The Indisputable Density Dividend

Large portions of the United States — including economically critical areas — do get more dense as they add population. New York City didn’t get any bigger between 2000 and 2010, but it did add over 200,000 people. As a result, it got considerably denser. Had it been easier to build in New York City, the rising demand to live there would have translated into even more population growth in the core, and correspondingly less growth in housing costs. It’s funny that Cox understands that building regulations are a problem but doesn’t connect onerous restrictions in the core with growth on metropolitan peripheries.

Cox also misunderstands another critical point of the piece, and of the book from which it’s adapted. He implies that higher incomes in dense, productive areas don’t count because they’re canceled out by higher living costs. That’s true; the point I’m making is that people are moving from more productive cities to less productive cities because of the impact of housing costs on real earnings. What Cox neglects is the importance of the fact that businesses in expensive cities are willing and able to pay high nominal incomes. Why would they do that if they didn’t have to? A tradable good or service produced in Silicon Valley will fetch the same price in an export market as a similar good or service produced in Houston. You don’t get to charge more for a widget just because you chose to make it in an expensive city. That’s a big reason why lots of employers choose not to locate their businesses in Silicon Valley, or indeed in the United States. But many of them do choose to locate in the expensive city and pay the high wage, and as I point out in my book, expensive places like Silicon Valley employ a larger share of American workers in high value, export industries than do cheap places like Houston.

They do this because it’s worth it to them to locate in the expensive city. Firms in Silicon Valley enjoy higher productivity levels and informational spillovers — facilitated by density — that simply can’t be duplicated in other, cheaper cities. If they could be, they would be, and the high cost Silicon Valley economy would quickly implode.