Let’s develop an idea in the last post a little more. Discussing the impact of the removal of a key barrier to increased residential and commercial real estate supply, I noted:
Ultimately, the Washington metro area will be more populous throughout its full extent, and it will be larger in area â€” 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.
If a larger share of population and GDP are sited in Washington, that means that a lower share of population and GDP are sited elsewhere — the distribution of economic activity in the country will have changed. For the better? Well, that depends. If increased supply and higher wages in Washington attract people from higher productivity cities, then the impact will be ambiguous (it’s possible that the rise in Washington’s productivity will exactly counter the decline in origination city productivity, such that average productivity isn’t affected). But if Washington attracts residents who might otherwise have located to less productive cities, the result is an unambiguous improvement in national productivity. If a larger share of people live in more productive cities, and thereby become themselves more productive, then the economy’s existing resources will be able to produce more output, and potential GDP will rise.
If we look at Ed Glaeser’s research, we find that a) denser cities are more productive, and b) denser neighborhoods are much more likely to limit new housing supply growth (and c) unrelated but always important to remember, denser cities are generally greener). Based on this it would seem that America’s cities systematically shift people from higher productivity to lower productivity metropolitan areas. If we look at tables of weighted-average density — the density at which the average metropolitan resident lives — we see that the densest metro areas tend to be among the richest and tend to be among those that experienced slow population growth over the past two decades. Large but lower density metro areas are less rich and experienced huge population growth over that time.
A note: I am not disparaging cities in the low-density group. I grew up in Raleigh, a textbook example of a low-density, fast-growth boomtown. It was a very pleasant place to live, a place rich with opportunity, and a city that housed some innovative companies employing people to do interesting work. It was not a “bad” place. But is it really so strange to imagine that two decades of migration from productive cities with high average wages to less productive cities with low average wages would have a significant impact on national average labor productivity, on national wages, and on national employment and output growth? Raleigh is innovative, but one of the key’s to Raleigh’s success is the fact that its land is dirt cheap relative to the home base of many of the technology companies that have opened offices there: Silicon Valley.
As Ed Glaeser frequently points out, construction around the Bay Area is heavily restricted, and home prices are consequently exorbitant, and so both firms and people have an incentive to locate what facilities they can elsewhere. If the cities around the Bay permitted more construction, more people would live there at higher productivity levels, the Bay Area itself would be denser and more productive, and the country would be strictly richer (and, it’s once again worth noting, far greener). And higher wages in the denser Silicon Valley context wouldn’t just accrue to technology workers. Workers across the service sector would earn more in Silicon Valley than they would in Raleigh.
I don’t want to hold this out as the key fact of the economic history of the last three decades, but it does strike me as interesting and potentially important. For several decades, America addressed economic stress by redistributing workers from high cost to low cost cities, where they could enjoy bigger homes at lower cost, and profit handsomely off the large subsector of the local economies devoted to building out these boomtowns. There may also have been a governmental dividend of sorts; sunbelt boomtowns began life with far less physical and institutional infrastructure to support and therefore had low tax rates relative to older, denser cities. Of course, this advantage was illusory; strained by growth, big new cities have found themselves struggling to pay for needed infrastructure and services and grappling with huge budget holes.
And finally: it would be silly to blame the boomtowns for their behavior, though they do perhaps deserve some criticism for activities that encouraged a bubbly land rush (activities which were far from universal). The real shame of this trend is the inability of dense, rich cities to accommodate more growth. When places like Boston and San Francisco make it hard to build new homes and offices, they reduce opportunity and productivity across the country, while also adding meaningfully to the nation’s carbon emission problem. This is a very big deal and a very big problem, and people who should know better continue to enable the NIMBYist behavior that makes it all possible.