Scott Alexander posted this last month, arguing that building more in an area doesn't necessarily decrease local prices because it can cause more people to move in.
I see 3 levels of argument here, based on 1st, 2nd, and 3rd-order effects:
- More building means more supply, which by supply-demand curves means prices decrease. (YIMBY is here)
- Local demand isn't fixed: prices are determined by an equilibrium between people coming and leaving. Building more changes the character of the area (which probably makes it suit current residents less) but the equilibrium of quality vs cost is unchanged. (Scott is here)
- Building more in expensive areas causes people to move which causes jobs to move, which causes more housing to be unused in low-cost areas, which means housing costs don't decrease significantly on a national level either. (I'm here)
Position (3) has long been my view, and I thought I'd write a post explaining it a bit.
The problem in America isn't a lack of aggregate housing, it's houses not being where people want to live. Building more in those areas might seem like an obvious solution, but it wrongly assumes "where people want to live" is constant. If we instead consider that it could change, we need to consider what makes people move from an area with cheap housing to an area where it's expensive.
You can just ask people that, and they'll tell you: jobs. OK, so why are there better jobs in the expensive areas?
If you ask an economist, they'll probably say something about improved economic efficiency from people being closer together. I don't buy it, because it contradicts what I observe directly:
- Many people can work as well remotely.
- Programmers don't become more productive when they move to Silicon Valley or Seattle or NYC.
- Factories in America aren't built in the middle of cities. Boeing doesn't make aircraft in the middle of NYC, that would be stupid.
Yes, people in NYC and Silicon Valley get paid more on average, but I reject the assertion that wages reflect productivity or competence. If wages were high simply because aggregation improved efficiency, then we'd see a stronger correlation between density and wages, but the correlation of wages with housing prices and with wealth is stronger. In my experience and the experience of people I know, the dominant factor is how close you are to money. Wages in NYC are high because there are wealthy investors and corporate executives there.
Why, then, are those rich people in NYC? Because:
- It has luxury services. (Amazon/etc made this less important.)
- Other rich people are there, which is good for networking.
- The nice parts are expensive enough to keep poor people out. (More applicable in expensive suburban areas than in NYC, where exclusion involves more private schools and secure apartments.)
In this model, building more housing in Silicon Valley or NYC just leads to more competition for about the same total income from "good jobs", with that number determined by the amount of money there. That makes things better for rich people buying luxury services in expensive cities, and worse for other people. If you make housing cheap enough for many poor people to move in, the rich people might even leave because of that, decreasing the number of good jobs.
The solution, then, is not to build more in high-demand areas - it's to force demand to be spread out more.
I think you are underselling the networking advantages of cities.
Most people are eventually part of a couple or family. Most couples make compromises in terms of one or the other taking not-the-best position for their career because they want to live in the same area as their spouse. In a big city (my experience is London) their are enough jobs in enough industries close together that a typical couple can both usually pursue their ideal careers (or close) without being in different places.
Add into this that your job might change. If you live in Boeing town: population - high, employers - one, then you work at Boeing, and if you stop working at Boeing you move house and your children change schools etc. If you live in a big city and you are a career-ist you can do the whole "monkey bars" thing where you keep jumping between companies as you think you can do better, all without moving home every 2-3 years.
You make a convincing case that their are forces that encourage very rich people to congregate relatively close together, I don't think its the main force behind what is going on but I can see that it exist. Other forces also exist, like those I outlined above. Mine is not a productivity argument, and you could if you wanted even lump my suggestion under "there were other rich people there to network with" where "network" here means "marry" and "rich people" here means "people with a career, not a job."