Why are big cities becoming expensive places to live? One answer is that they have good jobs and restrictions on housing construction. That may be right.
But one possibility I want to throw out there is that people want affluent neighbors. If I want an affluent neighbor, and an affluent neighbor is going to live in a neighborhood with high prices, then in some sense I want to live in a neighborhood with high prices. In the extreme, this makes my demand for neighborhoods upward-sloping. Higher prices make me want to live there.
I first considered this possibility many years ago when thinking about school vouchers. I thought that if what people really want for their children is to have them go to school with affluent children, then vouchers would not work as well. Instead of allowing non-affluent parents to send their children to good private schools, the result would just be that good private schools would raise prices so that only affluent children can attend.
I also think that some colleges that are not in the top tier may face upward-sloping demand. George Washington University, which is hardly an academic icon, may benefit from charging very high tuition. Affluent parents come and see a student population that is predominantly affluent, and this gives them comfort that sending their children to GW is a high-status thing to do.
Back to cities. Suppose that an important “urban amenity” is having a lot of affluent people around. Young singles may wish to meet potential marriage partners who are affluent. People who have acquired affluent tastes (sushi, yoga, wine) may want to be around people with similar tastes.
If that is the case, then there is not much that a mid-sized midwestern city can do to lure affluent people. The cost of living there is not high enough to create a barrier to non-affluent people living there. And that means that affluent people will not want to live there.
This is probability a part of the explanation, though secondary to the prime drivers of centralization into sectoral hubs. But it raises the question of why it has seemed to increase in magnitude recently.
One reason is that ‘inequality of social capital’ has been going way up, and it is thus as important as ever to isolate oneself and ones family from social-capital-poor people, who create the equivalent of negative externalities and ‘neighborhood effects’, so to speak. (I know I am not using social capital in the standard way, but I think the meaning is clear enough for it to serve at adequate shorthand.)
The other reason is that the only allowed forms of legal discrimination remaining is community segregation by wherewithal though the housing market price system, and segregation by aptitude through the academic admission system (also family wealth via tuition rates).
If high-social-capital people could form an exclusive community any other way, the richer along them wouldn’t need to bid up positional goods quite as far to the sky as a poor proxy for selectivity. The proxy is poor because while it doesn’t suffer much from Type-1 error (most high income people do have high social capital), it does suffer from Type-2, excluding plenty of potential neighbors who are high quality but low income. That is what helps to make a neighborhood not only good in terms of neighbors, but a reliable status signal, (since you have to be wealthy to live there unless subsidized) which is a self-reinforcing equilibrium.
That in turn raises the question of what might be a better proxy or test for having high social capital. One might say, at the very minimum, it should be absence of a criminal record, however, the government is rapidly making even that test illegal for employment and housing decisions.
In the past, richer professionals often lived in the same neighborhoods as lower income but upstanding members of the community. But as The Great Bifurcation proceeds apace, that is becoming increasingly rare unless dictated by the government, e.g. the various recent ‘Affordable Housing’ initiatives.
One way to look at this is as a kind of ‘zoning restriction’ limiting the supply of communities with high concentrations of people with high social capital, by forbidding any other basis for their formation than by price-based exclusion. Though, I don’t expect many libertarians to argue against the ‘land use restrictions’ that are embedded in anti-discriminatory laws like they do against the other regulations. The limited supply that remains is thus ‘rationed’ and allocated by the market to the wealthiest fraction, which again makes it also signal the status of the residents.
I first considered this possibility many years ago when thinking about school vouchers. I thought that if what people really want for their children is to have them go to school with affluent children, then vouchers would not work as well. Instead of allowing non-affluent parents to send their children to good private schools, the result would just be that good private schools would raise prices so that only affluent children can attend.
That’s an excellent point, but I think it would still raise the value of a lot of schools by making it easier to kick out low performers and stratify students by ability much better, which I view as desirable. In the case of cities, think of it like this: you’d prefer to live in a more affluent neighborhood, but you can’t afford it, so you pick a middle class or mixed income neighborhood instead to buy a house in. In that case, would you pay more to live in a neighborhood where the worst neighbors could be booted out and forced to move? I would.
What about vouchers makes it easier to boot people out? If anything vouchers could mean more public influence over private schools that accept them, with predictable anti-discrimination laws.
Presumably more private schools would spring up with the assumption being more latitude in moving kids around and ultimately out or into some experiment that works for them.
Guess which race I had the most trouble with growing up? Sure, plenty of problems with blacks and one particularly insane Hispanic, but there is your hint.
At present, private schools are able to expel disruptive students easier than public schools can. Maybe that changes somewhat under a voucher system, but I would hope not.
” The cost of living there is not high enough to create a barrier to non-affluent people living there. And that means that *** affluent people will not want to live there.*** ”
What does that assume about “affluent” people?
Agree with commenter “Handle.” Excellent analysis.
For all this talk of being “inclusive” when people vote with their feet they strongly choose to live, work, and socialize among people of a similar social class.
. . . a similar *or higher* social class.
I don’t know. Much of the rhetoric around anti-development activism is about keeping affluent people out.
True, but there are lots of stakeholders with different, conflicting interests, yet only certain ones get sympathetic media attention, coverage, and promotion of their agenda.
Renters satisfied with the neighborhood as it is don’t want to see their rents increase or get displaced. They choose their neighborhood for a reason and they don’t want to experience modification of their preferred set of features. They like the existing age structure and demograohic composition. Probably they don’t want the character or look to change that much, they don’t want more congestion, traffic, parking trouble, or to live through all the hassle involved with the construction of yet another high-rise nearby.
