Density: Too Dangerous to Mention

I didn’t respond to Randal O’Toole’s first take on The Gated City because, quite frankly, it didn’t appear that he’d read it. Now he insists that he has, and yet…well let’s just go through his points. First, on whether density facilitates productivity growth:

Avent cites research showing that denser American cities have higher labor productivity. For example, a 1996 study uses 1988 data to show a correlation between the urban densities and the wages and salaries earned in the various states such doubling job density raises incomes by 6 percent.

Six percent isn’t very much, and in order to reach even this conclusion, the authors of the study left out states that had lots of mining industries, which depend more on mineral density than population density. If they hadn’t left those states out, Alaska would have been the most-productive state. Even if some industries do benefit from density, not all do.

Avent cites several other studies, but does not mention this one, which compares density with technological innovation, a field that–unlike mining–strongly depends on the personal contacts that supposedly are gained from density. The study did find a correlation between density and innovation, but it also found an optimal density and an optimal city size. In other words, at some point, more density is no longer better. In particular, the optimal urban area size is about 750,000 people and the optimal density is about 2,000 jobs per square mile–roughly Baltimore or Philadelphia. Baltimore and Philadelphia are far from the nation’s densest urban areas, and in fact Houston is right between them.

O’Toole seems to accept the relationship; indeed, he directs us to a paper in which the authors conclude:

These findings confirm the widely held view that the nation’s densest locations play an important role in creating the flow of ideas that generate innovation and growth.

His principal criticism seems to be that in the paper in question, the authors estimate an optimal density which is not, in his view, that dense. That’s not much of a complaint, in my view. I’ve been careful not to specify an optimal density; in fact, I suspect that such a density is likely to vary significantly across industries, institutions, and with transportation and communication technologies. The empirical evidence supporting a positive relationship between density and productivity is strong. There is comparatively little work on optimal densities. At any rate, the policy implications don’t seem to tilt in O’Toole’s supposed ideological direction. I can’t imagine why a libertarian would want to go around telling willing city residents that they’re living at too high a density. And if productivity falls above certain densities, the market should quickly adjust; we’d see little wage growth in cities near the threshold, and consequently little growth in housing costs. Of course that’s not what we observe.

O’Toole goes on:

Another problem with Avent’s first claim is that most of the studies he cites compare the relationship between density and productivity at a single point in time. But the whole point of The Death of Distance is that this relationship is getting weaker all the time. This study, for example, found that the correlation between density and productivity declined from 41 percent in 1940 to 7 percent in 1980. It seems likely that, by the time any city can do anything about its density, the benefit of being denser will be negligible.

Now, this is really remarkable. I argue — I think quite clearly — that the relationship between density and productivity appears to be growing stronger, precisely because of technological developments. I cite research indicating that since the 1980s R&D spillovers appear to have become more important, that in recent decades the return to talent has increased in dense cities, and that in recent decades density explains a surprisingly large share of real wage growth. I point to Ed Glaeser’s work, which indicates that the “Death of Distance” phenomenon that gutted urban industry appears to have strengthened knowledge agglomerations and increased the return to ideas. Cato’s chief urban scholar seems to have no knowledge of these strands of the literature, nor does he appear to have spent all that much time with my book.

O’Toole then argues that I’m incorrect to blame NIMBYs for high housing costs. Instead, local zoning rules are to blame. Again, he seems strangely ignorant of the arguments I actually made. I write that residents of dense cities oppose new development and use a variety of mechanisms — tight zoning rules, historical preservation, and political pressure among them — to achieve their ends. I’m not sure how O’Toole thinks most city rules get on the books; presumably, local interests have had something to do with it.

Finally, there’s this:

Perhaps the greatest flaw is in the third step of Avent’s reasoning. “I don’t wish to tell anyone where to live, and I certainly don’t want the government having its way in the matter,” says Avent. But if the NIMBYs and their urban-growth boundaries and large-lot zoning disappeared, these regions would all become less dense, not more dense. Housing costs would become more reasonable, and the areas might actually become more productive, but not because of density.

The trouble is that, although Avent doesn’t support coercive government policies, many other density advocates do. And Avent specifically cites transit-oriented developments as a way of increasing density without realizing the huge amount of coercion that is required for many of those developments, including prescriptive zoning, tax subsidies, and artificial restraints on low-density development so that some people will have little choice but to live in the higher densities.

