The Revival of Cities and the Urban Land Premium

Yves here. This post makes for interesting reading in connection with Wolf Richter’s latest missive on the insanity of San Francisco real estate prices. Admittedly, with San Francisco, as with other “world cities,” you have a large influx of foreign capital, a lot of it less than clean, also goosing the market. This article, by contrast, offers a theory as to what it takes for formerly depopulated urban centers to make a comeback. I’m curious if readers can offer counterexamples. For instance, is this confusing the causal chain? It used to be that manufacturing offered well paid jobs and more secondary cities were prosperous by virtue of being the headquarters for these companies (for instance, Dayton, Ohio has the main offices for NCR, Mead, and Stouffers). Manufacturing is now in retreat in the US and many mid-sized companies have been gobbled up by bigger ones. “Knowledge workers” are now attractive residents, but is this shift in the basic structure of the economy as lasting as many experts believe?

I’m old enough to have lived in the days when city centers were seen as doomed: too unsafe, too grubby to be saved. 35 years has led to a complete change in conventional wisdom. But even smaller cities with supposedly limited intrinsic appeal may become more attractive if they have dense enough central areas to make auto free/limited auto living viable in our possible future of higher fuel costs. In other words, high energy costs work against suburbanization, but what does it evolve into?

By Henri De Groot, Professor in Regional Economic Dynamics at the Department of Spatial Economics, VU University Amsterdam; Gerard Marlet; Coen Teulings, Professor of Economics, University of Cambridge; and Wouter Vermeulen, Program manager Decentral Governments, CPB Netherlands Bureau of Economic Policy Analysis. Originally published at VoxEU<

Only a few decades ago many talked about the ‘death of cities’. Today, many cities have emerged as hubs of economic activity. This column argues such a phenomenon is due to spill-overs and agglomeration of human capital. The popularity of certain cities is explained by their attractiveness for innovative enterprises and high-educated top talent. But since locations where top talent clusters are scarce, land rents on these locations are high.

End of the ‘Death of Cities’

Forty years ago, a large squatting movement was taking hold of the city centre of Amsterdam. This was not so much an expression of left-wing radicalism, as much as the desolation of the city. After 25 years of population decline, many vacant buildings had no better use. At around the same time, New York’s Times Square hosted mainly sex shops. There simply was no alternative use for the available floor space. It was an era in which people talked about ‘the death of cities’. What use did it have for modern mankind to agglomerate in heavily congested cities, when telephone and fax made long-distance communication so easy as to render physical proximity seemingly irrelevant? These stories are just two examples of a major turn-around in the prospects of cities over the past four decades, so vividly reported in Edward Glaeser’s (2011) ‘Triumph of the City’. Amsterdam’s squatting movement squandered as the demand for housing and office space soared. Times Square has nowadays become the vibrant centre of NYC’s theatre district.

Explaining the Reversal of Fortune

What explains this unexpected reversal of fortunes? Why have cities emerged as hubs of economic activity in this era in which the internet seems to be the ‘cul-de-sac’ of physical distance? That is the question we ask in our new book ‘Cities and the Urban Land Premium’. Several authors point in the same direction, namely spill-overs and the agglomeration of human capital. Gennaioli et al. (2014) show how within countries, human capital clusters in a small number of regions. The premium in regional GDP per capita is 20% and more per year increase of the mean education level in a region. This return is far above any reasonable estimate of the private return to human capital. Desmet and Rossi-Hansberg (2008) focus on the role of general purpose technologies. In the 1920s and 1930s, that was electricity. Since 1990 it is information technology. In both periods, industries that could benefit most from these general purpose technologies moved to the city to facilitate the diffusion of new ideas. The growth of human capital has been key to the economic miracle of the 20th century, but the fruits of this capital could only be harvested when great minds and well educated people clustered together in cities. The rise of the city and the knowledge economy are therefore intimately related.

• Where knowledge spill-overs play a crucial role in the modern economy, locations where top talent clusters are scarce and hence land rents on these locations are high. Surprisingly, the social return to human capital gets paid out in the form of high land rents in cities.

In the Netherlands, both Amsterdam and Rotterdam lost 25% of their population between 1960 and 1980. Amsterdam managed to re-emerge as a focal point for the higher educated, while Rotterdam still struggles, similar to the difference in fates of Boston and Detroit in the US.

• The paradox is that the agglomeration of higher educated in particular cities leaves large parts of the country almost empty across all OECD countries, while land becomes scarce at particular hotspots.

