Avent on Cities: Understanding Part of the Equation

Ryan Avent hits a home run, strikes out and earns a "yes, but," all in the same article ("One Path to Better Jobs: More Density in Cities") in The New York Times.

A Home Run on Housing Regulation: Avent rightly notes that the land-use and housing regulations of metropolitan areas like San Francisco have not only driven housing prices higher, but also negatively impacted economic growth. Studies in the UK, the US and the Netherlands have demonstrated that significant restrictions on land use (called smart growth or urban containment) lead to reduced employment and economic growth in metropolitan areas. His comparison to OPEC is "right on" – that metropolitan areas like San Francisco have squeezed the supply of housing, which, of course, drives up house prices, just as restricting the supply of any good or service in demand will tend to do. Avent is also right in noting that high housing prices have driven huge numbers of people out of the San Francisco Bay Area to places like Phoenix. According to the Census Bureau, nearly 2,100,000 people moved from Los Angeles, San Francisco, San Diego and San Jose between 2000 and 2009 to other parts of the country.

Striking Out on Density: The strikeout results from assumptions that are patently wrong. Cities (urban areas) do not get more dense as they add population. They actually become less dense. For example, the New York urban area has added 50 percent to its population since 1950, yet its population density has dropped by 45 percent (Figure 1). Between 2000 and 2010, most metropolitan population growth, whether in San Francisco, New York, Phoenix, Portland or Houston, was in the lower density suburbs (see: http://www.city-journal.org/2011/eon0406jkwc.html ). The same dispersion is occurring virtually around the world (see: http://www.demographia.com/db-evolveix.htm), from Seoul, to Shanghai, Manila and Mumbai. Rapid urban growth would mean even further dispersion and lower densities, not the higher density neighborhoods Avent imagines. Nonetheless, allowing the more affordable detached housing that people prefer would likely lead to stronger economic growth and more affluent residents in the San Francisco and other over-regulated metropolitan areas.

A "Yes, But" on Productivity: Any comparison of incomes between metropolitan areas needs to take into consideration the cost of living. For example, the San Francisco Bay Area (San Francisco/San Jose) is one of the most expensive places to live in the country. The median house price is more than 2.5 times that of Phoenix, after accounting for income differentials. Avent does not control for the difference in the cost of living, which is largely driven by the higher cost of housing. The lower cost of living neutralizes much of the impact of lower incomes (such as in Houston) in metropolitan areas like Houston, Dallas-Fort Worth, Indianapolis, etc., where the OPEC model has not been applied to land use regulation.

Finally, even controlling for the cost of living, there are substantial exceptions to any density-productivity thesis. For example, some of the greatest productivity gains information technology have come out of the Seattle area, which is the least dense major urban area in the 13 Western states, less dense than Houston, Dallas-Fort Worth and Phoenix. Even more impressively, Seattle's urban density is barely one-half that of New York or San Francisco (Figure 2), yet its gross domestic product per capita is higher than New York and within 2 percent of San Francisco/San Jose. Seattle's substantial contribution to the nation's productivity has occurred while its population density was declining nearly 15 percent (since 1980).  

Avent, like many analysts before appears to presume that population growth means higher densities. In fact, urban areas grow by dispersing, not densifying.