The Real Link Between Urban Growth and Gentrification

Many urban thinkers such as Edward Glaeser, Ryan Avent, and Matthew Yglesias make the simple economic argument in their latest books that increasing the supply of urban housing will lower its price.  While these books present sound cases against the commonly perceived notion that development causes higher prices, there are still several examples of neighborhoods experiencing both influxes of development and higher prices that would lead people to link them causally.

Stephen Smith addresses these concerns by saying it all comes down to amenities.  These poor urban neighborhoods have attractive housing stock, but lack goods and services that more wealthy residents would demand.  New development brings along these new amenities.  New development by itself acts to lower housing prices, but this decrease is overcome by the increase in prices caused by the new amenities.  If this cycle were allowed to continue, the diminishing marginal returns to amenities would eventually lead to a peak in housing prices and cause them to start dropping again.  However, before that happens the new wealthier and more politically savvy neighborhood residents would fight against development, causing prices to remain high and for gentrification to continue to spread outward.

I've thought of these issues as well, and while my conclusions are similar I've always had a slightly different line of thinking.  Amenities tell only a small part of this story, and I think there's way more going on here.

Given any exogenous increase in demand, prices will start to rise.  Higher prices lead to development, and normally this development will occur until prices go back to their original levels.  If there are any restraints to development, then any increase in demand will lead to both increased development and increasing prices, which could lead outside observers to incorrectly assume that development is causing higher prices.  This feeling will lead to more restrictions on development, and this conventional wisdom becomes a self fulfilling prophecy.  NIMBYism very easily breeds more NIMBYism.

That's the bare bones of what's going on.  It completely explains why there's a perceived link between development and rising prices, why it's fought against so hard, and doesn't even take into account amenities or gentrification.

Stephen does have some absolutely valid points, and it is fascinating piece of analysis in its own right. There is a diminishing marginal return to amenities, there is more NIMBY activism in wealthy neighborhoods than in poorer neighborhoods, and this does lead to an acceleration in the existing process of gentrification.  I begin to disagree when he expands this argument and says that the presence of amenities is when things start to go awry.

I think that the increase in demand is where everything begins, and is the culprit behind everything that follows: development, rising prices, and increased amenities.  Amenities don't automatically come with new development, they arrive for the same reasons as developments.  Amenities are a result of the surrounding population, and the population is determined by housing prices.  If these housing prices are artificially high because development wasn't allowed to keep them low, higher class amenities will follow.

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Maspeth: New York City's Cycling Capital, 2021

I just discovered a cool feature that I didn't notice before on Mapnificent that allows you to calculate travel times depending on whether or not you have your bike.  I've always thought about what sort of long term effects prevalent bike usage would have on the geography of the city, and this tool allows you to get a visual idea of this.  So many areas are easier to get to if you don't have to worry about staying close to a subway line, and even more areas open up if you take your bike on the subway, which is how Mapnificent does its calculations

Check out what sort of difference having your bike makes if you're trying to get to Union Square in 30 minutes:

The odd spacing of subways in some areas of the outer boroughs creates some weird areas that are physically close to Manhattan, but are not subway adjacent and inconvenient to get to without a car.  While having a bike expands the range of where you're able to go on the margins, the most dramatic results are in these spaces where gaps in subway lines are filled.  Take a closer look at Queens:

The Astoria Waterfront and Maspeth are the two areas where having a bike would provide the greatest transportation improvement, and are two potential locations for outer borough bike commuter neighborhoods.  Red Hook is in the same position:

This sort of approach isn't perfect (for example, it assumes that if you live in Weehawken you can fly across the Hudson), but it gives a rough idea of what sort of changes one would expect once biking becomes a more established form of transportation.

Bike infrastructure development currently has been focused on already dense neighborhoods.  This has been a great way to allow biking to gain a foothold in the city, but the next step should be to become more forward looking, and develop infrastructure in areas with the most potential to become bicycle dependent in the future.

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US Treasuries Are A Giffen Good

Technically this isn't true. But it's the exact same dynamics: a secondary effect of treasury markets is superseding what you'd think the primary effect would be.

This Business Week article is what originally got me thinking about this. This is what it says happened to treasuries after yesterday's sell off:

Some analysts had worried that Treasury yields would surge after S&P's downgrade. That would happen if investors demanded higher returns to compensate for their risk.

