This is a good article, but that is an embarrassing gaffe on multiple levels. It's about as bad as unknowingly taking a picture of the Manhattan skyline with all its famous buildings and calling it Rhode Island to American readers. Guess "micro fake news" makes its away around even the best of us.
On the "Do you have a degree in Economics?" question in the poll, there's no answer for "No". Was the bare "Yes" first option (seemingly overlapping with the other two options) intended to be "No", or do you only want respondents with econ degrees?
I think the reason the argument is confusing is because density of people causes prices to go up because of increased demand, but your original writing implied dense housing causes a density of people. This isn't true -- people can (and do) stack bunk beds in an sfh too, when there isn't enough other kinds of housing. Conversely, creating a bunch of dense housing doesn't cause people to move there
I think you're right that density of housing and density of people aren't 100% correlated - but they're very strongly correlated, enough that you can generally use one as a proxy for the other, and where they diverge, one will often catch up with the other over time (like the Chinese ghost cities).
I think to the extent you can artificially restrict housing supply, maybe, but people can live in RVs, garages, attics, living rooms, and bunk beds if there isn't enough suitable housing. Palo Alto still basically forbids buildings over two floors, and you've got a lot of "hacker houses" that are 16 to a house where a bunk bed costs $2k/mo that you just aren't going to find in the middle of nowhere.
Either way, isn't that the main problem with Scott's position? If you assume that new housing induces matching demand, of course supply increases can't outstrip demand increases. The level of correlation is the key issue. The poll also just assumes the answer.
Yes, I think he conflates "density" with "housing supply". He says, for example, "The least dense US city, ie the city with the lowest housing supply".
Density of people implies some kind of desireability, as long as people have any kind of options, so to say density increases desireability is a circular argument. But that is very different from claiming building more housing increases prices.
This seems like a gentrification argument. Someone builds new units somewhere cheap (e.g., Tenderloin), people flood in to those units at higher prices, some can't get into the new units but decide on nearby old units at higher price, the restaurants and coffee shops follow, prices for even the old units rise, neighborhood changes, etc. Now do this at a city level: Denver becomes hip, in part because builders are building cool new places to live, people move there, not all of them are soaked up by new units, increasing price of old, new units come along with nice amenities that raise prices for old units that benefit, prices rise in core, driving people further away, less popular cities lose some folk so their prices decline, rinse and repeat. I still don't think the building of units alone raises prices, all things equal. And the process can unwind very quickly (see Detroit). But if Amazon moves into the neighborhood, requiring building of new units, those units are almost never sufficient to offset increased demand leading to increased prices. And the division of labor in USA is pretty clear, for purposes of network effects: NY owns money, with some entertainment thrown in; LA owns entertainment, with some etc.; SF owns tech, with some etc.; Dallas/Houston own energy, with some etc.; DC owns gov't, with some etc.; Miami/Tampa own latin america, with some etc. So there will be continuing demand for the limited seats at those tables.
I think Oakland is in a tech boom, and so hosting would crash after 10 years for reasons largely unrelated to housing policy. Maybe a more neutral city, like Buffalo or something would be better?
Calling Buffalo "neutral" is way off. The median sale price there is $180K (https://www.redfin.com/city/2832/NY/Buffalo/housing-market), which is basically at replacement cost. There's no point in building new housing there because demand for housing is so low.
I don't know if there's any city we could really call "neutral". It seems that just about every major city is either a trendy, expensive liberal city with high housing costs, a Rust Belt city with very low housing costs, or a Sun Belt city that's currently already building enough housing to keep up with demand. The experiment is really only relevant to the first category.
Oakland is not in a tech boom. The Bay Area is in a tech boom and Oakland happens to be one of the cheaper city in the Bay Area because it's full of disamenities like poverty, public housing, and crime. Nobody in the Bay Area thinks that Oakland is trendy except for people in Oakland.
I agree about the Bay Area more than Oakland being in a tech boom and due to arbitrage the prices of the Bay Area move in a general direction. However, one consequence of this change is that if prices in Oakland rise it is able to address the disamenities which means that it should prices should rise faster than the average of the Bay Area (it rises with the average and then because of windfall taxes it's difference to the average should shrink). A consequence of this is Oakland has above average investment for the Bay Area which makes it trendy.
To add some more to the idea of Chinese housing markets being weird, from what I've read, the demand is driven by extremely unique factors:
"Chinese average wage is not that different from America, just about 45K to 55K depending on region. But, in China, if you are not a homeowner and you merely rent, then you cannot use public education. And private schools in China are exceedingly rare, extremely expensive, and not very good for the most part... A lot of times, multiple homes are bought because people have multiple kids. If it’s a boy, well, he’s gonna need a house in order to get a wife. You don’t want him to be forever alone, right? So if you have three boys, for example, you’ve got to work hard, save money, and buy each of them a house... If it’s a girl, well, lately, women have been complaining about the lack of security living in a husband’s house that doesn’t have your name on it, with nowhere to go if you have a fight. A lot of women have been saying that it’s sexist to not also buy your daughter a house. So, it’s not really a holiday home or rental income, it’s more like future marital home for your children... At some point, the government tried to address the problem that university degrees are becoming less and less valuable. The way they decided to do this is to put a hard quota on middle school and high school graduation. Only 50% of middle schoolers can graduate to go to high school. Only 50% of high schoolers can graduate to go to university."
So, to raise children you desperately need to own a home; the price of a new home is beyond what most young adults can possibly afford; parents buy homes in anticipation of their children getting married, simultaneously giving them veto power over spouses they dislike.
Yeah... all of that is true and weird in a way. I'm not sure it's any more weird than an American individualistic insistence that who you marry is only ever the individual's concern, and anyone should be able to move anywhere and go to any school without any thought of whether they'll have family to help them...
Do you see what I mean? Obviously, China is weird. But the idea that people live in a single place (and so their children's school places should be in that location) isn't weird. It's normal in most of the world - the USA is a spectacularly mobile outlier. And the idea that it's worth letting your family have a say in who you marry is no more than old-fashioned. Half the Shakespeare plays are about this kind of thing!
I don't think there's much in China (certainly not in the systems that you describe here) that isn't quite easily explained by being generally poor (China's still only a middle-income country) and a bit traditionalist in its thinking.
I think parental involvement in marriages is the least weird part of what I quoted. Tying access to education to homeownership seems like it must warp home demand to an incredible degree, especially when intensified by the most severe case of grading on a curve I've ever seen.
Like, the 2017 NYC Housing and Vacancy Survey says over two thirds of NYC residents are renters. Imagine the price of owning a home there if it was also a requirement just to send your kids to school.
Yeah, it's weird, I suppose. It's not obvious how weird. If you have a desirable school in a US city, the prices and rents around that school go up, right? So you can end up with two very similar apartments with very different rents because one is just inside the school catchment area (school district? I don't know the American term) and the other just outside it. That's "weird," isn't it?
I just think, there's always going to be some administrative tool that you use to decide school places, and it's always going to throw up some weird effects.
What's actually weird about China isn't how they allocate school places, it's just that there aren't enough of them. In Shenzhen, which is our Bay Area, there is a 25% shortfall in public school places, so predictably Shenzhen is where a lot of good private schools are being built.
I still think you're falling into the trap of saying: this is how America does it, so that's normal. Like, should 2/3 of a city's residents be renters? That means that there's an awful lot of landlords there (something that China is historically a bit sensitive about!).
I think it's weird because there aren't many obvious benefits to denying renters access to public education, and what look to me like fairly obvious negative externalities. Presumably a government offers public education because it is good to have an educated populace. Cynically, we might also say it gives the government an easy way to control the societal framework its citizens develop in their formative years. In both cases, it's hard for me to identify why China would only want homeowners to partake in this.
School zones definitely have strange effects on the housing market, but I can look at them and understand the practical reason they exist. Administrating a large system often necessitates dictating how it will be divided up, especially given the travel area of school buses, and school zones are an obvious way to do that. But nominally, they exist to equalize the experience for all citizens; budgets are divided based on a given zone's population, new schools are built or old ones shut down as populations shift, and in some places, at least, you do have the freedom to attend school's outside of your zone as long as you are willing to handle the transportation. I did that during Junior High.
I expound on school zones not because I'm trying to compare China to the US, but to emphasize that when I say weird, I mean "deviating from the natural flow and one's own stated goals." America does not lack for weird policies, but in the case of school zones I think it's easy to see how they are meant to achieve the nominal goals of the education system.
Perhaps China has a very different view of education than I realize. Perhaps they are not attempting to use it as a tool to raise the quality of life for their citizenry as a whole, but as a means of locking in a caste system. Certainly, that is what I would directionally expect of a system that filters out anyone too poor to afford a home, and then doubles down by blocking 75% of their students from attending university.
On NYC renters, I am not asserting that 2/3 of residents should rent. I think that number is definitely high, and the result of many weird policies in NYC. I brought it up specifically because the influence of a policy like this on home prices seemed like it would be most stark there, given the pairing of high rental incidence with high home prices.
OK, haha. So, if you want to understand China's housing and urban policies in general, your caste system paragraph is about right. Obviously that's not the way it's phrased in the official language here! But yeah, China fears slums more than anything else. (Because they breed revolution, because that's what happened last time.) So we have this massive system, the hukou/household registration system, that ties people securely to their home place, and limits mobility.
In terms of education, that means only giving school places where someone's official residence is.
Important to note: this is not an anti-mobility policy. China is urbanising faster than any place in the world ever. The hukou policy is a way of managing the mobility, and making sure that the breakneck urbanisation process doesn't lead to political instability. And this is very much a stated goal. The leadership talk about the importance of stability every time they appear on TV, and all other goals are subordinated to this goal. The stated goal of the education policy is to educate the population as much as possible, within the necessary constraints of our stability policy.
Yeah the US really has some awesome/odd/costly norms around mobility.
Kids think nothing of doubling the cost of a degree and knocking down a year or two of lifetime earnings so they can attend university of Minnesota instead of university of Michigan (especially if it means parents are a day away between of an hour).
Couples move to cities far away from extended family and incur a year or two of lifetime earnings in additional childcare costs (something I did without thinking).
All so we don’t have to feel obligated to swing by your parents house once a week in many cases.
I don’t know, but I would guess that China has a much larger rural population, and that the figure would only be for cities. There’s lots of variables there, and I don’t know how fairly the original source set them
It can't be of course. I have trouble accepting any other claim made in that quote given how glaringly wrong that fact is or the authors not realizing hed need to explain it if it somehow was true
Most likely explanation: lots of the people the author knows makes about that much.
I have a slightly more charitable interpretation that perhaps this is urban incomes? Doesn’t seem to be true from a rudimentary search though.
And of course median urban incomes in the US are much higher than median national incomes, too, so even if it was accurate for China, it would still be apples to oranges!
In China, how do they explain variation in school performance? Americans can't decide if it's culture, discrimination, or genes, and I'm curious what explanations China has produced.
Tutoring. Every middle-income-and-above kid has lots of out-of-school classes, most of them simply devoted to re-teaching the school curriculum. This begins in first grade, and throughout primary school kids aim to score 100% on school tests. (In middle school (ages 12-15) things get significantly harder, and there's a big shakeout.)
Generally, the kids and parents who do well early on think it's because they've worked hard in their tutoring classes. If they continue to perform well in high school, it's because they are diligent. And then there's a significant luck factor in the high-stakes selection exams they take at 15 and 18.
I'm curious why you say that the Chinese average wage is not that different from America. How are you doing the RMB to USD conversion?
"In 2021, the last full year for which Beijing's National Bureau of Statistics offers data, the average Chinese worker earned 105,000 yuan a year, the equivalent of $16,153. The average American worker earned some $58,120 a year, 3.5 times his or her Chinese counterpart"
... I did come across one source that said Chinese wages were comparable to US wages. I don't have time right now to reconcile the different results I'm getting. Interesting development.
I think from context that she meant numerically. I.e. if an average wage in the USA was about $50,000 in US dollars, an average wage in China would be about RMB 50,000.
It looks like that is an artifact of the census criteria allowing multiple areas 1.5 miles apart to collect into a single urban area (but not counting the 1.5 mile gaps as part of the total "urban area").
I mean, it depends on what you consider an "artifact". Los Angeles has by far the densest suburbs of any major urban area (because they all continue the urban grid right up to the edge of the mountains or the beach), while New York has many very low-density suburbs. Los Angeles has the overall more efficient use of land converted from nature into developed area, but New York puts more people in convenient contact with large numbers of other people. ("Weighted density" gets the latter, and New York is by far first on that measure: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3119965 but Los Angeles is still fourth.)
The LA Metro is definitely denser than the SF Metro. Yet few parts of LA are as dense as, say, the new apartments in SoMa and the Mission, and certainly no part of LA is as dense as Lower Manhattan...
Someone at Streetsblog did a comparison several years back of the core of SF and LA, to show that they're actually more comparable than many people think! At that point, KTown and Westlake/MacArthur Park really were pretty comparable to the densest parts of SF (though perhaps SF has built some more density in SoMa since then?)
That's why I said "few", on that first comparison. As you note, the densest parts of LA are pretty comparable to the densest parts of SF.
The problem with LA, as MattY recently noted, is that due to the vagaries of history, the suburban part has ended up sprawling like mad. This has to do with the topography, and how the river used to flow through.
Before the auto came along, the LA metro had some quite nice streetcar suburbs. These days if it were legal to densify along streetcar lines, and they had the political will to manage transit to maximize ridership, you probably could bring back that dynamic. But the political will to do that is clearly lacking -- NIMBY forces who prioritize "neighborhood character" and free parking are stronger in LA than they are in the Bay Area. (And the obsession with parking availability is in part a rational response to their existing car dependency.)
It's definitely an artifact of what is considered part of the urban area. That definition has the urban area of NY at about 10 times the area of NYC, while for LA it's about 3 times, for example. Based on this definition:
> An urban area is defined by the Census Bureau as a contiguous set of census blocks that are "densely developed residential, commercial, and other nonresidential areas"
It seems like this is because NYC is economically connected to sprawling suburbs much further out. This likely has to do with your point on geography, along with other factors such as how long the area has been developed, the existence of trains from the further suburbs into the city, etc. If you took an area centered on NYC which only included the dense, nearby suburbs, it would have much higher density.
I think what you're observing is that these urban areas are in fact very different. To me, the census definition of "urban area" gets at the meaningful concept, while any other set of borders is much more "artifactual", like when people cut things off at the city limits, or the county lines. NYC's sprawling suburbs are a fact about how the city continues to grow, while LA's compact suburbs are a fact about how it continues to grow - these don't seem to be artifacts of some unnatural way of cutting data, but actual realities that are revealed by looking carefully for the borders of the human geography.
You used the word "city" above, but the definition of "Urban area" includes a lot of area that is not "city" by any meaningful definition. I don't know exactly how the census bureau determines which blocks are included in the same area, but I think much of what is included in the NYC urban area is only very distantly related to the city itself. They might be economically influenced by NYC, but their development patterns and those of the city itself are entirely unrelated. NYC has plenty of denser suburbs just like LA; I think the only difference is that the further-flung suburbs are grouped in for NY but not for LA.
Also, the use of census blocks means that this definition is still somewhat arbitrary.
Seems to me like this sort of thing makes "density of the urban area" a slightly odd concept to use. It's a bit circular ... "density of the area that's above a certain threshold density".
Most people think "density of the urban area" basically means how Manhattan-like the core is, and that's mostly how Scott's argument proceeds, but it seems that "how far the sprawl stretches out" is a bigger factor (which in turn seems affected by mountains and shit constraining it (or even the point at which you end up in a different urban area)).
I don't know that I'd put it as harshly as Angus did, and no offense to anyone who lives there, but there's really nothing in Vegas for me. The Raleigh-Durham area has multiple solid or even top-notch universities, ~2 hours from the beach, ~2 hours from the mountains, Lake Jordan, doesn't get cold, low cost of living, etc. It's no Chicago or New York but it's at least on par with other mid-tier cities and has a better climate than most of them. Seems undervalued.
They did. I bought my current house in the summer before the pandemic in the Raleigh inner suburbs. At the peak during during the pandemic it's value was up 50% on Zillow before declining a bit to its current level which is still up ~40%.
There is a vigorous NIMBY/YIMBY debate in Raleigh. The YIMBY's have largely been winning but with quite a bit of pushback. It will be an interesting test case going forward.
Because of the Universities and the State Government the area has lots of amenities, but there definitely has been a snowballing effect from initial tech growth leading to more tech growth due to agglomeration effects.
One thing you may have missed/did not mention is that New York City is at the mouth of the Hudson River, a tremendously important waterway that provided the best possible access to inner New England and Canada, and gave New York City a natural and extremely valuable place as a locus point of trade between inland America and the Atlantic, shipping to Europe etc.
Henry Hudson sailed up the Hudson River in 1609 and thought it was pretty swell, he made it back to the Netherlands who came back and founded New Amsterdam in 1624 to trade furs that would be shipped down to them via the Hudson. England eventually took permanent control in 1674 and renamed it New York.
Everything kind of grew from there. The Hudson river remained incredibly important, and was only magnified by the Erie Canal, until basically when the Interstate Highway System took over, by which point the ships stopped sailing as much but in a more fundamental sense had already sailed.
It isn't actually a coincidence that Manhattan is super valuable and Conanicut is not.
Yeah, it's kind of a nitpick but I did want to point this out. The Hudson is navigable up to Albany. Then in the early 1800s the US built a major canal project connecting it to the Great Lakes via the Erie Canal. Obviously New York was already a major colonial city at that point, and the feedback loop was already underway, but there are geographic reasons NYC became the USA's commercial center that aren't just linked to density.
Its not a nitpick, its a large point in favor of comments under heading #2. NYC was, at one point, such a huge trade hub that tariffs out of the port were financing >50% of the US government.
Also, here's a pretty freaking obvious thing about that Trulia chart:
All the labeled cities in the top left sector are ON THE WATER. Perhaps, water generates both desirability and commerce (duh). Perhaps also it restricts where you can put housing, because people want to be REALLY close to the water (duh #2). So you become dense because lots of the value is in being close to the water.
It's a bit of a nitpick in that the Hudson River explains why New York was more valuable real estate back in the day, but has little actual effect now. The fraction of the value of New York City real estate that comes from the navigability of the Hudson River is pretty trivial. The Hudson is a historical factor, not a present day one, just like gold in San Francisco.
Historical factors can be super important, especially in a colonial environment where you are getting lots of institutional lock in.
This is my point about North Dakota, that he still seems not to get. No conceivable amount of building or oil there is relocating the Met or the NYY, or the NYSE or whatever to Fargo. Even if you also build schools, unis etc.
No, there absolutely is *some* conceivable amount of exogenous factor that would create a cultural hub in North Dakota bigger than New York.
It's harder to replace the first city of a region than the second city, and harder to replace the second city than the third city, but second city status in the United States has changed two or three times. (Philadelphia was second city up until Chicago replaced it in 1890, which was replaced by Los Angeles in 1950 - I say "or three" because on Census data, Baltimore was second city for a few decades, but that's only because Philadelphia was split into several separate municipalities in its early decades.)
It took major advantages for Chicago to replace Philadelphia (controlling the inland water network as well as being the western railroad hub) and then for Los Angeles to replace Chicago (weather, rail, and several major industries) but it was possible.
