This is a good article, but that is an embarrassing gaffe on multiple levels. It's about as bad as unknowingly taking a picture of the Manhattan skyline with all its famous buildings and calling it Rhode Island to American readers. Guess "micro fake news" makes its away around even the best of us.
On the "Do you have a degree in Economics?" question in the poll, there's no answer for "No". Was the bare "Yes" first option (seemingly overlapping with the other two options) intended to be "No", or do you only want respondents with econ degrees?
I think the reason the argument is confusing is because density of people causes prices to go up because of increased demand, but your original writing implied dense housing causes a density of people. This isn't true -- people can (and do) stack bunk beds in an sfh too, when there isn't enough other kinds of housing. Conversely, creating a bunch of dense housing doesn't cause people to move there
I think you're right that density of housing and density of people aren't 100% correlated - but they're very strongly correlated, enough that you can generally use one as a proxy for the other, and where they diverge, one will often catch up with the other over time (like the Chinese ghost cities).
I think to the extent you can artificially restrict housing supply, maybe, but people can live in RVs, garages, attics, living rooms, and bunk beds if there isn't enough suitable housing. Palo Alto still basically forbids buildings over two floors, and you've got a lot of "hacker houses" that are 16 to a house where a bunk bed costs $2k/mo that you just aren't going to find in the middle of nowhere.
Either way, isn't that the main problem with Scott's position? If you assume that new housing induces matching demand, of course supply increases can't outstrip demand increases. The level of correlation is the key issue. The poll also just assumes the answer.
Yes, I think he conflates "density" with "housing supply". He says, for example, "The least dense US city, ie the city with the lowest housing supply".
Density of people implies some kind of desireability, as long as people have any kind of options, so to say density increases desireability is a circular argument. But that is very different from claiming building more housing increases prices.
This seems like a gentrification argument. Someone builds new units somewhere cheap (e.g., Tenderloin), people flood in to those units at higher prices, some can't get into the new units but decide on nearby old units at higher price, the restaurants and coffee shops follow, prices for even the old units rise, neighborhood changes, etc. Now do this at a city level: Denver becomes hip, in part because builders are building cool new places to live, people move there, not all of them are soaked up by new units, increasing price of old, new units come along with nice amenities that raise prices for old units that benefit, prices rise in core, driving people further away, less popular cities lose some folk so their prices decline, rinse and repeat. I still don't think the building of units alone raises prices, all things equal. And the process can unwind very quickly (see Detroit). But if Amazon moves into the neighborhood, requiring building of new units, those units are almost never sufficient to offset increased demand leading to increased prices. And the division of labor in USA is pretty clear, for purposes of network effects: NY owns money, with some entertainment thrown in; LA owns entertainment, with some etc.; SF owns tech, with some etc.; Dallas/Houston own energy, with some etc.; DC owns gov't, with some etc.; Miami/Tampa own latin america, with some etc. So there will be continuing demand for the limited seats at those tables.
I think Oakland is in a tech boom, and so hosting would crash after 10 years for reasons largely unrelated to housing policy. Maybe a more neutral city, like Buffalo or something would be better?
Calling Buffalo "neutral" is way off. The median sale price there is $180K (https://www.redfin.com/city/2832/NY/Buffalo/housing-market), which is basically at replacement cost. There's no point in building new housing there because demand for housing is so low.
I don't know if there's any city we could really call "neutral". It seems that just about every major city is either a trendy, expensive liberal city with high housing costs, a Rust Belt city with very low housing costs, or a Sun Belt city that's currently already building enough housing to keep up with demand. The experiment is really only relevant to the first category.
Oakland is not in a tech boom. The Bay Area is in a tech boom and Oakland happens to be one of the cheaper city in the Bay Area because it's full of disamenities like poverty, public housing, and crime. Nobody in the Bay Area thinks that Oakland is trendy except for people in Oakland.
I agree about the Bay Area more than Oakland being in a tech boom and due to arbitrage the prices of the Bay Area move in a general direction. However, one consequence of this change is that if prices in Oakland rise it is able to address the disamenities which means that it should prices should rise faster than the average of the Bay Area (it rises with the average and then because of windfall taxes it's difference to the average should shrink). A consequence of this is Oakland has above average investment for the Bay Area which makes it trendy.
To add some more to the idea of Chinese housing markets being weird, from what I've read, the demand is driven by extremely unique factors:
"Chinese average wage is not that different from America, just about 45K to 55K depending on region. But, in China, if you are not a homeowner and you merely rent, then you cannot use public education. And private schools in China are exceedingly rare, extremely expensive, and not very good for the most part... A lot of times, multiple homes are bought because people have multiple kids. If it’s a boy, well, he’s gonna need a house in order to get a wife. You don’t want him to be forever alone, right? So if you have three boys, for example, you’ve got to work hard, save money, and buy each of them a house... If it’s a girl, well, lately, women have been complaining about the lack of security living in a husband’s house that doesn’t have your name on it, with nowhere to go if you have a fight. A lot of women have been saying that it’s sexist to not also buy your daughter a house. So, it’s not really a holiday home or rental income, it’s more like future marital home for your children... At some point, the government tried to address the problem that university degrees are becoming less and less valuable. The way they decided to do this is to put a hard quota on middle school and high school graduation. Only 50% of middle schoolers can graduate to go to high school. Only 50% of high schoolers can graduate to go to university."
So, to raise children you desperately need to own a home; the price of a new home is beyond what most young adults can possibly afford; parents buy homes in anticipation of their children getting married, simultaneously giving them veto power over spouses they dislike.
Yeah... all of that is true and weird in a way. I'm not sure it's any more weird than an American individualistic insistence that who you marry is only ever the individual's concern, and anyone should be able to move anywhere and go to any school without any thought of whether they'll have family to help them...
Do you see what I mean? Obviously, China is weird. But the idea that people live in a single place (and so their children's school places should be in that location) isn't weird. It's normal in most of the world - the USA is a spectacularly mobile outlier. And the idea that it's worth letting your family have a say in who you marry is no more than old-fashioned. Half the Shakespeare plays are about this kind of thing!
I don't think there's much in China (certainly not in the systems that you describe here) that isn't quite easily explained by being generally poor (China's still only a middle-income country) and a bit traditionalist in its thinking.
I think parental involvement in marriages is the least weird part of what I quoted. Tying access to education to homeownership seems like it must warp home demand to an incredible degree, especially when intensified by the most severe case of grading on a curve I've ever seen.
Like, the 2017 NYC Housing and Vacancy Survey says over two thirds of NYC residents are renters. Imagine the price of owning a home there if it was also a requirement just to send your kids to school.
Yeah, it's weird, I suppose. It's not obvious how weird. If you have a desirable school in a US city, the prices and rents around that school go up, right? So you can end up with two very similar apartments with very different rents because one is just inside the school catchment area (school district? I don't know the American term) and the other just outside it. That's "weird," isn't it?
I just think, there's always going to be some administrative tool that you use to decide school places, and it's always going to throw up some weird effects.
What's actually weird about China isn't how they allocate school places, it's just that there aren't enough of them. In Shenzhen, which is our Bay Area, there is a 25% shortfall in public school places, so predictably Shenzhen is where a lot of good private schools are being built.
I still think you're falling into the trap of saying: this is how America does it, so that's normal. Like, should 2/3 of a city's residents be renters? That means that there's an awful lot of landlords there (something that China is historically a bit sensitive about!).
I think it's weird because there aren't many obvious benefits to denying renters access to public education, and what look to me like fairly obvious negative externalities. Presumably a government offers public education because it is good to have an educated populace. Cynically, we might also say it gives the government an easy way to control the societal framework its citizens develop in their formative years. In both cases, it's hard for me to identify why China would only want homeowners to partake in this.
School zones definitely have strange effects on the housing market, but I can look at them and understand the practical reason they exist. Administrating a large system often necessitates dictating how it will be divided up, especially given the travel area of school buses, and school zones are an obvious way to do that. But nominally, they exist to equalize the experience for all citizens; budgets are divided based on a given zone's population, new schools are built or old ones shut down as populations shift, and in some places, at least, you do have the freedom to attend school's outside of your zone as long as you are willing to handle the transportation. I did that during Junior High.
I expound on school zones not because I'm trying to compare China to the US, but to emphasize that when I say weird, I mean "deviating from the natural flow and one's own stated goals." America does not lack for weird policies, but in the case of school zones I think it's easy to see how they are meant to achieve the nominal goals of the education system.
Perhaps China has a very different view of education than I realize. Perhaps they are not attempting to use it as a tool to raise the quality of life for their citizenry as a whole, but as a means of locking in a caste system. Certainly, that is what I would directionally expect of a system that filters out anyone too poor to afford a home, and then doubles down by blocking 75% of their students from attending university.
On NYC renters, I am not asserting that 2/3 of residents should rent. I think that number is definitely high, and the result of many weird policies in NYC. I brought it up specifically because the influence of a policy like this on home prices seemed like it would be most stark there, given the pairing of high rental incidence with high home prices.
OK, haha. So, if you want to understand China's housing and urban policies in general, your caste system paragraph is about right. Obviously that's not the way it's phrased in the official language here! But yeah, China fears slums more than anything else. (Because they breed revolution, because that's what happened last time.) So we have this massive system, the hukou/household registration system, that ties people securely to their home place, and limits mobility.
In terms of education, that means only giving school places where someone's official residence is.
Important to note: this is not an anti-mobility policy. China is urbanising faster than any place in the world ever. The hukou policy is a way of managing the mobility, and making sure that the breakneck urbanisation process doesn't lead to political instability. And this is very much a stated goal. The leadership talk about the importance of stability every time they appear on TV, and all other goals are subordinated to this goal. The stated goal of the education policy is to educate the population as much as possible, within the necessary constraints of our stability policy.
Yeah the US really has some awesome/odd/costly norms around mobility.
Kids think nothing of doubling the cost of a degree and knocking down a year or two of lifetime earnings so they can attend university of Minnesota instead of university of Michigan (especially if it means parents are a day away between of an hour).
Couples move to cities far away from extended family and incur a year or two of lifetime earnings in additional childcare costs (something I did without thinking).
All so we don’t have to feel obligated to swing by your parents house once a week in many cases.
I don’t know, but I would guess that China has a much larger rural population, and that the figure would only be for cities. There’s lots of variables there, and I don’t know how fairly the original source set them
It can't be of course. I have trouble accepting any other claim made in that quote given how glaringly wrong that fact is or the authors not realizing hed need to explain it if it somehow was true
Most likely explanation: lots of the people the author knows makes about that much.
I have a slightly more charitable interpretation that perhaps this is urban incomes? Doesn’t seem to be true from a rudimentary search though.
And of course median urban incomes in the US are much higher than median national incomes, too, so even if it was accurate for China, it would still be apples to oranges!
In China, how do they explain variation in school performance? Americans can't decide if it's culture, discrimination, or genes, and I'm curious what explanations China has produced.
Tutoring. Every middle-income-and-above kid has lots of out-of-school classes, most of them simply devoted to re-teaching the school curriculum. This begins in first grade, and throughout primary school kids aim to score 100% on school tests. (In middle school (ages 12-15) things get significantly harder, and there's a big shakeout.)
Generally, the kids and parents who do well early on think it's because they've worked hard in their tutoring classes. If they continue to perform well in high school, it's because they are diligent. And then there's a significant luck factor in the high-stakes selection exams they take at 15 and 18.
I'm curious why you say that the Chinese average wage is not that different from America. How are you doing the RMB to USD conversion?
"In 2021, the last full year for which Beijing's National Bureau of Statistics offers data, the average Chinese worker earned 105,000 yuan a year, the equivalent of $16,153. The average American worker earned some $58,120 a year, 3.5 times his or her Chinese counterpart"
... I did come across one source that said Chinese wages were comparable to US wages. I don't have time right now to reconcile the different results I'm getting. Interesting development.
I think from context that she meant numerically. I.e. if an average wage in the USA was about $50,000 in US dollars, an average wage in China would be about RMB 50,000.
It looks like that is an artifact of the census criteria allowing multiple areas 1.5 miles apart to collect into a single urban area (but not counting the 1.5 mile gaps as part of the total "urban area").
I mean, it depends on what you consider an "artifact". Los Angeles has by far the densest suburbs of any major urban area (because they all continue the urban grid right up to the edge of the mountains or the beach), while New York has many very low-density suburbs. Los Angeles has the overall more efficient use of land converted from nature into developed area, but New York puts more people in convenient contact with large numbers of other people. ("Weighted density" gets the latter, and New York is by far first on that measure: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3119965 but Los Angeles is still fourth.)
The LA Metro is definitely denser than the SF Metro. Yet few parts of LA are as dense as, say, the new apartments in SoMa and the Mission, and certainly no part of LA is as dense as Lower Manhattan...
Someone at Streetsblog did a comparison several years back of the core of SF and LA, to show that they're actually more comparable than many people think! At that point, KTown and Westlake/MacArthur Park really were pretty comparable to the densest parts of SF (though perhaps SF has built some more density in SoMa since then?)
That's why I said "few", on that first comparison. As you note, the densest parts of LA are pretty comparable to the densest parts of SF.
The problem with LA, as MattY recently noted, is that due to the vagaries of history, the suburban part has ended up sprawling like mad. This has to do with the topography, and how the river used to flow through.
Before the auto came along, the LA metro had some quite nice streetcar suburbs. These days if it were legal to densify along streetcar lines, and they had the political will to manage transit to maximize ridership, you probably could bring back that dynamic. But the political will to do that is clearly lacking -- NIMBY forces who prioritize "neighborhood character" and free parking are stronger in LA than they are in the Bay Area. (And the obsession with parking availability is in part a rational response to their existing car dependency.)
It's definitely an artifact of what is considered part of the urban area. That definition has the urban area of NY at about 10 times the area of NYC, while for LA it's about 3 times, for example. Based on this definition:
> An urban area is defined by the Census Bureau as a contiguous set of census blocks that are "densely developed residential, commercial, and other nonresidential areas"
It seems like this is because NYC is economically connected to sprawling suburbs much further out. This likely has to do with your point on geography, along with other factors such as how long the area has been developed, the existence of trains from the further suburbs into the city, etc. If you took an area centered on NYC which only included the dense, nearby suburbs, it would have much higher density.
I think what you're observing is that these urban areas are in fact very different. To me, the census definition of "urban area" gets at the meaningful concept, while any other set of borders is much more "artifactual", like when people cut things off at the city limits, or the county lines. NYC's sprawling suburbs are a fact about how the city continues to grow, while LA's compact suburbs are a fact about how it continues to grow - these don't seem to be artifacts of some unnatural way of cutting data, but actual realities that are revealed by looking carefully for the borders of the human geography.
You used the word "city" above, but the definition of "Urban area" includes a lot of area that is not "city" by any meaningful definition. I don't know exactly how the census bureau determines which blocks are included in the same area, but I think much of what is included in the NYC urban area is only very distantly related to the city itself. They might be economically influenced by NYC, but their development patterns and those of the city itself are entirely unrelated. NYC has plenty of denser suburbs just like LA; I think the only difference is that the further-flung suburbs are grouped in for NY but not for LA.
Also, the use of census blocks means that this definition is still somewhat arbitrary.
Seems to me like this sort of thing makes "density of the urban area" a slightly odd concept to use. It's a bit circular ... "density of the area that's above a certain threshold density".
Most people think "density of the urban area" basically means how Manhattan-like the core is, and that's mostly how Scott's argument proceeds, but it seems that "how far the sprawl stretches out" is a bigger factor (which in turn seems affected by mountains and shit constraining it (or even the point at which you end up in a different urban area)).
I don't know that I'd put it as harshly as Angus did, and no offense to anyone who lives there, but there's really nothing in Vegas for me. The Raleigh-Durham area has multiple solid or even top-notch universities, ~2 hours from the beach, ~2 hours from the mountains, Lake Jordan, doesn't get cold, low cost of living, etc. It's no Chicago or New York but it's at least on par with other mid-tier cities and has a better climate than most of them. Seems undervalued.
They did. I bought my current house in the summer before the pandemic in the Raleigh inner suburbs. At the peak during during the pandemic it's value was up 50% on Zillow before declining a bit to its current level which is still up ~40%.
There is a vigorous NIMBY/YIMBY debate in Raleigh. The YIMBY's have largely been winning but with quite a bit of pushback. It will be an interesting test case going forward.
Because of the Universities and the State Government the area has lots of amenities, but there definitely has been a snowballing effect from initial tech growth leading to more tech growth due to agglomeration effects.
One thing you may have missed/did not mention is that New York City is at the mouth of the Hudson River, a tremendously important waterway that provided the best possible access to inner New England and Canada, and gave New York City a natural and extremely valuable place as a locus point of trade between inland America and the Atlantic, shipping to Europe etc.
Henry Hudson sailed up the Hudson River in 1609 and thought it was pretty swell, he made it back to the Netherlands who came back and founded New Amsterdam in 1624 to trade furs that would be shipped down to them via the Hudson. England eventually took permanent control in 1674 and renamed it New York.
Everything kind of grew from there. The Hudson river remained incredibly important, and was only magnified by the Erie Canal, until basically when the Interstate Highway System took over, by which point the ships stopped sailing as much but in a more fundamental sense had already sailed.
It isn't actually a coincidence that Manhattan is super valuable and Conanicut is not.
Yeah, it's kind of a nitpick but I did want to point this out. The Hudson is navigable up to Albany. Then in the early 1800s the US built a major canal project connecting it to the Great Lakes via the Erie Canal. Obviously New York was already a major colonial city at that point, and the feedback loop was already underway, but there are geographic reasons NYC became the USA's commercial center that aren't just linked to density.
Its not a nitpick, its a large point in favor of comments under heading #2. NYC was, at one point, such a huge trade hub that tariffs out of the port were financing >50% of the US government.
Also, here's a pretty freaking obvious thing about that Trulia chart:
All the labeled cities in the top left sector are ON THE WATER. Perhaps, water generates both desirability and commerce (duh). Perhaps also it restricts where you can put housing, because people want to be REALLY close to the water (duh #2). So you become dense because lots of the value is in being close to the water.
It's a bit of a nitpick in that the Hudson River explains why New York was more valuable real estate back in the day, but has little actual effect now. The fraction of the value of New York City real estate that comes from the navigability of the Hudson River is pretty trivial. The Hudson is a historical factor, not a present day one, just like gold in San Francisco.
Historical factors can be super important, especially in a colonial environment where you are getting lots of institutional lock in.
This is my point about North Dakota, that he still seems not to get. No conceivable amount of building or oil there is relocating the Met or the NYY, or the NYSE or whatever to Fargo. Even if you also build schools, unis etc.
No, there absolutely is *some* conceivable amount of exogenous factor that would create a cultural hub in North Dakota bigger than New York.
It's harder to replace the first city of a region than the second city, and harder to replace the second city than the third city, but second city status in the United States has changed two or three times. (Philadelphia was second city up until Chicago replaced it in 1890, which was replaced by Los Angeles in 1950 - I say "or three" because on Census data, Baltimore was second city for a few decades, but that's only because Philadelphia was split into several separate municipalities in its early decades.)
It took major advantages for Chicago to replace Philadelphia (controlling the inland water network as well as being the western railroad hub) and then for Los Angeles to replace Chicago (weather, rail, and several major industries) but it was possible.
We know that the first city can also be replaced, as places like Baghdad and Nanjing and Rome were in their regions - it just happens on a scale of centuries, rather than decades.
None of this relocates many of the old institutions - it just requires enough growth to build institutions that are more significant than those other ones. (Houston now has institutions that surpass those of Buffalo, Cleveland, Pittsburgh, and St. Louis, though it took several decades of being a top 5 city in the country to grow them - and Miami and Dallas are only just now at the point of competing with them on some of those institutions.)
> is *some* conceivable amount of exogenous factor that would create a cultural hub in North Dakota bigger than New York.
Like an alien civilization sets up their headquarters in Grafton? That is about the only thing I can imagine? maybe we build a space elevator in Moorehead (except we wouldn't, it would be on equator).
Yes the second city changes, but it changes for pretty predictable reasons to predictable places.
Sure, but those factors cannot be artificial. We can't just plop down a bunch of housing in North Dakota and expect that to become a huge city. Otherwise we would have done that in Detroit already and solved that problem.
NYC and SF exist where they do for specific reasons, even if those reasons are less important than they once were. NYC's harbor is still incredibly important for international trade and is the second biggest port in the US, despite it being far less important to NYC than it used to be when NYC was the biggest port in the world. If for some reason NYC no longer had access to water, it would severely damage the city like the auto industry leaving Detroit.
So, actually, I think there is a way, but it only proves your point more strongly: move people there and don't allow them to leave. If you forcibly transplanted enough people from New York City to this city in North Dakota, they'd rapidly re-create equivalents to the Met, the NYSE, and most other cultural artifacts. (Not the port, obviously.) Because it's not just "people" in aggregate, it's the type of people, and even the specific people.
It's still much cheaper to move things via water than over land. Maybe the gap is smaller now, but it exists. It would be interesting to argue that new cities are more likely to be inland now than 100 years ago, but if the trend were strong over the past 100 years it would be much more obvious. At the least, the trend of more inland cities relative to costal cities is weak enough that few people seem to talk about it. More likely, I'd say it's not a trend at all and proximity to shipping lanes is still important for the growth of those cities fueled by the trade of goods. Which is most of them.
Exceptions would be things like cities based on educational opportunities or extraction towns. Phoenix, AZ tried to make itself a tech hub during the dot com boom, with moderate success. Arizona also seemed to be competing for retirees, back then.
America's current population distribution is an artifact of inefficient transportation and slow travel, and it's slowly transitioning to a new equilibrium. (This is deliberately provocative and biased framing, which assumes as "normal" a pattern which we are only moving towards.)
Ultimately, the interior of the continent is for resource extraction (including such things as farming and the use of cheap hydro-electrical power to work aluminium). Ports at natural harbors and large rivers allow inhabitants to siphon off some of the value of the trade flowing through. Everyone else, including tech workers, might as well live in one giant city, or in the middle of nowhere or in small towns if they can work remotely and choose to. Legacy cultural and industrial centers may hold out for a time, but will eventually succumb to gravity, because resisting requires a constant use of energy. (See also, how so many native languages of the world are dying out, and how American Standard English is effortlessly gaining ground. Resisting this takes active effort; going with the flow takes none.)
Some jobs, such as resource extraction or creative work, essentially generate wealth ex nihilo. Everything else, from government to schools to restaurants to retail to hairdressers to movie theaters, all of that siphons money out of wealth generation. (This is not meant to be pejorative, merely descriptive.) Wealth flows, like current (i.e. currency) from one person to the next to the next. But each time it flows through a corporation with a non-local HQ, some of it is siphoned away to the location of the HQ. And eventually, to the location of the owners of capital, and while they may invest some of that on a global level, their circles of concern tend to center on their own location, and the governments of their own location siphon off their share.
Overall, resources and money flow downhill like rivers, seeking the ocean. A little mining town in West Virginia may have one source of generated wealth, and if that source dries up or goes away, the town will slowly shrivel and die. Every time anyone spends money at a chain store or online, wealth leaves and does not return. Yes, yes, equal exchange of value, but even putting aside taxes and profit, something has left that will not return. Draw a line around the town and monitor cash in and cash out, and it will show a steady flow outward. The death knell is when they resort to tourism, an explicit attempt to create artistic value inside the line that will draw in wealth from outside.
Yes, this is critically important, Manhattan has unique natural virtues among all East Coast cities, and then on top of that it has an *extremely* unique man-made virtue, but that man-made virtue is a fantastically valuable piece of transportation infrastructure (the Erie Canal) *not* all of the houses.
It's pretty awful and getting worse and worse as track capacity is already maxed out at 33rd street and people keep building new housing in Jersey. The earlier and more expensive buildings closer to the river are now losing out because PATH trains are 100% full before they even get to their stop
Depends where in Queens (and where you're going, though that wouldn't hit prices). It's better than some of the further out parts but not nearly as good as LIC (also, I think path is lower frequency? Don't they run like 10-20 minute headways max?)
Yeah the whole "why manhattan and not Conanicut" is so dumb. At least have it be why Manhattan and not Providence. Manhattan was already a very populated area before the dutch arrived because it has so many natural resources and advantages such as the Hudson river.
Conanicut is similar to Manhattan only in that it's an easy coast island. But thats not why Manhattan was so advantageous.
So, this comment is almost entirely off-point, but . . .
The real advantage of Manhattan over Conanicut isn't that the Dutch picked it, but the geography of North America. If the Dutch had settled Conanicut instead of Manhattan, it is still the fact that geography meant Manhattan could be the Atlantic port of first upstate New York and later (thanks to the Erie Canal) the entire Great Lakes region, and Conanicut couldn't.
Now, after the completion of the St. Lawrence Seaway, that advantage went away, and the advantage of Manhattan over Conanicut now is all the capital (physical, social, institutional, human, etc.) it accumulated from the era when it was the Atlantic port of the whole Great Lakes region.
Well, it's less than on-point because there are other examples that Scott could have used that wouldn't have had a geographic explanation rather than underlying human decision story. If the capital of Texas had been sited at, say, Brenham, then the University of Texas would have been sited there instead, and it would have been a lot more likely to become a tech center than Austin. Similarly, it seems pretty obvious that if the US capital had been sited on the Chowan River rather than the Potomac, Winton, NC would be rather more likely to have a Four Seasons and a Ritz-Carlton than Georgetown in what would have been Maryland.
Not a coincidence that San Fransisco is also on an important bay/harbour. Or Seattle. Or Los Angeles.
It's also not a coincidence that Bismarck ND, a million miles from any shipping possibilities, is not big, rich, and dense.
You look at almost every major/important city in the world, it will be on a major trading hub, and almost all of those are water-based. London, Paris, New York, Los Angeles, San Fransisco, Shanghai, Tokyo, Hong Kong, Toronto, Montreal, Vancouver (because I'm Canadian), St. Petersburg (an interesting study as an artificial city - would it have been so successful inland? Probably not), Amsterdam, Rotterdam, Rome, and on and on. It's not literally every single huge, desirable city, but damn if it isn't nearly all of them.
Even something like Washington DC makes a good example. The demand in DC is completely due to the US government being situated there. It's a swamp along the MD/VA border, and even as late as 1900 or so there wasn't much happening there. The huge growth of the US bureaucracy in the 20th century along with the accompanying surge of lobbyists, military contractors, and other government-associated positions has caused DC to become very dense along with most of northern Virginia and southern Maryland, but it's all a response to the giant pool of money, jobs, and influence circling around the Potomac.
That's definitely right for cities that grew up in the 19th century. But if you look at the cities that got big in the 20th century, water is no longer as important a factor - Las Vegas, Phoenix, Dallas. Of course, Phoenix and Dallas were well-sited to become major *air* hubs, and have great interstate highway access.
I was thinking the same thing. Besides Manhattan's fortuitous location, it also massively benefited from being the site of the Fed. In some alternate history, the Hamilton doesn't have the Fed put into NYC and instead the financial capital of the world ends up being in Philadelphia (or wherever the Federal Reserve Bank ends up).
Hamilton put the (first) Bank of the United States in Philadelphia, not New York. The second Bank of the United States (chartered by Madison, killed by Andrew Jackson) was also in Philadelphia.
The Federal Reserve system was set up in 1913, and New York City was already the center of the US financial industry when that happened, which is why the NYC Fed was the most important (by far) of the twelve banks of the system (Boston, NYC, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco).
This was extremely frustrating the first time and it remains extremely frustrating. Density does not cause high house prices. The relevant mechanisms -- shifts of demand along supply (reverse causation story), shifts of supply along demand (most relevant mechanism in reality), and induced shifts of demand -- can all be seen on a simple supply and demand diagram, and explained by a first year undergrad. Because the general public doesn't believe it, several studies in recent years using state of the art quasi-experimental methods have verified it.
The question has been answered, and it is irresponsible to suggest otherwise. Yes I am being harsh, ordinarily Scott has good and smart takes. But this is on the level of vaccine skepticism, and should be treated as such.
Regarding the fact that the general public doesn't believe it, there's a working paper called "Folk Economics and the Persistence of Political Opposition to New Housing" (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4266459) that uses
survey to find that many people believe the laws of economics don't apply to housing, even when they're otherwise economically literate. This seems like a rationalized version of this.
Housing is absolutely a special case in economics because of the monopolistic nature of private real property. Does that mean that more supply, in a vaccuum, won't bring down prices? No. But it does mean that "just get more supply" is not as simple as it sounds, because to get enough supply to bring costs down, you need property owners to supply it at a rate which would destroy the value of their asset, which they will not do, because why would they. Unlike a monopoly on widgets, or sugar, or anything else, I can't just find some investors and open up a new "housing factory" and make new land with houses on it without the consent of the current monopolists, who are strongly incentivized not to let me.
But that's not really a special economic case, but a special political one. The problem that's highlighted in that paper isn't what you're describing, but people that actually do believe that increasing supply increases prices for everyone else.
But you're right that local government can effectively work as cartels on housing, and that forming a cartel in most other industries doesn't work.
I don't think you can really extricate the politics of private property (which are uh, let's say pretty well entrenched, you generally have to kill a lot of people to change that consensus) from the economics of housing, but yeah.
But that aside, there are still (at least theoretical) cases where increasing supply increases prices of at least some things.
Imagine a city of all single-family homes. And imagine that demand for housing far outstrips supply (for whatever reason). A single-family home costs $X, because that's the most people can afford to pay for one unit of housing. If we now start allowing four-plexes, the price of a unit in a four-plex will tend to $X, because it's still providing roughly one unit of housing. The price of single family homes will now tend to something closer to $4X, since each single-family home can now supply four units of housing (if you knock it down and build a four-plex).
What that looks like to people who strongly desire to live in a SFH and not a four-plex is that building more housing increased prices. It did not increase prices of housing per se, as you can still get "one unit" of housing for about $X, but our hypothetical SFH-preferring homebuyer now cannot afford a SFH they could previously afford.
I think intuitively, people understand that we are in a high-demand regime with fairly constrained supply, and that something sort of like this scenario exists (or could, in their mind, exist). But I could be wrong.
Now, of course, people who own SFHs *should* be delighted by this outcome, as it means the value of their asset has gone way up, but that's a topic for another thought experiment, and I think demonstrates some of the persistent doublethink around housing, where perversely people simultaneously believe that low and high housing prices are both simultaneously desirable, and think that housing prices should both go up and down.
But that's all I'll say without reading the paper (and probably more than I should say lol), it looks quite interesting.
Your example is wrong, though. What changed the price of housing is the zoning change, not the existence of the four-plexes. And it only makes the land more valuable, not the house itself. No one who plans on living in one of those houses would pay more than $X for it even after the zoning change - only speculators and developers would.
Thinking about the actual quantity shift, replacing some of the single-family homes with four-plexes will start to tap out the number of people who want to live in that area, which will drive down prices - there may be a lot of pent-up demand, but it's not inexhaustible. Also, living in a four-plex is much less desirable than in a SFH, so prices for four-plexes will be lower - the simplifying assumption of "people will pay $X for any unit of housing" is a step too far.
But your story is a good example of what the paper was illustrating - people consistently observe new housing popping up in places where prices are going up, or where land values just popped up because of a zoning change, and they assume that those new houses are causing the price increase, rather than the other way around. Mixing up cause and effect, and then thinking stopping the effect will stop the cause, is a serious problem with the housing market.
> What changed the price of housing is the zoning change, not the existence of the four-plexes.
You say tomato, I say tomato. In a real sense, the four-plexes are causing the price rise. If nobody wanted to build them, it would be irrelevant what the zoning was. Maybe the zoning was always for fourplexes, but demand has recently increased making it suddenly make sense to build them. It's not really relevant to the broader point which is more about perception.
> No one who plans on living in one of those houses would pay more than $X for it even after the zoning change - only speculators and developers would.
And because speculators and developers would pay more, nobody will sell their SFH for less than ~$4X, so nobody is able to get a SFH for $X anyway, and in the example, they can't afford more than $X anyway.
> there may be a lot of pent-up demand, but it's not inexhaustible
For major urban areas, I think it effectively is, at least compared to the rate at which housing can be built. Toronto has seen rents going up YoY by 10, 20, 30% over the last two or three decades, and every tower crane in the city is continuously occupied building housing. Between internal and external migration, the demand for new housing in cities can I think reasonably be considered inexhaustible collated to the ability to deliver new housing.
> Mixing up cause and effect, and then thinking stopping the effect will stop the cause, is a serious problem with the housing market.
I mean, if you're saying the zoning change caused the price change, and people try to stop new housing by stopping zoning changes, then they're behaving rationally in your view, no?
To be clear, I think that nothing is gained by preventing new housing and that we should build literally as much as we are able to until the price signals tell us we have more than enough. The point I'm trying to make here is that people are wrong in a more subtle way than it seems on the surface.
Reminds me of the “look at all the economic development driven by amenity X” stories, which while sometime are true, often are a case of the amenity being specifically put in an area of already rapid economic development.
Some of this is attributable to gentrification. Frequently, some developer builds something great in a marginal place, which makes that place hipper, more attractive, etc., which then does drive up rents for even the old, less desirable units. Cf. New York's lower east side, which used to be where deadbeat artists and other lived because cheap, then some developers put in some trend, the coffee shops and restaurants followed, prices increased even for the "bad" old units. So maybe Scott's theory is basically gentrification on a broader, non-neighborhood focused, city-"wide" level.
Yes! It is absolutely gentrification. Density is an insufficient criterion.
Take a neighborhood, knock down a bunch of stuff, put in 5-over-1s, and move all the original occupants and businesses back, all in one magic Thanos snap. The people and businesses are the same, character has been lost, but infrastructure is newer, so it's already more valuable.
If those 5-over-1s are upscale, then rich or cool people move in and the place takes off. Hip arty stuff slides into the cheap niches. New service business show up, catering to wealthier people. New companies are founded, existing companies open branches there. Housing prices go up, as do property values.
Alternatively, if every single one of those 5-over-1s are halfway houses for homeless people and recovering drug addicts, the neighborhood goes to hell. People move out, businesses flee, and we've recreated everything that made "housing project" a bad word. Plus nothing gets better in the long term for the residents of those halfway houses. (Side note: this is why it's bad to concentrate things like halfway houses in particular locations. They need to be spread out very loosely across healthy neighborhoods. It's a question of which will be the locally dominant culture.)
I think this is the answer to why the effect is unusual and restricted to certain locations. If you build 10m units in Oakland, people who want to be near SFC will move there. If you build 10m units in Fargo, ND, then ... people who want to be near Fargo, ND ... will move there... ? Back to Oakland, people who want to be near SFC will move there, maybe from other countries or states or regions, but maybe from other satellites of SFC that are farther away (or are closer but too expensive for the person). So prices in Oakland and even SFC won't necessarily go down, and maybe even go up. It's the prices in satellites of SFC that are **less convenient than Oakland** that will go down.
Well, everything is a special case for one reason or another. Your point about how there is a tension between the incentives of property owners and the interests of society is spot on, but that presupposes that people correctly understand the market, and it turns out that frequently they do not.
Whether we are considering owners who understand and vote their interest, or renters who vote their perceived (incorrect) interest, the end result is that allowing housing policy to be formed on a local level will result in an under-supply of housing. Housing policy needs to be formed at a higher level, by representatives who understand the market and not compromised by the interests of their constituents. There have been encouraging steps towards that in recent years.
Although increasing the density of housing reduces the price per housing unit, it increases the price per acre (since each acre has more units), so I'm not sure there's an economic reason for landowners to object. I think in practice the objections are to the disamenity of the development itself (noise, views, traffic etc).
The core yimby argument is you can if you dont give the neighbors a veto. The land owner doesnt devalue his portfolio if he stacks more floors on his existing housing (because he gets the new floors too), he devalues his neighbors'. The neighbors veto is political not economic
The landowner DOES devalue his portfolio if too much housing is released to the market too fast, leading to a decline in prices. It has nothing to do with the neighbours.
And more floors doesn't devalue the neighbours, because presumably it has now been proved that they could also add more floors, so their land is now more valuable. But that's besides the point.
They aren’t really “monopolists” if there are thousands of them.
Yea anyone has a monopoly on any individual piece of land, but you are almost never looking for housing on one specific piece of land. Plus in terms of apartment buildings you absolutely can “crank out more widgets” in housing.
They're monopolists in the sense that there is literally no way to get land without first buying land. Landowners as a class have a complete monopoly on the land market in a way that is not true for e.g. sugar or coal. If I want to compete with Redpath, I can buy sugar cane and open a sugar factory. I never have to deal with any existing sugar producer. If I want to compete on housing, I have to buy land from a landowner.
That is just a bizarre way to use the word "monopoly". This seems like an understanding of the situation that starts with "I don't like landowners and want to use a bad word to describe the situation", and then you fish around for a way to stretch normal words so you can use a pejorative one to describe landowners.
Sure. But seeing as I asked you last time to give a better explanation, and literally the best thing you can come up with is repeating "first year undergrad supply and demand diagram" like a mantra, you can see why the rest of us aren't convinced.
Thanks, and thanks for subscribing! I like all of those papers, but I think they're more showing localized supply effects from new units, rather than measuring the citywide impact of densification.
Whereas Ahlfeld & Piestrostefani's meta-analysis shows that densification boosts welfare (& wages), but with an accompanying impact of raising rent.
Yes I am being harsh, as we should be harsh on people who claim that vaccines cause autism or that the earth is flat. True, it's maybe not the most effective way of winning hearts and minds. But we are supposedly in a "rationalist" space, where brains matter, not hearts and minds. So yes, I am skipping to the facts: this is an answered question, with logic that can be explained with a simple model, and supported by empirical evidence. That doesn't mean that a whole field can't be wrong, or that there is no value to questioning received wisdom, but the argument employed falls well short of the standard that Scott set in his ivermectin post.
Your three articles you describe as related all consider rents within less than half a mile. The density-increasing effects Scott describes all operate at the scale of cities. I would expect literal overshadowing effects from an additional high-rise within 100m (the third paper), causing a drop in prices, but a larger-scale increase in price from city-ness.
The Asquith et al paper rules this out, see Figure A.8 on page 47. Post-treatment, the effect decays with distance to approximately zero at a 600m distance. The idea that it would suddenly depart from zero at a greater distance seems kind of fantastical to me. As does the idea that the effect is so non-linear as to flip from negative to positive at extremely large values. Finally, it is worth breaking down the chain of reasoning: you are saying that a new building here increases amenities here (restaurants, etc) so much that it increases prices at distances measured in kilometers? I don't think so.
I’m absolutely saying it’s nonlinear in space. That building raises the value of the offices where those people work, the shopping centres they visit, and so on. Each of those effects is small, and they are spread all over the city in a very nonlinear way which would make individual building-level statistics impossible. But aggregated over 100,000 units, they would add up, as they did in most of the examples in the main post.
I ve read the first two papers and they are far from convincing. First of all, they are cherry picking the data. Secondly, they are only looking at the very very local level and that's not what we are talking about here. Building one isolated apartment building would not increase "the cultural value" of the area. We don't need a study to understand that.
They are not cherry-picking the data, they are choosing comparisons that are most likely to represent the true treatment effect, and they are doing so in a way that is considered publishable by a good (Li) and very good (Asquith et al) journal.
Second, I agree that one apartment building would not increase the cultural value of a neighborhood to the extent that prices rise more from an amenity effect than they decrease from a pure supply effect. This was my prior before I even saw these studies, because the contrary implies an amenity effect that is infeasibly large. But people keep saying things like "density increases house prices" and these economists saw an opportunity. And now, when people say things like "density increases house prices" on the internet, we have more reason to declare these things bad and wrong.
Finally, if you still want to argue that "density increases house prices" on the basis of some non-local effect, this is still wrong. See my reply to Gres, discussing specific evidence against this in the Asquith et al paper. Now, you are arguing that a single apartment building, which "we don't need a study" to understand that it "would not increase the cultural value of the area" somehow has some orders-of-magnitude larger effect at distances measured in kilometres? Totally infeasible.
Why only look at low income areas and only look at an isolated building construction. And at a very short time period at that. To me it looks like cherry picking the data to fit the answer.
As for the "cultural value". It would make sense that the perceived value is not a continuous function of density. There is always noise in real life. And lag. And breakpoints.
I am only arguing that the papers you have linked are cherry picking the data and are too narrow in scope to give a definitive answer to the broader question. We have plenty of empiric evidence to tell us that higher density cities are more attractive, which leads to higher prices. To combat that empiric evidence we would need really really good broad studies. Otherwise it is just not enough.
I'm finding this take by him frustrating because his claim is that marginal additions in supply will make cities marginally more expensive, which is just...completely at odds with the studies done on this subject! The explanation only works if you believe that every additional unit of housing you build will lead to >1 additional unit of demand (or alternatively, an additional unit of demand that is wealthier and can pay higher prices, thus raising prices for all). But that doesn't seem right, because we know that there are frictions to moving. Even if 20,000 additional spaces open up in NYC, that doesn't mean that 20,000 new people are going to move there.
It makes sense if you consider pent up demand. If you build more expensive housing, you can increase the average cost of housing without meeting the demand for housing. Imagine that there are 100,000 people who would like to move to NYC at a certain high cost. Building 20,000 units will not come close to meeting that demand, so even if there are some vacancies, prices can go up with more housing.
I think Scott takes this thought way too far and with implications beyond reasonable, but there is some truth to the idea that building a few houses (relative to demand) may not solve the problem or even make it worse. You need to build a meaningfully large number of housing units.
i don't think that is true, though. What's stopping those people from moving to NYC already? If they want to move at the high price that already exists, then they'll do that. If they won't, it's because the price is too high for them. And the empirical research shows that marginal supply does marginally lower prices! No, it's not enough of course. But there's been multiple good papers on this by now.
There could be lots of reasons that someone who wants to live in NYC and has money to do so will not do it yet. Maybe they're looking for a particular location or need particular amounts of space or other amenities. Maybe they're willing to spend X for a certain place by only a smaller amount for what's actually available right now. If someone built what this person was looking for, they would move in and pay what they are willing to pay.
Building the 20,000 units might not meet the demand, but that is a very different thing from arguing that building them would cause the prices to go up.
Imagine this from the perspective of your 100,000 people, who want to move to New York. How does it make sense to believe that their economic ability to move to NYC would get worse if the city built 20,000 more units?
I think it's more likely that prices would just not go down, or the amount they would go down would be offset by the pressure on the price going up. Gentrification is the one word answer. As higher income individuals move in (remember, this 20,000 is higher end apartments), that raises the average price to live in a neighborhood. The more demand exists for such things, the most that new buildings will be higher end dominates. There may be a million people who would live in a nice cheap apartment in NYC, but only 100,000 who would live in an expensive place. If we're only building 20,000 then it's almost certainly going to be mostly or all high end stuff. That should offset costs in cheaper apartments, but that action cannot happen if even cheaper places are being taken by the rest of that 100,000 that still wants to live there and can afford more. That still pushes costs up.
As long as there is pent up actual demand (meaning, more people still want to live there but can't find the right place or the right price), we shouldn't expect prices to go down much, if at all. If all 100,000 were actively trying to live in the city and willing to pay a certain high price, we may not see a reduction in prices until that whole glut of people find housing and the only people looking are less interested or cannot afford as much. Then new housing will have to reduce prices in order to attract tenants. As long as there is a steady stream of tenants, there's no incentive to drop rents.
Of course, real life is more complicated and there are lots of people who have varying levels of interest and varying levels of ability to pay. Also, apartments themselves have different costs and different desirability. Someone might be willing to live in a one room apartment in a certain neighborhood but would want something much larger for that money a few blocks away.
The error is in assuming that higher-income people only move into a neighborhood if you knock down cruddy houses and replace them with trendy apartments.
In fact, absent those trendy apartments, higher-income people will still move into that neighborhood, they'll buy the cruddy houses and then they'll renovate them.
The problem with this is to consider the alternative. Atherton has allowed very little new construction and housing prices have not stayed low. There are current regulatory reasons that new housing is expensive but if a city like SF or NYC were to build a large new SRO without consideration of environmental/planning review we should expect that prices would go down. Unfortunately the cost to build new units in California is typically around ~1 million which limits the ability to lower prices through new construction.
For me the biggest sin of this post and the original is that it almost refuses to engage with the plethora of existing research on this very topic. Scott wants to work from first principles and make other people reject his intuition, but rejects research that could inform him.
He shows his lack of knowledge on housing and population growth in the US when he says Las Vegas, Phoenix, Raleigh, Atlanta are "mostly unfashionable red state Sun Belt cities". For one they are all much more liberal than the states they reside in and are extremely popular places to live!
Damn dude, that's really insightful. It seems like a pretty common failure mode for intellectuals with large followings too -- people get good at one field and they assume that it transfers. Goes to show that even intellectuals need to "get in on the ground floor" and learn the basic models before proceeding to reasoning.
Yeah. I am guilty of it too (though am not an intellectual), so not trying to shame Scott. He tends to avoid this with most of his writing so I am surprised neither of these posts engages with the research except to dismiss it. Someone else in the comments posted a paper looking at how the average american has an intuition about housing markets that goes against what the empirical research shows. Usually we (I) think of scott as "not average", so its interesting to see him be "normal" in this way.
Also! Housing policy is a hobby of mine so I totally recognize that my knowledge of the subject is way deeper than the average person's knowledge. It could be that I am expecting too much from Scott if he isn't interested in housing policy until these posts (though this doesn't forgive this follow up post which dismissed empirical evidence or input from experts/researchers)
A useful intuition pump is to imagine the opposite situation: what would happen to housing prices if the marginal unit of housing in Manhattan were destroyed? Do you believe prices would fall as Manhattan somehow becomes a less desirable place to live? Or would prices rise as demand increases for the remaining units? It's hard for me to imagine the former.
Of course if let's say 90% of the housing stock were obliterated in a natural disaster or something, that could represent a scenario where the second order effects of desirability overwhelm simple supply and demand.
You know this has happened, right? New Orleans! What happened there? Post-Katrina, did NO housing become a lot more valuable because it was more scarce?
Katrina may not have destroyed 90% of the housing stock, but it was a significant enough disaster that I think the second order effects dominated as mentioned above. Also, Katrina created not just a supply shock but a demand shock as people were temporarily displaced and decided not to come back.
NO became a less desirable place to live because its vulnerability to hurricanes was made plain. Businesses which lost months of productivity decided they didn't want to go through that again and moved to cities located on higher ground. This corresponds to his second paragraph: "Of course if let's say 90% of the housing stock were obliterated in a natural disaster or something, that could represent a scenario where the second order effects of desirability overwhelm simple supply and demand."
Let's compare what happened after Sandy in NYC in 2012 vs Katrina in NO in 2005. The following data is per ChatGPT:
Katrina
"The exact number of homes damaged by Hurricane Katrina in New Orleans is difficult to determine, but it is estimated that the storm damaged or destroyed approximately 80% of the city's homes, which is around 134,000 residential units."
"According to data from the New Orleans Metropolitan Association of Realtors, the average home sale price in the New Orleans area was:
In 2004 (year before Hurricane Katrina): $198,532
In 2005 (year of Hurricane Katrina): $195,628
In 2006 (year after Hurricane Katrina): $198,785"
Sandy
"According to reports, Hurricane Sandy caused damage to over 300,000 housing units in New York City, with an estimated cost of $19 billion in damages. "
"According to data from the New York City Department of Finance, the average residential property sale price in NYC was:
Of course, there are natural experiments where industry collapses without affecting the physical housing stock. That's pretty clear evidence business is an intermediate step in density->demand->price.
There are examples where slums are demolished and new housing built on the land. If the slums are replaced with a larger number of units, the price per unit will generally be lower right? But if the slums are demolished and just a few homes are built on top of that land they’d be expensive places.
But I feel like this is different than what the post is discussing in some way
The slums getting demolished probably have negative value before demolition. They're also probably in bad neighborhoods, so nothing that gets built will have much value anyway. It's not worth building a bunch of new stuff in a rough part of town.
I was about to make the same point. Removing the slums and building more units on the same land could greatly increase the rents if people who were unwilling to live there before and now willing to live there.
I think instead of destroyed one might want to consider what would happen if they were simply bought and left vacant – say by some billionaire as an investment.
If good housing is replaced by bad housing (high crime area, slums, etc) then it could result in the place being less desirable which will lower demand. Reverse gentrification, if you will.
I don't find it hard to imagine. Having less people in a small place is less efficient overall (plus less desirable to the people that value density the most); seeing it this way the second order effect don't seem so second order but inevitable, even if delayed. (It also makes it look like an obviously bad thing even if prices go down).
This whole discussion, and every viewpoint described here, seems extremely dumb. Yes, the price of housing in a city is largely determined by the supply and demand for its housing. But the demand for housing is a function of how desirable the city and its housing is, which is a function of its weather, public transit, crime, economic opportunities, restaurants, arts, parks, proximity to other desirable places, demographic makeup and racial tensions, and a thousand other constantly changing things, which are constantly affecting each other.
Yes, all else being equal, adding more housing will reduce the price of housing.
But sometimes in the long-term, adding housing to a city or neighborhood will make housing cheaper, causing starving artists to move in, who make cool art and make the place more desirable for yuppies, who will then move in and drive those prices back up, much higher than they were originally.
Maybe the increased housing allows city government to build a good public transit system, making a place more desirable, causing prices to go even higher. Or maybe the increased housing is built on the public park where everyone loved spending time, making the neighborhood worse so prices go down. You can't model all this as a simple function of 1 or 2 variables.
Or for a more concrete example, Detroit couldn't have become the center of domestic auto manufacturing in the US without plenty of housing for workers, which circularly made workers' homes more valuable. Except then white flight and a collapsing industrial base caused everyone to move away, so houses fell into disrepair, and absolutely no one wanted to live there until housing prices were near zero.
Everyone arguing about this is trying to reduce something as complicated as where people want to live to 2 or 3 dimensional models. Of course this doesn't work! Everything effects everything, in circular, interdependent, unpredictable ways. You can't fit this all into a silly Econ 101 graph.
That said, we know that the US as a whole doesn't have enough housing for everyone. And we know that on average building more housing will reduce its price, even if we can't predict exactly what prices will do everywhere just by looking at two variables (no one can do that, and no one ever will, barring some dystopian dictatorship barring freedom of movement). To me, these seem like extremely strong reasons to build more housing.
I guess I don't understand what on earth everyone is arguing about.
The tricky thing about building more housing is that the people who own the land you need to build the housing on don't want to build more housing on it at such a rate as would cause prices to come down, because that would destroy the value of their asset. The housing market, barring external shocks like you mentioned in Detroit, has a built-in rate limit on new housing which ensures prices only go up.
The only way to get enough new housing to bring prices down is government and/or community not-for-profit development, such as co-ops, land trusts, social housing, and so on. The market literally cannot and will not do this.
Don't really follow. The people who own the land have a lot of reason to build enough housing that the price goes down. If I own a single family plot and can upzone that to a five story garden apartment, the land will easily be worth 5x and I'll make a huge profit. Even if everyone does it and I only make 4x, that's still a great deal.
When you say "even if everyone does it and I only make 4x" - you're talking about someone happily destroying 20% of the value of an asset they own. Why on earth would they do that if they didn't have to?
In any case, this is visible empirically, you don't have to take my word for it. As interest rates went up recently, asset values naturally declined. Developers immediately slowed the rate of development in response to the price decline, as they would be throwing money away by building now instead of waiting for the asset prices to go back up again.
You would have to posit a really, really good explanation as to why they wouldn't respond the same way to a price decline caused by too much development.
Totally agree, with first part. Not really clear on the second at all.
Most people are housed and the US tends to have pretty low numbers of people per unit and high amount of sqft of housing per person on average. So not sure it is clear that the US has too little housing.
People would like more, and wish it was cheaper, but that is true of most goods.
Huge numbers of people will pay to live in an apartment rather than live with family etc.
Um, as a point of correction, I think the US may indeed have enough housing for everyone? It's just not in places where people actually want to live (Detroit, for example). And even if we're talking new construction, what's wrong with going out 60 miles from an urban center along an interstate highway, and putting up some housing there? (Not a rhetorical question: the things that are wrong with that are important to talk about.)
It's not about housing, it's about where people want to live, and thus in turn about who those people are and what their position is in the economy.
I see the question as being: in universe 1, a city builds more housing than in universe 2. How do we expect their house prices to look like in their futures compared to each other? So iiuc it's not about all else being equal
> You can't model all this as a simple function of 1 or 2 variables.
Does this mean you wouldn't have any strong expectations of housing prices in universe 1 being higher or lower than universe 2?
> Everyone arguing about this is trying to reduce something as complicated as where people want to live to 2 or 3 dimensional models.
Take the claim if chicken prices drop by 5%, more people will each chicken. Does that reduce something as complicated as where people want to eat to one variable? It's a claim about the aggregate, even if such differences in price are a small factor in everyone's decision about what to eat.
As I see it (obviously simplifying) if there's 10% more housing, 10% more people will live in the area (prices will be as low as necessary to have the places occupied); and all of the other complicated variables you mention are very affected by 10% more people living in the area. It's a reasonable question to ask: do we expect these effects to increase demand for housing sufficiently that more than 10% of extra people are willing to pay the original prices, so prices will increase, or not?
Sure, it's not a deterministic question, and whatever effect it may have might be offset by other new policies one may or may not take, but it's not crazy to think it's a relevant variable given the correlations shown in the graphs shown in the post.
> Does this mean you wouldn't have any strong expectations of housing prices in universe 1 being higher or lower than universe 2?
In the short run, sure. In the long run, who the hell knows? Maybe one of the scenarios I gave in my initial comment would drive up housing prices as a result of the additional housing supply. I'd have a weak expectation that housing prices would be lower in universe 1 than universe 2, but I think that predicting future demand for housing is sufficiently hard that this isn't actually that useful in practice.
> Take the claim if chicken prices drop by 5%, more people will each chicken. Does that reduce something as complicated as where people want to eat to one variable? It's a claim about the aggregate, even if such differences in price are a small factor in everyone's decision about what to eat.
I don't think this is a good comparison. Where people want to live is a much more dynamic and complex preference than a preference for chicken.
But even so, we have tons of historical examples where increased food prices led to increased consumption! Take the history of lobster, or caviar. My point is not that supply and demand are irrelevant, just that they are less useful as long-term predictive tools than economists and ACX commenters seem to think.
I think we should be building more housing in desirable cities to enable more people to have access to good jobs, and create all the other wonderful benefits of density. This will hopefully lower prices too, especially if it occurs in lots of desirable cities at once instead of just one or two. But even if not... then more people will be able to live in the cities they want to live and work in. Isn't that a good thing? Is it so important that we be able to predict future housing prices in 20 years?
I think it's getting more than you gave it credit for. If founding Google won the Bay Area 1,000,000 residents, these residents do not have a uniform distribution of occupations. A large fraction of them will be techies (though maybe not 1/2 as in your mining town example because googlers have substantially higher average salaries than most of the people who provide services to them). Thus, this will give the Bay Area substantially more than a 1/300-fraction of the American techie population, making it somewhat more likely to found the next big tech company. And I guess once you have enough techies in one place you start to see second order networking effects and the development of a startup culture that make it even more likely.
Beyond just the density of humanity, there is also the accumulated invested physical capital in an area which any new resident can quickly take advantage of. If you built a bunch of empty skyscrapers in Nebraska, sure there is now housing there, but any new Nebraskan would miss out on the (admittedly crumbling) public infrastructure such as roads, tunnels, the subway system, public parks, sewage system etc. that New Yorkers can enjoy.
While the total cost of these goes up absolutely with new residents, to my understanding the cost per capita goes down; larger sewage plants can be more efficient, subway capacity doesn't need to hold the whole city at once, most people don't spend all of their time in a park etc.
One factor which I think is consistently forgotten in the talk of "adding supply" is that housing is not consumed in a linear way. For example, it's possible to consume 2,000 sq ft of housing in exactly the same way as 1,000 sq ft of housing. This makes it diifferent from most other goods - e.g. to consume twice as much coffee, you'd have to drink twice as much coffee.
