What's Wrong With America's Dream of City Living

What's Wrong With America's Dream of City Living

(Bloomberg)—New York is the land of the $100 million penthouse, the land of more than 8.5 million people and of rents that are among the highest in the country.

Detroit, which has lost 500,000 people over three decades, is a sea of abandoned homes that can be bought for a few hundred dollars (or sometimes lived in for free).

But the two cities, with their vastly different real estate markets, have a key similarity: They’re adding housing density at a similarly slow pace, limiting the number of new residents they can support.

From 1950 to 1980, at least one home was added per acre on 60 percent of New York's developed area, according to new research from Issi Romem, an economist at BuildZoom, which provides data on the home remodeling industry. From 1980 to 2010, that rate was just 14 percent. In Detroit, the pace of densification fell from 59 percent to 12 percent over the same period.

That's not a big deal in Detroit, which is struggling with how to manage its stock of vacant homes. But in cities such as New York, where 30 percent (PDF) of renter households spend at least half their income on rent, the failure to build housing in greater density—broadly speaking, to build apartment buildings that fit more homes on a given piece of land—has created a housing shortage, driving up prices for residents of all incomes.

The call for more density has become high-pitched lately. Housing activists in such places as San Francisco, Seattle, and Austin call for bigger buildings, butting heads with communities that worry that denser development could hurt home values and clog roads and public transit.

The arguments tend to ignore a basic question: Is it possible for modern U.S. cities to densify?

In theory. But since 1950, U.S. cities have added new housing at about the same rate they’ve expanded their geographic footprint, according to Romem's research—in other words, growth was almost all sprawl.

In more recent years, an emerging preference for city living—along with concerns about the environmental sustainability of growing urban footprints—has boosted demand for housing near urban cores. But there's not enough to go around, and the demand drives up costs and forces many workers to choose between long commutes and less-appealing jobs in cheaper markets. The lack of affordable housing in the strongest local economies has led economists to complain (PDF) that housing costs are robbing the U.S. economy of billions in lost productivity.

There’s a logical solution to this problem, which is to build more housing close to city centers—erecting small apartment buildings on land now reserved for single-family houses, and building larger apartment buildings close to downtowns. But if building denser housing stock is such a no-brainer, why aren't the biggest cities doing it?

Contrary to what you might expect, the rate of densification is holding steadier in those cities that have expanded their urban areas' footprints the most. (That’s probably because sprawl doesn’t happen in acre-by-acre steps; cities bite off large chunks of land, then fill them gradually.)

Cities that sprawled less, on the other hand, have grown denser more slowly: They ran out of either supply—that is, land to build on—or demand—people for whom to build. The result is that cities such as New York and Boston are grouped, in the chart above, with Rust Belt cities like Cleveland and Milwaukee. The most expensive big cities are adding housing units at a pace similar to that of the cheapest.

In the meantime, U.S. cities face what Romem calls a “land-use trilemma”: They can sprawl outward, gaining cheap housing at the expense of long commutes. They can keep their current shape, limiting the housing supply and effectively segregating those who can’t afford rising costs. Or they can make radical changes to local land-use policies—creating new incentives for multifamily construction, undoing rules that restrict development to single-family homes, and persuading Americans that apartment buildings are good places to raise children.

The glimmer of hope for proponents of the third option is that major cities in other countries, such as Tokyo and Tel Aviv, have effected similar changes. The harsh reality is that in the U.S., local governments control land-use law and resist greater density.

“No one is really thinking about tearing down single-family neighborhoods and building apartment buildings,” said Romem. "Given local control of zoning, it's really hard to do."

To contact the author of this story: Patrick Clark in New York at [email protected] To contact the editor responsible for this story: Samantha Schulz at [email protected]


© 2016 Bloomberg L.P

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