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Posted Jul 28, 2008, 6:36 PM
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Adoptive Chicagoan
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Join Date: Sep 2007
Location: River North, Chicago, Illinois
Posts: 5,150
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State of the City, Interview of economist Edward Glaeser in the WSJ.
Quote:
With gasoline well above $4 a gallon in many parts of the country, the field of urban economics is suddenly red-hot. People who embraced the suburbs' larger homes and two-car lifestyles are being upended by soaring fuel costs, while cities grapple with renewed demand for mass-transit options.
At just 41, Edward Glaeser has helped reinvigorate the field of urban economics. A Harvard University economics professor who also directs the university's Taubman Center for State and Local Government, Mr. Glaeser has done extensive work in fields ranging from housing to poverty to land use and transportation, looking especially at factors that determine cities' growth.
THE JOURNAL REPORT
[See the full report]
• See the complete Economic Development report.
We talked to Mr. Glaeser about what he thinks of some emerging trends in urban development, both in the U.S. and abroad.
Here are excerpts from the interview:
THE WALL STREET JOURNAL: What effect will higher gasoline prices have on urban planning in the U.S.?
MR. GLAESER: I would be very surprised to see a wholesale change in the nature of American urban development. We should certainly see changes in the short run, [such as] a slight decrease in demand for housing that's particularly far away from city centers and dependent on long drives. That [type of housing] won't be abandoned entirely, but it will certainly be cheaper.
My instinct is that most of the adjustment will occur on the fuel-efficiency front. I expect you'll see a lot more Priuses and a lot less SUVs [because] by making a fuel-efficiency adjustment, families can get rid of most of that increase in [gasoline] cost. I have faith in the automotive geniuses at our country's car companies. If we have a number of years of gas prices at $4 and above, it's hard to imagine the things they will think of. The best thing that could happen is coming up with vehicles that are more fuel-efficient, and that's only going to happen if prices stay high.
[So] I certainly expect some behavioral responses, but I wouldn't join with those who see a major change in what America's about.
[Image]
Julian Puckett
Edward Glaeser
WSJ: You mentioned housing -- what do you think of the current market?
MR. GLAESER: It's hard to think of a price boom as big as the one that took place between 1999 and 2006, so it seems like we're very far from having reached the bottom of the market yet. The good thing is that America isn't one housing market, it is many. Many parts of the country did not experience huge price booms, and in those places, prices will be more constant over the next five years.
The areas that will have the biggest price declines are probably those that had the biggest increases and the fewest constraints on supply, like the desert region of the Southwest -- places where, for some reason, prices soared above construction costs.
I've never fully understood the impact housing prices have on the overall economy. It is different than oil prices, where we're clearly poorer when prices go up. Theoretically, for those who haven't bought a house and want to, they've gotten richer [because prices have fallen]. Still, I think the available evidence suggests declining home prices will likely lead to less spending. We also have the fact that it's become harder to take equity out of your house.
WSJ: What about the idea of having the government purchase foreclosed homes and convert them into affordable housing? Would that be good for the economy?
MR. GLAESER: The government's track record as a property owner is not so great. I am less enthusiastic about the government getting into this business. If we want strong policies towards taking care of the least well-off in our society, we should make sure supply is unfettered and continue working on the Section 8 [low-income housing] voucher program -- that's the right strategy.
WSJ: Do you foresee any major policy changes under our next president?
MR. GLAESER: Both [candidates] have talked about gas prices, but I don't think this has been a major part of either candidate's public message.
Issues related to cities and transportation are incredibly important and given far too little attention. These are core issues that govern the quality of life for Americans, and it's really important that we discuss and think about them. One thing I fervently hope is that urban-transportation topics bolt to the top of the national debate.
WSJ: What do you think of Beijing's make-over for the Olympics?
MR. GLAESER: It's amazing to see what they're doing -- it's a recognition by the government that big cities are a vital part of their growth. One of the great ironies is that the impact of the flattening world has not been to empower decentralized rural land, but to strengthen the cities in China and India and elsewhere that are gateways between those countries and the West. It's deeply wise for the Chinese to be pro-urban in terms of development. They're creating space for ideas and human capital to be developed.
