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Change my mind: Density increases local but decreases global prices

90 points by feross 4y ago

endisneigh 4y ago
Personally I’ve never believed that adding more houses decreases prices. Though that is true in theory, in practice what happens is: 1. Major housing developments are accompanied by more jobs than the units being built could serve. 2. Developments are accompanied by local initiatives to improve the neighborhood that take effect soon after. 3. The quality disparity in a given area results in people far higher than the neighborhood median income moving in, resulting in (2) and eventually (1). I’ve yet to see anywhere on earth that’s both dense and cheap which I believe more or less proves the point. If building more houses really made things cheaper it would be trivial to prove: cities, which are denser, would be cheaper than the nearby suburbs. Across virtually every region this is not true, when adjusted for square footage. The problem with the United States isn't that housing is too expensive - it's that housing is too big. To that end I agree with this article. The area that has people leaving their (presumably less dense) locales will become cheaper, but those areas will also become less desirable and ultimately have fewer people. If that’s the case, the price decreases is not really relevant in the same way the price of housing in Oklahoma City is irrelevant to someone in Brooklyn. That being said, post COVID is very different as commercial real estate is not nearly as lucrative. Who knows what will happen now.
- raybb 4y ago
  How would you take into account Vienna in the denseness and cheapness dimensions?
  - endisneigh 4y ago
    I'm not familiar with Austria. I'd be shocked if Vienna is cheaper than random parts of Austria, though.
- konschubert 4y ago
  Even if it didn’t slow the price increases - just the fact that building more housing means that more people get to live where they want to live- isn’t that a good thing and enough reason to build? And as you said, the neighbourhood gets improved - isn’t that a good thing? Or are you saying that the solution to the housing crisis is to make cities as inhospitable as possible such that people are forced to live in the countryside? Have you considered the effects that dense cities have on the ecological footprint, the welfare and the technological progress of a society? Have you considered how allowing free movement - including into cities - increases human welfare and happiness?
  - endisneigh 4y ago
    I am not against building more. I am simply saying that if you look at the data, there is no evidence what so ever that building more decreases the price of housing. What it does is slow the price increases, but the very demand that is driving price increases was generated by the density, that is exacerbated by building more. We need a better metric. If you have some number to describe the quality of a city, perhaps let's call it fun, then the fun/$ is probably much higher than in a cheap suburb, for sure.
    - s1artibartfast 4y ago
      Density doesn't drive price. Nobody pays more for "density". Density and price are both simply measures that track other desirable factors like jobs. It is correlation, not causation.
      - endisneigh 4y ago
        agreed that it's correlation. however that's all you're going to get. no one is going to run a city wide experiment in this way. however if you look at the trend it's clear that cities have seen higher median price increases than suburbs. you can search yourself.
        s1artibartfast 4y ago
- stale2002 4y ago
  > 1. Major housing developments are accompanied by more jobs than the units being built could serve. Lets take your theory to be true. Even if this is the case, it would still effectively cause housing prices to decrease, relative to the amount of money that people are making. So, if density causes people's income to double, by having all these awesome and cool jobs, but housing prices only go up by 50%, this is still a massive win for the residents.
  - endisneigh 4y ago
    > Even if this is the case, it would still effectively cause housing prices to decrease, relative to the amount of money that people are making. This isn't true at all, though, empirically. Trivially you can look at the minimum wage in the top 10 most expensive cities vs the bottom 10 and see this. > So, if density causes people's income to double, by having all these awesome and cool jobs, but housing prices only go up by 50%, this is still a massive win for the residents. Why exactly would that happen? Ironically denser places result in lower wages, relative to the rent. Your theory is empirically false. This is why people like remote work, so they can better arbitrage.
    - stale2002 4y ago
      You can't have it both ways here. Either density is creating lots of high paying jobs in an area, that is driving up the price of housing, or it isn't. > Ironically denser places result in lower wages No it doesn't. The highest paid locations, in the US, are located in these high cost of living areas. > This is why people like remote work, so they can better arbitrage. Yes, they work remote, because dense locations have high salaries. That supports my point. You just agreed with me. If people had high paying jobs, where they live, they wouldn't work remote, to get the highly paid jobs in dense cities.
      - endisneigh 4y ago
        > It should be almost self evidently true that they pay more money, than random jobs, in the middle of nowhere, in the US. I'm talking about the wage relative to the price sq/ft. You're laughably wrong. Just google Median NYC salary and look at the median NYC sq/ft, and do the same with say, Dallas, TX. It's not even close. I'm not talking about nominal wages, I'm talking about sq/ft monthly rent adjusted wages. When you look at that, the densest places do not have the highest wages. People are sacrificing earning potential to be in a more fun area, which makes sense.
- s1artibartfast 4y ago
  I agree that housing being big is a primary driver, if not the primary driver of price, along with quality, in most markets. That said, I think the fundamental claim that adding houses doesn't reduce prices is pretty absurd. You simply have to ask what would happen if we stopped building houses. Of course density is not the driver of price. Houses in urban center are not more expensive because they are denser. They are more expensive due to proximity to jobs. Build a high density structure in the middle of the desert and it will be cheap and dense.
- tivert 4y ago
  > I’ve yet to see anywhere on earth that’s both dense and cheap which I believe more or less proves the point. If building more houses really made things cheaper it would be trivial to prove: cities, which are denser, would be cheaper than the nearby suburbs. Across virtually every region this is not true, when adjusted for square footage. After a certain point, density probably increases unit costs, which would mean the densest housing can't be the cheapest. I'm reminded of an all-hands meeting years ago, where employees were asking for parking improvements in very office building large building (surrounded by very large parking lots). They wanted a parking garage, and the management said flat out that wasn't going to happen because it would cost 10x+ more per parking space.
