Have you seen the latest Metro fantasy map? I love fantasy maps. This one sparked a brief Twitter dialogue that offers the opportunity for a little urban econ thought experiment. Ready? Yglesias tweeted:
This Metro fantasy map could be totally realistic if we repealed the Height Act: http://flic.kr/p/9bUafB
Josh Barro replied:
@mattyglesias if the height act were repealed, why would you need such expansive heavy rail coverage in the suburbs?
@mattyglesias a key reason to reduce height restrictions is to reduce commute distance and reduce demand for transportation in all modes
True, right? But that’s only part of the story. So let’s think this through. A repeal of the height limit would mean the elimination of an artificial restriction on supply, and given real estate cost behavior in the District it seems likely that it would lead to new construction, that is, an increase in supply. An increase in supply would lead to falling prices. (In practice, these steps would all take place more or less together, and you wouldn’t actually observe a drop in prices, unless a lot of new supply came online at once.) Falling prices would lead to increased demand, which is to say that people and firms would occupy the new space. Most of the demand would come from other metropolitan areas, but some would come from elsewhere in the Washington metro area, and as space was left vacant in other neighborhoods prices there would fall until all space was occupied. The result would be a similar vacancy rate to that prevailing prior to repeal, but with many more people and businesses in the District. And that’s where Josh leaves matters.
But that’s not the final equilibrium. In the new state, the core is much denser than it was before. Higher density means higher productivity, which means rising wages in the core. Rising wages in the core will increase demand for any location with access to the core. If a job in downtown Washington pays more than before, then housing in Falls Church is more valuable than before, because it’s relatively easy to commute to downtown from Falls Church.
Rising demand will mean migration into all parts of the metro area. This migration will lead to new construction where local rules permit. And ultimately new inward migration will continue until housing and congestion costs cancel out the wage increases. Of course, as people move in, density will continue to rise, pushing up wages, so this process will continue for a while. Ultimately, the Washington metro area will be more populous throughout its full extent, and it will be larger in area — bigger richer cities sprawl more than smaller poor ones. But the weighted average density of the metro area will be significantly higher than before, productivity and wages will be higher than before, and a larger share of American population and GDP will be sited in Washington.
The final distribution of population within the Washington metro area will depend on the infrastructure and policy reaction to new growth. Metro expansion in suburbs will increase the carrying capacity of the suburbs; more people will be able to move to the burbs before congestion costs rise to cancel out wage increases. New highway construction would also increase suburb carrying capacity, but not by as much, and the resulting suburbs would be less dense. But the extent to which rising wages continues to feed back to new population growth, new density, and further wage increases will be constrained by policy.
But there you have it. This full thought experiment also explain why the argument that the height limit boosts neighborhoods along the downtown periphery is wrong. That argument stops at the end of the first round of analysis, before the impact of density on wages and total metropolitan demand is taken into account. NoMa would be a far more vibrant and in-demand neighborhood in a world without the height limit, as common sense would suggest. It’s hard to imagine Brooklyn being a cooler place if Manhattan’s tall buildings were cut off at the knees.