Likewise, there are the politicians who depend for their jobs on the current makeup and reliable voting patterns and predictable, common interests of the local population. For them there is a quite simple public choice analysis that puts them at odds with local development and gentrification, even if those processes would be best for the community and even its currently existing members overall.
If a bunch of immigrants (in this case often wealthier white ones) can be forecasted with high confidence to want different things, vote differently, and even put forward their own candidates and disrupt the local political economy equilibrium, then the local politician and his patrons in the press will work to maintain the status quo. Marion Barry (and now LaRuby May) was infamous for trying to use policy to hold back the dam of money and explicitly articulating this logic regarding DC’s eighth ward: Anacostia and surrounding areas. It won’t work in the long term, but they can sure slow things down.
Interestingly, people who make this political argument about gentrifiying native immigrant voters are quite hostile when the same logic is deployed in the discourse about non-native immigrant voters. That’s because the press plays favorites. Still Gerrymandering was only the beginning. ‘Strategic Electorate Shaping’ i.e. Brecht’s line about electing a new population) is where the action really is.
@Kevin, yes, the rhetoric is anti-affluent, but only in the sense that in the typical bootleggers-and-Baptists alliance the Baptists’ rhetoric is anti-bootlegger. Moreover, being affluent and identifying as affluent are two very different things. The tacit mentality is “oh all those OTHER affluent people who want to move in are terrible, but affluent people like ME who are really down-to-earth, artsy, tolerant [!], etc are just fine.”
I agree that one of the attractions of living in an affluent neighborhood is affluent neighbors. I was once talking to an acquaintance who was visiting about living in a neighborhood with a homeowner’s association. I told him I couldn’t imagine having to put up with the control freaks and petty rules. His response was, “Yeah, in your price range, you don’t need an HOA, and that’s great, but I definitely wouldn’t live in MY neighborhood without one.”
I disagree with the assessment of mid-sized, Midwestern cities. I have some familiarity there, and those places all have their local gentry (physicians and administrators at the regional hospital, plant managers and engineers, business owners, etc), and there are neighborhoods and private schools that cater to them. But it’s still difficult to attract new businesses and affluent professionals who didn’t grow up there and don’t actually have to be there.
I am in one of these god-forsaken neighborhoods where we bought within our means. We won’t make that mistake again. But I am skeptical of your friend’s assessment. As I’ve probably said before the roads weren’t even annexed. Then to annex the roads the county required changes to be made to tune of about $1000+ per home. Some (like mine) did not need the work. The busybodies who are constantly agitating for an HOA said we needed an HOA to get this done. They claimed we couldn’t have police patrol or school bus pickup until the roads were annexed. Can you guess where this is headed? Well, our neighborhood has a high pass-thru crime problem. Imagine George Zimmerman’s neighborhood before he got fed up. So, we needed the protection racket and to get it we needed county annexation. But, we avoided the HOA by them setting up a special taxing scheme to charge everyone (even those not needing the work) to be annexed. Well, the moral of the story is still no school bus pickup and no police patrols and still lots of petty crime. But we did manage to stave off the inevitable HOA for a few years. But nobody else will remember the dangle and the near miss the way I do. And every time someone agitates for the HOA, it is never based on some actual solution to a problem like how to stop the petty crime before someone gets hurt, it is always some stupid busybody wish-list item, and that’s before they obtain power.
I think he was worried more of the problems of noise, poorly maintained houses and yards, collections of old cars and other junk accruing, oddball amateur home additions and outbuildings, and that sort of thing. The same kind of thing you see around lower-income houses in the country all the time, but out there everybody is far enough apart that it doesn’t really matter. It’s different in a subdivision.
There’s a similar phenomenon with motels. Often low-cost motels are perfectly clean and comfortable, but you run a much bigger risk of unruly neighbors than if you pay twice as much (even if the room isn’t much better).
I understand it, I just don’t quite buy it. I suspect a form of loss aversion gets people to buy into HOAs and then endowment effect makes people assume they do things.
So, I’m asking, do you think that HOAs are pretty efficient control mechanisms? Or perhaps they are an inefficient way to keep undesirables out? Or a bit of both?
College dorms are a great example of this. Room and Board at college was probably less then people pay to live in the ghetto, and you lived in physical conditions that were on paper worse (mileage may vary here). However, its not about your shoe box bedroom or shared shower. It’s about the community. College was a perfectly self selected community that was exclusive to outsiders and trouble makers.
If you can find a way to discriminate other then price then people can stop engaging in zero sum positional games they often go into debt to win.
How ’bout a relatively high deposit?
Assuming the pyramid scheme doesn’t crash, you can cash out of high-priced real-estate when you sell, so it is already a bit like a high deposit.
You’re presenting urban living as a kind of Veblen good. An interesting thought. But if I were going to argue that the demand curve for urban house is upward sloping (I’m not so inclined) I’d probably be more inclined to argue that it is a Giffen good.
With higher education, you need to get the idea that colleges are selling an education product straight out of your head. That’s not what they do anymore. Colleges sell a membership in a young adult lifestyle community.
Property values also play a part. Stocks are an asset with an upward sloping demand curve. So is housing. The better the neighborhood the more likely the value of your home will go up. The more your home values go up the more likely people will want to move there and the people who move there are likely to be affluent and are more likely to improve the neighborhood.
With stocks it is fairly irrational unless you can time the correction. But you make a case that it is a relatively rational calculation with housing.