Alice Wang showed the most convincing evidence I’ve read on net costs of urban highways, using Seattle data. Smartphone data reveals that people avoid trips that either cross or use a highway. She estimates that replacing highways with surface roads would increase welfare by a massive 9%. Most of the gain is from improved access to urban destinations. But the suburbs would be a bit worse off. (One weakness: she doesn’t reckon with capacity constraints, so she’s probably missing low on the traffic costs).

Interestingly, burying the highways has basically the same result. That’s because the suburbs’ loss is mostly a function of the redistribution of businesses.

Railroads and highways have equally large effects in terms of neighborhood fragmentation (Vikram Maheshri & Kenneth Whaley).

Can we integrate these types of barriers into spatial social science? Evan Mast has built a new neighborhood/district geography that usually lines up with highways, rails, and rivers. But the basis for his new geography isn’t trips or maps, it’s moves. I didn’t realize many people move within a neighborhood, but it’s apparently quite common.

Seth Chizeck won the student prize for research showing that free transit vouchers didn’t help outcomes for beneficiaries much.

Urbanites save more of their money than suburbanites with equal incomes and demographic profiles. Daniel Murphy showed that city dwellers spend more on housing and eating out, but so much less on durable goods, maintenance, and utilities that they end up with a higher rate of savings. One possible explanation is that suburbanites own more land, which is a form of savings. But that doesn’t explain why urban renters save more than similar suburban renters.

Murphy’s explanation is home size, which correlates with savings rates across countries…

…and across time:

I will confess I had no idea that U.S. density had grown so much from 2010-2020.

HISDAC-US is an impressive dataset. It provides an estimate of built-up density nationwide at a 250 meter grid from 1810-2015, based on Zillow’s ZTRAX records. The estimates are from work by Stefan Leyk & Johannes Uhl.

Texas counties that lost more soldiers in the Civil War had more urbanization from 1870-1900. (Phil Hoxie and Beatrice Lee).

Joshua Coven looks at the entry of institutional investors into Georgia’s housing market. They crowd out small investors, induce more construction, and decrease homeownership. The result is slightly higher prices, slightly lower rents, and more diversity in single-family neighborhoods.

In Colorado, water impact fees are a significant cost attached to every new home. Benji Edelstein showed how a shift from one-size-fits-all pricing to contextual pricing changed construction patterns. This research (not public yet) is well-timed: the Supreme Court’s Sheetz decision will make it hard to sustain flat pricing models when better data is readily available.

Raheem Chaudhry and Amanda Eng study children who grow up in NYCHA public housing – the largest and among the best-run in America. Children who move into NYCHA projects are more often than not moving from a worse neighborhood. And among children who live in NYCHA, those with more years are better off as adults.

Hector Blanco and Noémie Sportiche investigate Massachusetts’ “Chapter 40B” housing law, which allows mixed-income developments to bypass local zoning (after a tortuous process). Hector’s presentation interpreted the data in a YIMBY-friendly way: for most houses around most 40B sites, there is no measurable effect on prices or migration.

But you could flip it around: there is a large and significant loss of value for the immediate neighbors (up to 0.1 mile) of large 40B developments. And it makes renters, at least, more likely to move away.

By contrast, Joe Gyourko and Sean McCulloch reported a strong “Distaste for Density” using bordering municipalities (here’s an earlier version). Numerically, the distaste for neighbors’ density might be comparable to what Blanco and Sportiche found. But the authors framed it in the opposite way.

Each real estate listing belongs to one Multiple Listing Service (MLS) or another, sometimes with overlapping territory. When a sharing agreement between the Miami and Beaches MLS’s broke down, homes and buyers matched more slowly and prices fell. (Walter D’Lima presented this multi-author paper).

Rebecca Diamond’s keynote was a reminder that modeling choices matter. She thinks of permit process as a fixed cost that doesn’t vary with project size, an approach which yields predictably meh results.

