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Synthesizing 'The Gated City'
January 8, 2012 - 8:30pm

The Gated City by Ryan Avent

Why do you live where you live?  Did you move for a job, a partners job, or for the location? Perhaps it is the schools? Avent, an economics correspondent for The Economist and primary contributor to the Free Exchange blog, thinks that the most powerful explanatory variable of location choice is housing prices. 

He argues that:

A. Cities such as San Francisco, Boston, New York, and Washington play a disproportionate role in our economy of driving innovation, new job creation, and wealth.

B. The people who work in these cities are more productive, owing mostly to the dense webs of knowledge, deep specialization, and information exchange (in technology, medicine, finance, policy etc.) that occur in certain cities.

C. Talented people and ambitious people, however, are discouraged from moving to these cities (or choose to move out of them) because the cost of living - primarily driven by housing costs - makes these places unattractive and unaffordable as compared to other areas.

D. Housing costs in cities like  San Francisco, Boston, New York, and Washington are so high largely due to an imbalance between supply and demand.   Housing supply is artificially constrained by zoning laws that discourage housing density and new developments, and local citizens (NIMBY's) who fight against new housing and mixed-use development (business/residential) due to concerns about congestion and existing housing price erosion.

E. The growth of Southern and sunbelt cities, such as Atlanta and Phoenix, has been largely driven by the availability of affordable housing. Low housing costs have been made possible by a combination of available land and build friendly regulations.

F. When talented and entrepreneurial people move to low-cost sunbelt cities, instead of high-cost coastal metropolitan areas, the economy sacrifices the productivity and innovation that they may have created if they had been able to interact with firms and fellow members of the creative class. The opportunity cost is particularly high on the innovation and startup front, as people who work in cities like San Francisco and New York are more willing to start new businesses as they can always fall vibrant local job markets.

G. An important solution to spur innovation and job growth, therefore, is to push for policies (at the federal, state and city level) that encourage an increase of housing supply in high cost cities.

An airtight case? Avent makes a strong argument, and does so in a wonderfully concise and well-written 90 pages. The Kindle Single length is perfect for this sort of book, as it allows Avent enough space to put some meat to the bone in his arguments, but forces the author to trim any redundancies. 

My sense is that Avent overestimates the ability of increases in housing supply to significantly lower prices. A small drop in prices may cause a disproportionate increase in the demand for that housing, as word filters out to potential in-migrants about the availability of new housing units. The other factor not addressed by Avent is education. One reason why people choose to move to the suburbs is in search of better public schools. Cities need to provide quality public education, in addition, to affordable housing if they want to attract young families.  

Does higher education figure into Avent's story of productivity, cities and housing costs?

What are you reading?


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