Why Is Urban Housing So Expensive? Because People Want To Live There.


Russian prefabricated housing Image Credit: Soviet Photography

There are many in the States who think urbanism is a socialist plot and deny that people are moving back to the cities. As Joe Mysak wrote in Bloomberg a couple of years ago, when gas was hitting $4.00/gallon:

The notion appeals especially to people who like to think they'll be in charge after the revolution. They would apparently love nothing more than for the population to be confined to Soviet-style concrete-block high-rises and be forced to take state-run streetcars to their little jobs at the mill.

Of course, they are the same people who think that the housing crash was caused by the Community Reinvestment Act that forced banks to lend to minorities. When in fact, As the Economist points out in Supply, supply, supply, don't forget supply, it's all basic economics.Ryan Avent writes that Washington, Philadelphia and New York are all examples of cities that are gaining population. The suburbs were gaining too, because there were fewer constraints on development.

Imagine two areas: Gotham and Pleasantville. Say the demand to live in Pleasantville increases a little while the demand to live in Gotham soars. And say that due to differences in land use restrictions, housing supply responds dramatically in Pleasantville and very little in Gotham. Then what we'll observe in Pleasantville is a rapid increase in population and slower growth in prices, and what we'll observe in Gotham is rapid growth in prices and slower growth in population. And this is exactly what we have observed in the real world. Suburbs have seen massive housing growth and rapid population growth, but prices in central cities have soared, even in many places where population numbers are level or falling. If no one wanted to live in central cities, prices for homes there would not rise. And indeed, several decades ago, prices for homes in big central cities were dropping. But that trend has clearly reversed. You can't draw conclusions about demand shifts from population numbers alone. This is a very simple point, and yet its repeatedly ignored.

In other words, cities are getting more expensive and suburbs less so because that is where people want to be.

At All About Cities, Wendy Waters looks at the issue and notes:

From talking to friends and realtors, it seems that today, the housing market is hot in walkable urban areas, and a softer in the suburbs. Evidence of continued strong demand for urban living.

She puts together a list of reasons, most of which are a good summary of her report that I covered in New Study Says Young People Want Apartments, Not Houses; iPhones, Not Cars


  • Maturation of the knowledge economy, reliant on the internet, that has benefited from a very urban workforce constantly looking for inspiration

  • De-industrialization in many metro areas as manufacturing declined either outright or as a percentage of employment (while service and knowledge jobs grew)

  • Generations X and Y started to make their ideas and culture felt in cities, as they embraced an experience economy over a consumer goods and large-home-and-car based one.

  • Women's higher rate of degree attainment resulted in career women selecting short commutes and urban living (with the trade offs) over suburban homes

  • The fertility rate edged up slightly, likely as younger boomer and older gen x women who had postponed children had 1 or 2, but didn't give up urban living or urban careers and wanted short commutes.

  • Millennials defining freedom as their "first iPhone" rather than first car, and driving less.

  • More recently in 2008 and now in 2011, high gas prices are encouraging more people rethink auto-motive lifestyles.

People are moving back to the city. There are lots of good reasons to do it, and basic economics confirm it. And since people use so much less energy per capita in the city, this bodes well for the climate and for our energy consumption. At some point, the anti-urban, anti-transit, anti-rail people are going to have to face it.

More on Cities

New Study Says Young People Want Apartments, Not Houses; iPhones, Not Cars : TreeHugger
Does Bicycle Friendliness Contribute to a City's Economic Development : TreeHugger
Are Young People Giving Up On The Suburbs? : TreeHugger

Tags: Urban Life

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