  - jethro_tell 4y ago
    Sure, building a structure is cheaper than not building a structure, bit to an extent, usually height above 7-8 stories, it gets cheaper per SQ ft to build as you go up. That's before you factor in the cost of land which tends to be one of the most expensive parts of building in a city, that also goes down per unit built. I'm not sure, 'should we build a structure or just pave a field is really a good comparison here'
yboris 4y ago
Whenever thinking about density and prices, a worthwhile example to consider is Tokyo. Very dense, but housing prices are very affordable. Part of the reason, as I understand, is that Tokyo allows people to keep building (compare to San Francisco).
- endisneigh 4y ago
  > Very dense, but housing prices are very affordable it's not, though. Tokyo is substantially more expensive than other cities in Japan. Tokyo is also more expensive than American cities when adjusted to per sq/ft rent and PPP. "Tokyo is so cheap" is a meme at this point. Tokyo is cheap the same way having roommates is cheap (roommates are much, much rarer in Tokyo compared to NYC).
  - lukasb 4y ago
    But Tokyo has accommodated growth without rent increasing significantly. No US city can say the same (edit: zip1234 proves me wrong below.)
    - endisneigh 4y ago
      Tokyo, and Japan, is a stagnant nation population wise and GDP wise. Not sure why people even bother using it as an example. Look no further than the USD:YEN conversion. funny how no one can cite any other city. if the theory was true there should be dozens of examples.
      - zip1234 4y ago
        Tokyo's population has grown while prices for housing have remained constant. For another example of building more housing keeping prices down, look at Houston. https://fee.org/articles/how-spontaneous-order-keeps-houston-affordable/ https://fee.org/articles/how-spontaneous-order-keeps-houston...
        endisneigh 4y ago
hnboredhn 4y ago
Isn't the obvious arrow here that high prices drives density? The fact that NYC is the densest and most expensive seems to be an obvious story of high prices incentivizing people to build up. The question is whether or not an old building being replaced by a tower or a single family house will lead to more expensive housing throughout the city. I still am confused as to how density would hurt locally here.
- engineer_22 4y ago
  I hadn't thought of it like this before, but I think he's arguing that there is a network effect. High density is more convenient, which induces demand.
  - hnboredhn 4y ago
    I realize he is arguing for that but I think its pretty silly to have the chart there showing the correlation if so. He does address the point I made in the article but I think he dismisses it too fast without much evidence.
    - engineer_22 4y ago
      Ok I see what you mean
      - hnboredhn 4y ago
        I suppose to expound on my point more - the graph is by people not housing units. Presumably if a cheap city, like Detroit, had a bunch of unused units the graph would not credit it for the built-in density because if its not being used.
  - quickthrower2 4y ago
    It is harder for us tech workers to fathom, as we work for the global market directly or indirectly, the but a lot of people working in a city are directly serving other people in that city. A person coming in might create more than a jobs worth of “CityGDP” by their simple economic activity.
mattcantstop 4y ago
I think this write up about the price of housing is a worthwhile read. An underrated aspect of this is that people want to live in dense places, and are willing to pay more to do so. Not universally, but it certainly occurs. https://devonzuegel.com/post/agglomeration-effects-might-change-the-yimby-calculus https://devonzuegel.com/post/agglomeration-effects-might-cha...
cammikebrown 4y ago
Building market rate housing will lower prices in the long term (decades) as older housing stock becomes out of date and affordable, but in the short term it only helps the most wealthy. The market rate in most places is very expensive. I don’t think we have enough housing, but we need affordable housing, and at this rate I think the only solution is state intervention.
nullc 4y ago
Why is it that many of the same people who argue against more roads and more parking lots on the basis of induced demand preventing more roads from meaningfully solving congestion seem to think that in the densest and most competitive cities that adding units will necessarily make hosing affordable?
- Panzer04 4y ago
  Because the characteristics are different. Denser housing is very efficient, in the sense that it requires less infrastructure spend. Roads are just not very efficient - you need to spend a lot of money to get the same result as a transit line etc (and that’s after ignoring the fact that roads have lots of other expenses to the user that transit does not). People want to live in dense, well-serviced cities, and they actually pay for the privilege of doing so. Not so much for roads, unless it’s a toll road.
  - nullc 4y ago
    I don't really follow. The idea for roads is that congestion moderates the utility of roads, so over a wide range of capacities roads will remain congested or even become more congested as you add roads, since if you build more you make the roads more useful (reaching more places faster, through better connections or increased capacity) and so people will use them more, potentially resulting in more congestion but almost certainly not less. The parallel idea for housing would be that cost moderates the utility of the city, people move into the city until the cost matches the benefits of density for them (driving up costs and pushing out people for whom the equation no longer works out). If you add units, you've just allowed more people to move from Idaho into the city, and made the entire city potentially more valuable from increased network effect and caused costs to go up further. This process shouldn't be expected make it affordable to live in the city, unless you've managed to either damage the utility of living in the city through the secondary effects of increased population/density or you've managed to build enough supply the you can sink the entire worldwide demand for living in one of the best and most valuable place, such that there are no more wealthier people anywhere in the world to sell to and you must go down market to get more customers. It would however, increase the number of people who can have the benefits of living there, but at the cost of displacing more people who can no longer afford it... the benefits go to people outside of the city: The wealthy ones that can move into the city, and the rest who enjoy lower competition for housing outside of the city. > Denser housing is very efficient Housing itself increases in efficiency to a moderate level of density-- a duplex is somewhat more efficient to construct than a single family home, owing mostly to reduced land costs (materials are somewhat higher due to the increased isolation and fire protection required). But the effects fall off with increasing density, and you run into issues that building higher involves structural and safety related costs that hurt their efficiency. E.g. https://ti.org/pdfs/APB36.pdf https://ti.org/pdfs/APB36.pdf Page 2-- high-density construction is significantly greater, per square foot, than low-density construction. Due to the increased need for steel, concrete, and similar materials, the cost of building three or more stories is progressively greater the more stories are built [...] building three stories costs 30 to 50 percent more, per square foot, than two-stories; four to seven stories costs 200 to 300 percent more; and eight or more stories costs 450 to 650 percent more" )