Hence, land rents take an increasing share of GDP. This is because in the provision of housing services, the elasticity of substitution between land and construction is less than one (see Teulings et al. 2015 for the Netherlands, and Albouy and Ehrlich 2012 for the US). The increase in land rents in the city therefore more than offsets the decrease in the countryside. Agglomeration benefits driven by knowledge spill-overs are therefore one of the main explanations for the increasing share of housing in many developed countries’ capital stock as reported in Thomas Piketty’s (2014) ‘Capital in the 21st Century’, next to the downward trend in the real rates of return (see the debate on Secular Stagnation).

Externalities and Rents

Knowledge spill-overs imply that cities are a focal point of location-driven externalities. Land rents are the expression of these externalities. A location’s rent is high not because of the characteristics of the location itself, but because of what happens at locations in their direct proximity. This is a clear example of an externality, the value of your property depends on the actions taking by the owners of neighbouring property. These externalities provide a textbook argument for developing public policy at the level of the city and why a Henry George tax on the value of land is most efficient. In fact, the total land rent differential of a city can be shown to be an excellent instrument for the valuation of externalities generated by a city. They also allow a valuation of the contribution of public transport services. In the Netherlands, we show that these externalities account for approximately 3% of Dutch GDP.

As history has shown (see, for example, what happened to Detroit or the decline in the population of Amsterdam and Rotterdam referred to above), current successes provide no guarantees for the future. This is what Gibrat’s law tells us, growth is independent of current size. Future growth is therefore largely independent of past success. The chances for policymakers that try to row against the tide are small. A successful policy requires to ‘go with the flow’. Large investments in infrastructure in a declining city do not satisfy any real demand but lead to large financial burdens for the local population, making these cities even less attractive. However, policy can make a difference in growing cities. In order to remain on the short list of hot spots, policymakers in these cities have two margins to work on.

• First, the city has to be attractive for innovative entrepreneurs and enterprises to locate their business.
• Second, the city has to be an attractive choice for high-educated top talent as a place to live in.

Land rents provide an excellent instrument for analysing which of these factors matters most. When job availability matters most for the land rents, then the first margin is the most important determinant of urban success. When consumption amenities matter most, then offering an attractive living environment for higher educated is the key to success.

This is exactly the analysis that we do in Cities and the Urban Land Premium. Even in a small country such as the Netherlands, land rents for residential real estate differ dramatically, from 17€ per square meter in the north-eastern part of the country close to the German border, to 3,500€ per square meter in Amsterdam’s canal zone district. On average, the contributions of job availability and consumption amenities in explaining this variation are about equal. Both explain about 35% of the land rent differential. However, these shares are only averages. The distribution of consumption amenities is extremely skewed. When focussing on Amsterdam, by far the most successful city in the Netherlands, consumption amenities play a far more important role in explaining its success than does job availability. In particular, its monumental canal zone and its vibrant cultural life give the city a leading edge in attracting top talent, both from within as well as from outside the Netherlands. This conclusion is collaborated by the evidence on wages – regional wage differentials are rather small. Amsterdam’s consumption amenities are a good reason for people to accept high rents that have to be paid for living in this city. Entrepreneurs do not have to pay high wages to offset them.

See original post for references

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41 comments

  1. ambrit

    The last two sentences suggest an entirely different state of affairs from what the authors seem to be advocating; elite ‘locations’ for elite populations. This is something rather too close to the old paradigm of country peasants and town ‘sophisticates,’ for comfort. By being released from the necessity of paying higher wages for all denizens of the elite locations, the rent extracting class forces the former ‘middle class’ back down into the working class. Somehow, the image of Vienna during the Nineteenth Century comes to mind. When the proliferation of gated suburban and rural ‘high value’ communities finally stabilizes, the rough outlines of the New Belle Epoque will emerge. Unfortunately, the original Belle Epoque had only between one and two billion persons extant. Now we have six billion plus. The dynamics are different enough that the outcome this time will not be the same as before. The article mentioned that the previously ‘vibrant’ squatters movement in Amsterdam had declined due to rising rents and land values. It does not mention where those squatters went, or what they are now doing. That’s where this analysis falls down. It fails to take into account all those ‘others’ who are not the ‘best and brightest.’ Heaven help the elites when some charismatic ‘reformer’ eventually comes along and provides a focus for all that pent up anger.

    1. susan the other

      This post did seem to indicate tho’ that the govt has actually followed the people and wherever they want to be, the govt has provided housing which pays off because it is such a deal because premiums. This is almost fudged out of the whole analysis and then twisted to justify the synergy of only smart people creating a thriving city. Well maybe. Or maybe they are just as dumb as the rest of us. And still their synergy is important. It might be that they are all dumb. You could almost make the argument that it’s not that these crowds of immigrants to Amsterdam but not to Rotterdam are important because they are so highly educated, but because they are following an ant trail. But all that synergy is very exploitable.