We know that the first city can also be replaced, as places like Baghdad and Nanjing and Rome were in their regions - it just happens on a scale of centuries, rather than decades.
None of this relocates many of the old institutions - it just requires enough growth to build institutions that are more significant than those other ones. (Houston now has institutions that surpass those of Buffalo, Cleveland, Pittsburgh, and St. Louis, though it took several decades of being a top 5 city in the country to grow them - and Miami and Dallas are only just now at the point of competing with them on some of those institutions.)
> is *some* conceivable amount of exogenous factor that would create a cultural hub in North Dakota bigger than New York.
Like an alien civilization sets up their headquarters in Grafton? That is about the only thing I can imagine? maybe we build a space elevator in Moorehead (except we wouldn't, it would be on equator).
Yes the second city changes, but it changes for pretty predictable reasons to predictable places.
Sure, but those factors cannot be artificial. We can't just plop down a bunch of housing in North Dakota and expect that to become a huge city. Otherwise we would have done that in Detroit already and solved that problem.
NYC and SF exist where they do for specific reasons, even if those reasons are less important than they once were. NYC's harbor is still incredibly important for international trade and is the second biggest port in the US, despite it being far less important to NYC than it used to be when NYC was the biggest port in the world. If for some reason NYC no longer had access to water, it would severely damage the city like the auto industry leaving Detroit.
So, actually, I think there is a way, but it only proves your point more strongly: move people there and don't allow them to leave. If you forcibly transplanted enough people from New York City to this city in North Dakota, they'd rapidly re-create equivalents to the Met, the NYSE, and most other cultural artifacts. (Not the port, obviously.) Because it's not just "people" in aggregate, it's the type of people, and even the specific people.
It's still much cheaper to move things via water than over land. Maybe the gap is smaller now, but it exists. It would be interesting to argue that new cities are more likely to be inland now than 100 years ago, but if the trend were strong over the past 100 years it would be much more obvious. At the least, the trend of more inland cities relative to costal cities is weak enough that few people seem to talk about it. More likely, I'd say it's not a trend at all and proximity to shipping lanes is still important for the growth of those cities fueled by the trade of goods. Which is most of them.
Exceptions would be things like cities based on educational opportunities or extraction towns. Phoenix, AZ tried to make itself a tech hub during the dot com boom, with moderate success. Arizona also seemed to be competing for retirees, back then.
America's current population distribution is an artifact of inefficient transportation and slow travel, and it's slowly transitioning to a new equilibrium. (This is deliberately provocative and biased framing, which assumes as "normal" a pattern which we are only moving towards.)
Ultimately, the interior of the continent is for resource extraction (including such things as farming and the use of cheap hydro-electrical power to work aluminium). Ports at natural harbors and large rivers allow inhabitants to siphon off some of the value of the trade flowing through. Everyone else, including tech workers, might as well live in one giant city, or in the middle of nowhere or in small towns if they can work remotely and choose to. Legacy cultural and industrial centers may hold out for a time, but will eventually succumb to gravity, because resisting requires a constant use of energy. (See also, how so many native languages of the world are dying out, and how American Standard English is effortlessly gaining ground. Resisting this takes active effort; going with the flow takes none.)
Some jobs, such as resource extraction or creative work, essentially generate wealth ex nihilo. Everything else, from government to schools to restaurants to retail to hairdressers to movie theaters, all of that siphons money out of wealth generation. (This is not meant to be pejorative, merely descriptive.) Wealth flows, like current (i.e. currency) from one person to the next to the next. But each time it flows through a corporation with a non-local HQ, some of it is siphoned away to the location of the HQ. And eventually, to the location of the owners of capital, and while they may invest some of that on a global level, their circles of concern tend to center on their own location, and the governments of their own location siphon off their share.
Overall, resources and money flow downhill like rivers, seeking the ocean. A little mining town in West Virginia may have one source of generated wealth, and if that source dries up or goes away, the town will slowly shrivel and die. Every time anyone spends money at a chain store or online, wealth leaves and does not return. Yes, yes, equal exchange of value, but even putting aside taxes and profit, something has left that will not return. Draw a line around the town and monitor cash in and cash out, and it will show a steady flow outward. The death knell is when they resort to tourism, an explicit attempt to create artistic value inside the line that will draw in wealth from outside.
Yes, this is critically important, Manhattan has unique natural virtues among all East Coast cities, and then on top of that it has an *extremely* unique man-made virtue, but that man-made virtue is a fantastically valuable piece of transportation infrastructure (the Erie Canal) *not* all of the houses.
It's pretty awful and getting worse and worse as track capacity is already maxed out at 33rd street and people keep building new housing in Jersey. The earlier and more expensive buildings closer to the river are now losing out because PATH trains are 100% full before they even get to their stop
Depends where in Queens (and where you're going, though that wouldn't hit prices). It's better than some of the further out parts but not nearly as good as LIC (also, I think path is lower frequency? Don't they run like 10-20 minute headways max?)
Yeah the whole "why manhattan and not Conanicut" is so dumb. At least have it be why Manhattan and not Providence. Manhattan was already a very populated area before the dutch arrived because it has so many natural resources and advantages such as the Hudson river.
Conanicut is similar to Manhattan only in that it's an easy coast island. But thats not why Manhattan was so advantageous.
So, this comment is almost entirely off-point, but . . .
The real advantage of Manhattan over Conanicut isn't that the Dutch picked it, but the geography of North America. If the Dutch had settled Conanicut instead of Manhattan, it is still the fact that geography meant Manhattan could be the Atlantic port of first upstate New York and later (thanks to the Erie Canal) the entire Great Lakes region, and Conanicut couldn't.
Now, after the completion of the St. Lawrence Seaway, that advantage went away, and the advantage of Manhattan over Conanicut now is all the capital (physical, social, institutional, human, etc.) it accumulated from the era when it was the Atlantic port of the whole Great Lakes region.
Well, it's less than on-point because there are other examples that Scott could have used that wouldn't have had a geographic explanation rather than underlying human decision story. If the capital of Texas had been sited at, say, Brenham, then the University of Texas would have been sited there instead, and it would have been a lot more likely to become a tech center than Austin. Similarly, it seems pretty obvious that if the US capital had been sited on the Chowan River rather than the Potomac, Winton, NC would be rather more likely to have a Four Seasons and a Ritz-Carlton than Georgetown in what would have been Maryland.
Not a coincidence that San Fransisco is also on an important bay/harbour. Or Seattle. Or Los Angeles.
It's also not a coincidence that Bismarck ND, a million miles from any shipping possibilities, is not big, rich, and dense.
You look at almost every major/important city in the world, it will be on a major trading hub, and almost all of those are water-based. London, Paris, New York, Los Angeles, San Fransisco, Shanghai, Tokyo, Hong Kong, Toronto, Montreal, Vancouver (because I'm Canadian), St. Petersburg (an interesting study as an artificial city - would it have been so successful inland? Probably not), Amsterdam, Rotterdam, Rome, and on and on. It's not literally every single huge, desirable city, but damn if it isn't nearly all of them.
Even something like Washington DC makes a good example. The demand in DC is completely due to the US government being situated there. It's a swamp along the MD/VA border, and even as late as 1900 or so there wasn't much happening there. The huge growth of the US bureaucracy in the 20th century along with the accompanying surge of lobbyists, military contractors, and other government-associated positions has caused DC to become very dense along with most of northern Virginia and southern Maryland, but it's all a response to the giant pool of money, jobs, and influence circling around the Potomac.
That's definitely right for cities that grew up in the 19th century. But if you look at the cities that got big in the 20th century, water is no longer as important a factor - Las Vegas, Phoenix, Dallas. Of course, Phoenix and Dallas were well-sited to become major *air* hubs, and have great interstate highway access.
I was thinking the same thing. Besides Manhattan's fortuitous location, it also massively benefited from being the site of the Fed. In some alternate history, the Hamilton doesn't have the Fed put into NYC and instead the financial capital of the world ends up being in Philadelphia (or wherever the Federal Reserve Bank ends up).
Hamilton put the (first) Bank of the United States in Philadelphia, not New York. The second Bank of the United States (chartered by Madison, killed by Andrew Jackson) was also in Philadelphia.
The Federal Reserve system was set up in 1913, and New York City was already the center of the US financial industry when that happened, which is why the NYC Fed was the most important (by far) of the twelve banks of the system (Boston, NYC, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco).
This was extremely frustrating the first time and it remains extremely frustrating. Density does not cause high house prices. The relevant mechanisms -- shifts of demand along supply (reverse causation story), shifts of supply along demand (most relevant mechanism in reality), and induced shifts of demand -- can all be seen on a simple supply and demand diagram, and explained by a first year undergrad. Because the general public doesn't believe it, several studies in recent years using state of the art quasi-experimental methods have verified it.
The question has been answered, and it is irresponsible to suggest otherwise. Yes I am being harsh, ordinarily Scott has good and smart takes. But this is on the level of vaccine skepticism, and should be treated as such.
Regarding the fact that the general public doesn't believe it, there's a working paper called "Folk Economics and the Persistence of Political Opposition to New Housing" (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4266459) that uses
survey to find that many people believe the laws of economics don't apply to housing, even when they're otherwise economically literate. This seems like a rationalized version of this.
Housing is absolutely a special case in economics because of the monopolistic nature of private real property. Does that mean that more supply, in a vaccuum, won't bring down prices? No. But it does mean that "just get more supply" is not as simple as it sounds, because to get enough supply to bring costs down, you need property owners to supply it at a rate which would destroy the value of their asset, which they will not do, because why would they. Unlike a monopoly on widgets, or sugar, or anything else, I can't just find some investors and open up a new "housing factory" and make new land with houses on it without the consent of the current monopolists, who are strongly incentivized not to let me.
But that's not really a special economic case, but a special political one. The problem that's highlighted in that paper isn't what you're describing, but people that actually do believe that increasing supply increases prices for everyone else.
But you're right that local government can effectively work as cartels on housing, and that forming a cartel in most other industries doesn't work.
I don't think you can really extricate the politics of private property (which are uh, let's say pretty well entrenched, you generally have to kill a lot of people to change that consensus) from the economics of housing, but yeah.
But that aside, there are still (at least theoretical) cases where increasing supply increases prices of at least some things.
Imagine a city of all single-family homes. And imagine that demand for housing far outstrips supply (for whatever reason). A single-family home costs $X, because that's the most people can afford to pay for one unit of housing. If we now start allowing four-plexes, the price of a unit in a four-plex will tend to $X, because it's still providing roughly one unit of housing. The price of single family homes will now tend to something closer to $4X, since each single-family home can now supply four units of housing (if you knock it down and build a four-plex).
What that looks like to people who strongly desire to live in a SFH and not a four-plex is that building more housing increased prices. It did not increase prices of housing per se, as you can still get "one unit" of housing for about $X, but our hypothetical SFH-preferring homebuyer now cannot afford a SFH they could previously afford.
I think intuitively, people understand that we are in a high-demand regime with fairly constrained supply, and that something sort of like this scenario exists (or could, in their mind, exist). But I could be wrong.
Now, of course, people who own SFHs *should* be delighted by this outcome, as it means the value of their asset has gone way up, but that's a topic for another thought experiment, and I think demonstrates some of the persistent doublethink around housing, where perversely people simultaneously believe that low and high housing prices are both simultaneously desirable, and think that housing prices should both go up and down.
But that's all I'll say without reading the paper (and probably more than I should say lol), it looks quite interesting.
Your example is wrong, though. What changed the price of housing is the zoning change, not the existence of the four-plexes. And it only makes the land more valuable, not the house itself. No one who plans on living in one of those houses would pay more than $X for it even after the zoning change - only speculators and developers would.
Thinking about the actual quantity shift, replacing some of the single-family homes with four-plexes will start to tap out the number of people who want to live in that area, which will drive down prices - there may be a lot of pent-up demand, but it's not inexhaustible. Also, living in a four-plex is much less desirable than in a SFH, so prices for four-plexes will be lower - the simplifying assumption of "people will pay $X for any unit of housing" is a step too far.
But your story is a good example of what the paper was illustrating - people consistently observe new housing popping up in places where prices are going up, or where land values just popped up because of a zoning change, and they assume that those new houses are causing the price increase, rather than the other way around. Mixing up cause and effect, and then thinking stopping the effect will stop the cause, is a serious problem with the housing market.
> What changed the price of housing is the zoning change, not the existence of the four-plexes.
You say tomato, I say tomato. In a real sense, the four-plexes are causing the price rise. If nobody wanted to build them, it would be irrelevant what the zoning was. Maybe the zoning was always for fourplexes, but demand has recently increased making it suddenly make sense to build them. It's not really relevant to the broader point which is more about perception.
> No one who plans on living in one of those houses would pay more than $X for it even after the zoning change - only speculators and developers would.
And because speculators and developers would pay more, nobody will sell their SFH for less than ~$4X, so nobody is able to get a SFH for $X anyway, and in the example, they can't afford more than $X anyway.
> there may be a lot of pent-up demand, but it's not inexhaustible
For major urban areas, I think it effectively is, at least compared to the rate at which housing can be built. Toronto has seen rents going up YoY by 10, 20, 30% over the last two or three decades, and every tower crane in the city is continuously occupied building housing. Between internal and external migration, the demand for new housing in cities can I think reasonably be considered inexhaustible collated to the ability to deliver new housing.
> Mixing up cause and effect, and then thinking stopping the effect will stop the cause, is a serious problem with the housing market.
I mean, if you're saying the zoning change caused the price change, and people try to stop new housing by stopping zoning changes, then they're behaving rationally in your view, no?
To be clear, I think that nothing is gained by preventing new housing and that we should build literally as much as we are able to until the price signals tell us we have more than enough. The point I'm trying to make here is that people are wrong in a more subtle way than it seems on the surface.
Reminds me of the “look at all the economic development driven by amenity X” stories, which while sometime are true, often are a case of the amenity being specifically put in an area of already rapid economic development.
Some of this is attributable to gentrification. Frequently, some developer builds something great in a marginal place, which makes that place hipper, more attractive, etc., which then does drive up rents for even the old, less desirable units. Cf. New York's lower east side, which used to be where deadbeat artists and other lived because cheap, then some developers put in some trend, the coffee shops and restaurants followed, prices increased even for the "bad" old units. So maybe Scott's theory is basically gentrification on a broader, non-neighborhood focused, city-"wide" level.
Yes! It is absolutely gentrification. Density is an insufficient criterion.
Take a neighborhood, knock down a bunch of stuff, put in 5-over-1s, and move all the original occupants and businesses back, all in one magic Thanos snap. The people and businesses are the same, character has been lost, but infrastructure is newer, so it's already more valuable.
If those 5-over-1s are upscale, then rich or cool people move in and the place takes off. Hip arty stuff slides into the cheap niches. New service business show up, catering to wealthier people. New companies are founded, existing companies open branches there. Housing prices go up, as do property values.
Alternatively, if every single one of those 5-over-1s are halfway houses for homeless people and recovering drug addicts, the neighborhood goes to hell. People move out, businesses flee, and we've recreated everything that made "housing project" a bad word. Plus nothing gets better in the long term for the residents of those halfway houses. (Side note: this is why it's bad to concentrate things like halfway houses in particular locations. They need to be spread out very loosely across healthy neighborhoods. It's a question of which will be the locally dominant culture.)
I think this is the answer to why the effect is unusual and restricted to certain locations. If you build 10m units in Oakland, people who want to be near SFC will move there. If you build 10m units in Fargo, ND, then ... people who want to be near Fargo, ND ... will move there... ? Back to Oakland, people who want to be near SFC will move there, maybe from other countries or states or regions, but maybe from other satellites of SFC that are farther away (or are closer but too expensive for the person). So prices in Oakland and even SFC won't necessarily go down, and maybe even go up. It's the prices in satellites of SFC that are **less convenient than Oakland** that will go down.
Well, everything is a special case for one reason or another. Your point about how there is a tension between the incentives of property owners and the interests of society is spot on, but that presupposes that people correctly understand the market, and it turns out that frequently they do not.
Whether we are considering owners who understand and vote their interest, or renters who vote their perceived (incorrect) interest, the end result is that allowing housing policy to be formed on a local level will result in an under-supply of housing. Housing policy needs to be formed at a higher level, by representatives who understand the market and not compromised by the interests of their constituents. There have been encouraging steps towards that in recent years.
Although increasing the density of housing reduces the price per housing unit, it increases the price per acre (since each acre has more units), so I'm not sure there's an economic reason for landowners to object. I think in practice the objections are to the disamenity of the development itself (noise, views, traffic etc).
The core yimby argument is you can if you dont give the neighbors a veto. The land owner doesnt devalue his portfolio if he stacks more floors on his existing housing (because he gets the new floors too), he devalues his neighbors'. The neighbors veto is political not economic
The landowner DOES devalue his portfolio if too much housing is released to the market too fast, leading to a decline in prices. It has nothing to do with the neighbours.
And more floors doesn't devalue the neighbours, because presumably it has now been proved that they could also add more floors, so their land is now more valuable. But that's besides the point.
They aren’t really “monopolists” if there are thousands of them.
Yea anyone has a monopoly on any individual piece of land, but you are almost never looking for housing on one specific piece of land. Plus in terms of apartment buildings you absolutely can “crank out more widgets” in housing.
They're monopolists in the sense that there is literally no way to get land without first buying land. Landowners as a class have a complete monopoly on the land market in a way that is not true for e.g. sugar or coal. If I want to compete with Redpath, I can buy sugar cane and open a sugar factory. I never have to deal with any existing sugar producer. If I want to compete on housing, I have to buy land from a landowner.
That is just a bizarre way to use the word "monopoly". This seems like an understanding of the situation that starts with "I don't like landowners and want to use a bad word to describe the situation", and then you fish around for a way to stretch normal words so you can use a pejorative one to describe landowners.
Sure. But seeing as I asked you last time to give a better explanation, and literally the best thing you can come up with is repeating "first year undergrad supply and demand diagram" like a mantra, you can see why the rest of us aren't convinced.
Thanks, and thanks for subscribing! I like all of those papers, but I think they're more showing localized supply effects from new units, rather than measuring the citywide impact of densification.
Whereas Ahlfeld & Piestrostefani's meta-analysis shows that densification boosts welfare (& wages), but with an accompanying impact of raising rent.
Yes I am being harsh, as we should be harsh on people who claim that vaccines cause autism or that the earth is flat. True, it's maybe not the most effective way of winning hearts and minds. But we are supposedly in a "rationalist" space, where brains matter, not hearts and minds. So yes, I am skipping to the facts: this is an answered question, with logic that can be explained with a simple model, and supported by empirical evidence. That doesn't mean that a whole field can't be wrong, or that there is no value to questioning received wisdom, but the argument employed falls well short of the standard that Scott set in his ivermectin post.
Your three articles you describe as related all consider rents within less than half a mile. The density-increasing effects Scott describes all operate at the scale of cities. I would expect literal overshadowing effects from an additional high-rise within 100m (the third paper), causing a drop in prices, but a larger-scale increase in price from city-ness.
The Asquith et al paper rules this out, see Figure A.8 on page 47. Post-treatment, the effect decays with distance to approximately zero at a 600m distance. The idea that it would suddenly depart from zero at a greater distance seems kind of fantastical to me. As does the idea that the effect is so non-linear as to flip from negative to positive at extremely large values. Finally, it is worth breaking down the chain of reasoning: you are saying that a new building here increases amenities here (restaurants, etc) so much that it increases prices at distances measured in kilometers? I don't think so.