Gordon Hanson’s keynote dealt with place-based policies. The most salient takeaway is that non-place-based policies, like Social Security and Medicaid, are more targeted to the poorest, neediest regions than the explicitly placed-based policies like tax incentives.

Urban economics is a rapidly growing discipline. Top students who wouldn’t have given it a thought twenty years ago are flooding into the discipline to take advantage of new data, powerful computers, and the gnarly-but-solvable public policy questions that 21st century cities present.

The post Hot takes and pensées, #UEA2024 appeared first on Market Urbanism.

Although I’ve been Erdmann’s colleague for most of this time, I’ve maintained wide priors on the question of credit standards. Many other scholars, left and right, are skeptical of the broad, century-long trend of encouraging (and subsidizing) homeownership. Whether or not Fannie & Freddie’s mortgage securitization constitutes a subsidy, it’s hard to argue that it doesn’t influence who can buy a home.

Too cheap to build

The excellent Kalamazoo Debate helped clarify things, probably because it isolates the credit issue from the supply issue.

• Rent in Kalamazoo has become surprisingly high
• But it’s not because of zoning-induced supply constraints
• Houses are still cheap relative to incomes

With these facts, Kevin’s story sounds very plausible:

• Regulators in 2007 shut off credit to marginal potential homebuyers
• Builders could no longer find buyers for entry-level houses, so they stopped building as many
• Rents have not been high enough to justify large-scale apartment construction
• Marginal potential homebuyers were left competing for the fixed stock of rental housing

There are some holes in this argument. Homeownership in Kalamazoo hasn’t changed much over time. Would a temporary 2% drop really shut off the supply of new housing? But if we leave Kalamazoo aside, the national decrease was much larger and the rebound incomplete, so maybe Kevin’s right nationally, at least for post-2000 analysis.

Filter-down economics

Can Kevin and the skeptics both be right? There’s no technical contradiction between these two points, they just have opposite vibes:

• The federal government and GSEs have subsidized homeownership through a variety of means and the US has more homeowners than it would have if the feds were neutral.
• Homeownership subsidies raise the price/rent ratio, keep construction brisk, and put downward pressure on rent.

(We can add: rental subsidies don’t boost construction much because they’re targeted to people who aren’t close to being able to afford new construction and/or because zoning limits the land available for multifamily construction.)

This doesn’t tell us whether subsidies are good or not. It wouldn’t exactly be a surprise if a milk subsidy made milk cheaper, right? Housing markets are weirder than milk markets, but it’s still not that weird to think that housing subsidies make housing cheaper.

MOAR MATH!

Just because the subsidy / filter synthesis is possible doesn’t mean it’s true. The pre-2000 homeownership rate was stable and lower than today’s. Was that just demographics? Is Kevin’s story correct for a working-class slice of the population but less central to the major trends than he believes?

It’s in big, general-equilibrium questions like this that we really need rigorous economic modeling. The facts are available. Can a model match these moments?

The post Toward an Erdmann synthesis appeared first on Market Urbanism.

First, it’s pretty obvious that Harris doesn’t mean 3 million total. That would represent a large drop in housing production; almost 1.5 million residences were completed in 2023. So it must be relative to something – the last four years, a projection into the next four, or some longer-term average.

The business cycle isn’t going to make this easy for Harris – starts in July were 33% below their 2022 peak. Just getting back to 2023 completion rates would be a policy victory! But Harris is right to want more.

How much would 3 million homes lower costs?

In a previous post, I explained how reasonable people can say that America has a 4-million home deficit or a 20-million home deficit. Both are useful ways to look at the problem. And no single cutoff is “right” in the sense that a housing cost crisis is a matter of degrees: each additional house lowers local rents by a tiny amount.

How much would 3 million new homes lower rents? We might like it if all of them were in high-demand places. But that’s not how politics works. So let’s say (optimistically) that 0.5 million net new units end up in the cheaper half of the country and 2.5 million end up in the expensive half. Let’s also assume that the new units are distributed in geography and typology in the same way as the existing stock.