(There's a price question: you could drink better quality coffee that costs twice as much, and from an economist's perspective, you'd be consuming twice as much coffee again. But just improving the quality of coffee doesn't (necessarily) use up the scarce resource that defines the good. Space is the scarce resource that defines the good of housing, there's still an important difference.)
Similarly, talk of adding supply assumes that added supply is of the same quality as existing supply. But housing is a long-term asset, and new builds tend to be higher quality and higher priced.
I don't think you're quite right about housing consumption and space. Yes, it's possible for the same family to live in a 2000 sq. ft. house as a 1000 sq. ft. house, but former family with more space has a higher standard of living. There's a reason why cateris paribus people want bigger houses, but only put up with smaller ones when price is an issue. That's why you see a lot more roommates and fewer families in places with higher housing costs.
And the real limiting resource that gets used up is land, not housing space. But land can be used differently depending on zoning, including height limits, setbacks, etc.
You're right about new supply being higher quality than old supply, though.
> new builds tend to be higher quality and higher priced
That is not necessarily true. For instance, in Toronto, new builds are almost universally smaller, with worse floor plans, lower build quality, and are in worse/less walkable neighbourhoods with worse services than existing housing.
Perversely, they also command higher prices for reasons which defy explanation. I guess people really like fresh paint.
But space isn't a scarce resource. Look at the photo of Manhattan again.
People keep wanting to say that housing is contentious because you can't make more land. And it keeps being obvious that (1) you can make more land, and people do it all the time; plus (2) the supply of housing is not even tenuously related to the supply of land.
I said this in my comment but in that graph they're measuring the density of the "urban area" which is not defined in terms of political boundaries. They don't say what "urban area" means but I'm guessing that anywhere above a certain threshold density is "urban". In which case what they're measuring is "density in the area around a city that's above a threshold density".
Everyone thinks it's the density of NYC, but it's the density of NYC plus a surrounding area 10x as big much of which is sparsely populated exurbs. And with sprawl-y sunbelt cities, even more so!
"Everyone knows Austin is more expensive than Houston because Austin is a trendy tech and culture hub and Houston isn't"
This seems out of touch with the reality of these cities. Have you spent a lot of time in Houston? There are sooooo many houses in Houston. You can't scratch your ass without accidentally building a lovely two-story five-bedroom house with a nice big yard. When you're there, driving to your musician friend's giant new house through miles and miles of new developments, it's not at all hard to understand why housing prices are low in Houston.
"Unless someone wants to claim that its failure to build housing helped turn it into a trendy tech and culture hub, I don’t think there’s much point to this comparison."
Here we reach the crux of the mistake that's underlying a lot of your confusion.
You're thinking "trendy = desirable => expensive". But actually "trendy := desirable - accessible", so "desirable + expensive => trendy".
That is, YES, Austin's failure to build housing made it trendy, in that only people willing to endure privation for the benefits of the city get to enjoy them. If Austin had built tons of housing, then every Chad Sixpack could move there to enjoy its many cultural amenities -- that's a net increase in utility, but it wouldn't be *trendy* anymore. Indeed, Houston has multiple fine universities, a thriving medical-biotechnology industry including incubators and startups, a cultural and literary scene; but you don't think of it as trendy, precisely because it's broadly accessible.
This is the same sort of dark conclusion I'm thinking about. The thing that makes a trendy liberal city is the exclusivity of it. Absolute size and population density matter, but the primary driver of trendiness is what portion of the city is populated by trendy people who create culture and propagate it by virtue of being trendy. A huge city with only a few of those people never sees them casually meet up to collaborate, and even if they did, they'd face huge cultural headwinds because no one is looking for the voice of a generation out of Cleveland or St. Louis. So if you're so driven and creative that you need to participate in the creation of culture, or technology, or anything on the bleeding edge of whatever field, you make sacrifices to move somewhere like-minded people are already doing so.
There's definitely something to that idea of trendy as related to exclusivity, but it's not just being desirable and expensive. And what generates the initial spark of trendiness is often places that are cheaper. Greenwich Village in NYC was known for being the place that artists could afford to live until it got a reputation and prices exploded. Same thing with the Pearl District in Portland. I'm not as familiar with other cities but I'm sure there's plenty of other examples.
Kensington Market in Toronto is another example. Formerly a poor, working-class, ethnic neighbourhood on the border of Chinatown, it attracted "cool" people and now is one of the most desirable neighbourhoods in the city.
Berlin is an example on the scale of an entire city.
One interesting question is: why doesn't Detroit become Berlin? Berlin was cheap because it had the infrastructure of a city but few people wanted to live there, which caused all the young cool people in Germany to move there. I think the answer is because Germany only had one Berlin, whereas the US has many decaying industrial cities and there's no obvious Schelling point for all the young cool people to flock to.
Well, but also Berlin has a centuries-long history as one of the first cities of the German-speaking people, dense urban design, enduring cultural cachet, political importance, and so on.
To be (just a bit!) reductionist, Detroit has Motown and rap music, violent crime, an extremely small (but admittedly fairly nice) downtown surrounded by pretty awful, heavily blighted car-centric suburbs (and by suburb I mean practically everything more than maybe a 30-minute walk from downtown, almost). That said, there are people out there taking advantage of the relative affordability, and there is cool stuff happening in Detroit. It is making a bit of a comeback, and I could legitimately see it becoming quite cool in our lifetime.
I think it is pointless to look at the absolute prices. Weather does not change with density. Proximity to the ocean or mountains does not change with density. But those factors absolutely do have an effect on the real estate price. I am sure there are well located smaller towns in California that are more expensive than Houston will ever be. Regardless of how much it builds.
This makes it harder to analyze the numbers. However, those factors remain constant most of the time (but not always. Detroit losing lots of jobs due to manufacturing shift is one example). So we just have to look at the rate of change, not the absolute price.
Yes, this is what I'm thinking. Everyone knows that Austin is a more pleasant place to live than Houston, and if you ask people for a list of the things that suck about Houston then the sprawl and traffic will come pretty high on the list.
This is kinda what NIMBYs have been saying all along -- adding more people to your city really does make it a more unpleasant place. A Houston that had restricted development at Austin's current size (2.4 million) rather than growing into Houston's current size (7.5 million) would still have Rice University and the Museum District, but it wouldn't take two hours to drive across and would generally be a much nicer place to live.
But who is driving two hours across Houston other than someone passing through? Nothing, except money, prevents one from living near the Museum District and avoiding the sprawl of the outer-loop. Also, traffic in Austin is much worse. Austin doesn't have freeways to handle its population density--it didn't 30 years ago and definitely doesn't now. I'd reckon it takes 2 to 3 times as long to travel the same distance in Austin as in Houston.
A lot of the size of Houston is also driven by its port and refineries on the east side. That's basically a different city that professional workers don't spend much time in.
Houston does not have a center, jobs-wise; and whatever its population center is, it's not the Museum District. Your advice is probably fine for a remote worker from the Bay Area who will be delighted with what a mil two will get you.
Job travel in Houston is likely to be radial around one of the loops.
As to what someone said above, about friction preventing a large injection of supply from immediately filling, that is precisely what you will find in Houston (my hometown) - people unwilling to disrupt their lives by moving every time they change jobs, or their employer relocates within the city. The area with which I'm most familiar, suburban SFH west Houston (within highway 6) in particular functions as something of a small town. This despite the fact that the portion of it that is south of the bayou/north of Westheimer almost uniformly attends private school, and thus should be less tethered to zip code.
Indeed it would trouble urbanists to know just how community-like that area is, so ardently must they hate it.
Regarding friction, though - Biden has opened up a couple million spaces the past couple years, and this will certainly create more Houstons (and in Houston, more rings) which will indeed be very affordable.
"My claim is that marginal changes - like Oakland building an extra 10,000 units, but everyone else staying the same - will most likely increase Oakland prices. Yes, if Oakland unilaterally built 50 million units, that would soak up the entire excess demand and probably lower prices everywhere (including Oakland). Yes, if the entire US switched to good housing policy at the same time, that would probably lower prices everywhere (including Oakland)."
Íf the above is the case and Oakland (or any city with expensive housing) wants to reduce local housing prices or at least not make local housing more expensive, it will build no more housing unless it can build enough additional housing to solve the housing shortage for the whole country (or maybe continent). Or Oakland will have to coordinate with SF, NY, Austin, rest of US so as not to build more housing inside Oakland that serves to increase Oakland housing prices.
China is in the middle of a project that will move ~1 billion people from rural to urban living over the course of ~100 years. That's about 10 million people - one Beijing - every year. If the central planners or the invisible hand gets things exactly right, every single one of those 100 years, building exactly the right number of new units in exactly the desired locations, then there will be no underoccupancy (ghost cities) or overoccupancy (slums) in China thoughout any of that period.
But obviously things aren't going to work out that perfectly. When there's underbuilding, you get crowding in the cities, people living in basement sublets, etc. In China, where we love picaresque descriptors, we call these the "ants": young people living crummy lifestyles. When there's overbuilding, you get ghost towns. But both the slums and ghost towns are going to be washed away in the ongoing flood of a billion people making the move. Those shocking pictures you see from China are just a function of the large numbers involved, not an indication of any deep dysfunction or weird phenomenon.
Incidentally, I live in a very underoccupied part of my city: they built a bunch of expensive flats and developments around a new yacht marina, then Covid hit, and the whole area has yet to take off. We're loving it, because we get all this new infrastructure to ourselves. But I hope for the city's sake that in a few years' time it will be overrun with holidaymakers.
Appreciate the updated comments. I think you may still be overstating the impact of 'desirability' and understating the impact of jobs. 4/5ths of metro median home values can be explained by aggregate income per unit of housing in a linear model. Density barely correlates.
Thank you - I kept arguing on the previous thread that it's mostly driven by jobs, not amenities. Very few people move to a city just for the culture without getting a job.
But Scott's argument is that density and desirability create jobs, albeit maybe over very long time scales.
Doesn't have to be very long time scales. A few weeks for existing amenities to recruit extra staff to cope with growing demand. A year or two to build a whole new mall and fill it with new restaurants, shops, etc.
Kinda sad that I had to search all the way down here for "aggregate income" which certainly seems to explain this phenomenon an awful lot more powerfully than the suggested dimensions.
I think you might be understating the case for the oil model a bit. As a thought experiment: If a small city were built on Conanicut Island and filled with people, would you expect the population to be higher or lower after 20 years? We can see the fast decline of Detroit and Gary and the slower decline of St. Louis what happens to cities that lose their core reason to exist. New York would steal all the educated white collar employees, and the services industry would slowly wither without a core exporting industry like finance is for New York. If you had built a small city on Conanicut hundreds of years ago it would have stolen all the good employees from Manhattan Island instead and getting a city built on Manhattan would be impossible. You can't split them up so there are two medium sized cities, one on each island. Manhattan had the *best* natural harbor so it gets to eat all the agglomeration and the finance industry took up residence there. Second place is first loser.
You might attribute that to agglomeration, but instead it could be explained with the "tech-sized industry" model. Austin only managed to become a tech hub in the same nation as SF because SF was determined to squander its advantages and left an opening for Austin to play the game of thrones and get a toehold in. that sort of thing only happens when unique weird factors come into play to shake things up, like SF mismanagement, not due to Austin having density.
> If you had built a small city on Conanicut hundreds of years ago it would have stolen all the good employees from Manhattan Island instead and getting a city built on Manhattan would be impossible.
Well, probably not, because as another commenter pointed out, Manhattan is at the mouth of the Hudson River and has a fantastic natural harbour, making it an important regional and international trading hub. Conanicut Island has no geographical advantage or reason to exist, which you can tell because nobody lives there (people are smart enough to notice these things, almost every major internationally-important city has a major geographical trade advantage, London, Paris, New York, Hong Kong, Tokyo, Los Angeles, San Fransisco, etc.).
To posit that these population distributions are just accidents of history is to posit that the people making the decisions to found and move to/from these places had no idea what they were doing, couldn't notice the world around them, etc., and a variety of other highly unlikely things.
I’m surprised you didn’t address this very important part of the housing situation in SF.
Many of the “service workers”, teachers, firefighters, police, etc., etc. can’t live in the city in which they work. So, there is demand but no place to live, and even if there were more housing units they still probably couldn’t afford it.
SF also has building restrictions throughout the Bay Area.
Demand drives prices, and the demand is driven by those that can afford to drive it.
My intuition is basically Jeremiah Johnson's argument, which is in short that NYC and SF are actually pretty NIMBY in terms of allowing new development. NYC is dense because of a historical practice of building lots of housing - not current. If NYC (maybe more accurately the NY urban area) just let people build as much housing as they wanted, its population would shoot up and I imagine prices would go down.
To put it in "Manhattan vs. Conanicut island" terms - Conanicut allows you to build as much housing as you want (I'm guessing), Manhattan doesn't. But I bet rent was cheaper back when Manhattan allowed SRO and boarding houses and shit. A bunch of penniless immigrants used to live in tenements there, in the same tenements that now get rented out to rich undergrads for like $4k a month because they're in Nolita or whatever.
It's the cycle that you say - "more people leads to more desirable" - but then "more desirable" goes to either "more people" or "higher prices" depending on NIMBY/YIMBY levels.
You say this:
"trendy liberal coastal cities are both more NIMBY and more desirable, and if you use this to draw any conclusions about housing policy you’ll just end up confused"
I think that "more desirable" leads to greater demand that manifests as either people or prices, and more NIMBY means it's more on the "prices" side.
Also - what do you make of ski resorts (I ask non-rhetorically)? Super expensive, lower density, reputation for NIMBY. Weird example in that they have a reason for demand other than "density leads to demand". Would they lower housing costs by allowing high rises?
Also - not that this proves or disproves anything but I continue to wonder about the measurements in the original graph. It said it was measuring density in "urban areas", which are specifically *not* defined by political/administrative division. So how are they defined? Presumably by calling areas above a threshold density "urban".
In which case the thing it's measuring is "average density in the area around a city above a certain density", which is at least a little odd.
And I suspect that areas with more ability to sprawl, i.e. less geographically constrained, end up with a larger area on the long tail of "dense enough to be urban but bring down the average". Basically NYC in the middle of Nebraska, even if the center was super-dense, would be surrounded by so much sprawl that the "urban area" would eventually have a surprisingly low population density (and I used the example of Chicago's urban area having significantly lower density than Miami's).
Regarding Manhattan, it's interesting to consider that their population peaked in the 1920s. 1920 census had about 2.3 million residents, but it's now at about 1.7 million.
I think this is an extremely important piece of data that has to be reckoned with (by both sides). For almost 100 years, manhattan was getting less dense and has only gotten moderately more dense over the past 30 years. While SF has been steadily growing in population over those same 100 years.
They would not, barring government intervention, as new housing supply is constrained by the decisions of landowners, who will only allow supply to be built at a rate which maximizes their return on investment in the land they own. They will not allow enough housing to be built that it destroys the value of their asset - why would they?
> Conanicut allows you to build as much housing as you want (I'm guessing)
Probably not, tbh. Most rural areas would have a shit fit if you tried to build a flat block.
> They would not, barring government intervention, as new housing supply is constrained by the decisions of landowners, who will only allow supply to be built at a rate which maximizes their return on investment in the land they own
The way to maximise the return on the land you own is to develop it as soon as possible and pocket the massive capital gains, which you can use to buy other land to develop as soon as possible.
Hypothetically if you owned most of the land in a given area then you might be able to maximise your returns by drip-feeding it, but there aren't many places where this is the case.
> The way to maximise the return on the land you own is to develop it as soon as possible and pocket the massive capital gains, which you can use to buy other land to develop as soon as possible.
If prices are going down, and you predict a long-term regime of declining prices, then yes, you should develop as much as possible and exit the market ASAP.
If prices are going up, the longer you wait, the more money you make. If you develop now, you're leaving future money on the table you could have had just by waiting. There's an optimal development rate for a given growth rate which landowners will attempt to hit.
> Hypothetically if you owned most of the land in a given area then you might be able to maximise your returns by drip-feeding it, but there aren't many places where this is the case.
All of the landowners have the same incentive - maximize asset values - which is achieved by attempting to develop at a certain optimal rate. There is no incentive to defect and develop early. They do not need to collude to act like a cartel, it happens automatically from them each pursuing their own interest.
This is why private for-profit housing supply cannot and will not ever solve housing affordability barring some major (and extremely unpleasant) external shock.
This is exactly what Land Value Taxes try to solve. If you own a piece of property and refuse to develop it due to speculative value, a Land Value Tax would punish you for not using it to its fullest potential.
Your housing cartel theory I think does apply to most cities where the majority of the voters are homeowners, but I don't think the politics quite work in places like New York where most people rent. And if development was made easier by a renter-supported government, no individual landowner in NY has enough market power than refusing development would be individually profit-maximizing.
I think it's actually more true the fewer people are homeowners. Developers are businesses and are going to behave more rationally than individuals (in an economic sense). Homeowners have all kinds of lifecycle reasons for buying and selling housing and preferring different things other than maximizing the value of their asset.
Developers maximize the value of their real estate assets by developing at a certain rate that's set by the growth rate, other economic options, interest rates, and so on. They will all try to develop at that optimal rate, and so their behavior will look the same as if there was just one developer with a monopoly. There's just no value in defecting and lowering prices like there is in most markets.
But "develop at a certain rate" doesn't really make sense. If you own a piece of land, you face the binary decision of whether to build a new building there or not. And once you decide that, you need to decide how big of a building to build. Then once you've built that building, you're locked in for decades, other than maybe remodeling the place - you're not "developing at a certain rate." Most developers are going to build the biggest building that they think will be profitable with the expected long-term trajectory of rents. And in big enough cities, they can't individually influence that trajectory. There's no reason to build a smaller building than what's individually profitable.
> If you own a piece of land, you face the binary decision of whether to build a new building there or not.
No, you're faced with a number of options.
You can sell the land now, as is (rational if you expect long term degradation in the asset's value).
You can develop now, as of right (rational if you think zoning amendments will not be approved and you do not expect them to be approved in the future and you expect prices to be fairly stable and you expect to make enough profit on the development now to offset the risk).
You can develop now, and apply for zoning changes (rational if you think it will be approved now but not later, and/or approved now or later but you expect prices to be stable in the long term).
You can develop later as of right or with amendments (rational if you expect prices to increase).
Once you've decided to develop, you can put all the units on the market immediately (this rarely happens), or release them in tranches to control the flow of new units to the market.
Furthermore, this is all just for a single plot of land. A major developer will own many plots and have a number of projects on the go at any time.
> Then once you've built that building, you're locked in for decades
No, once you've built the building, you're done, it was all presold in tranches and you move on to the other projects you have in the pipe. Developers generally prefer to sell units outright and not have to also be landlords, focusing on their core competency.
> Most developers are going to build the biggest building that they think will be profitable with the expected long-term trajectory of rents.
At the time they think will maximize their value, and they will release units in the building to market at the rate they think will maximize their value.
> And in big enough cities, they can't individually influence that trajectory.
They don't need to individually influence the rate except by not building so much that they harm the value of their assets. They just need to follow their inventive and maximize asset values/returns.
> There's no reason to build a smaller building than what's individually profitable.
Of course, and that's not the mechanism by which this works. It's by choosing when to develop and when to release units for sale.
On prices going down - there's housing prices and there's land prices. If a bunch of land goes from being SFHs to being duplexes, I think the result is that each dwelling unit is less expensive than what was there before, but each parcel of land is more expensive.
On Conanicut - I'm sure that they won't let you build an apartment building, but what I mean is, they'll let you build as much housing as YOU want. I.e. nobody actually wants to build an apartment building there, so not letting you do so is moot.
In some sense the price increase is driven by the distance from what people *would* build in our free market utopia and what they *can/do* build based on regulatory constraints. The distance is lower on Conanicut simply because even in the free market utopia people wouldn't build that much there, whereas on Manhattan people would presumably blanket the island in skyscrapers.
> "There might be a very long lag between adding new people and adding more desirability, maybe measured in decades, maybe long enough that we can hope our housing problems will have been solved some other way before we have to worry about it. Cities might be able to “outrun” aggregation effects by building houses more quickly than new residents can contribute to the city’s desirability."
I think this is the key point. On very long timescales it must be true that agglomeration effects dominate (eg your Manhattan v Conanicut example). But my sense is that this is mainly a long slow process of institution building & economic development, not an immediate reaction to incremental housing adds. So I think both versions can be true -- in the short run adding housing decreases housing prices (which we have strong empirical & theoretical support for), while in the very long run it may increase prices. The city's correct response is as you say here to try to outrun the issue by continuing to add houses quickly enough to keep prices in check.
>Building more houses anywhere decreases average cost everywhere and is net positive for global welfare.
Slight nitpick, and most people will understand this from the context, but this should probably say building more houses that function as primary homes. Building houses that will only serve as secondary/vacation homes isn't going to bring down average costs and likely is not a net positive for global welfare, i.e. building a bunch of condos next to a ski resort.
They're still soaking up demand that could have gone to displacing primary residences. In fact, in a lot of resort towns, residents and local workforces are being displaced by vacation demand. See this article on the housing crisis in Sun Valley, ID: https://www.nytimes.com/2022/07/31/us/sun-valley-workforce-housing.html
But also, how would rich people getting more stuff they want not be a net positive for global welfare? Assuming it's not creating big negative externalities.
> But also, how would rich people getting more stuff they want not be a net positive for global welfare? Assuming it's not creating big negative externalities.
"Assuming it's not creating big negative externalities" is doing a lot of work there, and really is not a valid assumption at all. Building supplies are limited, construction labour is limited, our planetary carbon budget is limited, land is limited. Building housing nobody needs is consuming finite resources we desperately need to put to productive use housing people who are underhoused.
You could make that argument about basically everything that rich people consume. In fact, vacation homes are people contributing a lot fewer externalities than taking private jets and yachts all over the world.
And what about, like, McMansions in the suburbs? They're private, primary residences, but they use up a lot more building materials than people really need. Are they a net negative on society? What about one person living in a two-bedroom apartment? Trying to make arguments about people using more than they need doesn't really align with our economic system.
And I would make that argument, lol, especially about McMansions in the suburbs. The key difference between yachts and homes being everybody needs a home, so if you're making ithard to get homes by hoarding, you're really fucking people over. If you make it hard to get yachts, well, that's fine, nobody needs yachts, going without a yacht is not a hardship.
I would argue that our economic system has failed in some extremely fundamental and predictable ways (housing being maybe the biggest one), and that saying an argument doesn't align with it is closer to a point in favour of it than a point against.
I think it's fundamentally just unethical for someone to use more than they need if those resources could instead be used to meet someone else's unmet needs. Lots of times it's not really obvious whether that's the case, but someone owning three homes while two other people in the same community are homeless is a pretty blatant example.
I feel like NIMBYism is the main cause of the housing crisis, and doesn't really align with our economic system either. If anything, it's more evidence for capitalism working well - where people are allowed to build homes, they're still affordable.
And I think long-run supply elasticities between goods are higher than you think. The steel that goes into a yacht could have gone into a high-rise apartment building instead, and the shipyard workers could have been construction workers. If you want to reduce excess consumption from the rich, just tax them more (which I fully agree with).
> I feel like NIMBYism is the main cause of the housing crisis
Then why do developers campaign so hard against NIMBYs? If easier development reduced housing prices, don't you think developers would be the first to know and the first to oppose it, since it would ruin their business?
To believe NIMBYism is the root cause of the housing crisis, you have to believe that every developer and real estate investor fundamentally misunderstands their business.
That seems very unlikely to me, as they make a lot of money.
>They're still soaking up demand that could have gone to displacing primary residences. In fact, in a lot of resort towns, residents and local workforces are being displaced by vacation demand. See this article on the housing crisis in Sun Valley, ID: https://www.nytimes.com/2022/07/31/us/sun-valley-workforce-housing.html
Hmm seems more like they're creating extra demand, after all if there's new vacation homes there will be higher demand for labor and thus higher demand for primary residences to house larger local workforces. Hence the housing crisis in Sun Valley.
As density increases, some of the extra people make the city a nicer place to live because of their science and culture and entrepreneurial talents (amenities to density) and some of the extra people make it less nice because they are rude and smelly and gross (disamenities to density). I think most of the YIMBYs think that as density grows, past a certain point disamenities grow faster than amenities and so prices will fall.
What this means is that "Suppose Oakland had to build 25,000 extra units" is not really a fair characterization of the prescriptive YIMBY argument. What would be fair is "Suppose Oakland let people freely build housing if they want to until markets equilibrate." If they did that, then, yes, housing would be less expensive than it is now, since people would keep moving there until the disamenities from density would start to outweigh the amenities and prices would drop. Would that be at more or less than 25,000 per year? No one knows! That's what markets are for.
If S.A. - who is apparently a weird, super-YIMBY - is correct that amenities *always* grow faster than disamenities *forever* then, yes, the first city in America to figure out how to sustain a pro-development outlook will metastasize and grow until everyone in American live there except for a few random misanthropes.
The YIMBY argument doesn't have anything to do with amenities or disamenities. It's very simply that you end up with lower home prices if you exchange one million-dollar detached house for five $300k condos on the same lot.
It definitely is. Scott is show his ignorance of general trends in US cities outside of the Bay Area here. He characterizes 4 (relatively) liberal, very popular cities as being uncool conservative backwaters.
+1, I was wondering where a mention of the research park was.
Research parks have a huge agglomeration effect (as I write this comment from my desk in one ;) ) as they draw 1) educated research workers to high-paying jobs, 2) office staff to support the researchers, 3) all sorts of service jobs to support the researchers and the office staff. All of this then draws more companies that do research to the area.
I would bet that Raleigh has a delightfully weird food scene as research park areas tend to have a lot more immigrants.
> Or: Austin gets lots of jobs from Tesla. Tesla wasn’t founded by Austinites. But it moved to Austin when it became a known “tech hub”, ie a place with lots of tech companies and tech employees. It wouldn’t have moved to Austin if Austin was still an uninhabited plain or a one-horse town. So as Austin got bigger, it attracted more tech companies.
It's still not clear to me this is the direction of causality. The first big tech company in Austin was Dell, which happened because Michael Dell went to UT Austin, which existed because that was the state capital, which was a historical accident involving feuds with Sam Houston, a secret overnight raid, and a woman with a cannon now immortalized with a statue downtown. It was a barely existent as a town for most of its history.
Maybe it would help if we clarified what we mean by "density increases cost of housing"? I think you're trying to do this in your last section, but the poll is underdetermined, so I made some additional assumptions when responding. Density doesn't increase for no reason, infrastructure is built for a reason. Are we just building office space, even if no companies want to use it?
Is there some particular real-world policy you are curious of the effects of?
> My claim is that marginal changes - like Oakland building an extra 10,000 units, but everyone else staying the same - will most likely increase Oakland prices.
The best empirical evidence I'm aware of is that the reverse is true, at least on time scales of months to years. Over the time scale of decades, Manhattan demonstrates the reverse--its population has dropped by 1/3 or so since its peak around 1915, but the cost of living has skyrocketed. Why? Because dirty factories and smelly meat plants were replaced with shiny skyscrapers full of bankers and TV writers.
> Everyone knows Austin is more expensive than Houston because Austin is a trendy tech and culture hub and Houston isn’t
First, these aren't just 2 cherry picked data points. They're geographically close, in the same state, and have a similar climate. But also, this statement isn't obviously true to me. Austin is true, yes, but arguably has a lot less in the way of culture-related amenities like museums than Houston (except for things related to live music). Similarly, Austin has tech, but Houston has energy, the latter of which is probably more desirable to a lot of people outside our bubble. I think Austin has grown much faster, and so housing supply has struggled to keep up.
Also, it seems rather suspicious to me that you keep coming back to 1 pair of islands but then call this example cherry-picked. Are you sure there are no other reasons why one of those places became important and the other didn't?
An example of places that I think are expensive literally only because of a natural feature, and building housing there will only ever reduce prices: Ski resorts. No one lives at Arapahoe Basin; there's no room. But most resorts in the area--Keystone, Breck, Vail, etc. do have room. The fact that no one lives there doesn't make A Basin any less popular (it does have fewer visitors, but for other reasons). I think that building housing will not cause them to be more expensive on any time scale.
> I don’t know how realistic this is or how closely existing commercial regulatory easing tracks residential regulatory easing.
I actually think a lot of town do exactly this and are very expensive, although they have to be near other towns that allows stores and such to be built. If those nearby towns changed policy and booted out their stores, I suspect housing prices in the original would go down.
> Building more houses generally improves welfare for the people in the city where it’s built, even if this might come in the form of better living rather than lower rents.
I'll point out that, at the very least, homeowners mostly don't believe this, because they benefit from rising rents. If they did believe it, we would have a lot less NIMBYism.
Oil booms and busts. Austin has government, which only booms. Austin started small but has essentially boomed for decades. It built a ton of houses and apartment complexes in the 60s/70s - though nothing on the scale of San Antonio, which perhaps ought to be compared to Austin ahead of Houston. SA has military and cement and Hispanic birthrates; like Austin it sits on a divide between blackland soil and Edwards plateau. It's rather fun if you are diving into historical reasons for city location, to consider that Austin and SA are placed along the once-edge of the continent. Texas towns are often connected with springs, even if now pumped dry.
Houston on the other hand is a southern city essentially, very much owing to a more current edge, and a famous hurricane.
But no one seems interested in San Antonio, which is probably a mistake.
I didn't realize until I lived in Texas that San Antonio is the second most populous city in the state. And yes, the geography of that whole area is very interesting; not just Texas, but the entire continent starts sloping upwards as you go West from there--a line of reduced population density, visible in satellite imagery like https://www.nasa.gov/mission_pages/NPP/news/earth-at-night.html, runs north through DFW, OKC, Wichita, etc.
2. I feel like part of this argument involves different time scales. Building a world-class company, or university, or port, or financial center, or cultural hub, takes decades or maybe centuries. Building new housing takes a few years. As long as the time it takes for new housing to be built is faster than the time it takes for your city to produce or attract new cultural points, building new housing will reduce the cost of housing.
The poll is terrible. If 2 people move into each unit, average vacancy rates decrease relative to current Oakland vacancy rates! You are assuming demand outstrips supply! How are we econ majors supposed to respond!? Prices go up!
But I question whether the demand would outstrip supply - would we see vacancy rates increase instead, with a some units at 1 and maybe even some at 0 occupants? *That* is the question. It's vacancy rates all the way down, and they are at all time lows, and if they go down, prices go up, vice versa.
> It's vacancy rates all the way down, and they are at all time lows, and if they go down, prices go up, vice versa.
Exactly! The economic price of housing is the cost of rent, not the cost of the housing asset, which is a capitalization of the rental price. And the cost of rent is driven largely by the vacancy rate.
I think you're misreading the poll. It says *if* two people moved into each of the units... It's illustrating the scale of the construction, not stipulating demand.
Aspen, CO is much smaller than NYC but also the housing costs more. If much more housing was built in Aspen, do you really think it would become much more expensive?
To me it seems obvious that in Aspen at least, it would become cheaper. Aspen is in an inconvenient place for anything except mountain sports, but there is only so much ski slope available, so adding more people pretty quickly makes those slopes less desirable.
Very likely the case that there is minimal more ski resort that could be built. There's already 4 in the Aspen area, and it's all on national forest land so the forest service would have to approve (and in any case would make it more difficult to build), plus there's a lot of constraints as far as what makes a viable ski resort (variety of terrain, ability to build infrastructure, avalanche mitigation, etc).
If i remember correctly, Forest Service hasn't issued a new permit for a ski resort in like 30 years. There was a push to get the Obama admin to do it, but I dont think they did. The big ski conglomerates have a lot of incentives to not allow more resorts to be built. We can contrast this with Europe that has hundreds of ski areas of various sizes because of different regulator regimes.
That sounds right, although I'm not sure how many more resorts are financially viable anyway. Big conglomerates have incentives to block third-party development, but would presumably like to expand their own operations if possible. But this is more likely to come from improving their existing properties (slightly more terrain, faster lifts, etc) rather than building entirely new resorts.
I dont know enough about the profitability of the big resort companies, but you are definitely correct about expanding current operations. Steamboat and Winter Park are both doing huge expansions that will almost double their skiable areas as well as add tons more condos.
There is a new "ski area" in CO called Blue Bird that opened in 2020 (I think?). But it's not really a ski area because it's only back country skiing. No lifts, no marked runs, no condos. I think it's mostly on private property and they have some huts with coffee and heaters. Back country skiing like this is too niche to threaten the big resorts, but it will be interesting to see if more of these types of operations spring up that most cater to locals who don't want to pay the big resort prices or get an Ikon/Epic pass.
Yeah, Blue Bird is on someone's ranch. There are already a number of local's alternatives, like Loveland, Cooper, Echo, and several further-flung resorts. Starting a whole new resort is incredibly capital-intensive, and seems fairly risky as I know that a number of smaller mountains across the US have shut down over the years.
"If a city only built new houses, but refused to allow any new companies, restaurants, schools, museums, or other good things, then the new residents would have a hard time improving the city’s desirability, and house prices would go down."
Right, so in some universe it might be an empirical fact that alcoholics tended to compensate for their alcoholism by exercising more, and therefore end up on average to live longer than non-alcoholics. Should we condense the steps and say that alcoholism improves life expectancies?
Thanks for returning to this! I was misunderstanding your thought experiment: you're asking about one-time housing sprees, not ongoing construction year after year.
If you're only interested in a one-time building surge, followed by no further housing in later years, then I agree that should raise, not lower, long-term rents, at least for sufficiently attractive cities in the sufficiently long term.
I see Houston, Atlanta, and Tokyo as vindicating policies of ongoing new housing additions every year, not a one-time construction spree.
If Oakland adds lots of housing in a single year, then reverts to typical near-zero housing construction for the next twenty years, it seems plausible Oakland rents end up higher than they would've been.
I also think it would be a dumb policy. You should add new housing every year, as long as there are people who want to live in it. That's the lesson vindicated by Atlanta, Houston and Tokyo. One-time construction sprees are not your friend.
Aren't we basically already running this experiment in a lot of Sun Belt cities like Atlanta? How have housing prices in Atlanta been trending compared to the national average?
"There are a few very trendy small coastal villages in California (think eg Sea Ranch); maybe these (rather than North Dakota) are the natural control group for San Francisco. I think they are still cheaper than SF, but maybe not by very much."
FRED has the answers: https://fred.stlouisfed.org/release/tables?eid=1138280&rid=462 . Here are the prices of coastal metropolitan & micropolitan areas of California, in median listing price per square feet. I've made some judgement calls as to what counts as "coastal", including Ukiah but not Clearlake for example.
Does the disagreement here mean there’s a hurdle for land valuation that Georgists are ignoring here? How are you supposed to implement a properly rated LVT with a confusing effect like this?
I think maybe I got in too late, and you didn't see my comment, which linked to my substack response. My research relates to this very question, and the data answers it. Amenities, construction costs, and supply constraints can all affect prices. In cities where price is driven by amenity value, costs rise across the whole city. In cities where price is driven by short supply, costs rise specifically in the poorest parts of the city. In the US today, the most high costs of the expensive cities are largely driven by supply constraints. And so, it is the neighborhoods with the least amenity value that have seen the most price appreciation. (This caused confusion pre-2008, since that pattern of price appreciation was misinterpreted to be caused by mortgage access.)
I think that what drives up prices is not population per se, but density. “Proximity to desirable location” has a high intrinsic value all its own, and this value is “per person” rather than “per square foot of housing”. And there’s a feedback effect - commercial real estate in a dense area has greater access to customers and workers, and will thus command a higher price. Housing that increases density will tend to raise price per square foot, all else being equal. But the marginal extra housing unit would still tend to drive cost-per-unit down.
Ultimately what is scarce in San Francisco and a Manhattan is not housing, but land. Manhattan island and San Francisco proper are almost entirely built over, and there are natural barriers to expanding them further. You can build more houses farther away, but the drop off of “proximity value” will be pretty steep. You can’t build more Manhattan (well you can, but it’s not as easy to get landfill permits anymore…). Going an extra half mile from downtown SF or Manhattan is a big deal from a desirability standpoint whereas going an extra half mile into the suburban sprawl of Phoenix or Houston is essentially meaningless (indeed Phoenix has a sort of donut effect - downtown proper is gentrifying and expensive, then there’s a ring of old, sometimes kind of slummy neighborhoods, and then beyond that more desirable and expensive suburbs.
One other factor is that, for highly desirable cities, there exist a class of people (e.g. financial bigwigs in NYC, tech superstars in the Bay) who are comparatively price insensitive - living in Manhattan or the Bay Area has, not quite infinite, but extremely high value. Only after this demand is exhausted will more housing start to drive prices down.
Oh, and another thing - I think some of this is warped by the fact that people don’t shop for housing the same way they shop for other commodities. With housing, people don’t often go out and buy the cheapest house they can that meets their minimum needs. Instead, they set a budget and then go out and buy the most desirable housing they can get for that budget (and often a little above it). Some people do go the minimum price for minimum housing route, but I don’t think these are the ones driving the market. So perversely, expensive housing kind of can create its own demand, because there will be a class of buyers who want a house at that high price, not a somewhat less desirable house for a lower price.
It looks somewhat less like a market or consumers seeking a lower price, and more like a market of developers trying to create housing that will attract the richest class of buyers that find the area desirable.
Yes, and also, they aren’t primarily concerned with the home as an investment. An area where prices are going up makes it easier to bite the bullet and nudge the top of your budget, but far more important is whether life in that home will be what they want, in terms of QOL: access to jobs, entertainment, friends, schools, and so on, and day-to-day use of the home as a living space.
Everybody here seems to think density is a good or bad thing (mostly a good thing) regardless of the actual measure — like if density X is good then density 2X is better. The “paradox” of Nimbyism when increasing density would increase their own property values is precisely that the community they bought into has a density they found attractive, whether that’s Mayberry, Palo Alto, San Francisco, or NYC, and it would be a Pyrrhic victory to make a bundle selling your house if to realize it you have to move and throw away all the other things you liked when you bought there.
(Not to mention that capital gains tax and transaction costs mean you don’t get anything near the appreciation on paper.)
This line of logic raises interesting questions about Washington DC. If anyone has the data to put the DC metro area onto the charts in part 6, I'd be interested to see where it falls.
The city of Washington, DC itself definitely has limits to growth, but they take the form of artificial density limits in the city itself based on limits to building height. The metro area might also have the most price insensitive class, at least for office space, in the form of the federal government itself.
This has led to an interesting development pattern, where technology companies that wanted relative proximity to the government but were less price insensitive started colonizing the middle and outer suburbs where land was cheap (both in terms of office cost and in terms of housing costs for employees). This has caused some of the government agencies to expand to the outer suburbs to take advantage of the technology industry and workers. The end result is islands of high density amidst the suburbs. It is interesting to note that the Wikipedia article for 'Edge City' uses three different Northern Virginia examples, possibly because the unique density limits in DC pushed for their formation in the DC suburbs earlier than would have otherwise happened.
I think "proximity" is simply a fundamental concept here, and cannot be reduced to either population or density or any other proxy measure using units of quantity and space. Rather, it should be thought of in terms of time and effort necessary to reach [thing you want to access]. Density increases proximity to other people and [desirable/important things people provide], but so does, say, access to navigable waterways, or good transport infrastructure, or good spatial planning, or million other things, really.
(I think this framing neatly deals with many of the objections to Scott's thesis. Having prices derive from "proximity value" allows for those million things other than housing density to influence them, while retaining the main point of, all other things remaining equal, increases in housing density leading to increases of housing prices.)
Phoenix was tiny until well after river transport was a key driver of city siting. The benefit of the river was as an irrigation source, dating back to native communities many hundreds of years ago.
That's kindof my point. It helps isolate 'river as a source of water' from 'river as a source of transport.'
Though can we really say that river transport is no longer a potential driver of city location? There may be other drivers, now. But access to river transport is still an advantage for some industries. We still move goods by water.
"My attempt to place Austin and Houston on the original graph, using Sumner’s data plus a few other things available online. Why weren’t they on there already? Maybe because the graph is metro areas and Sumner was talking about Austin and Houston as cities, but I’m not sure and agree this is confusing."
I was already skeptical of the validity of the data. This makes me even more so.
Either Austin was included in the original data or it was not. If Austin was not included, then it looks like they're cherrypicking cities to make the correlation look better than it is. If Austin was included, and both the original and new way of measuring Austin are reasonable, then the error bars for individual data points should be large enough to include both the new and old position for Austin. The error bars would then be the same order of magnitude as the trendline.
Statistics for “metropolitan areas” can be pretty counterintuitive when you’re thinking about cities. I don’t know what they look like in Texas in particular, but I don’t doubt the original graph.
Having read the original post and this one, I'm realizing there's a more subtle thing going on that I didn't address in my initial comment. Weirdly, the relevant variable here is the slope of the supply curve. I'll explain.
The slope of the supply curve tells us how much rents have to increase to generate a given increase in the quantity of housing. The steeper the supply curve, the more rents have to increase to generate a given supply increase. Importantly, a corollary if this is that, for a given shift of the demand curve, the steeper the supply curve, the more rents will increase. That's part one.
Part two is that NIMBY zoning policies are omnipresent throughout America, and we can think of them as artificially making the supply curve steeper. It's not literally IMPOSSIBLE to build new housing in most American cities, it's just extremely difficult and involves fighting the bureaucracy for years, so the quantity only increases in response to very large price increases.
This is important because, yes, Scott is right that, all else equal, an increase in population density shifts demand right by making a city more interesting/lucrative to live in, which is why he can make the scatterplot showing a strongly positive relationship between density and rent. HOWEVER, the slope of this scatterplot is basically tracing out the supply curve (because that's what gives you the new prices as demand shifts right), and this supply curve is artificially steep due to omnipresent NIMBY policies. If every city were maximally YIMBY, you'd still see a positive relationship between rent and density, but it would be MUCH shallower.
Now here's the key bit. If a city upzones, even if they're the ONLY city in the country that upzones, they flatten their supply curve and move themselves towards this hypothetical flatter scatterplot. So while Scott imagines that if Oakland upzoned, they'd move up and to the right along the current best fit line of the scatterplot, actually they'd move down and towards the right, taking their proper place in the hypothetical YIMBY scatterplot line. This is why I'm very confident upzoning lowers rents even in that city, and why I'm not surprised that the empirical work disagrees.
Just as a mea culpa, like I said, this is a more subtle and nuanced argument than I thought at first, and I was too quick to act like this all should be obvious.
This is more or less orthogonal/tangential to your point, but you make the assumption that it's regulatory regimes that prevent enough supply to bring down prices. This is unlikely to be true, both theoretically and empirically.
Theoretically, housing can only be supplied by landowners. Landowners have no reason to supply housing that would reduce the value of their asset. The housing market has a built-in supply rate control which largely prevents long-term, large downward movement absent some kind of large external effect (e.g. the collapse of manufacturing in Detroit/the Rust Belt). This is observed in all major real estate markets afaik.
Empirically, we can look at a couple of things. One, housing approvals are always much higher than housing starts (obviously they are never lower, but naively you would expect them to be about the same). Obviously, if more housing is approved than is being built, the regulatory regime is not the limiting factor. (Yes, I hear you say, but looser regulations can make more projects viable, etc., etc. This is potentially true, but does not override the theoretical speed limit, and in practice, is not observed). Two, when housing prices stabilize or go down, housing starts immediately taper off. Projects in the pipe are cancelled or delayed, and new supply is constrained until prices start trending upward again.
I mention all of this because you say or imply a few times here and in the other post that regulatory regimes and/or NIMBYs are the cause of high(er) housing prices. This is not the case - it is the nature of private property and for-profit housing markets. The only way to reduce housing prices is not-for-profit housing models, such as co-ops, social housing, land trusts, etc.
“ Obviously, if more housing is approved than is being built, the regulatory regime is not the limiting factor.”
This is not obvious at all - it tells you that some number of approved projects will fail for reasons other than regulatory disapproval. But it does not follow that every project that is not approved would fail absent need for approval. Additionally, it’s certainly possible that the time and effort expended on obtaining approval make a project more vulnerable to failure.
This is definitely not true universally. It may be true in some areas but it's definitely not true in any of the areas i have lived (all of which have strong demand and quickly rising prices).
For example, in my city - which is not even third tier but is a college town with high demand and almost no new supply - prices of housing have gone up significantly, rents up like 15% YoY and housing sales prices up like 40% since before the pandemic. There are so many home owners what want to building more housing on their lots.
The city is currently going through an upzoning process that will at least triple the amount of by right housing that can be built. But this won't go into effect until next year at the earliest. Many land owners are applying for permits that let them build as if the new zoning were in effect already but these permits keep getting shot down. So in this case the demand is there but the regulatory regime prevents it. I can think of dozens of units this applies to from just the past couple months.
Additionally, two proposed apartment developments on vacant land have been quashed. One was for 150 units the other for *400*. Thats 550 units (well over 1000 people) that won't get built. The land owner wants it built but the city and some loud residents won't.
"housing approvals are always much higher than housing starts"
This doesn't account for the projects that are never approved or even applied for because regulations would prevent it from being built.
It does not necessarily follow, although it is an appealing thought, that MORE housing would be built in a more permissive regulatory regime. It may just be different housing (and in fact that is quite likely).
For instance, in Toronto (poster child for strong demand and quickly rising prices), construction crews and equipment are maxed out despite an extremely anti-development population and zoning scheme (70% of the city is SFH-only with essentially no exceptions granted).
Development has been concentrated along the waterfront and a few major streets into extremely tall built forms.
Now, there are a ton of benefits to a more permissive regulatory regime, more smaller projects, more infill, more gentle density, missing middle, walkable mixed-use neighbourhoods, etc., and we should absolutely change the regulatory regime to get those benefits. It is far from obvious that lower prices or more total units constructed are among those benefits.
This is because asset owners are incentivized to maximize the value of their asset, and there is a citywide development rate which does so. All landowners are incentivized to keep development at about that rate, and there is no incentive to defect from that rate.
“ construction crews and equipment are maxed out despite an extremely anti-development population and zoning scheme”
Well yeah, because idle construction crews and equipment are really expensive. I could buy that the labor or supply market could be frakked up post-COVID, but in a functional market they’d be hiring more construction crews.
But a difficult approval process that takes a long time and fails a lot makes it really risky to invest a lot of capital in expanding construction capacity.
It's definitely true that building can be limited by multiple different factors: labor supply (as you mention in toronto), demand, capital availability, etc. In cities with high demand and restrictive zoning, to me it seems the first step would be to remove the restrictive zoning then see what happens.
"asset owners are incentivized to maximize the value of their asset, and there is a citywide development rate which does so. All landowners are incentivized to keep development at about that rate, and there is no incentive to defect from that rate."
I only partially agree with this. In very large cities and for very large land owners this is more likely to be true as their incentives are closely tied to macro economic factors. But for smaller developments, like turning a single family home into a duplex or adding an ADU, etc. the incentives are less likely to be influenced by those same macro economic factors.
Going back to my literal backyard, I have a 10,000 sq ft lot within walking distance of the central business district and a 5 minute drive to a major university. Currently I can build a single ADU up to 600 sq ft (two beds probably) on my lot. I can rent that out full time or as a short term rental up to 180 days a year. Under the proposed new zoning in my city, i'll be able to build two units up to 600 sq ft and if I deed one of the units as "affordable" for at least 10 years I can add an additional unit. I really want to do that! I dont need my big lot and would love the extra income.
My choice to develop those extra units is much more tied up in my personal finances than macro economic trends. My neighbor is a housing developer. He owns two empty lots on my block and is planning to build two single family homes on them. Because these lots have lots of carrying cost for him, he wants to build and sell as fast as possible. His incentives are a bit different than mine, but again not completely correlated with macro economic trends that would influence a developer of 100 unit apartment buildings. Then we have the university in town that basically has unlimited demand for housing from a captured audience, lots of money, its own special zoning district, and lots of lawyers to fight regulations. They'll keep building new dorms or apartments or other facilities until they run out of space.
Over all this is a super complex market thats influenced by hundreds of things. But I am very insistent on removing restrictive zoning (personally I would remove all zoning but thats a pipe dream in most places) and reforming the building code to make smaller development economically feasible. I believe these things are so important because they cause huge distortions in the market. Until they are removed we don't have a good picture of what the true demand for housing of any type is. Additionally the way that our current permitting process in the US works drags out so many projects that they become economically unfeasible unless the rent/unit cost is so high that is prices out everyone except for the top deciles.
> But I am very insistent on removing restrictive zoning (personally I would remove all zoning but thats a pipe dream in most places) and reforming the building code to make smaller development economically feasible.
Oh for sure, nothing I'm saying is an argument against that. There are a million really good reasons to ditch restrictive zoning, and it 100% should be done ASAP. I don't think it will have much/any effect on prices, but I could be wrong and there's a chance it will, and there's literally no reason no to make the change afaict.
> stuff about people who aren't operating like large developers
You're quite right that there are people who are not operating in the manner I describe (i.e. maximizing the value of their assets/ROI). However, two counter points.
One, this is not where most of the housing comes from. Again, taking Toronto, roughly 100% of the new housing built over the last twenty years has been in buildings with more than 20 units built by major developers. Now, that is definitely in part because of our shitty zoning that prevents building anything but SFH in most of the city, but it's also because that's the kind of project that people with large amounts of capital want to build - either large subdivisions out in the outlying rural areas or large buildings. And, indeed, even in a permissive zoning regime you will likely see most new housing coming from larger projects just due to the economies of scale.
Two, unless a preponderance of new housing is going to be built by people not behaving "rationally" in an economic sense (i.e. small development "drowns out" big development), what you will see is that the large developers will ramp down their building by the same amount that small developers ramp up, so that city-wide you find that the development continues to hit that rate that optimizes asset values.
Basically, there's no way to get around the fact that in a population growth regime (i.e. every large city), if prices start going down, people are going to be less interested in building and building will slow down until prices stabilize. There's a built in ratchet on prices in a "free" real estate market.
To your last point, i totally agree and it's something i have been thinking about quite a bit lately. I firmly believe that more housing will lead to lower prices, but as you say, only to a certain point. Unless an area experiences population declines, the supply of housing will never be above the demand for any significant time. So prices of housing will always rise. I guess the big unknown is by how much.
Of course this is all complicated by the fact that not all housing is the same and so maybe the supply of 1 bed room condos or apartment is meeting or exceeding the demand but the supply of 5 bed condos isn't and so if you need 5 bedrooms you'll have to go to the suburbs or a different town.
This is something that actually is happening where I live. The city is in the process of renovating/rebuilding a low income housing development. The new development will have only 1, 2 and 3 bed units while the existing one has 4 bed units. The local paper had an interview with a women who has 8 people in her household. Her current 4 bed unit works for them but a 3 bed won't and there are no other 4 bed units that take vouchers. Not sure what the solution is in this case and if the market (or government) will be able to meet the needs of this family in the short term.
Another complication is that not all areas are the same. The issues you have in Toronto are different than the ones I have in my small town. The outcome (out of control housing prices) is the same but the causes and solutions and dynamics are all very complicated. I wish discussions like the one Scott is trying to have would take this into account more. Even in the Houston vs Austin example, there are too many differences in those markets to say that Austin should just do what Houston does.
Regarding the poll: I think it's possible that the *average* price of housing goes up, as the new units can charge a premium, and would have to be able to charge above a certain threshold to be profitable enough to build in the first place. This would raise the average price for a unit of housing.
However, I strongly believe the price of the homes the original 500k residents live in would go down. Those who are currently bidding up lower-quality limited inventory would filter up into the new housing, while households with lower incomes would compete for the original housing stock.
There are two things about this argument that feel very weird to me:
(1) There is the assumption that liberal coastal cities are trendy and that red state Sun Belt cities are unfashionable. This is likely true from the perspective of the Bay Area. But there are undoubtedly also people who think that Miami is trendy and San Francisco is unfashionable. Which group is more common in the country as a whole? I don't know. But it seems like we shouldn't base the answer entirely on a personal perspective.
(2) The primary evidence for the argument uses data not on the margin: "But I find looking for tiny effects on the margin less convincing than looking for gigantic effects at the tails." The conclusions of the argument are then said to apply on the margin, but not on the tails: "My claim is that marginal changes - like Oakland building an extra 10,000 units, but everyone else staying the same - will most likely increase Oakland prices. Yes, if Oakland unilaterally built 50 million units, that would soak up the entire excess demand and probably lower prices everywhere (including Oakland)." It feels like the argument and the conclusion don't quite line up with each other.
On the basis of this argument, it feels like you should be confident that building tens of millions of housing units in a random location will turn that location into a megacity with high housing costs. But the argument doesn't say much about what would happen about building a few thousand additional housing units. The conclusions you draw are much more confident that the later is true than the former.
Your point (2) is very important IMO; I said something similar in the poll. The difference in value between 'the middle of nowhere' and 'a city' is much greater than the difference between 'a moderately large city' and 'a somewhat larger city'.
"an experiment in which they had to build 25,000 extra market-rate housing units per year beyond their current plan"
What does this actually mean? Who is building those houses? "Had to", like if "the men" came, and "made them"? Made who, and by what mechanism? This is important and changes the answer.
Do you mean city council/planners give 25,000 more approvals per annum? Because that would have no effect, as housing starts are not approval-limited, and so there would be the same number of housing starts, you wouldn't get your extra 500,000 people, and prices would stay the same as in the counterfactual. (edit: forgot the "not" in not approval-limited)
Do you mean a wizard ensorcels developers into building 25,000 more units per annum than they would prefer to do, thereby lowering the value of their assets and future income? Then prices would go down compared to the non-wizard counterfactual (all other things being equal). This is obviously not something they would do, barring being irrational, bad businesspeople, or ensorcelled.
Do you mean the city builds 25,000 market-rate units separate from the normal for-profit development market? Then for-profit developers would reduce their starts to match to maximize the value of their assets, and prices would stay the same as compared to the no-government-building counterfactual.
I took it as option 3. I think the idea is that 25,000 >> the number of units normally built by developers, so even if developers reduced theirs to zero it would have a negligible effect in comparison.
The city takes over all building and builds all the units that would have been built (which I guess they know by magic) plus 25,000 more. In that case, it depends what happens to vacancy rates. Since none of the units are empty, vacancy rates overall would go down slightly, so presumably prices would go up slightly.
It's an error to assume that developers are trying to maintain the value of existing assets. Developers are rarely in the asset-holding business, they're in the asset creation *and sale* business.
They do not care if building a new suburb causes the average house price to drop from $1 million to $800,000 if it enables them to build and sell a hundred houses for $800,000 apiece on what was formerly a cow pasture.
Getting a kick out of Jeremiah Johnson being cited twice in two different sections as if he is two different people.
Still not sure how you don’t see Tokyo as the solution to your issue. It’s a massive, very dense, desirable city, that builds enough supply to match demand so prices are reasonable. Look at how much eg NYC used to build historically.
There’s lots of restrained demand to live somewhere with good job prospects, which is usually a dense area.
I don’t get why people keep misunderstanding this.
Scott is very very pro-YIMBY! Like, extremely pro national YIMBY policies. If the US could suddenly develop an allergy to old housing stock, which is the cultural underpinning of Tokyo’s housing policies, I’m pretty confident Scott would be wildly in favor!
But we are stuck in a path dependent world where Americans are very attached to their NIMBY-ism, and Scott is trying to steelman arguments with those NIMBYs.
And if we can’t conclusively convince ourselves that certain marginal NIMBY arguments are false, then we should probably stop being so dismissive of those parts of the NIMBY claims.
Basically, I am summarizing Scott’s response to Scott Sumner: everyone involved thinks we should make policies that create more housing everywhere, but there are possibly some losers when we pursue that strategy at the micro level, and being dismissive of good counter arguments is both obnoxious and bad strategy.
I also understand the concept of steelmanning the NIMBYs.
I still don’t understand the point Scott is trying to make. Density correlates with value, yes, but wildly expensive housing correlates with restricted supply.
Scott made the subtext textual with his poll at the end. Oakland YIMBYs argue that incremental local YIMBY policy changes they are advocating for will mechanically decrease rents in Oakland.
Scott (and I!) very much support building more housing in Oakland, but, in a vacuum, do not think the “will mechanically reduce Oakland rents compared to the counterfactual” is in fact an honest and clearly true argument.
