Saturday, August 13, 2005

What is the Key to Urban Growth? Is it Gays?

If a city wants to grow, what should it do? Should it build a new baseball stadium, or a new arts center, or build new rail transit? Should it cut taxes? Should it fight urban crime? Should it hope that Global Warming will raise its average winter temperature from 25 to 50 degrees?

1. Warm winter climate certainly predicts growth. Between 1969 and 2002, Las Vegas’s population grew by 173 percent and Phoenix’s grew by 124 percent, while the Detroit and Philadelphia metropolitan areas hardly grew at all. Using data for 922 U.S cities with more than 25,000 residents in 1980, I have found that population growth between 1980 and 2000 was highest in warm winter, low rain cities like San Diego.

2. Fighting crime would help grow a city’s home prices and its population. Berry-Cullen and Levitt published a paper in the Review of Economics and Statistics a few years ago documenting the 2nd fact. Population flight from center city to the suburbs accelerates as urban crime increases. Amy Schwartz has a paper in the Journal of Housing Research documenting the first fact based on New York City’s recent crime decline. She measures how much home prices have increased in this city in the 1990s as crime fell in certain neighborhoods such as the Bronx and Harlem.

3. With regards to the other physical infrastructure investments listed above, I’m not optimistic that any of these “treatments” on their own would help a city grow.

What else would help a city? Some Urban Theorists have suggested that cities need to attract more skilled, creative people. According to Richard Florida (see his The Rise of the Creative Class), cities need to attract creative types. “If cities want to succeed, they need to think about providing lifestyle, or consumption, advantages to their residents.”

Prof. Florida provides a distinctive policy prescription. To build up a creative class, he argues, cities need to attract bohemian types who like funky, socially free areas with cool downtowns and high population density. In a recent book review in September 2005 issue of Regional Science and Urban Economics (Elsevier), Ed Glaeser uses data from 242 major U.S cities to test whether Florida’s two “leading indicators” of creativity; the gay index or the bohemian index actually are correlated with urban population growth between 1990 and the year 2000. Controlling for a city’s overall percent of adults who are college graduates in 1990, these “funky” indicators are not statistically significantly correlated with later growth. Glaeser concludes that it is human capital and not “funky capital” that plays a key role in urban growth.

Prof. Florida seems to be arguing that gays and bohemian types cause a city to have high quality of life. An alternative hypothesis is that cities with such high quality of life self select gays to live there. A paper published in the Journal of Urban Economics a few years ago was titled “Why Do Gays Live in San Francisco?” The paper’s argument was pretty simple. Many gay households have few children and thus can economize on land consumption. Such households, especially those with income, will choose communities where price per square foot of land is high because they demand relatively little space.

This Journal of Urban Economics paper did not explore whether the presence of gays and bohemians in a city boosts that city’s quality of life. To make this argument, a social scientist would have to explicitly model production functions. If all gays open up exotic restaurants then I can see how a city that attracts this group would have a greater diversity of consumer products. Alternatively, one might argue that on average that gays have higher disposable income and that they eat out more, shop more, than other adults. In this case, the cumulative purchasing power of this group living in relatively high density would provide incentives for distinctive sellers to locate near them. This might setoff a chain reaction creating a creative funky cluster that footloose computer programmers might want to live near.

My own view is that urban environmental quality plays a key role in attracting skilled people. If I can quote from my forthcoming piece in the New Palgrave Dictionary of Economics: “Urban economic development policy makers have pursued very different growth strategies. Some cities subsidize sports stadiums while others build airports or downtown cultural centers. Such targeted investment is unlikely to yield the key urban anchor. This essay has argued that cities than can provide and enhance urban quality of life will attract the high skilled. An end result of attracting this group is a more vibrant, diversified local economy. As per-capita incomes continue to rise, the demand for living and working in high quality of life cities will increase. The empirical literature continues to examine what are the key pieces of quality of life.”