Obviously, it's a mixed bag and there are huge pollution issues -- though those are more symptomatic of industries than of urbanization.
I think the Chinese model is much better than the Indian one, [which] has enormous restrictions on development. Dubai, meanwhile, is an amazing place, an incredible bet. It's a large-scale metropolis for the oil region of this world -- maybe that will pay off, or maybe we'll all be getting 200 miles to the gallon and they'll have a lot of empty towers.
WSJ: What other global cities are succeeding? Which ones are struggling?
MR. GLAESER: I'm very drawn by the comparison of Mumbai, which is at the nadir of development policies, and Singapore, which appears to work very well.
Singapore has a highly involved government, which is not altogether surprising and not entirely wrong, given that you've got four million people living in 270 square miles.
They've embraced things like congestion pricing and it's a city that has remarkably uncongested streets -- for 30 years they've pioneered the use of congestion pricing to moderate traffic flows.
There's a lot that's less than ideal about the Singapore government, but on land-use planning the city looks like it's doing a remarkable job, given the problems it faces with having so little land per capita.
I think the relatively laissez-faire approach of Houston may be workable when you've got ungodly amounts of land you can use, but the more you squeeze in an area, the more policies you need -- and the great hope is those policies don't limit growth.
By contrast, Mumbai also had a heavy hand but it's been a completely bizarre one, with draconian laws restricting floor-area ratios in most of the city center such that if you have a 40,000-square-foot property you can only build 60,000 square feet on top of it.
They thought by restricting the growth of buildings they could restrict the growth of people coming into the city. If you want to understand why the city is filled with shantytowns, restricting building heights has proven to be extremely costly.
There have been moves away from that recently -- 10 years ago there were almost no taller buildings in Mumbai and now there's a clear rash of them. Unfortunately, it's not from a clear, well-thought-out plan but a chaotic combination of strict rules and lax enforcement in some areas.
WSJ: Can you talk about U.S. success stories?
MR. GLAESER: I think Chicago has been remarkably successful in lots of ways. The city has managed to stay pretty affordable and Mayor [Richard] Daley has been extremely pro-growth.
Chicago, for many years, has had a relatively pro-growth environment, at least relative to California and New York -- especially [before current Mayor Michael Bloomberg]. The climate in Chicago is, of course, far less pleasant than San Francisco and wages are lower than New York.
Still, it is somewhat remarkable that condo prices in Chicago [a median $232,000 in 2007] are less than those in Trenton, N.J. [$248,000], and not that far above Philadelphia [$197,000].
Over the past two years, Chicago has permitted around 14,000 units per year. Los Angeles permitted less than 10,000 units in 2007 and 14,500 units in 2006. Yet Los Angeles has almost twice the land area and over 50% more population. It is substantially less dense than Chicago, and there is substantially more demand for Los Angeles, yet Chicago is building more.
Bringing more units to market -- think of all those cranes along the lake -- explains in some part of why Chicago is more affordable. The absence of land-use controls [means] prices for condos will tend towards construction costs. After all, you can always build taller buildings.
WSJ: What about looking to European cities, where more people walk and rely on mass transit, as a model for the U.S.?
MR. GLAESER: There's been a segment of urban developers who have been enthusiastic about the model in Europe for quite some time [because] it's much more environmentally sensitive. But there are bad aspects as well.
While there certainly seem to be some smart things done in Europe, it's a mistake to think they've got it right and we've got it wrong. There are many good things that came out of giving Americans the opportunity to live in big houses on the edge of urban areas.
If you think about the lifestyle of ordinary Americans living on the fringe of Houston or Dallas, for example, compared to what their lifestyle would be in an older European city -- living in a walk-up apartment there compared to a 2,500-square-foot house here they bought for $130,000 with a 24-minute commute -- it's extraordinary in the low-cost areas of this country what a $60,000 family income gets you.
There's a reason Atlanta, Dallas, Houston and Phoenix are our four fastest-growing areas. They offer an astonishingly high standard of living for ordinary Americans.
New York City is a great place to be really rich and not a terrible place to be really poor, but it's a pretty hard place to live on $60,000 a year. You don't experience anywhere near the basic standard of living you would in Houston on the same income.
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