Should We Empty the Suburbs?
No. But That Wasn’t Noah Smith’s Actual Point.
Noah Smith over at Bloomberg View has a piece out arguing that the key to economic growth is densification, i.e. “empty the suburbs.” The policies he espouses to do this focus on reducing infrastructure costs, implementing an effective land value tax, and reducing land use regulations. These are good policies. However, Noah’s “densification” agenda might not increase density very much at all: and it’s actually not clear whether density really drives as much growth as is often claimed. So let’s unpack this. I’ll start with the first set of claims.
Would Noah’s preferred policy structure actually empty the suburbs?
Obviously, No. Maybe the opposite.
Land Use Regulation Liberalization
Question: where is land use regulation most restrictive? Answer: in areas that prohibit construction of multi-family housing, implement parking requirements, require green spaces, etc. In other words, the strictest land use rules are often in suburban spaces rather than truly urban spaces. If we eliminated much land use regulation, we could see more densification of urban cores.
But the most likely outcome is a densification of low-density suburban neighborhoods with good schools. In other words, land use deregulation might encourage density in the aggregate, but not by making urban cores denser. Rather, urban cores might hollow out even more, as people move to newly-accessible suburbs.
It is not a coincidence that low-regulation cities like Atlanta or Houston are also the poster children for urban sprawl. The net effect of land use regulation may be to artificially increase density, not artificially decrease it, even though most specific regulations seek to limit density, the composition and distribution of regulations mean that areas of engineered super-optimal density result. Why are northeastern urban cores so dense? Maybe because suburbs are so inaccessible. When all the suburban areas are closed-access, high-density urban cores get even denser. This artificial densification has huge consequences for the growth-impacts of density.
Reduced Infrastructure Costs
There’s a huge debate about how to make infrastructure more managable. Let’s ignore the mechanics here and assume we implement policies that make it cheaper for U.S. governmental entities to build infrastructure, especially transportation infrastructure.
What does transportation infrastructure actually do? Well, it connects people. Specifically, it reduces the time and money costs of moving across distances. So with more, better infrastructure, the “costs” associated with “distance” actually fall.
Ruh-roh. That means that cheaper infrastructure leads to more infrastructure which leads to more viable suburban commuting. If we built more roads and rails (or, as I mentioned in a previous post, parachute-commuting airports and widely-used helipads: gotta be inclusive of future urbanist flights of fancy!), the result is that congestion will presumably fall, making a commute from further out less costly. Now, exurban areas truly beyond access to rail and ring-level road network improvements may decline in prominence, leading to net densification, but, again, infrastructure improvements are likely to increase the desirability of suburban areas. Indeed, a key part of the recent boom in urban cores may be that the infrastructure in the U.S. is just so bad.
Implement a Land Value Tax
An LVT, whereby landowners are taxed based on only the value of their land, not any improvements, is the only policy tool mentioned that seems likely to actually yield universal densification. By reducing a huge disincentive to costly, dense construction, an LVT could yield substantial densification of areas with high land values, especially already-dense urban cores. So, okay, this policy could yield actual densification as that supply effect reduces prices in high-density areas, encouraging more people to move it.
But there are countervailing effects. Higher-density construction, meaning taller construction, is technologically challenging and, thus expensive. The mere physical reality of dense living creates higher costs. Yes, bad tax policy and land use regulations drive up the cost of living in urban areas, but even without such factors the price per square foot of housing in an urban area and a suburban area with comparable economic output in the area will vary, with the more expensive construction (i.e. the sky-scraper) going for a higher price.
So yeah, an LVT could boost densification of urban cores. But there’s a technological and cost limit to this, and there’s a vigorous debate about exactly where the cost-limit starts to kick in.
Would densification increase economic output?
Nominally.
So I’ve established that the policies espoused would have at best an ambiguous effect on density overall, and it’s likely the main effect would be the densification of suburbs, likely at the expense of exurban areas, possibly also at the expense of urban cores. The balance of exurban/core shifts to suburbs would determine the impact on metro-level density.
But let’s assume that densification does ensue. Would it actually boost growth?
Here, I think the answer is, again, far less clear-cut than Noah lays out. I’ve argued before why we should set all the cities on fire and start again, so I won’t rehash the parachute-commuter thought experiment or walk you through the utility of urban fires again. Go read that post. I had fun writing it, you’ll have fun reading it.
