
Agglomeration effects might change the YIMBY calculus - luu
http://devonzuegel.com/post/agglomeration-effects-might-change-the-yimby-calculus
======
istjohn
Implicit in this analysis is that density is valuable, and we can create value
by increasing the densities of our cities. They consider the possibility that
the increase in property values due to an increase in density may outpace the
decay in property values due to an increase in housing supply. This is
possible in a single metro, since population is highly dynamic and new
residents can come from other cities and states, but if federal policies
caused a universal increase in metro density, the relatively static population
at the national scale would prevent the decay in property values from being
wiped out by the agglomeration effect. You can imagine everyone moving a
quarter mile closer to the closest metro population center. Average density
and thus value would increase, while costs would stay constant.

I heard of a study some time ago that said that restrictions on urban
development have cost the American economy on the order of trillions of
dollars over the past few decades. When you also consider that existing
property owners in cities have an incentive to maintain or increase their
property values by limiting new construction, there is a powerful argument for
the federal government to act on behalf of the interests of the nation as a
whole in having more dense, dynamic, inclusive urban centers and prevent
cities from enacting anti-development policies.

Furthermore, while developers are typically scorned by my comrades on the
left, such a policy would be progressive in that it would tend to reduce the
wealth of rich property owners, while decreasing costs for renters and making
cities more accessible to people with fewer resources.

~~~
erikpukinskis
The NIMBYs described don’t value density, they value _access_.

Speaking for myself, I only value density as a means to establishing a global
“right of return”, which I believe is a moral good:

Human ecologies are healthier when children who grow up in a place have the
option to remain, or to return after exploring.

Oakland, right now, is forcing out large numbers of indigenous people, young
and old, perhaps never to return.

I don’t care about the density of Oakland, I just care that people who have
spent part of their development here can continue to embody the geography.

As long as there is a supply of wealthy would-be immigrants (which shows no
sign of slowing) then that means I am for increasing density. But it’s a means
to an end.

~~~
istjohn
I hear you. I imagine people have many different reasons for self-identifying
as YIMBYs.

In the context of the article, the theory of agglomeration effects cited by
the author posits that increasing a city's density makes a city more
attractive, and thus exerts an upward pressure on property values.

> This supply-demand model ignores something important: the value of living in
> a particular place is greatly determined by how many people live around it.
> As the number of people living in a place increases, so does the value of
> being there. This is often labeled the "agglomeration effect".

I'm not familiar with the empirical evidence for the agglomeration effect, but
if it's real, it indicates that aside from whatever specific arguments one can
make for or against dense cities, _the market_ values density. The author
suggests some plausible reasons why the market might value density, but really
it's kind of besides the point _why_ density is valued by the market (which
represents the demonstrated preferences of you and I and every other economic
actor). If the market values density, and there are perverse incentives which
prevent cities from increasing density (the interests of existing property
owners), it behooves us to intervene at the national level.

One can make a number of other orthogonal arguments for increasing density:
smaller environmental footprint, increased diversity and social mobility in
communities, equality of opportunity and access, and your argument for a
"right of return," to name a few.

~~~
zjaffee
As someone who supports some aspects of YIMBYism almost entirely because I
like very dense cities, I still think it's important to make note of the major
negatives of density.

Namely, what happens to overbuilt places during periods of population decline
(as maintenance of existing real estate becomes virtually impossible to
afford). What happens to those living in the area should there be a major
environmental or political crisis (it's much harder to evacuate manhattan than
most other places). And how can we scale our infrastructure concurrently with
increases to density such that transportation and other government resources
are never lacking.

~~~
rsync
"As someone who supports some aspects of YIMBYism almost entirely because I
like very dense cities"

I also appreciate (and spend a lot of time in) dense cities _and_ I wish that
a lot of SF were _much denser_.

But I appreciate grass roots, local control more and I am alarmed at how
quickly principles of democracy are thrown out the window when they produce
"the wrong kind of results".

~~~
closeparen
>local control

Local control is elitism: the people who are local to desirable places control
everything that matters. Justifying that by saying the rest of us have "local
control" over our Rust Belt garbage dumps and third-world hellholes is worse
than the doctrine of Separate But Equal.

Democracy means it is not only the rich who vote on taxation, not only the
business owners who vote on regulation, not only the defense contractors who
vote on foreign policy, even though each is the primary stakeholder in their
respective issue. In the same way, it should not only be the homeowners in
desirable cities who vote on access to those cities.

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scarejunba
Haha, local residents in the Bay challenge the quantity of the agglomeration
bonus. They believe they're currently at the perfect balance of dense and
neighbourhood-like. Presumably this balance was attained shortly after they
arrived and any further increase in density would cause congestion effects
that dwarf the value of having more people around.