scythe 4y ago
>Imaginary graph of how price as a function of density would have to look But price is not a function of density! You think building more apartments in Cumberland, MD will increase prices, or decrease prices? I should point out: Cumberland is already a very densely built city. Its inner urban geography is not unlike Oakland. It just happens to be in a long, painful period of decline. So many of those buildings are empty. The answer is pretty obvious, here. Prices would likely drop. The "induced demand" is caused by economic success, not density itself. Plenty of dense cities have declined. (Cumberland isn't even that cold! And it has legal marijuana! And it's close to ski resorts! Eat your hearts out, armchair prognosticators!) >we find that indeed, the denser an area, the higher its house prices The data in this graph skew California cities upward because their suburbs are not part of their core urban areas — Concord/Walnut Creek is considered separate from the Bay Area, as is Dublin/Pleasanton — while cities outside of California are more likely to be connected. This is due to mountains intersecting dense urban geography in California, which doesn't happen in most other major cities (but Miami is constrained by swamps and New York does hit mountains to its north). But there are other unusual forces on housing prices in California (Proposition 13, construction difficulties), and without the major California cities the correlation becomes much weaker, before we even consider reverse causation. >No; I think the missing insight is that there’s some pool of geographically mobile Americans1 who are looking for new housing (or who might start looking if the right situation presented itself). These people have various combinations of preferences and requirements. One common pattern is to prefer any big city - they would be happy to live in Seattle, or NYC, or the Bay, if the opportunity came up. High decadal growth rates in Nashville, Charleston SC, Fayetteville AK, Boise, Jacksonville and Bend among other places put the lie to this. There are certainly "trends", but they aren't limited to big cities, and they don't really affect all big cities: the Los Angeles metro (of all places!) grew a measly 3% from 2010-20. Surely LA's high prices aren't primarily driven by a growth rate just a little higher than that of Pittsburgh. There might be some induced demand from certain kinds of housing construction in certain contexts, but this blog post is a long way from demonstrating any such effects. The most well-justified negative effect I've heard of from new housing construction is that businesses serving poorer populations are closed due to increasing commercial rents and competition from businesses serving the new clientele. And this can increase the cost of living for local residents, as well as causing job losses (even if employment statistics improve). What we do know is that sometimes people are worse off after construction happens (hence the uproar in the first place), and unfortunately I don't think this kind of 10000-feet analysis brings us closer to understanding why.
colmmacc 4y ago
Never mind houses, what about gas/petrol? It always seems to be more expensive in dense cities, even though there is greater competition and economies of scale (e.g. delivery of the fuel to the stations) while it tends to be cheaper in rural middle-of-nowheres, even if there is no immediate local competition. The cost of land and labor is higher, sure, but even the stations that are owned rather than rented don't seem to be much cheaper. People in cities have higher incomes, and sellers - whether it's gas, rent, or property - are very adept as sussing out what the local market will bear and sustain. So they charge more. They have their own income and profit floors that they will resist breaking to compete on price, because they can see where a race to the bottom ends. It wouldn't be surprising if a dynamic like that is a large part of these effects.
- deleted 4y ago
  [deleted]
- zamnos 4y ago
  What about gas/petrol? If your locality doesn't have the density to support useful public transportation, you live in the suburbs. It might be a giant sprawling suburb bigger than some cities, but that doesn't automatically make it a city. A city needs to have city-grade services in other to qualify as a city.
- Gigachad 4y ago
  The price of petrol would be increasingly irrelevant the denser the area since you'd have better PT.
- Thorrez 4y ago
  >The cost of land and labor is higher, sure, but even the stations that are owned rather than rented don't seem to be much cheaper. They need the higher prices to recoup the higher costs of land: mortgage cost, property tax cost, opportunity cost of the land.
- konschubert 4y ago
  If these petrol stations weren't earning so much, they would close and sell the lot for re-development. Which is what happened many times ... which is why the remaining ones can charge a bit more. A petrol station is not a charity... That being said, I agree that it seems unfair that people can just own a piece of land for generations and keep profiting off it. Which is true for real estate as well. A land value tax might help resolve this unfairness.
knallfrosch 4y ago
I think the post falls into the trap that many others have done too. Density, private equity ratio, less zoning, less regulation.. If people want affordable housing, affordable housing needs to be built. It's housing that kinda sucks, accomodations that aren't attractive, streets that aren't safe, neighbours that are noisy, metro stops that are far away, plumbing that breaks, windows that aren't et al. If it's attractive, it will be expensive. That's how pricing works.
- foogazi 4y ago
  Can affordable housing be built on expensive land ? Substitute desirability for expensive and it becomes clearer Density around desirability can super-charge it Everybody wants to get closer to it
- ripley12 4y ago
  The end game of this line of thinking is "we need to make cities worse to make them more affordable." It's not great. > If it's attractive, it will be expensive. That's how pricing works. No. Prices are set by both supply and demand, and you're only considering demand.
boogoob 4y ago
It has different effects on different time scales. Short term, the supply for a specific area increases while other factors are basically constant, exerting downward pressure on prices. Long term, the positive effects of density increase the desirability of the area, pushing prices up.
celtain 4y ago