  2. gardener1

    Public transportation (which our legislators hate so very much) is certainly a common thread in cities which have a rising star.

    Americans seem to be finally coming to realization of the exorbitant household costs and personal liabilities of car dependency. And they wish to be free[er] of those costs and dependencies.

    We are a family of four people, two boomer parents who produced two now aging millennial children. Between the four of us, ~none owns a car.~ All live in cities with (barely) adequate public transportation. All of us have made choices to live in these urban areas based on two criteria:

    The ability to make a living
    The availability of public transportation

    Dare I speculate that the two may go hand in hand?

    1. Laughingsong

      I agree. We too made the choice of living as close to the center of our town as we could easily afford on one salary, back in 2011. Public transport was definitely part of that, but also being walking/biking distance to all kinds of things like health, stores, and jobs. Finally, noting the hollowing out of municipal budgets, we are close enough to the city center than when catastrophe hits, like storms or flooding, we are among the first to have services restored. It’s the outlying areas that have to wait days for power, sewer, road repair, etc.

  3. Joel Bellenson

    Assumptions that energy will be expensive are absurdly wrong.

    Global Solar PV production capacity doubles on average every two years. This has been the case for 75 years. As a result of the learning curve the price has fallen by approx 2/3 every decade for 75 years.
    Solar will be the cheapest energy on the planet by or before 2020.
    Also by 2020 solar will comprise 5-10% of global power generation.
    Solar will continue to cheapen for decades to come.
    Solar will have replaced all energy used on the planet by 2035.

    1. Synoia

      Let us pary the human race will be here to enjoy it. Other predictions are not so rosy.

      For example: No fish in the sea by 2048 at current trends.

    2. sam s smith

      When will they start building those solar powered ships to bring over solar panel from China?

  4. Steve H.

    Seems ike a ‘Creative Class’ argument. Worked for Indianapolis, which doubled down on amenities. Indy created a major theater festival, built the White River State Park which houses the zoo, a baseball stadium, IMAX, NCAA headquarters… But Indy also engaged in reducing blight, with a program around thirty years ago that bought and refurbished homes in blighted neighborhoods.

    The only two counties in the state which didn’t lose land value recently housed Indy and Bloomington. Bloomington is a college town, state creative center, with strong gay rights advocacy. The downtown area has burst in the last decade with buildings over three stories. Those are marketed to high-end students. There is an east-side area which is almost a Chinatown, about a mile of mostly Asian students. Coupled with the town being considered a top retirement spot, the land values are built up on outside money coming in, not on internal development.

      1. Steve H.

        Or maybe a counter to it. The money flow seems like it originates from three sources: good times (retirees), trade imbalance (foreign students, out-of-state tuition, condo sales for college students), and ZIRP beneficiaries (housing bubble, support your local derivatives). This is not internally generated productivity.

        For a dismal analysis of the prospects of the ‘creative class’:
        //www.newrepublic.com/article/120932/scott-timberg-culture-clash-review-americas-creative-destruction

        1. sam s smith

          The current retirees are the only ones with pensions, future retirees will not be buying so many luxury condos.

  5. NYer

    i have no idea on europe – which it seems this article is about.

    in the US – my impression is that cities in the north of the US are losing population on a relative basis (chicago proper for example), while cities in the south gain population. and large cities in the south that have lots of cheap sub dividable land nearby but outside the city limits probably arent gaining much population at the expense of shiny new-ish suburbs which are booming – Katy/Houston, Plano/Dallas, round rock area/austin are examples in texas (which i know best), i am sure there are dozens of similar suburb-cities throughout the south, and/or medium-sized cities like nashville which are growing very quickly.

    plentiful jobs + relatively cheap housing + “control over school system and its costs” probably explains most of the boom. at least in the cities i mentioned, public transport is pretty much non-existent and will probably stay that way.

    trophy cities like SF, Manhattan/Brooklyn, and Miami are just that – store-of-value plays for the global wealthy. i don’t think either NYC or Miami are really adding permanent people (if anything i would guess that NYC is losing the middle and upper-middle to the rest of the tri-state), SF i don’t know. but there are only a few of these cities in the US (the chinese aren’t rushing to buy property in cincinnati as far as i know).

    1. Beans

      I agree with your assessment – but would add that a big reason the South is drawing people from the North is the weather. Perhaps not having to shovel snow is considered an amenity? Perhaps climate variation between locations is not a consideration in the Netherlands, but it certainly is in the U.S.