~~~
zjaffee
The problem is more that we are far better at building housing than we are at
improving transportation and other infrastructure that needs to scale with
population such as schools. Additionally, adding park space in already crowded
neighborhoods is virtually impossible.

Overall I think it's clear that growth can largely be a good thing, we just
need to do a better job deploying resources in a rapid when when large numbers
of people move in. A good example is Seattle, where the population is booming,
and even with massive transportation projects planned and in the pipeline,
it's certainly possible that by the time things get built it's insufficient.

~~~
pmiller2
I think there's something to this argument. If the Bay Area had good public
transportation, and not this mess of 5+ non-coordinating, independent systems
(BART, AC Transit, CalTrain, Muni, VTA, etc.), then people could live in the
East Bay (or wherever) and work throughout the region. As it stands, since I
do live in the East Bay, there's no practical way for me to commute to the
South Bay or Peninsula in under an hour and a half driving or 2+ hours on
public transportation. That locks me out of a lot of jobs, but, in my case,
there are enough tech things going on in SF for it to be worthwhile.

------
kyledrake
The bay area is currently depopulating. People are demonstrating, with their
lives and futures, during one of the biggest boom periods in history, that the
agglomeration effects are not sufficient to deal with the housing crisis in
the bay area, even with the unprecedented slush capital flying around. The
crisis is more happening because they're not even building enough housing for
the people that already live in the bay area.

Honestly, from my experience living there for a year, the agglomeration
benefits of the bay area are pretty oversold. I met some great people there,
usually too far away to meet with regularly (transit is beyond terrible), that
can't work on anything with you because they're too busy working an all-
consuming job so they can afford rent, lost in an endless sea of people I
would never want anything to do with.

~~~
JimboOmega
I haven't seen any evidence for it depopulating. Anecdotally yes people talk
about moving and how expensive it is, but I haven't seen any data or real
evidence that there's a significant outflow.

There has to be an end to the housing price rises, though. I think it will
happen when salaries get too high for tech companies to pay. Why pay double
what you would for the same person in another area? Right now the ease of
finding employees makes it worth it, but there has to be a tipping point
somewhere.

I keep thinking the housing policies will kill the golden goose but it hasn't
yet.

~~~
zjaffee
Inflow is greater than outflow but it primarily comes from births and
international immigration. Additionally domestic migration into California is
certainly still happening, but it's very likely the case that it involves the
filtering out of the working class.
[https://lao.ca.gov/laoecontax/article/detail/265](https://lao.ca.gov/laoecontax/article/detail/265)

------
ISL
The author's point about capsule-style living is a interesting one. Are there
any examples of capsule hotels or similarly-tiny micro-rentals in the United
States?

~~~
ISL
Aha -- sought for and found:
[https://www.podroom.com/](https://www.podroom.com/)

------
geebee
I think the article raises an important point. I'm skeptical that increasing
the supply of housing in San Francisco will lower prices. I do think that San
Francisco suppresses a lot of potential business activity through restrictive
housing practices. Some of this business can move elsewhere, but there's a
chance that some of it just doesn't happen. More housing might just stimulate
the local economy (the agglomeration effect mentioned in this blog post).

We certainly know that higher density doesn't necessarily produce lower prices
- San Francisco recently passed Manhattan to become the most expensive housing
market per housing _unit_ , but Manhattan remains more expensive per square
foot.

And even if it does, existing San Francisco house owners might still benefit.
The structure isn't all that valuable compared to the land, at this point. So
even if greater density causes housing prices per unit drop, and even if it
causes prices per square foot of living space to drop (due to multiple unit
apartment buildings but where a single or two story house used to exist), the
value per square foot of land could increase astronomically.

And that's if per unit or per square foot prices _drop_. It could be that
these prices would rise, which would only increase the value of land even
more.

This is why I don't buy into the notion that San Franciscans are anti-
development because of a desire to maximize the dollar value of their house.
It could be that they haven't thought it through like this, or it could be
that the have and they disagree... but I think a lot of San Franciscans are
driven by a motivation to keep things from changing. They like it this way,
and they don't really want it to change. They got in a while ago, they can
afford it, their property taxes are low due to prop 13, and their house value
has gone up to the point where they don't really _need_ it to go up much more.

