical. (i.e. could we decrease CA housing prices by decreasing supply?)
Sure destroy all the houses and watch the state collapse and no one lives there!