A typical apartment in the expensive half of the country might have a rent of $3,000. Increasing the housing stock in that half by 3.4 percent (2.5m / 73m) would lower rents by something like 5 percent, bringing it down to $2,850. That’s really good!

In the cheaper half of the country, there’s more supply (we’ve assumed half a million homes) but also some outmigration. I’ve got no basis for this, but let’s guess that two-fifths of the new households in the expensive part of the country would otherwise have demanded housing in the cheap half. That gets us a 0.5 million unit increase in supply and a 1 million unit decrease in demand. A typical $1,200 apartment might decrease by 2.25%, to $1,173.

Devilish details

Of course, actual proposals cannot be as broadly simplistic as what I’ve sketched above. Some of Harris’ proposals, like giving large grants to first-time homebuyers, will tend to increase prices rather than decrease them. Others would affect only select cities (those adjacent to federal lands, for example). Nothing I’ve seen from the Harris campaign is likely to shake loose 300,000 building permits, let alone 3,000,000.

But the Harris target is good for two reasons:

• It explicitly acknowledges that availability is the central issue. It’s the reason prices are high, the reason inventory is low, and the reason people can’t find housing where they want it.
• The only way to measure success in an area as multifaceted as housing is to look at big-picture results. A Harris (or Trump) administration should take the same approach to federal grantees: don’t tell me your plans, tell me your accomplishments.

The post Harris’ housing target: Compared to what? appeared first on Market Urbanism.

Jane Jacobs wasn’t optimistic about the future of civilisation. ‘We show signs of rushing headlong into a Dark Age,’ she declares in Dark Age Ahead, her final book published in 2004.  She evidences a breakdown in family and civic life, universities which focus more on credentialling than on actually imbuing knowledge in its participants, broken feedback mechanisms in government and business, and the abandonment of science in favour of ‘pseudo-scientific’ methods. Jacobs’ prose is, as always, rich, convincing and successful in making the reader see the importance of her claims. Yet the argument that we are spiralling into a new Dark Age, similar to that which followed the fall of the Roman Empire, is not quite complete and I remain unconvinced that the areas she identified point towards collapse as opposed to merely things we could, and should, work to improve.

Let us start with the idea that families are ‘rigged to fail,’ as she puts it in chapter two. Jacobs, urbanist at heart, cites ‘inhumanely long car commutes’ stemming from the disbanding of urban transit systems, rising housing costs, and a breakdown in ‘community resources’ – the result of increasingly low-dense forms of urban development – as a significant reason why families are now set up for failure. She suggests our days are filled with increasingly vacuous activities, leading to the rise of ‘sitcom families’ which ‘can and do fill isolated hours’ at the expense of ‘live friends.’ That phenomenon has now been replaced by the ‘smartphone family’ where time spent on TikTok, and consuming other forms of digital media have supplanted the ‘sitcom’ family of the past. There has been significant literature on the detrimental effects of digital technologies to our physical and mental health, not least in Jonathan Haidt’s most recent book, The Anxious Generation. A similar picture is painted by Timothy Carney in his book Alienated America, where drawing on both his travels throughout the United States and on significant empirical data, Carney shows how significant parts of the United States have witnessed a complete breakdown in community and civic life over the past several decades. And yet – it is not clear that all of this points to a catastrophic ‘decline’ in civilisation as Jacobs puts it. We are fortunate to live in a country where there continue to be dynamic pockets of civic and social engagement. One might look at New York City, the suburbs of Washington D.C., or even the communities of Upstate New York, which I was recently fortunate enough to visit during a friend’s wedding, to see that there continue to be exceptions. This should lead to hope and optimism, for it suggests that whilst there are very real problems, so too do we have the tools to solve them and areas from which to draw inspiration. We could, and should, work to ensure our cities permit mobility, create the dense, lively and liveable neighbourhoods so brilliantly described by Jacobs in The Death and Life of Great American Cities, and encourage civic life by creating spaces instrumental to these activities. Yet so too should we recognise that different patterns for this exist, including in suburbs like Arlington and beyond. That diversity does not mean we are doomed for failure – quite the opposite as it can be seen as a form of experimentation and pluralism of values.