The opposite happened. Treasury yields fell Monday to their lowest level of the year as investors sought a safe place for their cash. Their actions showed continued confidence in long-term U.S. debt.

This got me immediately thinking of the example always used for Giffen Goods. People eat rice and meat. The price of rice goes up. You'd expect less people to buy less rice because of this. But meat is a luxury while rice is an inferior good, and the rise in price of rice makes people so much more comparably poorer that they eat more of the inferior good: rice.

US treasuries are indeed an inferior good. They're seen as a safe haven investment when risk is too high in other markets. This "risk effect" can be compared to the income effect. The S&P downgrade of US treasuries can be compared to the price going up. Under normal circumstances, a downgrade would cause less people to invest in a country's treasuries. But, this downgrade ended up jolting markets so much and rising risk everywhere that people wanted to rush to the safer investment: US treasuries.

To make the comparison clearer I'll bring it back to food. Assume people eat only two things: bread and sushi made from a small, safe, and tasty sliver of an otherwise deadly poisonous blowfish. Now consider what happens if a small percentage of bread is found to be poisonous. You'd expect people to eat less bread now that it's less safe. But, this got people thinking about how much risk they should be taking in their food, and all of a sudden it doesn't seem like such a great idea to be risking your health on deadly blowfish if even BREAD can kill you.

So, paradoxically, as bread becomes more dangerous, people will eat more bread. Giffenish behavior if you ask me!

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Another Way to Implement Higher Gas Taxes

The Economist's Free Exchange Blog wrote recently about just how effective gas taxes are in spurring investments in alternative energies and in changing consumer behavior. Jim Manzi originally argues that because short term elasticity is so low, gas taxes won't have an effect on consumer behavior and shouldn't really be used as a policy tool. The Economist blogger counters this point by pointing out that either way the tax will achieve something. If elasticity is low, then the tax will be extremely effective at raising funds which could be put towards research, and if elasticity is high then the tax will be extremely effective at changing consumer behavior.

However, for both of these cases we still have price volatility. Assuming that spikes in gas prices occur in the short-term low-elasticity time scales, exogenous spikes will have no behavioral effects, will decrease real disposable incomes, and will lead to a more inefficient allocation of consumer spending as people are spending too much on fuel during these periods of high gas prices.

One would think that a long term expectation of oil price volatility is enough incentive to drive investment into alternative fuels or change consumer behavior. Assuming that it isn't (or won't have an effect for a while), the volatility is simply a dead weight on the economy.

So, how about you set tax policy such that gas prices + tax will always be $6 a gallon no matter what sort of market fluctuations occur? If gas prices are predictably high like this for the consumer, the higher long term elasticity will come into play and behaviors will be more likely to change. Not only that, but simply the expectation of steady but high gas prices will cause the long term behavior to kick in sooner, meaning that behavior will change even more quickly. The dead weight cost of volatility disappears, funds are raised through the tax for research, and behavior will change to demand that research.

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Pretty Game Theory

This is a really great article about sea slugs. The below point however got me thinking about how they became so beautiful:

Many mobile nudibranchs - vulnerable as they move in daylight between feeding spots—announce their weapons with garish color designs, a palette millions of years in the making. Contrasting pigments make them highly visible against a reef's greens and browns, a visual alarm that turns predators wary—bold nibblers quickly learn to avoid the color patterns that announce unpalatable flesh. Animals able to mimic the designs, including nontoxic nudibranchs and other invertebrates like flatworms, are similarly left alone.

That last sentence made me wonder how free-riders can exist in an evolutionary sustainable equilibrium with the nudibranchs, which in turn made me think about what sort of evolutionary game they must be playing.

There are costs associated with any of these strategies: costs for being poisonous and costs for distinguishing yourself physically. If it is already "known" among predators that a certain body form is poisonous, then there is an incentive for all slugs (and free-riding flatworms) to assume that body plan. However, it becomes similar to the prisoner's dilemma: the more free riders there are, the less chance there is for a predator to pick a poisonous animal of a specific body type. Therefore, predators will begin to start eating those types of animals.

