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, aÂ 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 isnâ€™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 hadnâ€™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 doesÂ not mentionÂ this one, which compares density with technological innovation, a field thatâ€“unlike miningâ€“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 mileâ€“roughly Baltimore or Philadelphia. Baltimore and Philadelphia are far from the nationâ€™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 nationâ€™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 Aventâ€™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 ofÂ The Death of Distance is that this relationship is getting weaker all the time.Â 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 Aventâ€™s reasoning. â€œI donâ€™t wish to tell anyone where to live, and I certainly donâ€™t want the government having its way in the matter,â€ 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 doesnâ€™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.