Now let us turn to the idea that our universities focus primarily on ‘credentialing’ rather than ‘educating’ – that higher education is now pursued primarily as a status symbol as opposed to for the inherent value it imparts to its participants. As a rising senior at Columbia University, one of these elite institutions, anecdotal evidence may be relevant here: there is definitely a pressure to excel in one’s GPA and secure the best grades possible, even to the detriment of actually learning. I have observed, amongst friends and coursemates, a tendency to pick classes that are easier and where teachers grade more nicely purely because of how it will look when applying to grad school and other professional endeavours. This is, in part, the price of a move towards meritocracy where individuals are (in theory) assessed on talent rather than on their connections or class and which therefore requires ever-more standardised measurements of individual success. Yet at the same time, coming to the United States has revealed that there exists a flourishing realm of liberal arts colleges and institutions that aim to go beyond pure credentialling and that do value education for its own sake. Hillsdale, Amherst and Middlebury are excellent examples of this. The pressure to attend elite schools goes beyond the status; these places are genuinely filled with some of the smartest and brightest people I have met, both from a faculty and student perspective. Jacobs is right to warn about the danger of higher education being sold to students as a ticket to some ‘elite’ strata of society, particularly given the significant expense and debt that students incur. And indeed university is not the right path for everyone, research has shown that other factors make a lot more difference to one’s professional success. Whilst Jacobs’ warnings are therefore valid, the issue is less acute in the United States where there is a significant financial reason to select a major and school that will impart actual knowledge and more of a problem in the United Kingdom and in Europe where subsidised higher education does mean that without a college degree, one will face significant difficulties in securing a position afterwards.

In the remaining portions of Dark Age Ahead, Jacobs identifies several other areas in very real need of reform, from the breakdown in self-policing of business and government to the abandonment of the scientific technique in areas like ‘traffic management.’ Her examples are vivid and teach the reader something, but they again fail to point to a wholesale breakdown in society as it is today. Most significant, however, is Jacobs’ analysis of the ‘dysfunctional’ financial arrangements of local and national governments which expand on Cities and the Wealth of Nations. National governments, in their current form, have a set of incentives at cross-purposes with how economies actually grow. By funnelling money away from cities and into ‘dead-end’ economic causes – in effect dispensing largesse – governments detract from the ability of individuals and firms within those cities to reinvest, innovate and find ever-more ingenious ways of ‘adding new work to old.’ Welfare, subsidies, and redistribution cannot drive a civilisation’s success. Only innovation and progress can, and if current trends persist, we may spiral into decline.

Where Dark Age Ahead excels in its analysis of the historical and theoretical concept of Dark Ages. The book ought to be read more for its historical analysis and its applicability to political economy and economics, than for its analysis of the contemporary issues identified, for as important as these are, more recent and accurate analyses can be found in Jacobs’ other books and those of other scholars. This book underscores the importance of not taking our institutions for granted, of promoting entrepreneurship and innovation so as to move ahead, and of constantly revisiting the Great Thinkers from the past.

In conclusion, Dark Age Ahead contains some real golden nuggets and makes for a compelling read for those wanting to understand the historical dynamics of dark ages and some of the dangers we currently face. Yet for the reader unaccustomed to the work of Jane Jacobs, I would instead suggest reading The Economy of Cities, which better urges one to rethink where growth happens and why cities are the driving force of civilisation.

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Continuing this series of book reviews on Jane Jacobs’ works, I now turn to Cities and the Wealth of Nations. But there is already a fantastic piece on the Market Urbanism website, by Matthew Robare, who reviews this book and outlines what Jacobs overlooks in her analysis. So, this piece takes a slightly different angle: inspired by (but not limited to) Jacobs’ ideas, it aims to highlight what mayors, governors and urban policymakers could do differently if they are serious about developing their cities into economic powerhouses. Here are some of the most important takeaways from this book and also how they can be expanded upon.