They just aren't motivated to seek more density, but it isn't necessarily
because they want to maximize the value of their real estate asset (the land
their house sits on). It could actually be indifference to the price of their
house that motivates them to block new development.

~~~
fmajid
Prices will not go down in the short term. The entire Bay Area needs to
increase its housing supply by 50% in the next 20 years just to keep prices
constant. SF produces less than 1/3 the required housing.

~~~
geebee
Fair point. However, I think the above still holds if you replace “lower
prices” with “reduce the growth rate of prices”.

------
ummonk
"Affordability" and "opportunity" are the same thing. If I don't have the
opportunity to find affordable housing here, then it isn't affordable for me.
Conversely, if I can't afford to live here, I don't have the opportunity to
live here.

Value creation is a different matter though - a place can become less
affordable and create more value, or can become more affordable and create
less value (Detroit, with its vacant subdivisions, being an obvious example).

~~~
zjaffee
Can you think of a place that became more affordable after the fact and
created more value, because I struggle to think of one. Virtually every city
in America that is considered affordable has either experienced large amounts
of population loss, or is in a region that is still on it's rise in popularity
and happened to have tons of open land that it continues to subdivide.

All over the world, central urban real estate is very expensive, often because
it has access to transportation infrastructure such as highways and trains
that allow it to attract workers over a larger population boundary.

~~~
nerfhammer
You won't find examples of prices going _down_ over long periods of time, but
there are plenty of examples of prices remaining relatively affordable and
stable.

For example, New York City up until the mid 1970's:

[https://ny.curbed.com/2015/6/2/9954250/tracking-new-york-
ren...](https://ny.curbed.com/2015/6/2/9954250/tracking-new-york-rents-and-
asking-prices-over-a-century)

~~~
zjaffee
Manhattan experienced population decline from the 1920s through the 1970s,
where while not all of that was people leaving the city, it always involved
the annexation of new cheap land.

------
BurningFrog
If this was true, Economists would be all over it. It's the kind of stuff
careers and Nobel prices are made of.

But Economists have studied this and know the effect is very small. Which is
why you have software engineers speculating about it instead.

I know no other scientific field where people so confidently ignore well
established known facts as Economics. Even people who otherwise quite
scientifically literate.

------
CryptoPunk
I imagine most YIMBYs would welcome the agglomeration effect, given it means
more high-paying jobs created as a result of the economic efficiencies it
enables.

Lower cost housing is a means to end, not an end onto itself. That end is a
higher quality of life, for more people, and more productive higher density
cities provide that.

------
lacker
It seems like the expense of the Bay Area can't primarily be about density per
se, because so many expensive parts of it are not that dense. The Sunset is
full of detached single-family housing but it costs as much as the rest of San
Francisco.

~~~
pmiller2
I never really understood why it was so expensive out there. It takes almost
an hour to get from the Sunset to the parts of the city where people actually
work. But, if I'm going to commute an hour, why not live in the East Bay and
save on rent?

------
frgtpsswrdlame
So the author is discovering Say's Law [1] - basically supply can create it's
own demand. Now if you talk to an economist they'll tell you Say's Law is bunk
and has been for quite a while, supply doesn't create it's own demand. But
let's say you don't mention Say's Law and you talk to an immigration
economist, they'll say something like immigration is good because the supply
of new labor actually creates even higher demand for labor than what they
displace, basically Say's Law but disguised.

Which is all to say, does supply drive it's own demand? Hard to say but
regardless YIMBYs need to deepen their explanations of the economics behind
the issue, supply and demand graphs are good for introducing undergrads to the
basics, they're not good for justifying very expensive and highly
redistributive policy.

[1]
[https://en.wikipedia.org/wiki/Say%27s_law](https://en.wikipedia.org/wiki/Say%27s_law)

sidenote: draw a supply and demand graph. Now draw a second graph but make
demand slightly upward sloping. Increase supply. What happens to price? Just
googling around I found several articles about upward sloping demand in
housing. It appears to be contentious (urban economics isn't an area I know
too much about) but is something that should be considered.

[http://worthwhile.typepad.com/worthwhile_canadian_initi/2017...](http://worthwhile.typepad.com/worthwhile_canadian_initi/2017/08/upward-
sloping-demand-curves-for-labour-and-housing.html)

[https://www.ssb.no/a/publikasjoner/pdf/DP/dp618.pdf](https://www.ssb.no/a/publikasjoner/pdf/DP/dp618.pdf)

[https://ideas.repec.org/p/arz/wpaper/eres2018_267.html](https://ideas.repec.org/p/arz/wpaper/eres2018_267.html)

[https://www.sciencedirect.com/science/article/pii/S009411900...](https://www.sciencedirect.com/science/article/pii/S0094119006000799)

------
CodeWriter23
Supply and Demand is too simplistic a model to think about housing costs
because it fails to account for velocity of inventory vs. velocity of
occupancy. It also completely ignores the law of retailing which is “Charge
what the market will bear”. Let’s also be honest about how opportunity growth
drives demand for housing.

~~~
epistasis
Could you explain how "charged what the market will bear" is ignored by
"Supply and Demand"? The entire basis of supply and demand is that prices
change _based_ on people charging what the market will bear, and buyers paying
as little as they can.