I’m absolutely saying it’s nonlinear in space. That building raises the value of the offices where those people work, the shopping centres they visit, and so on. Each of those effects is small, and they are spread all over the city in a very nonlinear way which would make individual building-level statistics impossible. But aggregated over 100,000 units, they would add up, as they did in most of the examples in the main post.
I ve read the first two papers and they are far from convincing. First of all, they are cherry picking the data. Secondly, they are only looking at the very very local level and that's not what we are talking about here. Building one isolated apartment building would not increase "the cultural value" of the area. We don't need a study to understand that.
They are not cherry-picking the data, they are choosing comparisons that are most likely to represent the true treatment effect, and they are doing so in a way that is considered publishable by a good (Li) and very good (Asquith et al) journal.
Second, I agree that one apartment building would not increase the cultural value of a neighborhood to the extent that prices rise more from an amenity effect than they decrease from a pure supply effect. This was my prior before I even saw these studies, because the contrary implies an amenity effect that is infeasibly large. But people keep saying things like "density increases house prices" and these economists saw an opportunity. And now, when people say things like "density increases house prices" on the internet, we have more reason to declare these things bad and wrong.
Finally, if you still want to argue that "density increases house prices" on the basis of some non-local effect, this is still wrong. See my reply to Gres, discussing specific evidence against this in the Asquith et al paper. Now, you are arguing that a single apartment building, which "we don't need a study" to understand that it "would not increase the cultural value of the area" somehow has some orders-of-magnitude larger effect at distances measured in kilometres? Totally infeasible.
Why only look at low income areas and only look at an isolated building construction. And at a very short time period at that. To me it looks like cherry picking the data to fit the answer.
As for the "cultural value". It would make sense that the perceived value is not a continuous function of density. There is always noise in real life. And lag. And breakpoints.
I am only arguing that the papers you have linked are cherry picking the data and are too narrow in scope to give a definitive answer to the broader question. We have plenty of empiric evidence to tell us that higher density cities are more attractive, which leads to higher prices. To combat that empiric evidence we would need really really good broad studies. Otherwise it is just not enough.
I'm finding this take by him frustrating because his claim is that marginal additions in supply will make cities marginally more expensive, which is just...completely at odds with the studies done on this subject! The explanation only works if you believe that every additional unit of housing you build will lead to >1 additional unit of demand (or alternatively, an additional unit of demand that is wealthier and can pay higher prices, thus raising prices for all). But that doesn't seem right, because we know that there are frictions to moving. Even if 20,000 additional spaces open up in NYC, that doesn't mean that 20,000 new people are going to move there.
It makes sense if you consider pent up demand. If you build more expensive housing, you can increase the average cost of housing without meeting the demand for housing. Imagine that there are 100,000 people who would like to move to NYC at a certain high cost. Building 20,000 units will not come close to meeting that demand, so even if there are some vacancies, prices can go up with more housing.
I think Scott takes this thought way too far and with implications beyond reasonable, but there is some truth to the idea that building a few houses (relative to demand) may not solve the problem or even make it worse. You need to build a meaningfully large number of housing units.
i don't think that is true, though. What's stopping those people from moving to NYC already? If they want to move at the high price that already exists, then they'll do that. If they won't, it's because the price is too high for them. And the empirical research shows that marginal supply does marginally lower prices! No, it's not enough of course. But there's been multiple good papers on this by now.
There could be lots of reasons that someone who wants to live in NYC and has money to do so will not do it yet. Maybe they're looking for a particular location or need particular amounts of space or other amenities. Maybe they're willing to spend X for a certain place by only a smaller amount for what's actually available right now. If someone built what this person was looking for, they would move in and pay what they are willing to pay.
Building the 20,000 units might not meet the demand, but that is a very different thing from arguing that building them would cause the prices to go up.
Imagine this from the perspective of your 100,000 people, who want to move to New York. How does it make sense to believe that their economic ability to move to NYC would get worse if the city built 20,000 more units?
I think it's more likely that prices would just not go down, or the amount they would go down would be offset by the pressure on the price going up. Gentrification is the one word answer. As higher income individuals move in (remember, this 20,000 is higher end apartments), that raises the average price to live in a neighborhood. The more demand exists for such things, the most that new buildings will be higher end dominates. There may be a million people who would live in a nice cheap apartment in NYC, but only 100,000 who would live in an expensive place. If we're only building 20,000 then it's almost certainly going to be mostly or all high end stuff. That should offset costs in cheaper apartments, but that action cannot happen if even cheaper places are being taken by the rest of that 100,000 that still wants to live there and can afford more. That still pushes costs up.
As long as there is pent up actual demand (meaning, more people still want to live there but can't find the right place or the right price), we shouldn't expect prices to go down much, if at all. If all 100,000 were actively trying to live in the city and willing to pay a certain high price, we may not see a reduction in prices until that whole glut of people find housing and the only people looking are less interested or cannot afford as much. Then new housing will have to reduce prices in order to attract tenants. As long as there is a steady stream of tenants, there's no incentive to drop rents.
Of course, real life is more complicated and there are lots of people who have varying levels of interest and varying levels of ability to pay. Also, apartments themselves have different costs and different desirability. Someone might be willing to live in a one room apartment in a certain neighborhood but would want something much larger for that money a few blocks away.
The error is in assuming that higher-income people only move into a neighborhood if you knock down cruddy houses and replace them with trendy apartments.
In fact, absent those trendy apartments, higher-income people will still move into that neighborhood, they'll buy the cruddy houses and then they'll renovate them.
The problem with this is to consider the alternative. Atherton has allowed very little new construction and housing prices have not stayed low. There are current regulatory reasons that new housing is expensive but if a city like SF or NYC were to build a large new SRO without consideration of environmental/planning review we should expect that prices would go down. Unfortunately the cost to build new units in California is typically around ~1 million which limits the ability to lower prices through new construction.
For me the biggest sin of this post and the original is that it almost refuses to engage with the plethora of existing research on this very topic. Scott wants to work from first principles and make other people reject his intuition, but rejects research that could inform him.
He shows his lack of knowledge on housing and population growth in the US when he says Las Vegas, Phoenix, Raleigh, Atlanta are "mostly unfashionable red state Sun Belt cities". For one they are all much more liberal than the states they reside in and are extremely popular places to live!
Damn dude, that's really insightful. It seems like a pretty common failure mode for intellectuals with large followings too -- people get good at one field and they assume that it transfers. Goes to show that even intellectuals need to "get in on the ground floor" and learn the basic models before proceeding to reasoning.
Yeah. I am guilty of it too (though am not an intellectual), so not trying to shame Scott. He tends to avoid this with most of his writing so I am surprised neither of these posts engages with the research except to dismiss it. Someone else in the comments posted a paper looking at how the average american has an intuition about housing markets that goes against what the empirical research shows. Usually we (I) think of scott as "not average", so its interesting to see him be "normal" in this way.
Also! Housing policy is a hobby of mine so I totally recognize that my knowledge of the subject is way deeper than the average person's knowledge. It could be that I am expecting too much from Scott if he isn't interested in housing policy until these posts (though this doesn't forgive this follow up post which dismissed empirical evidence or input from experts/researchers)
A useful intuition pump is to imagine the opposite situation: what would happen to housing prices if the marginal unit of housing in Manhattan were destroyed? Do you believe prices would fall as Manhattan somehow becomes a less desirable place to live? Or would prices rise as demand increases for the remaining units? It's hard for me to imagine the former.
Of course if let's say 90% of the housing stock were obliterated in a natural disaster or something, that could represent a scenario where the second order effects of desirability overwhelm simple supply and demand.
You know this has happened, right? New Orleans! What happened there? Post-Katrina, did NO housing become a lot more valuable because it was more scarce?
Katrina may not have destroyed 90% of the housing stock, but it was a significant enough disaster that I think the second order effects dominated as mentioned above. Also, Katrina created not just a supply shock but a demand shock as people were temporarily displaced and decided not to come back.
NO became a less desirable place to live because its vulnerability to hurricanes was made plain. Businesses which lost months of productivity decided they didn't want to go through that again and moved to cities located on higher ground. This corresponds to his second paragraph: "Of course if let's say 90% of the housing stock were obliterated in a natural disaster or something, that could represent a scenario where the second order effects of desirability overwhelm simple supply and demand."
Let's compare what happened after Sandy in NYC in 2012 vs Katrina in NO in 2005. The following data is per ChatGPT:
Katrina
"The exact number of homes damaged by Hurricane Katrina in New Orleans is difficult to determine, but it is estimated that the storm damaged or destroyed approximately 80% of the city's homes, which is around 134,000 residential units."
"According to data from the New Orleans Metropolitan Association of Realtors, the average home sale price in the New Orleans area was:
In 2004 (year before Hurricane Katrina): $198,532
In 2005 (year of Hurricane Katrina): $195,628
In 2006 (year after Hurricane Katrina): $198,785"
Sandy
"According to reports, Hurricane Sandy caused damage to over 300,000 housing units in New York City, with an estimated cost of $19 billion in damages. "
"According to data from the New York City Department of Finance, the average residential property sale price in NYC was:
Of course, there are natural experiments where industry collapses without affecting the physical housing stock. That's pretty clear evidence business is an intermediate step in density->demand->price.
There are examples where slums are demolished and new housing built on the land. If the slums are replaced with a larger number of units, the price per unit will generally be lower right? But if the slums are demolished and just a few homes are built on top of that land they’d be expensive places.
But I feel like this is different than what the post is discussing in some way
The slums getting demolished probably have negative value before demolition. They're also probably in bad neighborhoods, so nothing that gets built will have much value anyway. It's not worth building a bunch of new stuff in a rough part of town.
I was about to make the same point. Removing the slums and building more units on the same land could greatly increase the rents if people who were unwilling to live there before and now willing to live there.
I think instead of destroyed one might want to consider what would happen if they were simply bought and left vacant – say by some billionaire as an investment.
If good housing is replaced by bad housing (high crime area, slums, etc) then it could result in the place being less desirable which will lower demand. Reverse gentrification, if you will.
I don't find it hard to imagine. Having less people in a small place is less efficient overall (plus less desirable to the people that value density the most); seeing it this way the second order effect don't seem so second order but inevitable, even if delayed. (It also makes it look like an obviously bad thing even if prices go down).
This whole discussion, and every viewpoint described here, seems extremely dumb. Yes, the price of housing in a city is largely determined by the supply and demand for its housing. But the demand for housing is a function of how desirable the city and its housing is, which is a function of its weather, public transit, crime, economic opportunities, restaurants, arts, parks, proximity to other desirable places, demographic makeup and racial tensions, and a thousand other constantly changing things, which are constantly affecting each other.
Yes, all else being equal, adding more housing will reduce the price of housing.
But sometimes in the long-term, adding housing to a city or neighborhood will make housing cheaper, causing starving artists to move in, who make cool art and make the place more desirable for yuppies, who will then move in and drive those prices back up, much higher than they were originally.
Maybe the increased housing allows city government to build a good public transit system, making a place more desirable, causing prices to go even higher. Or maybe the increased housing is built on the public park where everyone loved spending time, making the neighborhood worse so prices go down. You can't model all this as a simple function of 1 or 2 variables.
Or for a more concrete example, Detroit couldn't have become the center of domestic auto manufacturing in the US without plenty of housing for workers, which circularly made workers' homes more valuable. Except then white flight and a collapsing industrial base caused everyone to move away, so houses fell into disrepair, and absolutely no one wanted to live there until housing prices were near zero.
Everyone arguing about this is trying to reduce something as complicated as where people want to live to 2 or 3 dimensional models. Of course this doesn't work! Everything effects everything, in circular, interdependent, unpredictable ways. You can't fit this all into a silly Econ 101 graph.
That said, we know that the US as a whole doesn't have enough housing for everyone. And we know that on average building more housing will reduce its price, even if we can't predict exactly what prices will do everywhere just by looking at two variables (no one can do that, and no one ever will, barring some dystopian dictatorship barring freedom of movement). To me, these seem like extremely strong reasons to build more housing.
I guess I don't understand what on earth everyone is arguing about.
The tricky thing about building more housing is that the people who own the land you need to build the housing on don't want to build more housing on it at such a rate as would cause prices to come down, because that would destroy the value of their asset. The housing market, barring external shocks like you mentioned in Detroit, has a built-in rate limit on new housing which ensures prices only go up.
The only way to get enough new housing to bring prices down is government and/or community not-for-profit development, such as co-ops, land trusts, social housing, and so on. The market literally cannot and will not do this.
Don't really follow. The people who own the land have a lot of reason to build enough housing that the price goes down. If I own a single family plot and can upzone that to a five story garden apartment, the land will easily be worth 5x and I'll make a huge profit. Even if everyone does it and I only make 4x, that's still a great deal.
When you say "even if everyone does it and I only make 4x" - you're talking about someone happily destroying 20% of the value of an asset they own. Why on earth would they do that if they didn't have to?
In any case, this is visible empirically, you don't have to take my word for it. As interest rates went up recently, asset values naturally declined. Developers immediately slowed the rate of development in response to the price decline, as they would be throwing money away by building now instead of waiting for the asset prices to go back up again.
You would have to posit a really, really good explanation as to why they wouldn't respond the same way to a price decline caused by too much development.
Totally agree, with first part. Not really clear on the second at all.
Most people are housed and the US tends to have pretty low numbers of people per unit and high amount of sqft of housing per person on average. So not sure it is clear that the US has too little housing.
People would like more, and wish it was cheaper, but that is true of most goods.
Huge numbers of people will pay to live in an apartment rather than live with family etc.
Um, as a point of correction, I think the US may indeed have enough housing for everyone? It's just not in places where people actually want to live (Detroit, for example). And even if we're talking new construction, what's wrong with going out 60 miles from an urban center along an interstate highway, and putting up some housing there? (Not a rhetorical question: the things that are wrong with that are important to talk about.)
It's not about housing, it's about where people want to live, and thus in turn about who those people are and what their position is in the economy.
I see the question as being: in universe 1, a city builds more housing than in universe 2. How do we expect their house prices to look like in their futures compared to each other? So iiuc it's not about all else being equal
> You can't model all this as a simple function of 1 or 2 variables.
Does this mean you wouldn't have any strong expectations of housing prices in universe 1 being higher or lower than universe 2?
> Everyone arguing about this is trying to reduce something as complicated as where people want to live to 2 or 3 dimensional models.
Take the claim if chicken prices drop by 5%, more people will each chicken. Does that reduce something as complicated as where people want to eat to one variable? It's a claim about the aggregate, even if such differences in price are a small factor in everyone's decision about what to eat.
As I see it (obviously simplifying) if there's 10% more housing, 10% more people will live in the area (prices will be as low as necessary to have the places occupied); and all of the other complicated variables you mention are very affected by 10% more people living in the area. It's a reasonable question to ask: do we expect these effects to increase demand for housing sufficiently that more than 10% of extra people are willing to pay the original prices, so prices will increase, or not?
Sure, it's not a deterministic question, and whatever effect it may have might be offset by other new policies one may or may not take, but it's not crazy to think it's a relevant variable given the correlations shown in the graphs shown in the post.
> Does this mean you wouldn't have any strong expectations of housing prices in universe 1 being higher or lower than universe 2?
In the short run, sure. In the long run, who the hell knows? Maybe one of the scenarios I gave in my initial comment would drive up housing prices as a result of the additional housing supply. I'd have a weak expectation that housing prices would be lower in universe 1 than universe 2, but I think that predicting future demand for housing is sufficiently hard that this isn't actually that useful in practice.
> Take the claim if chicken prices drop by 5%, more people will each chicken. Does that reduce something as complicated as where people want to eat to one variable? It's a claim about the aggregate, even if such differences in price are a small factor in everyone's decision about what to eat.
I don't think this is a good comparison. Where people want to live is a much more dynamic and complex preference than a preference for chicken.
But even so, we have tons of historical examples where increased food prices led to increased consumption! Take the history of lobster, or caviar. My point is not that supply and demand are irrelevant, just that they are less useful as long-term predictive tools than economists and ACX commenters seem to think.
I think we should be building more housing in desirable cities to enable more people to have access to good jobs, and create all the other wonderful benefits of density. This will hopefully lower prices too, especially if it occurs in lots of desirable cities at once instead of just one or two. But even if not... then more people will be able to live in the cities they want to live and work in. Isn't that a good thing? Is it so important that we be able to predict future housing prices in 20 years?
I think it's getting more than you gave it credit for. If founding Google won the Bay Area 1,000,000 residents, these residents do not have a uniform distribution of occupations. A large fraction of them will be techies (though maybe not 1/2 as in your mining town example because googlers have substantially higher average salaries than most of the people who provide services to them). Thus, this will give the Bay Area substantially more than a 1/300-fraction of the American techie population, making it somewhat more likely to found the next big tech company. And I guess once you have enough techies in one place you start to see second order networking effects and the development of a startup culture that make it even more likely.
Beyond just the density of humanity, there is also the accumulated invested physical capital in an area which any new resident can quickly take advantage of. If you built a bunch of empty skyscrapers in Nebraska, sure there is now housing there, but any new Nebraskan would miss out on the (admittedly crumbling) public infrastructure such as roads, tunnels, the subway system, public parks, sewage system etc. that New Yorkers can enjoy.
While the total cost of these goes up absolutely with new residents, to my understanding the cost per capita goes down; larger sewage plants can be more efficient, subway capacity doesn't need to hold the whole city at once, most people don't spend all of their time in a park etc.
One factor which I think is consistently forgotten in the talk of "adding supply" is that housing is not consumed in a linear way. For example, it's possible to consume 2,000 sq ft of housing in exactly the same way as 1,000 sq ft of housing. This makes it diifferent from most other goods - e.g. to consume twice as much coffee, you'd have to drink twice as much coffee.
(There's a price question: you could drink better quality coffee that costs twice as much, and from an economist's perspective, you'd be consuming twice as much coffee again. But just improving the quality of coffee doesn't (necessarily) use up the scarce resource that defines the good. Space is the scarce resource that defines the good of housing, there's still an important difference.)
Similarly, talk of adding supply assumes that added supply is of the same quality as existing supply. But housing is a long-term asset, and new builds tend to be higher quality and higher priced.
I don't think you're quite right about housing consumption and space. Yes, it's possible for the same family to live in a 2000 sq. ft. house as a 1000 sq. ft. house, but former family with more space has a higher standard of living. There's a reason why cateris paribus people want bigger houses, but only put up with smaller ones when price is an issue. That's why you see a lot more roommates and fewer families in places with higher housing costs.
And the real limiting resource that gets used up is land, not housing space. But land can be used differently depending on zoning, including height limits, setbacks, etc.
You're right about new supply being higher quality than old supply, though.
> new builds tend to be higher quality and higher priced
That is not necessarily true. For instance, in Toronto, new builds are almost universally smaller, with worse floor plans, lower build quality, and are in worse/less walkable neighbourhoods with worse services than existing housing.
Perversely, they also command higher prices for reasons which defy explanation. I guess people really like fresh paint.
But space isn't a scarce resource. Look at the photo of Manhattan again.