It’s still good policy! Just unclear that reducing rents (again, relative to the counterfactual; demand so exceeds supply that rents will still rise either way), at the margin, is a likely outcome. Second order effects may in fact be so large that it will make Oakland so much more attractive for Bay Area commuters that rents will go up, because there is a vast sea of unmet tech worker demand for housing.
So we should stop arguing that incremental YIMBY changes will reduce rents. They might, in a way normal people don’t understand (they still went up, but less! People sadly don’t understand this), but at a micro level they really might not.
> Second order effects may in fact be so large that it will make Oakland so much more attractive for Bay Area commuters that rents will go up, because there is a vast sea of unmet tech worker demand for housing.
No, this is not a possibility. The asserted mechanism for additional housing causing prices to rise is that the additional housing creates new demand that didn't previously exist. If you're appealing to existing unmet demand, you're stuck with the obvious fact that additional housing lessens the amount of unmet demand and therefore causes prices to fall.
Unmet demand can only be met by providing supply at lower-than-previously prices; that's what unmet demand is - demand to buy at a price lower than the market price. All demand to buy above the market price has already been satisfied.
I read you and Matt Yglesias on this issue, parsing demand and supply and growth, and everybody gets into the economic weeds.
Nobody ever seems to point out the obvious new variable which is: (a) we’ve become a MUCH more populous country over the last century while also (b) undergoing a technological revolution that (c) made once inhospitable places more livable through refrigeration and AC and (d) also more well known via telephones, cars, and then the internet.
Previous generations neither knew about other places/opportunities, nor was there a way to leave and still keep in touch with family until recently.
Compare that to early settlements in the US until circa 1890 when the promise--if you risked death of you and your entire cohort--was free, maybe farmable land.
So, just from looking at Google Earth, the reason Conanicut remains rural seems glaringly obvious - it’s an island in the middle of a fairly wide bay, comparatively remote from the mainland, with a much more favorable building site at the head of the bay. That better site has a big city on it, Providence. And a small city across the bay from Conanicut with a better harbor, Newport.
Manhattan is barely an island, and it’s directly at the mouth of a big navigable river, making it a much better site for trading with the interior. (Note that Philadelphia is the same way - it’s not on the ocean, it’s up the Delaware river about as far from the ocean as ocean going ships could go)
I'm going to share my general model for questions of this type, in case it's helpful to anyone. It seems like my thinking is pretty distant from most people's here. Not super interested in defending this position, take it or leave it as it suits you.
The study of the laws that appear when lots of people choose on their own what they want to do is called economics. People generally operating under the principle of mutual consent tend to form markets, price signals, currencies, et cetera. Everything that has economic relevance comes into causal relationship, in some way or another, with every other thing that has economic relevance (with one exception).
Economies are not machines. A machine consumes cause/fuel at one end and produces effect/motion out the other end. You can point to which end is cause and which end is effect. But in an economy, everything causes everything else. If you build a house anywhere, after long enough, that action has had some (mostly very attenuated) effect on every other price, everywhere.
So all discussions of whether A causes B or B causes A, within an economy, are making a category error. That kind of question is fine for machines, but not economies. The question isn't whether any two economic factors cause each other; it's by what means they cause each other. There are no one-way economic effects. Everything that gets shoved, shoves back, though sometimes in a roundabout way.
But there is something that has a one-way effect on economic factors. Because people don't always operate according to mutual consent; sometimes, somebody does something to you that you don't consent to. The fields that study the laws that appear when people do non-consensual stuff to each other are criminology, politics and military strategy. (They should all be one single field of study, but since part of the job of any government is to forcibly distinguish between them--the point of laws is to say: "non-consensual act x is a crime; non-consensual act y is policy; non-consensual act z is war"--you can't combine them without upsetting people.) The rest of what I'm going to say will make no sense unless I can treat them all as one thing, which I'll call "politics".
Politics is genuinely upstream of economics, the same way nature is upstream of economics: a murderer can kill you, and it'll have a huge economic effect on the world; but, on its own, it has no economic effect on the murderer. How much money does an avalanche gain or lose by smashing a skier? Policy and war are harder to separate, since economics gets its roots under everything.
(As an example of the difficulty of separation, the US Government needs money, and needs to tax people to get it; but it can also just create money out of nothing, by fiat. Where, in all this, does moving money by mutual consent end and moving it by force begin? It's hard to say. But you can see how the government printing money gives a shove to the economy, but the economy doesn't shove the government back. Even if somebody votes a politician out of office over inflation, voting is politics, not economics.)
But if you want to dig through the densely-interconnected mess of economics to find the uncaused cause (beyond just nature), look to non-consensual force. If you really want to know why Manhattan and not Conanicut, look to the Dutch government.
I think Scott Sumner is not necessarily correct with respect to his claim #5 that "Homeowners in Oakland would benefit." Specifically, to the extent that incumbents in *any* city are NIMBYs, this reflects a decision that the use-value of living in a less dense area outweigh the increase in land value that accompanies allowing lots to be more intensively developed. We can reasonably expect NIMBY homeowners to be largely selected for people for whom the decrease in use-value utility caused by increasing density outweighs the increase in land value that accompanies dezoning. The consumer surplus losses to NIMBY homeowners would be *offset* by the increase in sale price of their land, but there doesn't seem to be a reason to suppose that it would fully or over-compensate them such that they were actually better off.
1. Without addressing your general model, it seems like Manhattan's closer proximity to the Hudson river is a significant difference from Conanicut Island. Access to the Great Lakes is a huge economic benefit, and Manhattan is right on the route.
2. There are certainly some services which are made more efficient by density itself. Medical care is one. Rural areas either don't have expensive equipment or else have to over-use or over-bill in order to make the payments on the high-investment equipment. The same holds for other government run services like police and fire departments. At least some of these efficiency gains will plateau at a certain level of density, however. (Making a model which accounts for all the relevant factors more complex, of course.) So better access to good medicine should make a population dense area more valuable.
Obviously, tech hubs capitalize on a synergistic density of tech workers and tech jobs, which would collapse if one or the other disappeared.
3. This observation is somewhat orthogonal to the topic of discussion, but I'm posting here because I thought the result was interesting. I asked Bing a question about Kangbashi in English. Then I translated the prompt into Mandarin Chinese, asked again, and translated the results back into English. The difference in quality of the two answers was interesting to me. So now I'm wondering if this is a good technique and if it can be more rapidly approximated. Asking Bing to only use Chinese sources does not improve quality (and causes Bing to respond in Chinese.)
Q:How did the Chinese government create jobs in
Kangbashi?
English response:
The government also relocated its offices and some state-owned enterprises to Kangbashi, and built public facilities such as conference centers, sports stadiums, and museums. However, the ambitious project faced many challenges, such as a lack of demand for housing, a debt-fueled property bubble, and a slow pace of urbanization. Although government jobs and schools have attracted some residents from other parts of the province, Kangbashi has been less successful at attracting private businesses or spurring broader growth . To diversify the economy and create more jobs, the government has attempted to make Kangbashi into an epicenter of electric car production, and currently has two plants for this in operation. However, it is unclear whether this strategy will be enough to fill the vast empty spaces and turn Kangbashi into a vibrant city.
Chinese prompt, with the response translated back into English:
Kangbashi is an emerging city in northwestern China, located at the junction of the Inner Mongolia Autonomous Region and the Ningxia Hui Autonomous Region. The development of Kangbashi began in 2003, when the Chinese government launched the "Western Development" strategy, which aimed to promote economic growth and social stability in the western region. Kangbashi was selected as a key project because of its rich coal resources and favorable geographical location.
The Chinese government has created jobs in Kangbashi in a number of ways. First of all, the government invested a lot of infrastructure construction, including roads, bridges, railways, electricity, water conservancy, communications, etc., which provided the necessary conditions for the development of the city. Secondly, the government has encouraged various enterprises to invest in Kangbashi, especially coal mining and processing, chemicals, building materials, machinery and other coal-related industries. These industries not only drive the upstream and downstream industrial chains, but also attract a large number of foreign labor. Third, the government has supported Kangbashi's public services such as education, medical care, culture, and sports, providing better quality of life for the city's residents. At the same time, these undertakings have also cultivated a group of professionals, injecting new vitality into the development of the city.
According to statistics, as of the end of 2020, Kangbashi City has built an urban area with an area of 1,000 square kilometers, with a permanent population of 1.2 million, of which 60% are foreigners. The GDP of Kangbashi City has increased from 1 billion yuan in 2003 to 300 billion yuan in 2020, with an average annual growth rate of 30%. Kangbashi has also become one of the largest coal bases in China, with an annual output of more than 200 million tons. Kangbashi is known as "the most dynamic city in western China" and "China's energy capital".
---------------
Thoughts?
Also:
"The secret to the reversal of the town's fortunes is the intense competition among high school students, and their parents, to be accepted into China's top universities. Once municipal officials moved some of the city's top schools into Kangbashi, the so-called tiger parents followed and property prices -- along with new investment -- soared....
Work on a new urban center in Kangbashi gained momentum in 2009, as the 4 trillion yuan ($610 billion at current rates) that the central government pumped into the country's economy after the global financial crisis sent coal prices soaring and fueled a frothy property market in Ordos.
When the bubble burst, condos that went for more than 8,000 yuan per sq. meter, or about $1,200, at the peak tumbled to between 3,000 yuan and 5,000 yuan.
...'"They sort of forced great teachers to relocate by enticing them with [housing] at half the price,"' the person said."
So it sounds like Kangbashi is a coal and education town, and deliberately so. This seems to demonstrate that certain core industries are critical to Urban growth and housing prices.
I'd be interested to know more about the "education" idea; it's not particularly compatible with the ordinary working of the Chinese education system.
The most general sketch of Chinese college admissions is that you take the 高考, you apply to a school (one school), and, if your score beats the admissions threshold, you're admitted. This leaves very little room for pre-college schooling to make a big difference in college admissions.
Now, there are many important details to add to the picture:
- Some schools have overt relationships with particular colleges. By attending one of those, you can reach an understanding with the affiliated college that allows you to be admitted with a score that wouldn't ordinarily pass the threshold. Such a school would be "good" as far as getting your child into a top college, but not in terms of, say, providing a different education than any other school.
- Chinese universities don't have a single admissions threshold. They have a different threshold for every province. It's easy to be admitted to Peking University if you happen to be from Beijing (or if you participated in an affirmative action program giving you honorary Beijinger status, as is true of a friend of mine); it's very difficult if you're from Shandong. But this is just a matter of admission quotas being set high for Beijing and low for Shandong; all Beijing schools benefit equally and all Shandong schools suffer equally.
- You actually apply to more than one school. If you fail to meet the threshold for your first-choice school, your application will fall back to your second-choice school. Through a system that I don't understand, harsher standards are applied to second-choice applicants than to first-choice applicants, so if this happens to you, you managed your college application incorrectly. But it must happen to some people.
(For a very rough sense of how things might look at the top end, when I polled six students at two prestigious Chinese universities (复旦大学 and 上海财经大学), three of them had been admitted through the normal process, one had been admitted through a high school affiliation, one had benefited from honorary Beijinger status, and one had been admitted through an admission test specific to the particular school rather than by taking the general 高考.)
So again, this all makes me wonder how it's possible to juice a city by providing "top high schools". Are these just regular schools that have affiliations with top colleges? Are they schools that provide beneficial honorary residential statuses? Do they give you a bonus to your 高考 score? What makes them better than other schools?
(Not directly relevant, but potentially of interest: you can get bonuses to your 高考 score for certain non-academic accomplishments such as athletics, or for being the right race. I believe there are several minorities that get a significant boost to their score.
In the case of Uyghurs, several prestigious universities will subtract that boost back out (as a policy of the individual university) before considering the application. This adjustment is not made for other races; I'm not sure how to interpret this.)
One thing with China that I also vaguely remembered is the Three Gorges Dam construction, which resulting in the government relocating > 1M people ~ 2008 or so. They also increased the one-child limit to two children in 2015 and dropped it altogether in 2021.
I think this tracks with when they were building the "ghost cities" - they wanted there to be housing available for the millions displaced upstream of the giant dam, and were (optimistically) forecasting increased demand for family dwellings after they changed their family planning laws?
China also has the hukou thing, but I'm struggling to figure out how much that impacts demand in urban centres. Even though rural residents aren't eligible for a lot of the services in urban areas, they still go there for work anyway.
On the flipside, does the US still have a lot of internal migration from rural regions to urban regions? I know Australia still does.
I think migration from rural areas is swamped by migration from undesirable cities to more desirable ones. Detroit is an extreme example of what has happened to the industrial North in post-industrial times.
It is conceivable that population, capital, and available land around a city evolve according to some differential equations. One could try to come up with a suitable system of ODEs by reasoning alone or, perhaps more interestingly, could try to learn such a system in a data driven way. Given time series of population, GDP, and built area for a city I could try to do it with e.g. the SINDY algorithm (Brunton 2016).
It would take Tim Worstall about ten seconds to pop this particular logical bubble. Tim where are you?
Most residents of any particular in-demand city couldn't give you a set of rational, economic reasons why this is a good place to live. Their answers would boil down to "This is where it's at, man!"
Before COVID the obvious answer was jobs, plus proximity to other people you already know. Most people’s skills weren’t portable to North Dakota, and (whether or not they were) friends and family remain largely non-portable.
Can’t we do the marginal change experiment in first differences? Start in 1980 or 1990 when the lay of the land in the US has been established. Then we measure the increase in density/houses and prices in various cities (NYC, SF, Houston, etc.). Wouldn’t we find that controlling for initial size or density, places that increased housing the most saw lower price increases? (It does sound like a variation of some of the arguments Scott summarized, but it also sounds like something researchers would have done already, perhaps even instrumenting the quantity increase with some nifty IV).
In practice, I expect gentrification to be a stronger effect than agglomeration or supply and demand. The market only wants to build expensive, high-margin homes and cheap houses will only get built if the city includes affordable housing requirements.
The Oakland thought experiment controls for house fanciness, but is confounded by school quality and crime rates. I predict that increasing the housing the stock in Oakland would bring in educated, low crime people who would increase the quality of schools and decrease the crime rate and increase home prices. Doing the same thought experiment, but in gated communities, there I predict the home prices would decrease, because the people who move in would be commit more crimes and be less educated.
Cities mostly become desirable from factors that have little to do with population density. The Bay tech scene grew out of Stanford, not population density. This is pretty general, and other commenters have provided many more examples.
> Hopefully by now you can predict my objection: the places in the southeast corner are mostly unfashionable red state Sun Belt cities; the places in the northwest corner are mostly trendy liberal coastal cities. My conclusion is that trendy liberal coastal cities are both more NIMBY and more desirable, and if you use this to draw any conclusions about housing policy you’ll just end up confused.
If you believe building homes sometimes raises city housing prices, this graph should be extremely shocking!
The upper right quadrant (expensive + builds a lot of homes) is completely empty.
The core of your argument is "if you add more people to a place, it becomes more desirable, which drives up prices". But there are some clear cases where that isn't true, like exclusive places with minimum lot sizes. If you plop a giant apartment building in Atherton or Piedmont, the median price *there* goes down.
I don't think it disproves your overall hypothesis but it is a funny hypothetical.
Another relevant example is Tel Aviv vs Bat Yam: Bat Yam is the city immediately south of Tel Aviv (they've grown to the point where there's no real separation). Housing in Bat Yam is much denser than housing in Tel Aviv (because Tel Aviv is older and has more offices). Tel Aviv is still much, much more expensive, and this is unlikely to change.
Also consider jersey city - it builds way more housing per Capita than NYC, but prices there haven't spiked nearly as much and it seems at no risk of taking away the jobs/culture points that make Manhattan expensive. (A cynical possible reason: the things that make cities desirable hubs could only be built in tartaria, and now that we've lost the ability to build subways and new industries we don't have to worry about that anymore).
Regulatory change to allow more housing in a city would, in general, make it more like Bat Yam - it's possible it raises the odds of it becoming the next tech hub, but tech hubs mostly already exist. With the Chinese cities, note that the government had to build good schools to get people to move there (I agree that good government-funded services raise prices).
I think the economics conundrum can be solved by splitting short and long term effects.
*Short-term:* building more houses reduces prices. Example: Tokyo has low prices because it is always building more houses, overwhelming the long term effect.
*Long-term:* as more people move in, they create jobs, services, social networks, etc making others valuing the area more. Example: China ghost towns became more valued as time passed on.
Therefore, both sides are both right and wrong: more houses have temporal negative and positive effects.
The graph you started with is unconvincing for exactly the reason set out in section 5 above: it just shows that supply of a good is greater in places where the price of that good is higher, which is what we expect. You can't get from there to your claim that "Increasing density within a city shifts the demand curve for housing within that city, because of increasing desirability." That might be true for some other reason, but it can't follow from just looking at "gigantic effects at the tails".
This links to the problem that you look at Manhattan and Conanicut Islands, but then you say your claim is about marginal changes like Oakland building an extra 10,000 units. Let's suppose we have a whip round and buy Conanicut Island and redevelop it to have the same density as Manhattan. If the effect is to quadruple the value per square foot while also massively increasing the square footage, we will have made a fortune. Now of course, we can't actually do that because of building restrictions, but it doesn't seem plausible that this would work even in a YIMBY paradise. As far as I know, nothing like that has ever happened, even though in the past building restrictions were insignificant.
Places like New York are desirable because lots of people live in them. The houses follow the people and not vice versa. So the graphic at the end of your section 1 is correct, but not to the point.
"Let's suppose we have a whip round and buy Conanicut Island and redevelop it to have the same density as Manhattan. If the effect is to quadruple the value per square foot while also massively increasing the square footage, we will have made a fortune."
I bite this bullet and accept it as true. See for example Donald Bren, who made $16.2 billion by pulling off approximately this manuever.
Give me an undeveloped plot of land in a nice part of California, favorable regulatory climate, and $100 billion starting money, and I'll pull it off again as many times as it takes to prove the that experiment replicates.
I mean, if you buy all the land in a relatively unpopulated area, you will be the only resident and you can basically do what you want. See eg Disney World.
Your comment strongly suggests that you believe the part of that project that would be difficult for you is getting control of 100 billion dollars. And if your plan is to invest 100 billion dollars until, 50 years later, you finally end up with 16 billion dollars, I hope that that's correct. On the other hand, if your plan involves an automatic profit at all comparable to Donald Bren's, finding the money wouldn't be difficult.
Assuming Donald Bren's entire worth prior to assuming control of the Irvine Company was the $34 million mentioned in his wikipedia page as the sale price of his company, you're talking about an investment that beat the Dow Jones Industrial Average by about 50% between 1970 and 2022, returning just over 8% a year after inflation for 52 years. If Bren had to pay taxes on that money, the capital gains tax rate appears to have been 32%. (Or, if it was income, 70%, but it seems safe to assume it was capital gains.) That only makes the returns that much higher.
As Azareal has already pointed out, there's no shortage of empty space where you're free to do this.
I voted less expensive. But if the time scale was for longer or number of houses smaller I might have voted "more expensive". I believe in the effect proposed long term but I just don't think you can raise the population that quickly.
Scott speaks of "building houses more quickly than new residents can contribute to the city's desirability", but this particular hypothetical builds houses more quickly than residents will even move in. To fill up all the new houses by the end of the ten years, Oakland's population would have to grow by more than 7% every single year; the highest growth 2020-2021 of any American city >500,000 people was Fort Worth at 1.81%. People just don't move as fast as prices can.
“Hopefully by now you can predict my objection: the places in the southeast corner are mostly unfashionable red state Sun Belt cities; the places in the northwest corner are mostly trendy liberal coastal cities.”
The places in the southeast corner of that graph have clearly seen their population increase or they wouldn’t have built so many houses.
San Francisco is the worst performing city in the US post covid.
“Unfortunately, San Francisco still leads all large U.S. counties in terms of its rate of population decline during the pandemic. The city’s 7.5% loss of population ranks it No. 1 among all U.S. counties with more than 100,000 residents. “
I know that Scott is making a more general point here about density and house prices, however he did narrow it down to Oakland in the original post and it looks to me like building 10,000 housing units in this environment would reduce prices.
I confess to not reading both posts particularly thoroughly, but surely you considered the role of public infrastructure? Like, the reason why land prices in the wilderness are usually low is because there is no infrastructure to support civilized living, ranging from garbage collection to police stations (apparently San Francisco is the priciest wilderness on Earth). To run a proper comparison, you would need to find cities with similar levels of public infrastructure.
Even for the cities with relatively similar infrastructure, large differences in weather might mess things up. My guess is that housing prices in the Midwest are depressed by the cold, while in, say, Dubai, they are depressed by the heat compared to other cities with similar infrastructure but more human-friendly climate.
Thus I voted "less expensive" for denser Oakland, although if someone would build a normal American city with million inhabitants in North Dakota, it would be more expensive, since that implies large investment in public infrastructure.
> (apparently San Francisco is the priciest wilderness on Earth)
Sure, they don't have garbage collection or police, but they do have running water and centrally distributed heat in the winter. The heating isn't even necessary; San Francisco is colder than surrounding regions, but it's still in California. They have electricity. There are very few bears. Civilized living is perfectly possible as long as you never go near the central business district, which has been strategically colocated in the slums.
Step 1 build houses, prices fall and density increases
Step 2. desirability catches up and prices rise. You ratcheted up the curve
Some possible paths.
Your desiribility caps out and theres no more pressure to build more. So some cities are only half way up the curve.
It doesnt cap out. You are trendy and cool, and you jeep creeping up the curve.
You credibly commit long term to always building more housing so that the next step 1 overlaps with step 2 and prices dont rise or possibly fall.
No american city has achieved path 3. Some middling desirable cities stay relatively cheap, but we dont have the social technology to be yimby and cool. The result is the curve you plotted.
Tokyo has that social technology.
It would be easier if other cities pulled their weight and you didnt have to be the only cool yimby city in the land.
Does that synthesize your views and the yimby economics?
Doesn't the pattern also go "build new housing as the city population increases and the area covered expands - new areas become the desirable, high-rent places - older places slip down in the quality as they get overcrowded by the new arrivals - formerly high class areas are now the tenement blocks - rinse and repeat"?
Density alone doesn't convey desirability; look at the Grenfell Tower fire in London where you had cheaper council housing cheek-by-jowl with expensive buildings, but quality was very much variable depending on which block was built and operated by whom:
"North Kensington was once known for its slum housing, but housing prices have now risen and the area on the whole is considered exclusive and upmarket, although expensive residences are interspersed with lower-income areas like the Lancaster West Estate."
Yes I am trying to simplify the steps to turn scotts view into a workable model. The density alone doesnt create the desirability, but as scott has explained many times it can cause the things that do by adding more people who in turn create the things that are desirable. But if that step doesnt happen you are in the "caps out" path, but then a repeat of step 1 usually doesnt happen. Or not on significant scale.
There is also a process for moving back down the curve if the city somehow gets hollowed out, but we all seem to concerned with the build direction here.
I don't think I saw this argument anywhere, so here goes.
A large part of the current behaviour in housing markets is due to the combined effect of 1) housing as an incentivized vehicle of investment, leading to speculation and more generally following Ricardo's law of rent 2) Any built city leads first and foremost to a captive population of poor first-level workers, first generation urbanites, and government agents. It's true for the banlieues of Paris, Houston, the ghost cities in china, etc.
So, captive population + speculative takeover - rent regulation = price goes up. The amount of stuff built does not matter, since the price fixing is done at the investor level who is most likely the one building in the first place.
An interesting experiment would be to build the Conanticut island city entirely with rent controlled units, and compare the settled populations after a while.
For point 1, I get what you are trying to say, but the way you present it makes it clear that desirability came first. The Dutch chose this island as a capital (i.e. made it desirable) and so people moved there (made it dense). So the cause was the desirability, the result was the density.
But taking it a step back, you could argue that both islands are quite desirable. Both have a lot of geographical characteristics that make them valuable - natural harbours, coastal, good for trading. So in a sense, they were both originally desirable, but the selection of one as a capital raised it above some threshold of desirability that spurred density. Once that density was in place, its seems likely the feedback loop was initiated - and today perhaps the density is what keeps New York desirable. After all, New York is no longer a capital city.
As others have pointed out, he forgets that NYC is at the mouth of the Hudson River. A river navigable into well into upstate New York (and later the great lakes with a canal).
No matter the pattern of colonization, there's no world where NYC isn't a big American city.
Conanicut is at the mouth of the Providence River, but I am not a river expert and maybe that is less exciting than the Hudson. Still, nobody nowadays moves to New York because the Hudson River is there. They might move to New York because X is there who moved because Y is there who moved because [ . . . skip 200 years] the Hudson River was there, but that's my point!
The bigger issue is that there was already an important port on Aquidneck Island (aka the actual Rhode Island), Newport. It’s still a small city and the rest of the island isn’t dense, so Scott’s choice of the neighboring non-dense island is a bit of a mystery to me.
There’s WAY more to this. The Hudson was the primary way from the Atlantic Ocean to the Great Lakes from the completion of the Erie Canal in 1825 until the St Lawrence River was made navigable in 1959. This played a huge role in the development of industry in the Northeast as opposed to the South, which had worse navigation. As a result, New York is historically one of the most important ports in the world.
It’s still very important, even if the ports are mostly across the river now. River and sea travel is still by far the cheapest way to move large quantities of goods, even within a country. Economic geography matters a lot. It’s not just feedback effects over a mostly random initial starting position.
A lot of people do move to New York because the Port of New York is there. And that's not independent of the river being there. This was true 200 years ago and it's still true today.
I think you're still discussing this in a way that obscures the real disagreement between you and the most defensible version of the YIMBY position.
You seem to be saying that, given current overall restrictions on supply:
increasing density in an area nearly always -> damagingly increased housing costs in that area.
The most defensible YIMBY position is, I think:
increasing density in an area under the current planning regime might well -> damagingly increased prices, in the long term, in that area; but
increasing density, under a better planning regime, does not -> damagingly increased prices.
I'm not sure your arguments really work as arguments against the YIMBY position I've outlined. The strong correlation between density and housing costs you point to, for example, is something that has built up under the current planning system.
And I think the work that's been done on whether increasing density in an area increases short term housing costs does serve to support the YIMBY position, as against your position. They can say, look, in the short term, when the planning system shouldn't have had time to have an effect, an increase in density doesn't increase costs. If you were to then see an increase in costs in the longer term that would suggest that there is some mechanism at work that takes time to take effect. And the planning system, in restricting further increases in supply, is just such a mechanism.
While I can understand your reservations about looking to Japan, or other non-US planning systems, for evidence, I think doing so is pretty much inevitable if you're trying to disentangle the effects of the current planning system from other potential causes of increased housing costs. Though from what I've read, China is the last place you should be discussing. Lots of experts on China seem to have a healthy distrust of any and all Chinese statistics.
It would be interesting if your poll question had an additional question about where you would expect costs to be in twenty years, if at the end of the ten year experiment Oakland's policies reverted to the norm. I would expect housing costs at ten years to be lower, but costs at twenty years to be significantly higher relative to the ten year cost.
Apologies, I must have mis-read. But if you're saying that, under a better planning system, increasing density in an area wouldn't increase housing costs in a harmful way in that area, then I think there's more in common between you and the YIMBY position than some of your statements in this and your previous post would seem to suggest.
Can you point me to a paragraph of Scott’s writing that gave you the impression he is anything but vigorously pro-YIMBY? You are not alone in having this idea, but it seems wildly out of step with Scott’s writing, and I just have no idea where all the folks commenting as if you’re fighting Scott’s NIMBYism are coming from.
Scott is making an inside-baseball argument about how his fellow YIMBY partisans should engage with NIMBY arguments. Where did this get lost?
The comment section would be much more interesting if I could understand why so many people were getting this misapprehension and then Scott could fix it.
Scott generally comes across is pretty on the fence of YIMBY/NIMBY from my perspective, I suspect it is because he encounters YIMBYS a lot and so has more reason to poke holes in bad YIMBY arguments than bad NIMBY ones.
I don't think the big disagreement with Scott and all the comment's are about that though, I think it is because his phrasing of things in this area is kind of sloppy and overly broad so he ends up saying things which are false.
He isn't treating the topic with the level of specificity/precision it requires and if he did it would both get less pushback, but also be less interesting (because it would jsut be the boring normal story).
Completely agree, though I think this is an area where stating your position precisely and accurately is difficult (re-reading my post above, for example, I don't think I got it right) - and not just because there's a lot of motivated reasoning.
Causal diagrams might be helpful, but they wouldn't work for a post aimed at the common reader. Which would include me; I keep meaning to properly get to grips with causal diagrams, and something else always seems more important.
I don't know if there are languages other than English which would work better. It feels like it's more a human brain thing.
A key difference between (London or New York) and Tokyo is that it is easy to build more housing in Tokyo and it is not easy in London or New York. This is important.
Consider any good that has network effects, such as a telephone. With such a good, having more of them makes each existing one more valuable. If there are only 2 phones then there is only one phone you can call. If there are 101 phones, then there are 100 people you can call. This is similar to agglomeration effects in cities.
Imagine if we limited the number of telephones per region to 1000. Also, for the sake of the analogy, imagine that long distance telephoning was impossible.
"Allowing more telephones just increases the value of other telephones, this will increase the price"
"If you want to keep telephones cheap, then only allow 5 per region"
"Look at New York! They made the mistake of allowing 50000 telephones and now they're super expensive!"
*BUT* this price increase only happens if you limit the supply. If we allow people to just manufacture more, then even though the *value* of each telephone goes up, the *price* does not - instead set by the price of manufacture. We get the wonderful combination of something that is great *and* cheap (like tea).
It is a very different question to ask "What if we allowed Oakland to build 25000 more units?" vs "What if we allowed Oakland to build to meet demand?" The latter allows us to have valuable housing that is also affordable.
NOTE - in the telephone example, even if allowing 1000 more (and no more) increases the price, this only occurs because even more value is being created. I.e. it is a good thing and we should do it.
"What if we allowed Oakland to build to meet demand?" The latter allows us to have valuable housing that is also affordable."
But affordable by whom? If I'm a developer looking to build 3,000 units in Oakland, I'm going to have an idea of my potential customer base. If I'm rubbing my hands with glee thinking of all the high-earning techies in SF who would very much like to live in a place of their own and not sharing with six other people now they're 35, thanks very much, I am not going to piously calculate "Well, currently the price for a one-bedroom apartment like this in this neighbourhood goes for $2,500 a month rent, but that is for the current supply of vacancies. If I build a lot more, naturally the price must come down as supply increases so let me estimate that at $1,800 a month".
I'm going to be thinking "Wahoo! Another 50 apartments at $2,500 in this neighbourhood, and even more for the ones in the more expensive areas!"
(I did some looking up online and there are some very nice one-beds at that rent, if I could afford it and was living there I'd happily pay that!)
You're right that they wouldn't be rubbing their hands in glee at the $1800 price point, but I think they are smart enough to consider it.
A big chunk of why more housing doesn't happen in NYC, aside from the permitting issues, is the rent control issue. It's a thing that makes potential landlords nervous about their ability to have rents that match the market.
I believe (without having done a rigorous economic study of all of the factors, admittedly) that if California didn't have as many onerous obstacles to construction as it did, developers in Oakland would rub their hands excitedly at the thought of putting up a building full of $2400 apartments to compete with the $2500 ones, and the pressure of competition would continue that trend to a new equilibrium where construction costs matched perceived revenues.
Actually, I think that's a good way to describe the whole topic. There isn't more construction than there is currently, because developers don't think they'll make enough off of the risk.
I think people are broadly in agreement here but just arguing over the details. It really is a chicken-and-egg situation: which comes first, density or desirability?
I think Scott himself is a good example: when he was living in the cheaper, more spacious, can rent a house on his own Midwest (apart from little accidents in cold weather), did he want to move back to California because "I sure miss the density of living in one house with seven other people!" or was it "There are a lot of things back home which I miss and want to have access to again"?
If a city slaps up 25,000 extra housing units (be that blocks of flats, single homes, whatever) and *nothing else*, then density won't matter; nobody will want to live there. The exception would be, and this is why I think the Oakland experiment would result in becoming more expensive, is when that city acts as a commuter town:
Oakland is, going by looking it up and I don't know if the travel times are right, about twenty minutes' drive from San Francisco. If you work in SF or want to work there, but can't afford SF prices, you can probably afford something in Oakland and then spend your days travelling to and from work in SF and going into 'the big city' for cultural and social events.
If Oakland builds more housing, that means more people who want to/need to work in SF but can't afford SF prices can now take up jobs in SF. And that increases demand, which will eventually drive up prices. You're not living in Oakland by choice because you like the place and its amenities drew you, you're living there because it's the nearest and cheapest you can afford to San Francisco (if you can't even afford Oakland prices, you live in the next cheapest and nearest city or town).
And for all the talk of amenities, how many people *do* to go to the opera and the symphony and the theatre and the art gallery and so on? And how many are there because "this is where the jobs are and where the money is"? Granted, people will (especially when they're young) move to the Big City for the vibrant nightlife and the new people and exotic experiences, but I imagine only a few ever picked City A over City B because "oh they've got the better philharmonic!"
We've talked on here before about why all the tech clusters in Silicon Valley, and it's largely because that's where the money is, where the best/most experienced workers are, where the cutting-edge research is being done. The middle of the country may try and create 'tech hubs' to lure some of the start-ups and new tech companies away, but they don't succeed much because the most ambitious want to move to where the best chances are. If you have a choice between proto-Google starting up in Bumfreeze, Nebraska or actual Google, which are you going to choose?
Take the comparison between Austin and Houston, above. Austin didn't have the same levels of density, but it grew by appealing in a specific way to a specific niche who were the high-income, high-value industry that local governments want to attract:
"“Previously, I would have named the cost of living,” Parker said of the top benefit of having a business in Austin. “However, the rise of Austin’s housing market has made that less of an advantage than in some other Texas markets. The number one advantage that Austin has is its culture. The 'Keep Austin Weird' mantra has deep roots, and there is a priority on work-life balance here that is alluring to recruiting and keeping top talent. The pressures of scaling a venture-backed startup are immense, but companies in Austin seem to have found that optimal balance between working hard and playing hard.”
Housing prices rose *after* the demand to move there, which is what created the density; it wasn't "dense first and then the demand".
If anywhere does want to build a million person new city in a desert or former rust belt site, they have to provide amenities to attract people there, and the first amenity is going to be "Will I do better moving here?" be that economically, which is the major driver for most people and which does include "lower cost of living" as well as "better paying jobs" or things like culture, good schools for the kids, fun nightlife, the symphony orchestra. Simply slapping up ten thousand units of housing then sitting back and waiting for the magic to happen - won't.
Yeah, my main thought on the poll question was "I don't know which way it will go, but either way, the Bay Bridge Toll People and BART are gonna be *really* excited about the increased revenues."
Also, BTW, I found this to be a very well thought out comment that expressed many of the thoughts I had on the topic.
>or was it "There are a lot of things back home which I miss and want to have access to again"?
Yes, this, and furthermore I'm pretty sure that the things that Scott missed about the Bay Area are not driven by its density. In Scott's case, I think the main appeal was a particular community of Berkeley students+professors, some Stanford students+professors, and the Tech ecosystem that grew around the supply of Stanford/Berkeley STEM graduates. That's a genuinely appealing community; I might like to be a part of it myself if it weren't so expensive and so far from most of the economic opportunities in my field.
It's also a thing that is in no way dependent on half a million people living in Oakland. If Oakland were a grassland and Berkeley a small college town, Berkeley would still be what it is, with the same number of students and professors (and trendy bars, coffee shops, etc catering to that crowd). Berkeley draws from the entire college-bound population of California, and is limited only by the size of that population and by the ability of an elite-ish university to grow while maintaining its standards. Ditto Stanford, etc.
I'm guessing the alternate Bay Area where San Francisco and Oakland don't exist, Berkeley and Stanford are small college towns, and there's a research park in Sunnyvale for Google, Apple, etc, would be just as appealing to Scott (and myself, and many others), as the one we have now. Demand independent of density.
The other big draw of Oakland is the Port of Oakland, and the hundred thousand or so jobs centered on it. If the Port of Oakland didn't exist, it would be necessary to build it, and probably build it right where it is because that's the right place to build a container port for Northern California. And again, its size is independent of Oakland; it's driven by the West Coast and Pacific Rim economies combined.
There's secondary demand downstream of that which is density-dependent. The people who came to the area to run a bar for longshoreman or a coffee shop for college kids, are meeting a preexisting absolute demand, but by the time you get to the guy who came to set up a restaurant-supply business, that's just the density of Oakland that sets the demand.
But that is secondary, and downstream. The primary demand came first, and that's what drove the secondary demand and the density and the housing prices. Which continue to grow because the primary demand continues to grow.
I generally agree with Scott, and to make a few other observations:
1. 'Don't you know about supply and demand' only works when the demand to live in the city is fixed- when only X number of people want to live in NYC or SF and that's it. But the demand to live in a small number of very popular cities appears to be elastic- if the price to live in SF every month fell by $100 a month, a large number of people (from around the world! not just the US) would move there
2. The 'don't you know about supply and demand, this is basic undergrad stuff' crowd appears to be frustrated that we're not respecting economics as a real, empirical science. That's right- I don't automatically genuflect to the field that told us, say, similar things about the minimum wage just a decade or two ago. Or that there's a natural rate of unemployment, and if we go below that it'll spike inflation. Or that high deficits in the US will crowd out private investment. When people in the comments compare Scott's density views to being an antivaxxer, they're confusing actual empirical hard sciences with economics, which is not that. To repeat- I don't respect economics or take its claims at face value, so you'll have to find stronger, actually empirical arguments. All those Yglesias-linked studies have a tiny effect size, so I remain pretty skeptical
>1. 'Don't you know about supply and demand' only works when the demand to live in the city is fixed- when only X number of people want to live in NYC or SF and that's it. But the demand to live in a small number of very popular cities appears to be elastic- if the price to live in SF every month fell by $100 a month, a large number of people (from around the world! not just the US) would move there
That's not how supply and demand works. "Demand", in economic terms, is not a single fixed number of "X people want to live in SF, period", it is a curve defining the number of people who are willing to live in SF at every possible price point. Obviously that number is larger for low prices and smaller for high ones. Yes, if the price of SF real estate fell by $100 per month, more people would move there each month.
But only if the price *actually falls*. And, since supply and demand do work even when (really, because) demand isn't fixed at a single number, the price falls when the housing supply grows.
There are 815,000 people who demand to live in San Francisco at current prices. We know that because the population of SF is 815k, and if there were a million people demanding to live in SF at current prices, those prices would be bid up to whatever level convinces 185,000 to go away. There is a price point at which the demand for accommodations in SF reaches one million, because again demand is not a fixed number and doesn't need to be for supply and demand to work. That price point is below the current one, so *if and only if* prices actually fall will those people move in. And the only ways for that to happen are for the demand curve to fall across the board, or for SF to build more housing. If SF's landlords build housing for a million people, well. they've already got the 815,000 who are willing to pay current prices and they'll have to cut rents to fill the remaining units.
The only way you get higher rents with more housing is if the demand increases across the relevant range of price points, and increases faster than the housing supply. Which actually does happen in a lot of places. So long as the population A: grows and B: becomes richer, the overall demand curve will trend higher globally, and that effect will be concentrated in some places. San Francisco will likely be one of those places for some time to come, and that will be true regardless of whether SF builds more housing.
"The only way you get higher rents with more housing is if the demand increases across the relevant range of price points, and increases faster than the housing supply. Which actually does happen in a lot of places."
One good example is Boston. The Big Dig dramatically increased the accessibility of South Boston, and there was a huge boom in housing construction. But you didn't see prices fall, relative to the "within a daytrip but not a commute" towns: what you saw instead was jobs moving from those towns to Boston (GE from Fairfield, Lego from Enfield, MassMutual from Springfield, Puma from Westford), and Boston housing prices going up, not down, relatively.
Yeah, what Angus said. No offense to anyone who lives there. The Raleigh-Durham area has multiple solid or even top-notch universities, doesn't really get cold, Lake Jordan, ~2 hours from the beach, ~2 hours from the mountains, low-ish cost of living. I live in NC closer to the coast (we both work remote and like to go to the beach) but Raleigh is the nearest metropolitan area. It's no New York or Chicago but per that graph it seems to be undervalued.
> Here’s how I ended up thinking about this: suppose someone strikes oil in an uninhabited part of North Dakota, enough to produce 1,000 good oilman jobs. 1,000 oilmen move to the area and start a town. Because there are no NIMBYs, they build 1,000 houses.
So, other than the "build 1000 new houses" part, this is basically what happens, and in North Dakota, no less. It's why some towns there have really high food prices. Nobody actually builds houses, because the oil people all know it's a thing that isn't going to last *that* long, relatively speaking. Likewise, speaking from my experience as a truck driver, prices at truck stops in the Permian Basin in Texas are higher than other establishments of the same chain in other locations. Higher than the prices in California, even.
This is somewhat orthogonal to the housing discussion, I just thought it was a funny example. :D
To the issue at hand, I think it's NIMBY-ism and knock-on effects that cause the high prices. It's hard to build things in most of the cities you list, and unattractive in others due to things like rent control, and so the housing stock doesn't go up as quickly as the demand for it.
I'm also all the way over on the other end of the trendy scale, though. There's basically no housing price that would induce me to live in any of those places. i.e.: I would not live in Manhattan even if the rent was $0.
I was trying to be less immediately offensive than "I wouldn't live in Manhattan if I was getting paid to be there" comes off as, even if it's true. There are sums for which I would live in NYC or Los Angeles or San Francisco or Seattle (OK, maybe not Seattle, but just because I have major SAD) or Austin or the like, but I recognize that I possess precisely zero skills which are worth those sums. So, like, unless Elon Musk or the like takes a personal interest in making me miserable for some reason, that's basically never going to happen. ;)
I live in a city (Albuquerque) in which I can drive 20 minutes in any of the four cardinal directions and be in open desert, and it would take truly stupid amounts of money to give that up. I've tried. Several times. I came back. I am -- apparently -- where I really want to be.
I suppose that technically, 20 minutes gets me desert in only *three* directions, the other one gets me mountains. It's still not "surrounded by people" like big cities are. And yeah, I agree that big cities have some cool stuff and visiting them can be cool, but also, after about three days, I recognize that I am *absolutely fucking surrounded by people* and I have to run away. That's me, I wouldn't impose it on anyone else, but it would make me crazy. More crazy. ;)
Yeah, no, I get it. I have my doors open to get a breeze through my place, and looking out the front door, I see trees, and a nice xeriscaped yard, and a bird feeder, and other houses. No trash, no homeless people, no junkies. It doesn't smell like piss, despite the "lax gun laws" there's no gunfire, and I don't hear screaming. And I'm in what's known as the "University District", so not exactly high rent.
One clear causal mechanism I saw when living in NYC is that density makes amenities better. In sprawling cities, location matters more than quality. But in NYC everything is close by. So if I open an Italian restaurant or a dry cleaner or a bar and it’s not very good, someone is going to walk 1 more block and go to the next Italian restaurant, dry cleaner, or bar. The density FORCES ME to compete on quality. In a suburb, my crappy Italian restaurant might survive simply by being the ONLY Italian restaurant. In NYC, my crappy Italian restaurant is out of business -- and given the cost of my lease, out of business quickly.
That’s why in the few places in NYC where location matters more than quality (e.g., Times Square), the quality of the shops is miserable and no New Yorker ever goes there.
You forget that Jesus lived in Manhattan for a while between ages 20 and 25, when it was a barren island, and that Conanicut was cursed by Dutch witches in the 1600s because of complicated gender dynamics in their society at the time. But forgetting is part of the curse, so you will forget again in a few minutes.
More housing causes both 1. Lower prices, at both a local and global level (due to basic economics) and 2. Increased demand and desirability
Increased demand and desirability causes both 3. Higher prices at a local level (due to basic economics) and 4. More housing, as developers have greater incentive to build there
So when you build more housing, there's a force pushing global and local prices down, and a force pushing local prices up.
It seems reasonable to me that there are circumstances where local prices do in fact go up overall. The fact that the housing in China's "ghost cities" is now considerably more expensive than rural areas confirms this in principle.
My parents have property at sea ranch. It is super duper impossible to build any new housing there. All lots are spaced out to not block ocean view of other lots and all houses must fit a specific architectural style and in practice be designed by a Berkeley graduated architect to get past board approval. Prices have skyrocketed. If you built more housing it would plummet. That being said of course the reason for demand at sea ranch is beauty and low density and all the wonders of a super strict HOA, so I don't think this applies to dense cities at all
Sorry to say, but I think Oakland is a bad example. It's very badly confounded by proximity to other cities, such that it will be difficult to separate the effect from housing decisions in SF and other Bay cities. If Oakland is building more housing but SF is not, then some of the SF demand is going to shift to Oakland, ultimately keeping up Oakland housing prices even if the local housing is meeting local demand (because the demand is not local, it's overflow demand from SF). FWIW I said stay the same, for that reason.
If you asked the same question for a city that is geographically isolated, I would be more comfortable saying that prices should be lower - though I explain further below why that may not be true. And I think you agree with this, since you have already agreed that there's a level of house building that can lower prices anywhere. We don't need to build 50 million units to see that level, we just need to overcome the inherent levels of demand.
Cities have demand from population, as you noted with the hypothetical oil boom town. They also have demand from things beyond population (again, the oil in the oil boom). Some things are interchangeable. Some things are not. Any city can have someone putting on plays, but only NYC has Broadway. Lots of cities make movies, but there's only one Hollywood. Wall St, Google, all examples of outsized demand creators - meaning that they increase demand far more than the calculation from density itself. You noted all this. There's also demand from desirable locations (SF is very beautiful, NYC has a great harbor). You're going to have a hard time building a major city in central Yukon Territory because it's very cold and doesn't have good access.
The problem with your overall argument, and the Oakland example, is that we haven't determined (and honestly maybe can't) how much demand there is in and around Oakland in the first place. If we were able to determine that there's X total demand at Y cost of housing in the Bay, then we could run a calculation pretty easily and determine that we need Z new housing units in order to break through overflow demand and start lowering prices. Until that happens, new housing means more people which increases demand for services (as with the oil boom town going from 1,000 to 2,000). If you build 1,200 houses in that town you're going to have excess demand still, by a lot. Building 1,300 would make it worse, because now 100 more people are looking for services. But, building 1,900 would probably start to make it better, as we are nearing that equilibrium and the remaining demand is probably more marginal. We would expect the most interested to be early arrivers, while the less interested come later. We can certainly say that building 2,100 would help, since we should have excess housing and more vacancies.
The chances of building a Google or Broadway in such a town are nearly zero. Even if a young Elon Musk/Mark Zuckerberg/famous founder grew up in such a town, it lacks the amenities to accommodate the growth in a timescale that makes sense. There are only so many cities in the world that can house a Google. Long term, that's what happened with NYC and SF. As Wall St/Google/etc were founded, places that could accommodate them did. Rural places in Rhode Island did not - because they could not. The "complicated historical reasons" is that NYC already existed and was the best place to move something that you can only have one or a limited number of. You can trace that back to 1624 and the Dutch picking a suitable harbor if you want. Even by 1750 you probably couldn't just move NYC to RI even if you built a bunch of housing in RI. Certainly by 1850 NYC was locked in by network effects that would make replacement cities much harder. But it's not the population or new housing, it's those exclusive goods that can't be replicated that includes Google and Wall St, but by this point also includes the hundreds of years of building and upgrading a world-class harbor and all the transportation and logistics companies that work in and around NYC that would find it hard and costly to move to RI.
"The problem with your overall argument, and the Oakland example, is that we haven't determined (and honestly maybe can't) how much demand there is in and around Oakland in the first place."
Reading up about it, Oakland does seem to be an interesting example. It's an important port city, so it would have a natural demand for housing and jobs. In a very brief nutshell, it seems to have gone through waves of prosperity first with the war boom in the defence industry, including shipbuilding, then the post-war automobile industry which then went through a later period of restructuring. A lot of immigration from black, Hispanic and poorer whites to the city for the blue-collar manufacturing and fruit canning jobs, then as that type of work shrank, a shift to new industries and attracting white-collar jobs.
Which then led to the tussle around gentrification:
"As of 2020, the San Francisco-Oakland Metro shows indications of having the greatest intensity of gentrification nationally, with over 31% of eligible neighborhoods gentrifying. Gentrifying neighborhoods showed significant increases in median home value, median household income, percentage of college educated residents, but also in economic inequality.
Historically low-income neighborhoods have been rapidly changed by new, higher-income residents as high-wage tech workers and expensive housing have continued to push lower-wage residents out of Oakland. In West Oakland, for example, median household income rose from $80,700 to $86,300 between 2010 and 2017, while the percent of population with four-year degrees rose from one-third to nearly one-half, according to the National Community Reinvestment Coalition.
Big tech companies have continued to transform the communities and culture of Oakland as modern apartments have appeared, housing prices have spiked, and many prior working-class residents have moved to suburbs further inland.
According to 2015 data compiled by the Bay Area Equity Atlas, 91% of low-income households of color were either in neighborhoods that were gentrifying or were at risk of gentrification at the time. The number was higher for individual low-income communities, with 96% of Native American households in neighborhoods that either experienced gentrification or were at risk of being gentrified, followed by Latino households at 94%, Black households at 92%, and Asian or Pacific Islander households at 88%"
So if Oakland was, say, Detroit, what would we be looking at: rise of the high-paying blue-collar jobs due to the automobile industry followed by decline of same? Without San Francisco on the doorstep, would the urban renewal projects to attract in new tech/white collar jobs have worked? Would Oakland be gentrified or in decline? As you ask, what *is* its natural level of demand?
Are the (relatively) high house prices in Oakland due to demand, or due to better-off people moving there so the existing owners of houses and the real estate agencies know they can ask and get higher prices? If I'm looking to sell my charming quaint bijou property in historic Oakland neighbourhood complete with original features, potential for imaginative and sensitive modern re-development, then it makes a big difference to the asking price if the possible buyer is earning $80,000 a year or $300,000.
"Until that happens, new housing means more people which increases demand for services (as with the oil boom town going from 1,000 to 2,000)."
And of course, once the oil boom busts, or the gold rush slows down, or the silver is all mined out, then that demand for 2,000 houses flips to being 1,800 houses too many as people move away to other jobs and the support services are no longer needed and the town gradually dries up and withers away.
B) a lot of YIMBY folks live in Oakland and are trying to convince Oakland to adopt YIMBY policies
With that said… I think you’re right! Adding more housing in Oakland specifically, particularly near BART, might very well raise Oakland rental costs. And if that’s true, Oakland YIMBYs need stronger arguments than “do this to lower housing costs”!
It also occurs to me that Scott's theory would say that Detroit's history is impossible. There's no mechanism in what he's writing about to describe a failing city. In my view, Detroit is very easy to understand. Manufacturing declined, which substantially lowers the total demand to live there. In that case, to below the existing housing and infrastructure levels. This means that even building zero houses results in a significant drop in housing prices.
Okay wait, I'm confused. With your updated density/housing prices graph, is that saying that Houston is *more* expensive than we would expect, and NYC is *less* expensive than we would expect? What is going on here??
Under your theory wouldn’t it be best to build more housing in Fargo than cram it into Oakland? It’s easier and cheaper and North Dakota could use the extra population and rising housing costs more.
Yes, but Fargo isn't near San Francisco and Oakland is. So long as more people want to live in or near San Francisco than Prosper (the city 11 miles from Fargo, as Oakland is 11 miles from San Francisco), then more people are going to want to live in Oakland than in Fargo, no matter how many houses the city fathers build.
That's the implication, yes, especially with his added thoughts about China. We should build in the least desirable places, then let the people move there and raise prices. Then desirable places will be less crowded.
I doubt many people would take that theory seriously when presented in such a way.
You might enjoy the book "Scale: The Universal Laws of Life and Death in Organisms, Cities and Companies" by Geoffrey West.
One of it's points is that cities scale weirdly. Most things slow down as they get bigger. Old humans bounce around less than toddlers, elephants are less nimble than mice, and Google now is less nimble than Google 20 years ago. This means that every living thing and every company must die eventually: they all go through a growth phase, a maintenance phase, a decline and eventually death.
Except cities. Cities speed up as they get bigger. Shops open and close more quickly. People walk faster. More people move into or out of the city. So it's really hard to kill a city. In ancient times cities collapsed sometimes because they just didn't have the technology to support ever-growing populations. But cities are amazingly resilient. E.g. Rome or Hiroshima.
The point of this is that lots of rules for other things don't apply to cities. So it wouldn't surprise me if apartment prices don't follow supply and demand rules.
I cited a paper by West ("Growth, innovation, scaling, and the pace of life in cities", Bettencourt et al. (2007)) and talked about the scaling of cities in my comment to the original post. It exists, and it's important—that's why people move to cities to begin with—but I don't think it's big enough to offset the 1st order effect of housing getting cheaper due to there being more housing.
The scaling of things like GDP per capita and crime rate in cities is that when your population doubles, your efficiency goes up by 15%. So if Oakland's population increases by 10k from 440k (I'll use the city population to be generous even though I should probably be using the metro area), GDP per capita would increase by 0.4% according to this scaling. Basically you raise the fractional increase in population by the power of 0.2 to get the efficiency gain.
Now that I look again at his plot for housing cost, it is controlled for median income, so there's an additional thing going on here. I think the full explanation of why that plot slopes up involves an interaction of regulatory environment and density/growth.
If you aren't dense enough or growing fast enough, it doesn't matter if you can only build SFHs. But if you are dense and growing, your prices will increase a lot when you can't build enough. (And this goes back to the other paper I cited, "The Economic Implications of Housing Supply" by Glaeser and Gyurko (2018). This talks about how housing costs behave in different regimes. Oakland is squarely in the "price changes a lot because supply is inelastic" regime.)
Thanks for providing the numbers. I had written my comment based on vague memories.
But isn't the next question "how much does that 0.4% increase in GDP per capita increase demand for housing?" If the increase is more than 10,000, then demand grew faster than supply.
I think the scaling laws say that cities just keep on growing, so that would suggest that demand keeps pace with the increase in supply. Meaning if you want to decrease prices, the only thing you get to control is how quickly you race ahead of the increasing wave of demand. If you ever don't keep pace, you will be caught by a much bigger wave than when you started and prices will be higher than when you started.
I think we're making a lot of generous assumptions to get that 0.4%. In the Bay Area, there are many people who are consuming "less housing" than they would if the market conditions were more sane. They are living in smaller spaces with more people than they'd like, so if you build 10k units of housing, some of these people would choose to get more space. So the increase in population would be less than 10k for sure. Also, if you use the population of the Bay Area (whatever the definition) rather than Oakland, the scaling becomes much less impressive.
To your point about demand having to keep pace with supply, the thing that's missing from the discussion is that housing supply will keep pace with demand *if we let it*. And that's ultimately what YIMBYs are calling for, not getting 10k units out of the sky.
Glaeser and Gyurko really is instructive here (https://pubs.aeaweb.org/doi/pdf/10.1257/jep.32.1.3). They find that where housing regulations are light, like Atlanta, the amount of housing that gets built goes up and down a lot depending on demand, but the price stays fairly constant. This is in contrast to places like the Bay Area where the amount of housing construction is fairly constant (you can only build as much as you're allowed to), but the price goes up and down a lot depending on demand.
In the less regulated markets, the price is pretty close to the minimum profitable production cost (MPPC) of housing, which is how much you need to sell the house for if you want to acquire the land, physically build the structure, and get some profit margin. Basically, building homes is not particularly difficult in terms of technology or worker skills, so you can enter the market if you see that there's unmet demand for housing and, just as importantly, regulation allows you to build.
If your city gets bigger, this MPPC would increase, because you produce more per person (scaling) and so labor costs go up. Land costs go up as well, but they find that in lightly regulated markets, land costs make up a small proportion of the full construction cost. So as long as we let people build, the housing cost as a proportion of income shouldn't rise much, if at all.
The situation with the Bay Area is that the actual costs are way above the MPPC (x3 in 2013 according to the paper) because people aren't allowed to build enough. This is the context in which YIMBYs are calling for more housing. I think most YIMBYs would take a one-time infusion of 10k extra units, because that has to be a positive, but the real game is in changing the regulatory scheme so that supply can respond to demand better.