      1. ambrit

        Shoveling snow may be a chore, but doing any sort of work in 98 degree F is brutal. I speak from experience. I chose 98 because that’s what is predicted for today in Hattiesburg, MS. As the climate warms, you’ll find the “comfort zone” steadily moving Northward.

        1. lord koos

          We’re pretty far north here in eastern WA, next week the forecast is six consecutive days of 102-106 temps, almost as hot as the southwest. Seattle is comfy though, in the 80s.

          Speaking of Seattle, the boom is on. A friend of mine just had his property taxes raised from $3900 to $7800 a year (doubled in one year) for a remodeled three bedroom house on a corner lot near downtown. An area that was was cheap and slightly sketchy when he bought the place is now coveted by developers who want to build townhouses. Most of the funky and fun parts of the city will be gone in a few years, along with a lot of the fun people
          .

    2. sam s smith

      School districts play a very important part in the South. School districts in older established southern cities ( eg Dallas ) are extremely dire, necessitating that families move to the suburbs when children become school age.

  6. PlutoniumKun

    I’m always a little dubious about economic based modelling for explaining urban patterns – while ‘on average’ they may be accurate, there are so many counterexamples of any particular model that their policy usefulness isn’t always clear.

    The one thing which does seem obvious – even from the example given of the revival of Amsterdam and the relative failure of Rotterdam, is that the absolute key is urban quality. Rotterdam had the misfortune to be flattened in WWII and redeveloped functionally. Its not hard to see why people choose Amsterdam. You can see this to a lesser extent in Normandy and Brittany where some towns were flattened in 1944, others escaped. Despite the destroyed towns being redeveloped on more ‘rational’ lines, and often being the focus of major investment they really struggle economically while the more attractive towns generally thrive reasonably well. You can see the same process on a micro stage if you look in the MidWest of the US – historic old towns attract younger and artistic people, and this does seem to have an impact on bringing in investment. A town like Salida in Colorado has little real reason to thrive (it is an old railway town, long bypassed), but its lovely buildings have attracted lots of incomers and they’ve provided a core economic base, while other nearby towns have faded to little or nothing (such as Como, just over the ridge). Of course, there is a chicken and egg situation going on – sometimes the presence of a youthful, artistic culture makes an area attractive for incomers and this leads to more investment in public areas.

    I think the old model – usually applied to neighbourhoods – also applies to cities. You have an equivalent of ‘first adaptors’ – young artists, hipsters, the gay community, attracted to an area by a combination of its perceived attractiveness/grittiness, with low rents a major attraction. If the area becomes hip, it grabs attention and sometimes (not always), conventional businesses follow, because thats where their staff are. Plenty of businesses are of course only interested in cheap land and big flat fields they can develop. Others are dependent on an educated young workforce so they have to pay attention to where they want to live.

    There are of course plenty of counter examples. Sky high rents don’t seem to be causing any real economic damage to SF, NY, London, Paris, etc. There may be long term damage as a percentage of educated people simply can’t move in, but somehow people manage. There are also of course cities with cultural and economic cache which simply can’t manage to use it to leverage into growth – Liverpool comes to mind. I think you have to see urban growth as a complex result of many factors, land rents being just one of them.

    Having said all that, it is clear that policies that keep rents and property costs low is important for cities which are struggling. I can’t help feeling that the policy of some US towns to demolish empty properties rapidly is very counterproductive. Sometimes dereliction is a good thing – it is a resource like any other resource.

    1. fresno dan

      Nice analysis. What was that “rational” designed city in Brasil? ?Brasilia?
      Goes to show you how what was once thought of as the epitome of good design lacked human scale and how offputting it was to most people.

      1. PlutoniumKun

        Yes, its Brasilia, wonderful architecture, terrible city. New cities rarely succeed – big cities locate where they are for a whole range of geographic and economic reasons, its hard to overcome this. If you look at a list of the biggest cities in Europe in the 18th Century, its remarkable how similar the list is to the biggest cities of today – just a handful of new 19th Century industrial cities added to the list, thats all. Existing urban areas have huge momentum, which is why its almost always best to use what you have, stop dreaming about new designs and types of cities. Think of all those cities who really wished they hadn’t driven motorways through historic areas, or flattened lovely buildings for concrete blocks. Sometimes doing nothing really is much better than doing something.

        Having said that, there are plenty of ‘rational’ designs that work – Greek and Roman cities were highly designed and worked wonderfully well, and still do – the Bastides of France are gorgeous and still work well, 8 centuries later. 18 Century urban quarters have still not been bettered. The standard American ‘grid’ design is of course a form of rationalism that works, so long as you don’t spread the grid into infinity (or into the desert).

