I enjoy seeing Chicago used as a positive example. It's not usual that we get portrayed that way, thank you. As somebody studying economics, I have one gripe: adding density doesn't decrease rents in in-demand cities. Land values are almost perfectly correlated with population density. A higher land value means increased rents, building up will only decrease rents in cities that are in not-so-high-demand, seeing little or no population growth, Chicago is a good example here, so is the rest of the rust belt. re: 1212 Chicon It's true that if an individual plot of land has more units on it, living on that land becomes cheaper because land values are spread out among more people, but if the neighbors build more units, and the neighbors neighbors do the same, density (and thus land value) increases. 6x the land value spread out among 6x the people isn't any more affordable.
Right, this is was a consistent problem that I recognized in my thinking: density brings activity, which brings value, which requires more density. It's a positive feedback loop, which means that affordability will never be reached; it's just a means to an end. And hot cities that add density will become even hotter requiring more density... when does it end? If left to the market would Austin grow exponentially into Manhattan? Honestly, I don't think so, eventually the urban system would find an equilibrium and Austin's population growth would stabilize due to whatever outside forces. So when it does, and assuming that the city is dense and land values spread amongst many, would it be affordable then? All speculation and I'm curious to know what you think. Also, do you have any literature about land values being closely correlated with population density? I think that would be some super interesting reads, and it would be awesome if I could educate myself more on this topic. Thanks! -- Kevin
Full disclosure: I consider myself to be a Georgist, I have that bias "If left to the market would Austin grow exponentially into Manhattan?" there are certainly exogenous factors that influence the development patterns that humans settle into, geography, climate, overall human population, etc, there is almost certainly some stable or quasistable equilibrium of population and density that cities will settle into. If/when this happens, of course, there's no guarantee that it will be affordable, those higher land values really do create a huge stumbling block towards affordability. Land values, surprisingly, do not correlate very well with increases in gdp per capita/average incomes, so if dense cities are wealthy, then the land can be affordable, however, that's no guarantee. We should keep in mind though, that the correlation is not necessarily causative, but that doesn't mean we can discount it. The most effective and surefire way to ensure land affordability without reducing amenities is to institute tax policies that lower the value of land. A simple tax on land values both generates revenue to fund the public infrastructure that increase land value and reduces the price of land. Empirically, I would recommend you take a look at: www.bea.gov/research/papers/2015/new-estimates-value-land-united-states and fred.stlouisfed.org/release/tables?rid=118&eid=259194&od=2009-01-01# The first link is a fairly rigorous estimate of land values nationwide the second link is population data from the US census Bureau that the Federal reserve has done a nice job of making accessible. Deriving density from population is elementary in your software of choice. I'm currently working on contacting the author of that BEA working paper to see if I can get more of his data, I'll notify you if that ever comes to fruition. Land values have unfortunately taken a back seat in economics for a few decades, and economists have this habit of relying on theory a lot rather than empirical evidence. hence there's not really much empirical literature present.
I enjoy seeing Chicago used as a positive example. It's not usual that we get portrayed that way, thank you.
As somebody studying economics, I have one gripe: adding density doesn't decrease rents in in-demand cities. Land values are almost perfectly correlated with population density. A higher land value means increased rents, building up will only decrease rents in cities that are in not-so-high-demand, seeing little or no population growth, Chicago is a good example here, so is the rest of the rust belt.
re: 1212 Chicon
It's true that if an individual plot of land has more units on it, living on that land becomes cheaper because land values are spread out among more people, but if the neighbors build more units, and the neighbors neighbors do the same, density (and thus land value) increases. 6x the land value spread out among 6x the people isn't any more affordable.
Right, this is was a consistent problem that I recognized in my thinking: density brings activity, which brings value, which requires more density. It's a positive feedback loop, which means that affordability will never be reached; it's just a means to an end. And hot cities that add density will become even hotter requiring more density... when does it end? If left to the market would Austin grow exponentially into Manhattan?
Honestly, I don't think so, eventually the urban system would find an equilibrium and Austin's population growth would stabilize due to whatever outside forces. So when it does, and assuming that the city is dense and land values spread amongst many, would it be affordable then? All speculation and I'm curious to know what you think.
Also, do you have any literature about land values being closely correlated with population density? I think that would be some super interesting reads, and it would be awesome if I could educate myself more on this topic.
Thanks!
-- Kevin
Full disclosure: I consider myself to be a Georgist, I have that bias
"If left to the market would Austin grow exponentially into Manhattan?" there are certainly exogenous factors that influence the development patterns that humans settle into, geography, climate, overall human population, etc, there is almost certainly some stable or quasistable equilibrium of population and density that cities will settle into. If/when this happens, of course, there's no guarantee that it will be affordable, those higher land values really do create a huge stumbling block towards affordability. Land values, surprisingly, do not correlate very well with increases in gdp per capita/average incomes, so if dense cities are wealthy, then the land can be affordable, however, that's no guarantee. We should keep in mind though, that the correlation is not necessarily causative, but that doesn't mean we can discount it.
The most effective and surefire way to ensure land affordability without reducing amenities is to institute tax policies that lower the value of land. A simple tax on land values both generates revenue to fund the public infrastructure that increase land value and reduces the price of land.
Empirically, I would recommend you take a look at: www.bea.gov/research/papers/2015/new-estimates-value-land-united-states and
fred.stlouisfed.org/release/tables?rid=118&eid=259194&od=2009-01-01#
The first link is a fairly rigorous estimate of land values nationwide
the second link is population data from the US census Bureau that the Federal reserve has done a nice job of making accessible. Deriving density from population is elementary in your software of choice. I'm currently working on contacting the author of that BEA working paper to see if I can get more of his data, I'll notify you if that ever comes to fruition.
Land values have unfortunately taken a back seat in economics for a few decades, and economists have this habit of relying on theory a lot rather than empirical evidence. hence there's not really much empirical literature present.