I am not sure I disagree with the end three points, but I feel like your argumentation extends beyond them in a lot of places.
And generally I would say that housing demand/density/desirability of a city is a net of dozens of complicated interrelated (and often synergistic factors) and you seem to just picking out one random driver and saying “this is the driver”.
I would especially note that in the Chinese example and in your later framing, you have moved on from just providing housing increasing prices to providing housing +staffed/built additional services.
(I tried to post this to the original discussion, but looks like I maybe forgot, so I'm rewriting.)
I think the main thing that you are missing is that demand to live in particular cities has a strong winner-take-all component. If you are a promising young person working in tech, the Bay Area is simply the best place to be, because that's where the best tech jobs are, because that is where the promising young people go. This coordination aspect generates winner-take-all, long-tail dynamics. The same is true for DC and government policy, or NYC and whatever-happens-in-NYC.
Okay, so what? What this implies is that, when you do the 50-city comparison, you have "winners" in the right of the figure, and "not-so-much-winners" on the left of the figure. The marginal effect of increasing density in a particular city is smaller than the figure would suggest, because the winner-take-all effects are not relevant for marginal changes.
As you said, Manhattan is more expensive than Conanicut. BUT, making Manhattan even more dense does not make it even more of the-place-to-be-if-you-are-a-young-journalist (or whatever). NYC is already a "winner" in this sense. If you want the kind of thing the Bay area promises, you already want to be there, limited by your capacity to afford it. Increasing the density may have some positive effect on the demand, but the large "winner-take-all" piece of demand is already taken. You won't attract even more top engineers; maybe you attract some marginal engineers, but that doesn't make it a better place to live.
This model implies that, IF you take some empty piece of land and make it attractive enough that I becomes "the place to be" for some class of people, you can start the virtuous cycle you mentioned. That's part of the promise of charter cities, as I understand them. On the other hand, if your city get a lot of its demand from being a center of some particular industry, and this industry disappears or moves somewhere else, the cycle starts working in reverse. This means you model is correct, but only for large changes in the desirability of a city, large enough that they change the Schelling point for some class of people from coordinating to live in city A to city B. But that can't happen just by increasing density a little bit.
Others have pointed out the importance of the Hudson river, which is likely why Manhattan was picked by the Dutch over Conanicut. I'd like to point out that being selected as the Dutch capital also played a role. If an identical ship with clones of the Dutch settlers had landed on Conanicut and started building an identical settlement at the same time Manhattan was being settled prices on Conanicut today would probably still be nowhere close to NYC. The Manhattan settlement was inherently more desirable for future immigration by virtue of being named the capital.
As a thought experiment, let's say Elon drops 2 identical colonies on Mars. He names the capital New Musk City and the other X^*DNS6, both with selected crews of settlers to make each colony function. Which colony would you chose to settle? I suspect NMC would wind up with higher population, higher density, and higher real estate prices immediately.
It seems to me that there's a natural model that goes something like this:
Given the national population growth rate (say, 1% per year), the demand for housing in any city is about 1% more than the current population.
The actual growth rate of the city is partially determined by the amount of housing that is constructed.
The price of housing depends on something like the *difference* (not the ratio) between housing produced and housing demanded.
All this is going to mean that if most cities are undersupplying housing (which seems to be the case outside the Rust Belt and parts of the Sun Belt), then bigger cities will have higher housing prices, and building more housing in the short term means you need to build even more housing in the medium and longer term to keep prices down. But if you can get your construction to do something like keep up with demand growth, then you can keep prices down.
Also, it seems to me that Scott is wrong to say that Raleigh, Atlanta, and Las Vegas aren't trendy - those cities are totally trendy. Raleigh is even a tech hub (this metro area includes Durham and Chapel Hill), and Atlanta and Las Vegas are two of the trendiest cities for people whose demographics don't match those of this blog.
His remarks about trendiness are either useless or false.
He can't mean trendy in a "fastest growth trend" way, because he asserts the fastest growing places are not trendy. (Seems backwards to me. Isn't a growing fad trendy?)
If trendy means "prices are high" then it's true that expensive places are trendy (tautologies are tautological).
This is something like the model I have swimming around in my head but hadn't been able to elucidate.
But also, I suspect that every city is destined to eventually become a NIMBY city. In NYC, even if the YIMBYs do a hostile takeover, enough skyscrapers would be built and people would move in that eventually NIMBYism would stage a comeback, and you'd be back in the undersupplying scenario.
I.e. this:
"But if you can get your construction to do something like keep up with demand growth, then you can keep prices down"
Will inevitably come to an end.
In which case I'm guessing bigger cities will always end up more expensive, but on a pretty long timescale.
Or are you claiming that his study is capturing smaller increases in supply, and large increases would raise prices?
"My claim is that increasing density within a city shifts the demand curve for housing within that city, because of increasing desirability."
Is density the key variable here? Ie, are you claiming that if a city increased the quantity of housing via sprawl, then it wouldn't increase amenities because it doesn't increase density (housing per area)?
Also, is your model that increasing density shifts the demand curve, or that the demand curve is upward-sloping in some section? I think both could generate the same result.
Finally, you don't discuss the counterpart to amenity effects: congestion effects, where increasing density makes the city worse (busier, noisier, etc) and reduces demand. To get the net effect on demand, we have to weigh amenity and congestion effects.
"If a city only built new houses, but refused to allow any new companies, restaurants, schools, museums, or other good things, then the new residents would have a hard time improving the city’s desirability, and house prices would go down."
Not necessarily. If the increase in housing quantity is from a shift in demand, then prices go up (since we move along the supply curve).
I think your opinion being probably slightly heterodox on this issue may be a result of your thinking being heavily influenced by being in California. For most places, I don't think the second order effects from more density would overtake the first order effects in any reasonable time frame. But of those places where it is likely to happen, California probably has a lot of them because of climate and already having existing desirable MSAs.
For Oakland in particular, I think being close to san francisco makes it a reasonably unique situation. I think it would become more expensive as it became more dense relatively quickly. That would put some pressure to decrease pricing in San Francisco, but I'm not sure the second order effects of having even more density nearby wouldn't swamp that effect in short order.
But I think you are overestimating the number of cities that will get much more desirable with more density. Outside of California, I'm not sure how many cities that would apply to. NYC has enough cachet that it will probably continue to get more desirable. Possibly Chicago and Boston might? But I think Houston is the relevant example for most of the country. If you increased density in Tampa, Orlando, Raleigh, Miami, Atlanta, Charlotte, Dallas, Nashville, Louisville, New Orleans, Birmingham, etc., some of them probably would turn into very desirable areas such that prices increased. Most of them probably would not. They would just look like Houston, with relatively affordable housing for how large they are.
I think your example would actually probably work better for smaller cities that could turn into a hot spot, particularly if they have some sort of existing appeal (e.g., mountain views, water views/access, "quaint" existing "downtown"). Places like Charleston maybe? Or lots of little mountain or coastal towns that if they get a little density in a center area, they seem to blow up in pricing, and have a relatively compact area where prices are in the stratosphere compared to nearby, drivable areas. But even then, I don't think it would take long to exhaust supply for them. Rarely would those type places keep growing into a thriving large metropolitan area.
San Francisco has a reasonable argument for being the single most desirable place to live in the world the past 40-50 years. It is odd to use it as a paradigm case of anything economics related. It is a crazy outlier.
It would be like trying to figure out how to develop a farm in Iowa by looking at the economics/tax policy of Miami beach.
Isn't that sort of Scott's point, though? Simple economic theories are sufficient to describe behavior in normal cities, but in a handful of weird outlier cities there are complicated dynamics that create counter-intuitive effects, such that we need more elaborate economic theories to describe them. And so while economists are assuming everything is a spherical cow, some residents of these cities are saying "hey, this non-euclidean platypus really exists, stop gaslighting us!"
Scotts main point wasn't totally clear to me. It seemed to be that he wanted to mainly say that building housing as YIMBYs want to doesn't always lead to lower prices due to induced/demand gentrification. But did a sloppy job of laying that out and made a bunch of related/similar claims that are frankly jsut false as well as making his thesis much more broad than necessary.
If he was just specifically talking about Oakland and Oakland alone in the first piece I think it would have gotten less pushback. Oakland is a weird place.
Hm. I'd been interpreting a lot of the non-focused parts of the posts as dealing with objections and poking holes in other people's theories, not so much suggesting a grand unified theory.
That is not what I took Scott's point to be. I took him to be applying his theory to cities in general. Otherwise it wouldn't make sense to put so much emphasis on the relationship of pricing and density across the US.
Conanicut (known to locals as Jamestown, RI) is a poor example. It’s actually only 10 square miles of land, less than half the area of Manhattan. For some strange accounting reason probably having to do with its extra islands, there’s a lot more water counted in its total area than makes any physical sense. It’s never been very populous, going from 500 souls in colonial times to 5000 now, but it’s a pretty expensive place to buy a house, despite the long commute to almost anyplace else (by Rhode Island standards).
Aquidneck Island would be a better example despite being larger than Manhattan. Newport has an excellent harbor and a more similar history to Manhattan’s, but has never been populous enough to fill up the island.
I think the poll question is slightly underspecified. If we're talking about average prices, then there's going to be some skewing due to the fact that half of the construction is shiny and new. I assume the question we're interested in, though, is how this would affect the prices of the existing housing stock.
i like the conanicut-nyc example a lot. here's an analogy intended as a contradiction to the inference you draw from it
i have two plots of dirt. i plant mango seeds in one, and in the other i plant nothing. a few months later, i harvest the mangos from the first plot, and fill a zip-loc bag with dirt from the second plot. if i go to the market and sell my harvest, the mango will command a higher price than the bag of dirt. i conclude that planting mangos raises the price i can charge per plot of dirt.
the next season, i plant twice as many mangoes in the first plot of dirt. when i go to the market, i find that in order to sell all my mangoes i need to lower the price. i conclude that planting more mangos per plot lowers the price i can charge per plot of dirt
finally, i plant an equal number of mangoes in each plot of dirt. they sell for the same price as in the previous season. i conclude that planting more mangoes across all plots lowers the price i can charge per plot
conanicut-nyc example is the first season, marginal increase in density in nyc is the second, and the third is building a second NYC in conanicut
the nature of the initial investment in housing (planting mango seeds) changes which market things are sold in. within markets, the normal rules of demand and supply apply.
this helps explain the ghost city example. ghost cities start out empty, and for a few years need to be cheap to entice people to live there, since the "nearly empty city market" has very low demand. once sufficiently populated, the ghost city enters the "normal city market", and has similar prices to other cities (determined in equilibrium taking into account preferences, wages, location, etc). then the usual rules of supply and demand apply: if the city has an inelastic housing supply, house prices will increase whenever it experiences demand shocks. absent demand shocks, increased housing construction will lower local prices (as shown in the papers cited by Matt Yglesias)
I don't think you can wave away the common causation issue so quickly. The agglomeration benefits that you are citing result from there being more people, rather than more housing units. I think it is a fair thing to say that in places with lots of pent up demand, if more units become available they will get filled. But if you really believe it is the housing units themselves, then you should get some investors and go build 100,000 housing units with schools, fire stations, etc. adjacent to a mid-tier city with a good airport, and then laugh all the way to the bank.
That said, it is just really tough to believe that the agglomeration benefits would exceed the effect of new supply because the conditions to make that happen are really extreme. Think about building new roads. That reduces congestion in the first order, and reduced congestion then causes people to take more trips, which re-congests the road to some extent. It's pretty normal that happens because demand for trips isn't fixed and depends on congestion. But your argument about housing is similar to saying building a road would lead to more congestion per unit of road, and it's hard to imagine that really occurring. That's because of someone was willing to take a trip at a higher level of congestion than exists today in the world with the new road, then why aren't they already taking it today? It's certainly possible to write down a scenario where it occurs -- perhaps the extra trips generate so much economic activity that productivity rises so much that additional trips become worth a higher level of congestion, but we'd all be rightly very skeptical of that.
So your argument boils down to assuming that, for a small incremental change in housing stock, agglomeration effects nearly always exceed the effect of increased supply. But I see no reason why that would be true or why agglomeration effects would scale in that way. Not every resident is going to continue in the same way to those effects. To take your Manhattan vs. Conanicut island example, it's certainly one thing to say that if the Dutch made Conanicut their capital it would have prevailed. But would that have happened if 1% more housing units were constructed in Conanicut back then? That probably would not have made a huge difference.
>but your argument about housing is similar to saying building a road would lead to more congestion per unit of road, and it's hard to imagine that really occurring.
To be fair a lot of urbanists (and even some transit "experts") really believe this despite it not being true and their basically being no data to support it other than a few horribly implemented projects, and even there it is mostly silly.
This is a great crux! People who are opposed to new highways because of "induced demand" are also usually YIMBY, and ditto for the opposite, at least in my experience. This contradiction seems like a great way to get them to reconsider at least one of their beliefs.
Yeah the induced demand argument for Freeways drives me absolutely insane.
So you will have some community, where say X people drive down a freeway each day and the drive time from 10 miles out is 25 minutes. They will add a lane. Now the drive time is 18 minutes, but due to that, there is slowly more development further out at Y as it is underpriced compared to commute time, and now 10 years later the drive time is back down to 25 minutes 10 miles out and the traffic is X+Y, and this is somehow seen as a giant failure of the Freeway expansion.
you will literally hear it "achieved nothing".
It would be like building a subway station and then seeing it as some kind of failure because businesses and apartments sprouted up around it and it got used. "oh it just got filled up and used, how worthless/why bother".
It being used is a sign it is providing value to people!
Yes if you are ONLY building lanes to cut down commute times, the results will (in some very specific cases) be time limited. But nevertheless there are results. And that isn't even getting into the issue of most metros don't have an infinite amount of growth.
So if you increase capacity on artery B, and it sees growth Y, now that growth didn't hamper arteries C and D. It has this bizarre view of urban areas where if we just stop building roads growth will stop. Instead of the area 10 miles out getting denser and commute times being 32 minutes instead of 25 10 years from now.
I am actually fairly urbanist in outlook and live right in a city. But the amount of denial about the value of car culture, the benefits many/(most?) people see in larger lots/yards and low cost/good school bedroom communities is insane.
It is all efficiency efficiency efficiency, who cares about human values!
Of course if efficiency is all you care about why not jsut build one mega acrology with coffin sleeping chambers and no private residences at all! An urbanists dream! Of course they don't want that, because almost everyone's vision of the "ethical amount of density" is "exactly the density I want and not one iota more".
Yeah. Those arguments also bug me, but I'm not as sophisticated as you about it. :-) Mostly I hate it when people are in favor of implementing their own preferred policies by making other people's lives worse, or preventing other people from making their lives better, in ways that are otherwise accepted as perfectly normal. It's this hideous passive-aggressive attitude that says "you're bad for wanting X, therefore you should suffer".
I don't smoke, I don't like the smell of cigarette smoke (as opposed to pipes or cigars), and I'm happy that the norm today is no-smoking. But I don't want smokers to **suffer** the way some people seem to. **shakes head**
Cars are great. So incredibly useful. I take public transit a lot, and walk and bike, but simply having a car for those other times is a massive enhancement in my life's quality. They're freedom on 4 wheels.
> The picture on the left is Manhattan Island, NY. The picture on the right is Conanicut Island, RI. Both islands are about the same size, the same climate, the same distance from the mainland. Both are near good natural harbors. In 1600, some early European explorer would have considered them basically interchangeable.
I'm sorry but this is completely wrong. Manhattan sits at the mouth of the Hudson river, which has been a major shipping lane since the days of the earliest settlements. It was easy to bring goods from throughout NY state to the city via the Mohawk river/valley and the Hudson. Maybe you could say it's interchangeable in that sense with Long Island, which is obviously also right there, but guess what? Brooklyn, the part of Long Island that's close to the Hudson and the Atlantic, was itself also a major port city before they merged into New York City in the late 19th century, and Brooklyn is only very slightly less expensive than Manhattan. After the completion of the Erie Canal in 1825, the Hudson became part of a pathway not only from the Atlantic to the interior of the Mid-Atlantic region, but also to the Great Lakes and Chicago, from where goods good be distributed throughout the Midwest. This made NYC even more important as a shipping hub for the whole country. It very much could not be replaced by some random island in the Naraganset Bay! The biggest competitors to New York as the most dominant city of the eastern seaboard during the 17th and 18th century were places like Philadelphia and Boston, which are also near significant navigable rivers, but can't connect as easily to the Midwest. New York's dominance is not an arbitrary accident, it was geographically determined.
"If a city only built new houses, but refused to allow any new companies, restaurants, schools, museums, or other good things, then the new residents would have a hard time improving the city’s desirability, and house prices would go down. I don’t know how realistic this is or how closely existing commercial regulatory easing tracks residential regulatory easing."
As a Planning Commissioner, I can tell you that we absolutely _could_ do what you're talking about here. And while I wouldn't suggest going as extreme as not permitting any new commercial construction, we could and absolutely should change the incentives around this. Because of the balance of what kind of income streams and expense streams are created by commercial versus residential development, from the perspective of city government, housing looks like a cost, and offices look like revenue. (This has to do with the Prop 13 property tax allocation system, how schools are funded, etc.) Of course if every city grabs for office-related income, and expects _somebody else_ to house those workers (or, more realistically, to house the lower-income service workers displaced by the office workers bidding up the price of existing stock), then you get the equilibrium we're in, where the Bay Area has more super-commuters travelling 3+ hours each way to work than anywhere else in the world.
My own city of San Bruno is trying to convince the state that we have a plausible plan to produce around 3600 new housing units, under the Regional Housing Need Allocation system. For anyone not familiar with this system, see: https://yimbyaction.org/rhna/
Let's just ballpark that this will house something like 6k adults and 4k children. A few hundred of those adults will be out of the labor force for various reasons (education, childcare, illness), and another slice of adults will be retirees, so call it 5k people with jobs.
Meanwhile, we _already_ have something on the order of 10k jobs in our construction pipeline. That is, our _plan_ is to make the jobs/housing balance worse. See for instance the Tanforan redevelopment. https://tanforanforsanbruno.com/
Hypothetically you could cut down the biotech office component of the project a lot, and build a lot more apartments -- both market-rate and affordable, if you want to do the Inclusionary Zoning thing ( https://bettercities.substack.com/p/everything-you-need-to-know-about ). It's not like the landowner would not profit on doing that. The offices are what yields the _most_ profit, but the apartments would still make money, especially if the city was saying, "Hey, if you agree to help us out with making our community more walkable and affordable, we will allocate staff time to speeding your permits through, and otherwise try to help you out."
You can find the odd example of cities doing this -- after much lobbying from local YIMBY residents, Menlo Park's Council and Staff worked with Facebook to cut a couple thousand jobs' worth of office space at the Willow Village project. In the process they got a few hundred units of low-income housing for seniors.
I've talked with a few officials (including a current County Supervisor and a State Senator) about the idea of making a formal linkage between job-creating development and residential development. So if your jurisdiction is in an area with a bad balance -- where a large portion of the people who work there have to commute in from 30+ minutes away -- then you _can't_ approve new construction that adds space for jobs, without being able to point to the linked housing, at a ratio greater than 1. So for a city with a serious deficit like SF, in order to build a new office or a new store, you'd need to point to where you'd issued building permits to house 2x as many people as we expect to be drawn in by the new jobs. For a city in less of a crunch it might only be 1.2x. You also can "trade" this linkage to nearby jurisdictions, especially for smaller towns where everything's closer together. (Subject to some limits and/or discount factors for distance -- access to transit at both ends, allowing speedy commutes, means the housing in that other jurisdiction counts more / in-full.) So if Berkeley adds jobs, and Emeryville is adding housing, Berkeley can take a community benefit payment from the developer, pass it off to Emeryville, and count some agreed-upon chunk of Emeryville's permitted housing towards balancing the commercial development.
There is not quite the will to do this yet. Commercial developers would of course hate it. But it would align the incentives of developers with the YIMBY impulse to just _make housing abundant_.
Also in relation to your survey question: "Suppose the city of Oakland, California, was randomly chosen for an experiment in which they had to build 25,000 extra market-rate housing units per year beyond their current plan, with proportional increases in the number of office buildings, schools, etc."
The problem is that you include a proportional increase in offices. If your city already has a bad jobs/housing balance, then doing proportional increases of both jobs and housing doesn't fix that ratio. If you built more housing, while adding _only_ commercial space required to service the needs of residents -- so, stuff like new schools and doctors' offices, but _not_ new offices that engage in activities that "export" relative to the local metro economy -- then prices would go down.
So my answer to the question is that prices would probably stay about the same -- but also, you're asking the wrong question.
It is plainly possible to change this ratio over time. The Bay Area has been building commercial space for around 10 jobs, for every one new housing unit, year after year, for decades. We just need to _stop doing that_, and _do the opposite_, for a similar span of time.
It's my understanding that high-rise residences can't be cheap, because of high maintenance costs.
Since I don't know how much of the city residences you are talking about fall into this category, I don't know if this is significant, however.
OTOH, the US SouthWest is full of "ghost towns" that were founded around one industry, and totally disappeared when that industry (often silver mining) went away. So density in-and-of itself cannot suffice. You need a more complex model. But it does seem to be a major factor, probably because it's needed to sustain the other things that make the towns/cities attractive.
I think you missed the culture points analogy. Suppose NYC builds more housing today. Immediately, housing prices go down because of supply. Demand stays the same, no one is going "Oh man that new apartment complex just looks so nice, I have to move to NYC so I can live in it." A couple years later someone who moved to the city creates the next Broadway and NYC becomes even more appealing because it has another culture point to make people want to live there, and housing prices go up because of demand. For a couple years, density reduced prices! Depending on how long you think it takes to invent the next Broadway, the reduction could easily last for decades, maybe even a century. That seems fair to describe as density reducing prices, even if in the long run it drives them up.
In some sense this is like the inverse of an R&D department in a profit focused company. Yeah, it's a money black hole, until you get a hit like mRNA, or transistors (although obviously AT&T did not benefit for transistors). In the short run, building more housing / doing research reduces prices / only uses up money. But as time goes on, the increase in density / research funding results in a higher chance of (culture points or mass transport or good schools or interesting sub culture arriving) increases / a profitable invention.
So to a certain extent, this looks a bit like a semantics debate. Since Scott sees the density as fundamentally enabling "things cities in general are known for", but from a microeconomic / commentator view, you have "the price decreases with supply, until unlikely and unrelated event or trend X happens to make the city much more appealing". They both agree that supply in a vacuum decreases costs, but Scott thinks the density enables the appeal of a city in the first place, and others think that whatever happened to increase desirability is weakly or not coupled to density at all.
I think one way to operationalize this more would be to develop some type of model and plug in various ways a city can become more appealing. For a simple example, have some demand function scale linearly/quadratically/slightly superlinearly with the existing density of the place and see how price levels change with increased density. And then introduce variations like having some density dependent probabilty distribution for suddenly becoming a cultural phenomenon and having a step change in desirability.) I'm not an economist, so I don't know if this model even makes sense or is feasible, but it can help distinguish different intuitions on the topic. Or even better, it can show that all of these models end up having similar behavior, and that leaves only a disagreement on interpretation, and not on ground level facts.
Personally, I think my internal model says that there's some inertia in consumer perception of desirability/affordability, which were formed before NIMBY-worrying amounts of population growth happen, at which point demand outstrips supply and prices go up. This lasts until perception or supply catches up. Of course the original perception relied on density in some sense, but quickly decouples when out of price equilibrium.
This seems a little inelegant and post hoc, but I can't control my folk psychology without an Econ textbook!
In such an Oakland, I would expect that most of the new houses built would be more expensive than the pre-existing houses, so both of the following would happen:
1. The average & median price of housing (new + pre-existing) would increase
2. This average & median price of pre-existing housing would decrease (probably from an absolute perspective, almost certainly compared to what the price would have been if the new housing had not been built)
You can view this similarly to expanding highways to deal with traffic congestion. If you believe more capacity will now increase demand leading to more congestion, then building more houses in a desirable city will lead to even more people wanting to move there making housing more expensive. If you don’t believe in more highways lanes leads to more congestion, then more housing leads to lower prices. But what I see is often people who believe more highway lanes lead to more congestion believe more housing leads to lower prices and vice versa which doesn’t make sense to me.
In either case if expansion is at a very large scale it can exceed induced demand leading to lower congestion or pricing. But given the high cost cities are often near water bodies/ nobody wants to cover costs of building new infrastructure to cover services required by population increase all new housing built will be only a small portion of demand
I think 60% of the contention here is simply from not keeping short-term and long-term distinct.
Building housing causes a short-term decrease in prices. This should (I think?) be uncontroversial.
Scott's arguments suggest building houses causes a long-term increase in prices. This is controversial.
Most of the commentors who seem frustrated by Scott's "stupidity" seem to conflate between the two. To wit: I don't think there are *any* studies with credible claims to causation examining the long-term effects of building more housing on home prices. It doesn't seem like a settled issue at all.
I think you've done a great service with these two posts. The fact of the matter is demand when it comes to places is really not as well-understood as many pretend it is.
In 2017, at least, I was in a ghost city that really was a ghost city. Annoyingly, I can't remember the name of the place, but it was near the East coast, as it was a relatively short journey away from my city around there. My work went on a retreat there, and I was literally walking down the middle of a centrally located, multilane highway at about 11am. It was very foggy on this highway, too- very eerie. Empty skyscrapers looming out of the mist as I walked.
I think, to be fair, there was part of the city that was normally inhabited. There must have been, or else why would we have been there. But the part I was in was classic ghost town- big, empty skyscrapers without an actual human in sight.
Hey, you know what *else* fits this model of "as its size and density grows, its attraction increases, along with its output"? (And smaller ones also form around it...)
In a crowded city, we will simply see the most potent industrialists, cultural producers, and service workers win out in the contest for housing and access to the local market. There will be increasingly stringent selection for quality and productivity. As the song says, "if I can make it there, I'll make it anywhere. It's up to you, New York, New York."
This can potentially be beneficial in hiring: if you know that only excellent programmers can make it in San Francisco long-term, then you know that your hiring pool in San Francisco will be dominated by the nation's best programmers. And if the nation's best programmers know that only the best employers can afford SF office prices and worker wages, then relocating to SF is a good way to get access to the best employers, even if you don't have information about their company internals.
Keeping a city artificially small can be seen as a way of ensuring you are primarily living with the best of the best - it's like a gated community on the scale of a city. Others have commented that artificially keeping a city small can make it feel "trendy," but I think it's more than just perception - I think it's a real selection effect and that people are accurately perceiving that any given person they meet in a "trendy" city has a substantially increased likelihood of being "interesting." We all have limited time and access to information. Having such a powerful stereotype at our disposal for pre-selecting candidates for employers and employees, friends, and marriage partners is a valuable thing for anybody capable of thriving in that environment.
If new housing stock were built in Oakland and the population of potential immigrants competed for it, the winners would be those who'd stand to gain the most from living in Oakland. Presumably, they'd mostly be motivated by access to unique educational or job opportunities, opportunities at which they expect to be competitive or that offer uniquely high rewards. Since most of these immigrants would not have family in Oakland and could access things like natural beauty more cheaply elsewhere, they'd probably be selected for high job performance. Companies like Facebook grow at incredibly high rates, so I expect there would be plenty of opportunities to absorb the newcomers.
So making room for up to 5% population growth per year by increasing the housing stock seems like it might increase demand modestly in the short run. As the newcomers upskilled and started launching their own companies, as cultural scenes get established to service the other residents and attract additional immigration, and as residents gain a sense of identity with the city, that effect would probably increase. When they started families, the effect might increase even more.
Overall, my model is that building additional housing stock mainly just makes housing cheaper in the short run, but that it generates additional demand for that housing via business, family and cultural network effects in the long run.
However, I also think those network effects saturate eventually and are becoming less potent over time, with remote work, video calls, cheaper travel, dating apps, translation apps and the increasing global dominance of English, more ways to network and find jobs, and streaming culture all making it easier to access the benefits of the big city and connect with loved ones wherever you are. I think this will be even more true over time, with AI being potentially the most disruptive of all. So my conclusion is that building additional housing stock most likely just makes things cheaper, with any long-run effects on driving up demand tending to saturate and become less important as our economy finds all sorts of technologies to give us big-city benefits without paying big-city prices.
I'm a YIMBY-oriented scholar with a PhD in economics actively working on housing, and I chose the middle option ("no strong beliefs") in Scott's poll. Here's why - and I think this is the fundamental misunderstanding between pro-housing people like me and his recent posts.
Scott's experiment isn't a "housing growth" experiment, it's a "city densification" experiment. Crucially, he requires "proportional increases in the number of office buildings, schools, etc". That is, the experiment would increase office space at the same pace as housing *even though office vacancy rates (19%) are far higher than housing vacancy rates (~1.7%)*.
Oakland is a pretty balanced city: as best I can tell from simple Census data, it probably has a jobs/residents ratio pretty close to the California average (by contrast, SF has twice the state jobs/resident ratio). If Scott ran his experiment in a bedroom community, or stipulated that office space is left under current regulations, I'd have an easy time coming down on the "less expensive" side of the ledger.
The point of the YIMBY movement is that housing faces uniquely strict regulation. California cities (and those in some other states) believe that offices and industrial uses are "taxpayers", generating more revenue than they use in services. Housing is viewed as a fiscal cost. Regulation ("fiscal zoning") and discretionary decisions have reflected this bias for decades. The result is headlines like "SF added jobs eight times faster than housing since 2010."
If Oakland upzoned citywide, it would likely receive a disproportionate amount of residential growth relative to offices and industry. That would lower rents relative to the baseline trajectory.
Scott's question feels slippery because at first it *sounds like* he's asking, "what would happen if we built a lot of housing?", but in the details he's asking, "what would happen if this city densified without changing any proportions."
The second, detailed question doesn't neatly correspond to a simple comparative statics exercise in an Alonso-Mills-Muth city model. Depending on a variety of things like the congestion elasticity, people's taste/distaste for density, and the degree to which regulation has held back density in the baseline, the price effects could go either way.
I think the main problem here is that people are confusing micro economics with macro economics. The stuff about supply and demand curves are classical micro economics. When you are talking about nation-scale stuff over a couple of years, we are talking macro economics. Most people in this comment section are talking about Econ 101 (where they usually only teach micro) and about papers which are also from the realm of micro economics (or at least I haven't seen a single macro paper posted here)
Scott is not only talking about macro, he is also talking about long term (several decades). So not only does micro no apply at all, even most of macro does not even apply. The number of rules and papers we can look at for this issue, is very limited (e.g. Kondratiev Waves would fit the scale, but seem somewhere unrelated to the issue).
Micro still applies to the price of housing in a city, which is a single commodity of local scale and adapts quickly to changes in supply and demand. And price of housing in a city is the subject of discussion.
Macroeconomic concerns can increase the absolute demand for housing in a particular city (or decrease it, see e.g. Detroit). But that happens independently of how much housing people build there, and if you're trying to predict price changes you're back to applying microeconomics to those absolute supply and demand changes.
Henry George gives a reason why more populous cities have such high land value in Progress and Poverty in book 4. It's long so I won't put the whole thing here, but the point is:
"The presence of other settlers the increase of population has
added to the productiveness, in these things, of labour bestowed
upon it, and this added productiveness gives it a superiority over
land of equal natural quality where there are yet no settlers."
(and thus land in a major city is worth much more than an equal amount in the wilderness, and this is a good thing if the value is well-distributed)
The real answer to the Manhattan vs Conanicut Island question is that Manhattan is built on a giant magic crystal that attracts winners from around the globe. EVERYBODY knows that!
Yea, I think your flywheel of more people move, create more culture, prices go up misses a qualitative measure, and the austin vs Houston thing captures it. It’s more like institutions and people aren’t evenly distributed, so some areas will create faster culture flywheels that act like a turbo charger to simple supply and demand. Yes, you can probably outrun it with enough housing, but it’s harder.
If increasing density increases prices, should we also expect decreasing density to lower prices? If we therefore stop building new houses, would we expect prices to go down?
Someone upthread pointed out that Hurricane Katrina significantly lowered prices in New Orleans by destroying most of its buildings and lowering its density.
The options for the poll question don't quite match between the version presented in the post and the Google form. I would answer them differently, and I don't know which interpretation you're going to go with.
I still think the majority of arguments and thought experiments presented here are either smuggling in an assumption that demand will keep up with supply and thus assuming the conclusion, or are something I think is flatly wrong. Ex: if you kept the supply of housing on Manhattan low by attacking settlers, the price of housing would in fact be very high, because it would have to include the expeditionary force dispatched to defeat you. This is not a quibble, it's the whole effect!
When you drop the tails argument to focus on the marginal case, I think you do a lot better:
> That is, yes, you’re all correct that cities are only expensive in the context of more demand for city housing than the (NIMBY-constrained) city housing market can currently supply. You are all correct that if this problem were solved at the national level, then city housing would be cheap, and every additional city house would make it cheaper.
>My claim is that marginal changes - like Oakland building an extra 10,000 units, but everyone else staying the same - will most likely increase Oakland prices. Yes, if Oakland unilaterally built 50 million units, that would soak up the entire excess demand and probably lower prices everywhere (including Oakland). Yes, if the entire US switched to good housing policy at the same time, that would probably lower prices everywhere (including Oakland). But if we don’t do any of that stuff, and just build another 10,000 houses in Oakland, I think it would probably increase prices in Oakland.
A lot of NIMBY energy focuses on state-level zoning preemption due to the recognition that there's a lot of incentive for municipalities to defect against each other, where higher-level entities can capture the whole agglomeration benefit. I disagree that this will specifically drive up prices at the margin, but it's certainly true that there is no small change that Oakland can unilaterally make that will fix housing in Oakland.
I’m sure it’s already been said, but the Chinese housing prices have more to do with the fact that the middle class is using housing as a store of value than with density. Kind of absurd for Scott to not notice.
Let's accept that building housing is a coordination problem because prices go up locally unless there is new construction across the nation.
Shouldn't that lead to declining prices? Hear me out! Say you're the local in charge of your municipality. Incumbent residents don't want the prices of their assets to go down, they want those asset prices to go up. What do you do?
If you're smart, you recognize that you need to build more housing. This will attract more people to your area and drive up housing prices, which will make you popular and get you reelected! This becomes interesting from a game theory perspective, since if everyone does this, prices don't rise but rather fall because the total supply of houses in the country increases.
But remember that you're the local official, not the nationwide official. You're accountable to the local residents. You didn't directly cause the drop in home values in your municipality. That was caused by a global phenomenon, not a local one.
In reality, the voters will probably not see it that way and will blame you anyway because you built more houses. ALSO in reality, we're far from that scenario and haven't seen it in the political memory of any voters. So Scott is saying there's this stack of $100 bills lying on the sidewalk waiting for some intrepid muni planner to come collect. Why isn't anyone cashing in on this money printing scheme?
Just popping in to propose my pet theory regarding Chinese Ghost Cities: guanxi dumps. Guanxi is basically an informal economy where favors are exchanged. So in addition to the ordinary economy (with Chinese characteristics!) of China, there's this parallel economy of favors. I'm not sure how one would measure the 'dollar value' of the outstanding favors in the Guanxi network, but the total dollar value of outstanding favors is possibly as large (or larger?) as the regular economy. Moreover, when a favor is paid back with a returned favor, the returned favor is expected to be more valuable than the original favor, but the growth in 'favor value' isn't pegged to any banking regulations or national fiscal policy - the increase is decided between the two favor exchangers based on personal circumstances and changes in social status. The upshot of all this is that the shadow Guanxi economy can rival the size of the regular economy, which would be a problem when there's not enough actual money available to cash out all the outstanding favors if there's ever such a thing as a 'run on the guanxi bank'. And since the growth of the guanxi economy can easily outpace the growth of the regular economy, this precarious situation will worsen over time. How to mitigate the risks caused by a bloating Guanxi shadow economy?: Guanxi dumps. I call a guanxi dump an enormous and sorta-designed-to-fail megaproject that can absorb and destroy a huge amount of outstanding guanxi debt. You give someone, as a favor, an opportunity to jump the line and be the first to purchase a unit in a new building in a new city, or you pull some strings so they can get a discount, whatever. The point is that you paid back a valuable favor. You couldn't have know that the city would stay empty and the apartment would be worthless, right? After all this was a government project? You think I should know more than the government? Plausible deniability allows such projects to burn off huge amounts of guanxi, thus stabilizing the actual economy.
I want to push back on the core assumption behind Scott's induced-demand hypothesis: that there is a large "pool of geographically mobile Americans" who "prefer any big city" but are basically agnostic on which. This assumption should be fully rejected.
Consider a small set of the variables influencing wanting to move somewhere: (1) proximity to existing family and/or friends, (2) potential care obligations to aging family, (3) jobs in general, (4) jobs in a specific industry (or pair of industries for a couple), (5) a job for a specific current employer, (6) housing in a size/configuration/condition amenable to that household's preferences & budget, (7) weather, (8) specific outdoor recreation (skiing vs golf), (9) cultural activities in general, (10) specific cultural activities (theater vs country music), (11) affinity for certain vibes, (12) aversion to certain vibes, (13) fear of natural disaster risks, (14) childcare options, (15) accessibility needs for current or expected disability or infirmity...
Each potential migrant to a city has all of those preferences, multiplied in complexity by the constant change in how well each city actually matches them, multiplied *again* in complexity by each person's *perception* of each city's level of matching to those preferences (people don't operate off universally held perfect information). Some of these variables correlate with population/density, others don't. To assume that all these variables cancel out in aggregate is making many giant assumptions all rolled together.
Scott's own opinions (valid but idiosyncratic to his preferences) about which cities are trendy versus which are "unfashionable red state Sun Belt cities" reveals the heart of the matter: Dismissing the Sun Belt cities despite their huge population growth illustrates my point, that there is no giant bloc of location-agnostic people so attuned to marginal housing supply changes that they will be induced to move to a city which constructs incrementally more housing.
If "Austin vs Houston" is cherry-picking a strong case, then "Conanicut vs Manhattan" is quite obviously even more blatant cherry-picking. You just can't state "these two islands have the same natural factors and the *only* difference between them is that one has higher density", call that a "natural experiment", and then say that comparing Austin and Houston is cherry-picking.
The ghost city case is also very illuminating: Just building the cities (i.e. increasing density) didn't do anything to increase the price. In fact, when the cities had just been built, no one wanted to buy the houses. It took the CCP actually making people build *other stuff* that made the cities desirable for people to move there - which pretty much just goes to show how, by itself, density does not increase the desirability (~price) of housing.
I'm going to say 2 based on the review of Seeing Like a State and the Brasilia example. It's another case where a state built a city in the middle of nowhere, but this time they moved their capital there. The driving force for migration to (the suburbs of) Brasilia seems to be that lots of people wanted to move closer to the corridors of power (I presume this is heavily weighted towards the middle and upper classes), but this was counterbalanced by an even stronger desire not to live in a High Modernist experiment: "Yet twenty years after its construction, the city’s capacity of 500,000 residents was only half-full. And it wasn’t the location – a belt of suburbs grew up with a population of almost a million. People wanted to live in the vicinity of Brasilia. They just didn’t want to live in the parts that Niemeyer and the Corbusierites had built."
So one of the factors for hypothetical future Oakland is whether you let the descendants of Le Corbusier build those new houses.
I’m confused why Scott is making such a big mess of this. It all sounds like so many other arguments that boil down to basic economics. See if this sounds familiar... an Activist vs. Economist “debate.”
A: Raising the minimum wage is good for workers.
E: No it’s not, it will hurt them, demand curves slope downwards!
A: You’re wrong! You need to get beyond Econ 101! There is monopsony power/ inefficiencies/shifting demand curves/shifting supply curves/more money coming into the economy etc. And here are some studies that show that raising the minimum wage [modest amount in limited area] did not adversely impact workers in the aggregate over the timeframe of the study!
E: OK, then let’s raise the minimum wage to $100 an hour to make it really good for workers!
A: That’s just dumb, no one is talking about that kind of raise, why are you being ridiculous?
That’s when talk stops. The economist’s point is that there is a number between where the minimum wage is now and $100 an hour that makes life demonstrably worse for workers by whatever criteria you want to judge them by. The hell of it is there isn’t any way to know that number in advance because of the things that are brought up in support of the raise. Things happen when prices are changed. As the price rises things in aggregate will look and be messy but at some point the Econ 101 intuition of demand curves sloping down will assert itself in the overall market and it will suck for workers.
The housing situation is like an inverse echo I think. What will happen to housing prices as more supply is built? The Econ 101 intuition is that prices will drop as supply gets larger. Scott says no, they will rise as density increases! When pushed he says, “Fine, if you build, like 50,000,000 homes then sure prices will come down but until then Oakland will just get more expensive .”
Sorry Scott, that highlights the weakness of your argument. Prices will come down eventually as supply catches up with demand. Yes, there will be a period of time when things could go either way, or maybe they reverse directions a few times as Oakland gets flooded with housing. But eventually the demand for living in Oakland will be satiated and housing pricing will start to decrease monotonically as more housing gets built. Demand curves cannot be pushed out forever, it is why I would bet that it would not take 50 million housing units to get to the point where housing prices decrease predictably. What number would it be? I have no idea, no one can know in advance.
The obvious answers to lower housing costs are to either build more houses or make the city less appealing. Hell, maybe making enough housing will make the city less appealing! As you noted, building more makes most better off in the aggregate as more housing gets built. So let’s build!
Just FYI, the recent increases in Minneapolis and St. Paul to 15 an hour have been found to have hit both raw employment and hours worked, such that total earnings fell noticeably.
The economist comes off worse in your dialogue. He’s the supposed expert but the activist is right here - the empirical evidence is that minimum wage doesn’t act like economists claim and yet the simple version of unemployment is taught at university level.
Speaking as a resident of Raleigh, I really wish it was unfashionable. Sadly, it is one of the fastest growing cities in America. Crazy changes in the past decade as it has gone from the "City of Oaks" to the "City of Apartments".
I think Oakland is a bad city to use for your example because you live there, so you're naturally biased to view it as more trendy than it really is. Most people in the Bay Area think Oakland is a terrible place and we would never want to live there. Most people in the US think Oakland is full of poverty and crime, which it is. It's really not trendy like New York. New York is uniquely trendy because it's the largest pre-suburban city with things like skyscrapers and subways. Most American cities really aren't trendy. The vast majority of Americans live in boring cities for boring reasons like work or family. Of course, everyone in Denver thinks that Denver is super trendy and basically the center of the universe. As do people in San Diego and Austin and Albaquerque and Tucson. And they all have 1 thing in common, which is that nobody outside of those places thinks that they're trendy.
Yeh. I last lived on the Bay Area in 2003 and that was the attitude then. It’s possible that it gentrified since, however building more units in Oakland in an era where urban populations are falling in California won’t have the consequences that Scott expects.
> Unless someone wants to claim that its failure to build housing helped turn it into a trendy tech and culture hub, I don’t think there’s much point to this comparison.
Devil's Advocate time!
Maybe trendy things are caused by people who prefer to live/work in less-dense areas.
I imagine this being more-likely to be true for tech founders than for bohemian artists. Like, this seems to explain the Bay, but not NYC.
So the Devil's Advocate comes out as "maybe surprisingly right sometimes, but probably wrong other times". Seems worth mentioning.
missing consideration: price modulates what sort of people can afford to live there, which has a huge effect on the aggregate amenity provided by density. This is why Houston doesn't become the next NYC even though people are free to build a zillion houses there at low cost. Prices need to stay relatively high while the city is expanding, to filter in-movers sufficiently to keep the city desirable.
6. Eyeballing that chart, to a first approximation a city is trendy and liberal if and only if it has housing prices >$200/sqft. Trendy and liberal is also approximately synonymous with "not prole". A city becomes trendy and liberal by having prices high enough to make its population relatively enriched with non-proles and depleted of proles. So I kind of am making the argument that NIMBY policies were a necessary but not sufficient condition to turn Austin into a trendy tech hub.
Land, demand, scarcity...what about the fact that, on the margin, it's way cheaper to build a new apartment home than a new mansion? That's the policy choice on the table. On tons of our most valuable land, it's illegal to
a) Share the price of that high land cost with others
b) Share the cost of building exterior walls with others
c) Share the cost of insulation with others
d) Share the cost of walkable amenities with others
This all offsets some of the higher land costs (i.e. the value people receive from living in a more desirable location, e.g. due to job availability). People we let live in apartments have lower transportation and utility costs than those we force to live in mansions, but that's not counted in housing costs.
Also consider the enormous subsidies we provide to residents of low-density areas: freeways, underpriced emissions, more costly infrastructure like garbage, etc.
Put it all together and I don't think your conclusion helps us devise better public policy.
Section 2 seems accurate. You ignore the counter evidence which supports the culture/amenities model proposed, e.g. Boulder Colorado and similar small, but very expensive, cities.
I think Scott's argument exemplifies a subtle yet common statistical fallacy which involves treating ensemble samples and time samples of statistical processes interchangeably. This is in general not possible unless you assume ergodicity.
Let me explain: roughly speaking, we call a statistical process "ergodic" if its mean over time converges to its ensemble mean. For example, one might sample a bag of identical coins by flipping one coin a hundred times or one-hundred coins once. If computing the time average of the first approach and the ensemble average of the second approach yields roughly the same result, say 0.5 (assigning 0 to tails and 1 to heads), one might conclude that the coin-flipping process is ergodic. However, if one finds that the ensemble yields 0.5 and the time average e.g. 1 ergodicity is broken. This might be the case, for example, because the coins are initially fair but have some hidden switch of the kind "if the first flip results in X then all future flips result in X".
Now let's look at US-cities instead of coins and sample their density and housing cost. If we sample individual cities over time, Yglesias and many commenters here tell us that at the margin housing cost decreases with density. If we sample the US-ensemble we find that housing cost increases with density. At first sight this might appear contradictory leading Scott to reject the studies lest we incur an "unparsimonious pricing function".
But this only holds if the system is ergodic. If ergodicity is broken, it is perfectly fine to have a negative density/cost relationship for individual cities, yet a positive relationship in the ensemble. Cost as a function of density over time then just looks different then cost as a function of density over the ensemble. Note that Scott's depiction of the "unparsimonious pricing function" mixes ensemble samples and time samples (for Oakland).
What might cause ergodicity breaking in this setting? I claim Scott's examples are a much better fit as candidates for "hidden switches" in a non-ergodic setting than for his theory that density increases prices. Says Scott:
"The obvious answer is “the Dutch chose to build their colonial capital on Manhattan, more and more people moved in, it became ever denser and more urban in a virtuous cycle, now it is very dense and urban, and, in the current regulatory regime, dense urban areas have higher housing prices than empty rural ones.”
If back in 1624 the Dutch had decided to build their capital on Conanicut, maybe today it would be a city of 10 million people, and Manhattan would be an empty rural area. In that case, I would expect Conanicut to have 4x the house price of Manhattan.
If I were a Native American living on Manhattan, and I was committed to keeping housing prices there low, I would ask the Dutch to build their capital on Conanicut instead."
He would *not* ask the Dutch to abstain from building houses in Manhattan but from making it their colonial capital. Manhattan becoming the site of the Dutch colonial capital flipped a hidden switch that put it on a trajectory towards higher housing prices as it became a much more attractive place to live. Likewise, further switches had to be toggled to make New York what it is today (e.g. it becoming the site of Wall Street, the Statue of Liberty, Broadway, the Central Park, the Guggenheim Museum, etc., etc.).
Finally, Scott argues that greater density puts a city "more at risk" for such hidden switches to be flipped. I will concede this, however the citizens of democratically governed cities usually have a choice to flip such switches. While you usually do not have much say over becoming a colonial capital, you can reject gifts by the French that turn your city into the epitome of the American dream. So if you are a city dweller and you want lower housing prices above all else, vote in favor of greater density and against huge woman-shaped metal statues that ask the world to give you its huddled masses - simple enough.
Tl;DR: Scott looks at ensemble data but cities are likely non-ergodic processes so this tells us little. Scott's examples are more compatible with the kind of "hidden switches" that can cause ergodicty breaking than with his thesis of density driving housing costs; if you want cheap housing vote for greater density and against nice things in your neighbourhood.
I think point 2 in your final thoughts is just the whole game. All the evidence you discussed points to this. More housing reduces prices in the short term while agglomeration and a 'trendy' reputation take time to increase demand.
I suspect it is actually quite easy to 'outrun' these effects by constantly building more housing. This is at least as plausible an explanation for Tokyo as the one you give. If you ever stop building (like NY, SF and most US cities) you get higher prices than if you hadn't built in the first place. So just don't stop.
This is entirely too many words to say "in a highly constrained and inelastic regional housing market, if only one city builds more housing it might just soak up the demand from everywhere else and not get cheaper, so it's preferable for the liberalization of the housing market to be done at the regional level". This is a reasonable point to make and you could've just stopped there.
However we have data from Auckland which says that even modest upzoning in a single city can moderate housing prices locally. Auckland is no longer the most expensive city in New Zealand and all they did was allow townhomes to be easily built. So just making the supply of housing a little more elastic can go a long way.
Your whole "Manhattan vs. some unpopulated island somewhere" is a pretty dumb thought experiment barely worth engaging with.
I see no reason to doubt the published data on the effect of building housing on local prices. If for whatever reason science isn't enough to convince you, you can also check out landlord/RE investor forums to see property owners griping about having to lower rents because of new supply in the area.
Real estate has always been valued and continues to be valued. Somewhere it becomes more expensive, somewhere cheaper, but real estate itself as an asset always remains relevant. I would like to recommend you a good real estate agency and there are realscout customer service https://www.pissedconsumer.com/company/realscout/customer-service.html of them, so that you can always easily and quickly find what you need.
It's actually not a picture of Kangbashi, but of Shanghai.
Thanks, thought I was going crazy trying to match the river in Ordos to the one in the picture.
This is a good article, but that is an embarrassing gaffe on multiple levels. It's about as bad as unknowingly taking a picture of the Manhattan skyline with all its famous buildings and calling it Rhode Island to American readers. Guess "micro fake news" makes its away around even the best of us.
On the "Do you have a degree in Economics?" question in the poll, there's no answer for "No". Was the bare "Yes" first option (seemingly overlapping with the other two options) intended to be "No", or do you only want respondents with econ degrees?
I can't tell if it's a joke about us or not. lol
Assume an economics degree!
Or assume that we're all going to opinionate as though we have economics degrees 😁
I think the reason the argument is confusing is because density of people causes prices to go up because of increased demand, but your original writing implied dense housing causes a density of people. This isn't true -- people can (and do) stack bunk beds in an sfh too, when there isn't enough other kinds of housing. Conversely, creating a bunch of dense housing doesn't cause people to move there
I think you're right that density of housing and density of people aren't 100% correlated - but they're very strongly correlated, enough that you can generally use one as a proxy for the other, and where they diverge, one will often catch up with the other over time (like the Chinese ghost cities).
I think to the extent you can artificially restrict housing supply, maybe, but people can live in RVs, garages, attics, living rooms, and bunk beds if there isn't enough suitable housing. Palo Alto still basically forbids buildings over two floors, and you've got a lot of "hacker houses" that are 16 to a house where a bunk bed costs $2k/mo that you just aren't going to find in the middle of nowhere.
Either way, isn't that the main problem with Scott's position? If you assume that new housing induces matching demand, of course supply increases can't outstrip demand increases. The level of correlation is the key issue. The poll also just assumes the answer.
Yes, I think he conflates "density" with "housing supply". He says, for example, "The least dense US city, ie the city with the lowest housing supply".
Density of people implies some kind of desireability, as long as people have any kind of options, so to say density increases desireability is a circular argument. But that is very different from claiming building more housing increases prices.
This seems like a gentrification argument. Someone builds new units somewhere cheap (e.g., Tenderloin), people flood in to those units at higher prices, some can't get into the new units but decide on nearby old units at higher price, the restaurants and coffee shops follow, prices for even the old units rise, neighborhood changes, etc. Now do this at a city level: Denver becomes hip, in part because builders are building cool new places to live, people move there, not all of them are soaked up by new units, increasing price of old, new units come along with nice amenities that raise prices for old units that benefit, prices rise in core, driving people further away, less popular cities lose some folk so their prices decline, rinse and repeat. I still don't think the building of units alone raises prices, all things equal. And the process can unwind very quickly (see Detroit). But if Amazon moves into the neighborhood, requiring building of new units, those units are almost never sufficient to offset increased demand leading to increased prices. And the division of labor in USA is pretty clear, for purposes of network effects: NY owns money, with some entertainment thrown in; LA owns entertainment, with some etc.; SF owns tech, with some etc.; Dallas/Houston own energy, with some etc.; DC owns gov't, with some etc.; Miami/Tampa own latin america, with some etc. So there will be continuing demand for the limited seats at those tables.
I think Oakland is in a tech boom, and so hosting would crash after 10 years for reasons largely unrelated to housing policy. Maybe a more neutral city, like Buffalo or something would be better?
Calling Buffalo "neutral" is way off. The median sale price there is $180K (https://www.redfin.com/city/2832/NY/Buffalo/housing-market), which is basically at replacement cost. There's no point in building new housing there because demand for housing is so low.
I don't know if there's any city we could really call "neutral". It seems that just about every major city is either a trendy, expensive liberal city with high housing costs, a Rust Belt city with very low housing costs, or a Sun Belt city that's currently already building enough housing to keep up with demand. The experiment is really only relevant to the first category.
Nashville or Dallas or Atlanta. Minneapolis. Those are closer to “median” situations.
Oakland is not in a tech boom. The Bay Area is in a tech boom and Oakland happens to be one of the cheaper city in the Bay Area because it's full of disamenities like poverty, public housing, and crime. Nobody in the Bay Area thinks that Oakland is trendy except for people in Oakland.
I agree about the Bay Area more than Oakland being in a tech boom and due to arbitrage the prices of the Bay Area move in a general direction. However, one consequence of this change is that if prices in Oakland rise it is able to address the disamenities which means that it should prices should rise faster than the average of the Bay Area (it rises with the average and then because of windfall taxes it's difference to the average should shrink). A consequence of this is Oakland has above average investment for the Bay Area which makes it trendy.
To add some more to the idea of Chinese housing markets being weird, from what I've read, the demand is driven by extremely unique factors:
"Chinese average wage is not that different from America, just about 45K to 55K depending on region. But, in China, if you are not a homeowner and you merely rent, then you cannot use public education. And private schools in China are exceedingly rare, extremely expensive, and not very good for the most part... A lot of times, multiple homes are bought because people have multiple kids. If it’s a boy, well, he’s gonna need a house in order to get a wife. You don’t want him to be forever alone, right? So if you have three boys, for example, you’ve got to work hard, save money, and buy each of them a house... If it’s a girl, well, lately, women have been complaining about the lack of security living in a husband’s house that doesn’t have your name on it, with nowhere to go if you have a fight. A lot of women have been saying that it’s sexist to not also buy your daughter a house. So, it’s not really a holiday home or rental income, it’s more like future marital home for your children... At some point, the government tried to address the problem that university degrees are becoming less and less valuable. The way they decided to do this is to put a hard quota on middle school and high school graduation. Only 50% of middle schoolers can graduate to go to high school. Only 50% of high schoolers can graduate to go to university."
https://weibo.substack.com/p/040923-faq-answered
So, to raise children you desperately need to own a home; the price of a new home is beyond what most young adults can possibly afford; parents buy homes in anticipation of their children getting married, simultaneously giving them veto power over spouses they dislike.
Yeah... all of that is true and weird in a way. I'm not sure it's any more weird than an American individualistic insistence that who you marry is only ever the individual's concern, and anyone should be able to move anywhere and go to any school without any thought of whether they'll have family to help them...
Do you see what I mean? Obviously, China is weird. But the idea that people live in a single place (and so their children's school places should be in that location) isn't weird. It's normal in most of the world - the USA is a spectacularly mobile outlier. And the idea that it's worth letting your family have a say in who you marry is no more than old-fashioned. Half the Shakespeare plays are about this kind of thing!