    2. Steve H.

      “Sky high rents don’t seem to be causing any real economic damage to SF, NY, London, Paris, etc. ”

      Evidence to contrary:

      “Cafe Angelique reportedly closed when its sixteen-thousand-dollar rent increased to forty-two thousand dollars. A Gray’s Papaya on Eighth Street closed after its owner reported a rent increase of twenty thousand dollars per month. “We are witnessing our destruction,” Nicky Perry, the outspoken owner of the neighborhood restaurant Tea & Sympathy, said. She called the situation “insane.””

      //www.newyorker.com/business/currency/why-are-there-so-many-shuttered-storefronts-in-the-west-village

      1. PlutoniumKun

        Individual businesses are of course being driven out, but the shuttered streets of New York have more to do with a misfunctioning property market (it being worth more for owners to sit on empty properties than to occupy them) than the lack of businesses willing to open there. Its one reason why intelligent land taxes are vital to ensure that valuable property is not left idle.

  7. Myron Perlman

    “Super star cities” is the term being used in the U.S. “Business friendly” academics have been arguing for government aid to reshape the cities for the “creative class.” Through Tax Increment Financing, for example, the taxes of current residents are sacrificed to bring in more well to do residents, consumers and professional workers. Very much a class agenda. TIF money used to bring in a Starbucks and current residents are pushed to outlying areas where they can find a Duncan Donuts.
    Here are links to a few pertinent articles: The first is tellingly titled “Competing for the next 100 million Americans: Uses and Abuses of TIFs” http://heartland.org/sites/default/files/lefcoe_ssrn-id1680598.pdf And then there is the link to urban conflict, see http://www.bloomberg.com/news/2014-08-16/ferguson-unrest-shows-poverty-grows-fastest-in-suburbs.html
    Finally from the University of Chicago Law Review http://lawreview.uchicago.edu/sites/lawreview.uchicago.edu/files/uploads/77.1/77-1-TIF%20Financing-Richard%20A.%20Epstein.pdf

    There are, of course, other dimensions. All of the money going up the income pyramid needs a place to accumulate and grow (see David Harvey). And investment in local politicians leads to greater profits for developers and their clients as well.

    1. readerOfTeaLeaves

      1. I don’t work for Starbucks, but patronize them a lot.
      2. I spent part of my day reading about US obesity stats, so the mention of “Dunkin’ Donuts” sent me into orbit.
      If Starbucks, where you can buy salads, green veggie smoothies, and a host of other nutritious options (as well as donuts) pushes out a business that contributes to obesity and diabetes, let me assure you that I will be rooting for Starbucks’ all the way. The donuts ought to get a special ‘diabetes tax’ so the rest of us don’t have to underwrite umpteen prescriptions for insulin syringes, and that’s just for starters.
      ————————-

      3. The Heartland Institute is… not exactly credible IMVHO. Apparently, they believe that ‘the climate science about global warming is a hoax.’ I live in the Seattle region; there is almost no snow on the mountains and it is not even the end of June; strawberry season is closing now — it was nearly a month early this year; apricots are in the stores, along with cherries — these are usually July and August produce crops. But hey… the global warming deniers can probably explain to the farmers that everything is just perfectly fine and normal… sheesh.
      ——————

      4. I have no background in TIF, but it sounds like you are ‘special pleading’.

      5. Agree that ‘investment’ in local county and city council races produces enormous ‘ROI’ for developers. I’ve seen that up close and personal, and it’s corrupt and disgusting as hell. But that is a campaign finance issue, not a land use issue, per se.

      I live in a ‘super star city’. It’s a super star because it attracts smart people, and (for the most part, the ones that I know) work their asses off. I don’t know whether you include fitness coaches, nutritionists, doctors, chefs, bakers, gardeners, and a host of other occupations in ‘the creative class’, but all of those are creative endeavors. If you have a problem with the ‘trickle up’ issue — and I share the angst about that topic — this is a bigger issue than TIF. It’s about the way that capital is treated in the tax laws.
      The crappy land use outcomes are the symptoms; the causes lie in accounting and the tax code. And corrupt electeds.

  8. oho

    ***This column argues such a phenomenon is due to spill-overs and agglomeration of human capita***

    A big part of the rebirth of cities is that Western Europe/USA aren’t investing in infrastructure (whether roads, trains, airports) e.g. San Francisco/San Jose.

    Want a decent commute/drive to the airport/close to major hotels? You gotta be in the central city/inner suburbs.