On the surface, it would seem that the evolutionary equilibrium would not really hold in this way. It would not make sense to expend the costs on complex body plans to serve as a signal to predators, since the free-riders would end up watering down that signal and making it useless. Everyone would adopt the lowest cost form and only some would be poisonous.

However, there is another way out of this. If the poisonous nudibranches were to constantly change their body into new and unique forms, then the signal would remain effective. Starting from a point where all slugs look the same and are eaten with the same frequency, their body plans begin differentiating randomly. Those body plans associated with the "poison" genes will begin getting eaten less and less by predators, as predators evolve to avoid certain types of animals. Once the body plan becomes safe, non-poisonous slugs will begin assuming this poisonous body plan. Predators will now start to lose their evolved fear of this type of the poisonous-looking slug. A few poisonous slugs evolving their looks randomly that look even more unique will start this whole process over again.

In short, the evolutionary incentive of the slug is to just get more and more weird and unique. This sort of evolutionary path IS sustainable, and can continue as long as the slugs don't gather too many competitive disadvantages as a result of their accouterments.

Think about that. It's one thing to see the odd things that arose in nature. Imagine knowing that a certain weird animal is only going to continue to get more bizarre. How beautiful is that?

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Los Angeles is a Lot Like Paris?

This article on development in Los Angeles is an incredibly fascinating read. I love the conclusion: nothing I ever would have thought of but so true! It describes how the urban form of Los Angeles is more similar to Paris than New York in its decentralized nature.

Unlike New York, there isn't really a reason to be in downtown Los Angeles. On the surface, you could say this is because the city is too suburban and has cut off the air supply to its downtown hub. However, this type of development can not only be ok in some circumstances, but it's ingrained in the DNA of the city. Rather than being suburban, it's more comparable to a city like Paris (which has suburb problems of its own). There, the center of the city is paralyzed because it is a historical "museum" where there is resistance to change, and the main business district La Défense developed on the outskirts.

The article goes on to show how rail lines are different in these two cases: it's focused in a more dispersed rather than hub-and-spoke model (something I always used to wish for when I wanted to get to middle of nowhere Queens from the middle of nowhere Bronx!) However, I think another conclusion to draw is this dispersed development ends up being more equitable than a monocentric form.

Suburbs may be unsustainable in the long term, but so are diverse city centers when looked at in this angle. There is by definition a limited amount of space within a reasonable distance to the center, and the most efficient transit system in the world won't change this. Jobs will concentrate in the center. The rich will concentrate and create a homogeneous downtown that takes away from the diversity that actually makes city centers desirable. The poor and middle classes are dispersed with little access to centralized public services and economic activity, and everyone suffers from the lack of income diversity in the city.

In a dispersed city, there is no "center" to encourage this concentration and its ill effects. Of course there will still be rich and poor and middle class neighborhoods, but their distribution will be more random and not focused into groups on a metro scale. There will be no such thing as being marginalized from the city center and probably less of a disparity between commuting times of the rich and the poor. No one will be able to live in their isolated bubble and ignore marginalized populations.

The one downside to this versus a centralized city is that there is no natural inclination to dense less-car-dependent development, which is why Los Angeles is Los Angeles. Incentives have to be carefully managed to encourage dense development, because the natural inclination with no center to be close to will be sprawl. Getting back to the point of the article, if you have a transit system that connects various "mini-hubs" in a grid-like way, it will provide a nice skeleton for future transit oriented development.

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My Neighborhood is Officially Better Than Yours

I was supposed to go sledding on the cliffs across the street from my new apartment with this girl today. Unfortunately, when I tried to buy a sled at my local target the salesman just laughed at me and said they were out. And it's not worth coming to Fort Tryon Park from Brooklyn if there's not a sled involved.

Luckily, I ended up heading into the park by myself and made some friends.

According to a passer-by, the third from the right was supposed to be a full bust with her arms cut off. I missed it!

Look at that little guy!

How amazing is this skull?

Further into the park, I found this guy. That's a flag pole behind him. He was huge!

This smaller guy was standing on the ledge.

His hair was very pretty.

Walking back, I caught the sculptor in the act!

Aaand he made the 2010 Vancouver Olympic symbol. I'm so glad I decided to go in there. It was hot enough to have a picnic on the snow there. These guys will not be around for long!

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