I don't think there's much in China (certainly not in the systems that you describe here) that isn't quite easily explained by being generally poor (China's still only a middle-income country) and a bit traditionalist in its thinking.
I think parental involvement in marriages is the least weird part of what I quoted. Tying access to education to homeownership seems like it must warp home demand to an incredible degree, especially when intensified by the most severe case of grading on a curve I've ever seen.
Like, the 2017 NYC Housing and Vacancy Survey says over two thirds of NYC residents are renters. Imagine the price of owning a home there if it was also a requirement just to send your kids to school.
Yeah, it's weird, I suppose. It's not obvious how weird. If you have a desirable school in a US city, the prices and rents around that school go up, right? So you can end up with two very similar apartments with very different rents because one is just inside the school catchment area (school district? I don't know the American term) and the other just outside it. That's "weird," isn't it?
I just think, there's always going to be some administrative tool that you use to decide school places, and it's always going to throw up some weird effects.
What's actually weird about China isn't how they allocate school places, it's just that there aren't enough of them. In Shenzhen, which is our Bay Area, there is a 25% shortfall in public school places, so predictably Shenzhen is where a lot of good private schools are being built.
I still think you're falling into the trap of saying: this is how America does it, so that's normal. Like, should 2/3 of a city's residents be renters? That means that there's an awful lot of landlords there (something that China is historically a bit sensitive about!).
I think it's weird because there aren't many obvious benefits to denying renters access to public education, and what look to me like fairly obvious negative externalities. Presumably a government offers public education because it is good to have an educated populace. Cynically, we might also say it gives the government an easy way to control the societal framework its citizens develop in their formative years. In both cases, it's hard for me to identify why China would only want homeowners to partake in this.
School zones definitely have strange effects on the housing market, but I can look at them and understand the practical reason they exist. Administrating a large system often necessitates dictating how it will be divided up, especially given the travel area of school buses, and school zones are an obvious way to do that. But nominally, they exist to equalize the experience for all citizens; budgets are divided based on a given zone's population, new schools are built or old ones shut down as populations shift, and in some places, at least, you do have the freedom to attend school's outside of your zone as long as you are willing to handle the transportation. I did that during Junior High.
I expound on school zones not because I'm trying to compare China to the US, but to emphasize that when I say weird, I mean "deviating from the natural flow and one's own stated goals." America does not lack for weird policies, but in the case of school zones I think it's easy to see how they are meant to achieve the nominal goals of the education system.
Perhaps China has a very different view of education than I realize. Perhaps they are not attempting to use it as a tool to raise the quality of life for their citizenry as a whole, but as a means of locking in a caste system. Certainly, that is what I would directionally expect of a system that filters out anyone too poor to afford a home, and then doubles down by blocking 75% of their students from attending university.
On NYC renters, I am not asserting that 2/3 of residents should rent. I think that number is definitely high, and the result of many weird policies in NYC. I brought it up specifically because the influence of a policy like this on home prices seemed like it would be most stark there, given the pairing of high rental incidence with high home prices.
OK, haha. So, if you want to understand China's housing and urban policies in general, your caste system paragraph is about right. Obviously that's not the way it's phrased in the official language here! But yeah, China fears slums more than anything else. (Because they breed revolution, because that's what happened last time.) So we have this massive system, the hukou/household registration system, that ties people securely to their home place, and limits mobility.
In terms of education, that means only giving school places where someone's official residence is.
Important to note: this is not an anti-mobility policy. China is urbanising faster than any place in the world ever. The hukou policy is a way of managing the mobility, and making sure that the breakneck urbanisation process doesn't lead to political instability. And this is very much a stated goal. The leadership talk about the importance of stability every time they appear on TV, and all other goals are subordinated to this goal. The stated goal of the education policy is to educate the population as much as possible, within the necessary constraints of our stability policy.
Yeah the US really has some awesome/odd/costly norms around mobility.
Kids think nothing of doubling the cost of a degree and knocking down a year or two of lifetime earnings so they can attend university of Minnesota instead of university of Michigan (especially if it means parents are a day away between of an hour).
Couples move to cities far away from extended family and incur a year or two of lifetime earnings in additional childcare costs (something I did without thinking).
All so we don’t have to feel obligated to swing by your parents house once a week in many cases.
How can the Chinese average wage be similar to the US when the per-capita GDP is about $10K?
I don’t know, but I would guess that China has a much larger rural population, and that the figure would only be for cities. There’s lots of variables there, and I don’t know how fairly the original source set them
It can't be of course. I have trouble accepting any other claim made in that quote given how glaringly wrong that fact is or the authors not realizing hed need to explain it if it somehow was true
Most likely explanation: lots of the people the author knows makes about that much.
I have a slightly more charitable interpretation that perhaps this is urban incomes? Doesn’t seem to be true from a rudimentary search though.
And of course median urban incomes in the US are much higher than median national incomes, too, so even if it was accurate for China, it would still be apples to oranges!
In China, how do they explain variation in school performance? Americans can't decide if it's culture, discrimination, or genes, and I'm curious what explanations China has produced.
Tutoring. Every middle-income-and-above kid has lots of out-of-school classes, most of them simply devoted to re-teaching the school curriculum. This begins in first grade, and throughout primary school kids aim to score 100% on school tests. (In middle school (ages 12-15) things get significantly harder, and there's a big shakeout.)
Generally, the kids and parents who do well early on think it's because they've worked hard in their tutoring classes. If they continue to perform well in high school, it's because they are diligent. And then there's a significant luck factor in the high-stakes selection exams they take at 15 and 18.
It hasn't made a lot of difference. A lot of tutoring still goes on, in more or less disguised form.
I'm curious why you say that the Chinese average wage is not that different from America. How are you doing the RMB to USD conversion?
"In 2021, the last full year for which Beijing's National Bureau of Statistics offers data, the average Chinese worker earned 105,000 yuan a year, the equivalent of $16,153. The average American worker earned some $58,120 a year, 3.5 times his or her Chinese counterpart"
https://www.forbes.com/sites/miltonezrati/2023/01/30/the-east-west-wage-gap-not-nearly-as-compelling-as-it-once-was/
I'm just quoting here, I don't know where she got her figures.
... I did come across one source that said Chinese wages were comparable to US wages. I don't have time right now to reconcile the different results I'm getting. Interesting development.
I think from context that she meant numerically. I.e. if an average wage in the USA was about $50,000 in US dollars, an average wage in China would be about RMB 50,000.
Density = people/mile^2
All over these posts and comments, conparisons are made based on total population, without regard to the total land area taken up (ie LA vs San Fran)
LA is actually denser than San Francisco, and is the densest city in the country (San Francisco is second, New York is fourth):
https://en.wikipedia.org/wiki/List_of_United_States_urban_areas
It looks like that is an artifact of the census criteria allowing multiple areas 1.5 miles apart to collect into a single urban area (but not counting the 1.5 mile gaps as part of the total "urban area").
I mean, it depends on what you consider an "artifact". Los Angeles has by far the densest suburbs of any major urban area (because they all continue the urban grid right up to the edge of the mountains or the beach), while New York has many very low-density suburbs. Los Angeles has the overall more efficient use of land converted from nature into developed area, but New York puts more people in convenient contact with large numbers of other people. ("Weighted density" gets the latter, and New York is by far first on that measure: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3119965 but Los Angeles is still fourth.)
The LA Metro is definitely denser than the SF Metro. Yet few parts of LA are as dense as, say, the new apartments in SoMa and the Mission, and certainly no part of LA is as dense as Lower Manhattan...
Someone at Streetsblog did a comparison several years back of the core of SF and LA, to show that they're actually more comparable than many people think! At that point, KTown and Westlake/MacArthur Park really were pretty comparable to the densest parts of SF (though perhaps SF has built some more density in SoMa since then?)
https://la.streetsblog.org/wp-content/uploads/sites/2/2015/02/SFCoreLAdensity.jpg
https://la.streetsblog.org/2015/03/03/l-a-vs-s-f-how-does-transportation-really-compare/
That's why I said "few", on that first comparison. As you note, the densest parts of LA are pretty comparable to the densest parts of SF.
The problem with LA, as MattY recently noted, is that due to the vagaries of history, the suburban part has ended up sprawling like mad. This has to do with the topography, and how the river used to flow through.
https://www.slowboring.com/p/cities-and-the-way-of-water
Before the auto came along, the LA metro had some quite nice streetcar suburbs. These days if it were legal to densify along streetcar lines, and they had the political will to manage transit to maximize ridership, you probably could bring back that dynamic. But the political will to do that is clearly lacking -- NIMBY forces who prioritize "neighborhood character" and free parking are stronger in LA than they are in the Bay Area. (And the obsession with parking availability is in part a rational response to their existing car dependency.)
It's definitely an artifact of what is considered part of the urban area. That definition has the urban area of NY at about 10 times the area of NYC, while for LA it's about 3 times, for example. Based on this definition:
> An urban area is defined by the Census Bureau as a contiguous set of census blocks that are "densely developed residential, commercial, and other nonresidential areas"
It seems like this is because NYC is economically connected to sprawling suburbs much further out. This likely has to do with your point on geography, along with other factors such as how long the area has been developed, the existence of trains from the further suburbs into the city, etc. If you took an area centered on NYC which only included the dense, nearby suburbs, it would have much higher density.
I think what you're observing is that these urban areas are in fact very different. To me, the census definition of "urban area" gets at the meaningful concept, while any other set of borders is much more "artifactual", like when people cut things off at the city limits, or the county lines. NYC's sprawling suburbs are a fact about how the city continues to grow, while LA's compact suburbs are a fact about how it continues to grow - these don't seem to be artifacts of some unnatural way of cutting data, but actual realities that are revealed by looking carefully for the borders of the human geography.
You used the word "city" above, but the definition of "Urban area" includes a lot of area that is not "city" by any meaningful definition. I don't know exactly how the census bureau determines which blocks are included in the same area, but I think much of what is included in the NYC urban area is only very distantly related to the city itself. They might be economically influenced by NYC, but their development patterns and those of the city itself are entirely unrelated. NYC has plenty of denser suburbs just like LA; I think the only difference is that the further-flung suburbs are grouped in for NY but not for LA.
Also, the use of census blocks means that this definition is still somewhat arbitrary.
Seems to me like this sort of thing makes "density of the urban area" a slightly odd concept to use. It's a bit circular ... "density of the area that's above a certain threshold density".
Most people think "density of the urban area" basically means how Manhattan-like the core is, and that's mostly how Scott's argument proceeds, but it seems that "how far the sprawl stretches out" is a bigger factor (which in turn seems affected by mountains and shit constraining it (or even the point at which you end up in a different urban area)).
Did anybody else see that graph and think "Raleigh appears to be underpriced, I should buy some real estate there?"
Why not Vegas? It seems to be sticking out in every graph as the place to be.
Because Vegas is a hole.
I don't know that I'd put it as harshly as Angus did, and no offense to anyone who lives there, but there's really nothing in Vegas for me. The Raleigh-Durham area has multiple solid or even top-notch universities, ~2 hours from the beach, ~2 hours from the mountains, Lake Jordan, doesn't get cold, low cost of living, etc. It's no Chicago or New York but it's at least on par with other mid-tier cities and has a better climate than most of them. Seems undervalued.
My understanding is Raleigh housing prices spiked super high during the pandemic. Too busy to look up now.
They did. I bought my current house in the summer before the pandemic in the Raleigh inner suburbs. At the peak during during the pandemic it's value was up 50% on Zillow before declining a bit to its current level which is still up ~40%.
There is a vigorous NIMBY/YIMBY debate in Raleigh. The YIMBY's have largely been winning but with quite a bit of pushback. It will be an interesting test case going forward.
Because of the Universities and the State Government the area has lots of amenities, but there definitely has been a snowballing effect from initial tech growth leading to more tech growth due to agglomeration effects.
One thing you may have missed/did not mention is that New York City is at the mouth of the Hudson River, a tremendously important waterway that provided the best possible access to inner New England and Canada, and gave New York City a natural and extremely valuable place as a locus point of trade between inland America and the Atlantic, shipping to Europe etc.
Henry Hudson sailed up the Hudson River in 1609 and thought it was pretty swell, he made it back to the Netherlands who came back and founded New Amsterdam in 1624 to trade furs that would be shipped down to them via the Hudson. England eventually took permanent control in 1674 and renamed it New York.
Everything kind of grew from there. The Hudson river remained incredibly important, and was only magnified by the Erie Canal, until basically when the Interstate Highway System took over, by which point the ships stopped sailing as much but in a more fundamental sense had already sailed.
It isn't actually a coincidence that Manhattan is super valuable and Conanicut is not.
Yeah, it's kind of a nitpick but I did want to point this out. The Hudson is navigable up to Albany. Then in the early 1800s the US built a major canal project connecting it to the Great Lakes via the Erie Canal. Obviously New York was already a major colonial city at that point, and the feedback loop was already underway, but there are geographic reasons NYC became the USA's commercial center that aren't just linked to density.
Its not a nitpick, its a large point in favor of comments under heading #2. NYC was, at one point, such a huge trade hub that tariffs out of the port were financing >50% of the US government.
Also, here's a pretty freaking obvious thing about that Trulia chart:
All the labeled cities in the top left sector are ON THE WATER. Perhaps, water generates both desirability and commerce (duh). Perhaps also it restricts where you can put housing, because people want to be REALLY close to the water (duh #2). So you become dense because lots of the value is in being close to the water.
It's a bit of a nitpick in that the Hudson River explains why New York was more valuable real estate back in the day, but has little actual effect now. The fraction of the value of New York City real estate that comes from the navigability of the Hudson River is pretty trivial. The Hudson is a historical factor, not a present day one, just like gold in San Francisco.
Historical factors can be super important, especially in a colonial environment where you are getting lots of institutional lock in.
This is my point about North Dakota, that he still seems not to get. No conceivable amount of building or oil there is relocating the Met or the NYY, or the NYSE or whatever to Fargo. Even if you also build schools, unis etc.
No, there absolutely is *some* conceivable amount of exogenous factor that would create a cultural hub in North Dakota bigger than New York.
It's harder to replace the first city of a region than the second city, and harder to replace the second city than the third city, but second city status in the United States has changed two or three times. (Philadelphia was second city up until Chicago replaced it in 1890, which was replaced by Los Angeles in 1950 - I say "or three" because on Census data, Baltimore was second city for a few decades, but that's only because Philadelphia was split into several separate municipalities in its early decades.)
It took major advantages for Chicago to replace Philadelphia (controlling the inland water network as well as being the western railroad hub) and then for Los Angeles to replace Chicago (weather, rail, and several major industries) but it was possible.
We know that the first city can also be replaced, as places like Baghdad and Nanjing and Rome were in their regions - it just happens on a scale of centuries, rather than decades.
None of this relocates many of the old institutions - it just requires enough growth to build institutions that are more significant than those other ones. (Houston now has institutions that surpass those of Buffalo, Cleveland, Pittsburgh, and St. Louis, though it took several decades of being a top 5 city in the country to grow them - and Miami and Dallas are only just now at the point of competing with them on some of those institutions.)
> is *some* conceivable amount of exogenous factor that would create a cultural hub in North Dakota bigger than New York.
Like an alien civilization sets up their headquarters in Grafton? That is about the only thing I can imagine? maybe we build a space elevator in Moorehead (except we wouldn't, it would be on equator).
Yes the second city changes, but it changes for pretty predictable reasons to predictable places.
Sure, but those factors cannot be artificial. We can't just plop down a bunch of housing in North Dakota and expect that to become a huge city. Otherwise we would have done that in Detroit already and solved that problem.
NYC and SF exist where they do for specific reasons, even if those reasons are less important than they once were. NYC's harbor is still incredibly important for international trade and is the second biggest port in the US, despite it being far less important to NYC than it used to be when NYC was the biggest port in the world. If for some reason NYC no longer had access to water, it would severely damage the city like the auto industry leaving Detroit.
So, actually, I think there is a way, but it only proves your point more strongly: move people there and don't allow them to leave. If you forcibly transplanted enough people from New York City to this city in North Dakota, they'd rapidly re-create equivalents to the Met, the NYSE, and most other cultural artifacts. (Not the port, obviously.) Because it's not just "people" in aggregate, it's the type of people, and even the specific people.
It's still much cheaper to move things via water than over land. Maybe the gap is smaller now, but it exists. It would be interesting to argue that new cities are more likely to be inland now than 100 years ago, but if the trend were strong over the past 100 years it would be much more obvious. At the least, the trend of more inland cities relative to costal cities is weak enough that few people seem to talk about it. More likely, I'd say it's not a trend at all and proximity to shipping lanes is still important for the growth of those cities fueled by the trade of goods. Which is most of them.
Exceptions would be things like cities based on educational opportunities or extraction towns. Phoenix, AZ tried to make itself a tech hub during the dot com boom, with moderate success. Arizona also seemed to be competing for retirees, back then.
Right. Here's my personal theory:
America's current population distribution is an artifact of inefficient transportation and slow travel, and it's slowly transitioning to a new equilibrium. (This is deliberately provocative and biased framing, which assumes as "normal" a pattern which we are only moving towards.)
Ultimately, the interior of the continent is for resource extraction (including such things as farming and the use of cheap hydro-electrical power to work aluminium). Ports at natural harbors and large rivers allow inhabitants to siphon off some of the value of the trade flowing through. Everyone else, including tech workers, might as well live in one giant city, or in the middle of nowhere or in small towns if they can work remotely and choose to. Legacy cultural and industrial centers may hold out for a time, but will eventually succumb to gravity, because resisting requires a constant use of energy. (See also, how so many native languages of the world are dying out, and how American Standard English is effortlessly gaining ground. Resisting this takes active effort; going with the flow takes none.)
Some jobs, such as resource extraction or creative work, essentially generate wealth ex nihilo. Everything else, from government to schools to restaurants to retail to hairdressers to movie theaters, all of that siphons money out of wealth generation. (This is not meant to be pejorative, merely descriptive.) Wealth flows, like current (i.e. currency) from one person to the next to the next. But each time it flows through a corporation with a non-local HQ, some of it is siphoned away to the location of the HQ. And eventually, to the location of the owners of capital, and while they may invest some of that on a global level, their circles of concern tend to center on their own location, and the governments of their own location siphon off their share.
Overall, resources and money flow downhill like rivers, seeking the ocean. A little mining town in West Virginia may have one source of generated wealth, and if that source dries up or goes away, the town will slowly shrivel and die. Every time anyone spends money at a chain store or online, wealth leaves and does not return. Yes, yes, equal exchange of value, but even putting aside taxes and profit, something has left that will not return. Draw a line around the town and monitor cash in and cash out, and it will show a steady flow outward. The death knell is when they resort to tourism, an explicit attempt to create artistic value inside the line that will draw in wealth from outside.
Yes, this is critically important, Manhattan has unique natural virtues among all East Coast cities, and then on top of that it has an *extremely* unique man-made virtue, but that man-made virtue is a fantastically valuable piece of transportation infrastructure (the Erie Canal) *not* all of the houses.
This is almost but not quite right - the "fantastic but of man-made transportation infrastructure" here isn't the Erie canal, it's the NYC subway.
(We have a controlled experiment for this - jersey city is identical to LIC except without subway access and is way cheaper despite lower taxes).
Jersey City's PATH train access is better than the subway access of Bronx and Queens - and I believe this also tracks rent.
It's pretty awful and getting worse and worse as track capacity is already maxed out at 33rd street and people keep building new housing in Jersey. The earlier and more expensive buildings closer to the river are now losing out because PATH trains are 100% full before they even get to their stop
Depends where in Queens (and where you're going, though that wouldn't hit prices). It's better than some of the further out parts but not nearly as good as LIC (also, I think path is lower frequency? Don't they run like 10-20 minute headways max?)
This was my suspicion, but didn't have the historical knowledge to know for sure.
Yeah the whole "why manhattan and not Conanicut" is so dumb. At least have it be why Manhattan and not Providence. Manhattan was already a very populated area before the dutch arrived because it has so many natural resources and advantages such as the Hudson river.
Conanicut is similar to Manhattan only in that it's an easy coast island. But thats not why Manhattan was so advantageous.
So, this comment is almost entirely off-point, but . . .
The real advantage of Manhattan over Conanicut isn't that the Dutch picked it, but the geography of North America. If the Dutch had settled Conanicut instead of Manhattan, it is still the fact that geography meant Manhattan could be the Atlantic port of first upstate New York and later (thanks to the Erie Canal) the entire Great Lakes region, and Conanicut couldn't.
Now, after the completion of the St. Lawrence Seaway, that advantage went away, and the advantage of Manhattan over Conanicut now is all the capital (physical, social, institutional, human, etc.) it accumulated from the era when it was the Atlantic port of the whole Great Lakes region.
I think this comment is entirely on-point. New York is *special* in ways that Conanicut Island RI *is not*. And vice versa, I'm sure.
Well, it's less than on-point because there are other examples that Scott could have used that wouldn't have had a geographic explanation rather than underlying human decision story. If the capital of Texas had been sited at, say, Brenham, then the University of Texas would have been sited there instead, and it would have been a lot more likely to become a tech center than Austin. Similarly, it seems pretty obvious that if the US capital had been sited on the Chowan River rather than the Potomac, Winton, NC would be rather more likely to have a Four Seasons and a Ritz-Carlton than Georgetown in what would have been Maryland.
Not a coincidence that San Fransisco is also on an important bay/harbour. Or Seattle. Or Los Angeles.
It's also not a coincidence that Bismarck ND, a million miles from any shipping possibilities, is not big, rich, and dense.
You look at almost every major/important city in the world, it will be on a major trading hub, and almost all of those are water-based. London, Paris, New York, Los Angeles, San Fransisco, Shanghai, Tokyo, Hong Kong, Toronto, Montreal, Vancouver (because I'm Canadian), St. Petersburg (an interesting study as an artificial city - would it have been so successful inland? Probably not), Amsterdam, Rotterdam, Rome, and on and on. It's not literally every single huge, desirable city, but damn if it isn't nearly all of them.
I think Scott would have to look for explicitly planned cities. Something like Brasilia.
Even something like Washington DC makes a good example. The demand in DC is completely due to the US government being situated there. It's a swamp along the MD/VA border, and even as late as 1900 or so there wasn't much happening there. The huge growth of the US bureaucracy in the 20th century along with the accompanying surge of lobbyists, military contractors, and other government-associated positions has caused DC to become very dense along with most of northern Virginia and southern Maryland, but it's all a response to the giant pool of money, jobs, and influence circling around the Potomac.
And DC remained a very sleepy, small, poor town through the 80s, only became desirable to outsiders in 90s.
That's definitely right for cities that grew up in the 19th century. But if you look at the cities that got big in the 20th century, water is no longer as important a factor - Las Vegas, Phoenix, Dallas. Of course, Phoenix and Dallas were well-sited to become major *air* hubs, and have great interstate highway access.
I was thinking the same thing. Besides Manhattan's fortuitous location, it also massively benefited from being the site of the Fed. In some alternate history, the Hamilton doesn't have the Fed put into NYC and instead the financial capital of the world ends up being in Philadelphia (or wherever the Federal Reserve Bank ends up).
Hamilton put the (first) Bank of the United States in Philadelphia, not New York. The second Bank of the United States (chartered by Madison, killed by Andrew Jackson) was also in Philadelphia.
The Federal Reserve system was set up in 1913, and New York City was already the center of the US financial industry when that happened, which is why the NYC Fed was the most important (by far) of the twelve banks of the system (Boston, NYC, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco).
This was extremely frustrating the first time and it remains extremely frustrating. Density does not cause high house prices. The relevant mechanisms -- shifts of demand along supply (reverse causation story), shifts of supply along demand (most relevant mechanism in reality), and induced shifts of demand -- can all be seen on a simple supply and demand diagram, and explained by a first year undergrad. Because the general public doesn't believe it, several studies in recent years using state of the art quasi-experimental methods have verified it.
The question has been answered, and it is irresponsible to suggest otherwise. Yes I am being harsh, ordinarily Scott has good and smart takes. But this is on the level of vaccine skepticism, and should be treated as such.
Agreed. I can't help but believe the economists are right on this one.
Regarding the fact that the general public doesn't believe it, there's a working paper called "Folk Economics and the Persistence of Political Opposition to New Housing" (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4266459) that uses
survey to find that many people believe the laws of economics don't apply to housing, even when they're otherwise economically literate. This seems like a rationalized version of this.
a fascinating paper, thanks for sharing.
Housing is absolutely a special case in economics because of the monopolistic nature of private real property. Does that mean that more supply, in a vaccuum, won't bring down prices? No. But it does mean that "just get more supply" is not as simple as it sounds, because to get enough supply to bring costs down, you need property owners to supply it at a rate which would destroy the value of their asset, which they will not do, because why would they. Unlike a monopoly on widgets, or sugar, or anything else, I can't just find some investors and open up a new "housing factory" and make new land with houses on it without the consent of the current monopolists, who are strongly incentivized not to let me.
But that's not really a special economic case, but a special political one. The problem that's highlighted in that paper isn't what you're describing, but people that actually do believe that increasing supply increases prices for everyone else.
But you're right that local government can effectively work as cartels on housing, and that forming a cartel in most other industries doesn't work.
I don't think you can really extricate the politics of private property (which are uh, let's say pretty well entrenched, you generally have to kill a lot of people to change that consensus) from the economics of housing, but yeah.
But that aside, there are still (at least theoretical) cases where increasing supply increases prices of at least some things.
Imagine a city of all single-family homes. And imagine that demand for housing far outstrips supply (for whatever reason). A single-family home costs $X, because that's the most people can afford to pay for one unit of housing. If we now start allowing four-plexes, the price of a unit in a four-plex will tend to $X, because it's still providing roughly one unit of housing. The price of single family homes will now tend to something closer to $4X, since each single-family home can now supply four units of housing (if you knock it down and build a four-plex).
What that looks like to people who strongly desire to live in a SFH and not a four-plex is that building more housing increased prices. It did not increase prices of housing per se, as you can still get "one unit" of housing for about $X, but our hypothetical SFH-preferring homebuyer now cannot afford a SFH they could previously afford.
I think intuitively, people understand that we are in a high-demand regime with fairly constrained supply, and that something sort of like this scenario exists (or could, in their mind, exist). But I could be wrong.
Now, of course, people who own SFHs *should* be delighted by this outcome, as it means the value of their asset has gone way up, but that's a topic for another thought experiment, and I think demonstrates some of the persistent doublethink around housing, where perversely people simultaneously believe that low and high housing prices are both simultaneously desirable, and think that housing prices should both go up and down.
But that's all I'll say without reading the paper (and probably more than I should say lol), it looks quite interesting.
Your example is wrong, though. What changed the price of housing is the zoning change, not the existence of the four-plexes. And it only makes the land more valuable, not the house itself. No one who plans on living in one of those houses would pay more than $X for it even after the zoning change - only speculators and developers would.
Thinking about the actual quantity shift, replacing some of the single-family homes with four-plexes will start to tap out the number of people who want to live in that area, which will drive down prices - there may be a lot of pent-up demand, but it's not inexhaustible. Also, living in a four-plex is much less desirable than in a SFH, so prices for four-plexes will be lower - the simplifying assumption of "people will pay $X for any unit of housing" is a step too far.
But your story is a good example of what the paper was illustrating - people consistently observe new housing popping up in places where prices are going up, or where land values just popped up because of a zoning change, and they assume that those new houses are causing the price increase, rather than the other way around. Mixing up cause and effect, and then thinking stopping the effect will stop the cause, is a serious problem with the housing market.
> What changed the price of housing is the zoning change, not the existence of the four-plexes.
You say tomato, I say tomato. In a real sense, the four-plexes are causing the price rise. If nobody wanted to build them, it would be irrelevant what the zoning was. Maybe the zoning was always for fourplexes, but demand has recently increased making it suddenly make sense to build them. It's not really relevant to the broader point which is more about perception.
> No one who plans on living in one of those houses would pay more than $X for it even after the zoning change - only speculators and developers would.
And because speculators and developers would pay more, nobody will sell their SFH for less than ~$4X, so nobody is able to get a SFH for $X anyway, and in the example, they can't afford more than $X anyway.
> there may be a lot of pent-up demand, but it's not inexhaustible
For major urban areas, I think it effectively is, at least compared to the rate at which housing can be built. Toronto has seen rents going up YoY by 10, 20, 30% over the last two or three decades, and every tower crane in the city is continuously occupied building housing. Between internal and external migration, the demand for new housing in cities can I think reasonably be considered inexhaustible collated to the ability to deliver new housing.
> Mixing up cause and effect, and then thinking stopping the effect will stop the cause, is a serious problem with the housing market.
I mean, if you're saying the zoning change caused the price change, and people try to stop new housing by stopping zoning changes, then they're behaving rationally in your view, no?
To be clear, I think that nothing is gained by preventing new housing and that we should build literally as much as we are able to until the price signals tell us we have more than enough. The point I'm trying to make here is that people are wrong in a more subtle way than it seems on the surface.
Reminds me of the “look at all the economic development driven by amenity X” stories, which while sometime are true, often are a case of the amenity being specifically put in an area of already rapid economic development.
Some of this is attributable to gentrification. Frequently, some developer builds something great in a marginal place, which makes that place hipper, more attractive, etc., which then does drive up rents for even the old, less desirable units. Cf. New York's lower east side, which used to be where deadbeat artists and other lived because cheap, then some developers put in some trend, the coffee shops and restaurants followed, prices increased even for the "bad" old units. So maybe Scott's theory is basically gentrification on a broader, non-neighborhood focused, city-"wide" level.
Yes! It is absolutely gentrification. Density is an insufficient criterion.
Take a neighborhood, knock down a bunch of stuff, put in 5-over-1s, and move all the original occupants and businesses back, all in one magic Thanos snap. The people and businesses are the same, character has been lost, but infrastructure is newer, so it's already more valuable.
If those 5-over-1s are upscale, then rich or cool people move in and the place takes off. Hip arty stuff slides into the cheap niches. New service business show up, catering to wealthier people. New companies are founded, existing companies open branches there. Housing prices go up, as do property values.
Alternatively, if every single one of those 5-over-1s are halfway houses for homeless people and recovering drug addicts, the neighborhood goes to hell. People move out, businesses flee, and we've recreated everything that made "housing project" a bad word. Plus nothing gets better in the long term for the residents of those halfway houses. (Side note: this is why it's bad to concentrate things like halfway houses in particular locations. They need to be spread out very loosely across healthy neighborhoods. It's a question of which will be the locally dominant culture.)
I think this is the answer to why the effect is unusual and restricted to certain locations. If you build 10m units in Oakland, people who want to be near SFC will move there. If you build 10m units in Fargo, ND, then ... people who want to be near Fargo, ND ... will move there... ? Back to Oakland, people who want to be near SFC will move there, maybe from other countries or states or regions, but maybe from other satellites of SFC that are farther away (or are closer but too expensive for the person). So prices in Oakland and even SFC won't necessarily go down, and maybe even go up. It's the prices in satellites of SFC that are **less convenient than Oakland** that will go down.
Well, everything is a special case for one reason or another. Your point about how there is a tension between the incentives of property owners and the interests of society is spot on, but that presupposes that people correctly understand the market, and it turns out that frequently they do not.
Whether we are considering owners who understand and vote their interest, or renters who vote their perceived (incorrect) interest, the end result is that allowing housing policy to be formed on a local level will result in an under-supply of housing. Housing policy needs to be formed at a higher level, by representatives who understand the market and not compromised by the interests of their constituents. There have been encouraging steps towards that in recent years.
You can't have a NIMBY policy if you don't have a housing policy at all; property rights FTW.
Although increasing the density of housing reduces the price per housing unit, it increases the price per acre (since each acre has more units), so I'm not sure there's an economic reason for landowners to object. I think in practice the objections are to the disamenity of the development itself (noise, views, traffic etc).
Note that I'm not saying landowners will object to nearby development.
I'm saying they will not develop the land they own at a rate which reduces the value of their assets (or, more correctly, does not maximize them).
The core yimby argument is you can if you dont give the neighbors a veto. The land owner doesnt devalue his portfolio if he stacks more floors on his existing housing (because he gets the new floors too), he devalues his neighbors'. The neighbors veto is political not economic
The landowner DOES devalue his portfolio if too much housing is released to the market too fast, leading to a decline in prices. It has nothing to do with the neighbours.
And more floors doesn't devalue the neighbours, because presumably it has now been proved that they could also add more floors, so their land is now more valuable. But that's besides the point.
They aren’t really “monopolists” if there are thousands of them.
Yea anyone has a monopoly on any individual piece of land, but you are almost never looking for housing on one specific piece of land. Plus in terms of apartment buildings you absolutely can “crank out more widgets” in housing.
They're monopolists in the sense that there is literally no way to get land without first buying land. Landowners as a class have a complete monopoly on the land market in a way that is not true for e.g. sugar or coal. If I want to compete with Redpath, I can buy sugar cane and open a sugar factory. I never have to deal with any existing sugar producer. If I want to compete on housing, I have to buy land from a landowner.
That is just a bizarre way to use the word "monopoly". This seems like an understanding of the situation that starts with "I don't like landowners and want to use a bad word to describe the situation", and then you fish around for a way to stretch normal words so you can use a pejorative one to describe landowners.
Not at all on either count, but have a nice day.
For a more detailed look at the concept of property as monopoly - https://www.fresheconomicthinking.com/p/making-sense-of-property-as-a-monopoly-54e
I don't really think this is that helpful of a way to look at it.
It's not really a "way to look at it", it's how it is, but ok.
Sure. But seeing as I asked you last time to give a better explanation, and literally the best thing you can come up with is repeating "first year undergrad supply and demand diagram" like a mantra, you can see why the rest of us aren't convinced.
If I could attach pictures I would!
You can always just link a picture, can’t you?
Sounds condescending and adds no value to the discussion.
If there are studies that prove your point, why not just link them?
Yeah I’m actually super interested to know which studies this person is referring to.
Please do see my comment above.
Just subscribed to your substack, I've read some great posts there but that was before I started subscribing.
Thanks, and thanks for subscribing! I like all of those papers, but I think they're more showing localized supply effects from new units, rather than measuring the citywide impact of densification.
Whereas Ahlfeld & Piestrostefani's meta-analysis shows that densification boosts welfare (& wages), but with an accompanying impact of raising rent.
https://www.sciencedirect.com/science/article/abs/pii/S0094119019300282
Because the original linked Yglesias post had a rundown of them.
Asquith et al https://direct.mit.edu/rest/article-abstract/105/2/359/100977/Local-Effects-of-Large-New-Apartment-Buildings-in
and ungated working paper version https://research.upjohn.org/up_workingpapers/316/
Li https://academic.oup.com/joeg/article-abstract/22/6/1309/6362685
ungated https://blocksandlots.com/wp-content/uploads/2020/02/Do-New-Housing-Units-in-Your-Backyard-Raise-Your-Rents-Xiaodi-Li.pdf
Pennington ungated https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3867764
Less related but still interesting and important is Mast https://www.sciencedirect.com/science/article/pii/S0094119021000656?via%3Dihub
ungated https://www.dropbox.com/s/24a9u2ixs6p6pd6/mast_migration_chains_jue.pdf?dl=0
replicated by Bratu et al https://www.sciencedirect.com/science/article/pii/S0094119022001048
Yes I am being harsh, as we should be harsh on people who claim that vaccines cause autism or that the earth is flat. True, it's maybe not the most effective way of winning hearts and minds. But we are supposedly in a "rationalist" space, where brains matter, not hearts and minds. So yes, I am skipping to the facts: this is an answered question, with logic that can be explained with a simple model, and supported by empirical evidence. That doesn't mean that a whole field can't be wrong, or that there is no value to questioning received wisdom, but the argument employed falls well short of the standard that Scott set in his ivermectin post.
Your three articles you describe as related all consider rents within less than half a mile. The density-increasing effects Scott describes all operate at the scale of cities. I would expect literal overshadowing effects from an additional high-rise within 100m (the third paper), causing a drop in prices, but a larger-scale increase in price from city-ness.
The Asquith et al paper rules this out, see Figure A.8 on page 47. Post-treatment, the effect decays with distance to approximately zero at a 600m distance. The idea that it would suddenly depart from zero at a greater distance seems kind of fantastical to me. As does the idea that the effect is so non-linear as to flip from negative to positive at extremely large values. Finally, it is worth breaking down the chain of reasoning: you are saying that a new building here increases amenities here (restaurants, etc) so much that it increases prices at distances measured in kilometers? I don't think so.
I’m absolutely saying it’s nonlinear in space. That building raises the value of the offices where those people work, the shopping centres they visit, and so on. Each of those effects is small, and they are spread all over the city in a very nonlinear way which would make individual building-level statistics impossible. But aggregated over 100,000 units, they would add up, as they did in most of the examples in the main post.
I ve read the first two papers and they are far from convincing. First of all, they are cherry picking the data. Secondly, they are only looking at the very very local level and that's not what we are talking about here. Building one isolated apartment building would not increase "the cultural value" of the area. We don't need a study to understand that.
They are not cherry-picking the data, they are choosing comparisons that are most likely to represent the true treatment effect, and they are doing so in a way that is considered publishable by a good (Li) and very good (Asquith et al) journal.
Second, I agree that one apartment building would not increase the cultural value of a neighborhood to the extent that prices rise more from an amenity effect than they decrease from a pure supply effect. This was my prior before I even saw these studies, because the contrary implies an amenity effect that is infeasibly large. But people keep saying things like "density increases house prices" and these economists saw an opportunity. And now, when people say things like "density increases house prices" on the internet, we have more reason to declare these things bad and wrong.
Finally, if you still want to argue that "density increases house prices" on the basis of some non-local effect, this is still wrong. See my reply to Gres, discussing specific evidence against this in the Asquith et al paper. Now, you are arguing that a single apartment building, which "we don't need a study" to understand that it "would not increase the cultural value of the area" somehow has some orders-of-magnitude larger effect at distances measured in kilometres? Totally infeasible.
Why only look at low income areas and only look at an isolated building construction. And at a very short time period at that. To me it looks like cherry picking the data to fit the answer.
As for the "cultural value". It would make sense that the perceived value is not a continuous function of density. There is always noise in real life. And lag. And breakpoints.
I am only arguing that the papers you have linked are cherry picking the data and are too narrow in scope to give a definitive answer to the broader question. We have plenty of empiric evidence to tell us that higher density cities are more attractive, which leads to higher prices. To combat that empiric evidence we would need really really good broad studies. Otherwise it is just not enough.
I'm finding this take by him frustrating because his claim is that marginal additions in supply will make cities marginally more expensive, which is just...completely at odds with the studies done on this subject! The explanation only works if you believe that every additional unit of housing you build will lead to >1 additional unit of demand (or alternatively, an additional unit of demand that is wealthier and can pay higher prices, thus raising prices for all). But that doesn't seem right, because we know that there are frictions to moving. Even if 20,000 additional spaces open up in NYC, that doesn't mean that 20,000 new people are going to move there.
It makes sense if you consider pent up demand. If you build more expensive housing, you can increase the average cost of housing without meeting the demand for housing. Imagine that there are 100,000 people who would like to move to NYC at a certain high cost. Building 20,000 units will not come close to meeting that demand, so even if there are some vacancies, prices can go up with more housing.
I think Scott takes this thought way too far and with implications beyond reasonable, but there is some truth to the idea that building a few houses (relative to demand) may not solve the problem or even make it worse. You need to build a meaningfully large number of housing units.
i don't think that is true, though. What's stopping those people from moving to NYC already? If they want to move at the high price that already exists, then they'll do that. If they won't, it's because the price is too high for them. And the empirical research shows that marginal supply does marginally lower prices! No, it's not enough of course. But there's been multiple good papers on this by now.
There could be lots of reasons that someone who wants to live in NYC and has money to do so will not do it yet. Maybe they're looking for a particular location or need particular amounts of space or other amenities. Maybe they're willing to spend X for a certain place by only a smaller amount for what's actually available right now. If someone built what this person was looking for, they would move in and pay what they are willing to pay.
Building the 20,000 units might not meet the demand, but that is a very different thing from arguing that building them would cause the prices to go up.
Imagine this from the perspective of your 100,000 people, who want to move to New York. How does it make sense to believe that their economic ability to move to NYC would get worse if the city built 20,000 more units?
I think it's more likely that prices would just not go down, or the amount they would go down would be offset by the pressure on the price going up. Gentrification is the one word answer. As higher income individuals move in (remember, this 20,000 is higher end apartments), that raises the average price to live in a neighborhood. The more demand exists for such things, the most that new buildings will be higher end dominates. There may be a million people who would live in a nice cheap apartment in NYC, but only 100,000 who would live in an expensive place. If we're only building 20,000 then it's almost certainly going to be mostly or all high end stuff. That should offset costs in cheaper apartments, but that action cannot happen if even cheaper places are being taken by the rest of that 100,000 that still wants to live there and can afford more. That still pushes costs up.
As long as there is pent up actual demand (meaning, more people still want to live there but can't find the right place or the right price), we shouldn't expect prices to go down much, if at all. If all 100,000 were actively trying to live in the city and willing to pay a certain high price, we may not see a reduction in prices until that whole glut of people find housing and the only people looking are less interested or cannot afford as much. Then new housing will have to reduce prices in order to attract tenants. As long as there is a steady stream of tenants, there's no incentive to drop rents.
Of course, real life is more complicated and there are lots of people who have varying levels of interest and varying levels of ability to pay. Also, apartments themselves have different costs and different desirability. Someone might be willing to live in a one room apartment in a certain neighborhood but would want something much larger for that money a few blocks away.
The error is in assuming that higher-income people only move into a neighborhood if you knock down cruddy houses and replace them with trendy apartments.
In fact, absent those trendy apartments, higher-income people will still move into that neighborhood, they'll buy the cruddy houses and then they'll renovate them.
The problem with this is to consider the alternative. Atherton has allowed very little new construction and housing prices have not stayed low. There are current regulatory reasons that new housing is expensive but if a city like SF or NYC were to build a large new SRO without consideration of environmental/planning review we should expect that prices would go down. Unfortunately the cost to build new units in California is typically around ~1 million which limits the ability to lower prices through new construction.
For me the biggest sin of this post and the original is that it almost refuses to engage with the plethora of existing research on this very topic. Scott wants to work from first principles and make other people reject his intuition, but rejects research that could inform him.
He shows his lack of knowledge on housing and population growth in the US when he says Las Vegas, Phoenix, Raleigh, Atlanta are "mostly unfashionable red state Sun Belt cities". For one they are all much more liberal than the states they reside in and are extremely popular places to live!
Damn dude, that's really insightful. It seems like a pretty common failure mode for intellectuals with large followings too -- people get good at one field and they assume that it transfers. Goes to show that even intellectuals need to "get in on the ground floor" and learn the basic models before proceeding to reasoning.
Yeah. I am guilty of it too (though am not an intellectual), so not trying to shame Scott. He tends to avoid this with most of his writing so I am surprised neither of these posts engages with the research except to dismiss it. Someone else in the comments posted a paper looking at how the average american has an intuition about housing markets that goes against what the empirical research shows. Usually we (I) think of scott as "not average", so its interesting to see him be "normal" in this way.
Also! Housing policy is a hobby of mine so I totally recognize that my knowledge of the subject is way deeper than the average person's knowledge. It could be that I am expecting too much from Scott if he isn't interested in housing policy until these posts (though this doesn't forgive this follow up post which dismissed empirical evidence or input from experts/researchers)
A useful intuition pump is to imagine the opposite situation: what would happen to housing prices if the marginal unit of housing in Manhattan were destroyed? Do you believe prices would fall as Manhattan somehow becomes a less desirable place to live? Or would prices rise as demand increases for the remaining units? It's hard for me to imagine the former.
Of course if let's say 90% of the housing stock were obliterated in a natural disaster or something, that could represent a scenario where the second order effects of desirability overwhelm simple supply and demand.
You know this has happened, right? New Orleans! What happened there? Post-Katrina, did NO housing become a lot more valuable because it was more scarce?
Katrina may not have destroyed 90% of the housing stock, but it was a significant enough disaster that I think the second order effects dominated as mentioned above. Also, Katrina created not just a supply shock but a demand shock as people were temporarily displaced and decided not to come back.
Yea I literally worked with two women in MN who were refugees from Katrina. They temporarily moved to TX, and then just never went back to LA.
This fits his second scenario. Large businesses relocated away from NO after Katrina and never returned. Fewer good jobs -> less demand for housing.
Yes. That's right! So... question answered, right?
Michael asked which of two things would happen:
1) "Do you believe prices would fall as Manhattan somehow becomes a less desirable place to live?"
2) "Or would prices rise as demand increases for the remaining units?"
And the answer is (1).
Which is consistent with the kind of thing Scott is arguing. Right?
NO became a less desirable place to live because its vulnerability to hurricanes was made plain. Businesses which lost months of productivity decided they didn't want to go through that again and moved to cities located on higher ground. This corresponds to his second paragraph: "Of course if let's say 90% of the housing stock were obliterated in a natural disaster or something, that could represent a scenario where the second order effects of desirability overwhelm simple supply and demand."
Let's compare what happened after Sandy in NYC in 2012 vs Katrina in NO in 2005. The following data is per ChatGPT:
Katrina
"The exact number of homes damaged by Hurricane Katrina in New Orleans is difficult to determine, but it is estimated that the storm damaged or destroyed approximately 80% of the city's homes, which is around 134,000 residential units."
"According to data from the New Orleans Metropolitan Association of Realtors, the average home sale price in the New Orleans area was:
In 2004 (year before Hurricane Katrina): $198,532
In 2005 (year of Hurricane Katrina): $195,628
In 2006 (year after Hurricane Katrina): $198,785"
Sandy
"According to reports, Hurricane Sandy caused damage to over 300,000 housing units in New York City, with an estimated cost of $19 billion in damages. "
"According to data from the New York City Department of Finance, the average residential property sale price in NYC was:
In 2010: $684,000
In 2011: $776,000
In 2013: $878,000
In 2015: $1,073,000"
Of course, there are natural experiments where industry collapses without affecting the physical housing stock. That's pretty clear evidence business is an intermediate step in density->demand->price.
There are examples where slums are demolished and new housing built on the land. If the slums are replaced with a larger number of units, the price per unit will generally be lower right? But if the slums are demolished and just a few homes are built on top of that land they’d be expensive places.
But I feel like this is different than what the post is discussing in some way
The slums getting demolished probably have negative value before demolition. They're also probably in bad neighborhoods, so nothing that gets built will have much value anyway. It's not worth building a bunch of new stuff in a rough part of town.
If the entire “bad” neighborhood is removed, it’s no longer a rough part of town.
I was about to make the same point. Removing the slums and building more units on the same land could greatly increase the rents if people who were unwilling to live there before and now willing to live there.
I think instead of destroyed one might want to consider what would happen if they were simply bought and left vacant – say by some billionaire as an investment.
If good housing is replaced by bad housing (high crime area, slums, etc) then it could result in the place being less desirable which will lower demand. Reverse gentrification, if you will.
I don't find it hard to imagine. Having less people in a small place is less efficient overall (plus less desirable to the people that value density the most); seeing it this way the second order effect don't seem so second order but inevitable, even if delayed. (It also makes it look like an obviously bad thing even if prices go down).
This whole discussion, and every viewpoint described here, seems extremely dumb. Yes, the price of housing in a city is largely determined by the supply and demand for its housing. But the demand for housing is a function of how desirable the city and its housing is, which is a function of its weather, public transit, crime, economic opportunities, restaurants, arts, parks, proximity to other desirable places, demographic makeup and racial tensions, and a thousand other constantly changing things, which are constantly affecting each other.
Yes, all else being equal, adding more housing will reduce the price of housing.
But sometimes in the long-term, adding housing to a city or neighborhood will make housing cheaper, causing starving artists to move in, who make cool art and make the place more desirable for yuppies, who will then move in and drive those prices back up, much higher than they were originally.
Maybe the increased housing allows city government to build a good public transit system, making a place more desirable, causing prices to go even higher. Or maybe the increased housing is built on the public park where everyone loved spending time, making the neighborhood worse so prices go down. You can't model all this as a simple function of 1 or 2 variables.
Or for a more concrete example, Detroit couldn't have become the center of domestic auto manufacturing in the US without plenty of housing for workers, which circularly made workers' homes more valuable. Except then white flight and a collapsing industrial base caused everyone to move away, so houses fell into disrepair, and absolutely no one wanted to live there until housing prices were near zero.
Everyone arguing about this is trying to reduce something as complicated as where people want to live to 2 or 3 dimensional models. Of course this doesn't work! Everything effects everything, in circular, interdependent, unpredictable ways. You can't fit this all into a silly Econ 101 graph.
That said, we know that the US as a whole doesn't have enough housing for everyone. And we know that on average building more housing will reduce its price, even if we can't predict exactly what prices will do everywhere just by looking at two variables (no one can do that, and no one ever will, barring some dystopian dictatorship barring freedom of movement). To me, these seem like extremely strong reasons to build more housing.
I guess I don't understand what on earth everyone is arguing about.
The tricky thing about building more housing is that the people who own the land you need to build the housing on don't want to build more housing on it at such a rate as would cause prices to come down, because that would destroy the value of their asset. The housing market, barring external shocks like you mentioned in Detroit, has a built-in rate limit on new housing which ensures prices only go up.
The only way to get enough new housing to bring prices down is government and/or community not-for-profit development, such as co-ops, land trusts, social housing, and so on. The market literally cannot and will not do this.
Don't really follow. The people who own the land have a lot of reason to build enough housing that the price goes down. If I own a single family plot and can upzone that to a five story garden apartment, the land will easily be worth 5x and I'll make a huge profit. Even if everyone does it and I only make 4x, that's still a great deal.
When you say "even if everyone does it and I only make 4x" - you're talking about someone happily destroying 20% of the value of an asset they own. Why on earth would they do that if they didn't have to?
In any case, this is visible empirically, you don't have to take my word for it. As interest rates went up recently, asset values naturally declined. Developers immediately slowed the rate of development in response to the price decline, as they would be throwing money away by building now instead of waiting for the asset prices to go back up again.
You would have to posit a really, really good explanation as to why they wouldn't respond the same way to a price decline caused by too much development.
Totally agree, with first part. Not really clear on the second at all.
Most people are housed and the US tends to have pretty low numbers of people per unit and high amount of sqft of housing per person on average. So not sure it is clear that the US has too little housing.
People would like more, and wish it was cheaper, but that is true of most goods.
Huge numbers of people will pay to live in an apartment rather than live with family etc.
Um, as a point of correction, I think the US may indeed have enough housing for everyone? It's just not in places where people actually want to live (Detroit, for example). And even if we're talking new construction, what's wrong with going out 60 miles from an urban center along an interstate highway, and putting up some housing there? (Not a rhetorical question: the things that are wrong with that are important to talk about.)
It's not about housing, it's about where people want to live, and thus in turn about who those people are and what their position is in the economy.
I see the question as being: in universe 1, a city builds more housing than in universe 2. How do we expect their house prices to look like in their futures compared to each other? So iiuc it's not about all else being equal
> You can't model all this as a simple function of 1 or 2 variables.
Does this mean you wouldn't have any strong expectations of housing prices in universe 1 being higher or lower than universe 2?
> Everyone arguing about this is trying to reduce something as complicated as where people want to live to 2 or 3 dimensional models.
Take the claim if chicken prices drop by 5%, more people will each chicken. Does that reduce something as complicated as where people want to eat to one variable? It's a claim about the aggregate, even if such differences in price are a small factor in everyone's decision about what to eat.
As I see it (obviously simplifying) if there's 10% more housing, 10% more people will live in the area (prices will be as low as necessary to have the places occupied); and all of the other complicated variables you mention are very affected by 10% more people living in the area. It's a reasonable question to ask: do we expect these effects to increase demand for housing sufficiently that more than 10% of extra people are willing to pay the original prices, so prices will increase, or not?
Sure, it's not a deterministic question, and whatever effect it may have might be offset by other new policies one may or may not take, but it's not crazy to think it's a relevant variable given the correlations shown in the graphs shown in the post.
Very late to this lol but:
> Does this mean you wouldn't have any strong expectations of housing prices in universe 1 being higher or lower than universe 2?
In the short run, sure. In the long run, who the hell knows? Maybe one of the scenarios I gave in my initial comment would drive up housing prices as a result of the additional housing supply. I'd have a weak expectation that housing prices would be lower in universe 1 than universe 2, but I think that predicting future demand for housing is sufficiently hard that this isn't actually that useful in practice.
> Take the claim if chicken prices drop by 5%, more people will each chicken. Does that reduce something as complicated as where people want to eat to one variable? It's a claim about the aggregate, even if such differences in price are a small factor in everyone's decision about what to eat.
I don't think this is a good comparison. Where people want to live is a much more dynamic and complex preference than a preference for chicken.
But even so, we have tons of historical examples where increased food prices led to increased consumption! Take the history of lobster, or caviar. My point is not that supply and demand are irrelevant, just that they are less useful as long-term predictive tools than economists and ACX commenters seem to think.
I think we should be building more housing in desirable cities to enable more people to have access to good jobs, and create all the other wonderful benefits of density. This will hopefully lower prices too, especially if it occurs in lots of desirable cities at once instead of just one or two. But even if not... then more people will be able to live in the cities they want to live and work in. Isn't that a good thing? Is it so important that we be able to predict future housing prices in 20 years?
About the Bay Area tech company lottery tickets:
I think it's getting more than you gave it credit for. If founding Google won the Bay Area 1,000,000 residents, these residents do not have a uniform distribution of occupations. A large fraction of them will be techies (though maybe not 1/2 as in your mining town example because googlers have substantially higher average salaries than most of the people who provide services to them). Thus, this will give the Bay Area substantially more than a 1/300-fraction of the American techie population, making it somewhat more likely to found the next big tech company. And I guess once you have enough techies in one place you start to see second order networking effects and the development of a startup culture that make it even more likely.
Beyond just the density of humanity, there is also the accumulated invested physical capital in an area which any new resident can quickly take advantage of. If you built a bunch of empty skyscrapers in Nebraska, sure there is now housing there, but any new Nebraskan would miss out on the (admittedly crumbling) public infrastructure such as roads, tunnels, the subway system, public parks, sewage system etc. that New Yorkers can enjoy.
While the total cost of these goes up absolutely with new residents, to my understanding the cost per capita goes down; larger sewage plants can be more efficient, subway capacity doesn't need to hold the whole city at once, most people don't spend all of their time in a park etc.
One factor which I think is consistently forgotten in the talk of "adding supply" is that housing is not consumed in a linear way. For example, it's possible to consume 2,000 sq ft of housing in exactly the same way as 1,000 sq ft of housing. This makes it diifferent from most other goods - e.g. to consume twice as much coffee, you'd have to drink twice as much coffee.
(There's a price question: you could drink better quality coffee that costs twice as much, and from an economist's perspective, you'd be consuming twice as much coffee again. But just improving the quality of coffee doesn't (necessarily) use up the scarce resource that defines the good. Space is the scarce resource that defines the good of housing, there's still an important difference.)
Similarly, talk of adding supply assumes that added supply is of the same quality as existing supply. But housing is a long-term asset, and new builds tend to be higher quality and higher priced.
I don't think you're quite right about housing consumption and space. Yes, it's possible for the same family to live in a 2000 sq. ft. house as a 1000 sq. ft. house, but former family with more space has a higher standard of living. There's a reason why cateris paribus people want bigger houses, but only put up with smaller ones when price is an issue. That's why you see a lot more roommates and fewer families in places with higher housing costs.
And the real limiting resource that gets used up is land, not housing space. But land can be used differently depending on zoning, including height limits, setbacks, etc.
You're right about new supply being higher quality than old supply, though.
> new builds tend to be higher quality and higher priced
That is not necessarily true. For instance, in Toronto, new builds are almost universally smaller, with worse floor plans, lower build quality, and are in worse/less walkable neighbourhoods with worse services than existing housing.
Perversely, they also command higher prices for reasons which defy explanation. I guess people really like fresh paint.
But space isn't a scarce resource. Look at the photo of Manhattan again.
People keep wanting to say that housing is contentious because you can't make more land. And it keeps being obvious that (1) you can make more land, and people do it all the time; plus (2) the supply of housing is not even tenuously related to the supply of land.
