Eric Levitz writes in New York about America's housing crisis:
The scale of our folly only becomes clear when the second-order effects of the housing crisis are brought into view. The most productive and economically vibrant parts of the U.S. are also the places where housing supply has lagged most egregiously behind demand....According to one 2019 study from economists at the University of Chicago and UC Berkeley, if New York City, San Jose, and San Francisco loosened zoning restrictions that forbid high-density housing construction, America’s total gross domestic product would increase by 9 percent. Put differently, average annual earnings in the U.S. would rise by roughly $8,755.
If we merely loosened zoning restrictions in two places, average pay nationwide would increase $8,755? That seems a little unlikely.
More generally, I'm very, very skeptical of this whole notion that increasing the population of our biggest cities would automatically turbocharge the economy. After all, Africa, Asia, and South America are chock full of megacities, but it's Europe, Australia, and North America that are the economic leaders of the world.
So let's take a look at this. For starters, here are quotes from a couple of papers about the productivity advantages of big cities:
In line with the previous literature, the analysis confirms that city productivity tends to increase with city size; doubling city size is found to be associated with an increase in productivity of between two and five percent.
The metropolitan labor market—defined as the actual number of jobs in the metropolitan area reached in less than a 1-hour commute—is almost twice in size in a U.S. city with a workforce twice the size.
The first paper tells us that we can get a ~3% productivity increase if we double the size of our biggest cities. Double! The second one says that if we increase density by 2x, the number of jobs increases less than 2x.
Color me less than impressed. A stretch goal for upsizing our cities would be in the vicinity of 20% growth. That might—might—produce a 0.7% increase in productivity. That's not even measurable. And the price to pay is fewer jobs per worker.
Besides, what accounts for the increase of productivity in cities? The usual answer is tight linkages, sharing of information, ease of changing jobs, etc. But I'll put my money on something else. Here's a hint:
Worldwide, productivity is strongly correlated to education. Here's the United States:
This chart comes from the lefties at EPI and it shows the same thing: productivity is very strongly linked to education. Now here's the education level in urban vs. rural areas:
The big difference is not between big and small cities, or between cities and suburbs. They're all about the same. The difference is between urban and rural.
This is all just a scattering of data, not any kind of rigorous study. Still, the conclusion is pretty obvious and also pretty reasonable: the real productivity booster is education. Cities aren't more productive because they're denser, they're more productive because it's where college-educated folks live. Increasing the size of big cities is unlikely to increase productivity at all unless you make sure to attract an outsized number of people with college degrees. This, of course, would make our rural areas even worse off.
The more obvious solution, if you really care about productivity and economic growth, is to try to increase the educational level of towns and rural areas. That's no easy task, but then again, neither is fighting endless bloody battles with city residents over every half percentage point in increased density.
POSTSCRIPT: On another point, I do wish that people would stop saying that "the US" has a housing shortage of 4 million or 5 million or whatever. The right way to put it is that California has a housing shortage of 4 or 5 million and everyone else is in roughly decent shape.
Education will save us. Also, AI will take over jobs requiring education. So, education in forest work or massage then?
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I don't think you can disentangle density and education in cities. Why do companies locate there and why do better educated people choose to live there? At least part of that is the density and the benefits it brings residents and businesses such as "tight linkages, sharing of information, ease of changing jobs". But that doesn't mean productivity has some unlimited linear relationship and growing cities indefinitely will just add to the benefit. But I think there is probably a huge difference driven by density between rural and urban areas.
There are no doubt college educated people who delight in big city life. I don't know any of them, but they must exist. I don't think that explains the lower education levels in rural and semi-rural areas. There are many advantages to life in small cities and towns, but the many local employers who used to provide jobs for the college educated there have been eviscerated. The whole program of pro-globalization, neo-liberal economics, and exaltation of the corporate pirates' mentality of the last 40+ years has destroyed the factories, banks, and businesses that were the life-blood of such places.
You may think of a factory as a place that employs the less educated. Of course that is true. The average person on the floor is high school grad or a little less. But machine shops need people who can set-up machines, program them, and run them. These people need skills and smarts and job specific education. Factories need managers, clerks, engineers, and accountants. Often development labs get co-located with factories. Often marketing and top level business management ends up there as well.
These activities create the need for lots of local services from grocery stores (they need managers) to accounting and law firms.
The destruction of American manufacturing over the last 40+ years destroyed all this. It is very common to find towns that were once vibrant with half the population they had in 1980. This is not the result of natural law, but decisions made by the moneyed class to further their own interests at the expense of the nation.
