Expensive Cities Aren't Attractive Cities: One Last Word

I have to add just one more post here. The “reasoning from a price change” really reaches deep levels of irony.

From Steve Randy Waldman’s original piece (emphasis mine):

The problem with YIMBY-ness has never been that YIMBYs are wrong to focus on housing scarcity in places people want to live as perhaps the most destructive economic ill we face. They are right about that!

Note that your town doesn't need to already have zoning laws historically rooted in racial segregation. It will invent them, or it will invent something else, because the people who bought homes they love in neighborhoods they love, upon whose character they have based their security and lifestyle, into whose financial value they have leveraged their net worth several times over, will not stand for leaving those assets to the vicissitudes of private home developers.

But the core problem we face is much bigger than land-use. It is geographic inequality. We have created a country in which too few patches of geography are associated with vastly better opportunities and amenities than all the other places…. There are plenty of lovely places in the United States that could host remarkable and desirable cities. That they don't is a social outcome, not the result of any natural law.

So long as just a few places offer so much more amenity, liveliness, and economic opportunity than everywhere else, supply growth in those already built-out places will nowhere near match the tsunami of demand they face from people who would migrate there if they could. The deep flaw in YIMBY-ism is that problem they accurately highlight is orders of magnitude larger than what the solutions they identify, promote, and support can plausibly address.

It is very clear what he thinks. There are 5 or 6 cities that are special, and the entire rest of the country is not.

By what measure is he determining whether a place is special? The stridency of his language leaves little doubt. The way you tell if something is special is that it is expensive. He might also say that having high incomes is a sign of being special. But, the expensive cities aren’t particularly rich, in general. Some are. And much of the reason they have had rising average growth is just the result of 1%-2% of the poorest residents moving away each year because of the grinding poverty created by the housing shortage.

And if a place gets special, he says, then it is inevitable that the locals will block growth. It’s just a state of nature - or at least a state of markets (oy).

His solution is to have some massive public city-building scheme, to create cities in other locations that are new alternative special places.

But, how will he know if the new public cities are special if they aren’t expensive? Does this scheme he has in his head somehow create cities that build, stay cheap, but also become special? And if that’s possible, then how do we know that literally no affordable place in the United States has already achieved that?

Austin? Denver? Nashville? Minneapolis? Salt Lake City? Charlotte? What exactly makes them all obviously not special except for the one characteristic they don’t share with any of the “superstars”?

Actually, what’s happened is that the thing he thinks is an inevitable state of the urban market has only happened in the expensive cities. It’s the only reason they are expensive. In the rest of the country, rising incomes have always been, and still are, loosely correlated with population growth. It’s only loosely correlated because when people move to places, the incomes of different places naturally tend to moderate.

The main reason the incomes of the Closed Access cities stopped naturally moderating is because poor families are displaced from them by the hundreds of thousands each year.

To come up with a very broad estimate of how much that affects their average income, I excluded the poorest 10% of Los Angeles’ ZIP codes from its average. That caused its average ZIP code income to rise about 8%. The net migration in those half a dozen metro areas is very strongly correlated with incomes. By income quintile, the middle to top income bins have relatively even migration. All the net outmigration is from the poorest residents moving away.

Figure 1 shows the income growth (x-axis) and population growth (y-axis) for the 50 largest metro areas (Closed Access cities in black). They looked like every other city back then. Those migration patterns hadn’t kicked in. And they were affordable places to live.

By the 1990s, their growth rates were starting to be low. As a group, there was nothing special about their income growth. By 1999, the economically motivated outmigration was starting to heat up, though.

By 2005, they were all very expensive, and of course the migration pressure got so severe it caused housing bubbles in Florida, Nevada, and Arizona. San Francisco and San Jose were the cities with the highest income growth. I have added arrows to show where their incomes might have been if there hadn’t been such outflows.

And, again, San Francisco and San Jose had high income growth, but as a group, the Closed Access cities aren’t unusual for their income growth. The one and only thing that has led to their identification as superstars is that they are expensive. And they are expensive because they stopped growing.

Finally, here’s the data for 2023.

Waldman has it backwards. This country is full of super places. And, it has a problem that a half dozen places have noticeably created grinding poverty and economically motivated outmigration for 30 years by becoming very unusual places that can’t even accommodate normal “births and deaths” level population growth.

The market already built dozens of superstars. World class cities with high and rising incomes and low unemployment. And the YIMBYs are hard at work trying to improve their city-building norms. I wish the Closed Access cities hadn’t created so many economic refugees, but America is a fabulous place that, fortunately, offers them dozens of world-class options.

Of course, all of our cities could be better at city-building. But the first step to good city building is city building. The half-dozen miscreants should join the rest of us and show us how to do it well. Fortunately, the blueprint for doing that lies within their very boundaries - the countless buildings and transportation infrastructure that are illegal today, but have been grandfathered in. They can walk down the street and look at what success was.

Of course, when Manhattan and Brooklyn were built, they weren’t expensive. So, I suppose Waldman wouldn’t have considered them super.