The economics of urban decline

The core intuition is that increases in housing demand boost supply, but supply is durable so declines in demand show up mainly in price.  Given this point, Ed Glaeser and Joseph Gyourko tell us the following:

1. Cities grow more rapidly than they decline.

2. Urban decline is highly persistent (you can be stuck deep in the range where new building is unprofitable).

3. Positive shocks increase population more than housing (there is an option value to not building right away).

4. Negative shocks decrease housing prices more than population (housing supply cannot contract readily).

5. The combination of cheap housing and low labor demand attracts individuals of low human capital to those locations.  Bill Gates does not live in Buffalo.

Here is the paper, a later version of which just appeared in the Journal of Political Economy.  Glaeser also has a recent paper explaining how much and why immigrant segregation has been increasing.


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