People keep wanting to say that housing is contentious because you can't make more land. And it keeps being obvious that (1) you can make more land, and people do it all the time; plus (2) the supply of housing is not even tenuously related to the supply of land.
I said this in my comment but in that graph they're measuring the density of the "urban area" which is not defined in terms of political boundaries. They don't say what "urban area" means but I'm guessing that anywhere above a certain threshold density is "urban". In which case what they're measuring is "density in the area around a city that's above a threshold density".
Everyone thinks it's the density of NYC, but it's the density of NYC plus a surrounding area 10x as big much of which is sparsely populated exurbs. And with sprawl-y sunbelt cities, even more so!
"Everyone knows Austin is more expensive than Houston because Austin is a trendy tech and culture hub and Houston isn't"
This seems out of touch with the reality of these cities. Have you spent a lot of time in Houston? There are sooooo many houses in Houston. You can't scratch your ass without accidentally building a lovely two-story five-bedroom house with a nice big yard. When you're there, driving to your musician friend's giant new house through miles and miles of new developments, it's not at all hard to understand why housing prices are low in Houston.
"Unless someone wants to claim that its failure to build housing helped turn it into a trendy tech and culture hub, I don’t think there’s much point to this comparison."
Here we reach the crux of the mistake that's underlying a lot of your confusion.
You're thinking "trendy = desirable => expensive". But actually "trendy := desirable - accessible", so "desirable + expensive => trendy".
That is, YES, Austin's failure to build housing made it trendy, in that only people willing to endure privation for the benefits of the city get to enjoy them. If Austin had built tons of housing, then every Chad Sixpack could move there to enjoy its many cultural amenities -- that's a net increase in utility, but it wouldn't be *trendy* anymore. Indeed, Houston has multiple fine universities, a thriving medical-biotechnology industry including incubators and startups, a cultural and literary scene; but you don't think of it as trendy, precisely because it's broadly accessible.
This is the same sort of dark conclusion I'm thinking about. The thing that makes a trendy liberal city is the exclusivity of it. Absolute size and population density matter, but the primary driver of trendiness is what portion of the city is populated by trendy people who create culture and propagate it by virtue of being trendy. A huge city with only a few of those people never sees them casually meet up to collaborate, and even if they did, they'd face huge cultural headwinds because no one is looking for the voice of a generation out of Cleveland or St. Louis. So if you're so driven and creative that you need to participate in the creation of culture, or technology, or anything on the bleeding edge of whatever field, you make sacrifices to move somewhere like-minded people are already doing so.
There's definitely something to that idea of trendy as related to exclusivity, but it's not just being desirable and expensive. And what generates the initial spark of trendiness is often places that are cheaper. Greenwich Village in NYC was known for being the place that artists could afford to live until it got a reputation and prices exploded. Same thing with the Pearl District in Portland. I'm not as familiar with other cities but I'm sure there's plenty of other examples.
Kensington Market in Toronto is another example. Formerly a poor, working-class, ethnic neighbourhood on the border of Chinatown, it attracted "cool" people and now is one of the most desirable neighbourhoods in the city.
Berlin is an example on the scale of an entire city.
One interesting question is: why doesn't Detroit become Berlin? Berlin was cheap because it had the infrastructure of a city but few people wanted to live there, which caused all the young cool people in Germany to move there. I think the answer is because Germany only had one Berlin, whereas the US has many decaying industrial cities and there's no obvious Schelling point for all the young cool people to flock to.
Well, but also Berlin has a centuries-long history as one of the first cities of the German-speaking people, dense urban design, enduring cultural cachet, political importance, and so on.
To be (just a bit!) reductionist, Detroit has Motown and rap music, violent crime, an extremely small (but admittedly fairly nice) downtown surrounded by pretty awful, heavily blighted car-centric suburbs (and by suburb I mean practically everything more than maybe a 30-minute walk from downtown, almost). That said, there are people out there taking advantage of the relative affordability, and there is cool stuff happening in Detroit. It is making a bit of a comeback, and I could legitimately see it becoming quite cool in our lifetime.
I think it is pointless to look at the absolute prices. Weather does not change with density. Proximity to the ocean or mountains does not change with density. But those factors absolutely do have an effect on the real estate price. I am sure there are well located smaller towns in California that are more expensive than Houston will ever be. Regardless of how much it builds.
This makes it harder to analyze the numbers. However, those factors remain constant most of the time (but not always. Detroit losing lots of jobs due to manufacturing shift is one example). So we just have to look at the rate of change, not the absolute price.
Yes, this is what I'm thinking. Everyone knows that Austin is a more pleasant place to live than Houston, and if you ask people for a list of the things that suck about Houston then the sprawl and traffic will come pretty high on the list.
This is kinda what NIMBYs have been saying all along -- adding more people to your city really does make it a more unpleasant place. A Houston that had restricted development at Austin's current size (2.4 million) rather than growing into Houston's current size (7.5 million) would still have Rice University and the Museum District, but it wouldn't take two hours to drive across and would generally be a much nicer place to live.
But who is driving two hours across Houston other than someone passing through? Nothing, except money, prevents one from living near the Museum District and avoiding the sprawl of the outer-loop. Also, traffic in Austin is much worse. Austin doesn't have freeways to handle its population density--it didn't 30 years ago and definitely doesn't now. I'd reckon it takes 2 to 3 times as long to travel the same distance in Austin as in Houston.
A lot of the size of Houston is also driven by its port and refineries on the east side. That's basically a different city that professional workers don't spend much time in.
Houston does not have a center, jobs-wise; and whatever its population center is, it's not the Museum District. Your advice is probably fine for a remote worker from the Bay Area who will be delighted with what a mil two will get you.
Job travel in Houston is likely to be radial around one of the loops.
As to what someone said above, about friction preventing a large injection of supply from immediately filling, that is precisely what you will find in Houston (my hometown) - people unwilling to disrupt their lives by moving every time they change jobs, or their employer relocates within the city. The area with which I'm most familiar, suburban SFH west Houston (within highway 6) in particular functions as something of a small town. This despite the fact that the portion of it that is south of the bayou/north of Westheimer almost uniformly attends private school, and thus should be less tethered to zip code.
Indeed it would trouble urbanists to know just how community-like that area is, so ardently must they hate it.
Regarding friction, though - Biden has opened up a couple million spaces the past couple years, and this will certainly create more Houstons (and in Houston, more rings) which will indeed be very affordable.
"My claim is that marginal changes - like Oakland building an extra 10,000 units, but everyone else staying the same - will most likely increase Oakland prices. Yes, if Oakland unilaterally built 50 million units, that would soak up the entire excess demand and probably lower prices everywhere (including Oakland). Yes, if the entire US switched to good housing policy at the same time, that would probably lower prices everywhere (including Oakland)."
Íf the above is the case and Oakland (or any city with expensive housing) wants to reduce local housing prices or at least not make local housing more expensive, it will build no more housing unless it can build enough additional housing to solve the housing shortage for the whole country (or maybe continent). Or Oakland will have to coordinate with SF, NY, Austin, rest of US so as not to build more housing inside Oakland that serves to increase Oakland housing prices.
China is in the middle of a project that will move ~1 billion people from rural to urban living over the course of ~100 years. That's about 10 million people - one Beijing - every year. If the central planners or the invisible hand gets things exactly right, every single one of those 100 years, building exactly the right number of new units in exactly the desired locations, then there will be no underoccupancy (ghost cities) or overoccupancy (slums) in China thoughout any of that period.
But obviously things aren't going to work out that perfectly. When there's underbuilding, you get crowding in the cities, people living in basement sublets, etc. In China, where we love picaresque descriptors, we call these the "ants": young people living crummy lifestyles. When there's overbuilding, you get ghost towns. But both the slums and ghost towns are going to be washed away in the ongoing flood of a billion people making the move. Those shocking pictures you see from China are just a function of the large numbers involved, not an indication of any deep dysfunction or weird phenomenon.
Incidentally, I live in a very underoccupied part of my city: they built a bunch of expensive flats and developments around a new yacht marina, then Covid hit, and the whole area has yet to take off. We're loving it, because we get all this new infrastructure to ourselves. But I hope for the city's sake that in a few years' time it will be overrun with holidaymakers.
Appreciate the updated comments. I think you may still be overstating the impact of 'desirability' and understating the impact of jobs. 4/5ths of metro median home values can be explained by aggregate income per unit of housing in a linear model. Density barely correlates.
Thank you - I kept arguing on the previous thread that it's mostly driven by jobs, not amenities. Very few people move to a city just for the culture without getting a job.
But Scott's argument is that density and desirability create jobs, albeit maybe over very long time scales.
Doesn't have to be very long time scales. A few weeks for existing amenities to recruit extra staff to cope with growing demand. A year or two to build a whole new mall and fill it with new restaurants, shops, etc.
Kinda sad that I had to search all the way down here for "aggregate income" which certainly seems to explain this phenomenon an awful lot more powerfully than the suggested dimensions.
I think you might be understating the case for the oil model a bit. As a thought experiment: If a small city were built on Conanicut Island and filled with people, would you expect the population to be higher or lower after 20 years? We can see the fast decline of Detroit and Gary and the slower decline of St. Louis what happens to cities that lose their core reason to exist. New York would steal all the educated white collar employees, and the services industry would slowly wither without a core exporting industry like finance is for New York. If you had built a small city on Conanicut hundreds of years ago it would have stolen all the good employees from Manhattan Island instead and getting a city built on Manhattan would be impossible. You can't split them up so there are two medium sized cities, one on each island. Manhattan had the *best* natural harbor so it gets to eat all the agglomeration and the finance industry took up residence there. Second place is first loser.
You might attribute that to agglomeration, but instead it could be explained with the "tech-sized industry" model. Austin only managed to become a tech hub in the same nation as SF because SF was determined to squander its advantages and left an opening for Austin to play the game of thrones and get a toehold in. that sort of thing only happens when unique weird factors come into play to shake things up, like SF mismanagement, not due to Austin having density.
> If you had built a small city on Conanicut hundreds of years ago it would have stolen all the good employees from Manhattan Island instead and getting a city built on Manhattan would be impossible.
Well, probably not, because as another commenter pointed out, Manhattan is at the mouth of the Hudson River and has a fantastic natural harbour, making it an important regional and international trading hub. Conanicut Island has no geographical advantage or reason to exist, which you can tell because nobody lives there (people are smart enough to notice these things, almost every major internationally-important city has a major geographical trade advantage, London, Paris, New York, Hong Kong, Tokyo, Los Angeles, San Fransisco, etc.).
To posit that these population distributions are just accidents of history is to posit that the people making the decisions to found and move to/from these places had no idea what they were doing, couldn't notice the world around them, etc., and a variety of other highly unlikely things.
I’m surprised you didn’t address this very important part of the housing situation in SF.
Many of the “service workers”, teachers, firefighters, police, etc., etc. can’t live in the city in which they work. So, there is demand but no place to live, and even if there were more housing units they still probably couldn’t afford it.
SF also has building restrictions throughout the Bay Area.
Demand drives prices, and the demand is driven by those that can afford to drive it.
My intuition is basically Jeremiah Johnson's argument, which is in short that NYC and SF are actually pretty NIMBY in terms of allowing new development. NYC is dense because of a historical practice of building lots of housing - not current. If NYC (maybe more accurately the NY urban area) just let people build as much housing as they wanted, its population would shoot up and I imagine prices would go down.
To put it in "Manhattan vs. Conanicut island" terms - Conanicut allows you to build as much housing as you want (I'm guessing), Manhattan doesn't. But I bet rent was cheaper back when Manhattan allowed SRO and boarding houses and shit. A bunch of penniless immigrants used to live in tenements there, in the same tenements that now get rented out to rich undergrads for like $4k a month because they're in Nolita or whatever.
It's the cycle that you say - "more people leads to more desirable" - but then "more desirable" goes to either "more people" or "higher prices" depending on NIMBY/YIMBY levels.
You say this:
"trendy liberal coastal cities are both more NIMBY and more desirable, and if you use this to draw any conclusions about housing policy you’ll just end up confused"
I think that "more desirable" leads to greater demand that manifests as either people or prices, and more NIMBY means it's more on the "prices" side.
Also - what do you make of ski resorts (I ask non-rhetorically)? Super expensive, lower density, reputation for NIMBY. Weird example in that they have a reason for demand other than "density leads to demand". Would they lower housing costs by allowing high rises?
Also - not that this proves or disproves anything but I continue to wonder about the measurements in the original graph. It said it was measuring density in "urban areas", which are specifically *not* defined by political/administrative division. So how are they defined? Presumably by calling areas above a threshold density "urban".
In which case the thing it's measuring is "average density in the area around a city above a certain density", which is at least a little odd.
And I suspect that areas with more ability to sprawl, i.e. less geographically constrained, end up with a larger area on the long tail of "dense enough to be urban but bring down the average". Basically NYC in the middle of Nebraska, even if the center was super-dense, would be surrounded by so much sprawl that the "urban area" would eventually have a surprisingly low population density (and I used the example of Chicago's urban area having significantly lower density than Miami's).
Regarding Manhattan, it's interesting to consider that their population peaked in the 1920s. 1920 census had about 2.3 million residents, but it's now at about 1.7 million.
I think this is an extremely important piece of data that has to be reckoned with (by both sides). For almost 100 years, manhattan was getting less dense and has only gotten moderately more dense over the past 30 years. While SF has been steadily growing in population over those same 100 years.
They would not, barring government intervention, as new housing supply is constrained by the decisions of landowners, who will only allow supply to be built at a rate which maximizes their return on investment in the land they own. They will not allow enough housing to be built that it destroys the value of their asset - why would they?
> Conanicut allows you to build as much housing as you want (I'm guessing)
Probably not, tbh. Most rural areas would have a shit fit if you tried to build a flat block.
> They would not, barring government intervention, as new housing supply is constrained by the decisions of landowners, who will only allow supply to be built at a rate which maximizes their return on investment in the land they own
The way to maximise the return on the land you own is to develop it as soon as possible and pocket the massive capital gains, which you can use to buy other land to develop as soon as possible.
Hypothetically if you owned most of the land in a given area then you might be able to maximise your returns by drip-feeding it, but there aren't many places where this is the case.
> The way to maximise the return on the land you own is to develop it as soon as possible and pocket the massive capital gains, which you can use to buy other land to develop as soon as possible.
If prices are going down, and you predict a long-term regime of declining prices, then yes, you should develop as much as possible and exit the market ASAP.
If prices are going up, the longer you wait, the more money you make. If you develop now, you're leaving future money on the table you could have had just by waiting. There's an optimal development rate for a given growth rate which landowners will attempt to hit.
> Hypothetically if you owned most of the land in a given area then you might be able to maximise your returns by drip-feeding it, but there aren't many places where this is the case.
All of the landowners have the same incentive - maximize asset values - which is achieved by attempting to develop at a certain optimal rate. There is no incentive to defect and develop early. They do not need to collude to act like a cartel, it happens automatically from them each pursuing their own interest.
This is why private for-profit housing supply cannot and will not ever solve housing affordability barring some major (and extremely unpleasant) external shock.
This is exactly what Land Value Taxes try to solve. If you own a piece of property and refuse to develop it due to speculative value, a Land Value Tax would punish you for not using it to its fullest potential.
Your housing cartel theory I think does apply to most cities where the majority of the voters are homeowners, but I don't think the politics quite work in places like New York where most people rent. And if development was made easier by a renter-supported government, no individual landowner in NY has enough market power than refusing development would be individually profit-maximizing.
I think it's actually more true the fewer people are homeowners. Developers are businesses and are going to behave more rationally than individuals (in an economic sense). Homeowners have all kinds of lifecycle reasons for buying and selling housing and preferring different things other than maximizing the value of their asset.
Developers maximize the value of their real estate assets by developing at a certain rate that's set by the growth rate, other economic options, interest rates, and so on. They will all try to develop at that optimal rate, and so their behavior will look the same as if there was just one developer with a monopoly. There's just no value in defecting and lowering prices like there is in most markets.
It's actually not a picture of Kangbashi, but of Shanghai.
Thanks, thought I was going crazy trying to match the river in Ordos to the one in the picture.
This is a good article, but that is an embarrassing gaffe on multiple levels. It's about as bad as unknowingly taking a picture of the Manhattan skyline with all its famous buildings and calling it Rhode Island to American readers. Guess "micro fake news" makes its away around even the best of us.
On the "Do you have a degree in Economics?" question in the poll, there's no answer for "No". Was the bare "Yes" first option (seemingly overlapping with the other two options) intended to be "No", or do you only want respondents with econ degrees?
I can't tell if it's a joke about us or not. lol
Assume an economics degree!
Or assume that we're all going to opinionate as though we have economics degrees 😁
I think the reason the argument is confusing is because density of people causes prices to go up because of increased demand, but your original writing implied dense housing causes a density of people. This isn't true -- people can (and do) stack bunk beds in an sfh too, when there isn't enough other kinds of housing. Conversely, creating a bunch of dense housing doesn't cause people to move there
I think you're right that density of housing and density of people aren't 100% correlated - but they're very strongly correlated, enough that you can generally use one as a proxy for the other, and where they diverge, one will often catch up with the other over time (like the Chinese ghost cities).
I think to the extent you can artificially restrict housing supply, maybe, but people can live in RVs, garages, attics, living rooms, and bunk beds if there isn't enough suitable housing. Palo Alto still basically forbids buildings over two floors, and you've got a lot of "hacker houses" that are 16 to a house where a bunk bed costs $2k/mo that you just aren't going to find in the middle of nowhere.
Either way, isn't that the main problem with Scott's position? If you assume that new housing induces matching demand, of course supply increases can't outstrip demand increases. The level of correlation is the key issue. The poll also just assumes the answer.
Yes, I think he conflates "density" with "housing supply". He says, for example, "The least dense US city, ie the city with the lowest housing supply".
Density of people implies some kind of desireability, as long as people have any kind of options, so to say density increases desireability is a circular argument. But that is very different from claiming building more housing increases prices.
This seems like a gentrification argument. Someone builds new units somewhere cheap (e.g., Tenderloin), people flood in to those units at higher prices, some can't get into the new units but decide on nearby old units at higher price, the restaurants and coffee shops follow, prices for even the old units rise, neighborhood changes, etc. Now do this at a city level: Denver becomes hip, in part because builders are building cool new places to live, people move there, not all of them are soaked up by new units, increasing price of old, new units come along with nice amenities that raise prices for old units that benefit, prices rise in core, driving people further away, less popular cities lose some folk so their prices decline, rinse and repeat. I still don't think the building of units alone raises prices, all things equal. And the process can unwind very quickly (see Detroit). But if Amazon moves into the neighborhood, requiring building of new units, those units are almost never sufficient to offset increased demand leading to increased prices. And the division of labor in USA is pretty clear, for purposes of network effects: NY owns money, with some entertainment thrown in; LA owns entertainment, with some etc.; SF owns tech, with some etc.; Dallas/Houston own energy, with some etc.; DC owns gov't, with some etc.; Miami/Tampa own latin america, with some etc. So there will be continuing demand for the limited seats at those tables.
I think Oakland is in a tech boom, and so hosting would crash after 10 years for reasons largely unrelated to housing policy. Maybe a more neutral city, like Buffalo or something would be better?