That's a really interesting idea. I don't think I accept your reasons...
(1) You can make more land, but it's expensive and difficult (see: the Netherlands, Dubai)
(2) The supply of housing depends on land a little bit in that it's expensive to build up. You can build cheap and low, or expensive and high.
But yeah, neither of those are absolutes, and I might be wrong about this. I will ponder it further. Thanks!
Wait, in what universe is San Jose more dense than New York?
I said this in my comment but in that graph they're measuring the density of the "urban area" which is not defined in terms of political boundaries. They don't say what "urban area" means but I'm guessing that anywhere above a certain threshold density is "urban". In which case what they're measuring is "density in the area around a city that's above a threshold density".
In that case a major factor in density is how much "urban" sprawl there is. If you look at the Wikipedia article listing urban areas (not sure if same definition) (https://en.wikipedia.org/wiki/List_of_United_States_urban_areas), NYC's is more than 10 times bigger than San Jose's. If you look at the census map (https://www2.census.gov/geo/maps/DC2020/UA20/UA_2020_WallMap.pdf), NYC's extends over most of Long Island and halfway down the Jersey Shore, and San Jose's is small.
Everyone thinks it's the density of NYC, but it's the density of NYC plus a surrounding area 10x as big much of which is sparsely populated exurbs. And with sprawl-y sunbelt cities, even more so!
"Everyone knows Austin is more expensive than Houston because Austin is a trendy tech and culture hub and Houston isn't"
This seems out of touch with the reality of these cities. Have you spent a lot of time in Houston? There are sooooo many houses in Houston. You can't scratch your ass without accidentally building a lovely two-story five-bedroom house with a nice big yard. When you're there, driving to your musician friend's giant new house through miles and miles of new developments, it's not at all hard to understand why housing prices are low in Houston.
"Unless someone wants to claim that its failure to build housing helped turn it into a trendy tech and culture hub, I don’t think there’s much point to this comparison."
Here we reach the crux of the mistake that's underlying a lot of your confusion.
You're thinking "trendy = desirable => expensive". But actually "trendy := desirable - accessible", so "desirable + expensive => trendy".
That is, YES, Austin's failure to build housing made it trendy, in that only people willing to endure privation for the benefits of the city get to enjoy them. If Austin had built tons of housing, then every Chad Sixpack could move there to enjoy its many cultural amenities -- that's a net increase in utility, but it wouldn't be *trendy* anymore. Indeed, Houston has multiple fine universities, a thriving medical-biotechnology industry including incubators and startups, a cultural and literary scene; but you don't think of it as trendy, precisely because it's broadly accessible.
This is the same sort of dark conclusion I'm thinking about. The thing that makes a trendy liberal city is the exclusivity of it. Absolute size and population density matter, but the primary driver of trendiness is what portion of the city is populated by trendy people who create culture and propagate it by virtue of being trendy. A huge city with only a few of those people never sees them casually meet up to collaborate, and even if they did, they'd face huge cultural headwinds because no one is looking for the voice of a generation out of Cleveland or St. Louis. So if you're so driven and creative that you need to participate in the creation of culture, or technology, or anything on the bleeding edge of whatever field, you make sacrifices to move somewhere like-minded people are already doing so.
There's definitely something to that idea of trendy as related to exclusivity, but it's not just being desirable and expensive. And what generates the initial spark of trendiness is often places that are cheaper. Greenwich Village in NYC was known for being the place that artists could afford to live until it got a reputation and prices exploded. Same thing with the Pearl District in Portland. I'm not as familiar with other cities but I'm sure there's plenty of other examples.
Kensington Market in Toronto is another example. Formerly a poor, working-class, ethnic neighbourhood on the border of Chinatown, it attracted "cool" people and now is one of the most desirable neighbourhoods in the city.
Berlin is an example on the scale of an entire city.
One interesting question is: why doesn't Detroit become Berlin? Berlin was cheap because it had the infrastructure of a city but few people wanted to live there, which caused all the young cool people in Germany to move there. I think the answer is because Germany only had one Berlin, whereas the US has many decaying industrial cities and there's no obvious Schelling point for all the young cool people to flock to.
Well, but also Berlin has a centuries-long history as one of the first cities of the German-speaking people, dense urban design, enduring cultural cachet, political importance, and so on.
To be (just a bit!) reductionist, Detroit has Motown and rap music, violent crime, an extremely small (but admittedly fairly nice) downtown surrounded by pretty awful, heavily blighted car-centric suburbs (and by suburb I mean practically everything more than maybe a 30-minute walk from downtown, almost). That said, there are people out there taking advantage of the relative affordability, and there is cool stuff happening in Detroit. It is making a bit of a comeback, and I could legitimately see it becoming quite cool in our lifetime.
I think it is pointless to look at the absolute prices. Weather does not change with density. Proximity to the ocean or mountains does not change with density. But those factors absolutely do have an effect on the real estate price. I am sure there are well located smaller towns in California that are more expensive than Houston will ever be. Regardless of how much it builds.
This makes it harder to analyze the numbers. However, those factors remain constant most of the time (but not always. Detroit losing lots of jobs due to manufacturing shift is one example). So we just have to look at the rate of change, not the absolute price.
> Weather does not change with density.
<nitpick> https://en.wikipedia.org/wiki/Urban_heat_island </nitpick>
Second nitpick: if you want to _go to_ the beach, effective proximity changes with density because of traffic. You still see the mountains, though.
Being close to the ocean is not just about going there for a swim. It means milder climate. Better air quality. Etc.
Yes, this is what I'm thinking. Everyone knows that Austin is a more pleasant place to live than Houston, and if you ask people for a list of the things that suck about Houston then the sprawl and traffic will come pretty high on the list.
This is kinda what NIMBYs have been saying all along -- adding more people to your city really does make it a more unpleasant place. A Houston that had restricted development at Austin's current size (2.4 million) rather than growing into Houston's current size (7.5 million) would still have Rice University and the Museum District, but it wouldn't take two hours to drive across and would generally be a much nicer place to live.
But who is driving two hours across Houston other than someone passing through? Nothing, except money, prevents one from living near the Museum District and avoiding the sprawl of the outer-loop. Also, traffic in Austin is much worse. Austin doesn't have freeways to handle its population density--it didn't 30 years ago and definitely doesn't now. I'd reckon it takes 2 to 3 times as long to travel the same distance in Austin as in Houston.
A lot of the size of Houston is also driven by its port and refineries on the east side. That's basically a different city that professional workers don't spend much time in.
Houston does not have a center, jobs-wise; and whatever its population center is, it's not the Museum District. Your advice is probably fine for a remote worker from the Bay Area who will be delighted with what a mil two will get you.
Job travel in Houston is likely to be radial around one of the loops.
As to what someone said above, about friction preventing a large injection of supply from immediately filling, that is precisely what you will find in Houston (my hometown) - people unwilling to disrupt their lives by moving every time they change jobs, or their employer relocates within the city. The area with which I'm most familiar, suburban SFH west Houston (within highway 6) in particular functions as something of a small town. This despite the fact that the portion of it that is south of the bayou/north of Westheimer almost uniformly attends private school, and thus should be less tethered to zip code.
Indeed it would trouble urbanists to know just how community-like that area is, so ardently must they hate it.
Regarding friction, though - Biden has opened up a couple million spaces the past couple years, and this will certainly create more Houstons (and in Houston, more rings) which will indeed be very affordable.
"My claim is that marginal changes - like Oakland building an extra 10,000 units, but everyone else staying the same - will most likely increase Oakland prices. Yes, if Oakland unilaterally built 50 million units, that would soak up the entire excess demand and probably lower prices everywhere (including Oakland). Yes, if the entire US switched to good housing policy at the same time, that would probably lower prices everywhere (including Oakland)."
Íf the above is the case and Oakland (or any city with expensive housing) wants to reduce local housing prices or at least not make local housing more expensive, it will build no more housing unless it can build enough additional housing to solve the housing shortage for the whole country (or maybe continent). Or Oakland will have to coordinate with SF, NY, Austin, rest of US so as not to build more housing inside Oakland that serves to increase Oakland housing prices.
On Chinese ghost cities:
China is in the middle of a project that will move ~1 billion people from rural to urban living over the course of ~100 years. That's about 10 million people - one Beijing - every year. If the central planners or the invisible hand gets things exactly right, every single one of those 100 years, building exactly the right number of new units in exactly the desired locations, then there will be no underoccupancy (ghost cities) or overoccupancy (slums) in China thoughout any of that period.
But obviously things aren't going to work out that perfectly. When there's underbuilding, you get crowding in the cities, people living in basement sublets, etc. In China, where we love picaresque descriptors, we call these the "ants": young people living crummy lifestyles. When there's overbuilding, you get ghost towns. But both the slums and ghost towns are going to be washed away in the ongoing flood of a billion people making the move. Those shocking pictures you see from China are just a function of the large numbers involved, not an indication of any deep dysfunction or weird phenomenon.
Incidentally, I live in a very underoccupied part of my city: they built a bunch of expensive flats and developments around a new yacht marina, then Covid hit, and the whole area has yet to take off. We're loving it, because we get all this new infrastructure to ourselves. But I hope for the city's sake that in a few years' time it will be overrun with holidaymakers.
Also I think China's Hukou has a significant ability to shape where people live in a way that is not comparable in the US
https://en.wikipedia.org/wiki/Hukou
Appreciate the updated comments. I think you may still be overstating the impact of 'desirability' and understating the impact of jobs. 4/5ths of metro median home values can be explained by aggregate income per unit of housing in a linear model. Density barely correlates.
https://twitter.com/KaseyKlimes/status/1654493856497319937?s=20
Thank you - I kept arguing on the previous thread that it's mostly driven by jobs, not amenities. Very few people move to a city just for the culture without getting a job.
But Scott's argument is that density and desirability create jobs, albeit maybe over very long time scales.
Doesn't have to be very long time scales. A few weeks for existing amenities to recruit extra staff to cope with growing demand. A year or two to build a whole new mall and fill it with new restaurants, shops, etc.
Kinda sad that I had to search all the way down here for "aggregate income" which certainly seems to explain this phenomenon an awful lot more powerfully than the suggested dimensions.
I think you might be understating the case for the oil model a bit. As a thought experiment: If a small city were built on Conanicut Island and filled with people, would you expect the population to be higher or lower after 20 years? We can see the fast decline of Detroit and Gary and the slower decline of St. Louis what happens to cities that lose their core reason to exist. New York would steal all the educated white collar employees, and the services industry would slowly wither without a core exporting industry like finance is for New York. If you had built a small city on Conanicut hundreds of years ago it would have stolen all the good employees from Manhattan Island instead and getting a city built on Manhattan would be impossible. You can't split them up so there are two medium sized cities, one on each island. Manhattan had the *best* natural harbor so it gets to eat all the agglomeration and the finance industry took up residence there. Second place is first loser.
You might attribute that to agglomeration, but instead it could be explained with the "tech-sized industry" model. Austin only managed to become a tech hub in the same nation as SF because SF was determined to squander its advantages and left an opening for Austin to play the game of thrones and get a toehold in. that sort of thing only happens when unique weird factors come into play to shake things up, like SF mismanagement, not due to Austin having density.
> If you had built a small city on Conanicut hundreds of years ago it would have stolen all the good employees from Manhattan Island instead and getting a city built on Manhattan would be impossible.
Well, probably not, because as another commenter pointed out, Manhattan is at the mouth of the Hudson River and has a fantastic natural harbour, making it an important regional and international trading hub. Conanicut Island has no geographical advantage or reason to exist, which you can tell because nobody lives there (people are smart enough to notice these things, almost every major internationally-important city has a major geographical trade advantage, London, Paris, New York, Hong Kong, Tokyo, Los Angeles, San Fransisco, etc.).
To posit that these population distributions are just accidents of history is to posit that the people making the decisions to found and move to/from these places had no idea what they were doing, couldn't notice the world around them, etc., and a variety of other highly unlikely things.
I’m surprised you didn’t address this very important part of the housing situation in SF.
Many of the “service workers”, teachers, firefighters, police, etc., etc. can’t live in the city in which they work. So, there is demand but no place to live, and even if there were more housing units they still probably couldn’t afford it.
SF also has building restrictions throughout the Bay Area.
Demand drives prices, and the demand is driven by those that can afford to drive it.
My intuition is basically Jeremiah Johnson's argument, which is in short that NYC and SF are actually pretty NIMBY in terms of allowing new development. NYC is dense because of a historical practice of building lots of housing - not current. If NYC (maybe more accurately the NY urban area) just let people build as much housing as they wanted, its population would shoot up and I imagine prices would go down.
To put it in "Manhattan vs. Conanicut island" terms - Conanicut allows you to build as much housing as you want (I'm guessing), Manhattan doesn't. But I bet rent was cheaper back when Manhattan allowed SRO and boarding houses and shit. A bunch of penniless immigrants used to live in tenements there, in the same tenements that now get rented out to rich undergrads for like $4k a month because they're in Nolita or whatever.
It's the cycle that you say - "more people leads to more desirable" - but then "more desirable" goes to either "more people" or "higher prices" depending on NIMBY/YIMBY levels.
You say this:
"trendy liberal coastal cities are both more NIMBY and more desirable, and if you use this to draw any conclusions about housing policy you’ll just end up confused"
I think that "more desirable" leads to greater demand that manifests as either people or prices, and more NIMBY means it's more on the "prices" side.
Also - what do you make of ski resorts (I ask non-rhetorically)? Super expensive, lower density, reputation for NIMBY. Weird example in that they have a reason for demand other than "density leads to demand". Would they lower housing costs by allowing high rises?
Also - not that this proves or disproves anything but I continue to wonder about the measurements in the original graph. It said it was measuring density in "urban areas", which are specifically *not* defined by political/administrative division. So how are they defined? Presumably by calling areas above a threshold density "urban".
In which case the thing it's measuring is "average density in the area around a city above a certain density", which is at least a little odd.
And I suspect that areas with more ability to sprawl, i.e. less geographically constrained, end up with a larger area on the long tail of "dense enough to be urban but bring down the average". Basically NYC in the middle of Nebraska, even if the center was super-dense, would be surrounded by so much sprawl that the "urban area" would eventually have a surprisingly low population density (and I used the example of Chicago's urban area having significantly lower density than Miami's).
Regarding Manhattan, it's interesting to consider that their population peaked in the 1920s. 1920 census had about 2.3 million residents, but it's now at about 1.7 million.
I think this is an extremely important piece of data that has to be reckoned with (by both sides). For almost 100 years, manhattan was getting less dense and has only gotten moderately more dense over the past 30 years. While SF has been steadily growing in population over those same 100 years.
> and I imagine prices would go down.
They would not, barring government intervention, as new housing supply is constrained by the decisions of landowners, who will only allow supply to be built at a rate which maximizes their return on investment in the land they own. They will not allow enough housing to be built that it destroys the value of their asset - why would they?
> Conanicut allows you to build as much housing as you want (I'm guessing)
Probably not, tbh. Most rural areas would have a shit fit if you tried to build a flat block.
> They would not, barring government intervention, as new housing supply is constrained by the decisions of landowners, who will only allow supply to be built at a rate which maximizes their return on investment in the land they own
The way to maximise the return on the land you own is to develop it as soon as possible and pocket the massive capital gains, which you can use to buy other land to develop as soon as possible.
Hypothetically if you owned most of the land in a given area then you might be able to maximise your returns by drip-feeding it, but there aren't many places where this is the case.
> The way to maximise the return on the land you own is to develop it as soon as possible and pocket the massive capital gains, which you can use to buy other land to develop as soon as possible.
If prices are going down, and you predict a long-term regime of declining prices, then yes, you should develop as much as possible and exit the market ASAP.
If prices are going up, the longer you wait, the more money you make. If you develop now, you're leaving future money on the table you could have had just by waiting. There's an optimal development rate for a given growth rate which landowners will attempt to hit.
> Hypothetically if you owned most of the land in a given area then you might be able to maximise your returns by drip-feeding it, but there aren't many places where this is the case.
All of the landowners have the same incentive - maximize asset values - which is achieved by attempting to develop at a certain optimal rate. There is no incentive to defect and develop early. They do not need to collude to act like a cartel, it happens automatically from them each pursuing their own interest.
This is why private for-profit housing supply cannot and will not ever solve housing affordability barring some major (and extremely unpleasant) external shock.
This is exactly what Land Value Taxes try to solve. If you own a piece of property and refuse to develop it due to speculative value, a Land Value Tax would punish you for not using it to its fullest potential.
Totally agree ofc. LVTs more or less solve the housing market, which is why they're so politically unpalatable lol. Too much money on the status quo.
Your housing cartel theory I think does apply to most cities where the majority of the voters are homeowners, but I don't think the politics quite work in places like New York where most people rent. And if development was made easier by a renter-supported government, no individual landowner in NY has enough market power than refusing development would be individually profit-maximizing.
I think it's actually more true the fewer people are homeowners. Developers are businesses and are going to behave more rationally than individuals (in an economic sense). Homeowners have all kinds of lifecycle reasons for buying and selling housing and preferring different things other than maximizing the value of their asset.
Developers maximize the value of their real estate assets by developing at a certain rate that's set by the growth rate, other economic options, interest rates, and so on. They will all try to develop at that optimal rate, and so their behavior will look the same as if there was just one developer with a monopoly. There's just no value in defecting and lowering prices like there is in most markets.
But "develop at a certain rate" doesn't really make sense. If you own a piece of land, you face the binary decision of whether to build a new building there or not. And once you decide that, you need to decide how big of a building to build. Then once you've built that building, you're locked in for decades, other than maybe remodeling the place - you're not "developing at a certain rate." Most developers are going to build the biggest building that they think will be profitable with the expected long-term trajectory of rents. And in big enough cities, they can't individually influence that trajectory. There's no reason to build a smaller building than what's individually profitable.
> If you own a piece of land, you face the binary decision of whether to build a new building there or not.
No, you're faced with a number of options.
You can sell the land now, as is (rational if you expect long term degradation in the asset's value).
You can develop now, as of right (rational if you think zoning amendments will not be approved and you do not expect them to be approved in the future and you expect prices to be fairly stable and you expect to make enough profit on the development now to offset the risk).
You can develop now, and apply for zoning changes (rational if you think it will be approved now but not later, and/or approved now or later but you expect prices to be stable in the long term).
You can develop later as of right or with amendments (rational if you expect prices to increase).
Once you've decided to develop, you can put all the units on the market immediately (this rarely happens), or release them in tranches to control the flow of new units to the market.
Furthermore, this is all just for a single plot of land. A major developer will own many plots and have a number of projects on the go at any time.
> Then once you've built that building, you're locked in for decades
No, once you've built the building, you're done, it was all presold in tranches and you move on to the other projects you have in the pipe. Developers generally prefer to sell units outright and not have to also be landlords, focusing on their core competency.
> Most developers are going to build the biggest building that they think will be profitable with the expected long-term trajectory of rents.
At the time they think will maximize their value, and they will release units in the building to market at the rate they think will maximize their value.
> And in big enough cities, they can't individually influence that trajectory.
They don't need to individually influence the rate except by not building so much that they harm the value of their assets. They just need to follow their inventive and maximize asset values/returns.
> There's no reason to build a smaller building than what's individually profitable.
Of course, and that's not the mechanism by which this works. It's by choosing when to develop and when to release units for sale.
On prices going down - there's housing prices and there's land prices. If a bunch of land goes from being SFHs to being duplexes, I think the result is that each dwelling unit is less expensive than what was there before, but each parcel of land is more expensive.
On Conanicut - I'm sure that they won't let you build an apartment building, but what I mean is, they'll let you build as much housing as YOU want. I.e. nobody actually wants to build an apartment building there, so not letting you do so is moot.
In some sense the price increase is driven by the distance from what people *would* build in our free market utopia and what they *can/do* build based on regulatory constraints. The distance is lower on Conanicut simply because even in the free market utopia people wouldn't build that much there, whereas on Manhattan people would presumably blanket the island in skyscrapers.
> "There might be a very long lag between adding new people and adding more desirability, maybe measured in decades, maybe long enough that we can hope our housing problems will have been solved some other way before we have to worry about it. Cities might be able to “outrun” aggregation effects by building houses more quickly than new residents can contribute to the city’s desirability."
I think this is the key point. On very long timescales it must be true that agglomeration effects dominate (eg your Manhattan v Conanicut example). But my sense is that this is mainly a long slow process of institution building & economic development, not an immediate reaction to incremental housing adds. So I think both versions can be true -- in the short run adding housing decreases housing prices (which we have strong empirical & theoretical support for), while in the very long run it may increase prices. The city's correct response is as you say here to try to outrun the issue by continuing to add houses quickly enough to keep prices in check.
>Building more houses anywhere decreases average cost everywhere and is net positive for global welfare.
Slight nitpick, and most people will understand this from the context, but this should probably say building more houses that function as primary homes. Building houses that will only serve as secondary/vacation homes isn't going to bring down average costs and likely is not a net positive for global welfare, i.e. building a bunch of condos next to a ski resort.
They're still soaking up demand that could have gone to displacing primary residences. In fact, in a lot of resort towns, residents and local workforces are being displaced by vacation demand. See this article on the housing crisis in Sun Valley, ID: https://www.nytimes.com/2022/07/31/us/sun-valley-workforce-housing.html
But also, how would rich people getting more stuff they want not be a net positive for global welfare? Assuming it's not creating big negative externalities.
> But also, how would rich people getting more stuff they want not be a net positive for global welfare? Assuming it's not creating big negative externalities.
"Assuming it's not creating big negative externalities" is doing a lot of work there, and really is not a valid assumption at all. Building supplies are limited, construction labour is limited, our planetary carbon budget is limited, land is limited. Building housing nobody needs is consuming finite resources we desperately need to put to productive use housing people who are underhoused.
You could make that argument about basically everything that rich people consume. In fact, vacation homes are people contributing a lot fewer externalities than taking private jets and yachts all over the world.
And what about, like, McMansions in the suburbs? They're private, primary residences, but they use up a lot more building materials than people really need. Are they a net negative on society? What about one person living in a two-bedroom apartment? Trying to make arguments about people using more than they need doesn't really align with our economic system.
And I would make that argument, lol, especially about McMansions in the suburbs. The key difference between yachts and homes being everybody needs a home, so if you're making ithard to get homes by hoarding, you're really fucking people over. If you make it hard to get yachts, well, that's fine, nobody needs yachts, going without a yacht is not a hardship.
I would argue that our economic system has failed in some extremely fundamental and predictable ways (housing being maybe the biggest one), and that saying an argument doesn't align with it is closer to a point in favour of it than a point against.
I think it's fundamentally just unethical for someone to use more than they need if those resources could instead be used to meet someone else's unmet needs. Lots of times it's not really obvious whether that's the case, but someone owning three homes while two other people in the same community are homeless is a pretty blatant example.
I feel like NIMBYism is the main cause of the housing crisis, and doesn't really align with our economic system either. If anything, it's more evidence for capitalism working well - where people are allowed to build homes, they're still affordable.
And I think long-run supply elasticities between goods are higher than you think. The steel that goes into a yacht could have gone into a high-rise apartment building instead, and the shipyard workers could have been construction workers. If you want to reduce excess consumption from the rich, just tax them more (which I fully agree with).
> I feel like NIMBYism is the main cause of the housing crisis
Then why do developers campaign so hard against NIMBYs? If easier development reduced housing prices, don't you think developers would be the first to know and the first to oppose it, since it would ruin their business?
To believe NIMBYism is the root cause of the housing crisis, you have to believe that every developer and real estate investor fundamentally misunderstands their business.
That seems very unlikely to me, as they make a lot of money.
>They're still soaking up demand that could have gone to displacing primary residences. In fact, in a lot of resort towns, residents and local workforces are being displaced by vacation demand. See this article on the housing crisis in Sun Valley, ID: https://www.nytimes.com/2022/07/31/us/sun-valley-workforce-housing.html
Hmm seems more like they're creating extra demand, after all if there's new vacation homes there will be higher demand for labor and thus higher demand for primary residences to house larger local workforces. Hence the housing crisis in Sun Valley.
As density increases, some of the extra people make the city a nicer place to live because of their science and culture and entrepreneurial talents (amenities to density) and some of the extra people make it less nice because they are rude and smelly and gross (disamenities to density). I think most of the YIMBYs think that as density grows, past a certain point disamenities grow faster than amenities and so prices will fall.
What this means is that "Suppose Oakland had to build 25,000 extra units" is not really a fair characterization of the prescriptive YIMBY argument. What would be fair is "Suppose Oakland let people freely build housing if they want to until markets equilibrate." If they did that, then, yes, housing would be less expensive than it is now, since people would keep moving there until the disamenities from density would start to outweigh the amenities and prices would drop. Would that be at more or less than 25,000 per year? No one knows! That's what markets are for.
If S.A. - who is apparently a weird, super-YIMBY - is correct that amenities *always* grow faster than disamenities *forever* then, yes, the first city in America to figure out how to sustain a pro-development outlook will metastasize and grow until everyone in American live there except for a few random misanthropes.
Re: your last paragraph: this arguably already happened and is continuing to happen in Japan.
The YIMBY argument doesn't have anything to do with amenities or disamenities. It's very simply that you end up with lower home prices if you exchange one million-dollar detached house for five $300k condos on the same lot.
I was under the impression Raleigh was a more desirable city, as part of the "Research Triangle", and in a state that went for Obama in 2008.
It definitely is. Scott is show his ignorance of general trends in US cities outside of the Bay Area here. He characterizes 4 (relatively) liberal, very popular cities as being uncool conservative backwaters.
+1, I was wondering where a mention of the research park was.
Research parks have a huge agglomeration effect (as I write this comment from my desk in one ;) ) as they draw 1) educated research workers to high-paying jobs, 2) office staff to support the researchers, 3) all sorts of service jobs to support the researchers and the office staff. All of this then draws more companies that do research to the area.
I would bet that Raleigh has a delightfully weird food scene as research park areas tend to have a lot more immigrants.
The 2nd option in the poll is different from what’s listed here.
> Or: Austin gets lots of jobs from Tesla. Tesla wasn’t founded by Austinites. But it moved to Austin when it became a known “tech hub”, ie a place with lots of tech companies and tech employees. It wouldn’t have moved to Austin if Austin was still an uninhabited plain or a one-horse town. So as Austin got bigger, it attracted more tech companies.
It's still not clear to me this is the direction of causality. The first big tech company in Austin was Dell, which happened because Michael Dell went to UT Austin, which existed because that was the state capital, which was a historical accident involving feuds with Sam Houston, a secret overnight raid, and a woman with a cannon now immortalized with a statue downtown. It was a barely existent as a town for most of its history.
Maybe it would help if we clarified what we mean by "density increases cost of housing"? I think you're trying to do this in your last section, but the poll is underdetermined, so I made some additional assumptions when responding. Density doesn't increase for no reason, infrastructure is built for a reason. Are we just building office space, even if no companies want to use it?
Is there some particular real-world policy you are curious of the effects of?
> My claim is that marginal changes - like Oakland building an extra 10,000 units, but everyone else staying the same - will most likely increase Oakland prices.
The best empirical evidence I'm aware of is that the reverse is true, at least on time scales of months to years. Over the time scale of decades, Manhattan demonstrates the reverse--its population has dropped by 1/3 or so since its peak around 1915, but the cost of living has skyrocketed. Why? Because dirty factories and smelly meat plants were replaced with shiny skyscrapers full of bankers and TV writers.
> Everyone knows Austin is more expensive than Houston because Austin is a trendy tech and culture hub and Houston isn’t
First, these aren't just 2 cherry picked data points. They're geographically close, in the same state, and have a similar climate. But also, this statement isn't obviously true to me. Austin is true, yes, but arguably has a lot less in the way of culture-related amenities like museums than Houston (except for things related to live music). Similarly, Austin has tech, but Houston has energy, the latter of which is probably more desirable to a lot of people outside our bubble. I think Austin has grown much faster, and so housing supply has struggled to keep up.
Also, it seems rather suspicious to me that you keep coming back to 1 pair of islands but then call this example cherry-picked. Are you sure there are no other reasons why one of those places became important and the other didn't?
An example of places that I think are expensive literally only because of a natural feature, and building housing there will only ever reduce prices: Ski resorts. No one lives at Arapahoe Basin; there's no room. But most resorts in the area--Keystone, Breck, Vail, etc. do have room. The fact that no one lives there doesn't make A Basin any less popular (it does have fewer visitors, but for other reasons). I think that building housing will not cause them to be more expensive on any time scale.
> I don’t know how realistic this is or how closely existing commercial regulatory easing tracks residential regulatory easing.
I actually think a lot of town do exactly this and are very expensive, although they have to be near other towns that allows stores and such to be built. If those nearby towns changed policy and booted out their stores, I suspect housing prices in the original would go down.
> Building more houses generally improves welfare for the people in the city where it’s built, even if this might come in the form of better living rather than lower rents.
I'll point out that, at the very least, homeowners mostly don't believe this, because they benefit from rising rents. If they did believe it, we would have a lot less NIMBYism.
Oil booms and busts. Austin has government, which only booms. Austin started small but has essentially boomed for decades. It built a ton of houses and apartment complexes in the 60s/70s - though nothing on the scale of San Antonio, which perhaps ought to be compared to Austin ahead of Houston. SA has military and cement and Hispanic birthrates; like Austin it sits on a divide between blackland soil and Edwards plateau. It's rather fun if you are diving into historical reasons for city location, to consider that Austin and SA are placed along the once-edge of the continent. Texas towns are often connected with springs, even if now pumped dry.
Houston on the other hand is a southern city essentially, very much owing to a more current edge, and a famous hurricane.
But no one seems interested in San Antonio, which is probably a mistake.
I didn't realize until I lived in Texas that San Antonio is the second most populous city in the state. And yes, the geography of that whole area is very interesting; not just Texas, but the entire continent starts sloping upwards as you go West from there--a line of reduced population density, visible in satellite imagery like https://www.nasa.gov/mission_pages/NPP/news/earth-at-night.html, runs north through DFW, OKC, Wichita, etc.
2. I feel like part of this argument involves different time scales. Building a world-class company, or university, or port, or financial center, or cultural hub, takes decades or maybe centuries. Building new housing takes a few years. As long as the time it takes for new housing to be built is faster than the time it takes for your city to produce or attract new cultural points, building new housing will reduce the cost of housing.
The poll is terrible. If 2 people move into each unit, average vacancy rates decrease relative to current Oakland vacancy rates! You are assuming demand outstrips supply! How are we econ majors supposed to respond!? Prices go up!
But I question whether the demand would outstrip supply - would we see vacancy rates increase instead, with a some units at 1 and maybe even some at 0 occupants? *That* is the question. It's vacancy rates all the way down, and they are at all time lows, and if they go down, prices go up, vice versa.
> It's vacancy rates all the way down, and they are at all time lows, and if they go down, prices go up, vice versa.
Exactly! The economic price of housing is the cost of rent, not the cost of the housing asset, which is a capitalization of the rental price. And the cost of rent is driven largely by the vacancy rate.
I think you're misreading the poll. It says *if* two people moved into each of the units... It's illustrating the scale of the construction, not stipulating demand.
Aspen, CO is much smaller than NYC but also the housing costs more. If much more housing was built in Aspen, do you really think it would become much more expensive?
To me it seems obvious that in Aspen at least, it would become cheaper. Aspen is in an inconvenient place for anything except mountain sports, but there is only so much ski slope available, so adding more people pretty quickly makes those slopes less desirable.
If they had more housing, would they build another ski resort? Or are all of the amenable slopes already taken?
I don't rule out that one or two more could be built. But there is some hard limit, is what I'm saying. Similarly for beach towns, I guess.
Very likely the case that there is minimal more ski resort that could be built. There's already 4 in the Aspen area, and it's all on national forest land so the forest service would have to approve (and in any case would make it more difficult to build), plus there's a lot of constraints as far as what makes a viable ski resort (variety of terrain, ability to build infrastructure, avalanche mitigation, etc).
If i remember correctly, Forest Service hasn't issued a new permit for a ski resort in like 30 years. There was a push to get the Obama admin to do it, but I dont think they did. The big ski conglomerates have a lot of incentives to not allow more resorts to be built. We can contrast this with Europe that has hundreds of ski areas of various sizes because of different regulator regimes.
That sounds right, although I'm not sure how many more resorts are financially viable anyway. Big conglomerates have incentives to block third-party development, but would presumably like to expand their own operations if possible. But this is more likely to come from improving their existing properties (slightly more terrain, faster lifts, etc) rather than building entirely new resorts.
I dont know enough about the profitability of the big resort companies, but you are definitely correct about expanding current operations. Steamboat and Winter Park are both doing huge expansions that will almost double their skiable areas as well as add tons more condos.
There is a new "ski area" in CO called Blue Bird that opened in 2020 (I think?). But it's not really a ski area because it's only back country skiing. No lifts, no marked runs, no condos. I think it's mostly on private property and they have some huts with coffee and heaters. Back country skiing like this is too niche to threaten the big resorts, but it will be interesting to see if more of these types of operations spring up that most cater to locals who don't want to pay the big resort prices or get an Ikon/Epic pass.
Yeah, Blue Bird is on someone's ranch. There are already a number of local's alternatives, like Loveland, Cooper, Echo, and several further-flung resorts. Starting a whole new resort is incredibly capital-intensive, and seems fairly risky as I know that a number of smaller mountains across the US have shut down over the years.
"If a city only built new houses, but refused to allow any new companies, restaurants, schools, museums, or other good things, then the new residents would have a hard time improving the city’s desirability, and house prices would go down."
Right, so in some universe it might be an empirical fact that alcoholics tended to compensate for their alcoholism by exercising more, and therefore end up on average to live longer than non-alcoholics. Should we condense the steps and say that alcoholism improves life expectancies?
Thanks for returning to this! I was misunderstanding your thought experiment: you're asking about one-time housing sprees, not ongoing construction year after year.
If you're only interested in a one-time building surge, followed by no further housing in later years, then I agree that should raise, not lower, long-term rents, at least for sufficiently attractive cities in the sufficiently long term.
I see Houston, Atlanta, and Tokyo as vindicating policies of ongoing new housing additions every year, not a one-time construction spree.
If Oakland adds lots of housing in a single year, then reverts to typical near-zero housing construction for the next twenty years, it seems plausible Oakland rents end up higher than they would've been.
I also think it would be a dumb policy. You should add new housing every year, as long as there are people who want to live in it. That's the lesson vindicated by Atlanta, Houston and Tokyo. One-time construction sprees are not your friend.
Aren't we basically already running this experiment in a lot of Sun Belt cities like Atlanta? How have housing prices in Atlanta been trending compared to the national average?
"There are a few very trendy small coastal villages in California (think eg Sea Ranch); maybe these (rather than North Dakota) are the natural control group for San Francisco. I think they are still cheaper than SF, but maybe not by very much."
FRED has the answers: https://fred.stlouisfed.org/release/tables?eid=1138280&rid=462 . Here are the prices of coastal metropolitan & micropolitan areas of California, in median listing price per square feet. I've made some judgement calls as to what counts as "coastal", including Ukiah but not Clearlake for example.
San Jose - 891
Santa Maria - 864
Santa Cruz - 780
Napa - 764
San Francisco - 742
Salinas - 695
Los Angeles - 642
San Diego - 605
Santa Rosa - 569
San Luis Obispo - 545
Oxnard - 515
Ukiah - 389
Vallejo - 335
Riverside - 321
Eureka - 311
Crescent City - 263
Does the disagreement here mean there’s a hurdle for land valuation that Georgists are ignoring here? How are you supposed to implement a properly rated LVT with a confusing effect like this?
I think maybe I got in too late, and you didn't see my comment, which linked to my substack response. My research relates to this very question, and the data answers it. Amenities, construction costs, and supply constraints can all affect prices. In cities where price is driven by amenity value, costs rise across the whole city. In cities where price is driven by short supply, costs rise specifically in the poorest parts of the city. In the US today, the most high costs of the expensive cities are largely driven by supply constraints. And so, it is the neighborhoods with the least amenity value that have seen the most price appreciation. (This caused confusion pre-2008, since that pattern of price appreciation was misinterpreted to be caused by mortgage access.)
https://kevinerdmann.substack.com/p/does-density-increase-local-prices
I think that what drives up prices is not population per se, but density. “Proximity to desirable location” has a high intrinsic value all its own, and this value is “per person” rather than “per square foot of housing”. And there’s a feedback effect - commercial real estate in a dense area has greater access to customers and workers, and will thus command a higher price. Housing that increases density will tend to raise price per square foot, all else being equal. But the marginal extra housing unit would still tend to drive cost-per-unit down.
Ultimately what is scarce in San Francisco and a Manhattan is not housing, but land. Manhattan island and San Francisco proper are almost entirely built over, and there are natural barriers to expanding them further. You can build more houses farther away, but the drop off of “proximity value” will be pretty steep. You can’t build more Manhattan (well you can, but it’s not as easy to get landfill permits anymore…). Going an extra half mile from downtown SF or Manhattan is a big deal from a desirability standpoint whereas going an extra half mile into the suburban sprawl of Phoenix or Houston is essentially meaningless (indeed Phoenix has a sort of donut effect - downtown proper is gentrifying and expensive, then there’s a ring of old, sometimes kind of slummy neighborhoods, and then beyond that more desirable and expensive suburbs.
One other factor is that, for highly desirable cities, there exist a class of people (e.g. financial bigwigs in NYC, tech superstars in the Bay) who are comparatively price insensitive - living in Manhattan or the Bay Area has, not quite infinite, but extremely high value. Only after this demand is exhausted will more housing start to drive prices down.
Oh, and another thing - I think some of this is warped by the fact that people don’t shop for housing the same way they shop for other commodities. With housing, people don’t often go out and buy the cheapest house they can that meets their minimum needs. Instead, they set a budget and then go out and buy the most desirable housing they can get for that budget (and often a little above it). Some people do go the minimum price for minimum housing route, but I don’t think these are the ones driving the market. So perversely, expensive housing kind of can create its own demand, because there will be a class of buyers who want a house at that high price, not a somewhat less desirable house for a lower price.
It looks somewhat less like a market or consumers seeking a lower price, and more like a market of developers trying to create housing that will attract the richest class of buyers that find the area desirable.
Yes, and also, they aren’t primarily concerned with the home as an investment. An area where prices are going up makes it easier to bite the bullet and nudge the top of your budget, but far more important is whether life in that home will be what they want, in terms of QOL: access to jobs, entertainment, friends, schools, and so on, and day-to-day use of the home as a living space.
Everybody here seems to think density is a good or bad thing (mostly a good thing) regardless of the actual measure — like if density X is good then density 2X is better. The “paradox” of Nimbyism when increasing density would increase their own property values is precisely that the community they bought into has a density they found attractive, whether that’s Mayberry, Palo Alto, San Francisco, or NYC, and it would be a Pyrrhic victory to make a bundle selling your house if to realize it you have to move and throw away all the other things you liked when you bought there.
(Not to mention that capital gains tax and transaction costs mean you don’t get anything near the appreciation on paper.)
This line of logic raises interesting questions about Washington DC. If anyone has the data to put the DC metro area onto the charts in part 6, I'd be interested to see where it falls.
The city of Washington, DC itself definitely has limits to growth, but they take the form of artificial density limits in the city itself based on limits to building height. The metro area might also have the most price insensitive class, at least for office space, in the form of the federal government itself.
This has led to an interesting development pattern, where technology companies that wanted relative proximity to the government but were less price insensitive started colonizing the middle and outer suburbs where land was cheap (both in terms of office cost and in terms of housing costs for employees). This has caused some of the government agencies to expand to the outer suburbs to take advantage of the technology industry and workers. The end result is islands of high density amidst the suburbs. It is interesting to note that the Wikipedia article for 'Edge City' uses three different Northern Virginia examples, possibly because the unique density limits in DC pushed for their formation in the DC suburbs earlier than would have otherwise happened.
I think "proximity" is simply a fundamental concept here, and cannot be reduced to either population or density or any other proxy measure using units of quantity and space. Rather, it should be thought of in terms of time and effort necessary to reach [thing you want to access]. Density increases proximity to other people and [desirable/important things people provide], but so does, say, access to navigable waterways, or good transport infrastructure, or good spatial planning, or million other things, really.
(I think this framing neatly deals with many of the objections to Scott's thesis. Having prices derive from "proximity value" allows for those million things other than housing density to influence them, while retaining the main point of, all other things remaining equal, increases in housing density leading to increases of housing prices.)
Phoenix is an interesting example. It has the Salt River to provide water and power. But the river is far too shallow for shipping in many places.
Phoenix was tiny until well after river transport was a key driver of city siting. The benefit of the river was as an irrigation source, dating back to native communities many hundreds of years ago.
That's kindof my point. It helps isolate 'river as a source of water' from 'river as a source of transport.'
Though can we really say that river transport is no longer a potential driver of city location? There may be other drivers, now. But access to river transport is still an advantage for some industries. We still move goods by water.
"My attempt to place Austin and Houston on the original graph, using Sumner’s data plus a few other things available online. Why weren’t they on there already? Maybe because the graph is metro areas and Sumner was talking about Austin and Houston as cities, but I’m not sure and agree this is confusing."
I was already skeptical of the validity of the data. This makes me even more so.
Either Austin was included in the original data or it was not. If Austin was not included, then it looks like they're cherrypicking cities to make the correlation look better than it is. If Austin was included, and both the original and new way of measuring Austin are reasonable, then the error bars for individual data points should be large enough to include both the new and old position for Austin. The error bars would then be the same order of magnitude as the trendline.
Statistics for “metropolitan areas” can be pretty counterintuitive when you’re thinking about cities. I don’t know what they look like in Texas in particular, but I don’t doubt the original graph.
Having read the original post and this one, I'm realizing there's a more subtle thing going on that I didn't address in my initial comment. Weirdly, the relevant variable here is the slope of the supply curve. I'll explain.
The slope of the supply curve tells us how much rents have to increase to generate a given increase in the quantity of housing. The steeper the supply curve, the more rents have to increase to generate a given supply increase. Importantly, a corollary if this is that, for a given shift of the demand curve, the steeper the supply curve, the more rents will increase. That's part one.
Part two is that NIMBY zoning policies are omnipresent throughout America, and we can think of them as artificially making the supply curve steeper. It's not literally IMPOSSIBLE to build new housing in most American cities, it's just extremely difficult and involves fighting the bureaucracy for years, so the quantity only increases in response to very large price increases.
This is important because, yes, Scott is right that, all else equal, an increase in population density shifts demand right by making a city more interesting/lucrative to live in, which is why he can make the scatterplot showing a strongly positive relationship between density and rent. HOWEVER, the slope of this scatterplot is basically tracing out the supply curve (because that's what gives you the new prices as demand shifts right), and this supply curve is artificially steep due to omnipresent NIMBY policies. If every city were maximally YIMBY, you'd still see a positive relationship between rent and density, but it would be MUCH shallower.
Now here's the key bit. If a city upzones, even if they're the ONLY city in the country that upzones, they flatten their supply curve and move themselves towards this hypothetical flatter scatterplot. So while Scott imagines that if Oakland upzoned, they'd move up and to the right along the current best fit line of the scatterplot, actually they'd move down and towards the right, taking their proper place in the hypothetical YIMBY scatterplot line. This is why I'm very confident upzoning lowers rents even in that city, and why I'm not surprised that the empirical work disagrees.
Just as a mea culpa, like I said, this is a more subtle and nuanced argument than I thought at first, and I was too quick to act like this all should be obvious.
This is more or less orthogonal/tangential to your point, but you make the assumption that it's regulatory regimes that prevent enough supply to bring down prices. This is unlikely to be true, both theoretically and empirically.
Theoretically, housing can only be supplied by landowners. Landowners have no reason to supply housing that would reduce the value of their asset. The housing market has a built-in supply rate control which largely prevents long-term, large downward movement absent some kind of large external effect (e.g. the collapse of manufacturing in Detroit/the Rust Belt). This is observed in all major real estate markets afaik.
Empirically, we can look at a couple of things. One, housing approvals are always much higher than housing starts (obviously they are never lower, but naively you would expect them to be about the same). Obviously, if more housing is approved than is being built, the regulatory regime is not the limiting factor. (Yes, I hear you say, but looser regulations can make more projects viable, etc., etc. This is potentially true, but does not override the theoretical speed limit, and in practice, is not observed). Two, when housing prices stabilize or go down, housing starts immediately taper off. Projects in the pipe are cancelled or delayed, and new supply is constrained until prices start trending upward again.
I mention all of this because you say or imply a few times here and in the other post that regulatory regimes and/or NIMBYs are the cause of high(er) housing prices. This is not the case - it is the nature of private property and for-profit housing markets. The only way to reduce housing prices is not-for-profit housing models, such as co-ops, social housing, land trusts, etc.
“ Obviously, if more housing is approved than is being built, the regulatory regime is not the limiting factor.”
This is not obvious at all - it tells you that some number of approved projects will fail for reasons other than regulatory disapproval. But it does not follow that every project that is not approved would fail absent need for approval. Additionally, it’s certainly possible that the time and effort expended on obtaining approval make a project more vulnerable to failure.
Yes, fair enough, that is all true at least in theory, but in practice, increasing approvals does not increase the number of starts.
This is definitely not true universally. It may be true in some areas but it's definitely not true in any of the areas i have lived (all of which have strong demand and quickly rising prices).
For example, in my city - which is not even third tier but is a college town with high demand and almost no new supply - prices of housing have gone up significantly, rents up like 15% YoY and housing sales prices up like 40% since before the pandemic. There are so many home owners what want to building more housing on their lots.
The city is currently going through an upzoning process that will at least triple the amount of by right housing that can be built. But this won't go into effect until next year at the earliest. Many land owners are applying for permits that let them build as if the new zoning were in effect already but these permits keep getting shot down. So in this case the demand is there but the regulatory regime prevents it. I can think of dozens of units this applies to from just the past couple months.
Additionally, two proposed apartment developments on vacant land have been quashed. One was for 150 units the other for *400*. Thats 550 units (well over 1000 people) that won't get built. The land owner wants it built but the city and some loud residents won't.
"housing approvals are always much higher than housing starts"
This doesn't account for the projects that are never approved or even applied for because regulations would prevent it from being built.
It does not necessarily follow, although it is an appealing thought, that MORE housing would be built in a more permissive regulatory regime. It may just be different housing (and in fact that is quite likely).
For instance, in Toronto (poster child for strong demand and quickly rising prices), construction crews and equipment are maxed out despite an extremely anti-development population and zoning scheme (70% of the city is SFH-only with essentially no exceptions granted).
Development has been concentrated along the waterfront and a few major streets into extremely tall built forms.
Now, there are a ton of benefits to a more permissive regulatory regime, more smaller projects, more infill, more gentle density, missing middle, walkable mixed-use neighbourhoods, etc., and we should absolutely change the regulatory regime to get those benefits. It is far from obvious that lower prices or more total units constructed are among those benefits.
This is because asset owners are incentivized to maximize the value of their asset, and there is a citywide development rate which does so. All landowners are incentivized to keep development at about that rate, and there is no incentive to defect from that rate.
“ construction crews and equipment are maxed out despite an extremely anti-development population and zoning scheme”
Well yeah, because idle construction crews and equipment are really expensive. I could buy that the labor or supply market could be frakked up post-COVID, but in a functional market they’d be hiring more construction crews.
But a difficult approval process that takes a long time and fails a lot makes it really risky to invest a lot of capital in expanding construction capacity.
It's definitely true that building can be limited by multiple different factors: labor supply (as you mention in toronto), demand, capital availability, etc. In cities with high demand and restrictive zoning, to me it seems the first step would be to remove the restrictive zoning then see what happens.
"asset owners are incentivized to maximize the value of their asset, and there is a citywide development rate which does so. All landowners are incentivized to keep development at about that rate, and there is no incentive to defect from that rate."
I only partially agree with this. In very large cities and for very large land owners this is more likely to be true as their incentives are closely tied to macro economic factors. But for smaller developments, like turning a single family home into a duplex or adding an ADU, etc. the incentives are less likely to be influenced by those same macro economic factors.
Going back to my literal backyard, I have a 10,000 sq ft lot within walking distance of the central business district and a 5 minute drive to a major university. Currently I can build a single ADU up to 600 sq ft (two beds probably) on my lot. I can rent that out full time or as a short term rental up to 180 days a year. Under the proposed new zoning in my city, i'll be able to build two units up to 600 sq ft and if I deed one of the units as "affordable" for at least 10 years I can add an additional unit. I really want to do that! I dont need my big lot and would love the extra income.
My choice to develop those extra units is much more tied up in my personal finances than macro economic trends. My neighbor is a housing developer. He owns two empty lots on my block and is planning to build two single family homes on them. Because these lots have lots of carrying cost for him, he wants to build and sell as fast as possible. His incentives are a bit different than mine, but again not completely correlated with macro economic trends that would influence a developer of 100 unit apartment buildings. Then we have the university in town that basically has unlimited demand for housing from a captured audience, lots of money, its own special zoning district, and lots of lawyers to fight regulations. They'll keep building new dorms or apartments or other facilities until they run out of space.
Over all this is a super complex market thats influenced by hundreds of things. But I am very insistent on removing restrictive zoning (personally I would remove all zoning but thats a pipe dream in most places) and reforming the building code to make smaller development economically feasible. I believe these things are so important because they cause huge distortions in the market. Until they are removed we don't have a good picture of what the true demand for housing of any type is. Additionally the way that our current permitting process in the US works drags out so many projects that they become economically unfeasible unless the rent/unit cost is so high that is prices out everyone except for the top deciles.
> But I am very insistent on removing restrictive zoning (personally I would remove all zoning but thats a pipe dream in most places) and reforming the building code to make smaller development economically feasible.
Oh for sure, nothing I'm saying is an argument against that. There are a million really good reasons to ditch restrictive zoning, and it 100% should be done ASAP. I don't think it will have much/any effect on prices, but I could be wrong and there's a chance it will, and there's literally no reason no to make the change afaict.
> stuff about people who aren't operating like large developers
You're quite right that there are people who are not operating in the manner I describe (i.e. maximizing the value of their assets/ROI). However, two counter points.
One, this is not where most of the housing comes from. Again, taking Toronto, roughly 100% of the new housing built over the last twenty years has been in buildings with more than 20 units built by major developers. Now, that is definitely in part because of our shitty zoning that prevents building anything but SFH in most of the city, but it's also because that's the kind of project that people with large amounts of capital want to build - either large subdivisions out in the outlying rural areas or large buildings. And, indeed, even in a permissive zoning regime you will likely see most new housing coming from larger projects just due to the economies of scale.
Two, unless a preponderance of new housing is going to be built by people not behaving "rationally" in an economic sense (i.e. small development "drowns out" big development), what you will see is that the large developers will ramp down their building by the same amount that small developers ramp up, so that city-wide you find that the development continues to hit that rate that optimizes asset values.
Basically, there's no way to get around the fact that in a population growth regime (i.e. every large city), if prices start going down, people are going to be less interested in building and building will slow down until prices stabilize. There's a built in ratchet on prices in a "free" real estate market.
To your last point, i totally agree and it's something i have been thinking about quite a bit lately. I firmly believe that more housing will lead to lower prices, but as you say, only to a certain point. Unless an area experiences population declines, the supply of housing will never be above the demand for any significant time. So prices of housing will always rise. I guess the big unknown is by how much.
Of course this is all complicated by the fact that not all housing is the same and so maybe the supply of 1 bed room condos or apartment is meeting or exceeding the demand but the supply of 5 bed condos isn't and so if you need 5 bedrooms you'll have to go to the suburbs or a different town.
This is something that actually is happening where I live. The city is in the process of renovating/rebuilding a low income housing development. The new development will have only 1, 2 and 3 bed units while the existing one has 4 bed units. The local paper had an interview with a women who has 8 people in her household. Her current 4 bed unit works for them but a 3 bed won't and there are no other 4 bed units that take vouchers. Not sure what the solution is in this case and if the market (or government) will be able to meet the needs of this family in the short term.
Another complication is that not all areas are the same. The issues you have in Toronto are different than the ones I have in my small town. The outcome (out of control housing prices) is the same but the causes and solutions and dynamics are all very complicated. I wish discussions like the one Scott is trying to have would take this into account more. Even in the Houston vs Austin example, there are too many differences in those markets to say that Austin should just do what Houston does.
Regarding the poll: I think it's possible that the *average* price of housing goes up, as the new units can charge a premium, and would have to be able to charge above a certain threshold to be profitable enough to build in the first place. This would raise the average price for a unit of housing.
However, I strongly believe the price of the homes the original 500k residents live in would go down. Those who are currently bidding up lower-quality limited inventory would filter up into the new housing, while households with lower incomes would compete for the original housing stock.
This is important and unseen and often overlooked. The price only changes for units that are sold or have new leases signed.
There are two things about this argument that feel very weird to me:
(1) There is the assumption that liberal coastal cities are trendy and that red state Sun Belt cities are unfashionable. This is likely true from the perspective of the Bay Area. But there are undoubtedly also people who think that Miami is trendy and San Francisco is unfashionable. Which group is more common in the country as a whole? I don't know. But it seems like we shouldn't base the answer entirely on a personal perspective.
(2) The primary evidence for the argument uses data not on the margin: "But I find looking for tiny effects on the margin less convincing than looking for gigantic effects at the tails." The conclusions of the argument are then said to apply on the margin, but not on the tails: "My claim is that marginal changes - like Oakland building an extra 10,000 units, but everyone else staying the same - will most likely increase Oakland prices. Yes, if Oakland unilaterally built 50 million units, that would soak up the entire excess demand and probably lower prices everywhere (including Oakland)." It feels like the argument and the conclusion don't quite line up with each other.
On the basis of this argument, it feels like you should be confident that building tens of millions of housing units in a random location will turn that location into a megacity with high housing costs. But the argument doesn't say much about what would happen about building a few thousand additional housing units. The conclusions you draw are much more confident that the later is true than the former.
Your point (2) is very important IMO; I said something similar in the poll. The difference in value between 'the middle of nowhere' and 'a city' is much greater than the difference between 'a moderately large city' and 'a somewhat larger city'.
"an experiment in which they had to build 25,000 extra market-rate housing units per year beyond their current plan"
What does this actually mean? Who is building those houses? "Had to", like if "the men" came, and "made them"? Made who, and by what mechanism? This is important and changes the answer.
Do you mean city council/planners give 25,000 more approvals per annum? Because that would have no effect, as housing starts are not approval-limited, and so there would be the same number of housing starts, you wouldn't get your extra 500,000 people, and prices would stay the same as in the counterfactual. (edit: forgot the "not" in not approval-limited)
Do you mean a wizard ensorcels developers into building 25,000 more units per annum than they would prefer to do, thereby lowering the value of their assets and future income? Then prices would go down compared to the non-wizard counterfactual (all other things being equal). This is obviously not something they would do, barring being irrational, bad businesspeople, or ensorcelled.
Do you mean the city builds 25,000 market-rate units separate from the normal for-profit development market? Then for-profit developers would reduce their starts to match to maximize the value of their assets, and prices would stay the same as compared to the no-government-building counterfactual.
I took it as option 3. I think the idea is that 25,000 >> the number of units normally built by developers, so even if developers reduced theirs to zero it would have a negligible effect in comparison.
Ah, I guess that's another option actually, yes.
The city takes over all building and builds all the units that would have been built (which I guess they know by magic) plus 25,000 more. In that case, it depends what happens to vacancy rates. Since none of the units are empty, vacancy rates overall would go down slightly, so presumably prices would go up slightly.
It's an error to assume that developers are trying to maintain the value of existing assets. Developers are rarely in the asset-holding business, they're in the asset creation *and sale* business.
They do not care if building a new suburb causes the average house price to drop from $1 million to $800,000 if it enables them to build and sell a hundred houses for $800,000 apiece on what was formerly a cow pasture.
No, you are in error. Large developers typically do have large portfolios of land which they are planning to develop in future.
You're describing a scenario where somebody voluntarily screws themself out of $20MM. Nobody would do that if they could possibly avoid it.