  9. Ron

    walkability vs urban/rural auto dependence, village environment vs urban isolation a couple ideas but as a person that has migrated to living near downtown in this case a small city along the SF Bay, city living provides a refreshing relief from the stale me to life style of urban sprawl. In my case I live only a block away from a small old downtown that is not a strip mall nor has any fast food chains and its a relief. The negatives are more noise from auto traffic and various parties in the downtown park.

  10. alex morfesis

    5 thousand words later…

    I will keep it short…I have no clue about amsterdam, or anything outside the You eS of aye(maybe a bit about greece…)

    As to San Francisco, it has always been a twilight zone episode, it has not been affordable since the late 70’s…thought about living in Oakland in the mid 80’s but the misses of the time had lived in SF and was not interested…I was thinking about this little town a little ways south…san something or other, but all her friends(one lived next door to Jerry Browns monstrosity) insisted that computers were just a passing phase…(go with your instincts)…

    ah, new york…Faith Hope Consolo

    ok that’s it…well if there is ONE person who should be crowned the great savior of new york, she is it…

    I was at ground zero in the “fun days” of new york city (for those who may not know, I am sorta kinda the progeny of the ‘devil landlord’…its complicated…oh stop, the only thing I inherited from my father was his enemies)

    When Abe Beame decided to kill new york city…

    (ok maybe it was the fact landlords paid for heat and when oil bounced up in the early 70’s and then again with the shah and iran along with rents either tied to commercial leases long term or residential leverage made the limited regulated rent increases unmanageable, well there was basically no way to break even in many parts of new york city)

    there were three people who refused to listen…Edward S. Gordon, The Donald, and Faith Hope Consolo…

    Edward S. Gordon took on 1166 and the Chrysler building, the donald took on manhattan projects since he was not going to much be inheriting his families government subsidized housing projects in the outer boroughs…The donald was laughed at from day one, but he is the Phineas Taylor of our time, and took advantage of a few things to turn around the mindset…he got around the stuffed shirts by doing condos instead of co-ops, he took on projects no one wanted and no one thought could be done by convincing financial institutions that even if he just broke even, the tide would turn and the mindset would change in New York. He is the greatest construction manager in the history of mankind. He also understood that value comes from perception and eyeballs long before anyone had heard of the internet. He also had the attention of city hall, since Mayor Beame and his Dad were budz…

    But no one did more to move New York City to being the megaplex it has become, no ONE, other than Faith Hope Consolo, period end of story…

    she is the retail queen(more or less) and kept getting laughed and laughed at and laughed at and laughed at until there were no more avenues for her to fill in manhattan, then she started working the numbered streets…she also understood the power of critical mass. And she was to be respected or she would run right past you. She understood (oops – understands since she is still the queen), that on a corporate masthead in Milan, no one cared, WHERE in New York you had your space, as long as it was just, New York.

    In Chicago, Rich Melman, the driving force behind the restaurant group, Lettuce Entertain You, was a one man neighborhood redevelopment machine. I know people who would go grab his office garbage after hours to try to figure out where he was going to cluster his next set of restaurants.

    wow, I am not keeping this short…

    Koch created the massive homelessness problem by doing the exact opposite of what amsterdam seems to have done…The city of New York was mismanaging property through its HPD department, a hornets nest of billion dollar mob kick backs and HUD funding fraud. Instead of fixing the problems, he decided to just illegally evict tens of thousands of people by just declaring buildings “unsafe” and just shutting down the boilers and systems and cinderblocking properties. He allowed the PBA to take over operations of the Police Department and police got paid and did no real work, allowing crime to flourish…Koch also removed the police from the transit system, leading to massive waves of crime under the city. He also shut down the air circulation systems in the subways which had made the system workable for all those years prior to the 70’s.

    Koch also took large wads of cash from the parking lot industry (did I mention my dad refused to hand over large wads of cash like his parking lot competitors, thus he was then “dealt with”). Koch removed parking on city street, refused to repair the west side highway when an overloaded garbage truck “magically” fell through a section of highway which was not designed for trucks.

    hmm…this is getting long winded

    my point is that it only takes a few idiots to mess up a great city, and it also only takes a few lunatics to make it right…

    David Dinkins fixed New York, he was the IKE of New York City…great on policy, not so great with publicity…he put the Transit Police back at full force, he put a gate around the MTA Train lot so that charity funded graffiti “artists” could not cover the train windows and walls with paint, he stopped the illegal HPD evictions, and worked to clean up the government…and he got pushed out…he had so made the city better, that David Letterman decided to do his show at the old Ed Sullivan theater, thus becoming the northern anchor for a revived Times Square…But Mayor Dinkins pissed off one too many self proclaimed powerful people, rentiers whose ring he would not kiss.

