Build Baby Build

Three tales of urban America

I spent most of yesterday going to and from a well-timed NBER panel on trade policy, which didn’t leave time to put together a tightly written post on, well, anything. But I thought I might use the breaks in my schedule to highlight several recent stories bearing on an issue dear to my heart — the future of American cities.

As some readers may know, one of the main themes of my academic career was helping to revive economists’ interest in economic geography. I focused on the tension between the forces of agglomeration, which cause people and businesses to clump together, and the centrifugal forces that push them apart. I did my main work on this subject in the early 1990s. However, the topic gained a lot of extra real-world relevance a few years later: It became increasingly clear that the logic of a knowledge-based economy was favoring highly educated large metropolitan areas on the coasts, while leaving much of the heartland economically stranded.

Which is not to say that everything is going well in the big coastal metropolises. I live in New York, where some things have gone very right — crime is way down and, as I’ll explain later, the congestion charge intended to reduce traffic delays appears to be a smashing success. But there’s a real crisis of affordability. Recently the West Side Rag, my ultra-local news source, ran an article titled “The Upper West Side: A Neighborhood for Independent Minds.” Lots of interesting history, but frankly my first reaction was “Yeah, independent minds who can afford to pay $1600 a square foot for housing.”

I hope that NYC will finally, finally, allow enough housing construction to bring costs down. But meanwhile there have been some dramatic, encouraging developments in California.

A victory against California’s NIMBYs

California, even more than New York, has been hurt by extreme land use restrictions preventing housing construction. Often it seems that the state has gone beyond NIMBY to BANANA — build absolutely nothing anywhere near anyone.

But last week Gavin Newsom, California’s governor, signed two bills that will substantially weaken CEQA — the California Environmental Quality Act — well-intentioned legislation that turned into a monster, a tool for blocking development and a major cause of California’s high rate of homelessness. It remains to be seen how effective Newsom’s moves will be in unlocking new construction: NIMBYs have historically been extremely creative in finding ways to block new housing. But what Newsom has achieved seemed politically impossible not long ago.

One side note: We often think of restrictive zoning that makes housing unaffordable as a left-right issue, and it’s true that obstacles to building tend to be much higher in blue states than in red states. But I was curious to see what Project 2025 had to say on the subject — and what it espouses is full-on NIMBYism:

Congress should prioritize any and all legislative support for the single-family home. Homeownership forms the backbone of the American Dream. The purchase of a home is the largest investment most Americans will make in their lifetimes, and homeownership remains the most accessible way to build generational wealth for millions of Americans. For these reasons, American homeowners and citizens know best what is in the interest of their neighborhoods and communities. Localities rather than the federal government must have the final say in zoning laws and regulations, and a conservative Administration should oppose any efforts to weaken single-family zoning.

Source: Mandate for Leadership, p. 511

Odd, isn’t it? The people at The Heritage Foundation want to remove limits on, say, pollution but defend the right of communities to block affordable housing. Also, they’re all for freedom: Americans should have the right to choose how they want to live. Unless, however, they want to live in apartment buildings.

Austin underpowered

Why is building more housing in California and New York important? The most pressing reasons involve helping the less fortunate: Rich states should not have so many homeless people. But there’s also a powerful economic case for building more in, say, the Bay Area and New York City. For these are places where the advantages of agglomeration make workers highly productive, and we should be making it easier to build on those advantages, not strangle growth with restrictive land-use policies.

If you want to see the advantages of agglomeration, one good way is to look at the problems facing people and businesses that have tried to move away from major centers.

Back in May the Wall Street Journal ran an interesting report on how the move of technology companies and workers to Austin, Texas, which got a lot of hype a few years ago, has stalled and even gone into reverse.

Tech workers moved to Austin looking for relief from sky-high Silicon Valley housing costs. But once there many seem to have discovered that Austin lacked critical mass. The tech “scene” with its opportunities for networking was disappointing. And the labor market wasn’t thick enough. Isabelle Bousquette, the reporter on the story, noted in a podcast that

A lot of companies that moved to Austin have since done layoffs, which is true for companies across the board in tech. But when you've been laid off, workers are finding that San Francisco or New York is a better place to look for a new job.

This is classic economic geography stuff, the same considerations that the Victorian economist Alfred Marshall used to explain why localization is often advantageous to an industry — although he didn’t say “networking,” he said

The mysteries of the trade become no mystery; but are, as it were, in the air.

The point is that the existing concentrations of technology in San Francisco and, in some areas, New York provide enough of these advantages to more than outweigh their high housing costs. But it would clearly be better if housing were less expensive in the coastal cities, so that more people could move there and benefit from their agglomeration economies.

One thing that also came up in the Austin reporting was that it’s hard to get around; traffic is bad, and there’s little public transit. Which brings me to my third item: New York’s highly successful congestion tax.

Decongestion

In some ways, traffic congestion is less of a problem in New York than almost anywhere else, thanks to the miracle of the subway system. But congestion remains costly, and anyone who chooses to drive into lower Manhattan imposes large negative externalities on everyone else. So anyone who learned Econ 101 knows that there is a compelling case for a congestion charge on vehicles entering the high-traffic zone. Yet it took many years of advocacy before New York finally took the plunge.

And guess what? Econ 101 was right. The congestion charge has been a huge success, with greatly reduced traffic delays — so much so that even the drivers paying the charge are almost surely better off. Mass transit ridership is up, and the revenue from the congestion charge will pay for significant transit improvements.

Actually, the congestion charge has worked almost too well. Given how expensive it already was to drive into Manhattan, why should an extra $9 make so much difference? But that’s a subject for a future post.

Right now, maybe the moral is that between California’s anti-NIMBY reforms and NYC’s congestion charge, we’re seeing some real policy improvements in our coastal cities. At the same time, the frustrations experienced in Austin are a reminder of why agglomeration adds value.

Cities: They’re a good thing.

MUSICAL CODA