Calling Buffalo "neutral" is way off. The median sale price there is $180K (https://www.redfin.com/city/2832/NY/Buffalo/housing-market), which is basically at replacement cost. There's no point in building new housing there because demand for housing is so low.
I don't know if there's any city we could really call "neutral". It seems that just about every major city is either a trendy, expensive liberal city with high housing costs, a Rust Belt city with very low housing costs, or a Sun Belt city that's currently already building enough housing to keep up with demand. The experiment is really only relevant to the first category.
Nashville or Dallas or Atlanta. Minneapolis. Those are closer to “median” situations.
Oakland is not in a tech boom. The Bay Area is in a tech boom and Oakland happens to be one of the cheaper city in the Bay Area because it's full of disamenities like poverty, public housing, and crime. Nobody in the Bay Area thinks that Oakland is trendy except for people in Oakland.
I agree about the Bay Area more than Oakland being in a tech boom and due to arbitrage the prices of the Bay Area move in a general direction. However, one consequence of this change is that if prices in Oakland rise it is able to address the disamenities which means that it should prices should rise faster than the average of the Bay Area (it rises with the average and then because of windfall taxes it's difference to the average should shrink). A consequence of this is Oakland has above average investment for the Bay Area which makes it trendy.
To add some more to the idea of Chinese housing markets being weird, from what I've read, the demand is driven by extremely unique factors:
"Chinese average wage is not that different from America, just about 45K to 55K depending on region. But, in China, if you are not a homeowner and you merely rent, then you cannot use public education. And private schools in China are exceedingly rare, extremely expensive, and not very good for the most part... A lot of times, multiple homes are bought because people have multiple kids. If it’s a boy, well, he’s gonna need a house in order to get a wife. You don’t want him to be forever alone, right? So if you have three boys, for example, you’ve got to work hard, save money, and buy each of them a house... If it’s a girl, well, lately, women have been complaining about the lack of security living in a husband’s house that doesn’t have your name on it, with nowhere to go if you have a fight. A lot of women have been saying that it’s sexist to not also buy your daughter a house. So, it’s not really a holiday home or rental income, it’s more like future marital home for your children... At some point, the government tried to address the problem that university degrees are becoming less and less valuable. The way they decided to do this is to put a hard quota on middle school and high school graduation. Only 50% of middle schoolers can graduate to go to high school. Only 50% of high schoolers can graduate to go to university."
https://weibo.substack.com/p/040923-faq-answered
So, to raise children you desperately need to own a home; the price of a new home is beyond what most young adults can possibly afford; parents buy homes in anticipation of their children getting married, simultaneously giving them veto power over spouses they dislike.
Yeah... all of that is true and weird in a way. I'm not sure it's any more weird than an American individualistic insistence that who you marry is only ever the individual's concern, and anyone should be able to move anywhere and go to any school without any thought of whether they'll have family to help them...
Do you see what I mean? Obviously, China is weird. But the idea that people live in a single place (and so their children's school places should be in that location) isn't weird. It's normal in most of the world - the USA is a spectacularly mobile outlier. And the idea that it's worth letting your family have a say in who you marry is no more than old-fashioned. Half the Shakespeare plays are about this kind of thing!
I don't think there's much in China (certainly not in the systems that you describe here) that isn't quite easily explained by being generally poor (China's still only a middle-income country) and a bit traditionalist in its thinking.
I think parental involvement in marriages is the least weird part of what I quoted. Tying access to education to homeownership seems like it must warp home demand to an incredible degree, especially when intensified by the most severe case of grading on a curve I've ever seen.
Like, the 2017 NYC Housing and Vacancy Survey says over two thirds of NYC residents are renters. Imagine the price of owning a home there if it was also a requirement just to send your kids to school.
Yeah, it's weird, I suppose. It's not obvious how weird. If you have a desirable school in a US city, the prices and rents around that school go up, right? So you can end up with two very similar apartments with very different rents because one is just inside the school catchment area (school district? I don't know the American term) and the other just outside it. That's "weird," isn't it?
I just think, there's always going to be some administrative tool that you use to decide school places, and it's always going to throw up some weird effects.
What's actually weird about China isn't how they allocate school places, it's just that there aren't enough of them. In Shenzhen, which is our Bay Area, there is a 25% shortfall in public school places, so predictably Shenzhen is where a lot of good private schools are being built.
I still think you're falling into the trap of saying: this is how America does it, so that's normal. Like, should 2/3 of a city's residents be renters? That means that there's an awful lot of landlords there (something that China is historically a bit sensitive about!).
I think it's weird because there aren't many obvious benefits to denying renters access to public education, and what look to me like fairly obvious negative externalities. Presumably a government offers public education because it is good to have an educated populace. Cynically, we might also say it gives the government an easy way to control the societal framework its citizens develop in their formative years. In both cases, it's hard for me to identify why China would only want homeowners to partake in this.
School zones definitely have strange effects on the housing market, but I can look at them and understand the practical reason they exist. Administrating a large system often necessitates dictating how it will be divided up, especially given the travel area of school buses, and school zones are an obvious way to do that. But nominally, they exist to equalize the experience for all citizens; budgets are divided based on a given zone's population, new schools are built or old ones shut down as populations shift, and in some places, at least, you do have the freedom to attend school's outside of your zone as long as you are willing to handle the transportation. I did that during Junior High.
I expound on school zones not because I'm trying to compare China to the US, but to emphasize that when I say weird, I mean "deviating from the natural flow and one's own stated goals." America does not lack for weird policies, but in the case of school zones I think it's easy to see how they are meant to achieve the nominal goals of the education system.
Perhaps China has a very different view of education than I realize. Perhaps they are not attempting to use it as a tool to raise the quality of life for their citizenry as a whole, but as a means of locking in a caste system. Certainly, that is what I would directionally expect of a system that filters out anyone too poor to afford a home, and then doubles down by blocking 75% of their students from attending university.
On NYC renters, I am not asserting that 2/3 of residents should rent. I think that number is definitely high, and the result of many weird policies in NYC. I brought it up specifically because the influence of a policy like this on home prices seemed like it would be most stark there, given the pairing of high rental incidence with high home prices.
OK, haha. So, if you want to understand China's housing and urban policies in general, your caste system paragraph is about right. Obviously that's not the way it's phrased in the official language here! But yeah, China fears slums more than anything else. (Because they breed revolution, because that's what happened last time.) So we have this massive system, the hukou/household registration system, that ties people securely to their home place, and limits mobility.
In terms of education, that means only giving school places where someone's official residence is.
Important to note: this is not an anti-mobility policy. China is urbanising faster than any place in the world ever. The hukou policy is a way of managing the mobility, and making sure that the breakneck urbanisation process doesn't lead to political instability. And this is very much a stated goal. The leadership talk about the importance of stability every time they appear on TV, and all other goals are subordinated to this goal. The stated goal of the education policy is to educate the population as much as possible, within the necessary constraints of our stability policy.
Yeah the US really has some awesome/odd/costly norms around mobility.
Kids think nothing of doubling the cost of a degree and knocking down a year or two of lifetime earnings so they can attend university of Minnesota instead of university of Michigan (especially if it means parents are a day away between of an hour).
Couples move to cities far away from extended family and incur a year or two of lifetime earnings in additional childcare costs (something I did without thinking).
All so we don’t have to feel obligated to swing by your parents house once a week in many cases.
How can the Chinese average wage be similar to the US when the per-capita GDP is about $10K?
I don’t know, but I would guess that China has a much larger rural population, and that the figure would only be for cities. There’s lots of variables there, and I don’t know how fairly the original source set them
It can't be of course. I have trouble accepting any other claim made in that quote given how glaringly wrong that fact is or the authors not realizing hed need to explain it if it somehow was true
Most likely explanation: lots of the people the author knows makes about that much.
I have a slightly more charitable interpretation that perhaps this is urban incomes? Doesn’t seem to be true from a rudimentary search though.
And of course median urban incomes in the US are much higher than median national incomes, too, so even if it was accurate for China, it would still be apples to oranges!
In China, how do they explain variation in school performance? Americans can't decide if it's culture, discrimination, or genes, and I'm curious what explanations China has produced.
Tutoring. Every middle-income-and-above kid has lots of out-of-school classes, most of them simply devoted to re-teaching the school curriculum. This begins in first grade, and throughout primary school kids aim to score 100% on school tests. (In middle school (ages 12-15) things get significantly harder, and there's a big shakeout.)
Generally, the kids and parents who do well early on think it's because they've worked hard in their tutoring classes. If they continue to perform well in high school, it's because they are diligent. And then there's a significant luck factor in the high-stakes selection exams they take at 15 and 18.
It hasn't made a lot of difference. A lot of tutoring still goes on, in more or less disguised form.
I'm curious why you say that the Chinese average wage is not that different from America. How are you doing the RMB to USD conversion?
"In 2021, the last full year for which Beijing's National Bureau of Statistics offers data, the average Chinese worker earned 105,000 yuan a year, the equivalent of $16,153. The average American worker earned some $58,120 a year, 3.5 times his or her Chinese counterpart"
https://www.forbes.com/sites/miltonezrati/2023/01/30/the-east-west-wage-gap-not-nearly-as-compelling-as-it-once-was/
I'm just quoting here, I don't know where she got her figures.
... I did come across one source that said Chinese wages were comparable to US wages. I don't have time right now to reconcile the different results I'm getting. Interesting development.
I think from context that she meant numerically. I.e. if an average wage in the USA was about $50,000 in US dollars, an average wage in China would be about RMB 50,000.
Density = people/mile^2
All over these posts and comments, conparisons are made based on total population, without regard to the total land area taken up (ie LA vs San Fran)
LA is actually denser than San Francisco, and is the densest city in the country (San Francisco is second, New York is fourth):
https://en.wikipedia.org/wiki/List_of_United_States_urban_areas
It looks like that is an artifact of the census criteria allowing multiple areas 1.5 miles apart to collect into a single urban area (but not counting the 1.5 mile gaps as part of the total "urban area").
I mean, it depends on what you consider an "artifact". Los Angeles has by far the densest suburbs of any major urban area (because they all continue the urban grid right up to the edge of the mountains or the beach), while New York has many very low-density suburbs. Los Angeles has the overall more efficient use of land converted from nature into developed area, but New York puts more people in convenient contact with large numbers of other people. ("Weighted density" gets the latter, and New York is by far first on that measure: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3119965 but Los Angeles is still fourth.)
The LA Metro is definitely denser than the SF Metro. Yet few parts of LA are as dense as, say, the new apartments in SoMa and the Mission, and certainly no part of LA is as dense as Lower Manhattan...
Someone at Streetsblog did a comparison several years back of the core of SF and LA, to show that they're actually more comparable than many people think! At that point, KTown and Westlake/MacArthur Park really were pretty comparable to the densest parts of SF (though perhaps SF has built some more density in SoMa since then?)
https://la.streetsblog.org/wp-content/uploads/sites/2/2015/02/SFCoreLAdensity.jpg
https://la.streetsblog.org/2015/03/03/l-a-vs-s-f-how-does-transportation-really-compare/
That's why I said "few", on that first comparison. As you note, the densest parts of LA are pretty comparable to the densest parts of SF.
The problem with LA, as MattY recently noted, is that due to the vagaries of history, the suburban part has ended up sprawling like mad. This has to do with the topography, and how the river used to flow through.
https://www.slowboring.com/p/cities-and-the-way-of-water
Before the auto came along, the LA metro had some quite nice streetcar suburbs. These days if it were legal to densify along streetcar lines, and they had the political will to manage transit to maximize ridership, you probably could bring back that dynamic. But the political will to do that is clearly lacking -- NIMBY forces who prioritize "neighborhood character" and free parking are stronger in LA than they are in the Bay Area. (And the obsession with parking availability is in part a rational response to their existing car dependency.)
It's definitely an artifact of what is considered part of the urban area. That definition has the urban area of NY at about 10 times the area of NYC, while for LA it's about 3 times, for example. Based on this definition:
> An urban area is defined by the Census Bureau as a contiguous set of census blocks that are "densely developed residential, commercial, and other nonresidential areas"
It seems like this is because NYC is economically connected to sprawling suburbs much further out. This likely has to do with your point on geography, along with other factors such as how long the area has been developed, the existence of trains from the further suburbs into the city, etc. If you took an area centered on NYC which only included the dense, nearby suburbs, it would have much higher density.
I think what you're observing is that these urban areas are in fact very different. To me, the census definition of "urban area" gets at the meaningful concept, while any other set of borders is much more "artifactual", like when people cut things off at the city limits, or the county lines. NYC's sprawling suburbs are a fact about how the city continues to grow, while LA's compact suburbs are a fact about how it continues to grow - these don't seem to be artifacts of some unnatural way of cutting data, but actual realities that are revealed by looking carefully for the borders of the human geography.
You used the word "city" above, but the definition of "Urban area" includes a lot of area that is not "city" by any meaningful definition. I don't know exactly how the census bureau determines which blocks are included in the same area, but I think much of what is included in the NYC urban area is only very distantly related to the city itself. They might be economically influenced by NYC, but their development patterns and those of the city itself are entirely unrelated. NYC has plenty of denser suburbs just like LA; I think the only difference is that the further-flung suburbs are grouped in for NY but not for LA.
Also, the use of census blocks means that this definition is still somewhat arbitrary.
Seems to me like this sort of thing makes "density of the urban area" a slightly odd concept to use. It's a bit circular ... "density of the area that's above a certain threshold density".
Most people think "density of the urban area" basically means how Manhattan-like the core is, and that's mostly how Scott's argument proceeds, but it seems that "how far the sprawl stretches out" is a bigger factor (which in turn seems affected by mountains and shit constraining it (or even the point at which you end up in a different urban area)).
Did anybody else see that graph and think "Raleigh appears to be underpriced, I should buy some real estate there?"
Why not Vegas? It seems to be sticking out in every graph as the place to be.
Because Vegas is a hole.
I don't know that I'd put it as harshly as Angus did, and no offense to anyone who lives there, but there's really nothing in Vegas for me. The Raleigh-Durham area has multiple solid or even top-notch universities, ~2 hours from the beach, ~2 hours from the mountains, Lake Jordan, doesn't get cold, low cost of living, etc. It's no Chicago or New York but it's at least on par with other mid-tier cities and has a better climate than most of them. Seems undervalued.
My understanding is Raleigh housing prices spiked super high during the pandemic. Too busy to look up now.
They did. I bought my current house in the summer before the pandemic in the Raleigh inner suburbs. At the peak during during the pandemic it's value was up 50% on Zillow before declining a bit to its current level which is still up ~40%.
There is a vigorous NIMBY/YIMBY debate in Raleigh. The YIMBY's have largely been winning but with quite a bit of pushback. It will be an interesting test case going forward.
Because of the Universities and the State Government the area has lots of amenities, but there definitely has been a snowballing effect from initial tech growth leading to more tech growth due to agglomeration effects.
One thing you may have missed/did not mention is that New York City is at the mouth of the Hudson River, a tremendously important waterway that provided the best possible access to inner New England and Canada, and gave New York City a natural and extremely valuable place as a locus point of trade between inland America and the Atlantic, shipping to Europe etc.
Henry Hudson sailed up the Hudson River in 1609 and thought it was pretty swell, he made it back to the Netherlands who came back and founded New Amsterdam in 1624 to trade furs that would be shipped down to them via the Hudson. England eventually took permanent control in 1674 and renamed it New York.
Everything kind of grew from there. The Hudson river remained incredibly important, and was only magnified by the Erie Canal, until basically when the Interstate Highway System took over, by which point the ships stopped sailing as much but in a more fundamental sense had already sailed.
It isn't actually a coincidence that Manhattan is super valuable and Conanicut is not.
Yeah, it's kind of a nitpick but I did want to point this out. The Hudson is navigable up to Albany. Then in the early 1800s the US built a major canal project connecting it to the Great Lakes via the Erie Canal. Obviously New York was already a major colonial city at that point, and the feedback loop was already underway, but there are geographic reasons NYC became the USA's commercial center that aren't just linked to density.
Its not a nitpick, its a large point in favor of comments under heading #2. NYC was, at one point, such a huge trade hub that tariffs out of the port were financing >50% of the US government.
Also, here's a pretty freaking obvious thing about that Trulia chart:
All the labeled cities in the top left sector are ON THE WATER. Perhaps, water generates both desirability and commerce (duh). Perhaps also it restricts where you can put housing, because people want to be REALLY close to the water (duh #2). So you become dense because lots of the value is in being close to the water.
It's a bit of a nitpick in that the Hudson River explains why New York was more valuable real estate back in the day, but has little actual effect now. The fraction of the value of New York City real estate that comes from the navigability of the Hudson River is pretty trivial. The Hudson is a historical factor, not a present day one, just like gold in San Francisco.
Historical factors can be super important, especially in a colonial environment where you are getting lots of institutional lock in.
This is my point about North Dakota, that he still seems not to get. No conceivable amount of building or oil there is relocating the Met or the NYY, or the NYSE or whatever to Fargo. Even if you also build schools, unis etc.
No, there absolutely is *some* conceivable amount of exogenous factor that would create a cultural hub in North Dakota bigger than New York.
It's harder to replace the first city of a region than the second city, and harder to replace the second city than the third city, but second city status in the United States has changed two or three times. (Philadelphia was second city up until Chicago replaced it in 1890, which was replaced by Los Angeles in 1950 - I say "or three" because on Census data, Baltimore was second city for a few decades, but that's only because Philadelphia was split into several separate municipalities in its early decades.)
It took major advantages for Chicago to replace Philadelphia (controlling the inland water network as well as being the western railroad hub) and then for Los Angeles to replace Chicago (weather, rail, and several major industries) but it was possible.
We know that the first city can also be replaced, as places like Baghdad and Nanjing and Rome were in their regions - it just happens on a scale of centuries, rather than decades.
None of this relocates many of the old institutions - it just requires enough growth to build institutions that are more significant than those other ones. (Houston now has institutions that surpass those of Buffalo, Cleveland, Pittsburgh, and St. Louis, though it took several decades of being a top 5 city in the country to grow them - and Miami and Dallas are only just now at the point of competing with them on some of those institutions.)
> is *some* conceivable amount of exogenous factor that would create a cultural hub in North Dakota bigger than New York.
Like an alien civilization sets up their headquarters in Grafton? That is about the only thing I can imagine? maybe we build a space elevator in Moorehead (except we wouldn't, it would be on equator).
Yes the second city changes, but it changes for pretty predictable reasons to predictable places.
Sure, but those factors cannot be artificial. We can't just plop down a bunch of housing in North Dakota and expect that to become a huge city. Otherwise we would have done that in Detroit already and solved that problem.
NYC and SF exist where they do for specific reasons, even if those reasons are less important than they once were. NYC's harbor is still incredibly important for international trade and is the second biggest port in the US, despite it being far less important to NYC than it used to be when NYC was the biggest port in the world. If for some reason NYC no longer had access to water, it would severely damage the city like the auto industry leaving Detroit.
So, actually, I think there is a way, but it only proves your point more strongly: move people there and don't allow them to leave. If you forcibly transplanted enough people from New York City to this city in North Dakota, they'd rapidly re-create equivalents to the Met, the NYSE, and most other cultural artifacts. (Not the port, obviously.) Because it's not just "people" in aggregate, it's the type of people, and even the specific people.