(1) Focus on cultivating import-replacement

The economies of cities do not grow out of nothing. They grow by adding productive new forms of work to old ones, by innovating, and by being cultivators of new ideas and techniques. This process of cataclysmic growth – that Jane Jacobs describes as ‘import-replacement – occurs when a city takes its existing imports and builds upon them, either improving its production through lowering costs, increasing quality, or innovating. The market for these additional goods can either be found within the city itself or serves to expand the city’s exports. These exports, in turn, bring in additional resources to either acquire additional imports or be reinvested into fuelling the processes that fuel import-replacement. Not for nothing does Jacobs describe import-replacement as a ‘cataclysmic’ process – these changes often happen over a very short period and can bring about a rapid influx of people, ideas and capital. We see this in New York City, which grew from half a million residents in 1850 to over 3.4 million at the dawn of the twentieth century. Detroit went from having 250,000 residents in 1900 to a peak of 1.8 million by 1950. Delhi went from a population of 1.4 million in 1950 to almost 33 million in its larger metropolitan area today. That import-replacement is such a simple idea also makes it one of the most crucial to understand for policymakers. At the end of the day, a city can provide everything it wants in terms of amenities, sprawling parks, leisure centres and cultural venues, but without that fundamental process of import-replacement taking place, an urban agglomeration will not grow and will be confined to decline. To quote Jacobs: ‘artificial symptoms of prosperity or a “good image” do not revitalize a city, but only explicit economic growth processes for which there are no substitutes.’ (The Economy of Cities, Pg 200).

So much for that idea; it is clear that import-replacement must be at the heart of any policy for urban development. How can policymakers leverage this idea when it seemingly depends so much on individual decisions made by companies and entrepreneurs? The first thing to address is what are the barriers that prevent economic import-replacement? Are land-use patterns overly strict and restrictive to new and innovative types of industry? Central to the idea of import-replacement is the idea that new forms of businesses, processes and industries will arise that cannot be foreseen in advance. It is therefore crucial that land-use regulation permits new forms of industries to emerge.

The process that Jacobs describes transcends individual policymakers, instead relying on decisions by financial institutions, entrepreneurs, and thrifty individuals. This should not lead to hopelessness. I would argue (and Jacobs, through her expansive uses of historical examples) that enterprise and trade come very naturally to human beings if the conditions are right. Whilst this does not guarantee that any city can become an economic powerhouse, since important factors including geography, human capital, and chance also play an important role, almost every region contains a dominant urban agglomeration. By minimising barriers to trade and commerce in these areas, ensuring regulation, taxes and land-use is conducive to growth rather than acting as a resistor, cities can begin to tap into the power of import-replacement and grow their economies and those of the regions surrounding them.

Finally, where I diverge from the libertarian-purist perspective is that I argue urban policymakers can play an active role in cultivating growth. For example, by creating forums for entrepreneurs to come together and exchange ideas, encouraging universities to collaborate with businesses so that jobs are created within the city (see HEC Paris’ incubator), and making sure the basic needs of the city (sanitation, safety, etc) are met, cities can help to kick-start the process of import-replacement.

One policy that seldom works, however, is offering large subsidies to companies to locate in a city – often in the form of tax breaks or land grants. There is significant literature outlining how this greatly distorts the allocation of resources on a national (and international) scale. Yet the idea is nonetheless tempting to policymakers if they think it’ll bring regional benefits. The research on this does not suggest this is the case – as highlighted in a recent essay published by the Center for American Progress. Jacobs provides a clear reason for why this is the case in both The Economy of Cities and Cities and the Wealth of Nations. Put simply, big businesses which are ‘transplanted’ into smaller cities do not bring about import-replacement because they are already tightly vertically integrated. Smaller businesses, however, are more likely to tap into an existing or nascent eco-system of other businesses – in a city or elsewhere – to produce its goods. This greatly increases the likelihood of innovation and new techniques being adopted as competitors strive to improve quality and lower prices. Money spent on providing large subsidies can therefore be put to much more effective use if it is instead returned to businesses as a tax cut or channelled into the other factors that encourage import-replacement.

