Location, Location, Location

Location, Location, Location

Location, Location, Location

Moneybox
A blog about business and economics.
June 13 2012 4:20 PM

Location, Location, Location

I was on a panel this morning with, among others, Randal O'Toole from the Cato Institute and we were talking about urban development. I have a basically libertarian view about land use issues, but he and I turn out to have a fairly different perspective on the overall nature of the problem that stems in part from the fact that I think we have a different view about the value of specific locations.

O'Toole's basic idea seems to be that the technology of the automobile and modern telecommunications makes locations basically all equal, and therefore housing scarcity issues must be due to things like urban growth boundaries and other things that prevent rural land from turning into suburbs. He doesn't deny that density restrictions exist, but doesn't see them as very significant.

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I see this the other way around. For starters, I think the whole subject would be uninteresting and unimportant if not for the fact that location matters. After all, it's only a minority of metropolitan areas in this country that have housing scarcity problems. If you don't live in San Francisco, San Jose, Seattle, Portland, or the DC-Boston corridor then housing is fairly abundant. We don't all need to be like Houston, people can just go to Houston. The problem with this, I think, is that there are implications for the national economy to the fact that these supply-constrained areas tend to be the highest-income highest-wage parts of the country. Nashville is not an adequate substitute for Silicon Valley if you have an idea for a tech startup, and it's not even an adequate substitute if all you want to do is cut a really rich guy's hair and charge a premium price for it.

What's more within urban areas we see that land is not homogenous. In Southern California there's a big difference between living near the ocean and living in the Inland Empire. In New York there's a big difference between living in Park Slope and living in the South Bronx. There's a difference between having an office in a downtown cluster and in an edge city. There's a difference between a short commute and a long one.

All of which is just to say that it's not good enough to make houses abundant, we actually need to take advantage of the technology of the elevator to ensure that we're getting the most possible use out of the most valuable land. The vast majority of American land doesn't fit that description and is well-used for large-lot single family homes or for farming or as parks or as what have you. But the minority of land that is scarce needs to be used intensively. "Build it in the exurbs instead" is not an adequate response.