But we do need to remember that prices for identical goods vary. Now some people will say an apple in New York City isn’t an apple in Oklahoma City, because an apply in NYC is an apple in NYC, and that yields a whole kind of, like, experiential amenity, so really, you shouldn’t price-adjust across these areas. It’s easy to see why that’s bullcrap with an apple, as we could also argue an apple in 1950 isn’t an apple in 2016, because the experience of eating an apple in 1950 isn’t the same as the experience of eating an apple in 2016. This would be ridiculous, because it sets up the silly notion that we should somehow establish a universal metric for what amounts to philosophical qualia. Individual utility is not interpersonally comparable.
But when it comes to housing, people freak out and abandon their good sense. A given square footage with appliances updated X years ago in a school district with Y average scores and Z crime rate in an urban core area is, we are told totally incomparable to a given square footage with the same values in a suburban area. Of course people will pay more for the urban area, our urban enthusiast desperately cries, cities have amenities that have universal value! And ya know what? That’s true. Cities do have amenities. They also have costs, like noise. Also, suburbs have amenities that urban areas can’t duplicate. And if you insist on a 29-variable regression model to assess the “true” value of housing, then you’re just p-value fishing now. The truth is, a few major factors, like appliances, square footage, and major neighborhood quality, are sufficient to establish like commodities for comparison. Asserting otherwise is merely to assert that all comparison is meaningless because of philosophical qualia.
And on that kind of measure, urban housing tends to be expensive. This is doubly true in metro areas with strict land use rules. These rules drive up costs, especially in restricted-access suburban areas, funneling a truly disproportionate number of people into the few high-density areas, leading to enormous price spikes in those areas whenever there’s even a moderate change in demand for metro area housing. And these housing costs are inflated. They are nominally higher, when the “real amount of housing procured” is not very much greater.
The result is that the cost of living in regulated areas is artificially inflated. Yes, I chose to take the long way, through a discussion of qualia and asset pricing, to get to this conclusion that most people find obvious. And because this cost of living is inflated, we must adjust incomes for the real value based on locally-adjusted standard of living.
Paul Krugman has this classic silly bit where he talks about people moving south as reducing national productivity. And yes, it’s true, the nominal dollars produced per hour worked falls with that move. And yet people do make the move. Because it makes them better off. Because their real productivity did not decline as much. Oddly enough, burger-flippers in NYC don’t produce that many more burgers per hour than burger-flippers in OKC. But people want burgers, and to make rent, Ricardo’s Iron Law means their wages have gotta be higher, or else misery and vice are the result, and people tend to prefer less misery and vice. So the NYC burger-flipper is “more productive.” Except, he’s not.
Adjusting for cost of living dramatically reduces real incomes in dense urban areas, and dramatically increases incomes in less dense areas. Because, surprise, a huge share of the “productivity gains” from urban centers is just cost-sorting. Costs are higher in urban areas. So only highly productive industries survive, plus services to support people in that industry, with those service-workers making Ricardian wages, or the legal minimum.
Meanwhile, other industries sort out into lower-cost areas.
So what would happen if we densified low density areas, causing costs to rise?
The lower-cost industries would relocate, and then people would follow.
Ta-da! In a nation with full labor and factor mobility, it’s very hard to target density!
And before you say, “But eventually everywhere will become dense,” I give you:
At NYC densities, we can fit every American in Texas. So no, we will never universally densify, unless we just declare all the empty spaces to be national parks.
Conclusion
The policies Noah suggests are good ideas that could boost real incomes for many people, and enable more efficient sorting of people into their preferred residential environments. So that’s reason enough to give a big thumbs up to these policies. But they are not likely to empty out the suburbs. Now, in Noah’s defense, he’s been clear on Twitter that he dislikes the title, and doesn’t think these policies would actually empty out the suburbs, so I don’t think we actually disagree there. But even if we did empty out the suburbs, it’s not clear that densification would actually boost economic growth. As societies become more productive, they densify; and there’s reason to believe densification can boost long-run growth in certain ways, but we don’t know short- or medium-term effects, we don’t know if those processes continue ad infinitum, and we don’t know exactly what it is about urban spaces that may boost growth. In other words, future policy-driven densification may have very different economic impacts than previous policy- or organically-driven densification.
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I’m a graduate of the George Washington University’s Elliott School with an MA in International Trade and Investment Policy, and an economist at USDA’s Foreign Agricultural Service. I like to learn about migration, the cotton industry, airplanes, trade policy, space, Africa, and faith. I’m married to a kickass Kentucky woman named Ruth.
My posts are not endorsed by and do not in any way represent the opinions of the United States government or any branch, department, agency, or division of it. My writing represents exclusively my own opinions. I did not receive any financial support or remuneration from any party for this research. More’s the pity.
