Friday, November 09, 2012

Durable Urban Capital in Natural Disaster Zones

The Atlantic has a subtle piece about this topic.  My parents live in Manhattan. My father teaches at NYU.  My brother and his family live in an at risk part of New Jersey.  While I feel great altruism for my family,  I want firms, households and local governments to have the right incentives to build in relatively safe locations and to build resilient communities.   Incentives matter.  If people love coastal life, or if they are blissfully unaware "Homer Simpsons", then we must nudge them to higher ground through zoning codes, differential insurance pricing and the prospects of tough love no Federal bailouts via FEMA.

We are always rebuilding our cities. I don't believe path dependency arguments that just because Southern Manhattan has always been a center of activity, it should always remain so.  Las Vegas was built over 20 years.  We have shown an ability to build new cities quickly.  Keynesians should embrace this!

The opposite dynamic also exists. When we regret past buildups of housing infrastructure (see Buffalo and Detroit), the population flees and home prices fall sharply. The loser are the original land owners who paid too much (ex-post) for the asset but the footloose migrants have moved elsewhere.  Glaeser and Gyourko's 2005 paper on durable capital is highly relevant here.  Migration breaks the link between shocks to places and people.  We need to be nimble and resilient.  For those who are neither nimble nor resilient then they better hope that the entrepreneurs have a technological fix (such as backup power generation, floatable homes) to help them.  This was discussed at length in my 2010 Climatopolis.