    So off with his head, and in with captain teflon…uh-mare-ee-kahs mayah…Rudeboy…

    New York is not a great template for Urban revival…it is probably better to look to Ithaka (new york), San Antonio or Madison

    but all real estate is local…very local..

  11. jsn

    Tax away the rent, property taxes are actually enforceable: one can’t expatriate the property. Do not tax productive activity like labor. There is unproductive labor, say Wall Street and most of what passes for “insurance” these days, tax the s–t out of it. Capital improvements? Untaxed. Brokering for real estate, loans etc? Post Office Bank.

    Cities are where surpluses combine with human collegiality to foster new creation, art, industry, science, culture. But only if political power is divorced from economic power. When these two mate their spawn is the mule of rent seeking: it is stubborn, stupid and sterile. It is the post capitalism we now enjoy in the western world.

  12. ReaderOfTeaLeaves

    Brilliant!
    Will forward link and hope to comment when not on mobile keyboard 8^}

    I can stand on one corner in Seattle these days and count 10 construction cranes. And the northern suburbs are BOOMING (smart cities get great projects; the less competent municipalities get trash).
    Verrrrry timely post.

    1. ambrit

      Athenians can stand on many street corners of their city and lookup at the Akropolis, and see construction cranes. (With any luck, all bad of course, they will soon be hearing loud booms from the northern suburbs too.)

  13. Steve

    We’re still building suburbs because, despite the strong market and societal shift towards cities and towns, the system and policy at all levels of government mandates it. Minimum parking requirements are a prime example. See http://www.strongtowns.org/curbside-chat (sorry about no html ability) for a good summary.

    Speaking of html, what’s with the all-bold after Yves’ summary?

  14. sd

    Different view here as someone who experienced the gentrification of NYC and downtown LA. Artists and creative types go where the rent is cheap, small businesses pop up to support this small community. Small developers are attracted to the cheap property values and established small community. Bigger developers follow, etc. as it gets “discovered.”

    Once the rent gets too high, the artists and creative types start leaving and start the process of setting up a new community somewhere else.

    It seems to be a 60 year cycle that begins with the search for cheap space and ending when the huge developers come in, Followed by the descent.

    Cheap property > creative influx > community > 20 years > small developers followed by bigger developers > rapidly rising rents > homogenization > 20 years > high rents > creative out flux > loss of community > 20 years

  15. Benedict@Large

    Today I can’t get to either the links page or the Tom Engelhardt article because of repeating crashes and frame errors. (I use vanilla Microsoft, IE 11)

  16. kevinearick

    Hindsight is 20-20, Faith & freedom

    “In hindsight…,” (the irony) there’s plenty of blame to go around, and the only habits you can change are your own. As a part of strategic planning for the US Navy, I’ve talked to the aholes too, and I don’t need another ‘thought leader’ to talk for me, twisting my words to suit another purpose. When the time comes, we shall see who is who and what is what.

    Freedom from personal responsibility is a self-imposed prison, where you will find the majority, along with its politicians, all watching each other, competing for amusement, by attacking the weakest, for lack of a conscience, the problemsolution of prisoners dilemma, wherever you go.

    Derivative market making is a game for monkeys and apes, all seeking something for nothing, natural resource exploitation for money, and the majority is welcome to it. They can’t read, write or add, but demand the right to teach your children, the mythology of law, peer pressure for everyone, at your expense.

    Higher real estate inflation driving lower wages, with welfare for those who go along at the voting booth, subject to higher real estate inflation, that should work out well.

    Safe and effective Obamacare is not, but watch the Republicans scramble to save it. Fathers Day Tip: Dad’s going to give you the best option before you know that you need options. If you continue, dad is going to give you the better option. If you persist, dad is going to get out of the way and let you do what you want, at which point you are screwed.

    The critters can talk all day long, at each other, in meetings for the purpose, but they can’t pay attention for five seconds, because they are too busy choosing their next words, to get their money and buy that toy. Labor doesn’t buy houses at 10X their value with 30 years labor because it is afraid of being left behind the pack, surprise. Bank has no exit, but more of the same, declining living standards.

    It all begins when the bank buys the farm for a song, with the promise of a shiny city on a hill, which rolls over humanity like a bulldozer, until it runs out of fuel, fools chasing money. Carney is a derivative selling derivatives, for a Queen, and the Fed is just following suit, playing all sides against each other, buying time, with a façade of civility.

    Do you see the buyers and sellers in your life?

