I usually don't follow the links in E-mails from PR folks, but I did follow one to this two-month-old article in the New York Times Magazine on urban economics Prof. Edward Glaeser.
It's larded with the usual left-wing pieties you expect in the NYT; the writer finds it hard to believe anyone would advocate getting rid of public housing and replacing it with housing vouchers, even though that's exactly what's been happening around the country for the past 30 years, to the benefit of all. But Glaeser turns out to be an interesting figure. He's against rebuilding most of New Orleans, which, as I have argued, is simply not going to be rebuilt whether or not we think it's a good idea.
He asks the question of why declining central cities like Detroit and Philadelphia haven't lost population even faster than they have. Answer, courtesy of the Times article:
The net population of Detroit usually decreases each year, in other words, but the city still attracts plenty of people drawn by its extreme affordability. As [Glaeser's co-author Joseph] Gyourko points out, in the year 2000 the median house price in Philadelphia was $59,700; in Detroit, it was $63,600. Those prices are well below the actual construction costs of the homes. "To build them new, it would cost at least $80,000," Gyourko says, "so there's no builder who would build those today. And as long as those houses remain, the people remain."
To which I would add: Doesn't this mean that the land on which these houses sit is worthless? And if that's so, why would anyone build anything on it once the structure is gone?
Glaeser blames high and rapidly increasing housing costs in the central cities of the Boston and San Francisco metro areas on zoning laws that prohibit much construction. Here's an interesting passage:
As Glaeser says: "It's so easy to forget the world that we were living in around 1970, when basically almost all of the value of houses was in the physical infrastructure. That was actually the cost. There was some land, and it was worth something, but it wasn't worth more than 20 percent of the value of the house." Even in New York City, Glaeser says, the price of an apartment back then was essentially the cost of building the next floor. In researching New York City's housing prices, in fact, Glaeser and Gyourko discovered that over the past 30 years, the average height of new residential buildings in Manhattan decreased in size. "That's crazy," he insists, especially in light of how much the demand to live in New York has increased. "You know, if prices in Manhattan are skyrocketing, you should be building more and more at 50 stories, rather than at 30. Not the reverse." So is it his contention that Manhattan could build far more than it has recently? "Oh, for sure," he says. "Technologically? Certainly. No reason why you couldn't."
Let's go back to Manhattan in the 1920s, Glaeser says. "New York in the 1920s is a pretty developed place, a pretty mature place. But they're producing a hundred thousand units a year. They're tearing up swaths of Manhattan and building higher buildings." That would be legally and politically impossible today, but as he and Gyourko see things, it is precisely those legal and political roadblocks to "tearing up" the city that have made the place so expensive. Actually, in 2004, the two men took a close look at Manhattan and estimated that one half or more of the value of condominiums in the borough could be thought of as arising from some type of regulatory constraint preventing the construction of new housing. The data for co-ops (because of their ownership structure) was more difficult to interpret, but Glaeser and Gyourko suspect that their estimates probably apply to the Manhattan market as a whole.
The article takes little note of the collapse of real estate prices in the Boston and especially the San Francisco metro areas since the tech bust of 2000 and the fact that those metro areas have lost population since then. Glaeser seems to understand this, but he seems content to operate at the glacial pace of tenured academics:
His other project is both more ambitious and more difficult. He and Gyourko say they know that the country's regulatory environment, and thus the supply of housing, began to change around 1975. But they don't know why it changed. So along with a third researcher, Raven Saks, they have begun to track building permits from hundreds of cities around the country over the past four decades to investigate the nature of the evolution. Glaeser speculates that there may be a viral phenomenon whereby once housing prices reach a certain level, residents become aware of high home values and agitate for restrictions; another possibility is that judges have become much more sympathetic to blocking development for environmental reasons. Still another thought: that homeowners, utilizing skills learned during the civil rights movement and political protests of the 1960s and 1970s, became much more adept at organizing against developers. (There appears to be a reasonable correlation between liberal enclaves, zoning regulations, and high housing prices.) In any event, Glaeser says, he doesn't know the answer yet, and it may take years to find out.
If he wants to get to the answer sooner, my suggestion is to check out the Web site of my untenured friend Joel Kotkin, whose reporting has produced many of the answers.
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