It must have caught more than just my eye because this story which ran in yesterday continues to be the most e-mailed over at the New York Times. With all the talk of an impending real estate collapse and with the housing market imploding in Sunbelt boomtowns like Las Vegas and Phoenix, housing prices are spiking up again in New York City.
"Across the board, the prices of Manhattan apartments are rising. Jonathan Miller, the president of Miller Samuel, an appraisal firm, said the number of contracts signed this January was 19.4 percent higher than in January 2006. Prices were up 14.4 percent in the same time period. Inventory, which was mounting last summer, is shrinking fast. Now, according to Mr. Miller, statistics showed that sales of studio and one-bedroom units, stagnant over the past year, were up 13.7 percent in January. “It’s not like a lot of huge sales at the high end skewed the average up.”
"If Joel is so concerned about the high price of real estate in L.A., why doesn't he take Ed Glaeser's research to heart and, say, advocate a zoning change to allow the single-family zoning on the westside or in the San Fernando Valley to become multifamily? Even at townhouse densities, that could significantly increase supply and lower prices. L.A. prices aren't high because bad attitudes will them to be high. Supply and demand operate even in California."
Amen! Same is true for New York (which added 250,000 new college graduates between 2000 and 2005) and other superstar cities as well. And, no, I'm not saying I "like" the growing real estate gap between superstar cities and other places. I'm not making a normative argument, just reporting the facts. But today, way too many many people want to confuse - and in some cases say purposefully contaminate - facts with values. This kind of thing only makes it harder to get to the bottom of what is really going on. But maybe that's their point.
The facts are abundantly clear across a whole host of indicators. Our country and the world are becoming increasingly spiky. And despite what some like to believe, the best indicators of "development" aren't where overall population or job growth is occurring - case in point, the populations of places like Mexico City or Jakarta are exploding. What's happening is a large-scale migration and growing concentration of highly skilled people in a relatively small number of regions. Economic activity and wealth are becoming more concentrated geographically - invention even more so. All of this, not surprisingly, is reflected in housing prices which remain the best available indicator of the real demand for location. New York City is not just a playground for the super-wealthy, but a center of finance, creativity and innovation. The San Francisco Bay area isn't a mere center for bohemianism and lifestyle but the world's foremost center for innovation.
The Nobel prize winning economist Robert Lucas put his finger on this some two decades ago. It's the productivity-producing external economies created by co-location of people that enable cities to grow larger, more inventive and more productive. “If we postulate only the usual list of economic forces, cities should fly apart.” This is because land, as Lucas reminds us, “is always far cheaper outside cities than inside.” With a penchant for common sense that seems to distinguish the greatest thinkers he sums it up with the question: “What can people be paying Manhattan or downtown Chicago rents for, if not to be around other people?” The underlying logic of economic development is producing an increasingly spiky world and the real estate prices that reflect it.
It's pretty clear to me that lots of otherwise smart people would like to brush this brutal logic under the proverbial rug and retreat to happy mythologies about a level playing field, one big flat world, or a population uptick in this or that Sunbelt city. But, if we want to begin to address this situation, and I think we must - not just for economic reasons but for the political and cultural turmoil it augers - we need to understand the mechanisms that shape the spiky world and the superstar cities that, for better and worse, form its leading-edge.