>They moving there because they want to be in a big city - with friends, jobs, museums, and nightlife. Sure >So I don’t understand why Matt believes that building a few new apartments in some city - a very small move along that spectrum - would do anything other than make local prices go up. Huh? Other than friends, none of the previously mentioned amenities are provided by apartment buildings. Adding commercial real estate to a city adds jobs and amenities that make it more desirable, and thus more expensive. Adding more housing does not. That said, adding more housing raises the demand for commercial real estate (more available workers and customers), hence the cycle that leads to very dense, very expensive places like Manhattan. Strictly speaking though, adding apartments alone isn't enough to keep that cycle going.
antognini 4y ago
I feel like this (along with many discussions about urban housing) slightly misses the real issue. A lot of these discussions center around how to make housing affordable in cities and whether denser construction leads to lower housing costs or higher housing costs. But cities don't exist to minimize housing costs. They exist to maximize opportunities: job opportunities, dating opportunities, friendship opportunities, cultural opportunities, and so on. They exist to bring as many people together as easily as possible. The way that an urban economist would put it is that fundamentally cities are job markets. I would put it a little more broadly and say that cities are opportunities markets. For that reason housing in a dense urban environment will never be as affordable as housing out in rural North Dakota. If you build more housing in a city, more people move there, and the city becomes more desirable as a result, is the city better or worse off for having built the housing?
- chii 4y ago
  I think you got it the wrong way around - cities _form_ around opportunities, rather than produce them. Initially, geographic advantage (such as being near harbour, river, or some other geographic feature) gives a settlement that's not yet a city a big advantage in attracting more people there. This in turn, forces the city to grow as more people cram in. To artificially build denser by policy doesn't produce opportunities - those opportunities would have to be there first! And it's this "expensiveness" of creating more accomodation in the city that causes the city to expand.
  - vasco 4y ago
    Two are not mutually exclusive. A city can be formed around the "opportunity" of a river or whatever a thousand years ago, and yet provide new opportunities like tinder having loads of people nearby nowadays.
    - tap-snap-or-nap 4y ago
      Similarly, cities decline after loss of opportunities and opportunities decline after cities make losses.
mbgerring 4y ago
Housing prices are increasing throughout the US due to low supply
foota 4y ago
I think the missing dimension here is time. Building houses overnight won't magically make Oakland into NYC. It would take time, if it did happen, and until then housing would be cheaper. Additionally. I think that it would be interesting to consider the distribution of housing costs. There are likely more affordable housing units in NYC than in Oakland (citation very much needed, I'm not sure this is true) , even if there are less relatively. So if your goal is to increase the number of people that can afforably live somewhere (as opposed to decreasing the average housing cost) building may accomplish it, even if it drives up median housing costs. Lastly, this suggests that perhaps building needs to be accompanied with other policies if the goal is to decrease housing costs (whether rent control, demand reduction, or something else). Unfortunately, I doubt limiting job creation to reduce demand would be popular :)
typ 4y ago
It has been common sense in real estate investing that the increase in density drives the land price higher (thus the housing price per squire foot). But there is a difference between the density increase of housing units and the density increase of the population. The land price increases only to the point that the added housing capacity is 'fully employed.' And that can be measured by the vacancy rate. When the vacancy rate is low, more density will lead to higher property prices.
MrPatan 4y ago
Why not: "increased local prices increase density"? People want to build where they can sell for more money. Supply and demand still apply.
- ralfd 4y ago
  Because it is a NIMBY/YIMBY question. If you live somewhere for rent, are you against/for new buildings as they will decrease/increase your rent?
Aunche 4y ago
Really weird that the author lumps NYC and London together when they have very different housing prices. I'm pretty sure that on average London is cheaper than Oakland.
presentation 4y ago
Tokyo built tons of housing (and transportation to that housing) and while price per square foot is high, actually living centrally is not very expensive. It probably goes up at first, then comes down once you’ve hit some level of density relative to demand.
- ralfd 4y ago
  Tokyo is mentioned in the Blog.
hamilyon2 4y ago
Comparing New York city, Tokyo, Dubai and Bay area is comparing outliers. I don't think there is useful science comparing planetary business hub or the the wealthiest place on earth to some wilderness. You can't create great wealth, prosperity and capital at will, at least not New York city level, they are created due to external circumstances. Those circumstances drive: prices, density, opportunities of which people speak in sibling comments. There could be some forced or artificial dynamic, but these examples are plain bad. Chinese megacities are much better ones, particularly planned, not organic cities
morsecodist 4y ago
I like a lot of Scott's work but this is an uncharacteristically shallow analysis. On his chart he considers SF more dense than NYC, this is a misleading comparison. It seems like he is only considering the urban area in each metro, which totally misses the point. NYC is over 50% denser than SF and the surrounding metro area of NYC is nearly five times denser than that of SF. Yet on his first chart housing is significantly more affordable in NYC. I can't find good numbers quickly but having lived in both places and with quick spot-checking living in a denser suburb in the greater NYC area with a 20-30 minute train commute to downtown Manhattan is significantly more affordable than a similarly located apartment in the Bay Area. There is also some weirdness in comparing cities directly because NYC has absorbed a lot more of the surrounding area and is much larger than SF so comparing the two is not straightforward. This is just one data point swap but to me it calls the whole method into question, he even considers LA denser than NYC which is simply ridiculous. A common YIMBY complaint is that single family zoning forces urban areas to become even denser because they are the only places where multi-family housing is allowed. This is totally consistent with the data presented here. Does that mean it is true? Not necessarily, but the analysis does little to explore options simply referring to the induced demand effect as "obvious". It seems he is out of his element here.
deleted 4y ago
[deleted]

