Chart of the Day: Expensive vs Expansive US Cities

Here’s a neat chart from a Canadian urbanism blog called Spacing Toronto, about the relationship between density and affordability for housing in different US cities.

Here’s the chart:

us cities expensive v expansive

In the detailed blog post, Dylan Reid explains how there’s a “paradox” in the results, where the cities with the highest density are also the cities that are the most expensive. (You might think the opposite would be true, given basic supply and demand dynamics.) Stealing from transportation planning, it becomes what Reid terms an “induced demand” situation.

Here’s his punch line:

I wonder if there is a kind of “induced demand” effect for housing that helps explain this pattern. Induced demand (sometimes called “latent demand”) is a phrase normally used to explain why, when new highway capacity is built in urban areas, it soon becomes full and the level of congestion does not get reduced. It’s possible something comparable is happening in cities — the greater the supply of housing within a city, the larger the number of people who want to live there.

The underlying mechanisms would be different for housing than for highways. Induced demand on highways is generally explained in part by the fact they are usually a free good, so there’s no monetary price mechanism to balance supply and demand (instead, demand is regulated by time costs resulting from congestion). That’s obviously not the case for housing, where a price mechanism exists but doesn’t seem to be having the expected effect.

You can read the rest here.

PS. It’s worth noting that Minneapolis is the closest city to “average” on this chart! Does that make us special?


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7 Responses to Chart of the Day: Expensive vs Expansive US Cities

  1. Travis June 1, 2016 at 8:41 pm #

    I don’t know that induced demand is the mechanism at play here. I would argue that on a national scale there is a pent up demand for urban living that isn’t being supplied. Places like the sprawling Sunbelt are keeping up the supply of low density housing because it is still easy to build. But housing policies make dense urban living more difficult to build, so the few places with dense urban neighborhoods are swelling. For example if San Jose got a lot more dense in the next 20 years, even if San Francisco didn’t build a single new housing unit, the price of rent in San Francisco would drop.

    • Nathanael June 10, 2016 at 2:15 pm #

      Zoning restrictions. The most expensive cities are the ones where it’s hardest to get permission to build taller buildings.

      • Nathanael June 10, 2016 at 2:18 pm #

        San Francisco in particular is infamous for its incredibly restrictive zoning code, but nearly all the expensive cities have vast swathes of single-family housing which would have been converted to apartment buildings by now if not for ZONING.

  2. Janne Flisrand
    Janne June 1, 2016 at 9:47 pm #

    I thought the post had an interesting thesis, but I was hungry for a challenge to the consistent and repeated data that shows supply not meeting demand is driving prices. (And, in the most dense places, that is because of the challenge of adding housing due to the density.)

    That doesn’t mean I disagree, it just seemed like a lot of beer musings, rather than a thesis with data. A very interesting beer musing that deserves some research.

  3. Zach L. June 1, 2016 at 11:07 pm #

    Looking at that chart, the circle size around each city’s dot shows the percentage change in population growth over that 30 year time period. The author of the blog post says that induced demand might be at play here; demand following supply. I would suggest it is the opposite; more people move to those cities, vacancy rate falls, signals to developers that more units in that area would be profitable. But that in itself only shows why there would be a separation on that chart between cities that added population (which all appear under the expensive/ expansive cities) and those that didn’t add much or even shrank (the “legacy” cities).

    I happen to think that the difference is still due to supply and demand. The expansive cities all have conditions that would allow for the city to grow geographically, eg. they are in wide open areas or may have invested heavily in highways that would make it feasible for people to live farther from the city center. The expensive cities all either are in areas that make it harder to grow geographically (Miami, being between an ocean and a swamp, Seattle, being on a peninsula), pursued policies that limited the supply of new housing, or both (San Francisco). [The cities that didn’t grow much but became significantly more expensive also saw incomes increase substantially, like DC, Boston, and New York.]

    As for why the cities that added population but were constrained became more expensive? Maybe more people started having roommates, and so they effectively had more income and could purchase more expensive units, effectively shifting the demand curve up. Possibly, it just costs more to build new or denser units (you don’t have to buy and then destroy an older building, and newer buildings might have costlier zoning/ building codes).

  4. Joe Schmoe June 2, 2016 at 1:06 pm #

    It’s because transportation costs of expansive cities are externalized and not factored into the cost directly. So even though it costs far more to maintain the required infrastructure and personal autos in expansive cities they seem cheaper on the surface.

    Also the transportation/infrastructure costs are more heavily subsidized since it’s easier to get the government to pay for roads and highways needed for sprawl than for transit needed for density. So the amount of transit-accessible land is always much smaller despite being a better value for your infrastructure buck and thus the end result is the housing built atop it is more expensive too.

  5. NiMo June 3, 2016 at 9:38 am #

    PS. It’s worth noting that Minneapolis is the closest city to “average” on this chart! Does that make us special?

    I moved here because I thought everyone was above average 🙁