Over the past few years, I have been thinking and studying the challenges surrounding housing affordability, the environmental impacts of cities, and the way that cities function as economic engines. This article outlines some of my current thinking on how to approach these challenges. This is very much a work in progress, and ideas and constructive criticism are greatly appreciated.
There is a strong case to be made that increasing the supply of housing in prosperous cities, especially in the core and close to employment subcenters, is the most important strategy for dealing with all three challenges. Prosperous cities are where housing is most expensive, and increasing supply will lower prices and relieve financial burdens on renters and prospective homebuyers. Increasing housing supply in prosperous cities will increase the population and further generate more value through agglomeration economies. And increasing density is associated with less demand for energy for transportation and home heating, as well as less demand for conversion of natural lands into cities.
There is plenty of room for debate on the above points. For instance, there is good evidence that agglomeration economies are based on transportation infrastructure more than population density. Perhaps greater prosperity is possible through building more highways and high speed rail, which will increase each citizen’s access to jobs and amenities despite lower density. Likewise, sprawl may be a more efficient means of increasing the housing supply than infill, particularly if well-served by highway capacity. As for the environmental case for density, one could argue that urban land requirements are small relative to land that goes into agriculture, so maybe we should not worry about it, and there are better means of dealing with the impacts of urban energy consumptions, such as electric cars powered by low-carbon electricity, air-source and geothermal heat pumps powered by low-carbon electricity, and rooftop solar, which works better in a low density setting. Finally, to what extent should policy be oriented toward increasing the growth of prosperous cities, and to what extent should the goal be to spread prosperity more evenly throughout the country?
All of the above arguments are important and things that I might write about in the future. For the rest of this article, though, we assume that infill development in prosperous cities is the goal and discuss how to achieve it.
Urban Living Trends
As well-explained in this article, the United States has shown in the 20th century a trend toward less dense cities and more driving, especially during the wave of suburbanization in the 1950s and 1960s. Despite some of the hype in the press about how millennials want to live in cities, the trend in recent years has been flat. Transit ridership is stagnating at best.
As noted in the aforementioned Fuse article, project-by-project efforts to developed dense, mixed-used developments have little impact on national lifestyle trends. If one site that would have otherwise been a low-rise strip mall is instead converted to a dense mixed-use development, then the strip mall is likely just displaced somewhere else. However, I think the article is wrong in suggesting that regulatory approach, such as a “blended density” requirement, would be more effective. Oregon, for instance, is well-known for having adopted a statewide Urban Growth Boundary policy, and yet Portland is one of the least dense major cities on the West Coat. More likely, restrictions on sprawl in Portland induces more sprawl in less restricted cities such as Houston.
During my time in San Francisco, I was involved with the YIMBY movement, which has as a major goal to reduce the regulatory barriers to infill development. I still think this is a no-brainer of a goal, but I also increasingly wonder how much density is actually prevented by municipal zoning regulation. After all, if Oregon’s Urban Growth Boundary displaces sprawl to Texas, shouldn’t the Bay Area’s NIMBYism also displace density to friendlier areas? I just don’t see much evidence of that happening.
Despite my libertarian instincts, I have become a bit more relaxed on the regulatory issues. This is because, if there truly was a compelling economic rationale for more infill development, the beneficiaries of such development would find a way to change the rules. This is not at all to say that regulation is unimportant, just not as all-important as I previously imagined.
Having alluded to economics above, let’s take a closer look. I increasingly suspect that improving the economics is the real solution to urban challenges.
Economics of Density
If we want denser development in prosperous cities, and we believe that economics are the fundamental driver, then we have two levers to pull.
- Raise the demand for urban living.
- Lower the cost of supplying urban living.
Starting on the demand side, surveys show that single-family homes are desired, and buyers generally want larger homes than they have. Of course, economics is not just about what a person wants when answering a survey, but actual decisions made in the context of financial and practical constraints. Furthermore, people desire more than space; they also like the amenities that urban living has to provide, including easy access to good employment. Hence denser, more urban, and more walkable properties command a well-known price premium. Obviously not everyone wants to live in a city, and I have no interest in forcing urban living on people who don’t want it, but I take the price premium as evidence than survey results that there is significant unmet demand for dense urban living.
Nevertheless, cities to bring diseconomies of scale along with benefits. The four diseconomies most commonly discussed in the literature are congestion, crime, local pollution (e.g. particulate matter), and health risks. Fortunately, on three of these four issues, the United States has made tremendous progress in the last 30 years, and I would expect that the fall in crime rates, better pollution controls, and improvements in public health are factors that have helped stabilize the trend toward sprawl since the 1980s.
Congestion, on the other hand, is a worsening problem. Opponents of infill development cite traffic congestion as a major reason for opposition. Although I doubt that most American cities are at a point where congestion is so bad as to make the marginal societal benefit of more housing negative, it is clearly an important quality of life issue that proponents of density need to do a better job of dealing with.
Beyond that, there is the cultural aspect. I suspect that “culture” is basically dark matter for economists; it is the term for collective economic decisions that cannot easily be explained. Most US sitcoms of the 1950s through the 1980s were centered around suburban life. In the 1990s, we got shows like Friends and Seinfeld that may have contributed to more public interest in urban life.
So, the demand for dense, urban living clearly seems to be in place. There is no need to lecture people about the environmental benefits of density, not that such a lecture would be constructive anyhow. Better transportation policy, such as congestion pricing, would help, but I am not sure it fundamentally changes the equation.
Turning to the supply side, it is well understood that infill development is more expensive than greenfield development, and taller buildings are more expensive per square foot than shorter buildings. Furthermore, the more prosperous a city is, the more expensive construction will be because builders have to contend with the local labor market. I’d ballpark the price premium at 1.5–2X per square foot for density (e.g. multilevel townhouses or midrise apartments instead of detached single family homes) and 1.5X for expensive cities relative to cheaper cities. So construction economics alone indicate that it should be 2–3X more expensive to build in San Francisco and New York than in the suburbs of Houston.
We haven’t escaped talking about regulation, since the patchwork of municipal building codes, prevailing wage regulations, and environmental review processes all make significant (though often hard to quantify) contributions to construction costs. Still, the biggest driver of construction costs is internal to the industry. Construction is dominated by small firms that lack the incentives and resources to invest in technology, leading to the industry’s chronic productivity problems.
The problem of high construction costs afflicts not just housing itself, but the infrastructure such as light rail that is needed to serve dense development.
It will be a long time before I could even attempt such a thing, but I would like to see (from me or from someone else) a serious plan for revitalizing the US construction industry. I don’t think the industry can turn itself around. Recent plays into construction from Amazon and other major investors might be a good sign. Or maybe some governmental industrial policy is needed.
I don’t have any easy answers for solving the main urban challenges, and I don’t think there are any. Instead I see many advocacy organizations pushing easy answers that nibble at the edge of the problem at best. But I think that if we get creative and take the long view, recognizing that it will take decades to remake cities in a better fashion, we can come up with good solutions.
My ongoing work is to take what are still hazy intuitions about cities and turn them into solid, quantitative research.
I’d appreciate any constructive responses to this article. Am I barking up the wrong tree by emphasizing construction costs as a major issue? Is overregulation of planning and zoning the main culprit here? Maybe the best solution is an Opportunity Urbanism approach that emphasizes automobile-based suburbanization as the only tried and true path to broad-based affordability?