(2) Look at what your city does well

It is not the case that cities can purchase development by simply luring in companies, through tax breaks or other means, to set up transplants in their regions. ‘Development cannot be given, it has to be done. It is a process, not a collection of capital goods,’ notes Jane Jacobs on page 119 of Cities and the Wealth of Nations. For urban policymakers, the lesson that can be drawn from this is that the focus should be placed on the existing things a city or metropolitan area does well. It would be nonsensical for a city like Fort Wayne, Indiana, to spend billions of dollars trying to become the next Silicon Valley. Agglomeration effects matter and remain a central part of how import-replacement happens. For more effective, for small and medium-sized, is to focus on what they already do well and aim to cultivate those industries. This is less difficult than it seems for again, individuals and businesses have a remarkable ability to innovate and lead the import-replacement process themselves if the conditions are right. For urban policymakers, the focus should therefore be on identifying bottlenecks in cooperation. Are land prices prohibitive to the creation of new industries and could zoning reform unlock additional growth? Is the city the kind of place that would attract potential talent, or is crime, housing availability and educational provision undermining its ability to do so? Again, whilst actively picking and choosing winners and losers seldom works, there is an active role that policymakers can play in helping to cultivate growth in existing sectors that are performing well. Cities could partner with chambers of commerce to ensure that businessmen are connected, and ideas spread faster. Collaboration with banks and financial institutions could provide seed money for new businesses to emerge. By first focusing on the basics, then looking at the particular areas of success and finding ways to encourage them further, a city can help kick-start the growth-replacement process.

(3) Beware of over-specialisation

Import-replacement depends on specialisation. Both Jacobs and later, Edward Glaeser (in Triumph of the City) highlight the importance of urban agglomerations which increase the spread of ideas and allow firms to produce new goods and ideas without having to start from scratch. Chris Miller’s Chip Wars provides a vivid description of how this process played out in Silicon Valley, noting how specialisation allows each company to focus on adding value at one specific part of the supply chain, to the point where countless companies now focus solely on chip design, others, like GlobalFoundries focus on manufacturing, yet others on marketing, transportation, the production of equipment. It is far easier to start a company in an environment where not every aspect of the supply chain needs to be replicated and companies instead tap into an existing eco-system. The odds of innovation grow significantly, as a result of lower barriers of entry.

Except over-specialisation is at cross-purposes with the long-term success of a city, if it means that it cannot recover or surmount shocks in global supply and demand. Take the classic example of Detroit, which specialised very heavily in automobile production over the first half of the twentieth century, this growth almost entirely led by private enterprise. When automation and increased foreign competition led to a decline in the Motor City’s primary industry, workers had few alternatives. Many just left, leading to a precipitous population decline from 1.8 million to just over 640,000 today.

I will again stress that a lot of the economic dynamics occurring within a city are not things that policymakers can directly control. Subsidies might work in the short term, but as noted above, their success is very limited in the long run and the money might instead have been returned to residents in the form of a tax cut. Furthermore, no single policy prescription will work for all cities, since each faces a unique set of problems and challenges and mayors must look closely at the problems confronting their particular city.

There are nevertheless some takeaways from Jacobs’ works that might apply here and that mayors and other urban leaders could take to their cities. First is that space and layout matter. Jacobs presents a view of cities that very heavily emphasises the importance of walkability and access. I would push back a little and say that perfect walkability is not always necessary. Yet enterprises and households should be in relative proximity to each other to foster greater exchange of ideas and collaboration. A fifteen-minute drive on the highway might not make a difference. A fifty-minute drive in chock-a-block traffic would. The other ingredients to fostering urban diversity (still allowing for specialisation but in various sectors) include mixed uses of land, sufficient density to provide businesses with customers, older buildings to allow for experimentation (new or experimental businesses often can’t afford new units where costs are very high), and smaller blocks to allow for more street frontage.