Frankly, I have no idea what kind of economic model he’s using here or what evidence he has in mind. I’m not sure what would happen if zoning rules were relaxed across the board. Home price data suggest that there would be a lot of new construction in dense, high-cost cities. Given the high cost of land, it seems likely that densities would rise. Based on the research I’ve examined, and that which O’Toole himself cites, it seems likely that this growth would result in more people living in dense areas and earning higher wages, thanks to rising labor productivity. Now, maybe O’Toole is arguing that cities would like to grow outward but are prevented in doing so by NIMBY rules, such that relaxed zoning would lead to sharply reduced densities. Again, there is scant evidence for this assertion, but I’m happy to admit that it’s a possibility. Either way, I can’t see why O’Toole wouldn’t be in favor of making it easier to build new housing — of whatever sort the market wants — in cities, especially those where home prices and productivity levels are high.

I discuss several different ways to make it easier for cities to satisfy demand for housing, and transit-oriented development is one of them. It seems clear that government intervention would be required to support such a policy, and O’Toole seems very unhappy about this. Whether he’s just as unhappy about the taxes, infrastructure spending, and zoning rules that typically accompany suburban growth isn’t clear. But in general, I’m interested in changes that increase, on net, a landowner’s ability to build as he wishes. It seems clear to me that TOD is a useful way to get local governments to accept upzoning, and landowners seem more than happy to build as much as the government will let them. Libertarians might not approve, but it seems to be a more liberal approach than the status quo.

I do appreciate O’Toole’s engagement with the book, such as it is. I sincerely hope that libertarians will consider the arguments I make and warm to the theme.

Comments

  1. O’Toole’s attitude towards mass transit is a perfect example of what’s wrong with libertarianism.

    In a large city, a decent mass transit system yields economic benefits far beyond its costs. There’s really no argument on the other side. Mass transit works, and makes our cities work far better than they otherwise would.

    But because it’ll take government coercion through the form of taxes, libertarians are against it. It doesn’t matter that this is an asset of great value that private enterprise simply can’t create.

    They’re against government simply as religion, not because private enterprise is more efficient or anything like that. And so they’ll oppose this creation of a great economic engine because only the government can create it. Period.

  2. not again says:

    It’s another example of O’Toole’s drive-by criticism. He takes a cursory glance at the material, and then “responds” with his preformulated ideological positions. Just an excuse to hop on his soapbox.

  3. banterer says:

    I think when Cox hears “zoning restrictions”, he thinks about urban growth boundaries and agricultural zoning (e.g., 5+ acre minimum lot sizes) at the rural fringes of urban areas, while your book (which I haven’t yet read, I admit) is making a point about restrictions that keep density down within already-urbanized areas (e.g. single family use requirements, parking minimums, height and setback requirements, etc.). I think both points are right, to an extent, although I would agree that type of zoning and use restrictions that you are talking about are far more prevalent than the ones Cox thinks are most important. (I don’t see how urban growth boundaries and rural zoning have anything to do with high prices anywhere in the New York City area, for instance, but I can certainly see how zoning restrictions within developed suburban areas surrounding the city keep additional housing out.)
    Where I think both analyses are wrong is in attributing too much of housing prices to supply and demand. I would argue that housing demand is highly elastic: when prices are high, people can reduce their “consumption” of housing. For instance, homebuyers can instead choose to rent, young singles take on roommates to share costs, people can choose to live without an extra bedroom or bath, etc. – we can all think of examples of this kind of behavior. On the same note, you could say that an influx of wealth can cause housing prices to rise even in the absence of demographic changes. When people have more disposable income they tend to want to spend more on housing–again, I think anyone can think of examples of this. So even if we could convince all of the NIMBYs to open up the gates to their leafy suburbs, I think impact on prices in wealthy areas of the country would be somewhat muted. Not to say that it wouldn’t be a step in the right direction.

  4. Terry says:

    O’Toole is disagreeing with you because he is not a libertarian. He believes in automobile oriented cities regardless of what restrictions must be put on homeowners. He is too afraid that if there were less restrictions on development, cities would not turn out the way he predicts.

  5. Jim says:

    While searching for information about zoning being used to preserve a community from becoming too dense thereby forever altering the allures attracting its current residents, I ran across this site.

    Curious that, in the small sample of content I read, that no one envisions a point at which no more density is possible much less desirable

    The latter is subjective, admittedly, but the former is not.

    Just as a glass can hold only finite amount of amount of water, or a road only so many cars, so too does it follow that cities can effectively house only so many people unless, that is, cities are prepared to become so dense that even the most liberal recognize that each additional person packed into a confined space reduces the quality of life of everyone else