90 points by feross 4y ago

Personally I’ve never believed that adding more houses decreases prices. Though that is true in theory, in practice what happens is: 1. Major housing developments are accompanied by more jobs than the units being built could serve. 2. Developments are accompanied by local initiatives to improve the neighborhood that take effect soon after. 3. The quality disparity in a given area results in people far higher than the neighborhood median income moving in, resulting in (2) and eventually (1). I’ve yet to see anywhere on earth that’s both dense and cheap which I believe more or less proves the point. If building more houses really made things cheaper it would be trivial to prove: cities, which are denser, would be cheaper than the nearby suburbs. Across virtually every region this is not true, when adjusted for square footage. The problem with the United States isn't that housing is too expensive - it's that housing is too big. To that end I agree with this article. The area that has people leaving their (presumably less dense) locales will become cheaper, but those areas will also become less desirable and ultimately have fewer people. If that’s the case, the price decreases is not really relevant in the same way the price of housing in Oklahoma City is irrelevant to someone in Brooklyn. That being said, post COVID is very different as commercial real estate is not nearly as lucrative. Who knows what will happen now.

raybb 4y ago
How would you take into account Vienna in the denseness and cheapness dimensions?
- endisneigh 4y ago
  I'm not familiar with Austria. I'd be shocked if Vienna is cheaper than random parts of Austria, though.
konschubert 4y ago
Even if it didn’t slow the price increases - just the fact that building more housing means that more people get to live where they want to live- isn’t that a good thing and enough reason to build? And as you said, the neighbourhood gets improved - isn’t that a good thing? Or are you saying that the solution to the housing crisis is to make cities as inhospitable as possible such that people are forced to live in the countryside? Have you considered the effects that dense cities have on the ecological footprint, the welfare and the technological progress of a society? Have you considered how allowing free movement - including into cities - increases human welfare and happiness?
- endisneigh 4y ago
  I am not against building more. I am simply saying that if you look at the data, there is no evidence what so ever that building more decreases the price of housing. What it does is slow the price increases, but the very demand that is driving price increases was generated by the density, that is exacerbated by building more. We need a better metric. If you have some number to describe the quality of a city, perhaps let's call it fun, then the fun/$ is probably much higher than in a cheap suburb, for sure.
  - s1artibartfast 4y ago
    Density doesn't drive price. Nobody pays more for "density". Density and price are both simply measures that track other desirable factors like jobs. It is correlation, not causation.
    - endisneigh 4y ago
      agreed that it's correlation. however that's all you're going to get. no one is going to run a city wide experiment in this way. however if you look at the trend it's clear that cities have seen higher median price increases than suburbs. you can search yourself.
      - s1artibartfast 4y ago
stale2002 4y ago
> 1. Major housing developments are accompanied by more jobs than the units being built could serve. Lets take your theory to be true. Even if this is the case, it would still effectively cause housing prices to decrease, relative to the amount of money that people are making. So, if density causes people's income to double, by having all these awesome and cool jobs, but housing prices only go up by 50%, this is still a massive win for the residents.
- endisneigh 4y ago
  > Even if this is the case, it would still effectively cause housing prices to decrease, relative to the amount of money that people are making. This isn't true at all, though, empirically. Trivially you can look at the minimum wage in the top 10 most expensive cities vs the bottom 10 and see this. > So, if density causes people's income to double, by having all these awesome and cool jobs, but housing prices only go up by 50%, this is still a massive win for the residents. Why exactly would that happen? Ironically denser places result in lower wages, relative to the rent. Your theory is empirically false. This is why people like remote work, so they can better arbitrage.
  - stale2002 4y ago
    You can't have it both ways here. Either density is creating lots of high paying jobs in an area, that is driving up the price of housing, or it isn't. > Ironically denser places result in lower wages No it doesn't. The highest paid locations, in the US, are located in these high cost of living areas. > This is why people like remote work, so they can better arbitrage. Yes, they work remote, because dense locations have high salaries. That supports my point. You just agreed with me. If people had high paying jobs, where they live, they wouldn't work remote, to get the highly paid jobs in dense cities.
    - endisneigh 4y ago
      > It should be almost self evidently true that they pay more money, than random jobs, in the middle of nowhere, in the US. I'm talking about the wage relative to the price sq/ft. You're laughably wrong. Just google Median NYC salary and look at the median NYC sq/ft, and do the same with say, Dallas, TX. It's not even close. I'm not talking about nominal wages, I'm talking about sq/ft monthly rent adjusted wages. When you look at that, the densest places do not have the highest wages. People are sacrificing earning potential to be in a more fun area, which makes sense.
s1artibartfast 4y ago
I agree that housing being big is a primary driver, if not the primary driver of price, along with quality, in most markets. That said, I think the fundamental claim that adding houses doesn't reduce prices is pretty absurd. You simply have to ask what would happen if we stopped building houses. Of course density is not the driver of price. Houses in urban center are not more expensive because they are denser. They are more expensive due to proximity to jobs. Build a high density structure in the middle of the desert and it will be cheap and dense.
tivert 4y ago
> I’ve yet to see anywhere on earth that’s both dense and cheap which I believe more or less proves the point. If building more houses really made things cheaper it would be trivial to prove: cities, which are denser, would be cheaper than the nearby suburbs. Across virtually every region this is not true, when adjusted for square footage. After a certain point, density probably increases unit costs, which would mean the densest housing can't be the cheapest. I'm reminded of an all-hands meeting years ago, where employees were asking for parking improvements in very office building large building (surrounded by very large parking lots). They wanted a parking garage, and the management said flat out that wasn't going to happen because it would cost 10x+ more per parking space.
- jethro_tell 4y ago
  Sure, building a structure is cheaper than not building a structure, bit to an extent, usually height above 7-8 stories, it gets cheaper per SQ ft to build as you go up. That's before you factor in the cost of land which tends to be one of the most expensive parts of building in a city, that also goes down per unit built. I'm not sure, 'should we build a structure or just pave a field is really a good comparison here'

yboris 4y ago

Whenever thinking about density and prices, a worthwhile example to consider is Tokyo. Very dense, but housing prices are very affordable. Part of the reason, as I understand, is that Tokyo allows people to keep building (compare to San Francisco).

