Even After the Housing Bust, Americans Still Love the Suburbs

Are you confused, or WHAT? I am telling you, there are plenty of other countries with no "subsidies" such as mortgage interest deductions, and the trend still is for people with rising incomes to demand more living space. This trend is like the helium in balloons, and you are pointing to ballast being discarded (subsidies, in my analogy) at a higher rate in the USA, and saying that this, not the helium, is the cause of altitude gain, period.

The Municipality of New York City is not the New York "urban economy"; when you take into account the unitary functioning urban economy that is "New York", it is less dense than LA or SF. There is no lack of accurate databases of urban density online, you must have picked an unusually bad one.

The high density of Manhattan and of London and a few other cities around the world, is due to path-dependent evolutionary urban-economic forces, which established those lucky cities as the location of "global" capital sectors, distinguished by very high incomes (derived from fees on global flows of goods and capital) and very high employment density. If urban planners were half as good as they claim to be or need to be, they would know all this stuff, and a lot more, about "cities". They would be acquainted with the works of Fernand Braudel, Colin Clark, Saskia Sassen, Peter Hall, and such like.

It is only slightly less absurd to expect a city whose income flows are based on something with LOW employment density, such as auto manufacturing, to "intensify" to London's level, than it would be to expect the rural sector to "intensify". Hey, we could farm dairy cows in multi-storey buildings.

London's economy is NOT "10 times more productive", it merely has completely "weightless" flows of income, not just global finance income, but bureaucrats wages paid out of taxes extracted from the entire "rest of the economy". Washington DC has the latter advantage too - and every other capital city. It is also absurd to expect every city to have the same urban form and transport system as a capital city can have. I strongly recommend William Fruth's "The Flow of Money and Its Impact on Local Economies", a short and highly educational read.

Certain tribes in the jungle in New Guinea were famous for building airstrips at random, because they had seen the white demi-gods building airstrips and magic big metal birds descended from the sky and unloaded oodles of food and other goodies. Therefore building more airstrips would make more magic big metal birds descend from the sky with loads of goodies. "Physical determinism" in contemporary urban planning is just as irrational; zone for tall buildings and high density and build subways and commuter rail systems, and all our cities will be as "sustainable" as Manhattan, with inhabitants just as wealthy.....!!!! Even Ed Glaeser fails to deal this nonsense the death blow someone of his stature should have dealt it, in his best-selling book.

Inflated land values actually do NOT correlate with productivity gains. The UK has the world's most inflated urban land values, thanks to their urban planning system, and their productivity is tens of percentage points below comparable economies around the world in spite of Thatchernomic liberalisation of everything else BUT urban development. Number one reading recommendation: "Driving Productivity and Growth in the UK Economy", McKinsey Institute, 1998. Also, "What we Know (And Don't Know) About the Links between Planning and Economic Performance", Max Nathan and Henry Overman, 2011.

The bottom line is that lack of space within businesses is a major cause of inefficiency, and the more land-intensive an industry is, the worse this effect becomes. Remember my comments about expecting "rural" sectors to "intensify"? There are dozens of economic sectors that fall somewhere between "bureaucracy" and "farming", for land intensity. Britain happens to have destroyed all its more land-intensive urban economic sectors such as automobile manufacturing. The result of its "Town and Country Planning" system is NOT a super-economy, London, and dozens of smaller super-economies; it is London, and dozens of utter basket-case rust belt cities and urban hells. Imagine Detroit and Cleveland and Buffalo with severely unaffordable housing and urban land, and the severely unaffordable housing being several times smaller and older and more run-down than what Detroit, Cleveland and Buffalo have got; and you have pretty much got the picture for Britain's cities outside of London. Great stuff, huh?

Detroit, Cleveland and Buffalo have a chance of "bottom-up" free market-driven recovery precisely because their land values have been allowed to fall rather than attached to a skyhook by red tape and regulatory boundaries. Britain's cities can be expected to be pretty much the same in another few decades.

Trickle-down service sector jobs in London (and even in NY) are disproportionately taken by recent immigrants, while native Britishers stay unemployed in Liverpool and Sheffield and Newcastle. Why not? The effective marginal tax rate of relinquishing one's "public" housing when one gets a job, is well over 100%; and taking a low income job in London means existing in ghastly overcrowded conditions in ghastly old unrenewed accomodation - something that recent immigrants from the 3rd world actually are prepared to endure. This is Vancouver's dirty secret too.

Marx was right, in his time, about the capitalisation of productivity gains and income increases, into economic land rents. This condition ONLY ceases to exist when there is BOTH “total mobility” and “freedom to develop”; both things that Marx utterly failed to predict. As long as most people could only walk everywhere, the rentier class was bound to capture most of the gains of rising productivity, as rising incomes capitalised into rising land rents. Marx wanted land nationalised. Henry George wanted it taxed instead of incomes. But Alfred Marshall and numerous economists, social reformers, and politicians after him, saw the solution as increased mobility and increased “supply” of urban land. The writings of Ebenezer Howard, the so-called “father of urban planning”, was full of this stuff.

It is ironic in the extreme that urban planners today are unanimously working towards the very opposite of what Howard was for his entire life. Howard wanted rural land to be converted to urban with nil capital gain (or “planning gain”) in the process. This is actually a reality in dozens of cities in the USA even today, where median multiples are consistent and stable at around 3. It is impossible to have median multiples consistent and stable at around 3 without this proviso.

Here is an excerpt from the Introduction, by Paul Cheshire and Edwin Mills (Eds.) to “The Handbook of Regional and Urban Economics, Volume 3: Applied Urban Economics” (1999)

“…..housing demand parameters are remarkably similar among most countries, even though purchasing power and housing costs differ greatly. Housing supply parameters differ greatly among countries, depending of course on technology and materials availability, but mainly on the extent to which governments have permitted conversion of land from rural to urban uses…….. These are the keys to understanding why housing quality varies more than can be accounted for by income variation and why house prices vary among countries from 3 to 15 times the annual incomes of urban residents……”

By the way, I strongly support "Tobin taxes". But guess why the government of the UK has always been a strong opponent of such taxes? The estimable Oliver Hartwich, writing in the “Business Spectator” 14 Dec 2011, comments:

“……Merkel and Sarkozy could not have been under any illusions that Cameron would pave the road towards curbing the power and profitability of the City of London. Finance is the only major industry left in post-modern Britain......”

http://www.businessspectator.com.au/bs.nsf/Article/euro-debt-crisis-Came...

I also recommend to you: "Superstar Cities" by Gyourko, Mayer and Sinai (2006); and "Unequal Britain" by Gibbons, Overman and Pelkonen (2010). You do not make lower skilled, lower income people better off by moving them to higher-income, higher-housing-cost cities. They are better off in low-housing-cost, low-land-cost cities where both they and the industries that employ them can actually function at all. But the USA absolutely destroys the UK hands down on every measure precisely because the USA has dozens and dozens of such cities, while the UK has precisely NONE.

I already gave you a bit of an essay on the relative enjoyment of the attributes of housing and urban amenities, on the part of the inhabitants of all income levels in US cities versus their counterparts in UK cities. You need to develop a credible evidence-based approach to "inequality". Here is another reference for you: "Real Earnings Disparities in Britain" by Gibbons, Overman and Resende (2010). Britain's inflated urban land prices and land rationing system acts as a "multiplier" of income disparities, in terms of the attributes of housing and urban amenities enjoyed by households. Did I already suggest to you that 90% of the people in Houston or Atlanta will have more space, a more modern home, and better local amenity, than everyone outside the top 1% in any UK city?