I'm tempted to go into the Nixon era's attack on the agricultural allotment system. That New Deal era program made it possible for a small farmer to make a living and, he in turn, helped keep the small towns going. Now all the farming seems to be done by big farmers. Three big farmers may grow as much as 60 small farmers, but they don't do much to keep a town alive.
you seem very worked up about a bunch of stuff i said nothing about.
Your argument is that jobs go to cities because that's where the college educated are. My argument is that college educated people go to cities because all the remaining jobs are there.
Couldn't figure that out?
yup, real mad. and again, not sure how it is that you get to tell me what my argument is. but whatevs.
The destruction of American manufacturing over the last 40+ years destroyed all this.
The US manufacturing sector is far from "destroyed" and is at or near an all time high in terms of value added here in 2023. Of course, the fantastic productivity gains achieved by American factories means we don't need the same number of workers. Which is a good thing. I live in a country where manufacturing still accounts for a massive share of jobs: such an arrangement is manifestly inferior to a modern, services-heavy economy in every way imaginable.
America's problem isn't loss of manufacturing jobs. Every rich country has seen a decline in manufacturing's relative economic importance. America's problem is insufficient redistribution and an ineffective, patchy safety net.
“There are no doubt college educated people who delight in big city life. I don't know any of them, but they must exist.”
This makes you sound pretty silly, FYI.
I'll agree with the need for a dramatically better distribution of income.
But, American manufacturing is a hollow shell of what it was. It didn't have to be that way. Ronald Reagan takes office and the American machine tool industry is #1 in the world. High interest rates yield a high dollar and Reagan spurns the machine tool industries pleas for help and we're #10.
Of course if every MBA earned over the last 60 years came with an letter of exile, the whole economy would be dramatically better. Not all education is of value.
Maybe I am silly. Maybe you are. I can't imagine living in a big city and remaining sane.
Each his own. However, young college educated people like hanging out with other young college educated people. Therefore they gravitate to NYC. Pretty simple. It’s a fun place for the young.
Since the majority of people in this country live in cities I doubt they're all unhappy. Your personal opinion doesn't really mean much.
Productivity becomes a slippery concept when applied to most office work, which is most of the high paying city jobs. For a worker in a widget factory, productivity is easily measured; number of widgets produced per person hour worked. The productivity of the managers of the widget factory is harder to quantify. the productivity of the people at corporate headquarters simply CAN'T be measured in output terms. Typically, no effort is made to measure office worker productivity in terms of output per person hour; instead, it is simply assumed that productivity is proportional to pay; I would suggest that workers in bigger cities are not, in any real sense, more productive than their counterparts in smaller centers; they're just paid more.
Bingo!
"The more obvious solution, if you really care about productivity and economic growth, is to try to increase the educational level of towns and rural areas."
I WISH the solution was that simple. Given that approximately 1/3 of college graduates are currently underemployed, its far from certain that increasing the local educational level will have broad benefits. We already have too many Uber drivers and barista's with college degrees....
Are 33.8% of all college graduates underemployed?
The underemployment rate for recent college graduates is higher than that of the general population. About 41% of recent college graduates — and 33.8% of all college graduates are underemployed, working in jobs that don't require a college degree, according to the Federal Reserve Bank of New York.
So maybe we don't need everyone to have a college education.
So maybe we don't need everyone to have a college education.
Well that's good, because America is very far from enabling "everybody" to have a college education. Indeed, the country's level of education attainment—once the envy of the world (Americans in their 80s are are more likely to be university graduates than 80-somethings in most other rich countries)—is showing signs of stagnation.
Size of cities
IMHO as a city gets larger there is an improvement in productivity
Customers/suppliers/workers - all closer together
However that is not an open ended slope - at some stage (my guess is about 1 million people) - the slope levels off - and as the size increases further the negatives take over and the slope will start to go down
KD sez:
> I do wish that people would stop saying that "the US" has a housing shortage of 4 million or 5 million or whatever.
Santa Fe, a small city of 80k people, is estimated to be short by at least 2500 units per year. Furthermore:
------------
With the median sale price of homes over $500,000 and the top price a family earning the median income can afford at $300,000, there’s a huge gap of homes that will never be built.
The report says 70 percent of the population can only buy if homes were under $300,000. Turn the pages of this newspaper, and see if you can find even one you’d be willing to live in.
-----------------------
https://www.santafenewmexican.com/news/real_estate/the-data-behind-santa-fes-housing-crisis/article_eb51001c-c7d7-11ec-a6f1-63e0edcdb197.html
That's one small city in a low population state. You think this is unique?
Jeebus KD, I read for a insightful spin on numbers, but you're really disconnected from reality on this housing thing.
Santa Fe is one of the more unique places in the country.
I was the CFO of First National Bank of Santa Fe so I actually know the place pretty well.
I don't think I have ever seen a place that caters to the rich the way Santa Fe does.