endisneigh 4y ago
> Very dense, but housing prices are very affordable it's not, though. Tokyo is substantially more expensive than other cities in Japan. Tokyo is also more expensive than American cities when adjusted to per sq/ft rent and PPP. "Tokyo is so cheap" is a meme at this point. Tokyo is cheap the same way having roommates is cheap (roommates are much, much rarer in Tokyo compared to NYC).
- lukasb 4y ago
  But Tokyo has accommodated growth without rent increasing significantly. No US city can say the same (edit: zip1234 proves me wrong below.)
  - endisneigh 4y ago
    Tokyo, and Japan, is a stagnant nation population wise and GDP wise. Not sure why people even bother using it as an example. Look no further than the USD:YEN conversion. funny how no one can cite any other city. if the theory was true there should be dozens of examples.
    - zip1234 4y ago
      Tokyo's population has grown while prices for housing have remained constant. For another example of building more housing keeping prices down, look at Houston. https://fee.org/articles/how-spontaneous-order-keeps-houston-affordable/ https://fee.org/articles/how-spontaneous-order-keeps-houston...
      - endisneigh 4y ago

hnboredhn 4y ago

Isn't the obvious arrow here that high prices drives density? The fact that NYC is the densest and most expensive seems to be an obvious story of high prices incentivizing people to build up. The question is whether or not an old building being replaced by a tower or a single family house will lead to more expensive housing throughout the city. I still am confused as to how density would hurt locally here.

engineer_22 4y ago
I hadn't thought of it like this before, but I think he's arguing that there is a network effect. High density is more convenient, which induces demand.
- hnboredhn 4y ago
  I realize he is arguing for that but I think its pretty silly to have the chart there showing the correlation if so. He does address the point I made in the article but I think he dismisses it too fast without much evidence.
  - engineer_22 4y ago
    Ok I see what you mean
    - hnboredhn 4y ago
      I suppose to expound on my point more - the graph is by people not housing units. Presumably if a cheap city, like Detroit, had a bunch of unused units the graph would not credit it for the built-in density because if its not being used.
- quickthrower2 4y ago
  It is harder for us tech workers to fathom, as we work for the global market directly or indirectly, the but a lot of people working in a city are directly serving other people in that city. A person coming in might create more than a jobs worth of “CityGDP” by their simple economic activity.

mattcantstop 4y ago

I think this write up about the price of housing is a worthwhile read. An underrated aspect of this is that people want to live in dense places, and are willing to pay more to do so. Not universally, but it certainly occurs. https://devonzuegel.com/post/agglomeration-effects-might-change-the-yimby-calculus https://devonzuegel.com/post/agglomeration-effects-might-cha...

cammikebrown 4y ago

Building market rate housing will lower prices in the long term (decades) as older housing stock becomes out of date and affordable, but in the short term it only helps the most wealthy. The market rate in most places is very expensive. I don’t think we have enough housing, but we need affordable housing, and at this rate I think the only solution is state intervention.

nullc 4y ago

Why is it that many of the same people who argue against more roads and more parking lots on the basis of induced demand preventing more roads from meaningfully solving congestion seem to think that in the densest and most competitive cities that adding units will necessarily make hosing affordable?

Panzer04 4y ago
Because the characteristics are different. Denser housing is very efficient, in the sense that it requires less infrastructure spend. Roads are just not very efficient - you need to spend a lot of money to get the same result as a transit line etc (and that’s after ignoring the fact that roads have lots of other expenses to the user that transit does not). People want to live in dense, well-serviced cities, and they actually pay for the privilege of doing so. Not so much for roads, unless it’s a toll road.
- nullc 4y ago
  I don't really follow. The idea for roads is that congestion moderates the utility of roads, so over a wide range of capacities roads will remain congested or even become more congested as you add roads, since if you build more you make the roads more useful (reaching more places faster, through better connections or increased capacity) and so people will use them more, potentially resulting in more congestion but almost certainly not less. The parallel idea for housing would be that cost moderates the utility of the city, people move into the city until the cost matches the benefits of density for them (driving up costs and pushing out people for whom the equation no longer works out). If you add units, you've just allowed more people to move from Idaho into the city, and made the entire city potentially more valuable from increased network effect and caused costs to go up further. This process shouldn't be expected make it affordable to live in the city, unless you've managed to either damage the utility of living in the city through the secondary effects of increased population/density or you've managed to build enough supply the you can sink the entire worldwide demand for living in one of the best and most valuable place, such that there are no more wealthier people anywhere in the world to sell to and you must go down market to get more customers. It would however, increase the number of people who can have the benefits of living there, but at the cost of displacing more people who can no longer afford it... the benefits go to people outside of the city: The wealthy ones that can move into the city, and the rest who enjoy lower competition for housing outside of the city. > Denser housing is very efficient Housing itself increases in efficiency to a moderate level of density-- a duplex is somewhat more efficient to construct than a single family home, owing mostly to reduced land costs (materials are somewhat higher due to the increased isolation and fire protection required). But the effects fall off with increasing density, and you run into issues that building higher involves structural and safety related costs that hurt their efficiency. E.g. https://ti.org/pdfs/APB36.pdf https://ti.org/pdfs/APB36.pdf Page 2-- high-density construction is significantly greater, per square foot, than low-density construction. Due to the increased need for steel, concrete, and similar materials, the cost of building three or more stories is progressively greater the more stories are built [...] building three stories costs 30 to 50 percent more, per square foot, than two-stories; four to seven stories costs 200 to 300 percent more; and eight or more stories costs 450 to 650 percent more" )