It's still much cheaper to move things via water than over land. Maybe the gap is smaller now, but it exists. It would be interesting to argue that new cities are more likely to be inland now than 100 years ago, but if the trend were strong over the past 100 years it would be much more obvious. At the least, the trend of more inland cities relative to costal cities is weak enough that few people seem to talk about it. More likely, I'd say it's not a trend at all and proximity to shipping lanes is still important for the growth of those cities fueled by the trade of goods. Which is most of them.
Exceptions would be things like cities based on educational opportunities or extraction towns. Phoenix, AZ tried to make itself a tech hub during the dot com boom, with moderate success. Arizona also seemed to be competing for retirees, back then.
Right. Here's my personal theory:
America's current population distribution is an artifact of inefficient transportation and slow travel, and it's slowly transitioning to a new equilibrium. (This is deliberately provocative and biased framing, which assumes as "normal" a pattern which we are only moving towards.)
Ultimately, the interior of the continent is for resource extraction (including such things as farming and the use of cheap hydro-electrical power to work aluminium). Ports at natural harbors and large rivers allow inhabitants to siphon off some of the value of the trade flowing through. Everyone else, including tech workers, might as well live in one giant city, or in the middle of nowhere or in small towns if they can work remotely and choose to. Legacy cultural and industrial centers may hold out for a time, but will eventually succumb to gravity, because resisting requires a constant use of energy. (See also, how so many native languages of the world are dying out, and how American Standard English is effortlessly gaining ground. Resisting this takes active effort; going with the flow takes none.)
Some jobs, such as resource extraction or creative work, essentially generate wealth ex nihilo. Everything else, from government to schools to restaurants to retail to hairdressers to movie theaters, all of that siphons money out of wealth generation. (This is not meant to be pejorative, merely descriptive.) Wealth flows, like current (i.e. currency) from one person to the next to the next. But each time it flows through a corporation with a non-local HQ, some of it is siphoned away to the location of the HQ. And eventually, to the location of the owners of capital, and while they may invest some of that on a global level, their circles of concern tend to center on their own location, and the governments of their own location siphon off their share.
Overall, resources and money flow downhill like rivers, seeking the ocean. A little mining town in West Virginia may have one source of generated wealth, and if that source dries up or goes away, the town will slowly shrivel and die. Every time anyone spends money at a chain store or online, wealth leaves and does not return. Yes, yes, equal exchange of value, but even putting aside taxes and profit, something has left that will not return. Draw a line around the town and monitor cash in and cash out, and it will show a steady flow outward. The death knell is when they resort to tourism, an explicit attempt to create artistic value inside the line that will draw in wealth from outside.
Yes, this is critically important, Manhattan has unique natural virtues among all East Coast cities, and then on top of that it has an *extremely* unique man-made virtue, but that man-made virtue is a fantastically valuable piece of transportation infrastructure (the Erie Canal) *not* all of the houses.
This is almost but not quite right - the "fantastic but of man-made transportation infrastructure" here isn't the Erie canal, it's the NYC subway.
(We have a controlled experiment for this - jersey city is identical to LIC except without subway access and is way cheaper despite lower taxes).
Jersey City's PATH train access is better than the subway access of Bronx and Queens - and I believe this also tracks rent.
It's pretty awful and getting worse and worse as track capacity is already maxed out at 33rd street and people keep building new housing in Jersey. The earlier and more expensive buildings closer to the river are now losing out because PATH trains are 100% full before they even get to their stop
Depends where in Queens (and where you're going, though that wouldn't hit prices). It's better than some of the further out parts but not nearly as good as LIC (also, I think path is lower frequency? Don't they run like 10-20 minute headways max?)
This was my suspicion, but didn't have the historical knowledge to know for sure.
Yeah the whole "why manhattan and not Conanicut" is so dumb. At least have it be why Manhattan and not Providence. Manhattan was already a very populated area before the dutch arrived because it has so many natural resources and advantages such as the Hudson river.
Conanicut is similar to Manhattan only in that it's an easy coast island. But thats not why Manhattan was so advantageous.
So, this comment is almost entirely off-point, but . . .
The real advantage of Manhattan over Conanicut isn't that the Dutch picked it, but the geography of North America. If the Dutch had settled Conanicut instead of Manhattan, it is still the fact that geography meant Manhattan could be the Atlantic port of first upstate New York and later (thanks to the Erie Canal) the entire Great Lakes region, and Conanicut couldn't.
Now, after the completion of the St. Lawrence Seaway, that advantage went away, and the advantage of Manhattan over Conanicut now is all the capital (physical, social, institutional, human, etc.) it accumulated from the era when it was the Atlantic port of the whole Great Lakes region.
I think this comment is entirely on-point. New York is *special* in ways that Conanicut Island RI *is not*. And vice versa, I'm sure.
Well, it's less than on-point because there are other examples that Scott could have used that wouldn't have had a geographic explanation rather than underlying human decision story. If the capital of Texas had been sited at, say, Brenham, then the University of Texas would have been sited there instead, and it would have been a lot more likely to become a tech center than Austin. Similarly, it seems pretty obvious that if the US capital had been sited on the Chowan River rather than the Potomac, Winton, NC would be rather more likely to have a Four Seasons and a Ritz-Carlton than Georgetown in what would have been Maryland.
Not a coincidence that San Fransisco is also on an important bay/harbour. Or Seattle. Or Los Angeles.
It's also not a coincidence that Bismarck ND, a million miles from any shipping possibilities, is not big, rich, and dense.
You look at almost every major/important city in the world, it will be on a major trading hub, and almost all of those are water-based. London, Paris, New York, Los Angeles, San Fransisco, Shanghai, Tokyo, Hong Kong, Toronto, Montreal, Vancouver (because I'm Canadian), St. Petersburg (an interesting study as an artificial city - would it have been so successful inland? Probably not), Amsterdam, Rotterdam, Rome, and on and on. It's not literally every single huge, desirable city, but damn if it isn't nearly all of them.
I think Scott would have to look for explicitly planned cities. Something like Brasilia.
Even something like Washington DC makes a good example. The demand in DC is completely due to the US government being situated there. It's a swamp along the MD/VA border, and even as late as 1900 or so there wasn't much happening there. The huge growth of the US bureaucracy in the 20th century along with the accompanying surge of lobbyists, military contractors, and other government-associated positions has caused DC to become very dense along with most of northern Virginia and southern Maryland, but it's all a response to the giant pool of money, jobs, and influence circling around the Potomac.
And DC remained a very sleepy, small, poor town through the 80s, only became desirable to outsiders in 90s.
That's definitely right for cities that grew up in the 19th century. But if you look at the cities that got big in the 20th century, water is no longer as important a factor - Las Vegas, Phoenix, Dallas. Of course, Phoenix and Dallas were well-sited to become major *air* hubs, and have great interstate highway access.
I was thinking the same thing. Besides Manhattan's fortuitous location, it also massively benefited from being the site of the Fed. In some alternate history, the Hamilton doesn't have the Fed put into NYC and instead the financial capital of the world ends up being in Philadelphia (or wherever the Federal Reserve Bank ends up).
Hamilton put the (first) Bank of the United States in Philadelphia, not New York. The second Bank of the United States (chartered by Madison, killed by Andrew Jackson) was also in Philadelphia.
The Federal Reserve system was set up in 1913, and New York City was already the center of the US financial industry when that happened, which is why the NYC Fed was the most important (by far) of the twelve banks of the system (Boston, NYC, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco).
This was extremely frustrating the first time and it remains extremely frustrating. Density does not cause high house prices. The relevant mechanisms -- shifts of demand along supply (reverse causation story), shifts of supply along demand (most relevant mechanism in reality), and induced shifts of demand -- can all be seen on a simple supply and demand diagram, and explained by a first year undergrad. Because the general public doesn't believe it, several studies in recent years using state of the art quasi-experimental methods have verified it.
The question has been answered, and it is irresponsible to suggest otherwise. Yes I am being harsh, ordinarily Scott has good and smart takes. But this is on the level of vaccine skepticism, and should be treated as such.
Agreed. I can't help but believe the economists are right on this one.
Regarding the fact that the general public doesn't believe it, there's a working paper called "Folk Economics and the Persistence of Political Opposition to New Housing" (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4266459) that uses
survey to find that many people believe the laws of economics don't apply to housing, even when they're otherwise economically literate. This seems like a rationalized version of this.
a fascinating paper, thanks for sharing.
Housing is absolutely a special case in economics because of the monopolistic nature of private real property. Does that mean that more supply, in a vaccuum, won't bring down prices? No. But it does mean that "just get more supply" is not as simple as it sounds, because to get enough supply to bring costs down, you need property owners to supply it at a rate which would destroy the value of their asset, which they will not do, because why would they. Unlike a monopoly on widgets, or sugar, or anything else, I can't just find some investors and open up a new "housing factory" and make new land with houses on it without the consent of the current monopolists, who are strongly incentivized not to let me.
But that's not really a special economic case, but a special political one. The problem that's highlighted in that paper isn't what you're describing, but people that actually do believe that increasing supply increases prices for everyone else.
But you're right that local government can effectively work as cartels on housing, and that forming a cartel in most other industries doesn't work.
I don't think you can really extricate the politics of private property (which are uh, let's say pretty well entrenched, you generally have to kill a lot of people to change that consensus) from the economics of housing, but yeah.
But that aside, there are still (at least theoretical) cases where increasing supply increases prices of at least some things.
Imagine a city of all single-family homes. And imagine that demand for housing far outstrips supply (for whatever reason). A single-family home costs $X, because that's the most people can afford to pay for one unit of housing. If we now start allowing four-plexes, the price of a unit in a four-plex will tend to $X, because it's still providing roughly one unit of housing. The price of single family homes will now tend to something closer to $4X, since each single-family home can now supply four units of housing (if you knock it down and build a four-plex).
What that looks like to people who strongly desire to live in a SFH and not a four-plex is that building more housing increased prices. It did not increase prices of housing per se, as you can still get "one unit" of housing for about $X, but our hypothetical SFH-preferring homebuyer now cannot afford a SFH they could previously afford.
I think intuitively, people understand that we are in a high-demand regime with fairly constrained supply, and that something sort of like this scenario exists (or could, in their mind, exist). But I could be wrong.
Now, of course, people who own SFHs *should* be delighted by this outcome, as it means the value of their asset has gone way up, but that's a topic for another thought experiment, and I think demonstrates some of the persistent doublethink around housing, where perversely people simultaneously believe that low and high housing prices are both simultaneously desirable, and think that housing prices should both go up and down.
But that's all I'll say without reading the paper (and probably more than I should say lol), it looks quite interesting.
Your example is wrong, though. What changed the price of housing is the zoning change, not the existence of the four-plexes. And it only makes the land more valuable, not the house itself. No one who plans on living in one of those houses would pay more than $X for it even after the zoning change - only speculators and developers would.
Thinking about the actual quantity shift, replacing some of the single-family homes with four-plexes will start to tap out the number of people who want to live in that area, which will drive down prices - there may be a lot of pent-up demand, but it's not inexhaustible. Also, living in a four-plex is much less desirable than in a SFH, so prices for four-plexes will be lower - the simplifying assumption of "people will pay $X for any unit of housing" is a step too far.
But your story is a good example of what the paper was illustrating - people consistently observe new housing popping up in places where prices are going up, or where land values just popped up because of a zoning change, and they assume that those new houses are causing the price increase, rather than the other way around. Mixing up cause and effect, and then thinking stopping the effect will stop the cause, is a serious problem with the housing market.
> What changed the price of housing is the zoning change, not the existence of the four-plexes.
You say tomato, I say tomato. In a real sense, the four-plexes are causing the price rise. If nobody wanted to build them, it would be irrelevant what the zoning was. Maybe the zoning was always for fourplexes, but demand has recently increased making it suddenly make sense to build them. It's not really relevant to the broader point which is more about perception.
> No one who plans on living in one of those houses would pay more than $X for it even after the zoning change - only speculators and developers would.
And because speculators and developers would pay more, nobody will sell their SFH for less than ~$4X, so nobody is able to get a SFH for $X anyway, and in the example, they can't afford more than $X anyway.
> there may be a lot of pent-up demand, but it's not inexhaustible
For major urban areas, I think it effectively is, at least compared to the rate at which housing can be built. Toronto has seen rents going up YoY by 10, 20, 30% over the last two or three decades, and every tower crane in the city is continuously occupied building housing. Between internal and external migration, the demand for new housing in cities can I think reasonably be considered inexhaustible collated to the ability to deliver new housing.
> Mixing up cause and effect, and then thinking stopping the effect will stop the cause, is a serious problem with the housing market.
I mean, if you're saying the zoning change caused the price change, and people try to stop new housing by stopping zoning changes, then they're behaving rationally in your view, no?
To be clear, I think that nothing is gained by preventing new housing and that we should build literally as much as we are able to until the price signals tell us we have more than enough. The point I'm trying to make here is that people are wrong in a more subtle way than it seems on the surface.
Reminds me of the “look at all the economic development driven by amenity X” stories, which while sometime are true, often are a case of the amenity being specifically put in an area of already rapid economic development.
Some of this is attributable to gentrification. Frequently, some developer builds something great in a marginal place, which makes that place hipper, more attractive, etc., which then does drive up rents for even the old, less desirable units. Cf. New York's lower east side, which used to be where deadbeat artists and other lived because cheap, then some developers put in some trend, the coffee shops and restaurants followed, prices increased even for the "bad" old units. So maybe Scott's theory is basically gentrification on a broader, non-neighborhood focused, city-"wide" level.
Yes! It is absolutely gentrification. Density is an insufficient criterion.
Take a neighborhood, knock down a bunch of stuff, put in 5-over-1s, and move all the original occupants and businesses back, all in one magic Thanos snap. The people and businesses are the same, character has been lost, but infrastructure is newer, so it's already more valuable.
If those 5-over-1s are upscale, then rich or cool people move in and the place takes off. Hip arty stuff slides into the cheap niches. New service business show up, catering to wealthier people. New companies are founded, existing companies open branches there. Housing prices go up, as do property values.
Alternatively, if every single one of those 5-over-1s are halfway houses for homeless people and recovering drug addicts, the neighborhood goes to hell. People move out, businesses flee, and we've recreated everything that made "housing project" a bad word. Plus nothing gets better in the long term for the residents of those halfway houses. (Side note: this is why it's bad to concentrate things like halfway houses in particular locations. They need to be spread out very loosely across healthy neighborhoods. It's a question of which will be the locally dominant culture.)
I think this is the answer to why the effect is unusual and restricted to certain locations. If you build 10m units in Oakland, people who want to be near SFC will move there. If you build 10m units in Fargo, ND, then ... people who want to be near Fargo, ND ... will move there... ? Back to Oakland, people who want to be near SFC will move there, maybe from other countries or states or regions, but maybe from other satellites of SFC that are farther away (or are closer but too expensive for the person). So prices in Oakland and even SFC won't necessarily go down, and maybe even go up. It's the prices in satellites of SFC that are **less convenient than Oakland** that will go down.
Well, everything is a special case for one reason or another. Your point about how there is a tension between the incentives of property owners and the interests of society is spot on, but that presupposes that people correctly understand the market, and it turns out that frequently they do not.
Whether we are considering owners who understand and vote their interest, or renters who vote their perceived (incorrect) interest, the end result is that allowing housing policy to be formed on a local level will result in an under-supply of housing. Housing policy needs to be formed at a higher level, by representatives who understand the market and not compromised by the interests of their constituents. There have been encouraging steps towards that in recent years.
You can't have a NIMBY policy if you don't have a housing policy at all; property rights FTW.
Although increasing the density of housing reduces the price per housing unit, it increases the price per acre (since each acre has more units), so I'm not sure there's an economic reason for landowners to object. I think in practice the objections are to the disamenity of the development itself (noise, views, traffic etc).
Note that I'm not saying landowners will object to nearby development.
I'm saying they will not develop the land they own at a rate which reduces the value of their assets (or, more correctly, does not maximize them).
The core yimby argument is you can if you dont give the neighbors a veto. The land owner doesnt devalue his portfolio if he stacks more floors on his existing housing (because he gets the new floors too), he devalues his neighbors'. The neighbors veto is political not economic
The landowner DOES devalue his portfolio if too much housing is released to the market too fast, leading to a decline in prices. It has nothing to do with the neighbours.
And more floors doesn't devalue the neighbours, because presumably it has now been proved that they could also add more floors, so their land is now more valuable. But that's besides the point.
They aren’t really “monopolists” if there are thousands of them.
Yea anyone has a monopoly on any individual piece of land, but you are almost never looking for housing on one specific piece of land. Plus in terms of apartment buildings you absolutely can “crank out more widgets” in housing.
They're monopolists in the sense that there is literally no way to get land without first buying land. Landowners as a class have a complete monopoly on the land market in a way that is not true for e.g. sugar or coal. If I want to compete with Redpath, I can buy sugar cane and open a sugar factory. I never have to deal with any existing sugar producer. If I want to compete on housing, I have to buy land from a landowner.
That is just a bizarre way to use the word "monopoly". This seems like an understanding of the situation that starts with "I don't like landowners and want to use a bad word to describe the situation", and then you fish around for a way to stretch normal words so you can use a pejorative one to describe landowners.
Not at all on either count, but have a nice day.
For a more detailed look at the concept of property as monopoly - https://www.fresheconomicthinking.com/p/making-sense-of-property-as-a-monopoly-54e
I don't really think this is that helpful of a way to look at it.
It's not really a "way to look at it", it's how it is, but ok.
Sure. But seeing as I asked you last time to give a better explanation, and literally the best thing you can come up with is repeating "first year undergrad supply and demand diagram" like a mantra, you can see why the rest of us aren't convinced.
If I could attach pictures I would!
You can always just link a picture, can’t you?
Sounds condescending and adds no value to the discussion.
If there are studies that prove your point, why not just link them?
Yeah I’m actually super interested to know which studies this person is referring to.
Please do see my comment above.
Just subscribed to your substack, I've read some great posts there but that was before I started subscribing.
Thanks, and thanks for subscribing! I like all of those papers, but I think they're more showing localized supply effects from new units, rather than measuring the citywide impact of densification.
Whereas Ahlfeld & Piestrostefani's meta-analysis shows that densification boosts welfare (& wages), but with an accompanying impact of raising rent.
https://www.sciencedirect.com/science/article/abs/pii/S0094119019300282
Because the original linked Yglesias post had a rundown of them.
Asquith et al https://direct.mit.edu/rest/article-abstract/105/2/359/100977/Local-Effects-of-Large-New-Apartment-Buildings-in
and ungated working paper version https://research.upjohn.org/up_workingpapers/316/
Li https://academic.oup.com/joeg/article-abstract/22/6/1309/6362685
ungated https://blocksandlots.com/wp-content/uploads/2020/02/Do-New-Housing-Units-in-Your-Backyard-Raise-Your-Rents-Xiaodi-Li.pdf
Pennington ungated https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3867764
Less related but still interesting and important is Mast https://www.sciencedirect.com/science/article/pii/S0094119021000656?via%3Dihub
ungated https://www.dropbox.com/s/24a9u2ixs6p6pd6/mast_migration_chains_jue.pdf?dl=0
replicated by Bratu et al https://www.sciencedirect.com/science/article/pii/S0094119022001048
Yes I am being harsh, as we should be harsh on people who claim that vaccines cause autism or that the earth is flat. True, it's maybe not the most effective way of winning hearts and minds. But we are supposedly in a "rationalist" space, where brains matter, not hearts and minds. So yes, I am skipping to the facts: this is an answered question, with logic that can be explained with a simple model, and supported by empirical evidence. That doesn't mean that a whole field can't be wrong, or that there is no value to questioning received wisdom, but the argument employed falls well short of the standard that Scott set in his ivermectin post.