Getting a kick out of Jeremiah Johnson being cited twice in two different sections as if he is two different people.
Still not sure how you don’t see Tokyo as the solution to your issue. It’s a massive, very dense, desirable city, that builds enough supply to match demand so prices are reasonable. Look at how much eg NYC used to build historically.
There’s lots of restrained demand to live somewhere with good job prospects, which is usually a dense area.
I don’t get why people keep misunderstanding this.
Scott is very very pro-YIMBY! Like, extremely pro national YIMBY policies. If the US could suddenly develop an allergy to old housing stock, which is the cultural underpinning of Tokyo’s housing policies, I’m pretty confident Scott would be wildly in favor!
But we are stuck in a path dependent world where Americans are very attached to their NIMBY-ism, and Scott is trying to steelman arguments with those NIMBYs.
And if we can’t conclusively convince ourselves that certain marginal NIMBY arguments are false, then we should probably stop being so dismissive of those parts of the NIMBY claims.
Basically, I am summarizing Scott’s response to Scott Sumner: everyone involved thinks we should make policies that create more housing everywhere, but there are possibly some losers when we pursue that strategy at the micro level, and being dismissive of good counter arguments is both obnoxious and bad strategy.
I am aware of Scott’s neoliberal leanings.
I also understand the concept of steelmanning the NIMBYs.
I still don’t understand the point Scott is trying to make. Density correlates with value, yes, but wildly expensive housing correlates with restricted supply.
Scott made the subtext textual with his poll at the end. Oakland YIMBYs argue that incremental local YIMBY policy changes they are advocating for will mechanically decrease rents in Oakland.
Scott (and I!) very much support building more housing in Oakland, but, in a vacuum, do not think the “will mechanically reduce Oakland rents compared to the counterfactual” is in fact an honest and clearly true argument.
It’s still good policy! Just unclear that reducing rents (again, relative to the counterfactual; demand so exceeds supply that rents will still rise either way), at the margin, is a likely outcome. Second order effects may in fact be so large that it will make Oakland so much more attractive for Bay Area commuters that rents will go up, because there is a vast sea of unmet tech worker demand for housing.
So we should stop arguing that incremental YIMBY changes will reduce rents. They might, in a way normal people don’t understand (they still went up, but less! People sadly don’t understand this), but at a micro level they really might not.
> Second order effects may in fact be so large that it will make Oakland so much more attractive for Bay Area commuters that rents will go up, because there is a vast sea of unmet tech worker demand for housing.
No, this is not a possibility. The asserted mechanism for additional housing causing prices to rise is that the additional housing creates new demand that didn't previously exist. If you're appealing to existing unmet demand, you're stuck with the obvious fact that additional housing lessens the amount of unmet demand and therefore causes prices to fall.
Unmet demand can only be met by providing supply at lower-than-previously prices; that's what unmet demand is - demand to buy at a price lower than the market price. All demand to buy above the market price has already been satisfied.
I read you and Matt Yglesias on this issue, parsing demand and supply and growth, and everybody gets into the economic weeds.
Nobody ever seems to point out the obvious new variable which is: (a) we’ve become a MUCH more populous country over the last century while also (b) undergoing a technological revolution that (c) made once inhospitable places more livable through refrigeration and AC and (d) also more well known via telephones, cars, and then the internet.
Previous generations neither knew about other places/opportunities, nor was there a way to leave and still keep in touch with family until recently.
Compare that to early settlements in the US until circa 1890 when the promise--if you risked death of you and your entire cohort--was free, maybe farmable land.
So, just from looking at Google Earth, the reason Conanicut remains rural seems glaringly obvious - it’s an island in the middle of a fairly wide bay, comparatively remote from the mainland, with a much more favorable building site at the head of the bay. That better site has a big city on it, Providence. And a small city across the bay from Conanicut with a better harbor, Newport.
Manhattan is barely an island, and it’s directly at the mouth of a big navigable river, making it a much better site for trading with the interior. (Note that Philadelphia is the same way - it’s not on the ocean, it’s up the Delaware river about as far from the ocean as ocean going ships could go)
>Both are near good natural harbors. In 1600, some early European explorer would have considered them basically interchangeable.<
If it weren’t for the Hudson River.
I'm going to share my general model for questions of this type, in case it's helpful to anyone. It seems like my thinking is pretty distant from most people's here. Not super interested in defending this position, take it or leave it as it suits you.
The study of the laws that appear when lots of people choose on their own what they want to do is called economics. People generally operating under the principle of mutual consent tend to form markets, price signals, currencies, et cetera. Everything that has economic relevance comes into causal relationship, in some way or another, with every other thing that has economic relevance (with one exception).
Economies are not machines. A machine consumes cause/fuel at one end and produces effect/motion out the other end. You can point to which end is cause and which end is effect. But in an economy, everything causes everything else. If you build a house anywhere, after long enough, that action has had some (mostly very attenuated) effect on every other price, everywhere.
So all discussions of whether A causes B or B causes A, within an economy, are making a category error. That kind of question is fine for machines, but not economies. The question isn't whether any two economic factors cause each other; it's by what means they cause each other. There are no one-way economic effects. Everything that gets shoved, shoves back, though sometimes in a roundabout way.
But there is something that has a one-way effect on economic factors. Because people don't always operate according to mutual consent; sometimes, somebody does something to you that you don't consent to. The fields that study the laws that appear when people do non-consensual stuff to each other are criminology, politics and military strategy. (They should all be one single field of study, but since part of the job of any government is to forcibly distinguish between them--the point of laws is to say: "non-consensual act x is a crime; non-consensual act y is policy; non-consensual act z is war"--you can't combine them without upsetting people.) The rest of what I'm going to say will make no sense unless I can treat them all as one thing, which I'll call "politics".
Politics is genuinely upstream of economics, the same way nature is upstream of economics: a murderer can kill you, and it'll have a huge economic effect on the world; but, on its own, it has no economic effect on the murderer. How much money does an avalanche gain or lose by smashing a skier? Policy and war are harder to separate, since economics gets its roots under everything.
(As an example of the difficulty of separation, the US Government needs money, and needs to tax people to get it; but it can also just create money out of nothing, by fiat. Where, in all this, does moving money by mutual consent end and moving it by force begin? It's hard to say. But you can see how the government printing money gives a shove to the economy, but the economy doesn't shove the government back. Even if somebody votes a politician out of office over inflation, voting is politics, not economics.)
But if you want to dig through the densely-interconnected mess of economics to find the uncaused cause (beyond just nature), look to non-consensual force. If you really want to know why Manhattan and not Conanicut, look to the Dutch government.
I think Scott Sumner is not necessarily correct with respect to his claim #5 that "Homeowners in Oakland would benefit." Specifically, to the extent that incumbents in *any* city are NIMBYs, this reflects a decision that the use-value of living in a less dense area outweigh the increase in land value that accompanies allowing lots to be more intensively developed. We can reasonably expect NIMBY homeowners to be largely selected for people for whom the decrease in use-value utility caused by increasing density outweighs the increase in land value that accompanies dezoning. The consumer surplus losses to NIMBY homeowners would be *offset* by the increase in sale price of their land, but there doesn't seem to be a reason to suppose that it would fully or over-compensate them such that they were actually better off.
1. Without addressing your general model, it seems like Manhattan's closer proximity to the Hudson river is a significant difference from Conanicut Island. Access to the Great Lakes is a huge economic benefit, and Manhattan is right on the route.
2. There are certainly some services which are made more efficient by density itself. Medical care is one. Rural areas either don't have expensive equipment or else have to over-use or over-bill in order to make the payments on the high-investment equipment. The same holds for other government run services like police and fire departments. At least some of these efficiency gains will plateau at a certain level of density, however. (Making a model which accounts for all the relevant factors more complex, of course.) So better access to good medicine should make a population dense area more valuable.
Obviously, tech hubs capitalize on a synergistic density of tech workers and tech jobs, which would collapse if one or the other disappeared.
3. This observation is somewhat orthogonal to the topic of discussion, but I'm posting here because I thought the result was interesting. I asked Bing a question about Kangbashi in English. Then I translated the prompt into Mandarin Chinese, asked again, and translated the results back into English. The difference in quality of the two answers was interesting to me. So now I'm wondering if this is a good technique and if it can be more rapidly approximated. Asking Bing to only use Chinese sources does not improve quality (and causes Bing to respond in Chinese.)
Q:How did the Chinese government create jobs in
Kangbashi?
English response:
The government also relocated its offices and some state-owned enterprises to Kangbashi, and built public facilities such as conference centers, sports stadiums, and museums. However, the ambitious project faced many challenges, such as a lack of demand for housing, a debt-fueled property bubble, and a slow pace of urbanization. Although government jobs and schools have attracted some residents from other parts of the province, Kangbashi has been less successful at attracting private businesses or spurring broader growth . To diversify the economy and create more jobs, the government has attempted to make Kangbashi into an epicenter of electric car production, and currently has two plants for this in operation. However, it is unclear whether this strategy will be enough to fill the vast empty spaces and turn Kangbashi into a vibrant city.
Chinese prompt, with the response translated back into English:
Kangbashi is an emerging city in northwestern China, located at the junction of the Inner Mongolia Autonomous Region and the Ningxia Hui Autonomous Region. The development of Kangbashi began in 2003, when the Chinese government launched the "Western Development" strategy, which aimed to promote economic growth and social stability in the western region. Kangbashi was selected as a key project because of its rich coal resources and favorable geographical location.
The Chinese government has created jobs in Kangbashi in a number of ways. First of all, the government invested a lot of infrastructure construction, including roads, bridges, railways, electricity, water conservancy, communications, etc., which provided the necessary conditions for the development of the city. Secondly, the government has encouraged various enterprises to invest in Kangbashi, especially coal mining and processing, chemicals, building materials, machinery and other coal-related industries. These industries not only drive the upstream and downstream industrial chains, but also attract a large number of foreign labor. Third, the government has supported Kangbashi's public services such as education, medical care, culture, and sports, providing better quality of life for the city's residents. At the same time, these undertakings have also cultivated a group of professionals, injecting new vitality into the development of the city.
According to statistics, as of the end of 2020, Kangbashi City has built an urban area with an area of 1,000 square kilometers, with a permanent population of 1.2 million, of which 60% are foreigners. The GDP of Kangbashi City has increased from 1 billion yuan in 2003 to 300 billion yuan in 2020, with an average annual growth rate of 30%. Kangbashi has also become one of the largest coal bases in China, with an annual output of more than 200 million tons. Kangbashi is known as "the most dynamic city in western China" and "China's energy capital".
---------------
Thoughts?
Also:
"The secret to the reversal of the town's fortunes is the intense competition among high school students, and their parents, to be accepted into China's top universities. Once municipal officials moved some of the city's top schools into Kangbashi, the so-called tiger parents followed and property prices -- along with new investment -- soared....
Work on a new urban center in Kangbashi gained momentum in 2009, as the 4 trillion yuan ($610 billion at current rates) that the central government pumped into the country's economy after the global financial crisis sent coal prices soaring and fueled a frothy property market in Ordos.
When the bubble burst, condos that went for more than 8,000 yuan per sq. meter, or about $1,200, at the peak tumbled to between 3,000 yuan and 5,000 yuan.
...'"They sort of forced great teachers to relocate by enticing them with [housing] at half the price,"' the person said."
https://asia.nikkei.com/Spotlight/Society/China-s-largest-ghost-city-booms-again-thanks-to-education-fever
So it sounds like Kangbashi is a coal and education town, and deliberately so. This seems to demonstrate that certain core industries are critical to Urban growth and housing prices.
I'd be interested to know more about the "education" idea; it's not particularly compatible with the ordinary working of the Chinese education system.
The most general sketch of Chinese college admissions is that you take the 高考, you apply to a school (one school), and, if your score beats the admissions threshold, you're admitted. This leaves very little room for pre-college schooling to make a big difference in college admissions.
Now, there are many important details to add to the picture:
- Some schools have overt relationships with particular colleges. By attending one of those, you can reach an understanding with the affiliated college that allows you to be admitted with a score that wouldn't ordinarily pass the threshold. Such a school would be "good" as far as getting your child into a top college, but not in terms of, say, providing a different education than any other school.
- Chinese universities don't have a single admissions threshold. They have a different threshold for every province. It's easy to be admitted to Peking University if you happen to be from Beijing (or if you participated in an affirmative action program giving you honorary Beijinger status, as is true of a friend of mine); it's very difficult if you're from Shandong. But this is just a matter of admission quotas being set high for Beijing and low for Shandong; all Beijing schools benefit equally and all Shandong schools suffer equally.
- You actually apply to more than one school. If you fail to meet the threshold for your first-choice school, your application will fall back to your second-choice school. Through a system that I don't understand, harsher standards are applied to second-choice applicants than to first-choice applicants, so if this happens to you, you managed your college application incorrectly. But it must happen to some people.
(For a very rough sense of how things might look at the top end, when I polled six students at two prestigious Chinese universities (复旦大学 and 上海财经大学), three of them had been admitted through the normal process, one had been admitted through a high school affiliation, one had benefited from honorary Beijinger status, and one had been admitted through an admission test specific to the particular school rather than by taking the general 高考.)
So again, this all makes me wonder how it's possible to juice a city by providing "top high schools". Are these just regular schools that have affiliations with top colleges? Are they schools that provide beneficial honorary residential statuses? Do they give you a bonus to your 高考 score? What makes them better than other schools?
(Not directly relevant, but potentially of interest: you can get bonuses to your 高考 score for certain non-academic accomplishments such as athletics, or for being the right race. I believe there are several minorities that get a significant boost to their score.
In the case of Uyghurs, several prestigious universities will subtract that boost back out (as a policy of the individual university) before considering the application. This adjustment is not made for other races; I'm not sure how to interpret this.)
Very interesting. I know relatively little about the Chinese education system despite having taught in a 小学校 in Nanjing (about two decades ago.)
One thing with China that I also vaguely remembered is the Three Gorges Dam construction, which resulting in the government relocating > 1M people ~ 2008 or so. They also increased the one-child limit to two children in 2015 and dropped it altogether in 2021.
I think this tracks with when they were building the "ghost cities" - they wanted there to be housing available for the millions displaced upstream of the giant dam, and were (optimistically) forecasting increased demand for family dwellings after they changed their family planning laws?
China also has the hukou thing, but I'm struggling to figure out how much that impacts demand in urban centres. Even though rural residents aren't eligible for a lot of the services in urban areas, they still go there for work anyway.
On the flipside, does the US still have a lot of internal migration from rural regions to urban regions? I know Australia still does.
I think migration from rural areas is swamped by migration from undesirable cities to more desirable ones. Detroit is an extreme example of what has happened to the industrial North in post-industrial times.
It is conceivable that population, capital, and available land around a city evolve according to some differential equations. One could try to come up with a suitable system of ODEs by reasoning alone or, perhaps more interestingly, could try to learn such a system in a data driven way. Given time series of population, GDP, and built area for a city I could try to do it with e.g. the SINDY algorithm (Brunton 2016).
One of extreme high-price property in earth amid influx billionaire and trillionaire: Singapore. Arguably pretty high density too.
https://prada.substack.com/p/singapore-neutrality-again-a-staunchest
It would take Tim Worstall about ten seconds to pop this particular logical bubble. Tim where are you?
Most residents of any particular in-demand city couldn't give you a set of rational, economic reasons why this is a good place to live. Their answers would boil down to "This is where it's at, man!"
Before COVID the obvious answer was jobs, plus proximity to other people you already know. Most people’s skills weren’t portable to North Dakota, and (whether or not they were) friends and family remain largely non-portable.
Can’t we do the marginal change experiment in first differences? Start in 1980 or 1990 when the lay of the land in the US has been established. Then we measure the increase in density/houses and prices in various cities (NYC, SF, Houston, etc.). Wouldn’t we find that controlling for initial size or density, places that increased housing the most saw lower price increases? (It does sound like a variation of some of the arguments Scott summarized, but it also sounds like something researchers would have done already, perhaps even instrumenting the quantity increase with some nifty IV).
In practice, I expect gentrification to be a stronger effect than agglomeration or supply and demand. The market only wants to build expensive, high-margin homes and cheap houses will only get built if the city includes affordable housing requirements.
The Oakland thought experiment controls for house fanciness, but is confounded by school quality and crime rates. I predict that increasing the housing the stock in Oakland would bring in educated, low crime people who would increase the quality of schools and decrease the crime rate and increase home prices. Doing the same thought experiment, but in gated communities, there I predict the home prices would decrease, because the people who move in would be commit more crimes and be less educated.
Cities mostly become desirable from factors that have little to do with population density. The Bay tech scene grew out of Stanford, not population density. This is pretty general, and other commenters have provided many more examples.
I'm not sure Scott understood the graph:
> Hopefully by now you can predict my objection: the places in the southeast corner are mostly unfashionable red state Sun Belt cities; the places in the northwest corner are mostly trendy liberal coastal cities. My conclusion is that trendy liberal coastal cities are both more NIMBY and more desirable, and if you use this to draw any conclusions about housing policy you’ll just end up confused.
If you believe building homes sometimes raises city housing prices, this graph should be extremely shocking!
The upper right quadrant (expensive + builds a lot of homes) is completely empty.
The core of your argument is "if you add more people to a place, it becomes more desirable, which drives up prices". But there are some clear cases where that isn't true, like exclusive places with minimum lot sizes. If you plop a giant apartment building in Atherton or Piedmont, the median price *there* goes down.
I don't think it disproves your overall hypothesis but it is a funny hypothetical.
Another relevant example is Tel Aviv vs Bat Yam: Bat Yam is the city immediately south of Tel Aviv (they've grown to the point where there's no real separation). Housing in Bat Yam is much denser than housing in Tel Aviv (because Tel Aviv is older and has more offices). Tel Aviv is still much, much more expensive, and this is unlikely to change.
Also consider jersey city - it builds way more housing per Capita than NYC, but prices there haven't spiked nearly as much and it seems at no risk of taking away the jobs/culture points that make Manhattan expensive. (A cynical possible reason: the things that make cities desirable hubs could only be built in tartaria, and now that we've lost the ability to build subways and new industries we don't have to worry about that anymore).
Regulatory change to allow more housing in a city would, in general, make it more like Bat Yam - it's possible it raises the odds of it becoming the next tech hub, but tech hubs mostly already exist. With the Chinese cities, note that the government had to build good schools to get people to move there (I agree that good government-funded services raise prices).
I think the economics conundrum can be solved by splitting short and long term effects.
*Short-term:* building more houses reduces prices. Example: Tokyo has low prices because it is always building more houses, overwhelming the long term effect.
*Long-term:* as more people move in, they create jobs, services, social networks, etc making others valuing the area more. Example: China ghost towns became more valued as time passed on.
Therefore, both sides are both right and wrong: more houses have temporal negative and positive effects.
The graph you started with is unconvincing for exactly the reason set out in section 5 above: it just shows that supply of a good is greater in places where the price of that good is higher, which is what we expect. You can't get from there to your claim that "Increasing density within a city shifts the demand curve for housing within that city, because of increasing desirability." That might be true for some other reason, but it can't follow from just looking at "gigantic effects at the tails".
This links to the problem that you look at Manhattan and Conanicut Islands, but then you say your claim is about marginal changes like Oakland building an extra 10,000 units. Let's suppose we have a whip round and buy Conanicut Island and redevelop it to have the same density as Manhattan. If the effect is to quadruple the value per square foot while also massively increasing the square footage, we will have made a fortune. Now of course, we can't actually do that because of building restrictions, but it doesn't seem plausible that this would work even in a YIMBY paradise. As far as I know, nothing like that has ever happened, even though in the past building restrictions were insignificant.
Places like New York are desirable because lots of people live in them. The houses follow the people and not vice versa. So the graphic at the end of your section 1 is correct, but not to the point.
"Let's suppose we have a whip round and buy Conanicut Island and redevelop it to have the same density as Manhattan. If the effect is to quadruple the value per square foot while also massively increasing the square footage, we will have made a fortune."
I bite this bullet and accept it as true. See for example Donald Bren, who made $16.2 billion by pulling off approximately this manuever.
If the building caused the appreciation, everyone in the country would have also pulled off that maneuver.
Give me an undeveloped plot of land in a nice part of California, favorable regulatory climate, and $100 billion starting money, and I'll pull it off again as many times as it takes to prove the that experiment replicates.
I mean, if you buy all the land in a relatively unpopulated area, you will be the only resident and you can basically do what you want. See eg Disney World.
No you won't. You don't know how.
Your comment strongly suggests that you believe the part of that project that would be difficult for you is getting control of 100 billion dollars. And if your plan is to invest 100 billion dollars until, 50 years later, you finally end up with 16 billion dollars, I hope that that's correct. On the other hand, if your plan involves an automatic profit at all comparable to Donald Bren's, finding the money wouldn't be difficult.
Assuming Donald Bren's entire worth prior to assuming control of the Irvine Company was the $34 million mentioned in his wikipedia page as the sale price of his company, you're talking about an investment that beat the Dow Jones Industrial Average by about 50% between 1970 and 2022, returning just over 8% a year after inflation for 52 years. If Bren had to pay taxes on that money, the capital gains tax rate appears to have been 32%. (Or, if it was income, 70%, but it seems safe to assume it was capital gains.) That only makes the returns that much higher.
As Azareal has already pointed out, there's no shortage of empty space where you're free to do this.
I voted less expensive. But if the time scale was for longer or number of houses smaller I might have voted "more expensive". I believe in the effect proposed long term but I just don't think you can raise the population that quickly.
I voted the same way for the same reason.
Scott speaks of "building houses more quickly than new residents can contribute to the city's desirability", but this particular hypothetical builds houses more quickly than residents will even move in. To fill up all the new houses by the end of the ten years, Oakland's population would have to grow by more than 7% every single year; the highest growth 2020-2021 of any American city >500,000 people was Fort Worth at 1.81%. People just don't move as fast as prices can.
“Hopefully by now you can predict my objection: the places in the southeast corner are mostly unfashionable red state Sun Belt cities; the places in the northwest corner are mostly trendy liberal coastal cities.”
The places in the southeast corner of that graph have clearly seen their population increase or they wouldn’t have built so many houses.
https://www.macrotrends.net/cities/23043/las-vegas/population#:~:text=The%20metro%20area%20population%20of,a%202.98%25%20increase%20from%202019.
So what does fashionable mean?
Los Angeles is seeing both a population decline and a decline in house prices.
The Bay Area has seen a drop in population.
https://sfstandard.com/research-data/san-francisco-bay-area-california-population-decline-census-pandemic-covid/#:~:text=A%20closer%20look%20at%20the,Bay%20Area%20at%207.5%20million.
San Francisco is the worst performing city in the US post covid.
“Unfortunately, San Francisco still leads all large U.S. counties in terms of its rate of population decline during the pandemic. The city’s 7.5% loss of population ranks it No. 1 among all U.S. counties with more than 100,000 residents. “
I know that Scott is making a more general point here about density and house prices, however he did narrow it down to Oakland in the original post and it looks to me like building 10,000 housing units in this environment would reduce prices.
I confess to not reading both posts particularly thoroughly, but surely you considered the role of public infrastructure? Like, the reason why land prices in the wilderness are usually low is because there is no infrastructure to support civilized living, ranging from garbage collection to police stations (apparently San Francisco is the priciest wilderness on Earth). To run a proper comparison, you would need to find cities with similar levels of public infrastructure.
Even for the cities with relatively similar infrastructure, large differences in weather might mess things up. My guess is that housing prices in the Midwest are depressed by the cold, while in, say, Dubai, they are depressed by the heat compared to other cities with similar infrastructure but more human-friendly climate.
Thus I voted "less expensive" for denser Oakland, although if someone would build a normal American city with million inhabitants in North Dakota, it would be more expensive, since that implies large investment in public infrastructure.
> (apparently San Francisco is the priciest wilderness on Earth)
Sure, they don't have garbage collection or police, but they do have running water and centrally distributed heat in the winter. The heating isn't even necessary; San Francisco is colder than surrounding regions, but it's still in California. They have electricity. There are very few bears. Civilized living is perfectly possible as long as you never go near the central business district, which has been strategically colocated in the slums.
I would lean in to point 3.
Step 1 build houses, prices fall and density increases
Step 2. desirability catches up and prices rise. You ratcheted up the curve
Some possible paths.
Your desiribility caps out and theres no more pressure to build more. So some cities are only half way up the curve.
It doesnt cap out. You are trendy and cool, and you jeep creeping up the curve.
You credibly commit long term to always building more housing so that the next step 1 overlaps with step 2 and prices dont rise or possibly fall.
No american city has achieved path 3. Some middling desirable cities stay relatively cheap, but we dont have the social technology to be yimby and cool. The result is the curve you plotted.
Tokyo has that social technology.
It would be easier if other cities pulled their weight and you didnt have to be the only cool yimby city in the land.
Does that synthesize your views and the yimby economics?
Doesn't the pattern also go "build new housing as the city population increases and the area covered expands - new areas become the desirable, high-rent places - older places slip down in the quality as they get overcrowded by the new arrivals - formerly high class areas are now the tenement blocks - rinse and repeat"?
Density alone doesn't convey desirability; look at the Grenfell Tower fire in London where you had cheaper council housing cheek-by-jowl with expensive buildings, but quality was very much variable depending on which block was built and operated by whom:
https://en.wikipedia.org/wiki/Grenfell_Tower_fire
"North Kensington was once known for its slum housing, but housing prices have now risen and the area on the whole is considered exclusive and upmarket, although expensive residences are interspersed with lower-income areas like the Lancaster West Estate."
Yes I am trying to simplify the steps to turn scotts view into a workable model. The density alone doesnt create the desirability, but as scott has explained many times it can cause the things that do by adding more people who in turn create the things that are desirable. But if that step doesnt happen you are in the "caps out" path, but then a repeat of step 1 usually doesnt happen. Or not on significant scale.
There is also a process for moving back down the curve if the city somehow gets hollowed out, but we all seem to concerned with the build direction here.
I don't think I saw this argument anywhere, so here goes.
A large part of the current behaviour in housing markets is due to the combined effect of 1) housing as an incentivized vehicle of investment, leading to speculation and more generally following Ricardo's law of rent 2) Any built city leads first and foremost to a captive population of poor first-level workers, first generation urbanites, and government agents. It's true for the banlieues of Paris, Houston, the ghost cities in china, etc.
So, captive population + speculative takeover - rent regulation = price goes up. The amount of stuff built does not matter, since the price fixing is done at the investor level who is most likely the one building in the first place.
An interesting experiment would be to build the Conanticut island city entirely with rent controlled units, and compare the settled populations after a while.
For point 1, I get what you are trying to say, but the way you present it makes it clear that desirability came first. The Dutch chose this island as a capital (i.e. made it desirable) and so people moved there (made it dense). So the cause was the desirability, the result was the density.
But taking it a step back, you could argue that both islands are quite desirable. Both have a lot of geographical characteristics that make them valuable - natural harbours, coastal, good for trading. So in a sense, they were both originally desirable, but the selection of one as a capital raised it above some threshold of desirability that spurred density. Once that density was in place, its seems likely the feedback loop was initiated - and today perhaps the density is what keeps New York desirable. After all, New York is no longer a capital city.
As others have pointed out, he forgets that NYC is at the mouth of the Hudson River. A river navigable into well into upstate New York (and later the great lakes with a canal).
No matter the pattern of colonization, there's no world where NYC isn't a big American city.
Conanicut is at the mouth of the Providence River, but I am not a river expert and maybe that is less exciting than the Hudson. Still, nobody nowadays moves to New York because the Hudson River is there. They might move to New York because X is there who moved because Y is there who moved because [ . . . skip 200 years] the Hudson River was there, but that's my point!
Its much less exciting. The Hudson flows 315 miles, the Providence flows 8.
The bigger issue is that there was already an important port on Aquidneck Island (aka the actual Rhode Island), Newport. It’s still a small city and the rest of the island isn’t dense, so Scott’s choice of the neighboring non-dense island is a bit of a mystery to me.
Providence is at the mouth of the Providence River. Conanicut is like 15 miles out toward the mouth of Narragansett Bay.
There’s WAY more to this. The Hudson was the primary way from the Atlantic Ocean to the Great Lakes from the completion of the Erie Canal in 1825 until the St Lawrence River was made navigable in 1959. This played a huge role in the development of industry in the Northeast as opposed to the South, which had worse navigation. As a result, New York is historically one of the most important ports in the world.
It’s still very important, even if the ports are mostly across the river now. River and sea travel is still by far the cheapest way to move large quantities of goods, even within a country. Economic geography matters a lot. It’s not just feedback effects over a mostly random initial starting position.
Also, you can sail inland from New Orleans to NYC, thanks to America having the world’s most convenient geography ever. https://en.m.wikipedia.org/wiki/Great_Loop
I forgot what this was called! Great link.
> Also, you can sail inland from New Orleans to NYC, thanks to America having the world’s most convenient geography ever.
That is interesting and awesome to now know, thank you!
A lot of people do move to New York because the Port of New York is there. And that's not independent of the river being there. This was true 200 years ago and it's still true today.
I think you're still discussing this in a way that obscures the real disagreement between you and the most defensible version of the YIMBY position.
You seem to be saying that, given current overall restrictions on supply:
increasing density in an area nearly always -> damagingly increased housing costs in that area.
The most defensible YIMBY position is, I think:
increasing density in an area under the current planning regime might well -> damagingly increased prices, in the long term, in that area; but
increasing density, under a better planning regime, does not -> damagingly increased prices.
I'm not sure your arguments really work as arguments against the YIMBY position I've outlined. The strong correlation between density and housing costs you point to, for example, is something that has built up under the current planning system.
And I think the work that's been done on whether increasing density in an area increases short term housing costs does serve to support the YIMBY position, as against your position. They can say, look, in the short term, when the planning system shouldn't have had time to have an effect, an increase in density doesn't increase costs. If you were to then see an increase in costs in the longer term that would suggest that there is some mechanism at work that takes time to take effect. And the planning system, in restricting further increases in supply, is just such a mechanism.
While I can understand your reservations about looking to Japan, or other non-US planning systems, for evidence, I think doing so is pretty much inevitable if you're trying to disentangle the effects of the current planning system from other potential causes of increased housing costs. Though from what I've read, China is the last place you should be discussing. Lots of experts on China seem to have a healthy distrust of any and all Chinese statistics.
It would be interesting if your poll question had an additional question about where you would expect costs to be in twenty years, if at the end of the ten year experiment Oakland's policies reverted to the norm. I would expect housing costs at ten years to be lower, but costs at twenty years to be significantly higher relative to the ten year cost.
I don't think I'm ignoring this as a disagreement, I think they're right about this, and tried to communicate that.
Apologies, I must have mis-read. But if you're saying that, under a better planning system, increasing density in an area wouldn't increase housing costs in a harmful way in that area, then I think there's more in common between you and the YIMBY position than some of your statements in this and your previous post would seem to suggest.
Can you point me to a paragraph of Scott’s writing that gave you the impression he is anything but vigorously pro-YIMBY? You are not alone in having this idea, but it seems wildly out of step with Scott’s writing, and I just have no idea where all the folks commenting as if you’re fighting Scott’s NIMBYism are coming from.
Scott is making an inside-baseball argument about how his fellow YIMBY partisans should engage with NIMBY arguments. Where did this get lost?
The comment section would be much more interesting if I could understand why so many people were getting this misapprehension and then Scott could fix it.
Scott generally comes across is pretty on the fence of YIMBY/NIMBY from my perspective, I suspect it is because he encounters YIMBYS a lot and so has more reason to poke holes in bad YIMBY arguments than bad NIMBY ones.
I don't think the big disagreement with Scott and all the comment's are about that though, I think it is because his phrasing of things in this area is kind of sloppy and overly broad so he ends up saying things which are false.
He isn't treating the topic with the level of specificity/precision it requires and if he did it would both get less pushback, but also be less interesting (because it would jsut be the boring normal story).
Completely agree, though I think this is an area where stating your position precisely and accurately is difficult (re-reading my post above, for example, I don't think I got it right) - and not just because there's a lot of motivated reasoning.
Causal diagrams might be helpful, but they wouldn't work for a post aimed at the common reader. Which would include me; I keep meaning to properly get to grips with causal diagrams, and something else always seems more important.
I don't know if there are languages other than English which would work better. It feels like it's more a human brain thing.
A key difference between (London or New York) and Tokyo is that it is easy to build more housing in Tokyo and it is not easy in London or New York. This is important.
Consider any good that has network effects, such as a telephone. With such a good, having more of them makes each existing one more valuable. If there are only 2 phones then there is only one phone you can call. If there are 101 phones, then there are 100 people you can call. This is similar to agglomeration effects in cities.
Imagine if we limited the number of telephones per region to 1000. Also, for the sake of the analogy, imagine that long distance telephoning was impossible.
"Allowing more telephones just increases the value of other telephones, this will increase the price"
"If you want to keep telephones cheap, then only allow 5 per region"
"Look at New York! They made the mistake of allowing 50000 telephones and now they're super expensive!"
*BUT* this price increase only happens if you limit the supply. If we allow people to just manufacture more, then even though the *value* of each telephone goes up, the *price* does not - instead set by the price of manufacture. We get the wonderful combination of something that is great *and* cheap (like tea).
It is a very different question to ask "What if we allowed Oakland to build 25000 more units?" vs "What if we allowed Oakland to build to meet demand?" The latter allows us to have valuable housing that is also affordable.
NOTE - in the telephone example, even if allowing 1000 more (and no more) increases the price, this only occurs because even more value is being created. I.e. it is a good thing and we should do it.
"What if we allowed Oakland to build to meet demand?" The latter allows us to have valuable housing that is also affordable."
But affordable by whom? If I'm a developer looking to build 3,000 units in Oakland, I'm going to have an idea of my potential customer base. If I'm rubbing my hands with glee thinking of all the high-earning techies in SF who would very much like to live in a place of their own and not sharing with six other people now they're 35, thanks very much, I am not going to piously calculate "Well, currently the price for a one-bedroom apartment like this in this neighbourhood goes for $2,500 a month rent, but that is for the current supply of vacancies. If I build a lot more, naturally the price must come down as supply increases so let me estimate that at $1,800 a month".
I'm going to be thinking "Wahoo! Another 50 apartments at $2,500 in this neighbourhood, and even more for the ones in the more expensive areas!"
(I did some looking up online and there are some very nice one-beds at that rent, if I could afford it and was living there I'd happily pay that!)
You're right that they wouldn't be rubbing their hands in glee at the $1800 price point, but I think they are smart enough to consider it.
A big chunk of why more housing doesn't happen in NYC, aside from the permitting issues, is the rent control issue. It's a thing that makes potential landlords nervous about their ability to have rents that match the market.
I believe (without having done a rigorous economic study of all of the factors, admittedly) that if California didn't have as many onerous obstacles to construction as it did, developers in Oakland would rub their hands excitedly at the thought of putting up a building full of $2400 apartments to compete with the $2500 ones, and the pressure of competition would continue that trend to a new equilibrium where construction costs matched perceived revenues.
Actually, I think that's a good way to describe the whole topic. There isn't more construction than there is currently, because developers don't think they'll make enough off of the risk.
I think people are broadly in agreement here but just arguing over the details. It really is a chicken-and-egg situation: which comes first, density or desirability?
I think Scott himself is a good example: when he was living in the cheaper, more spacious, can rent a house on his own Midwest (apart from little accidents in cold weather), did he want to move back to California because "I sure miss the density of living in one house with seven other people!" or was it "There are a lot of things back home which I miss and want to have access to again"?
If a city slaps up 25,000 extra housing units (be that blocks of flats, single homes, whatever) and *nothing else*, then density won't matter; nobody will want to live there. The exception would be, and this is why I think the Oakland experiment would result in becoming more expensive, is when that city acts as a commuter town:
https://en.wikipedia.org/wiki/Commuter_town
Oakland is, going by looking it up and I don't know if the travel times are right, about twenty minutes' drive from San Francisco. If you work in SF or want to work there, but can't afford SF prices, you can probably afford something in Oakland and then spend your days travelling to and from work in SF and going into 'the big city' for cultural and social events.
If Oakland builds more housing, that means more people who want to/need to work in SF but can't afford SF prices can now take up jobs in SF. And that increases demand, which will eventually drive up prices. You're not living in Oakland by choice because you like the place and its amenities drew you, you're living there because it's the nearest and cheapest you can afford to San Francisco (if you can't even afford Oakland prices, you live in the next cheapest and nearest city or town).
And for all the talk of amenities, how many people *do* to go to the opera and the symphony and the theatre and the art gallery and so on? And how many are there because "this is where the jobs are and where the money is"? Granted, people will (especially when they're young) move to the Big City for the vibrant nightlife and the new people and exotic experiences, but I imagine only a few ever picked City A over City B because "oh they've got the better philharmonic!"
We've talked on here before about why all the tech clusters in Silicon Valley, and it's largely because that's where the money is, where the best/most experienced workers are, where the cutting-edge research is being done. The middle of the country may try and create 'tech hubs' to lure some of the start-ups and new tech companies away, but they don't succeed much because the most ambitious want to move to where the best chances are. If you have a choice between proto-Google starting up in Bumfreeze, Nebraska or actual Google, which are you going to choose?
Take the comparison between Austin and Houston, above. Austin didn't have the same levels of density, but it grew by appealing in a specific way to a specific niche who were the high-income, high-value industry that local governments want to attract:
https://www.cmswire.com/customer-experience/is-austin-emerging-as-the-new-american-technology-hub/
"“Previously, I would have named the cost of living,” Parker said of the top benefit of having a business in Austin. “However, the rise of Austin’s housing market has made that less of an advantage than in some other Texas markets. The number one advantage that Austin has is its culture. The 'Keep Austin Weird' mantra has deep roots, and there is a priority on work-life balance here that is alluring to recruiting and keeping top talent. The pressures of scaling a venture-backed startup are immense, but companies in Austin seem to have found that optimal balance between working hard and playing hard.”
Housing prices rose *after* the demand to move there, which is what created the density; it wasn't "dense first and then the demand".
If anywhere does want to build a million person new city in a desert or former rust belt site, they have to provide amenities to attract people there, and the first amenity is going to be "Will I do better moving here?" be that economically, which is the major driver for most people and which does include "lower cost of living" as well as "better paying jobs" or things like culture, good schools for the kids, fun nightlife, the symphony orchestra. Simply slapping up ten thousand units of housing then sitting back and waiting for the magic to happen - won't.
Yeah, my main thought on the poll question was "I don't know which way it will go, but either way, the Bay Bridge Toll People and BART are gonna be *really* excited about the increased revenues."
Also, BTW, I found this to be a very well thought out comment that expressed many of the thoughts I had on the topic.
>or was it "There are a lot of things back home which I miss and want to have access to again"?
Yes, this, and furthermore I'm pretty sure that the things that Scott missed about the Bay Area are not driven by its density. In Scott's case, I think the main appeal was a particular community of Berkeley students+professors, some Stanford students+professors, and the Tech ecosystem that grew around the supply of Stanford/Berkeley STEM graduates. That's a genuinely appealing community; I might like to be a part of it myself if it weren't so expensive and so far from most of the economic opportunities in my field.
It's also a thing that is in no way dependent on half a million people living in Oakland. If Oakland were a grassland and Berkeley a small college town, Berkeley would still be what it is, with the same number of students and professors (and trendy bars, coffee shops, etc catering to that crowd). Berkeley draws from the entire college-bound population of California, and is limited only by the size of that population and by the ability of an elite-ish university to grow while maintaining its standards. Ditto Stanford, etc.
I'm guessing the alternate Bay Area where San Francisco and Oakland don't exist, Berkeley and Stanford are small college towns, and there's a research park in Sunnyvale for Google, Apple, etc, would be just as appealing to Scott (and myself, and many others), as the one we have now. Demand independent of density.
The other big draw of Oakland is the Port of Oakland, and the hundred thousand or so jobs centered on it. If the Port of Oakland didn't exist, it would be necessary to build it, and probably build it right where it is because that's the right place to build a container port for Northern California. And again, its size is independent of Oakland; it's driven by the West Coast and Pacific Rim economies combined.
There's secondary demand downstream of that which is density-dependent. The people who came to the area to run a bar for longshoreman or a coffee shop for college kids, are meeting a preexisting absolute demand, but by the time you get to the guy who came to set up a restaurant-supply business, that's just the density of Oakland that sets the demand.
But that is secondary, and downstream. The primary demand came first, and that's what drove the secondary demand and the density and the housing prices. Which continue to grow because the primary demand continues to grow.
I generally agree with Scott, and to make a few other observations:
1. 'Don't you know about supply and demand' only works when the demand to live in the city is fixed- when only X number of people want to live in NYC or SF and that's it. But the demand to live in a small number of very popular cities appears to be elastic- if the price to live in SF every month fell by $100 a month, a large number of people (from around the world! not just the US) would move there
2. The 'don't you know about supply and demand, this is basic undergrad stuff' crowd appears to be frustrated that we're not respecting economics as a real, empirical science. That's right- I don't automatically genuflect to the field that told us, say, similar things about the minimum wage just a decade or two ago. Or that there's a natural rate of unemployment, and if we go below that it'll spike inflation. Or that high deficits in the US will crowd out private investment. When people in the comments compare Scott's density views to being an antivaxxer, they're confusing actual empirical hard sciences with economics, which is not that. To repeat- I don't respect economics or take its claims at face value, so you'll have to find stronger, actually empirical arguments. All those Yglesias-linked studies have a tiny effect size, so I remain pretty skeptical
>1. 'Don't you know about supply and demand' only works when the demand to live in the city is fixed- when only X number of people want to live in NYC or SF and that's it. But the demand to live in a small number of very popular cities appears to be elastic- if the price to live in SF every month fell by $100 a month, a large number of people (from around the world! not just the US) would move there
That's not how supply and demand works. "Demand", in economic terms, is not a single fixed number of "X people want to live in SF, period", it is a curve defining the number of people who are willing to live in SF at every possible price point. Obviously that number is larger for low prices and smaller for high ones. Yes, if the price of SF real estate fell by $100 per month, more people would move there each month.
But only if the price *actually falls*. And, since supply and demand do work even when (really, because) demand isn't fixed at a single number, the price falls when the housing supply grows.
There are 815,000 people who demand to live in San Francisco at current prices. We know that because the population of SF is 815k, and if there were a million people demanding to live in SF at current prices, those prices would be bid up to whatever level convinces 185,000 to go away. There is a price point at which the demand for accommodations in SF reaches one million, because again demand is not a fixed number and doesn't need to be for supply and demand to work. That price point is below the current one, so *if and only if* prices actually fall will those people move in. And the only ways for that to happen are for the demand curve to fall across the board, or for SF to build more housing. If SF's landlords build housing for a million people, well. they've already got the 815,000 who are willing to pay current prices and they'll have to cut rents to fill the remaining units.
The only way you get higher rents with more housing is if the demand increases across the relevant range of price points, and increases faster than the housing supply. Which actually does happen in a lot of places. So long as the population A: grows and B: becomes richer, the overall demand curve will trend higher globally, and that effect will be concentrated in some places. San Francisco will likely be one of those places for some time to come, and that will be true regardless of whether SF builds more housing.
"The only way you get higher rents with more housing is if the demand increases across the relevant range of price points, and increases faster than the housing supply. Which actually does happen in a lot of places."
One good example is Boston. The Big Dig dramatically increased the accessibility of South Boston, and there was a huge boom in housing construction. But you didn't see prices fall, relative to the "within a daytrip but not a commute" towns: what you saw instead was jobs moving from those towns to Boston (GE from Fairfield, Lego from Enfield, MassMutual from Springfield, Puma from Westford), and Boston housing prices going up, not down, relatively.
It's shocking how much confusion there is even here, among ACT readers on such a basic, basic topic. Yes, you too, Scott.
Yeah, what Angus said. No offense to anyone who lives there. The Raleigh-Durham area has multiple solid or even top-notch universities, doesn't really get cold, Lake Jordan, ~2 hours from the beach, ~2 hours from the mountains, low-ish cost of living. I live in NC closer to the coast (we both work remote and like to go to the beach) but Raleigh is the nearest metropolitan area. It's no New York or Chicago but per that graph it seems to be undervalued.
> Here’s how I ended up thinking about this: suppose someone strikes oil in an uninhabited part of North Dakota, enough to produce 1,000 good oilman jobs. 1,000 oilmen move to the area and start a town. Because there are no NIMBYs, they build 1,000 houses.
So, other than the "build 1000 new houses" part, this is basically what happens, and in North Dakota, no less. It's why some towns there have really high food prices. Nobody actually builds houses, because the oil people all know it's a thing that isn't going to last *that* long, relatively speaking. Likewise, speaking from my experience as a truck driver, prices at truck stops in the Permian Basin in Texas are higher than other establishments of the same chain in other locations. Higher than the prices in California, even.
This is somewhat orthogonal to the housing discussion, I just thought it was a funny example. :D
To the issue at hand, I think it's NIMBY-ism and knock-on effects that cause the high prices. It's hard to build things in most of the cities you list, and unattractive in others due to things like rent control, and so the housing stock doesn't go up as quickly as the demand for it.
I'm also all the way over on the other end of the trendy scale, though. There's basically no housing price that would induce me to live in any of those places. i.e.: I would not live in Manhattan even if the rent was $0.
Manhattan is literally disgusting. Nice to visit for a week/weekend, but it is gross.
I was trying to be less immediately offensive than "I wouldn't live in Manhattan if I was getting paid to be there" comes off as, even if it's true. There are sums for which I would live in NYC or Los Angeles or San Francisco or Seattle (OK, maybe not Seattle, but just because I have major SAD) or Austin or the like, but I recognize that I possess precisely zero skills which are worth those sums. So, like, unless Elon Musk or the like takes a personal interest in making me miserable for some reason, that's basically never going to happen. ;)
I live in a city (Albuquerque) in which I can drive 20 minutes in any of the four cardinal directions and be in open desert, and it would take truly stupid amounts of money to give that up. I've tried. Several times. I came back. I am -- apparently -- where I really want to be.
I suppose that technically, 20 minutes gets me desert in only *three* directions, the other one gets me mountains. It's still not "surrounded by people" like big cities are. And yeah, I agree that big cities have some cool stuff and visiting them can be cool, but also, after about three days, I recognize that I am *absolutely fucking surrounded by people* and I have to run away. That's me, I wouldn't impose it on anyone else, but it would make me crazy. More crazy. ;)
I just can't believe how surrounded by garbage and human dysfunction everyone is on a day-to-day basis there.
It has the feel of a 17 year old drop-out's apartment.
Yeah, no, I get it. I have my doors open to get a breeze through my place, and looking out the front door, I see trees, and a nice xeriscaped yard, and a bird feeder, and other houses. No trash, no homeless people, no junkies. It doesn't smell like piss, despite the "lax gun laws" there's no gunfire, and I don't hear screaming. And I'm in what's known as the "University District", so not exactly high rent.
One clear causal mechanism I saw when living in NYC is that density makes amenities better. In sprawling cities, location matters more than quality. But in NYC everything is close by. So if I open an Italian restaurant or a dry cleaner or a bar and it’s not very good, someone is going to walk 1 more block and go to the next Italian restaurant, dry cleaner, or bar. The density FORCES ME to compete on quality. In a suburb, my crappy Italian restaurant might survive simply by being the ONLY Italian restaurant. In NYC, my crappy Italian restaurant is out of business -- and given the cost of my lease, out of business quickly.
That’s why in the few places in NYC where location matters more than quality (e.g., Times Square), the quality of the shops is miserable and no New Yorker ever goes there.
Really? I have been to some crappy bars/restaurants/hotels/etc. in NYC.
You forget that Jesus lived in Manhattan for a while between ages 20 and 25, when it was a barren island, and that Conanicut was cursed by Dutch witches in the 1600s because of complicated gender dynamics in their society at the time. But forgetting is part of the curse, so you will forget again in a few minutes.
I think Scott is entirely right here.
More housing causes both 1. Lower prices, at both a local and global level (due to basic economics) and 2. Increased demand and desirability
Increased demand and desirability causes both 3. Higher prices at a local level (due to basic economics) and 4. More housing, as developers have greater incentive to build there
So when you build more housing, there's a force pushing global and local prices down, and a force pushing local prices up.
It seems reasonable to me that there are circumstances where local prices do in fact go up overall. The fact that the housing in China's "ghost cities" is now considerably more expensive than rural areas confirms this in principle.
My parents have property at sea ranch. It is super duper impossible to build any new housing there. All lots are spaced out to not block ocean view of other lots and all houses must fit a specific architectural style and in practice be designed by a Berkeley graduated architect to get past board approval. Prices have skyrocketed. If you built more housing it would plummet. That being said of course the reason for demand at sea ranch is beauty and low density and all the wonders of a super strict HOA, so I don't think this applies to dense cities at all
Sorry to say, but I think Oakland is a bad example. It's very badly confounded by proximity to other cities, such that it will be difficult to separate the effect from housing decisions in SF and other Bay cities. If Oakland is building more housing but SF is not, then some of the SF demand is going to shift to Oakland, ultimately keeping up Oakland housing prices even if the local housing is meeting local demand (because the demand is not local, it's overflow demand from SF). FWIW I said stay the same, for that reason.
If you asked the same question for a city that is geographically isolated, I would be more comfortable saying that prices should be lower - though I explain further below why that may not be true. And I think you agree with this, since you have already agreed that there's a level of house building that can lower prices anywhere. We don't need to build 50 million units to see that level, we just need to overcome the inherent levels of demand.
Cities have demand from population, as you noted with the hypothetical oil boom town. They also have demand from things beyond population (again, the oil in the oil boom). Some things are interchangeable. Some things are not. Any city can have someone putting on plays, but only NYC has Broadway. Lots of cities make movies, but there's only one Hollywood. Wall St, Google, all examples of outsized demand creators - meaning that they increase demand far more than the calculation from density itself. You noted all this. There's also demand from desirable locations (SF is very beautiful, NYC has a great harbor). You're going to have a hard time building a major city in central Yukon Territory because it's very cold and doesn't have good access.
The problem with your overall argument, and the Oakland example, is that we haven't determined (and honestly maybe can't) how much demand there is in and around Oakland in the first place. If we were able to determine that there's X total demand at Y cost of housing in the Bay, then we could run a calculation pretty easily and determine that we need Z new housing units in order to break through overflow demand and start lowering prices. Until that happens, new housing means more people which increases demand for services (as with the oil boom town going from 1,000 to 2,000). If you build 1,200 houses in that town you're going to have excess demand still, by a lot. Building 1,300 would make it worse, because now 100 more people are looking for services. But, building 1,900 would probably start to make it better, as we are nearing that equilibrium and the remaining demand is probably more marginal. We would expect the most interested to be early arrivers, while the less interested come later. We can certainly say that building 2,100 would help, since we should have excess housing and more vacancies.
The chances of building a Google or Broadway in such a town are nearly zero. Even if a young Elon Musk/Mark Zuckerberg/famous founder grew up in such a town, it lacks the amenities to accommodate the growth in a timescale that makes sense. There are only so many cities in the world that can house a Google. Long term, that's what happened with NYC and SF. As Wall St/Google/etc were founded, places that could accommodate them did. Rural places in Rhode Island did not - because they could not. The "complicated historical reasons" is that NYC already existed and was the best place to move something that you can only have one or a limited number of. You can trace that back to 1624 and the Dutch picking a suitable harbor if you want. Even by 1750 you probably couldn't just move NYC to RI even if you built a bunch of housing in RI. Certainly by 1850 NYC was locked in by network effects that would make replacement cities much harder. But it's not the population or new housing, it's those exclusive goods that can't be replicated that includes Google and Wall St, but by this point also includes the hundreds of years of building and upgrading a world-class harbor and all the transportation and logistics companies that work in and around NYC that would find it hard and costly to move to RI.
Ugh your initial point about Oakland mean s I definitely gave the wrong answer on the survey. Ugh.
"The problem with your overall argument, and the Oakland example, is that we haven't determined (and honestly maybe can't) how much demand there is in and around Oakland in the first place."
Reading up about it, Oakland does seem to be an interesting example. It's an important port city, so it would have a natural demand for housing and jobs. In a very brief nutshell, it seems to have gone through waves of prosperity first with the war boom in the defence industry, including shipbuilding, then the post-war automobile industry which then went through a later period of restructuring. A lot of immigration from black, Hispanic and poorer whites to the city for the blue-collar manufacturing and fruit canning jobs, then as that type of work shrank, a shift to new industries and attracting white-collar jobs.
Which then led to the tussle around gentrification:
"As of 2020, the San Francisco-Oakland Metro shows indications of having the greatest intensity of gentrification nationally, with over 31% of eligible neighborhoods gentrifying. Gentrifying neighborhoods showed significant increases in median home value, median household income, percentage of college educated residents, but also in economic inequality.
Historically low-income neighborhoods have been rapidly changed by new, higher-income residents as high-wage tech workers and expensive housing have continued to push lower-wage residents out of Oakland. In West Oakland, for example, median household income rose from $80,700 to $86,300 between 2010 and 2017, while the percent of population with four-year degrees rose from one-third to nearly one-half, according to the National Community Reinvestment Coalition.
Big tech companies have continued to transform the communities and culture of Oakland as modern apartments have appeared, housing prices have spiked, and many prior working-class residents have moved to suburbs further inland.
According to 2015 data compiled by the Bay Area Equity Atlas, 91% of low-income households of color were either in neighborhoods that were gentrifying or were at risk of gentrification at the time. The number was higher for individual low-income communities, with 96% of Native American households in neighborhoods that either experienced gentrification or were at risk of being gentrified, followed by Latino households at 94%, Black households at 92%, and Asian or Pacific Islander households at 88%"
So if Oakland was, say, Detroit, what would we be looking at: rise of the high-paying blue-collar jobs due to the automobile industry followed by decline of same? Without San Francisco on the doorstep, would the urban renewal projects to attract in new tech/white collar jobs have worked? Would Oakland be gentrified or in decline? As you ask, what *is* its natural level of demand?
Are the (relatively) high house prices in Oakland due to demand, or due to better-off people moving there so the existing owners of houses and the real estate agencies know they can ask and get higher prices? If I'm looking to sell my charming quaint bijou property in historic Oakland neighbourhood complete with original features, potential for imaginative and sensitive modern re-development, then it makes a big difference to the asking price if the possible buyer is earning $80,000 a year or $300,000.
"Until that happens, new housing means more people which increases demand for services (as with the oil boom town going from 1,000 to 2,000)."
And of course, once the oil boom busts, or the gold rush slows down, or the silver is all mined out, then that demand for 2,000 houses flips to being 1,800 houses too many as people move away to other jobs and the support services are no longer needed and the town gradually dries up and withers away.
Oakland is a great example because:
A) Scott lives in Oakland
B) a lot of YIMBY folks live in Oakland and are trying to convince Oakland to adopt YIMBY policies
With that said… I think you’re right! Adding more housing in Oakland specifically, particularly near BART, might very well raise Oakland rental costs. And if that’s true, Oakland YIMBYs need stronger arguments than “do this to lower housing costs”!
It also occurs to me that Scott's theory would say that Detroit's history is impossible. There's no mechanism in what he's writing about to describe a failing city. In my view, Detroit is very easy to understand. Manufacturing declined, which substantially lowers the total demand to live there. In that case, to below the existing housing and infrastructure levels. This means that even building zero houses results in a significant drop in housing prices.
Okay wait, I'm confused. With your updated density/housing prices graph, is that saying that Houston is *more* expensive than we would expect, and NYC is *less* expensive than we would expect? What is going on here??
Under your theory wouldn’t it be best to build more housing in Fargo than cram it into Oakland? It’s easier and cheaper and North Dakota could use the extra population and rising housing costs more.
Yes, but Fargo isn't near San Francisco and Oakland is. So long as more people want to live in or near San Francisco than Prosper (the city 11 miles from Fargo, as Oakland is 11 miles from San Francisco), then more people are going to want to live in Oakland than in Fargo, no matter how many houses the city fathers build.
That's the implication, yes, especially with his added thoughts about China. We should build in the least desirable places, then let the people move there and raise prices. Then desirable places will be less crowded.
I doubt many people would take that theory seriously when presented in such a way.
