It's actually not a picture of Kangbashi, but of Shanghai.
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 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?
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.
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)
Did anybody else see that graph and think "Raleigh appears to be underpriced, I should buy some real estate there?"
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.
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.
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.
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.
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.
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.
Wait, in what universe is San Jose more dense than New York?
"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.
"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.
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.
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.
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).
> "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.
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.
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.
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.
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.
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 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.)
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.
"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.
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.
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.
"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.
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 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
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".
"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.
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.
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.
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!"
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.
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.
“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.
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.
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.
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?
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.
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.
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.
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.
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
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
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.
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.
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.
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 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.
"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.
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.
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.
> 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.
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_.
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.
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.
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).
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?
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.
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.
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 argum