Follow-Up Against Agglomeration Economies
Here is another chart, similar to Figure 1 from the previous post. The y-axis is still the change in real income per capita. I have annualized it here. And the x-axis is now annual population growth instead of annual housing permits per capita.
I think this provides a visual way to think about housing deprivation. Starting with the idea from the last post, think of the current economic growth rate of a given city in terms of the horizontal red arrow. Austin is currently booming, so there is potential for Austin’s population to grow by more than 3% annually.
Austin does grow by more than 3% annually, so it mostly moves to the right, with local incomes just a bit higher than average and a lot of growth and opportunity for newcomers.
If a city blocks its own growth, but still has economic potential, then an inevitable process of internal and external migration must ensue. Housing costs rise in a regressive way until the poorest residents move away, and that leads to an increase in the average income of the remaining households.
Roughly, I would estimate that outmigration of 2% of the existing population is associated with about a 1% increase in the average incomes of the remainers. So, if we think of the housing deprived cities that way, San Francisco and San Jose should be growing like Austin. (And they would be affordable if they did.) Seattle should be growing like Charlotte or Houston.
I think one place where the agglomeration “superstar” discourse has really been unhelpful is that Boston, New York City, and Los Angeles aren’t particularly “high demand” economies. If they had grown at a rate similar to, say, Oklahoma City, or Salt Lake City, over the last 30 years, they would probably be affordable.
Those cities are pretty normal. They just stopped approving new housing. There’s not an unlimited amount of demand. They aren’t victims of their success. They just refuse to grow at rates that are well within the norm of what any decent city always has.
Good series of posts. I tend to think about agglomeration of many American cities as a 19th century phenomenon because that's when proximity and density had the biggest impact on growth patterns. Boston and New York are still benefitting from the decisions made by property owners and investors from that era--most of who would be perplexed by the regulatory environment that arose in the post-war period. The business cores of Manhattan and Boston are a bit of distraction compared to the comprehensive density of residential neighborhoods that are within a 10 mile radius of downtown. Increasing density in the "middle ring" of these cities requires deep pockets and celestial patience.