Your three articles you describe as related all consider rents within less than half a mile. The density-increasing effects Scott describes all operate at the scale of cities. I would expect literal overshadowing effects from an additional high-rise within 100m (the third paper), causing a drop in prices, but a larger-scale increase in price from city-ness.
The Asquith et al paper rules this out, see Figure A.8 on page 47. Post-treatment, the effect decays with distance to approximately zero at a 600m distance. The idea that it would suddenly depart from zero at a greater distance seems kind of fantastical to me. As does the idea that the effect is so non-linear as to flip from negative to positive at extremely large values. Finally, it is worth breaking down the chain of reasoning: you are saying that a new building here increases amenities here (restaurants, etc) so much that it increases prices at distances measured in kilometers? I don't think so.
I’m absolutely saying it’s nonlinear in space. That building raises the value of the offices where those people work, the shopping centres they visit, and so on. Each of those effects is small, and they are spread all over the city in a very nonlinear way which would make individual building-level statistics impossible. But aggregated over 100,000 units, they would add up, as they did in most of the examples in the main post.
I ve read the first two papers and they are far from convincing. First of all, they are cherry picking the data. Secondly, they are only looking at the very very local level and that's not what we are talking about here. Building one isolated apartment building would not increase "the cultural value" of the area. We don't need a study to understand that.
They are not cherry-picking the data, they are choosing comparisons that are most likely to represent the true treatment effect, and they are doing so in a way that is considered publishable by a good (Li) and very good (Asquith et al) journal.
Second, I agree that one apartment building would not increase the cultural value of a neighborhood to the extent that prices rise more from an amenity effect than they decrease from a pure supply effect. This was my prior before I even saw these studies, because the contrary implies an amenity effect that is infeasibly large. But people keep saying things like "density increases house prices" and these economists saw an opportunity. And now, when people say things like "density increases house prices" on the internet, we have more reason to declare these things bad and wrong.
Finally, if you still want to argue that "density increases house prices" on the basis of some non-local effect, this is still wrong. See my reply to Gres, discussing specific evidence against this in the Asquith et al paper. Now, you are arguing that a single apartment building, which "we don't need a study" to understand that it "would not increase the cultural value of the area" somehow has some orders-of-magnitude larger effect at distances measured in kilometres? Totally infeasible.
Why only look at low income areas and only look at an isolated building construction. And at a very short time period at that. To me it looks like cherry picking the data to fit the answer.
As for the "cultural value". It would make sense that the perceived value is not a continuous function of density. There is always noise in real life. And lag. And breakpoints.
I am only arguing that the papers you have linked are cherry picking the data and are too narrow in scope to give a definitive answer to the broader question. We have plenty of empiric evidence to tell us that higher density cities are more attractive, which leads to higher prices. To combat that empiric evidence we would need really really good broad studies. Otherwise it is just not enough.
I'm finding this take by him frustrating because his claim is that marginal additions in supply will make cities marginally more expensive, which is just...completely at odds with the studies done on this subject! The explanation only works if you believe that every additional unit of housing you build will lead to >1 additional unit of demand (or alternatively, an additional unit of demand that is wealthier and can pay higher prices, thus raising prices for all). But that doesn't seem right, because we know that there are frictions to moving. Even if 20,000 additional spaces open up in NYC, that doesn't mean that 20,000 new people are going to move there.
It makes sense if you consider pent up demand. If you build more expensive housing, you can increase the average cost of housing without meeting the demand for housing. Imagine that there are 100,000 people who would like to move to NYC at a certain high cost. Building 20,000 units will not come close to meeting that demand, so even if there are some vacancies, prices can go up with more housing.
I think Scott takes this thought way too far and with implications beyond reasonable, but there is some truth to the idea that building a few houses (relative to demand) may not solve the problem or even make it worse. You need to build a meaningfully large number of housing units.
i don't think that is true, though. What's stopping those people from moving to NYC already? If they want to move at the high price that already exists, then they'll do that. If they won't, it's because the price is too high for them. And the empirical research shows that marginal supply does marginally lower prices! No, it's not enough of course. But there's been multiple good papers on this by now.
There could be lots of reasons that someone who wants to live in NYC and has money to do so will not do it yet. Maybe they're looking for a particular location or need particular amounts of space or other amenities. Maybe they're willing to spend X for a certain place by only a smaller amount for what's actually available right now. If someone built what this person was looking for, they would move in and pay what they are willing to pay.
Building the 20,000 units might not meet the demand, but that is a very different thing from arguing that building them would cause the prices to go up.
Imagine this from the perspective of your 100,000 people, who want to move to New York. How does it make sense to believe that their economic ability to move to NYC would get worse if the city built 20,000 more units?
I think it's more likely that prices would just not go down, or the amount they would go down would be offset by the pressure on the price going up. Gentrification is the one word answer. As higher income individuals move in (remember, this 20,000 is higher end apartments), that raises the average price to live in a neighborhood. The more demand exists for such things, the most that new buildings will be higher end dominates. There may be a million people who would live in a nice cheap apartment in NYC, but only 100,000 who would live in an expensive place. If we're only building 20,000 then it's almost certainly going to be mostly or all high end stuff. That should offset costs in cheaper apartments, but that action cannot happen if even cheaper places are being taken by the rest of that 100,000 that still wants to live there and can afford more. That still pushes costs up.
As long as there is pent up actual demand (meaning, more people still want to live there but can't find the right place or the right price), we shouldn't expect prices to go down much, if at all. If all 100,000 were actively trying to live in the city and willing to pay a certain high price, we may not see a reduction in prices until that whole glut of people find housing and the only people looking are less interested or cannot afford as much. Then new housing will have to reduce prices in order to attract tenants. As long as there is a steady stream of tenants, there's no incentive to drop rents.
Of course, real life is more complicated and there are lots of people who have varying levels of interest and varying levels of ability to pay. Also, apartments themselves have different costs and different desirability. Someone might be willing to live in a one room apartment in a certain neighborhood but would want something much larger for that money a few blocks away.
The error is in assuming that higher-income people only move into a neighborhood if you knock down cruddy houses and replace them with trendy apartments.
In fact, absent those trendy apartments, higher-income people will still move into that neighborhood, they'll buy the cruddy houses and then they'll renovate them.
The problem with this is to consider the alternative. Atherton has allowed very little new construction and housing prices have not stayed low. There are current regulatory reasons that new housing is expensive but if a city like SF or NYC were to build a large new SRO without consideration of environmental/planning review we should expect that prices would go down. Unfortunately the cost to build new units in California is typically around ~1 million which limits the ability to lower prices through new construction.
For me the biggest sin of this post and the original is that it almost refuses to engage with the plethora of existing research on this very topic. Scott wants to work from first principles and make other people reject his intuition, but rejects research that could inform him.
He shows his lack of knowledge on housing and population growth in the US when he says Las Vegas, Phoenix, Raleigh, Atlanta are "mostly unfashionable red state Sun Belt cities". For one they are all much more liberal than the states they reside in and are extremely popular places to live!
Damn dude, that's really insightful. It seems like a pretty common failure mode for intellectuals with large followings too -- people get good at one field and they assume that it transfers. Goes to show that even intellectuals need to "get in on the ground floor" and learn the basic models before proceeding to reasoning.
Yeah. I am guilty of it too (though am not an intellectual), so not trying to shame Scott. He tends to avoid this with most of his writing so I am surprised neither of these posts engages with the research except to dismiss it. Someone else in the comments posted a paper looking at how the average american has an intuition about housing markets that goes against what the empirical research shows. Usually we (I) think of scott as "not average", so its interesting to see him be "normal" in this way.
Also! Housing policy is a hobby of mine so I totally recognize that my knowledge of the subject is way deeper than the average person's knowledge. It could be that I am expecting too much from Scott if he isn't interested in housing policy until these posts (though this doesn't forgive this follow up post which dismissed empirical evidence or input from experts/researchers)
A useful intuition pump is to imagine the opposite situation: what would happen to housing prices if the marginal unit of housing in Manhattan were destroyed? Do you believe prices would fall as Manhattan somehow becomes a less desirable place to live? Or would prices rise as demand increases for the remaining units? It's hard for me to imagine the former.
Of course if let's say 90% of the housing stock were obliterated in a natural disaster or something, that could represent a scenario where the second order effects of desirability overwhelm simple supply and demand.
You know this has happened, right? New Orleans! What happened there? Post-Katrina, did NO housing become a lot more valuable because it was more scarce?
Katrina may not have destroyed 90% of the housing stock, but it was a significant enough disaster that I think the second order effects dominated as mentioned above. Also, Katrina created not just a supply shock but a demand shock as people were temporarily displaced and decided not to come back.
Yea I literally worked with two women in MN who were refugees from Katrina. They temporarily moved to TX, and then just never went back to LA.
This fits his second scenario. Large businesses relocated away from NO after Katrina and never returned. Fewer good jobs -> less demand for housing.
Yes. That's right! So... question answered, right?
Michael asked which of two things would happen:
1) "Do you believe prices would fall as Manhattan somehow becomes a less desirable place to live?"
2) "Or would prices rise as demand increases for the remaining units?"
And the answer is (1).
Which is consistent with the kind of thing Scott is arguing. Right?
NO became a less desirable place to live because its vulnerability to hurricanes was made plain. Businesses which lost months of productivity decided they didn't want to go through that again and moved to cities located on higher ground. This corresponds to his second paragraph: "Of course if let's say 90% of the housing stock were obliterated in a natural disaster or something, that could represent a scenario where the second order effects of desirability overwhelm simple supply and demand."
Let's compare what happened after Sandy in NYC in 2012 vs Katrina in NO in 2005. The following data is per ChatGPT:
Katrina
"The exact number of homes damaged by Hurricane Katrina in New Orleans is difficult to determine, but it is estimated that the storm damaged or destroyed approximately 80% of the city's homes, which is around 134,000 residential units."
"According to data from the New Orleans Metropolitan Association of Realtors, the average home sale price in the New Orleans area was:
In 2004 (year before Hurricane Katrina): $198,532
In 2005 (year of Hurricane Katrina): $195,628
In 2006 (year after Hurricane Katrina): $198,785"
Sandy
"According to reports, Hurricane Sandy caused damage to over 300,000 housing units in New York City, with an estimated cost of $19 billion in damages. "
"According to data from the New York City Department of Finance, the average residential property sale price in NYC was:
In 2010: $684,000
In 2011: $776,000
In 2013: $878,000
In 2015: $1,073,000"
Of course, there are natural experiments where industry collapses without affecting the physical housing stock. That's pretty clear evidence business is an intermediate step in density->demand->price.
There are examples where slums are demolished and new housing built on the land. If the slums are replaced with a larger number of units, the price per unit will generally be lower right? But if the slums are demolished and just a few homes are built on top of that land they’d be expensive places.
But I feel like this is different than what the post is discussing in some way
The slums getting demolished probably have negative value before demolition. They're also probably in bad neighborhoods, so nothing that gets built will have much value anyway. It's not worth building a bunch of new stuff in a rough part of town.
If the entire “bad” neighborhood is removed, it’s no longer a rough part of town.
I was about to make the same point. Removing the slums and building more units on the same land could greatly increase the rents if people who were unwilling to live there before and now willing to live there.
I think instead of destroyed one might want to consider what would happen if they were simply bought and left vacant – say by some billionaire as an investment.
If good housing is replaced by bad housing (high crime area, slums, etc) then it could result in the place being less desirable which will lower demand. Reverse gentrification, if you will.
I don't find it hard to imagine. Having less people in a small place is less efficient overall (plus less desirable to the people that value density the most); seeing it this way the second order effect don't seem so second order but inevitable, even if delayed. (It also makes it look like an obviously bad thing even if prices go down).
This whole discussion, and every viewpoint described here, seems extremely dumb. Yes, the price of housing in a city is largely determined by the supply and demand for its housing. But the demand for housing is a function of how desirable the city and its housing is, which is a function of its weather, public transit, crime, economic opportunities, restaurants, arts, parks, proximity to other desirable places, demographic makeup and racial tensions, and a thousand other constantly changing things, which are constantly affecting each other.
Yes, all else being equal, adding more housing will reduce the price of housing.
But sometimes in the long-term, adding housing to a city or neighborhood will make housing cheaper, causing starving artists to move in, who make cool art and make the place more desirable for yuppies, who will then move in and drive those prices back up, much higher than they were originally.
Maybe the increased housing allows city government to build a good public transit system, making a place more desirable, causing prices to go even higher. Or maybe the increased housing is built on the public park where everyone loved spending time, making the neighborhood worse so prices go down. You can't model all this as a simple function of 1 or 2 variables.
Or for a more concrete example, Detroit couldn't have become the center of domestic auto manufacturing in the US without plenty of housing for workers, which circularly made workers' homes more valuable. Except then white flight and a collapsing industrial base caused everyone to move away, so houses fell into disrepair, and absolutely no one wanted to live there until housing prices were near zero.
Everyone arguing about this is trying to reduce something as complicated as where people want to live to 2 or 3 dimensional models. Of course this doesn't work! Everything effects everything, in circular, interdependent, unpredictable ways. You can't fit this all into a silly Econ 101 graph.
That said, we know that the US as a whole doesn't have enough housing for everyone. And we know that on average building more housing will reduce its price, even if we can't predict exactly what prices will do everywhere just by looking at two variables (no one can do that, and no one ever will, barring some dystopian dictatorship barring freedom of movement). To me, these seem like extremely strong reasons to build more housing.
I guess I don't understand what on earth everyone is arguing about.
The tricky thing about building more housing is that the people who own the land you need to build the housing on don't want to build more housing on it at such a rate as would cause prices to come down, because that would destroy the value of their asset. The housing market, barring external shocks like you mentioned in Detroit, has a built-in rate limit on new housing which ensures prices only go up.
The only way to get enough new housing to bring prices down is government and/or community not-for-profit development, such as co-ops, land trusts, social housing, and so on. The market literally cannot and will not do this.
Don't really follow. The people who own the land have a lot of reason to build enough housing that the price goes down. If I own a single family plot and can upzone that to a five story garden apartment, the land will easily be worth 5x and I'll make a huge profit. Even if everyone does it and I only make 4x, that's still a great deal.
When you say "even if everyone does it and I only make 4x" - you're talking about someone happily destroying 20% of the value of an asset they own. Why on earth would they do that if they didn't have to?
In any case, this is visible empirically, you don't have to take my word for it. As interest rates went up recently, asset values naturally declined. Developers immediately slowed the rate of development in response to the price decline, as they would be throwing money away by building now instead of waiting for the asset prices to go back up again.
You would have to posit a really, really good explanation as to why they wouldn't respond the same way to a price decline caused by too much development.
Totally agree, with first part. Not really clear on the second at all.
Most people are housed and the US tends to have pretty low numbers of people per unit and high amount of sqft of housing per person on average. So not sure it is clear that the US has too little housing.
People would like more, and wish it was cheaper, but that is true of most goods.
Huge numbers of people will pay to live in an apartment rather than live with family etc.
Um, as a point of correction, I think the US may indeed have enough housing for everyone? It's just not in places where people actually want to live (Detroit, for example). And even if we're talking new construction, what's wrong with going out 60 miles from an urban center along an interstate highway, and putting up some housing there? (Not a rhetorical question: the things that are wrong with that are important to talk about.)
It's not about housing, it's about where people want to live, and thus in turn about who those people are and what their position is in the economy.
I see the question as being: in universe 1, a city builds more housing than in universe 2. How do we expect their house prices to look like in their futures compared to each other? So iiuc it's not about all else being equal
> You can't model all this as a simple function of 1 or 2 variables.
Does this mean you wouldn't have any strong expectations of housing prices in universe 1 being higher or lower than universe 2?
> Everyone arguing about this is trying to reduce something as complicated as where people want to live to 2 or 3 dimensional models.
Take the claim if chicken prices drop by 5%, more people will each chicken. Does that reduce something as complicated as where people want to eat to one variable? It's a claim about the aggregate, even if such differences in price are a small factor in everyone's decision about what to eat.
As I see it (obviously simplifying) if there's 10% more housing, 10% more people will live in the area (prices will be as low as necessary to have the places occupied); and all of the other complicated variables you mention are very affected by 10% more people living in the area. It's a reasonable question to ask: do we expect these effects to increase demand for housing sufficiently that more than 10% of extra people are willing to pay the original prices, so prices will increase, or not?
Sure, it's not a deterministic question, and whatever effect it may have might be offset by other new policies one may or may not take, but it's not crazy to think it's a relevant variable given the correlations shown in the graphs shown in the post.
Very late to this lol but:
> Does this mean you wouldn't have any strong expectations of housing prices in universe 1 being higher or lower than universe 2?
In the short run, sure. In the long run, who the hell knows? Maybe one of the scenarios I gave in my initial comment would drive up housing prices as a result of the additional housing supply. I'd have a weak expectation that housing prices would be lower in universe 1 than universe 2, but I think that predicting future demand for housing is sufficiently hard that this isn't actually that useful in practice.
> Take the claim if chicken prices drop by 5%, more people will each chicken. Does that reduce something as complicated as where people want to eat to one variable? It's a claim about the aggregate, even if such differences in price are a small factor in everyone's decision about what to eat.
I don't think this is a good comparison. Where people want to live is a much more dynamic and complex preference than a preference for chicken.
But even so, we have tons of historical examples where increased food prices led to increased consumption! Take the history of lobster, or caviar. My point is not that supply and demand are irrelevant, just that they are less useful as long-term predictive tools than economists and ACX commenters seem to think.
I think we should be building more housing in desirable cities to enable more people to have access to good jobs, and create all the other wonderful benefits of density. This will hopefully lower prices too, especially if it occurs in lots of desirable cities at once instead of just one or two. But even if not... then more people will be able to live in the cities they want to live and work in. Isn't that a good thing? Is it so important that we be able to predict future housing prices in 20 years?
About the Bay Area tech company lottery tickets:
I think it's getting more than you gave it credit for. If founding Google won the Bay Area 1,000,000 residents, these residents do not have a uniform distribution of occupations. A large fraction of them will be techies (though maybe not 1/2 as in your mining town example because googlers have substantially higher average salaries than most of the people who provide services to them). Thus, this will give the Bay Area substantially more than a 1/300-fraction of the American techie population, making it somewhat more likely to found the next big tech company. And I guess once you have enough techies in one place you start to see second order networking effects and the development of a startup culture that make it even more likely.
Beyond just the density of humanity, there is also the accumulated invested physical capital in an area which any new resident can quickly take advantage of. If you built a bunch of empty skyscrapers in Nebraska, sure there is now housing there, but any new Nebraskan would miss out on the (admittedly crumbling) public infrastructure such as roads, tunnels, the subway system, public parks, sewage system etc. that New Yorkers can enjoy.