You might enjoy the book "Scale: The Universal Laws of Life and Death in Organisms, Cities and Companies" by Geoffrey West.
One of it's points is that cities scale weirdly. Most things slow down as they get bigger. Old humans bounce around less than toddlers, elephants are less nimble than mice, and Google now is less nimble than Google 20 years ago. This means that every living thing and every company must die eventually: they all go through a growth phase, a maintenance phase, a decline and eventually death.
Except cities. Cities speed up as they get bigger. Shops open and close more quickly. People walk faster. More people move into or out of the city. So it's really hard to kill a city. In ancient times cities collapsed sometimes because they just didn't have the technology to support ever-growing populations. But cities are amazingly resilient. E.g. Rome or Hiroshima.
The point of this is that lots of rules for other things don't apply to cities. So it wouldn't surprise me if apartment prices don't follow supply and demand rules.
I cited a paper by West ("Growth, innovation, scaling, and the pace of life in cities", Bettencourt et al. (2007)) and talked about the scaling of cities in my comment to the original post. It exists, and it's important—that's why people move to cities to begin with—but I don't think it's big enough to offset the 1st order effect of housing getting cheaper due to there being more housing.
The scaling of things like GDP per capita and crime rate in cities is that when your population doubles, your efficiency goes up by 15%. So if Oakland's population increases by 10k from 440k (I'll use the city population to be generous even though I should probably be using the metro area), GDP per capita would increase by 0.4% according to this scaling. Basically you raise the fractional increase in population by the power of 0.2 to get the efficiency gain.
Now that I look again at his plot for housing cost, it is controlled for median income, so there's an additional thing going on here. I think the full explanation of why that plot slopes up involves an interaction of regulatory environment and density/growth.
If you aren't dense enough or growing fast enough, it doesn't matter if you can only build SFHs. But if you are dense and growing, your prices will increase a lot when you can't build enough. (And this goes back to the other paper I cited, "The Economic Implications of Housing Supply" by Glaeser and Gyurko (2018). This talks about how housing costs behave in different regimes. Oakland is squarely in the "price changes a lot because supply is inelastic" regime.)
Thanks for providing the numbers. I had written my comment based on vague memories.
But isn't the next question "how much does that 0.4% increase in GDP per capita increase demand for housing?" If the increase is more than 10,000, then demand grew faster than supply.
I think the scaling laws say that cities just keep on growing, so that would suggest that demand keeps pace with the increase in supply. Meaning if you want to decrease prices, the only thing you get to control is how quickly you race ahead of the increasing wave of demand. If you ever don't keep pace, you will be caught by a much bigger wave than when you started and prices will be higher than when you started.
I think we're making a lot of generous assumptions to get that 0.4%. In the Bay Area, there are many people who are consuming "less housing" than they would if the market conditions were more sane. They are living in smaller spaces with more people than they'd like, so if you build 10k units of housing, some of these people would choose to get more space. So the increase in population would be less than 10k for sure. Also, if you use the population of the Bay Area (whatever the definition) rather than Oakland, the scaling becomes much less impressive.
To your point about demand having to keep pace with supply, the thing that's missing from the discussion is that housing supply will keep pace with demand *if we let it*. And that's ultimately what YIMBYs are calling for, not getting 10k units out of the sky.
Glaeser and Gyurko really is instructive here (https://pubs.aeaweb.org/doi/pdf/10.1257/jep.32.1.3). They find that where housing regulations are light, like Atlanta, the amount of housing that gets built goes up and down a lot depending on demand, but the price stays fairly constant. This is in contrast to places like the Bay Area where the amount of housing construction is fairly constant (you can only build as much as you're allowed to), but the price goes up and down a lot depending on demand.
In the less regulated markets, the price is pretty close to the minimum profitable production cost (MPPC) of housing, which is how much you need to sell the house for if you want to acquire the land, physically build the structure, and get some profit margin. Basically, building homes is not particularly difficult in terms of technology or worker skills, so you can enter the market if you see that there's unmet demand for housing and, just as importantly, regulation allows you to build.
If your city gets bigger, this MPPC would increase, because you produce more per person (scaling) and so labor costs go up. Land costs go up as well, but they find that in lightly regulated markets, land costs make up a small proportion of the full construction cost. So as long as we let people build, the housing cost as a proportion of income shouldn't rise much, if at all.
The situation with the Bay Area is that the actual costs are way above the MPPC (x3 in 2013 according to the paper) because people aren't allowed to build enough. This is the context in which YIMBYs are calling for more housing. I think most YIMBYs would take a one-time infusion of 10k extra units, because that has to be a positive, but the real game is in changing the regulatory scheme so that supply can respond to demand better.
I am not sure I disagree with the end three points, but I feel like your argumentation extends beyond them in a lot of places.
And generally I would say that housing demand/density/desirability of a city is a net of dozens of complicated interrelated (and often synergistic factors) and you seem to just picking out one random driver and saying “this is the driver”.
I would especially note that in the Chinese example and in your later framing, you have moved on from just providing housing increasing prices to providing housing +staffed/built additional services.
Land value tax would solve this.
You're not thinking at the margin, and all the economists are (because that's what we do). The Manhattan vs Conanicut example is irrelevant.
(I tried to post this to the original discussion, but looks like I maybe forgot, so I'm rewriting.)
I think the main thing that you are missing is that demand to live in particular cities has a strong winner-take-all component. If you are a promising young person working in tech, the Bay Area is simply the best place to be, because that's where the best tech jobs are, because that is where the promising young people go. This coordination aspect generates winner-take-all, long-tail dynamics. The same is true for DC and government policy, or NYC and whatever-happens-in-NYC.
Okay, so what? What this implies is that, when you do the 50-city comparison, you have "winners" in the right of the figure, and "not-so-much-winners" on the left of the figure. The marginal effect of increasing density in a particular city is smaller than the figure would suggest, because the winner-take-all effects are not relevant for marginal changes.
As you said, Manhattan is more expensive than Conanicut. BUT, making Manhattan even more dense does not make it even more of the-place-to-be-if-you-are-a-young-journalist (or whatever). NYC is already a "winner" in this sense. If you want the kind of thing the Bay area promises, you already want to be there, limited by your capacity to afford it. Increasing the density may have some positive effect on the demand, but the large "winner-take-all" piece of demand is already taken. You won't attract even more top engineers; maybe you attract some marginal engineers, but that doesn't make it a better place to live.
This model implies that, IF you take some empty piece of land and make it attractive enough that I becomes "the place to be" for some class of people, you can start the virtuous cycle you mentioned. That's part of the promise of charter cities, as I understand them. On the other hand, if your city get a lot of its demand from being a center of some particular industry, and this industry disappears or moves somewhere else, the cycle starts working in reverse. This means you model is correct, but only for large changes in the desirability of a city, large enough that they change the Schelling point for some class of people from coordinating to live in city A to city B. But that can't happen just by increasing density a little bit.
Others have pointed out the importance of the Hudson river, which is likely why Manhattan was picked by the Dutch over Conanicut. I'd like to point out that being selected as the Dutch capital also played a role. If an identical ship with clones of the Dutch settlers had landed on Conanicut and started building an identical settlement at the same time Manhattan was being settled prices on Conanicut today would probably still be nowhere close to NYC. The Manhattan settlement was inherently more desirable for future immigration by virtue of being named the capital.
As a thought experiment, let's say Elon drops 2 identical colonies on Mars. He names the capital New Musk City and the other X^*DNS6, both with selected crews of settlers to make each colony function. Which colony would you chose to settle? I suspect NMC would wind up with higher population, higher density, and higher real estate prices immediately.
It seems to me that there's a natural model that goes something like this:
Given the national population growth rate (say, 1% per year), the demand for housing in any city is about 1% more than the current population.
The actual growth rate of the city is partially determined by the amount of housing that is constructed.
The price of housing depends on something like the *difference* (not the ratio) between housing produced and housing demanded.
All this is going to mean that if most cities are undersupplying housing (which seems to be the case outside the Rust Belt and parts of the Sun Belt), then bigger cities will have higher housing prices, and building more housing in the short term means you need to build even more housing in the medium and longer term to keep prices down. But if you can get your construction to do something like keep up with demand growth, then you can keep prices down.
Also, it seems to me that Scott is wrong to say that Raleigh, Atlanta, and Las Vegas aren't trendy - those cities are totally trendy. Raleigh is even a tech hub (this metro area includes Durham and Chapel Hill), and Atlanta and Las Vegas are two of the trendiest cities for people whose demographics don't match those of this blog.
His remarks about trendiness are either useless or false.
He can't mean trendy in a "fastest growth trend" way, because he asserts the fastest growing places are not trendy. (Seems backwards to me. Isn't a growing fad trendy?)
If trendy means "prices are high" then it's true that expensive places are trendy (tautologies are tautological).
This is something like the model I have swimming around in my head but hadn't been able to elucidate.
But also, I suspect that every city is destined to eventually become a NIMBY city. In NYC, even if the YIMBYs do a hostile takeover, enough skyscrapers would be built and people would move in that eventually NIMBYism would stage a comeback, and you'd be back in the undersupplying scenario.
I.e. this:
"But if you can get your construction to do something like keep up with demand growth, then you can keep prices down"
Will inevitably come to an end.
In which case I'm guessing bigger cities will always end up more expensive, but on a pretty long timescale.
"But if we don’t do any of that stuff, and just build another 10,000 houses in Oakland, I think it would probably increase prices in Oakland."
Isn't this contradicted by the Mast study? https://www.dropbox.com/s/sw8khrxdsfj2m9w/amr_new_buildings_restat.pdf?dl=0
Or are you claiming that his study is capturing smaller increases in supply, and large increases would raise prices?
"My claim is that increasing density within a city shifts the demand curve for housing within that city, because of increasing desirability."
Is density the key variable here? Ie, are you claiming that if a city increased the quantity of housing via sprawl, then it wouldn't increase amenities because it doesn't increase density (housing per area)?
Also, is your model that increasing density shifts the demand curve, or that the demand curve is upward-sloping in some section? I think both could generate the same result.
Finally, you don't discuss the counterpart to amenity effects: congestion effects, where increasing density makes the city worse (busier, noisier, etc) and reduces demand. To get the net effect on demand, we have to weigh amenity and congestion effects.
"If a city only built new houses, but refused to allow any new companies, restaurants, schools, museums, or other good things, then the new residents would have a hard time improving the city’s desirability, and house prices would go down."
Not necessarily. If the increase in housing quantity is from a shift in demand, then prices go up (since we move along the supply curve).
I think your opinion being probably slightly heterodox on this issue may be a result of your thinking being heavily influenced by being in California. For most places, I don't think the second order effects from more density would overtake the first order effects in any reasonable time frame. But of those places where it is likely to happen, California probably has a lot of them because of climate and already having existing desirable MSAs.
For Oakland in particular, I think being close to san francisco makes it a reasonably unique situation. I think it would become more expensive as it became more dense relatively quickly. That would put some pressure to decrease pricing in San Francisco, but I'm not sure the second order effects of having even more density nearby wouldn't swamp that effect in short order.
But I think you are overestimating the number of cities that will get much more desirable with more density. Outside of California, I'm not sure how many cities that would apply to. NYC has enough cachet that it will probably continue to get more desirable. Possibly Chicago and Boston might? But I think Houston is the relevant example for most of the country. If you increased density in Tampa, Orlando, Raleigh, Miami, Atlanta, Charlotte, Dallas, Nashville, Louisville, New Orleans, Birmingham, etc., some of them probably would turn into very desirable areas such that prices increased. Most of them probably would not. They would just look like Houston, with relatively affordable housing for how large they are.
I think your example would actually probably work better for smaller cities that could turn into a hot spot, particularly if they have some sort of existing appeal (e.g., mountain views, water views/access, "quaint" existing "downtown"). Places like Charleston maybe? Or lots of little mountain or coastal towns that if they get a little density in a center area, they seem to blow up in pricing, and have a relatively compact area where prices are in the stratosphere compared to nearby, drivable areas. But even then, I don't think it would take long to exhaust supply for them. Rarely would those type places keep growing into a thriving large metropolitan area.
San Francisco has a reasonable argument for being the single most desirable place to live in the world the past 40-50 years. It is odd to use it as a paradigm case of anything economics related. It is a crazy outlier.
It would be like trying to figure out how to develop a farm in Iowa by looking at the economics/tax policy of Miami beach.
Isn't that sort of Scott's point, though? Simple economic theories are sufficient to describe behavior in normal cities, but in a handful of weird outlier cities there are complicated dynamics that create counter-intuitive effects, such that we need more elaborate economic theories to describe them. And so while economists are assuming everything is a spherical cow, some residents of these cities are saying "hey, this non-euclidean platypus really exists, stop gaslighting us!"
Scotts main point wasn't totally clear to me. It seemed to be that he wanted to mainly say that building housing as YIMBYs want to doesn't always lead to lower prices due to induced/demand gentrification. But did a sloppy job of laying that out and made a bunch of related/similar claims that are frankly jsut false as well as making his thesis much more broad than necessary.
If he was just specifically talking about Oakland and Oakland alone in the first piece I think it would have gotten less pushback. Oakland is a weird place.
Hm. I'd been interpreting a lot of the non-focused parts of the posts as dealing with objections and poking holes in other people's theories, not so much suggesting a grand unified theory.
That is not what I took Scott's point to be. I took him to be applying his theory to cities in general. Otherwise it wouldn't make sense to put so much emphasis on the relationship of pricing and density across the US.
Conanicut (known to locals as Jamestown, RI) is a poor example. It’s actually only 10 square miles of land, less than half the area of Manhattan. For some strange accounting reason probably having to do with its extra islands, there’s a lot more water counted in its total area than makes any physical sense. It’s never been very populous, going from 500 souls in colonial times to 5000 now, but it’s a pretty expensive place to buy a house, despite the long commute to almost anyplace else (by Rhode Island standards).
Aquidneck Island would be a better example despite being larger than Manhattan. Newport has an excellent harbor and a more similar history to Manhattan’s, but has never been populous enough to fill up the island.
I think the poll question is slightly underspecified. If we're talking about average prices, then there's going to be some skewing due to the fact that half of the construction is shiny and new. I assume the question we're interested in, though, is how this would affect the prices of the existing housing stock.
i like the conanicut-nyc example a lot. here's an analogy intended as a contradiction to the inference you draw from it
i have two plots of dirt. i plant mango seeds in one, and in the other i plant nothing. a few months later, i harvest the mangos from the first plot, and fill a zip-loc bag with dirt from the second plot. if i go to the market and sell my harvest, the mango will command a higher price than the bag of dirt. i conclude that planting mangos raises the price i can charge per plot of dirt.
the next season, i plant twice as many mangoes in the first plot of dirt. when i go to the market, i find that in order to sell all my mangoes i need to lower the price. i conclude that planting more mangos per plot lowers the price i can charge per plot of dirt
finally, i plant an equal number of mangoes in each plot of dirt. they sell for the same price as in the previous season. i conclude that planting more mangoes across all plots lowers the price i can charge per plot
conanicut-nyc example is the first season, marginal increase in density in nyc is the second, and the third is building a second NYC in conanicut
the nature of the initial investment in housing (planting mango seeds) changes which market things are sold in. within markets, the normal rules of demand and supply apply.
this helps explain the ghost city example. ghost cities start out empty, and for a few years need to be cheap to entice people to live there, since the "nearly empty city market" has very low demand. once sufficiently populated, the ghost city enters the "normal city market", and has similar prices to other cities (determined in equilibrium taking into account preferences, wages, location, etc). then the usual rules of supply and demand apply: if the city has an inelastic housing supply, house prices will increase whenever it experiences demand shocks. absent demand shocks, increased housing construction will lower local prices (as shown in the papers cited by Matt Yglesias)
I don't think you can wave away the common causation issue so quickly. The agglomeration benefits that you are citing result from there being more people, rather than more housing units. I think it is a fair thing to say that in places with lots of pent up demand, if more units become available they will get filled. But if you really believe it is the housing units themselves, then you should get some investors and go build 100,000 housing units with schools, fire stations, etc. adjacent to a mid-tier city with a good airport, and then laugh all the way to the bank.
That said, it is just really tough to believe that the agglomeration benefits would exceed the effect of new supply because the conditions to make that happen are really extreme. Think about building new roads. That reduces congestion in the first order, and reduced congestion then causes people to take more trips, which re-congests the road to some extent. It's pretty normal that happens because demand for trips isn't fixed and depends on congestion. But your argument about housing is similar to saying building a road would lead to more congestion per unit of road, and it's hard to imagine that really occurring. That's because of someone was willing to take a trip at a higher level of congestion than exists today in the world with the new road, then why aren't they already taking it today? It's certainly possible to write down a scenario where it occurs -- perhaps the extra trips generate so much economic activity that productivity rises so much that additional trips become worth a higher level of congestion, but we'd all be rightly very skeptical of that.
So your argument boils down to assuming that, for a small incremental change in housing stock, agglomeration effects nearly always exceed the effect of increased supply. But I see no reason why that would be true or why agglomeration effects would scale in that way. Not every resident is going to continue in the same way to those effects. To take your Manhattan vs. Conanicut island example, it's certainly one thing to say that if the Dutch made Conanicut their capital it would have prevailed. But would that have happened if 1% more housing units were constructed in Conanicut back then? That probably would not have made a huge difference.
>but your argument about housing is similar to saying building a road would lead to more congestion per unit of road, and it's hard to imagine that really occurring.
To be fair a lot of urbanists (and even some transit "experts") really believe this despite it not being true and their basically being no data to support it other than a few horribly implemented projects, and even there it is mostly silly.
This is a great crux! People who are opposed to new highways because of "induced demand" are also usually YIMBY, and ditto for the opposite, at least in my experience. This contradiction seems like a great way to get them to reconsider at least one of their beliefs.
Yeah the induced demand argument for Freeways drives me absolutely insane.
So you will have some community, where say X people drive down a freeway each day and the drive time from 10 miles out is 25 minutes. They will add a lane. Now the drive time is 18 minutes, but due to that, there is slowly more development further out at Y as it is underpriced compared to commute time, and now 10 years later the drive time is back down to 25 minutes 10 miles out and the traffic is X+Y, and this is somehow seen as a giant failure of the Freeway expansion.
you will literally hear it "achieved nothing".
It would be like building a subway station and then seeing it as some kind of failure because businesses and apartments sprouted up around it and it got used. "oh it just got filled up and used, how worthless/why bother".
It being used is a sign it is providing value to people!
Yes if you are ONLY building lanes to cut down commute times, the results will (in some very specific cases) be time limited. But nevertheless there are results. And that isn't even getting into the issue of most metros don't have an infinite amount of growth.
So if you increase capacity on artery B, and it sees growth Y, now that growth didn't hamper arteries C and D. It has this bizarre view of urban areas where if we just stop building roads growth will stop. Instead of the area 10 miles out getting denser and commute times being 32 minutes instead of 25 10 years from now.
I am actually fairly urbanist in outlook and live right in a city. But the amount of denial about the value of car culture, the benefits many/(most?) people see in larger lots/yards and low cost/good school bedroom communities is insane.
It is all efficiency efficiency efficiency, who cares about human values!
Of course if efficiency is all you care about why not jsut build one mega acrology with coffin sleeping chambers and no private residences at all! An urbanists dream! Of course they don't want that, because almost everyone's vision of the "ethical amount of density" is "exactly the density I want and not one iota more".
Yeah. Those arguments also bug me, but I'm not as sophisticated as you about it. :-) Mostly I hate it when people are in favor of implementing their own preferred policies by making other people's lives worse, or preventing other people from making their lives better, in ways that are otherwise accepted as perfectly normal. It's this hideous passive-aggressive attitude that says "you're bad for wanting X, therefore you should suffer".
I don't smoke, I don't like the smell of cigarette smoke (as opposed to pipes or cigars), and I'm happy that the norm today is no-smoking. But I don't want smokers to **suffer** the way some people seem to. **shakes head**
Cars are great. So incredibly useful. I take public transit a lot, and walk and bike, but simply having a car for those other times is a massive enhancement in my life's quality. They're freedom on 4 wheels.
> The picture on the left is Manhattan Island, NY. The picture on the right is Conanicut Island, RI. Both islands are about the same size, the same climate, the same distance from the mainland. Both are near good natural harbors. In 1600, some early European explorer would have considered them basically interchangeable.
I'm sorry but this is completely wrong. Manhattan sits at the mouth of the Hudson river, which has been a major shipping lane since the days of the earliest settlements. It was easy to bring goods from throughout NY state to the city via the Mohawk river/valley and the Hudson. Maybe you could say it's interchangeable in that sense with Long Island, which is obviously also right there, but guess what? Brooklyn, the part of Long Island that's close to the Hudson and the Atlantic, was itself also a major port city before they merged into New York City in the late 19th century, and Brooklyn is only very slightly less expensive than Manhattan. After the completion of the Erie Canal in 1825, the Hudson became part of a pathway not only from the Atlantic to the interior of the Mid-Atlantic region, but also to the Great Lakes and Chicago, from where goods good be distributed throughout the Midwest. This made NYC even more important as a shipping hub for the whole country. It very much could not be replaced by some random island in the Naraganset Bay! The biggest competitors to New York as the most dominant city of the eastern seaboard during the 17th and 18th century were places like Philadelphia and Boston, which are also near significant navigable rivers, but can't connect as easily to the Midwest. New York's dominance is not an arbitrary accident, it was geographically determined.
So who won?
"If a city only built new houses, but refused to allow any new companies, restaurants, schools, museums, or other good things, then the new residents would have a hard time improving the city’s desirability, and house prices would go down. I don’t know how realistic this is or how closely existing commercial regulatory easing tracks residential regulatory easing."
As a Planning Commissioner, I can tell you that we absolutely _could_ do what you're talking about here. And while I wouldn't suggest going as extreme as not permitting any new commercial construction, we could and absolutely should change the incentives around this. Because of the balance of what kind of income streams and expense streams are created by commercial versus residential development, from the perspective of city government, housing looks like a cost, and offices look like revenue. (This has to do with the Prop 13 property tax allocation system, how schools are funded, etc.) Of course if every city grabs for office-related income, and expects _somebody else_ to house those workers (or, more realistically, to house the lower-income service workers displaced by the office workers bidding up the price of existing stock), then you get the equilibrium we're in, where the Bay Area has more super-commuters travelling 3+ hours each way to work than anywhere else in the world.
My own city of San Bruno is trying to convince the state that we have a plausible plan to produce around 3600 new housing units, under the Regional Housing Need Allocation system. For anyone not familiar with this system, see: https://yimbyaction.org/rhna/
Let's just ballpark that this will house something like 6k adults and 4k children. A few hundred of those adults will be out of the labor force for various reasons (education, childcare, illness), and another slice of adults will be retirees, so call it 5k people with jobs.
Meanwhile, we _already_ have something on the order of 10k jobs in our construction pipeline. That is, our _plan_ is to make the jobs/housing balance worse. See for instance the Tanforan redevelopment. https://tanforanforsanbruno.com/
Hypothetically you could cut down the biotech office component of the project a lot, and build a lot more apartments -- both market-rate and affordable, if you want to do the Inclusionary Zoning thing ( https://bettercities.substack.com/p/everything-you-need-to-know-about ). It's not like the landowner would not profit on doing that. The offices are what yields the _most_ profit, but the apartments would still make money, especially if the city was saying, "Hey, if you agree to help us out with making our community more walkable and affordable, we will allocate staff time to speeding your permits through, and otherwise try to help you out."
You can find the odd example of cities doing this -- after much lobbying from local YIMBY residents, Menlo Park's Council and Staff worked with Facebook to cut a couple thousand jobs' worth of office space at the Willow Village project. In the process they got a few hundred units of low-income housing for seniors.
https://hoodline.com/2022/04/facebook-reveals-big-changes-to-its-proposed-willow-village-development-in-menlo-park/
I've talked with a few officials (including a current County Supervisor and a State Senator) about the idea of making a formal linkage between job-creating development and residential development. So if your jurisdiction is in an area with a bad balance -- where a large portion of the people who work there have to commute in from 30+ minutes away -- then you _can't_ approve new construction that adds space for jobs, without being able to point to the linked housing, at a ratio greater than 1. So for a city with a serious deficit like SF, in order to build a new office or a new store, you'd need to point to where you'd issued building permits to house 2x as many people as we expect to be drawn in by the new jobs. For a city in less of a crunch it might only be 1.2x. You also can "trade" this linkage to nearby jurisdictions, especially for smaller towns where everything's closer together. (Subject to some limits and/or discount factors for distance -- access to transit at both ends, allowing speedy commutes, means the housing in that other jurisdiction counts more / in-full.) So if Berkeley adds jobs, and Emeryville is adding housing, Berkeley can take a community benefit payment from the developer, pass it off to Emeryville, and count some agreed-upon chunk of Emeryville's permitted housing towards balancing the commercial development.
There is not quite the will to do this yet. Commercial developers would of course hate it. But it would align the incentives of developers with the YIMBY impulse to just _make housing abundant_.
Also in relation to your survey question: "Suppose the city of Oakland, California, was randomly chosen for an experiment in which they had to build 25,000 extra market-rate housing units per year beyond their current plan, with proportional increases in the number of office buildings, schools, etc."
The problem is that you include a proportional increase in offices. If your city already has a bad jobs/housing balance, then doing proportional increases of both jobs and housing doesn't fix that ratio. If you built more housing, while adding _only_ commercial space required to service the needs of residents -- so, stuff like new schools and doctors' offices, but _not_ new offices that engage in activities that "export" relative to the local metro economy -- then prices would go down.
So my answer to the question is that prices would probably stay about the same -- but also, you're asking the wrong question.
It is plainly possible to change this ratio over time. The Bay Area has been building commercial space for around 10 jobs, for every one new housing unit, year after year, for decades. We just need to _stop doing that_, and _do the opposite_, for a similar span of time.
It's my understanding that high-rise residences can't be cheap, because of high maintenance costs.
Since I don't know how much of the city residences you are talking about fall into this category, I don't know if this is significant, however.
OTOH, the US SouthWest is full of "ghost towns" that were founded around one industry, and totally disappeared when that industry (often silver mining) went away. So density in-and-of itself cannot suffice. You need a more complex model. But it does seem to be a major factor, probably because it's needed to sustain the other things that make the towns/cities attractive.
Shouldn’t we be looking at the rate of change in housing costs rather than absolute costs?
I think you missed the culture points analogy. Suppose NYC builds more housing today. Immediately, housing prices go down because of supply. Demand stays the same, no one is going "Oh man that new apartment complex just looks so nice, I have to move to NYC so I can live in it." A couple years later someone who moved to the city creates the next Broadway and NYC becomes even more appealing because it has another culture point to make people want to live there, and housing prices go up because of demand. For a couple years, density reduced prices! Depending on how long you think it takes to invent the next Broadway, the reduction could easily last for decades, maybe even a century. That seems fair to describe as density reducing prices, even if in the long run it drives them up.
In some sense this is like the inverse of an R&D department in a profit focused company. Yeah, it's a money black hole, until you get a hit like mRNA, or transistors (although obviously AT&T did not benefit for transistors). In the short run, building more housing / doing research reduces prices / only uses up money. But as time goes on, the increase in density / research funding results in a higher chance of (culture points or mass transport or good schools or interesting sub culture arriving) increases / a profitable invention.
So to a certain extent, this looks a bit like a semantics debate. Since Scott sees the density as fundamentally enabling "things cities in general are known for", but from a microeconomic / commentator view, you have "the price decreases with supply, until unlikely and unrelated event or trend X happens to make the city much more appealing". They both agree that supply in a vacuum decreases costs, but Scott thinks the density enables the appeal of a city in the first place, and others think that whatever happened to increase desirability is weakly or not coupled to density at all.
I think one way to operationalize this more would be to develop some type of model and plug in various ways a city can become more appealing. For a simple example, have some demand function scale linearly/quadratically/slightly superlinearly with the existing density of the place and see how price levels change with increased density. And then introduce variations like having some density dependent probabilty distribution for suddenly becoming a cultural phenomenon and having a step change in desirability.) I'm not an economist, so I don't know if this model even makes sense or is feasible, but it can help distinguish different intuitions on the topic. Or even better, it can show that all of these models end up having similar behavior, and that leaves only a disagreement on interpretation, and not on ground level facts.
Personally, I think my internal model says that there's some inertia in consumer perception of desirability/affordability, which were formed before NIMBY-worrying amounts of population growth happen, at which point demand outstrips supply and prices go up. This lasts until perception or supply catches up. Of course the original perception relied on density in some sense, but quickly decouples when out of price equilibrium.
This seems a little inelegant and post hoc, but I can't control my folk psychology without an Econ textbook!
The more relevant question is, does housing costs as a percentage of income increase with density?
If housing cost is higher but area income outpaces housing costs who cares that housing cost increased?
In such an Oakland, I would expect that most of the new houses built would be more expensive than the pre-existing houses, so both of the following would happen:
1. The average & median price of housing (new + pre-existing) would increase
2. This average & median price of pre-existing housing would decrease (probably from an absolute perspective, almost certainly compared to what the price would have been if the new housing had not been built)
You can view this similarly to expanding highways to deal with traffic congestion. If you believe more capacity will now increase demand leading to more congestion, then building more houses in a desirable city will lead to even more people wanting to move there making housing more expensive. If you don’t believe in more highways lanes leads to more congestion, then more housing leads to lower prices. But what I see is often people who believe more highway lanes lead to more congestion believe more housing leads to lower prices and vice versa which doesn’t make sense to me.
In either case if expansion is at a very large scale it can exceed induced demand leading to lower congestion or pricing. But given the high cost cities are often near water bodies/ nobody wants to cover costs of building new infrastructure to cover services required by population increase all new housing built will be only a small portion of demand
I think 60% of the contention here is simply from not keeping short-term and long-term distinct.
Building housing causes a short-term decrease in prices. This should (I think?) be uncontroversial.
Scott's arguments suggest building houses causes a long-term increase in prices. This is controversial.
Most of the commentors who seem frustrated by Scott's "stupidity" seem to conflate between the two. To wit: I don't think there are *any* studies with credible claims to causation examining the long-term effects of building more housing on home prices. It doesn't seem like a settled issue at all.
>Scott's arguments suggest building houses causes a long-term increase in prices.
This only makes sense if you include a lot more baggage than that. I think that is a lot of the pushback.
I think you've done a great service with these two posts. The fact of the matter is demand when it comes to places is really not as well-understood as many pretend it is.
In 2017, at least, I was in a ghost city that really was a ghost city. Annoyingly, I can't remember the name of the place, but it was near the East coast, as it was a relatively short journey away from my city around there. My work went on a retreat there, and I was literally walking down the middle of a centrally located, multilane highway at about 11am. It was very foggy on this highway, too- very eerie. Empty skyscrapers looming out of the mist as I walked.
I think, to be fair, there was part of the city that was normally inhabited. There must have been, or else why would we have been there. But the part I was in was classic ghost town- big, empty skyscrapers without an actual human in sight.
Hey, you know what *else* fits this model of "as its size and density grows, its attraction increases, along with its output"? (And smaller ones also form around it...)
In a crowded city, we will simply see the most potent industrialists, cultural producers, and service workers win out in the contest for housing and access to the local market. There will be increasingly stringent selection for quality and productivity. As the song says, "if I can make it there, I'll make it anywhere. It's up to you, New York, New York."
This can potentially be beneficial in hiring: if you know that only excellent programmers can make it in San Francisco long-term, then you know that your hiring pool in San Francisco will be dominated by the nation's best programmers. And if the nation's best programmers know that only the best employers can afford SF office prices and worker wages, then relocating to SF is a good way to get access to the best employers, even if you don't have information about their company internals.
Keeping a city artificially small can be seen as a way of ensuring you are primarily living with the best of the best - it's like a gated community on the scale of a city. Others have commented that artificially keeping a city small can make it feel "trendy," but I think it's more than just perception - I think it's a real selection effect and that people are accurately perceiving that any given person they meet in a "trendy" city has a substantially increased likelihood of being "interesting." We all have limited time and access to information. Having such a powerful stereotype at our disposal for pre-selecting candidates for employers and employees, friends, and marriage partners is a valuable thing for anybody capable of thriving in that environment.
If new housing stock were built in Oakland and the population of potential immigrants competed for it, the winners would be those who'd stand to gain the most from living in Oakland. Presumably, they'd mostly be motivated by access to unique educational or job opportunities, opportunities at which they expect to be competitive or that offer uniquely high rewards. Since most of these immigrants would not have family in Oakland and could access things like natural beauty more cheaply elsewhere, they'd probably be selected for high job performance. Companies like Facebook grow at incredibly high rates, so I expect there would be plenty of opportunities to absorb the newcomers.
So making room for up to 5% population growth per year by increasing the housing stock seems like it might increase demand modestly in the short run. As the newcomers upskilled and started launching their own companies, as cultural scenes get established to service the other residents and attract additional immigration, and as residents gain a sense of identity with the city, that effect would probably increase. When they started families, the effect might increase even more.
Overall, my model is that building additional housing stock mainly just makes housing cheaper in the short run, but that it generates additional demand for that housing via business, family and cultural network effects in the long run.
However, I also think those network effects saturate eventually and are becoming less potent over time, with remote work, video calls, cheaper travel, dating apps, translation apps and the increasing global dominance of English, more ways to network and find jobs, and streaming culture all making it easier to access the benefits of the big city and connect with loved ones wherever you are. I think this will be even more true over time, with AI being potentially the most disruptive of all. So my conclusion is that building additional housing stock most likely just makes things cheaper, with any long-run effects on driving up demand tending to saturate and become less important as our economy finds all sorts of technologies to give us big-city benefits without paying big-city prices.
I'm a YIMBY-oriented scholar with a PhD in economics actively working on housing, and I chose the middle option ("no strong beliefs") in Scott's poll. Here's why - and I think this is the fundamental misunderstanding between pro-housing people like me and his recent posts.
Scott's experiment isn't a "housing growth" experiment, it's a "city densification" experiment. Crucially, he requires "proportional increases in the number of office buildings, schools, etc". That is, the experiment would increase office space at the same pace as housing *even though office vacancy rates (19%) are far higher than housing vacancy rates (~1.7%)*.
Oakland is a pretty balanced city: as best I can tell from simple Census data, it probably has a jobs/residents ratio pretty close to the California average (by contrast, SF has twice the state jobs/resident ratio). If Scott ran his experiment in a bedroom community, or stipulated that office space is left under current regulations, I'd have an easy time coming down on the "less expensive" side of the ledger.
The point of the YIMBY movement is that housing faces uniquely strict regulation. California cities (and those in some other states) believe that offices and industrial uses are "taxpayers", generating more revenue than they use in services. Housing is viewed as a fiscal cost. Regulation ("fiscal zoning") and discretionary decisions have reflected this bias for decades. The result is headlines like "SF added jobs eight times faster than housing since 2010."
If Oakland upzoned citywide, it would likely receive a disproportionate amount of residential growth relative to offices and industry. That would lower rents relative to the baseline trajectory.
Scott's question feels slippery because at first it *sounds like* he's asking, "what would happen if we built a lot of housing?", but in the details he's asking, "what would happen if this city densified without changing any proportions."
The second, detailed question doesn't neatly correspond to a simple comparative statics exercise in an Alonso-Mills-Muth city model. Depending on a variety of things like the congestion elasticity, people's taste/distaste for density, and the degree to which regulation has held back density in the baseline, the price effects could go either way.
Data: https://www.census.gov/quickfacts/fact/table/sanfranciscocountycalifornia,CA,alamedacountycalifornia,oaklandcitycalifornia/PST045222
I think the main problem here is that people are confusing micro economics with macro economics. The stuff about supply and demand curves are classical micro economics. When you are talking about nation-scale stuff over a couple of years, we are talking macro economics. Most people in this comment section are talking about Econ 101 (where they usually only teach micro) and about papers which are also from the realm of micro economics (or at least I haven't seen a single macro paper posted here)
Scott is not only talking about macro, he is also talking about long term (several decades). So not only does micro no apply at all, even most of macro does not even apply. The number of rules and papers we can look at for this issue, is very limited (e.g. Kondratiev Waves would fit the scale, but seem somewhere unrelated to the issue).
Micro still applies to the price of housing in a city, which is a single commodity of local scale and adapts quickly to changes in supply and demand. And price of housing in a city is the subject of discussion.
Macroeconomic concerns can increase the absolute demand for housing in a particular city (or decrease it, see e.g. Detroit). But that happens independently of how much housing people build there, and if you're trying to predict price changes you're back to applying microeconomics to those absolute supply and demand changes.
Henry George gives a reason why more populous cities have such high land value in Progress and Poverty in book 4. It's long so I won't put the whole thing here, but the point is:
"The presence of other settlers the increase of population has
added to the productiveness, in these things, of labour bestowed
upon it, and this added productiveness gives it a superiority over
land of equal natural quality where there are yet no settlers."
(and thus land in a major city is worth much more than an equal amount in the wilderness, and this is a good thing if the value is well-distributed)
The real answer to the Manhattan vs Conanicut Island question is that Manhattan is built on a giant magic crystal that attracts winners from around the globe. EVERYBODY knows that!
Yea, I think your flywheel of more people move, create more culture, prices go up misses a qualitative measure, and the austin vs Houston thing captures it. It’s more like institutions and people aren’t evenly distributed, so some areas will create faster culture flywheels that act like a turbo charger to simple supply and demand. Yes, you can probably outrun it with enough housing, but it’s harder.
If increasing density increases prices, should we also expect decreasing density to lower prices? If we therefore stop building new houses, would we expect prices to go down?
Someone upthread pointed out that Hurricane Katrina significantly lowered prices in New Orleans by destroying most of its buildings and lowering its density.
Joel asks, (all else equal), should decreasing density (restricting supply) lower prices?
But natural disasters don't analogize well. Natural disasters impact both supply and demand, so it's not obvious what the impact will be on price.
Manhattan provides an example for this, btw. The population of Manhattan peaked in 1920. What happened to prices since then?
Would you expect the same thing to happen in Manhattan?
The options for the poll question don't quite match between the version presented in the post and the Google form. I would answer them differently, and I don't know which interpretation you're going to go with.
I still think the majority of arguments and thought experiments presented here are either smuggling in an assumption that demand will keep up with supply and thus assuming the conclusion, or are something I think is flatly wrong. Ex: if you kept the supply of housing on Manhattan low by attacking settlers, the price of housing would in fact be very high, because it would have to include the expeditionary force dispatched to defeat you. This is not a quibble, it's the whole effect!
When you drop the tails argument to focus on the marginal case, I think you do a lot better:
> That is, yes, you’re all correct that cities are only expensive in the context of more demand for city housing than the (NIMBY-constrained) city housing market can currently supply. You are all correct that if this problem were solved at the national level, then city housing would be cheap, and every additional city house would make it cheaper.
>My claim is that marginal changes - like Oakland building an extra 10,000 units, but everyone else staying the same - will most likely increase Oakland prices. Yes, if Oakland unilaterally built 50 million units, that would soak up the entire excess demand and probably lower prices everywhere (including Oakland). Yes, if the entire US switched to good housing policy at the same time, that would probably lower prices everywhere (including Oakland). But if we don’t do any of that stuff, and just build another 10,000 houses in Oakland, I think it would probably increase prices in Oakland.
A lot of NIMBY energy focuses on state-level zoning preemption due to the recognition that there's a lot of incentive for municipalities to defect against each other, where higher-level entities can capture the whole agglomeration benefit. I disagree that this will specifically drive up prices at the margin, but it's certainly true that there is no small change that Oakland can unilaterally make that will fix housing in Oakland.
I’m sure it’s already been said, but the Chinese housing prices have more to do with the fact that the middle class is using housing as a store of value than with density. Kind of absurd for Scott to not notice.
Let's accept that building housing is a coordination problem because prices go up locally unless there is new construction across the nation.
Shouldn't that lead to declining prices? Hear me out! Say you're the local in charge of your municipality. Incumbent residents don't want the prices of their assets to go down, they want those asset prices to go up. What do you do?
If you're smart, you recognize that you need to build more housing. This will attract more people to your area and drive up housing prices, which will make you popular and get you reelected! This becomes interesting from a game theory perspective, since if everyone does this, prices don't rise but rather fall because the total supply of houses in the country increases.
But remember that you're the local official, not the nationwide official. You're accountable to the local residents. You didn't directly cause the drop in home values in your municipality. That was caused by a global phenomenon, not a local one.
In reality, the voters will probably not see it that way and will blame you anyway because you built more houses. ALSO in reality, we're far from that scenario and haven't seen it in the political memory of any voters. So Scott is saying there's this stack of $100 bills lying on the sidewalk waiting for some intrepid muni planner to come collect. Why isn't anyone cashing in on this money printing scheme?
My degree status in economics is... complicated
> proportional increases in the number of office buildings, schools, etc.
Would the same money which pays for those schools raise the house prices more if it was spent on improving the schools for the existing residents?
Just popping in to propose my pet theory regarding Chinese Ghost Cities: guanxi dumps. Guanxi is basically an informal economy where favors are exchanged. So in addition to the ordinary economy (with Chinese characteristics!) of China, there's this parallel economy of favors. I'm not sure how one would measure the 'dollar value' of the outstanding favors in the Guanxi network, but the total dollar value of outstanding favors is possibly as large (or larger?) as the regular economy. Moreover, when a favor is paid back with a returned favor, the returned favor is expected to be more valuable than the original favor, but the growth in 'favor value' isn't pegged to any banking regulations or national fiscal policy - the increase is decided between the two favor exchangers based on personal circumstances and changes in social status. The upshot of all this is that the shadow Guanxi economy can rival the size of the regular economy, which would be a problem when there's not enough actual money available to cash out all the outstanding favors if there's ever such a thing as a 'run on the guanxi bank'. And since the growth of the guanxi economy can easily outpace the growth of the regular economy, this precarious situation will worsen over time. How to mitigate the risks caused by a bloating Guanxi shadow economy?: Guanxi dumps. I call a guanxi dump an enormous and sorta-designed-to-fail megaproject that can absorb and destroy a huge amount of outstanding guanxi debt. You give someone, as a favor, an opportunity to jump the line and be the first to purchase a unit in a new building in a new city, or you pull some strings so they can get a discount, whatever. The point is that you paid back a valuable favor. You couldn't have know that the city would stay empty and the apartment would be worthless, right? After all this was a government project? You think I should know more than the government? Plausible deniability allows such projects to burn off huge amounts of guanxi, thus stabilizing the actual economy.
1. Less Expensive.
Why? Cause the added desirability won't be big enough to attract so many people.
I want to push back on the core assumption behind Scott's induced-demand hypothesis: that there is a large "pool of geographically mobile Americans" who "prefer any big city" but are basically agnostic on which. This assumption should be fully rejected.
Consider a small set of the variables influencing wanting to move somewhere: (1) proximity to existing family and/or friends, (2) potential care obligations to aging family, (3) jobs in general, (4) jobs in a specific industry (or pair of industries for a couple), (5) a job for a specific current employer, (6) housing in a size/configuration/condition amenable to that household's preferences & budget, (7) weather, (8) specific outdoor recreation (skiing vs golf), (9) cultural activities in general, (10) specific cultural activities (theater vs country music), (11) affinity for certain vibes, (12) aversion to certain vibes, (13) fear of natural disaster risks, (14) childcare options, (15) accessibility needs for current or expected disability or infirmity...
Each potential migrant to a city has all of those preferences, multiplied in complexity by the constant change in how well each city actually matches them, multiplied *again* in complexity by each person's *perception* of each city's level of matching to those preferences (people don't operate off universally held perfect information). Some of these variables correlate with population/density, others don't. To assume that all these variables cancel out in aggregate is making many giant assumptions all rolled together.
Scott's own opinions (valid but idiosyncratic to his preferences) about which cities are trendy versus which are "unfashionable red state Sun Belt cities" reveals the heart of the matter: Dismissing the Sun Belt cities despite their huge population growth illustrates my point, that there is no giant bloc of location-agnostic people so attuned to marginal housing supply changes that they will be induced to move to a city which constructs incrementally more housing.
If "Austin vs Houston" is cherry-picking a strong case, then "Conanicut vs Manhattan" is quite obviously even more blatant cherry-picking. You just can't state "these two islands have the same natural factors and the *only* difference between them is that one has higher density", call that a "natural experiment", and then say that comparing Austin and Houston is cherry-picking.
The ghost city case is also very illuminating: Just building the cities (i.e. increasing density) didn't do anything to increase the price. In fact, when the cities had just been built, no one wanted to buy the houses. It took the CCP actually making people build *other stuff* that made the cities desirable for people to move there - which pretty much just goes to show how, by itself, density does not increase the desirability (~price) of housing.
Strongly agree with this
Scott Sumner responds to your response: https://www.econlib.org/scott-alexander-is-still-probably-wrong/
One of the reasons Manhattan is more dense is because it's a rock and therefore easier to build skyscrapers on.
So is Conanicut Island, Scott's comparative example in his writeup. But it has zero skyscrapers.
I'm going to say 2 based on the review of Seeing Like a State and the Brasilia example. It's another case where a state built a city in the middle of nowhere, but this time they moved their capital there. The driving force for migration to (the suburbs of) Brasilia seems to be that lots of people wanted to move closer to the corridors of power (I presume this is heavily weighted towards the middle and upper classes), but this was counterbalanced by an even stronger desire not to live in a High Modernist experiment: "Yet twenty years after its construction, the city’s capacity of 500,000 residents was only half-full. And it wasn’t the location – a belt of suburbs grew up with a population of almost a million. People wanted to live in the vicinity of Brasilia. They just didn’t want to live in the parts that Niemeyer and the Corbusierites had built."
So one of the factors for hypothetical future Oakland is whether you let the descendants of Le Corbusier build those new houses.
I’m confused why Scott is making such a big mess of this. It all sounds like so many other arguments that boil down to basic economics. See if this sounds familiar... an Activist vs. Economist “debate.”
A: Raising the minimum wage is good for workers.
E: No it’s not, it will hurt them, demand curves slope downwards!
A: You’re wrong! You need to get beyond Econ 101! There is monopsony power/ inefficiencies/shifting demand curves/shifting supply curves/more money coming into the economy etc. And here are some studies that show that raising the minimum wage [modest amount in limited area] did not adversely impact workers in the aggregate over the timeframe of the study!
E: OK, then let’s raise the minimum wage to $100 an hour to make it really good for workers!
A: That’s just dumb, no one is talking about that kind of raise, why are you being ridiculous?
That’s when talk stops. The economist’s point is that there is a number between where the minimum wage is now and $100 an hour that makes life demonstrably worse for workers by whatever criteria you want to judge them by. The hell of it is there isn’t any way to know that number in advance because of the things that are brought up in support of the raise. Things happen when prices are changed. As the price rises things in aggregate will look and be messy but at some point the Econ 101 intuition of demand curves sloping down will assert itself in the overall market and it will suck for workers.
The housing situation is like an inverse echo I think. What will happen to housing prices as more supply is built? The Econ 101 intuition is that prices will drop as supply gets larger. Scott says no, they will rise as density increases! When pushed he says, “Fine, if you build, like 50,000,000 homes then sure prices will come down but until then Oakland will just get more expensive .”
Sorry Scott, that highlights the weakness of your argument. Prices will come down eventually as supply catches up with demand. Yes, there will be a period of time when things could go either way, or maybe they reverse directions a few times as Oakland gets flooded with housing. But eventually the demand for living in Oakland will be satiated and housing pricing will start to decrease monotonically as more housing gets built. Demand curves cannot be pushed out forever, it is why I would bet that it would not take 50 million housing units to get to the point where housing prices decrease predictably. What number would it be? I have no idea, no one can know in advance.
The obvious answers to lower housing costs are to either build more houses or make the city less appealing. Hell, maybe making enough housing will make the city less appealing! As you noted, building more makes most better off in the aggregate as more housing gets built. So let’s build!
Just FYI, the recent increases in Minneapolis and St. Paul to 15 an hour have been found to have hit both raw employment and hours worked, such that total earnings fell noticeably.
Who could have guessed?
The economist comes off worse in your dialogue. He’s the supposed expert but the activist is right here - the empirical evidence is that minimum wage doesn’t act like economists claim and yet the simple version of unemployment is taught at university level.
Speaking as a resident of Raleigh, I really wish it was unfashionable. Sadly, it is one of the fastest growing cities in America. Crazy changes in the past decade as it has gone from the "City of Oaks" to the "City of Apartments".
I think Oakland is a bad city to use for your example because you live there, so you're naturally biased to view it as more trendy than it really is. Most people in the Bay Area think Oakland is a terrible place and we would never want to live there. Most people in the US think Oakland is full of poverty and crime, which it is. It's really not trendy like New York. New York is uniquely trendy because it's the largest pre-suburban city with things like skyscrapers and subways. Most American cities really aren't trendy. The vast majority of Americans live in boring cities for boring reasons like work or family. Of course, everyone in Denver thinks that Denver is super trendy and basically the center of the universe. As do people in San Diego and Austin and Albaquerque and Tucson. And they all have 1 thing in common, which is that nobody outside of those places thinks that they're trendy.
Yeh. I last lived on the Bay Area in 2003 and that was the attitude then. It’s possible that it gentrified since, however building more units in Oakland in an era where urban populations are falling in California won’t have the consequences that Scott expects.
> Unless someone wants to claim that its failure to build housing helped turn it into a trendy tech and culture hub, I don’t think there’s much point to this comparison.
Devil's Advocate time!
Maybe trendy things are caused by people who prefer to live/work in less-dense areas.
I imagine this being more-likely to be true for tech founders than for bohemian artists. Like, this seems to explain the Bay, but not NYC.
So the Devil's Advocate comes out as "maybe surprisingly right sometimes, but probably wrong other times". Seems worth mentioning.
missing consideration: price modulates what sort of people can afford to live there, which has a huge effect on the aggregate amenity provided by density. This is why Houston doesn't become the next NYC even though people are free to build a zillion houses there at low cost. Prices need to stay relatively high while the city is expanding, to filter in-movers sufficiently to keep the city desirable.
6. Eyeballing that chart, to a first approximation a city is trendy and liberal if and only if it has housing prices >$200/sqft. Trendy and liberal is also approximately synonymous with "not prole". A city becomes trendy and liberal by having prices high enough to make its population relatively enriched with non-proles and depleted of proles. So I kind of am making the argument that NIMBY policies were a necessary but not sufficient condition to turn Austin into a trendy tech hub.
Land, demand, scarcity...what about the fact that, on the margin, it's way cheaper to build a new apartment home than a new mansion? That's the policy choice on the table. On tons of our most valuable land, it's illegal to
a) Share the price of that high land cost with others
b) Share the cost of building exterior walls with others
c) Share the cost of insulation with others
d) Share the cost of walkable amenities with others
This all offsets some of the higher land costs (i.e. the value people receive from living in a more desirable location, e.g. due to job availability). People we let live in apartments have lower transportation and utility costs than those we force to live in mansions, but that's not counted in housing costs.
Also consider the enormous subsidies we provide to residents of low-density areas: freeways, underpriced emissions, more costly infrastructure like garbage, etc.
Put it all together and I don't think your conclusion helps us devise better public policy.
Section 2 seems accurate. You ignore the counter evidence which supports the culture/amenities model proposed, e.g. Boulder Colorado and similar small, but very expensive, cities.
I think Scott's argument exemplifies a subtle yet common statistical fallacy which involves treating ensemble samples and time samples of statistical processes interchangeably. This is in general not possible unless you assume ergodicity.
Let me explain: roughly speaking, we call a statistical process "ergodic" if its mean over time converges to its ensemble mean. For example, one might sample a bag of identical coins by flipping one coin a hundred times or one-hundred coins once. If computing the time average of the first approach and the ensemble average of the second approach yields roughly the same result, say 0.5 (assigning 0 to tails and 1 to heads), one might conclude that the coin-flipping process is ergodic. However, if one finds that the ensemble yields 0.5 and the time average e.g. 1 ergodicity is broken. This might be the case, for example, because the coins are initially fair but have some hidden switch of the kind "if the first flip results in X then all future flips result in X".
Now let's look at US-cities instead of coins and sample their density and housing cost. If we sample individual cities over time, Yglesias and many commenters here tell us that at the margin housing cost decreases with density. If we sample the US-ensemble we find that housing cost increases with density. At first sight this might appear contradictory leading Scott to reject the studies lest we incur an "unparsimonious pricing function".
But this only holds if the system is ergodic. If ergodicity is broken, it is perfectly fine to have a negative density/cost relationship for individual cities, yet a positive relationship in the ensemble. Cost as a function of density over time then just looks different then cost as a function of density over the ensemble. Note that Scott's depiction of the "unparsimonious pricing function" mixes ensemble samples and time samples (for Oakland).
What might cause ergodicity breaking in this setting? I claim Scott's examples are a much better fit as candidates for "hidden switches" in a non-ergodic setting than for his theory that density increases prices. Says Scott:
"The obvious answer is “the Dutch chose to build their colonial capital on Manhattan, more and more people moved in, it became ever denser and more urban in a virtuous cycle, now it is very dense and urban, and, in the current regulatory regime, dense urban areas have higher housing prices than empty rural ones.”
If back in 1624 the Dutch had decided to build their capital on Conanicut, maybe today it would be a city of 10 million people, and Manhattan would be an empty rural area. In that case, I would expect Conanicut to have 4x the house price of Manhattan.
If I were a Native American living on Manhattan, and I was committed to keeping housing prices there low, I would ask the Dutch to build their capital on Conanicut instead."
He would *not* ask the Dutch to abstain from building houses in Manhattan but from making it their colonial capital. Manhattan becoming the site of the Dutch colonial capital flipped a hidden switch that put it on a trajectory towards higher housing prices as it became a much more attractive place to live. Likewise, further switches had to be toggled to make New York what it is today (e.g. it becoming the site of Wall Street, the Statue of Liberty, Broadway, the Central Park, the Guggenheim Museum, etc., etc.).
Finally, Scott argues that greater density puts a city "more at risk" for such hidden switches to be flipped. I will concede this, however the citizens of democratically governed cities usually have a choice to flip such switches. While you usually do not have much say over becoming a colonial capital, you can reject gifts by the French that turn your city into the epitome of the American dream. So if you are a city dweller and you want lower housing prices above all else, vote in favor of greater density and against huge woman-shaped metal statues that ask the world to give you its huddled masses - simple enough.
Tl;DR: Scott looks at ensemble data but cities are likely non-ergodic processes so this tells us little. Scott's examples are more compatible with the kind of "hidden switches" that can cause ergodicty breaking than with his thesis of density driving housing costs; if you want cheap housing vote for greater density and against nice things in your neighbourhood.
I think point 2 in your final thoughts is just the whole game. All the evidence you discussed points to this. More housing reduces prices in the short term while agglomeration and a 'trendy' reputation take time to increase demand.
I suspect it is actually quite easy to 'outrun' these effects by constantly building more housing. This is at least as plausible an explanation for Tokyo as the one you give. If you ever stop building (like NY, SF and most US cities) you get higher prices than if you hadn't built in the first place. So just don't stop.
This is entirely too many words to say "in a highly constrained and inelastic regional housing market, if only one city builds more housing it might just soak up the demand from everywhere else and not get cheaper, so it's preferable for the liberalization of the housing market to be done at the regional level". This is a reasonable point to make and you could've just stopped there.
However we have data from Auckland which says that even modest upzoning in a single city can moderate housing prices locally. Auckland is no longer the most expensive city in New Zealand and all they did was allow townhomes to be easily built. So just making the supply of housing a little more elastic can go a long way.
Your whole "Manhattan vs. some unpopulated island somewhere" is a pretty dumb thought experiment barely worth engaging with.
I see no reason to doubt the published data on the effect of building housing on local prices. If for whatever reason science isn't enough to convince you, you can also check out landlord/RE investor forums to see property owners griping about having to lower rents because of new supply in the area.
Real estate has always been valued and continues to be valued. Somewhere it becomes more expensive, somewhere cheaper, but real estate itself as an asset always remains relevant. I would like to recommend you a good real estate agency and there are realscout customer service https://www.pissedconsumer.com/company/realscout/customer-service.html of them, so that you can always easily and quickly find what you need.