~~~
nickstefan12
Not the OP, but I would think he's describing: You can't out build rich
people. There may be a supply of ten houses and a demand of ten people who
need houses. However, that doesn't take into account that one of those ten
people might be rich enough to want to buy all of the houses and then rent
them back to the other nine. In dieting: you can't out run the fork. In
housing: you can't out build the rich people.

In anywhere nice to live, there will always be rich people lining up to buy up
everything. Even if they don't live there. Even if they can only live in one
house at a time.

~~~
AnthonyMouse
But why can't you out build them? If there is demand of ten people who need
houses and you build ten and a rich person buys all of them so they can rent
them out, build ten more. Now the rich person has to buy those if they want to
preserve the rental value of the original ten, so you've doubled their costs.
They may not be willing to do this. If they are, build ten more...

At some point the rich person decides it's not worth buying 100 houses so they
can collect rent on ten, and then they take a bath when they want to unload
the first 90 properties which they can't rent for what they paid, to the
benefit of everyone else. And when it's repeatedly demonstrated that it's
possible to do this, rich people holding property they're not using will start
unloading it and bring prices down without even building anything more.

~~~
nickstefan12
Your analogy is logically sound, but it doesnt match what I've seen in
reality. I think the extra factor is that rich people seem to attract more
rich people. That is the number that I think can't be out built. The rise in
prices attracts more of them. Or rather, the fewer poor people around tends to
mean rich people find it even more desirable. In practice, no government or
real estate boom can out build this network effect of rich people attracting
more rich people who eventually decide they like things the way they are. Not
just real estate, but everything about the place. And they now own it, so its
not that crazy to imagine they get to decide this. Im not morally in support
of it, just stating history.

Rich people are especially into "knowing the best", whether its vacations,
cars, and yes, places to live. Thats what I meant about them wanting to come
buy stuff in your town even if they don't currently live there. And the data
kind of shows this. California has an outflow of poor and and inflow of
richer.

Basically, desirability is inelastic. California has better weather than a lot
of places. The only people who can pay up the vertical inelastic curve are
rich people. There are a bunch of them who want to move to your town from
elsewhere.

~~~
AnthonyMouse
> I think the extra factor is that rich people seem to attract more rich
> people. That is the number that I think can't be out built.

That isn't a real problem though. If people are coming who actually want to
live there, let them. There are zero cities in the world that are entirely
covered in buildings the height of the Empire State Building. Every time you
sell a housing unit for more than it cost to construct, you have that much
more money to construct more housing with.

The actual problem is that the existing residents pass zoning regulations
preventing high density new construction, because they _know_ it would reduce
housing costs, but once they live there their housing costs are fixed and what
they're worried about is increasing their property values.

~~~
nickstefan12
You may argue that the solution either way is to build more, but I think its
important to take problems on at their source. The debate about supply and
demand just seems to be the wrong level of abstraction when there's a more
sociological root cause for pulling up the ladder.

> "Or rather, the fewer poor people around tends to mean rich people find it
> even more desirable."

If we don't address this, it will be impossible to convince people to build
more, no matter how blue in the face people get about supply and demand
charts.

~~~
AnthonyMouse
> "Or rather, the fewer poor people around tends to mean rich people find it
> even more desirable."

But why is that a problem? It's like complaining about free money appearing
out of thin air. If every rich person in the entire world wants to move to
your city, _that 's really good_. It would be a wonderful tax base. And there
are a countably finite number of rich people, so there comes a point when you
have literally every last one of them.

Having to build enough housing for every rich person in the world is
ridiculous, but the reason it's ridiculous isn't that you couldn't physically
do it (if there are a hundred million rich people, that's only a single digit
factor more people than live in Beijing or Shanghai). It's that they would
never all move to one place like that -- especially because every other city
would be competing to keep them.

And if density is actually such a wealth magnet then every city should do it.
Then the outflows and inflows would net balance and there would be no net
migration of rich people to any city in particular. If you somehow got more
than someplace else, what are you complaining about? Build even more housing
to see if you can get some more, then go spend their money on your roads and
schools.