While the total cost of these goes up absolutely with new residents, to my understanding the cost per capita goes down; larger sewage plants can be more efficient, subway capacity doesn't need to hold the whole city at once, most people don't spend all of their time in a park etc.
One factor which I think is consistently forgotten in the talk of "adding supply" is that housing is not consumed in a linear way. For example, it's possible to consume 2,000 sq ft of housing in exactly the same way as 1,000 sq ft of housing. This makes it diifferent from most other goods - e.g. to consume twice as much coffee, you'd have to drink twice as much coffee.
(There's a price question: you could drink better quality coffee that costs twice as much, and from an economist's perspective, you'd be consuming twice as much coffee again. But just improving the quality of coffee doesn't (necessarily) use up the scarce resource that defines the good. Space is the scarce resource that defines the good of housing, there's still an important difference.)
Similarly, talk of adding supply assumes that added supply is of the same quality as existing supply. But housing is a long-term asset, and new builds tend to be higher quality and higher priced.
I don't think you're quite right about housing consumption and space. Yes, it's possible for the same family to live in a 2000 sq. ft. house as a 1000 sq. ft. house, but former family with more space has a higher standard of living. There's a reason why cateris paribus people want bigger houses, but only put up with smaller ones when price is an issue. That's why you see a lot more roommates and fewer families in places with higher housing costs.
And the real limiting resource that gets used up is land, not housing space. But land can be used differently depending on zoning, including height limits, setbacks, etc.
You're right about new supply being higher quality than old supply, though.
> new builds tend to be higher quality and higher priced
That is not necessarily true. For instance, in Toronto, new builds are almost universally smaller, with worse floor plans, lower build quality, and are in worse/less walkable neighbourhoods with worse services than existing housing.
Perversely, they also command higher prices for reasons which defy explanation. I guess people really like fresh paint.
But space isn't a scarce resource. Look at the photo of Manhattan again.
People keep wanting to say that housing is contentious because you can't make more land. And it keeps being obvious that (1) you can make more land, and people do it all the time; plus (2) the supply of housing is not even tenuously related to the supply of land.
That's a really interesting idea. I don't think I accept your reasons...
(1) You can make more land, but it's expensive and difficult (see: the Netherlands, Dubai)
(2) The supply of housing depends on land a little bit in that it's expensive to build up. You can build cheap and low, or expensive and high.
But yeah, neither of those are absolutes, and I might be wrong about this. I will ponder it further. Thanks!
Wait, in what universe is San Jose more dense than New York?
I said this in my comment but in that graph they're measuring the density of the "urban area" which is not defined in terms of political boundaries. They don't say what "urban area" means but I'm guessing that anywhere above a certain threshold density is "urban". In which case what they're measuring is "density in the area around a city that's above a threshold density".
In that case a major factor in density is how much "urban" sprawl there is. If you look at the Wikipedia article listing urban areas (not sure if same definition) (https://en.wikipedia.org/wiki/List_of_United_States_urban_areas), NYC's is more than 10 times bigger than San Jose's. If you look at the census map (https://www2.census.gov/geo/maps/DC2020/UA20/UA_2020_WallMap.pdf), NYC's extends over most of Long Island and halfway down the Jersey Shore, and San Jose's is small.
Everyone thinks it's the density of NYC, but it's the density of NYC plus a surrounding area 10x as big much of which is sparsely populated exurbs. And with sprawl-y sunbelt cities, even more so!
"Everyone knows Austin is more expensive than Houston because Austin is a trendy tech and culture hub and Houston isn't"
This seems out of touch with the reality of these cities. Have you spent a lot of time in Houston? There are sooooo many houses in Houston. You can't scratch your ass without accidentally building a lovely two-story five-bedroom house with a nice big yard. When you're there, driving to your musician friend's giant new house through miles and miles of new developments, it's not at all hard to understand why housing prices are low in Houston.
"Unless someone wants to claim that its failure to build housing helped turn it into a trendy tech and culture hub, I don’t think there’s much point to this comparison."
Here we reach the crux of the mistake that's underlying a lot of your confusion.
You're thinking "trendy = desirable => expensive". But actually "trendy := desirable - accessible", so "desirable + expensive => trendy".
That is, YES, Austin's failure to build housing made it trendy, in that only people willing to endure privation for the benefits of the city get to enjoy them. If Austin had built tons of housing, then every Chad Sixpack could move there to enjoy its many cultural amenities -- that's a net increase in utility, but it wouldn't be *trendy* anymore. Indeed, Houston has multiple fine universities, a thriving medical-biotechnology industry including incubators and startups, a cultural and literary scene; but you don't think of it as trendy, precisely because it's broadly accessible.
This is the same sort of dark conclusion I'm thinking about. The thing that makes a trendy liberal city is the exclusivity of it. Absolute size and population density matter, but the primary driver of trendiness is what portion of the city is populated by trendy people who create culture and propagate it by virtue of being trendy. A huge city with only a few of those people never sees them casually meet up to collaborate, and even if they did, they'd face huge cultural headwinds because no one is looking for the voice of a generation out of Cleveland or St. Louis. So if you're so driven and creative that you need to participate in the creation of culture, or technology, or anything on the bleeding edge of whatever field, you make sacrifices to move somewhere like-minded people are already doing so.
There's definitely something to that idea of trendy as related to exclusivity, but it's not just being desirable and expensive. And what generates the initial spark of trendiness is often places that are cheaper. Greenwich Village in NYC was known for being the place that artists could afford to live until it got a reputation and prices exploded. Same thing with the Pearl District in Portland. I'm not as familiar with other cities but I'm sure there's plenty of other examples.
Kensington Market in Toronto is another example. Formerly a poor, working-class, ethnic neighbourhood on the border of Chinatown, it attracted "cool" people and now is one of the most desirable neighbourhoods in the city.
Berlin is an example on the scale of an entire city.
One interesting question is: why doesn't Detroit become Berlin? Berlin was cheap because it had the infrastructure of a city but few people wanted to live there, which caused all the young cool people in Germany to move there. I think the answer is because Germany only had one Berlin, whereas the US has many decaying industrial cities and there's no obvious Schelling point for all the young cool people to flock to.
Well, but also Berlin has a centuries-long history as one of the first cities of the German-speaking people, dense urban design, enduring cultural cachet, political importance, and so on.
To be (just a bit!) reductionist, Detroit has Motown and rap music, violent crime, an extremely small (but admittedly fairly nice) downtown surrounded by pretty awful, heavily blighted car-centric suburbs (and by suburb I mean practically everything more than maybe a 30-minute walk from downtown, almost). That said, there are people out there taking advantage of the relative affordability, and there is cool stuff happening in Detroit. It is making a bit of a comeback, and I could legitimately see it becoming quite cool in our lifetime.
I think it is pointless to look at the absolute prices. Weather does not change with density. Proximity to the ocean or mountains does not change with density. But those factors absolutely do have an effect on the real estate price. I am sure there are well located smaller towns in California that are more expensive than Houston will ever be. Regardless of how much it builds.
This makes it harder to analyze the numbers. However, those factors remain constant most of the time (but not always. Detroit losing lots of jobs due to manufacturing shift is one example). So we just have to look at the rate of change, not the absolute price.
> Weather does not change with density.
<nitpick> https://en.wikipedia.org/wiki/Urban_heat_island </nitpick>
Second nitpick: if you want to _go to_ the beach, effective proximity changes with density because of traffic. You still see the mountains, though.
Being close to the ocean is not just about going there for a swim. It means milder climate. Better air quality. Etc.
Yes, this is what I'm thinking. Everyone knows that Austin is a more pleasant place to live than Houston, and if you ask people for a list of the things that suck about Houston then the sprawl and traffic will come pretty high on the list.
This is kinda what NIMBYs have been saying all along -- adding more people to your city really does make it a more unpleasant place. A Houston that had restricted development at Austin's current size (2.4 million) rather than growing into Houston's current size (7.5 million) would still have Rice University and the Museum District, but it wouldn't take two hours to drive across and would generally be a much nicer place to live.
But who is driving two hours across Houston other than someone passing through? Nothing, except money, prevents one from living near the Museum District and avoiding the sprawl of the outer-loop. Also, traffic in Austin is much worse. Austin doesn't have freeways to handle its population density--it didn't 30 years ago and definitely doesn't now. I'd reckon it takes 2 to 3 times as long to travel the same distance in Austin as in Houston.
A lot of the size of Houston is also driven by its port and refineries on the east side. That's basically a different city that professional workers don't spend much time in.
Houston does not have a center, jobs-wise; and whatever its population center is, it's not the Museum District. Your advice is probably fine for a remote worker from the Bay Area who will be delighted with what a mil two will get you.
Job travel in Houston is likely to be radial around one of the loops.
As to what someone said above, about friction preventing a large injection of supply from immediately filling, that is precisely what you will find in Houston (my hometown) - people unwilling to disrupt their lives by moving every time they change jobs, or their employer relocates within the city. The area with which I'm most familiar, suburban SFH west Houston (within highway 6) in particular functions as something of a small town. This despite the fact that the portion of it that is south of the bayou/north of Westheimer almost uniformly attends private school, and thus should be less tethered to zip code.
Indeed it would trouble urbanists to know just how community-like that area is, so ardently must they hate it.
Regarding friction, though - Biden has opened up a couple million spaces the past couple years, and this will certainly create more Houstons (and in Houston, more rings) which will indeed be very affordable.
"My claim is that marginal changes - like Oakland building an extra 10,000 units, but everyone else staying the same - will most likely increase Oakland prices. Yes, if Oakland unilaterally built 50 million units, that would soak up the entire excess demand and probably lower prices everywhere (including Oakland). Yes, if the entire US switched to good housing policy at the same time, that would probably lower prices everywhere (including Oakland)."
Íf the above is the case and Oakland (or any city with expensive housing) wants to reduce local housing prices or at least not make local housing more expensive, it will build no more housing unless it can build enough additional housing to solve the housing shortage for the whole country (or maybe continent). Or Oakland will have to coordinate with SF, NY, Austin, rest of US so as not to build more housing inside Oakland that serves to increase Oakland housing prices.
On Chinese ghost cities:
China is in the middle of a project that will move ~1 billion people from rural to urban living over the course of ~100 years. That's about 10 million people - one Beijing - every year. If the central planners or the invisible hand gets things exactly right, every single one of those 100 years, building exactly the right number of new units in exactly the desired locations, then there will be no underoccupancy (ghost cities) or overoccupancy (slums) in China thoughout any of that period.
But obviously things aren't going to work out that perfectly. When there's underbuilding, you get crowding in the cities, people living in basement sublets, etc. In China, where we love picaresque descriptors, we call these the "ants": young people living crummy lifestyles. When there's overbuilding, you get ghost towns. But both the slums and ghost towns are going to be washed away in the ongoing flood of a billion people making the move. Those shocking pictures you see from China are just a function of the large numbers involved, not an indication of any deep dysfunction or weird phenomenon.
Incidentally, I live in a very underoccupied part of my city: they built a bunch of expensive flats and developments around a new yacht marina, then Covid hit, and the whole area has yet to take off. We're loving it, because we get all this new infrastructure to ourselves. But I hope for the city's sake that in a few years' time it will be overrun with holidaymakers.
Also I think China's Hukou has a significant ability to shape where people live in a way that is not comparable in the US
https://en.wikipedia.org/wiki/Hukou
Appreciate the updated comments. I think you may still be overstating the impact of 'desirability' and understating the impact of jobs. 4/5ths of metro median home values can be explained by aggregate income per unit of housing in a linear model. Density barely correlates.
https://twitter.com/KaseyKlimes/status/1654493856497319937?s=20
Thank you - I kept arguing on the previous thread that it's mostly driven by jobs, not amenities. Very few people move to a city just for the culture without getting a job.
But Scott's argument is that density and desirability create jobs, albeit maybe over very long time scales.
Doesn't have to be very long time scales. A few weeks for existing amenities to recruit extra staff to cope with growing demand. A year or two to build a whole new mall and fill it with new restaurants, shops, etc.
Kinda sad that I had to search all the way down here for "aggregate income" which certainly seems to explain this phenomenon an awful lot more powerfully than the suggested dimensions.
I think you might be understating the case for the oil model a bit. As a thought experiment: If a small city were built on Conanicut Island and filled with people, would you expect the population to be higher or lower after 20 years? We can see the fast decline of Detroit and Gary and the slower decline of St. Louis what happens to cities that lose their core reason to exist. New York would steal all the educated white collar employees, and the services industry would slowly wither without a core exporting industry like finance is for New York. If you had built a small city on Conanicut hundreds of years ago it would have stolen all the good employees from Manhattan Island instead and getting a city built on Manhattan would be impossible. You can't split them up so there are two medium sized cities, one on each island. Manhattan had the *best* natural harbor so it gets to eat all the agglomeration and the finance industry took up residence there. Second place is first loser.
You might attribute that to agglomeration, but instead it could be explained with the "tech-sized industry" model. Austin only managed to become a tech hub in the same nation as SF because SF was determined to squander its advantages and left an opening for Austin to play the game of thrones and get a toehold in. that sort of thing only happens when unique weird factors come into play to shake things up, like SF mismanagement, not due to Austin having density.
> If you had built a small city on Conanicut hundreds of years ago it would have stolen all the good employees from Manhattan Island instead and getting a city built on Manhattan would be impossible.
Well, probably not, because as another commenter pointed out, Manhattan is at the mouth of the Hudson River and has a fantastic natural harbour, making it an important regional and international trading hub. Conanicut Island has no geographical advantage or reason to exist, which you can tell because nobody lives there (people are smart enough to notice these things, almost every major internationally-important city has a major geographical trade advantage, London, Paris, New York, Hong Kong, Tokyo, Los Angeles, San Fransisco, etc.).
To posit that these population distributions are just accidents of history is to posit that the people making the decisions to found and move to/from these places had no idea what they were doing, couldn't notice the world around them, etc., and a variety of other highly unlikely things.
I’m surprised you didn’t address this very important part of the housing situation in SF.
Many of the “service workers”, teachers, firefighters, police, etc., etc. can’t live in the city in which they work. So, there is demand but no place to live, and even if there were more housing units they still probably couldn’t afford it.
SF also has building restrictions throughout the Bay Area.
Demand drives prices, and the demand is driven by those that can afford to drive it.
My intuition is basically Jeremiah Johnson's argument, which is in short that NYC and SF are actually pretty NIMBY in terms of allowing new development. NYC is dense because of a historical practice of building lots of housing - not current. If NYC (maybe more accurately the NY urban area) just let people build as much housing as they wanted, its population would shoot up and I imagine prices would go down.
To put it in "Manhattan vs. Conanicut island" terms - Conanicut allows you to build as much housing as you want (I'm guessing), Manhattan doesn't. But I bet rent was cheaper back when Manhattan allowed SRO and boarding houses and shit. A bunch of penniless immigrants used to live in tenements there, in the same tenements that now get rented out to rich undergrads for like $4k a month because they're in Nolita or whatever.
It's the cycle that you say - "more people leads to more desirable" - but then "more desirable" goes to either "more people" or "higher prices" depending on NIMBY/YIMBY levels.
You say this:
"trendy liberal coastal cities are both more NIMBY and more desirable, and if you use this to draw any conclusions about housing policy you’ll just end up confused"
I think that "more desirable" leads to greater demand that manifests as either people or prices, and more NIMBY means it's more on the "prices" side.
Also - what do you make of ski resorts (I ask non-rhetorically)? Super expensive, lower density, reputation for NIMBY. Weird example in that they have a reason for demand other than "density leads to demand". Would they lower housing costs by allowing high rises?
Also - not that this proves or disproves anything but I continue to wonder about the measurements in the original graph. It said it was measuring density in "urban areas", which are specifically *not* defined by political/administrative division. So how are they defined? Presumably by calling areas above a threshold density "urban".
In which case the thing it's measuring is "average density in the area around a city above a certain density", which is at least a little odd.
And I suspect that areas with more ability to sprawl, i.e. less geographically constrained, end up with a larger area on the long tail of "dense enough to be urban but bring down the average". Basically NYC in the middle of Nebraska, even if the center was super-dense, would be surrounded by so much sprawl that the "urban area" would eventually have a surprisingly low population density (and I used the example of Chicago's urban area having significantly lower density than Miami's).
Regarding Manhattan, it's interesting to consider that their population peaked in the 1920s. 1920 census had about 2.3 million residents, but it's now at about 1.7 million.
I think this is an extremely important piece of data that has to be reckoned with (by both sides). For almost 100 years, manhattan was getting less dense and has only gotten moderately more dense over the past 30 years. While SF has been steadily growing in population over those same 100 years.
> and I imagine prices would go down.
They would not, barring government intervention, as new housing supply is constrained by the decisions of landowners, who will only allow supply to be built at a rate which maximizes their return on investment in the land they own. They will not allow enough housing to be built that it destroys the value of their asset - why would they?
> Conanicut allows you to build as much housing as you want (I'm guessing)
Probably not, tbh. Most rural areas would have a shit fit if you tried to build a flat block.
> They would not, barring government intervention, as new housing supply is constrained by the decisions of landowners, who will only allow supply to be built at a rate which maximizes their return on investment in the land they own
The way to maximise the return on the land you own is to develop it as soon as possible and pocket the massive capital gains, which you can use to buy other land to develop as soon as possible.
Hypothetically if you owned most of the land in a given area then you might be able to maximise your returns by drip-feeding it, but there aren't many places where this is the case.
> The way to maximise the return on the land you own is to develop it as soon as possible and pocket the massive capital gains, which you can use to buy other land to develop as soon as possible.
If prices are going down, and you predict a long-term regime of declining prices, then yes, you should develop as much as possible and exit the market ASAP.
If prices are going up, the longer you wait, the more money you make. If you develop now, you're leaving future money on the table you could have had just by waiting. There's an optimal development rate for a given growth rate which landowners will attempt to hit.
> Hypothetically if you owned most of the land in a given area then you might be able to maximise your returns by drip-feeding it, but there aren't many places where this is the case.
All of the landowners have the same incentive - maximize asset values - which is achieved by attempting to develop at a certain optimal rate. There is no incentive to defect and develop early. They do not need to collude to act like a cartel, it happens automatically from them each pursuing their own interest.
This is why private for-profit housing supply cannot and will not ever solve housing affordability barring some major (and extremely unpleasant) external shock.
This is exactly what Land Value Taxes try to solve. If you own a piece of property and refuse to develop it due to speculative value, a Land Value Tax would punish you for not using it to its fullest potential.
Totally agree ofc. LVTs more or less solve the housing market, which is why they're so politically unpalatable lol. Too much money on the status quo.
Your housing cartel theory I think does apply to most cities where the majority of the voters are homeowners, but I don't think the politics quite work in places like New York where most people rent. And if development was made easier by a renter-supported government, no individual landowner in NY has enough market power than refusing development would be individually profit-maximizing.
I think it's actually more true the fewer people are homeowners. Developers are businesses and are going to behave more rationally than individuals (in an economic sense). Homeowners have all kinds of lifecycle reasons for buying and selling housing and preferring different things other than maximizing the value of their asset.
Developers maximize the value of their real estate assets by developing at a certain rate that's set by the growth rate, other economic options, interest rates, and so on. They will all try to develop at that optimal rate, and so their behavior will look the same as if there was just one developer with a monopoly. There's just no value in defecting and lowering prices like there is in most markets.