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Category Economics

Lessons from Jane Jacobs on The Economy of Cities

At the heart of Jane Jacobs’ The Economy of Cities is a simple idea: cities are the basic unit of economic growth. Our prosperity depends on the ability of cities to grow and renew themselves; neither nation nor civilisation can thrive without cities performing this vital function of growing our economies and cultivating new, and innovative, uses for capital and resources. It’s a strikingly simple message, yet it’s so easily and often forgotten and overlooked. Everything we have, we owe to cities. Everything. Consider even the most basic goods: the food staples that sustain life on earth and which in the affluent society in which we now reside, abound to the point where obesity has become one of the leading causes of illness. Obesity sure is a very real problem and one we ought to work to resolve (probably through better education and cutting those intense sugar subsidies). Yet this fact alone is striking! For much of mankind’s collective history, the story looked very different: man (and it usually was a man) would spend twelve or maybe more hours roaming around in the wild to gather sufficient food to survive. Our lives looked no different to the other animals with which we share the earth. An extract from The Economy of Cities: ‘Wild animals are strictly limited in their resources by natural resources, including other animals on which they feed. But this is because any given species of animal, except man, uses directly only a few resources and uses them indefinitely.’ What changed? Anthropologists, economists, and historians will tell you it was the Agricultural Revolution, which occurred when man began to settle in small towns and cultivate the agricultural food staples that continue to make up the bulk of our diet: wheat, barley, rice, corn, and animal food products. But […]

Can YIMBY policies cause large price declines?

Kevin Erdmann offers a helpful corrective to the “YIMBY triumphalism” of claiming that large relative rent declines in Austin and Minneapolis are results of YIMBY policies. He’s mostly correct, especially about the rhetoric: arguing about housing supply from short term fluctuations is like arguing about climate change based on the week’s weather. Keep your powder dry, promise slow change and long-term stability, and recognize that demand shocks are responsible for most fluctuations. But Erdmann makes a stronger claim: Supply has never and will never cause a collapse of prices and rents. It causes stability.  Is that true? In a case like Austin or Phoenix, sure: prices are not too far above the cost of construction, and abundant supply cannot (durably) push the price of new housing below the cost of construction. But YIMBY has more to offer to San Francisco, Auckland, or London. In those cases, prices are far above construction cost. That means that even when demand is relatively soft, there’s money to made in construction. As Erdmann allows: After a decade of more active construction in Auckland, rents appear to be 10% to 15% below the pre-reform trend. That’s a big win. After a decade. That’s what success looks like. That’s the promise – 5 to 15% relative rent declines, decade after decade. But there are several good reasons to believe this won’t happen in an even, steady pattern, at least not all the time. Hopefully by 2040 we’ll have data from several cases and be able to describe the dynamics of market restoration with much more confidence.

The urban economics of sprawl

Should YIMBYs support or oppose greenfield growth? Two basic values animate most YIMBYs: housing affordability and urbanism. Sprawl puts those values into tension. Let’s take as a given that sprawl is “bad” urbanism, mediocre at best. Realistically, it’s rarely going to be transit-oriented, highly walkable, or architecturally profound. So the question is whether outward, greenfield growth is necessary to achieve affordability. And the answer from urban economics is yes. You can’t get far in making a city affordable without letting it grow outward. Model 1: All hands on deck Let’s start with a nonspatial model where people demand housing space and it’s provided by both existing and new housing. Existing housing doesn’t easily disappear, so the supply curve is kinked. A citywide supply curve is the sum of a million little property-level supply curves. We can split it into two groups: infill and greenfield, which we add horizontally. If demand rises to the new purple line, you can see that the equilibrium point where both infill & greenfield are active is at a lower price & higher quantity than the infill-only line. The only way to get some infill growth to replace some greenfield growth, in this model, is to raise the overall price level. And even then, the replacement is less than 1-for-1. Of course, this is just a core YIMBY idea reversed! In most U.S. cities, greenfield growth has been allowed and infill growth sharply constrained, so that prices are higher, total growth is lower, and greenfield growth is higher than if infill were also allowed. At the most basic level, greenfield growth is simply one of the ways to meet demand. With fewer pumps working, you’ll drain less of the flood. Model 2: Paying for what you demolish Now let’s look at a spatial model where people […]

And the Oscar for best paper goes to…

A friend asked what are the best papers supporting land use liberalization. That’s a broad question, but here are some of my answers. Affordability The basic case for zoning reform, across the political spectrum, is that the rent is too damn high. Michael Manville, Michael Lens, and Paavo Monkkonen give a combative and accessible review of the evidence in their Urban Studies paper (2020). The principal drawback is that it is rapidly becoming dated, as evidence and research come in from more recent reforms. The most important of those may be Auckland’s, which Ryan Greenaway-McGrevy has reported in a few papers, including this Economic Policy Center working paper (2023). Using a synthetic control method (which is not perfect, to be sure), Greenaway-McGrevy finds that upzoned areas had 21 to 33 percentage points less rent growth. A new candidate for the best review of the evidence on zoning reform and affordability is Vicki Been, Ingrid Gould Ellen, and Katherine M. O’Regan’s late 2023 working paper, “Supply Skepticism Revisited.” Racial integration Many authors from different disciplines have shown that both the intent and effect of zoning as practiced in the U.S. were racist and classist. That is, zoning policies have separated people by race, homeownership status, and income more than would have occurred in an unregulated market. Allison Shertzer, Tate Twinam, and Randall Walsh’s review of the evidence in Regional Science and Urban Economics (2022) is concise and helpful. However, fewer authors have attempted to show that removing specific zoning restrictions reduces existing patterns of segregation. One is Edward Goetz, in Urban Affairs Review (2021). He makes a qualitative argument. I’m unaware of a good causal, quantitative paper showing how broad upzoning impacts local integration (but I would happily commission it if anyone wants to write it!) Environment & climate Along some […]

Should governments nudge land assembly?

For a reading group, I recently read two papers about the costs and (in)efficiencies around land assembly. One advocated nudging small landowners into land assembly; the other is an implicit caution against doing so. Graduated Density Zoning Although he’s mostly known for parking research and policy, Donald Shoup responded to the ugliness of eminent domain in Kelo v. City of New London, with a 2008 paper suggesting “graduated density zoning” as a milder alternative. Graduated density zoning would allow greater densities or higher height limits for larger parcels – so that holdouts would face greater risk. Samurai to Skyscrapers Junichi Yamasaki, Kentaro Nakajima, and Kensuke Teshima’s paper, From Samurai to Skyscrapers: How Transaction Costs Shape Tokyo, is a fascinating and technical account of how sweeping changes put the relative prices of different-sized lots on a roller-coaster from the 19th century to the present. First, large estates were mandated as a way for the shogun to keep nobles under his close control. Then, with the Meiji Restoration, the nobles were released to sell their land, swamping the market and depressing prices. The value of land in former estate areas stayed low into the 1950s. But with the advent of skyscrapers – which need large base areas – the old estate areas first matched and then exceeded neighboring small-lot areas in central Tokyo. A meta-lesson from this reversal is that “efficiency” is a time-bound concept. One can imagine a 1931 urban planner imposing a tight street grid and forcing lot subdivision to unlock value on the depressed side of the tracks. That didn’t happen; instead, the large lots were a land bank that allowed a skyscraper boom right near the heart of a very old city, helping propel the Japanese economy beyond middle-income status. We should take a long, uncertain view of […]

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