People used to joke about the dividing line of St. Francis.
Does SF need houses for the rich who want to retire there or vacation there? Or does it need houses for everyone else?
The Plaza is wonderful and Canyon Road has a ton of galleries. The rest of SF is fairly poor and fairly expensive. Take out LANL and SF would be even poorer.
My only point is that you can't EVER use Santa Fe as a proxy for the rest of the country.
There are a lot of pundit conclusions that are like this. It is like some of the darker corners of epidemiology. One that appeared a few days ago, from Thomas Edsall who should know better, assumes that movement from cities to suburbs makes conservatives more powerful, as if simply relocating changes your political views. More likely what happens is what happened around here in Atlanta -- the suburbs turning blue.
One that appeared a few days ago, from Thomas Edsall who should know better,
Yeah, that was an atrociously bad column.
"Everyone else is in roughly decent shape"??? Not so fast Kevin Don't know about other areas, but the housing situation in Seattle is bad.
Yeah, seriously. "Roughly" is doing a lot of work there.
"The more obvious solution, if you really care about productivity and economic growth, is to try to increase the educational level of towns and rural areas."
I know Kevin then followed up with "this is no easy task..." but really... how the fck are we supposed to increase the educational level of towns and rural areas? Those places are doing more than anyone else to tell anyone with a brain to not move there, as well as chasing away those who just happen to be born with a brain there as soon as they turn 18. Very few people with educations are masochistic enough to move to places that actively hate people with educations.
Yeah, since folks in rural towns seem to think anyone with a college degree is a (((globalist))) or pedophile, how do we convince them that education is the answer?
Isn't agglomeration economic effects covered in Econ 101?
I appreciate the skepticism, but if you were going to do it, you should have framed it within agglomeration.
For instance, the effects of WFH or remote workplace on incomes and the decoupling of scales of economies and its effects on GDP.
I am sick and tired of lazy "solutions" like loosening zoning restrictions to allow for high-density housing. Build in Fresno, some place outside Denver, or other vacant spaces. Businesses and jobs will arrive shortly thereafter.
High density sucks. It makes life harder, with congested transport, more noise (e.g. emergency vehicles - quadruple the population and you get 4x more sirens), limited space for outdoor activities, and so on.
In Los Angeles, under the stewardship of Eric Garcetti - who wants to turn LA into a "rich" city - has, after tricking people into voting for Metro, subsequently zoned these new "transport corridors" for high density. And the builders have been busy at work. Many apartment buildings have fewer parking spaces than units. One at a busy intersection, has a "parking concierge" to help visitors find where they can park - if at all. The physical layout should be capacious and efficient. Having a concierge is a band-aid, but it sounds sooo Beverly Hills, doesn't it?
Um, everything is covered with houses from Moorpark to San Clemente and eastward to Moreno Valley, except scattered high spots and steep slopes. All around that triangular bowl are The Devil of REALLY effyouseeking tall mountains or the Deep Blue Sea. Where are you going to fit more people in without building up?
This is a serious question, not snark.
Adding a few high density housing locations while insisting on a low density approach to transportation, retail, schools, entertainment, groceries and restaurants does lead to bad outcomes.
Most of the world has figured out solutions to this.
Your low density approach is massively expensive in both dollars and commute times. It greatly limits the lives of employees who are locked into a zone of a city. We know this path is terrible, doing more of it wont make it better.
Yes, let's fill up every empty space so that people can drive more easily. I see nothing wrong with this approach.
I think you've got the jobs/housing sequence backward. Put jobs in Fresno, or outside Denver, or other vacant space, and workers will arrive. As the workers arrive, housing will be built. Building a bunch of housing in a place where there are few jobs will, at best, get you a retirement community. It's more likely to get you empty buildings.
Fed should fuck 'em all and raise interest rates .125% next week. Pause next time. And probably settle at 5% for a while. They wouldn't think of it but someone should tell them. Meanwhile, Biden should figure out how to send more free money to people, quick, before the end of the year, to mitigate what the Fed is doing wrong. Inflation will continue to decline since everyone will save the extra money from Biden. Office workers might lose their jobs, some of them. Everyone will be happier. Agreed?
Why not both density and education?
Framing it as an one or the other is completely ridiculous.
Literally nobody is arguing that density is all that matters.
One thought though....perhaps its easier or more efficient to provide education in dense areas?
It's "easier and more efficient to provide education" in areas where the adults are ALREADY EDUCATED. Educated people speak in more complex sentences, with qualifiers and nuance. They "model" reading and seeking information. As the Economist's red tee shirts say, "Great Minds Like A Think". Educated adults play with their children in ways that form neural pathways leading inexorably to reading and conversation. When their kids get to school, they're already a grade level or more ahead simply from osmosis.
