“National housing prices have risen much faster than construction costs since the 1990s,” says Paul Krugman (agreeing with Obama’s economist, Jason Furman), “and land-use restrictions are the most likely culprit.” While Krugman is right about this, he confuses cause and effect in several other parts of his article, “Inequality and the City.”
His first problem is when he credits (or blames) urban gentrification on, “above all, the national-level surge in inequality.” In fact, as MIT economist Matthew Rognlie has shown, it is the other way around: the increase in inequality has resulted from the surge in housing prices.
Krugman’s next problem is when he asks, “why do high-income Americans now want to live in inner cities, as opposed to in sprawling suburban estates?” The answer that he misses is: most don’t. The regions where housing prices have risen fastest–San Francisco, Los Angeles, Seattle, Portland, Boston, New York–are ones where suburban growth is stifled by growth boundaries or some other form of land-use regulation. Without that stifling regulation, more high-income families would live in the suburbs, just as they do in regions that don’t have that regulation.
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Even in heavily regulated regions, the number of wealthy people living in the suburbs is growing faster than the number in the central cities. For example, census data (specifically, American Community Survey table B19101) show that, between 2005 and 2014, the number of families living in the city of San Francisco who earned more than $200,000 per year grew by less than 18,500, but the number in San Francisco’s suburbs who earn the same amount grew by more than 50,000.
While the number of families earning more than $100,000 per year in the San Francisco Bay Area grew between 2005 and 2014, the number in almost every income class below $100,000 actually declined in both the city and its suburbs. That’s a pattern you don’t see in less regulated cities. Houston saw growth in every income class above $30,000; Raleigh saw every income class grow. As Joel Kotkin says, less regulated cities offer opportunities to people of all incomes, while increasing land-use regulation denies opportunities to, first, low-income families and later, moderate-income families.
In short, Krugman missed the fact that land-use regulation aimed at urban containment results in inner-city gentrification because people have nowhere else to go once all the vacant land in the suburbs is developed. Some, especially central city officials, will say that’s a good thing. But the negative side-effects–the loss of housing affordability, the impact on low- and moderate-income families, and similar effects on small and medium-sized businesses–are far greater than the benefits.
The Antiplanner wrote:
“National housing prices have risen much faster than construction costs since the 1990s,” says Paul Krugman (agreeing with Obama’s economist, Jason Furman), “and land-use restrictions are the most likely culprit.” While Krugman is right about this, he confuses cause and effect in several other parts of his article, “Inequality and the City.”
Krugman is right where it really matters, and that is about the run-up in housing costs in much (but not all) of the United States that can be attributed to difficulties in getting approvals to build something (and speaking generally, I think he’s preaching to the choir in our group – at least on this issue).
Since I consider myself a liberal that is frequently at odds with U.S. liberal orthodoxy (and land use regulations and restrictions by county and municipal governments are something that many liberals love for various (and usually misguided) reasons), I give Krugman credit here for being a prominent liberal and raising this issue.
In short, Krugman missed the fact that land-use regulation aimed at urban containment results in inner-city gentrification because people have nowhere else to go once all the vacant land in the suburbs is developed.
More than a few environmental groups assert that this is a good state of affairs, usually because they hope it will “prevent sprawl” and get more people to ride public transportation.
Some, especially central city officials, will say that’s a good thing.
I have heard elected officials from suburban jurisdictions also claim that it is a good thing.
Krugman asks: “why do high-income Americans now want to live in inner cities, as opposed to in sprawling suburban estates?”
One of the obvious answers is that many of the wealthy people moving into inner cities are not Americans. In NY and DC , the number of foreign buyers of high priced urban dwellings is significant. If all the foreign buyers sold their holdings and stopped buying, prices in the rich parts of these cities would be much lower.
I am not saying this as a negative as I like the idea of foreigners investing their funds in the US. But Krugman (who knows better) should not ignore this very important part of analyzing why there is an increase in the number of high wealth city dwellers.
How much of the price is affected by land-use regulations in terms of what land may be used ( urban growth boundaries, wetlands, etc ) versus property-use regulations ( rent control, onerous regulations regarding renting, euclidean zoning, etc )?
“And as several recent papers have argued, the modern high earner, with his or her long hours — and, more often than not, a working partner rather than a stay-at-home wife — is willing to pay a lot more than the executives of yore for a central location that cuts commuting time. ”
~Krugman
I’d want to see some data before buying into this. Doing consulting / contracting a central location helps as every few months or year you’re working someplace else in the metro.
An exec isn’t doing that. They’re working out the of the home office – most of which are not downtown – or on the road. Even for those working in the core, I’m not sure we should attribute a growth in wealth in the core to execs any more than attributing a growth exurban wealth to the rise of aeropolis.
The Antiplanner is missing the point. Enough high-income Americans now want to live in inner cities who didn’t before that it’s running up the cost of housing in inner cities for everyone. Whether it’s a larger share than want to live in the suburbs or not doesn’t really mater.
I’m not sure what geographic area the Antiplanner is defining as the San Francisco’s suburbs, but I do know that absolute numbers won’t really tell you anything meaningful about which income group is “growing faster,” because, as the Antiplanner loves to point out, many more people live in SF’s suburbs than the actual city itself. By my own calculations using table B19101, the number of people earning more than $200K has increased by 125 percent from 2005 to 2014 in the city of San Francisco but only 87 percent in the SF Metro area excluding the city.
Apparently the Antiplanner has a hard time accepting that an increasing number of people at all income levels simply want to live in inner cities. Nope, gentrification’s gotta be caused by the land-use restrictions. All those people in Nob Hill would obviously rather be living in McMansions in Livermore.