Wednesday, July 23, 2014

Battle of the Public Intellectuals: Edward Glaeser vs. Richard Florida

The rent is too damn high in free-building Houston at Pacific Standard magazine.

Theme: Ironic demographics.

Subject Article: "Houston, New York Has a Problem: The southern city welcomes the middle class; heavily regulated and expensive Gotham drives it away."

Other Links: 1. "Cost of Living Is Really All About Housing: Places where the rent really is too damn high."
2. "Map: Cost of Rent."
3. "Not So Much ‘New York Poor’ as ‘Pittsburgh Rich.’"

Postscript: "California Screaming: The tech industry made the Bay Area rich. Why do so many residents hate it?":

Conway, an unofficial adviser, and a generous donor, to San Francisco’s mayor, Edwin M. Lee, agrees that something is going wrong in the city’s socioeconomics. But the solution, he thinks, is to bring more of Silicon Valley north. “In ten years, I would hope that eighty-five per cent of tech workers who live in San Francisco work in San Francisco,” he said. “For every tech job, there’s four support jobs, and we need to make sure those people live inside the city limits as well.”

Tech’s shift to the city is already under way. Last August, Yahoo caused a stir when it moved into the San Francisco Chronicle building; Square, the credit-card-processing company founded by Jack Dorsey, was already there, and Twitter’s offices are nearby. Conway supports the Mayor’s new “seven-point housing plan,” which calls for thirty thousand low-, moderate-, and middle-income homes. The developments are planned largely for former industrial sites like Candlestick and Bayview-Hunters Points—a wharf neighborhood that has had limited appeal; up to half of the city’s homicides take place there, and it adjoins a shipyard that’s still being cleansed of toxic and radioactive waste. In Conway’s dream, lower- and middle-income families (defined as four-person households earning $145,650 or less) will have a secure place in such housing, while market-rate homes will continue to attract job-creating tech workers.

In some ways, this is a puzzling solution to the real-estate crisis. Wouldn’t moving more tech companies into the city drive prices even higher? Conway thought that maybe techies could be induced to put down payments on the homes of their poorer employees. “It’s not building anything, but it’s taking qualified people who can afford housing but not the down payment,” he said. “And that’s probably the least costly.” The effort would have to be conducted in an ad-hoc way in order to get it done—a good-hearted C.E.O. here and there stepping up and launching a project.

Yet there’s a broader difficulty in solving San Francisco’s problems through tech growth: the industry, which derives its competitive edge from efficiency, appears to be better at capital accumulation than at job creation. This is one reason, some economists think, that unemployment has remained more or less flat since 2000, even as productivity has continued to increase. An old-line company like Citigroup has some two hundred and fifty thousand employees; Facebook, which is worth more, employs about six thousand, and most tech startups are far smaller. (When WhatsApp was acquired by Facebook, for nineteen billion dollars, it had fewer than a hundred employees.) Tech has brought good jobs to San Francisco, but almost any other industry, charged with similar growth, would have brought many more.

This has been no secret to those in power. Nine years ago, Ted Egan, who is now San Francisco’s chief economist, was hired by the Mayor’s Office to plot a long-term economic path for the city. He recommended four measures that would mitigate rising inequality. The city should try to diversify its tech growth away from Internet firms to include industries like biotech, which supplies large numbers of both specialist and nonspecialist jobs. It should work on attracting big companies, which offer residents a range of jobs, rather than only small startups, which rest on the shoulders of a few founders. It should promote tourism more creatively, and focus more intensely on sustaining its blue-collar industries. Egan submitted his report. City Hall appeared to love it. Then, he says, it was filed away.

There are problems on both sides of the housing market, supply and demand. But demand is the much bigger issue. More from the above article:

“If you’re in a region that is adding jobs, you need parts of that region to be pro-growth to allow the housing supply to increase commensurate with the jobs,” Gabriel Metcalf, the executive director of SPUR, a pro-growth urban-policy think tank, told me. Building advocates like Yarne and Metcalf, who are friends, blame San Francisco’s public process for slowing down construction and driving up housing prices. John Rahaim, the Planning Department’s director, encourages such growth but shares the widespread opinion that it would take a huge amount of building—some people say around a hundred thousand new units, over a period of years—to shift San Francisco’s supply-demand curve.

Adding homes at the high end of the market could also entice more rich suburbanites into town. Supply-side urbanists like Metcalf and Yarne solve the problem by zooming out on the map. It’s O.K. if San Francisco vacuums in the most affluent elements in the region, they say, provided that greater San Francisco doesn’t remain a suburban hinterland. Yarne is fond of pointing out that the BART commute from downtown Oakland to downtown San Francisco is a lot faster than most streetcar commutes within San Francisco. Let’s have more of that, he says, and turn the Bay Area as a whole into a clean, efficient metropolis.

Ironically, "supply-side urbanists" fail to see the big picture.


Anonymous said...

Clearly both strong demand and a supply-constraint are necessary conditions for soaring real estate prices over >=medium timeframes.

Trying to split demand into local/international components is a great example of "not even wrong", given the tight interaction.

Oversimplifying doesn't make you visionary.

Anonymous said...


"You keep using that word. I do not think it means what you think it means."

Jim Russell said...

"Clearly both strong demand and a supply-constraint are necessary conditions"

Supply-constraint isn't a necessary condition. Strong demand is a necessary condition.

Anonymous said...

You're utterly wrong.

Read Glaeser/Gyourko 2001. Even then, planning permission carried a huge premium.

Your reasoning would imply that San Francisco can absorb infinite real estate supply. You fail econ.

Anonymous said...

I mis-cited:

Glaeser/Gyourko 2002
"The Impact of Zoning on Housing Affordability"

Jim Russell said...

"Your reasoning would imply that San Francisco can absorb infinite real estate supply."

My reasoning doesn't imply that. You fail logic.

Anonymous said...

I don't think you've read the paper.

Yes, your reasoning requires that developers continue building and building and yet never bring prices down to marginal construction costs.

You are not adding productively to the discussion.

Allen said...

I'm not sure what you mean by " the bulk of the cost depends on demand ". For example, the median sales price for a house is $265k in the US but only $170k in high in-migration Phoenix in Feb 2013. Not only does that leave me wondering how Richard Florida label Phoenix "high cost" but I'm wondering how new houses were 40% cheaper in Phoenix than the US median.

Maybe I'm wrong but the first problem with all sorts of folks in this area is they don't limit themselves to new housing. IMHO that's exactly where one would expect to see the biggest effects of zoning + regulations on cost.

Overall though, if I'm picking up what you're laying down, essentially you're saying "look guys, it has some nuances." I can see that. For example, the Twin Cities is generally not considered to be expensive for housing when median household income is factored. I would add another minor but not cheap factor, the cost of basements ( gotta go a lot deeper to drop below the frost line up there ).

Yet within the Twin Cities you'll find some niche markets that have outgrown the metro as a whole. For example, even in the land of 10,000 lakes there aren't many lakes around as big as Lake Minnetonka and in the Twin Cities. The price of housing there is nutts. $22 million for a house?

Jim Russell said...

"For example, the median sales price for a house is $265k in the US but only $170k in high in-migration Phoenix in Feb 2013"

A few variables comprise demand. Regarding migration, you can't just look at the net number. You have to consider household income as well. There are other consideration such as the migration geography.

If a neighborhood with super restrictive supply is off the map of wealthy in-migrants, then you get a Rust Belt city effect.

The geographies of concern are where demand is greatest, not where supply restrictions are greatest.

Anonymous said...

Asserting something ad nauseam does not make it true.

You're revealing the shallowness of your ideas.