Jacobs’ analysis of the factors cultivating urban economic diversity is sound, but it requires further expansion if it is to apply to traditional industry and the new creative industries. In addition to these factors, cities and states should also ensure their processes allow for flexibility and collaboration with regard to permitting and other legislation; they should ensure their processes are clear and transparent, and they should keep costs at a minimum.

Simply wishing for prosperity won’t make it so. The reality is that urban success depends on governance, ideas, and some degree of luck. But another remarkable fact emerges from the literature of Jacobs’ and others I have buried myself in over the last few weeks: human beings have an incredible ability to collaborate and innovate if left to do so. It’s a hopeful takeaway, for it means that success doesn’t depend on policymakers’ abilities to play economic planners and run a city. Focus on the basics, eliminate barriers to growth, advocate for your city, and you may well turn the odds slightly in its favour.

The post Lessons from Cities and the Wealth of Nations: a manual for urban policymakers appeared first on Market Urbanism.

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 this merely raises another question: how did the Agricultural Revolution that took place ten millennia ago come into being? Jane Jacobs’ (very compellingly argued) answer is that we’ve got it all backwards: the city is what makes civilisation possible. Agriculture, and everything that proceeded from it, is merely an export of the city, just like the factories, automobiles, and microchips which first arise in cities and are then spun out into a region’s wider territory.

Here’s how it might have happened: at some point in the distant past, the world was parcelled up into territories controlled by various packs of hunter-gatherers. But hunter-gatherers need tools to hunt. Those tools, in turn, are produced by a couple of basic commodities: at first primitive stone tools, then increasingly complex spears made from obsidian and glass, and finally weapons made with copper and iron. As our tools became increasingly complex, their production necessitated resources obtained from particular locations – not available everywhere by obtainable through trade. Hence the rise of the world’s first cities: places where people would come together and barter for those primary sources of production, necessitating permanent civilisations. The surplus from trade, captured and enabled by the city, could then be allocated to new and innovative uses of labour.

Animals, for example, were held for the local trading population, at first for immediate consumption, but then it made sense, as the surplus increased, to breed them in new and innovative ways. Hence the rise of animal agriculture – first in cities, then as land became more valuable, spun off into the surrounding countryside. So too for the seeds which led to plant agriculture: initially for immediate consumption, their storage (and the surplus entailed) permitted experimentation with cross-pollination and paved the way for more advanced plant agriculture. Agriculture, Jacobs shows us, was perhaps the very first significant export spun off from cities!

Jacobs herself notes the idea is surprising, for it completely reverses the typical chain of cause-and-effect that we are so familiar with and that comes so intuitively. After all, in our everyday observations, it is rural areas which become developed into cities, hence why we might believe that first came agriculture. But this cannot be the case: further archaeological research has indeed confirmed Jacobs’ theories, showing that large-scale urban centres in Mesoamerica and Mesopotamia (see the example of Göbekli Tepe) preceded the agricultural revolution. Civilisation, made possible by the agricultural revolution, quite literally emerged with the advent of the world’s first cities.

The striking thing is that this is still the case today. Just like in the earliest cities, which permitted innovation when new work was added to old work and advancements in technique were made – quite literally creating new industries and products through the experimentation that surplus permits – cities continue to be the base of all human innovation and ingenuity. For it is in the city that ideas permeate most effectively, that humans collaborate and learn from one another, building on previous knowledge and success.

For new firms to start, they require a rich ecosystem of existing knowledge on which to base new ideas and innovation. They require capital to turn ideas into reality, that capital being just one of the many exports that cities provide. In turn, as innovations and products emerge in cities, these are added to a city’s exports, growing its markets for additional goods imported from elsewhere.

Every city is, in this way, deeply interconnected and reliant on the success of the cities that came before. What’s curious is that Jacobs doesn’t define the city in terms of scale; rather, to be considered a city (as opposed to a large town), an agglomeration must have the capacity for economic self-generation – in other words, it must be able to sustain itself through this innovative process of adding new work to old work, innovating at every increment.

