March 6, 2021

Opinion: One Path to Better Jobs: More Density in Cities

“HELL is other people,” wrote Jean-Paul Sartre. He nonetheless spent much of his life in Paris, the better to interact with other French intellectuals. Cities have long been incubators and transmitters of ideas, and, correspondingly, engines of economic growth.

That has never made the crowds less annoying. Maybe that’s why people try to tame the city by chaining it down and limiting who can build what where along its quieter streets. We lobby leaders to fight development, aiming to protect old buildings and precious views, limit crime and traffic, and maintain high-quality schools. But what makes a city a city and a not-city a not-city is the fact that a city is dense and a not-city isn’t. The idea of it may chill a homeowner’s heart, but the wealth supported by urban density is what gives urban homes their great value in the first place.

And when it comes to economic growth and the creation of jobs, the denser the city the better.

How great are the benefits of density? Economists studying cities routinely find that after controlling for other variables, workers in denser places earn higher wages and are more productive. Some studies suggest that doubling density raises productivity by around 6 percent while others peg the impact at up to 28 percent. Some economists have concluded that more than half the variation in output per worker across the United States can be explained by density alone; density explains more of the productivity gap across states than education levels or industry concentrations or tax policies.

Put two workers with similar skill levels in cities of different densities and the one in the denser place will be more productive, according to two decades’ worth of research from economists. The resistance to greater density slows job creation in productive places. Take, for instance, the San Francisco Bay Area, a beautiful place, blessed with outstanding climate, scenery and culture. It’s also an economic juggernaut, hub of the country’s tech industry and home to some of America’s highest wages. In 2009, the average Silicon Valley household earned about $85,000. Despite this, over 500,000 residents of the Bay Area moved elsewhere in the 2000s. Many of them left for places like Phoenix, which attracted over 500,000 residents from other American cities, despite wages 40 percent below Silicon Valley levels.

Factors like taste and taxes account for some of the migration, but the biggest reason for the shift is housing costs. The average Phoenix home is worth about 30 percent of the price of a house in San Jose. The difference in prices is mostly due to differences in building. In every year from 1992 to 2009, Phoenix granted permits for two to three times as many new homes as did the San Francisco and San Jose metropolitan areas combined. Around the San Francisco Bay, neighborhoods dead set against change successfully squeezed the housing supply, just as OPEC limits the supply of oil when it wishes to raise its price.

The “Not in My Backyard” philosophy sometimes, though by no means always, supports a high quality of life.  Yet the effect is to raise housing costs and make rich cities more exclusive. Real trouble occurs when the idea-generators in cities with that NIMBY approach become so protective of their pleasant streets that they turn away other idea-generators, undermining the city’s economic role. And that is happening. Entrepreneurship rates in Silicon Valley were below the national average during the tech boom because firms couldn’t attract enough skilled workers.

Productivity and wages are rising in these growing Sunbelt cities, but not as fast as in the denser cities that workers are leaving. The average wage per job in Phoenix rose $10,700 from 2000 to 2009, while in San Francisco the increase was $14,500. But, while wages are growing in San Francisco, they would be growing faster if the city allowed the construction of more housing. More workers would be able to take advantage of the good job opportunities in the Bay Area, and the metropolitan and national economies would function better.

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