scythe 4y ago

>Imaginary graph of how price as a function of density would have to look But price is not a function of density! You think building more apartments in Cumberland, MD will increase prices, or decrease prices? I should point out: Cumberland is already a very densely built city. Its inner urban geography is not unlike Oakland. It just happens to be in a long, painful period of decline. So many of those buildings are empty. The answer is pretty obvious, here. Prices would likely drop. The "induced demand" is caused by economic success, not density itself. Plenty of dense cities have declined. (Cumberland isn't even that cold! And it has legal marijuana! And it's close to ski resorts! Eat your hearts out, armchair prognosticators!) >we find that indeed, the denser an area, the higher its house prices The data in this graph skew California cities upward because their suburbs are not part of their core urban areas — Concord/Walnut Creek is considered separate from the Bay Area, as is Dublin/Pleasanton — while cities outside of California are more likely to be connected. This is due to mountains intersecting dense urban geography in California, which doesn't happen in most other major cities (but Miami is constrained by swamps and New York does hit mountains to its north). But there are other unusual forces on housing prices in California (Proposition 13, construction difficulties), and without the major California cities the correlation becomes much weaker, before we even consider reverse causation. >No; I think the missing insight is that there’s some pool of geographically mobile Americans1 who are looking for new housing (or who might start looking if the right situation presented itself). These people have various combinations of preferences and requirements. One common pattern is to prefer any big city - they would be happy to live in Seattle, or NYC, or the Bay, if the opportunity came up. High decadal growth rates in Nashville, Charleston SC, Fayetteville AK, Boise, Jacksonville and Bend among other places put the lie to this. There are certainly "trends", but they aren't limited to big cities, and they don't really affect all big cities: the Los Angeles metro (of all places!) grew a measly 3% from 2010-20. Surely LA's high prices aren't primarily driven by a growth rate just a little higher than that of Pittsburgh. There might be some induced demand from certain kinds of housing construction in certain contexts, but this blog post is a long way from demonstrating any such effects. The most well-justified negative effect I've heard of from new housing construction is that businesses serving poorer populations are closed due to increasing commercial rents and competition from businesses serving the new clientele. And this can increase the cost of living for local residents, as well as causing job losses (even if employment statistics improve). What we do know is that sometimes people are worse off after construction happens (hence the uproar in the first place), and unfortunately I don't think this kind of 10000-feet analysis brings us closer to understanding why.

colmmacc 4y ago

Never mind houses, what about gas/petrol? It always seems to be more expensive in dense cities, even though there is greater competition and economies of scale (e.g. delivery of the fuel to the stations) while it tends to be cheaper in rural middle-of-nowheres, even if there is no immediate local competition. The cost of land and labor is higher, sure, but even the stations that are owned rather than rented don't seem to be much cheaper. People in cities have higher incomes, and sellers - whether it's gas, rent, or property - are very adept as sussing out what the local market will bear and sustain. So they charge more. They have their own income and profit floors that they will resist breaking to compete on price, because they can see where a race to the bottom ends. It wouldn't be surprising if a dynamic like that is a large part of these effects.

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zamnos 4y ago
What about gas/petrol? If your locality doesn't have the density to support useful public transportation, you live in the suburbs. It might be a giant sprawling suburb bigger than some cities, but that doesn't automatically make it a city. A city needs to have city-grade services in other to qualify as a city.
Gigachad 4y ago
The price of petrol would be increasingly irrelevant the denser the area since you'd have better PT.
Thorrez 4y ago
>The cost of land and labor is higher, sure, but even the stations that are owned rather than rented don't seem to be much cheaper. They need the higher prices to recoup the higher costs of land: mortgage cost, property tax cost, opportunity cost of the land.
konschubert 4y ago
If these petrol stations weren't earning so much, they would close and sell the lot for re-development. Which is what happened many times ... which is why the remaining ones can charge a bit more. A petrol station is not a charity... That being said, I agree that it seems unfair that people can just own a piece of land for generations and keep profiting off it. Which is true for real estate as well. A land value tax might help resolve this unfairness.

knallfrosch 4y ago

I think the post falls into the trap that many others have done too. Density, private equity ratio, less zoning, less regulation.. If people want affordable housing, affordable housing needs to be built. It's housing that kinda sucks, accomodations that aren't attractive, streets that aren't safe, neighbours that are noisy, metro stops that are far away, plumbing that breaks, windows that aren't et al. If it's attractive, it will be expensive. That's how pricing works.

foogazi 4y ago
Can affordable housing be built on expensive land ? Substitute desirability for expensive and it becomes clearer Density around desirability can super-charge it Everybody wants to get closer to it
ripley12 4y ago
The end game of this line of thinking is "we need to make cities worse to make them more affordable." It's not great. > If it's attractive, it will be expensive. That's how pricing works. No. Prices are set by both supply and demand, and you're only considering demand.

boogoob 4y ago

It has different effects on different time scales. Short term, the supply for a specific area increases while other factors are basically constant, exerting downward pressure on prices. Long term, the positive effects of density increase the desirability of the area, pushing prices up.