People who are uneducated may indeed not be stupid, and it's true that the Normal Curve knows no geographic, ethnic or historical skewing. But less enducated people have fewer tools with which to communicate with their children in ways which help form a keen mind. They may love them enormously, but the strong benefits of being well cared-for and expressively loved as an infant begin to fade when curiosity about the world begins. Children need to be taught HOW to explore and form opinions, again mostly by adults modeling the necessary behaviors.
Sorry for the "elitist" opinion, but look around you. Demography is increasingly "destiny". One hundred and fifty years ago when people married other people with whom they grew up as children, the smart folks weren't cordoned off from the rest of society. A man of mediocre intelligence but a good heart might end up with a brilliant wife who takes charge of educating the kids and the next generation is no longer on the farm. It obviously works the other way too.
Nowadays, tens only marry tens or MAYBE nines. It's like the old noble families "allying" to stay on top.
So what actions, policies, regulations, etc.. should be undertaken?
Im not sure what your point is. Maybe just yelling at the clouds?
You're right, there is no solution. Those unlucky enough to be born "in the sticks" will continue to self-sort according to intelligence and ambition into the "stayers" and the "leavers" as has been going on since the dawn of civilization.
The problem is all this public genuflection toward the "noble savages" who are the envious stayers. They aren't any more noble than city folks, but they get a level of political power way beyond their ability to use it for the benefit of society.
This probably belongs on the AI thread but it also gets to the question of productivity…
“It’s the same technology that underpins two new Microsoft features:”Co-pilot,” which will help edit, summarize, create and compare documents across its platforms, and Business Chat, an agent that essentially rides along with the user as they work and tries to understand and make sense of their Microsoft 365 data.
The agent will know, for example, what’s in a user’s email and on their calendar for the day, as well as the documents they’ve been working on, the presentations they’ve been making, the people they’re meeting with, and the chats happening on their Teams platform, according to the company. Users can then ask Business Chat to do tasks such as write a status report by summarizing all of the documents across platforms on a certain project, and then draft an email that could be sent to their team with an update.”
I guess there are probably people who do stuff like this, but who want to read yet another email about stuff? And how does this enhance productivity? It’s just another time suck for everyone. Except that then those receiving the email update with just turn it over to their “agent” to summarize the updates coming in and send out another update which no one will read either! 😂
Education is only part of the issue.
Where I think you are wrong is when talking about economies of scale.
If a town can only support two bakeries then it is very difficult for a third to start since it would have to put one of the bakeries out of business to survive. So the quality of the product doesn't have to be too high.
If a town can support 100 bakeries then a new bakery has a far better chance of starting and surviving and putting a less efficient bakery out of business.
Or if you need 100 experts to run a company, you won't ever find them in Clear Lake Iowa but you might find them in Des Moines and you probably can find them in Chicago. So even if the best in the business lives in Clear Lake, the most productive people will be living in Chicago.
Off an a tangent, one reason why we will NEVER colonize Mars is that the standard of living in a place that is so isolated will be terrible. We would need at least 50 million people and probably closer to a billion people to have a reasonable standard of living when the distance and cost is so vast. (I am skipping the problem that we probably can't reproduce in such low gravity.)
So a city, by itself, makes people more productive. Does that increase in productivity make up for the higher expenses of a city? I don't know.
One of Kevin's worst takes in memory.
1) There's a reason educated people are unlikely to live in rural areas. There are not a lot of jobs that require education. Yes, you can educate people in rural areas, but then they move to a more urban area where they can earn a living. Education isn't the fix.
2) The housing crisis might be worst in California, but that's because California is full of large, job creating cities supported by a good educational system. Maybe the rest of the country is in better shape regarding housing, but California can export its crisis to other states and it does.
What big cities have, especially NY City, which is almost in a class by itself, is finance and related industries:
https://www.statista.com/statistics/248004/percentage-added-to-the-us-gdp-by-industry/
Not so much stuff is made in cities any more, but lots of money is. Most of it goes to the highest incomes.
humbug. Productivity can only be measured by things that are easily counted. This is such a manufacturing way of thinking. If you are a farmer, and the crop yield is down because of weather or pests are you any less productive? If you are a store owner and your sales are down, are you any less productive? If you are a coder, and your server gets hacked, are you any less productive?
Productivity is measured in money, not things. The official production (GDP) figures include the financial industries. If you are saying that this is not the best way to measure the well-being of the country, I agree with you. Productivity is actually a tricky measure in several ways.
Yes to all of the above.
what a frickin stupid post. read some books on cities for gawds sake. or at least this -- https://en.wikipedia.org/wiki/Economies_of_agglomeration