    I watched 13 kids sell my grandfather out, and five kids sell my father out, and not a one had so much as a gun to their head, all now subject to violence. And, funny, how fast the voices went silent when the machine came after me.

    Reading a book, going to boot camp, or playing with the Internet is not what trains you for war. Faith is a function of experience, and the effeminate emperor is always hiding under a dress, with a small, but deadly knife. Watch and see. Funny too, how quickly labor can scale up, when it chooses to do so, when everyone else has tried and failed.

    Empire land is just a token, around which human behavior presents itself. Positions are being taken in prelude to war, and as you can see, no nation stands on the side of labor. How soon they forget, always with an excuse, fools and their money.

    America is the largest ghetto ever built, civil marriage on top of single females with children, with mercenaries for guards, but it’s still just a ghetto, exceptional only in the speed with which it has squandered its wealth.

  17. Jerry Denim

    Its getting cheaper and cheaper to buy an electric car like the Chevy Volt and solar will continue to bring down electricity prices so I wouldn’t expect high fossil fuel costs alone to push people towards cities in the future. Escaping sprawl and traffic are great arguments though.

    Talent clusters, Gilbert’s law, and social returns on capital, etc. are all exciting and interesting academic concepts but this article fails to take into account the economy’s 800 pound gorilla, speculation. In this day and age of currency wars, endless ZIRP and rampant financialization prime real estate in desirable coastal cities is an irresistible object of speculation. The price of almost everything these days is completely unhinged from its real underlying value. I don’t think anyone knows the true value of anything anymore, especially economists. There’s no way the price of real estate in New York or San Francisco is completely driven by ‘talent clusters’ and location driven externalities. San Francisco is a nice city no doubt, but there is absolutely nothing there in real world terms to support the insane property valuations it suffers from currently.

    I’ve been living in LA for a little over a year now and compared to New York hardly anyone I meet here has a real job that actually pays well, but yet the town is full of rich people driving expensive cars and living in sky-high priced housing. These people are the winner’s of our society but they aren’t madly successful members of the knowledge economy or creative class. These people are are the beneficiaries of the United State’s tax and policy shift to reward interest income, speculation and inherited wealth. Working hard at a job is a suckers game that will only get you indebted up to your eyeballs while your mortgage and/or student loan payments will put someone else’s 35 year-old child up in a multi-million dollar house with a $100,000 car. That’s the real economy.

  18. susan the other

    So why is it we all like to come together? Rivers and harbors, and crossroads and oases all get settled because we like to come together. People living at a distance because they have phones and computers is fine but something is missing, you kinda feel left out, you begin to bore yourself. There is a lot of joy in a city. And it is never really acknowledged. Great cheap food for you even if you are not one of the brightest newcomers, bikes and busses too; good schools because intellectual friction; flea markets; good water works and good conversations. We came together in cities 20 thousand years ago. Because we wanted to. Government housing is just another opportunist.

    1. Jack

      I don’t know as it is so much that people want to “come together”, as it is economics. Rivers and harbors and crossroads were settled because they were needed to survive and prosper. In colonial America there were no roads to speak of. Commerce was by sea and rivers, so that is where people settled. People for the most part like “breathing room”. But there is a cost to living far away from the necessities of life. When gas was cheap and commuting times short people moved away from the cities. The new urban lifestyle was sustainable. Now the infrastructure of the urban landscape is falling apart and there isn’t any money to keep it up. The shopping malls are closing. Arts and culture are lacking. Energy prices are high (yes, gas is currently cheap but it wasn’t before and no one expects the current low prices to last) and commute times are horrendous (around most major cities). People kept moving to the suburbs, but now there isn’t any money to keep expanding the highway systems. So now people are moving back to the cities to save money. You pay higher rent for a smaller home but the commute expenses are eliminated and many times the automobile completely. You rent one if you need it. Even for an hour. The population density supports arts and culture. I get your ppint about humans being social animals, but I think declining urbanization is more about economic factors than the desire to live closer to ones fellow man.

  19. vegasmike

    Detroit collapsed because middle-class white people abandoned the city. The city couldn’t sustain itself on a collapsing revenue base. New York has and had a large number of wealthy people, who didn’t want the city to collapse. They had a lot of their own money tied up with local real estate. Also, New York is the cultural and financial capital of the country. Many people might not care about such things. But a significant number of the elite probably do. In the 80s, the City did sponsor sweat equity renovations on the Lower-East Side. I think the author underestimates, the charm factor. Amsterdam and San Francisco gentrified partially, because they’re picturesque. Of course, the charm of San Francisco and some parts of New York won’t last, because they very wealthy will price out the quirky.

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