There is no end to the potential growth that might emerge from cities. In Jacobs’ words: ‘once we stopped living like other animals, on what nature provided us ready-made, we began riding a tiger we do not dare dismount, but we also began opening up new resources – unlimited resources except as they may be limited by economic stagnation.’ The potential growth stemming from cities is precisely because they draw on more than the immediate resources provided in their vicinity. Rather, cities grow, replacing imports and imports, through human ingenuity, talent and the application of ideas to concrete problems.

It has often been proclaimed, particularly in the environmentalist movement, just like the Malthusians that came before, that the human race faces an impending destruction for there comes a point at which we simply run out of resources. That is not the case, when one understands the process that Jacobs is describing. Planet Earth contains almost the same resources that it did twelve millennia ago when absolute poverty was the rule everywhere. In bringing millions of people together in one place and setting in motion this process of constant economic renewal and improvement, wealth was created as ideas about how to reorganise those same resources spread so much faster, setting off a process of ‘cataclysmic reciprocal growth.’

It’s hard to let go of old ideas in favour of new, sounder ones, especially when they are so deeply entrenched. Yet despite there being evidence, quite literally all around us, that it is cities that create growth, policy remains firmly grounded in the old paradigm. Policies aimed at spreading or redistributing wealth across nations as a way of developing them achieve nothing of the sort. It might provide temporary relief (more likely the gains will be captured by some vested interest) but does little to kickstart the self-generating, reciprocating growth process that allows cities to grow. Nor can industrial policy, subsidies to lure big enterprises, or tariff barriers create the growth or desired effects. Big companies, Jacobs goes at length to explain, are highly efficient because they are very vertically integrated. Yet the real growth engine for cities is smaller companies, operating with some level of slack that permits them to expand into new markets and carry out the process of adding new work to old (or in other words, further specialisation).

Then there is the countryside and rural areas. The Economy of Cities is brilliant because Jacobs’ shows us that their development is entirely dependent on the development of cities, and not the other way around. Cities, and the activities that occur within, are what produce the growth that is then expanded out into the countryside as space becomes scarce and new innovative uses for capital and land are found in cities. The success of our cities is therefore not a zero-sum game, it is something of importance to every single one of us.

Politicians, city planners and those in the development space ought to pay close attention to these. Growth cannot be bought; the only way to achieve it is to focus on cultivating its underlying drivers.

The post Lessons from Jane Jacobs on The Economy of Cities appeared first on Market Urbanism.

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 post Can YIMBY policies cause large price declines? appeared first on Market Urbanism.

But the paper has a glaring omission. Although it is a test of a basic implication of the traditional Alonso-Muth-Mills model, the paper never mentions that model. Worse, it presents a naive supply-and-demand curve as “the traditional model” of housing supply:

To be sure, linear supply curves show up in plenty of work. But those are shortcuts, conveniences, reductions. Tradition is much richer.

A property of circles

Orlando and Redfearn didn’t need very complex math to show that the housing supply elasticity should fall as a city grows. Think about how much land is available at the urban fringe relative to the size of a circular city. The length of the perimeter is 2(pi)r, the area is (pi)r^2. So the ratio is 2/r.

In words: the bigger a city gets, the smaller the fringe is relative to the existing area.

A related implication is that bigger cities are more expensive, all else equal. Orlando and Redfearn find evidence consistent with this implication. In the absence of a model, their evidence leads to fatalistic conclusions:

Texas is moving more toward California-style outcomes with regard to housing supply—and therefore faces the prospect of rising house prices in the years ahead.

That’s partly true. If they put their empirics into a model, they can quantify approximately how much.

A hymn of thanksgiving

The takeaway from this new paper shouldn’t be “Texas is doomed” but “you can slightly increase your trust in the Alonso-Muth-Mills model.”

It wouldn’t have been surprising if a simplistic model of cities turned out to be unhelpful for understanding the real world. Instead, it continues to be proven useful – urbanists should be thankful to have such a powerful tool in their belts.

The post “The traditional model” appeared first on Market Urbanism.