celtain 4y ago

>They moving there because they want to be in a big city - with friends, jobs, museums, and nightlife. Sure >So I don’t understand why Matt believes that building a few new apartments in some city - a very small move along that spectrum - would do anything other than make local prices go up. Huh? Other than friends, none of the previously mentioned amenities are provided by apartment buildings. Adding commercial real estate to a city adds jobs and amenities that make it more desirable, and thus more expensive. Adding more housing does not. That said, adding more housing raises the demand for commercial real estate (more available workers and customers), hence the cycle that leads to very dense, very expensive places like Manhattan. Strictly speaking though, adding apartments alone isn't enough to keep that cycle going.

antognini 4y ago

I feel like this (along with many discussions about urban housing) slightly misses the real issue. A lot of these discussions center around how to make housing affordable in cities and whether denser construction leads to lower housing costs or higher housing costs. But cities don't exist to minimize housing costs. They exist to maximize opportunities: job opportunities, dating opportunities, friendship opportunities, cultural opportunities, and so on. They exist to bring as many people together as easily as possible. The way that an urban economist would put it is that fundamentally cities are job markets. I would put it a little more broadly and say that cities are opportunities markets. For that reason housing in a dense urban environment will never be as affordable as housing out in rural North Dakota. If you build more housing in a city, more people move there, and the city becomes more desirable as a result, is the city better or worse off for having built the housing?

chii 4y ago
I think you got it the wrong way around - cities _form_ around opportunities, rather than produce them. Initially, geographic advantage (such as being near harbour, river, or some other geographic feature) gives a settlement that's not yet a city a big advantage in attracting more people there. This in turn, forces the city to grow as more people cram in. To artificially build denser by policy doesn't produce opportunities - those opportunities would have to be there first! And it's this "expensiveness" of creating more accomodation in the city that causes the city to expand.
- vasco 4y ago
  Two are not mutually exclusive. A city can be formed around the "opportunity" of a river or whatever a thousand years ago, and yet provide new opportunities like tinder having loads of people nearby nowadays.
  - tap-snap-or-nap 4y ago
    Similarly, cities decline after loss of opportunities and opportunities decline after cities make losses.

mbgerring 4y ago

Housing prices are increasing throughout the US due to low supply

foota 4y ago

I think the missing dimension here is time. Building houses overnight won't magically make Oakland into NYC. It would take time, if it did happen, and until then housing would be cheaper. Additionally. I think that it would be interesting to consider the distribution of housing costs. There are likely more affordable housing units in NYC than in Oakland (citation very much needed, I'm not sure this is true) , even if there are less relatively. So if your goal is to increase the number of people that can afforably live somewhere (as opposed to decreasing the average housing cost) building may accomplish it, even if it drives up median housing costs. Lastly, this suggests that perhaps building needs to be accompanied with other policies if the goal is to decrease housing costs (whether rent control, demand reduction, or something else). Unfortunately, I doubt limiting job creation to reduce demand would be popular :)

typ 4y ago

It has been common sense in real estate investing that the increase in density drives the land price higher (thus the housing price per squire foot). But there is a difference between the density increase of housing units and the density increase of the population. The land price increases only to the point that the added housing capacity is 'fully employed.' And that can be measured by the vacancy rate. When the vacancy rate is low, more density will lead to higher property prices.

MrPatan 4y ago

Why not: "increased local prices increase density"? People want to build where they can sell for more money. Supply and demand still apply.

ralfd 4y ago
Because it is a NIMBY/YIMBY question. If you live somewhere for rent, are you against/for new buildings as they will decrease/increase your rent?

Aunche 4y ago

Really weird that the author lumps NYC and London together when they have very different housing prices. I'm pretty sure that on average London is cheaper than Oakland.

presentation 4y ago

Tokyo built tons of housing (and transportation to that housing) and while price per square foot is high, actually living centrally is not very expensive. It probably goes up at first, then comes down once you’ve hit some level of density relative to demand.

ralfd 4y ago
Tokyo is mentioned in the Blog.

hamilyon2 4y ago

Comparing New York city, Tokyo, Dubai and Bay area is comparing outliers. I don't think there is useful science comparing planetary business hub or the the wealthiest place on earth to some wilderness. You can't create great wealth, prosperity and capital at will, at least not New York city level, they are created due to external circumstances. Those circumstances drive: prices, density, opportunities of which people speak in sibling comments. There could be some forced or artificial dynamic, but these examples are plain bad. Chinese megacities are much better ones, particularly planned, not organic cities

morsecodist 4y ago

I like a lot of Scott's work but this is an uncharacteristically shallow analysis. On his chart he considers SF more dense than NYC, this is a misleading comparison. It seems like he is only considering the urban area in each metro, which totally misses the point. NYC is over 50% denser than SF and the surrounding metro area of NYC is nearly five times denser than that of SF. Yet on his first chart housing is significantly more affordable in NYC. I can't find good numbers quickly but having lived in both places and with quick spot-checking living in a denser suburb in the greater NYC area with a 20-30 minute train commute to downtown Manhattan is significantly more affordable than a similarly located apartment in the Bay Area. There is also some weirdness in comparing cities directly because NYC has absorbed a lot more of the surrounding area and is much larger than SF so comparing the two is not straightforward. This is just one data point swap but to me it calls the whole method into question, he even considers LA denser than NYC which is simply ridiculous. A common YIMBY complaint is that single family zoning forces urban areas to become even denser because they are the only places where multi-family housing is allowed. This is totally consistent with the data presented here. Does that mean it is true? Not necessarily, but the analysis does little to explore options simply referring to the induced demand effect as "obvious". It seems he is out of his element here.

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