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March 15, 2007

« Talk about a Talent Magnet | Main | By The Numbers: Tech Talent »

From Tim Hartford's always insightful Financial Times column on why people get "stuck" in place (hat tip:  Ben Casnocha):

Looking to the US, one might ask why people still live in Detroit, which has suffered for so long? Why not move to Chicago or New York?...

One reason is that community ties matter. Many people like to stay near where they were born.  ... But emotional ties are not the only ones that bind us. There are Byzantine restrictions on cross-border migration. ... The economist Andrew Oswald has shown that across European countries, and across US states, high levels of home ownership are correlated with high levels of unemployment. More conventional factors such as generous welfare benefits or high levels of trade unionisation don’t explain unemployment nearly as well as the tendency to own houses. Recent research in the Economic Journal by Jakob Munch and colleagues suggests that people who own their own homes do find jobs as quickly as those who are free to move, but do so partly by being less picky about which job to take, and by commuting further....

Even if we did all this, the US economists Ed Glaeser and Joe Gyourko argue that one serious barrier remains: houses do not walk.... The likely result is a gloomy sort of segregation: those who feel that they can find a good job in the big cities will move there and pay the higher rents. Those who are less confident of that would rather have no job in a cheap house than no job in an expensive house. Detroit will have residents for a long time to come.

In Who's Your City I call these people "the stuck." And distinguish them from the fortunate ones of us who comprise "the mobile."  This is the great fault line of our time, I fear.  And part of the reason I'm writing the book is to help people of all ages, especially young people starting out as well as their parents and mentors, just how important choice of location is to their life outcomes. Many more people - if things continue as they are - will have to join the ranks of the mobile if they want to prosper or even survive. I'm not saying that because I want everyone to up and leave their communities. I'm saying it because it's an economic fact.  Robert Lucas and Jane Jacobs identified the basic economic logic long ago.  Concentration and density of people brings  higher rates of innovation, greater productivity, and wealth-generation.  So, cost is only part of the equation, as Lucas pointed out. Sure houses are cheaper in Detroit, Buffalo or Pittsburgh. But if there is declining economic opportunity, an outflow of the talented and entrepreneurial, no inflow of new people,  and deteriorating quality of life is it worth it.  Location brings opportunity as well as cost.  More people need to be aware of that - each and everyone of us in fact.

Hartford has his finger right on it.  The fault lines dividing us - the new segregation as he  puts it - are increasingly location based.  Our world continues to get spikier.  I have little doubt that sooner or later this locational segregation is going to come back to haunt us. On the global as well as national scales it already is.  It shocks me that political leadership turns a deaf ear to this issue - or cynically fiddles with it  for short-term political gain. They do so at their own and our longer run peril.

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Comments

Wendy

Although home ownership ties you to a city, it also anchors you to a community.

To create livable cities we need people with a stake in improving life: pushing back against petty crime like graffiti; lobbying for improvements to parks; supporting local family-owned business (and not just the super-chains). If you own a home, you have a much higher stake in the livability of your community.

For example, from my own experience in my community (which is probably 50% owners 50% renters) no renters participated in the 4 year educational and lobbying effort it took to obtain from the city a $600,000 upgrade to our decaying, "tired" local park.

Obviously, as you point out, the key for young people will be to commit to a community in an innovative, dynamic city with many long term opportunities of interest. But renting isn't necessarily the answer if we want livable cities because great cities are a series of local neighbourhoods that work.

DJM

One thought, as a side note, look at the current "crisis" in the sub-prime market. People clearly saw real estate as an asset, betting on continued appreciation. (i don;t know how much of the subprime market were moves across states/msa?, but judging from the number of condos built in a lot of cities, much of the market was urban core -- traditionally lots of churn?)

really fascinating post and way to think about real estate, the movement of people and capital...

btw, a wsj story this week (3/14) reported that the smartest guys (Godman sachs) are looking to push deeper into the subprime market.
http://online.wsj.com/article/SB117378640614235383-search.html?KEYWORDS=goldman+subprime&COLLECTION=wsjie/6month

Richard

Wendy - Agreed. Actually, I was startled by the correlation, negative that is, between home ownership and economic growth. There are lots of benefits of homeownership other than regional growth as you aptly note. What also struck me is the notion that houses remain even after the economic opportunity is gone. Thus some groups of people get stuck and lose out on the economic opportunities of mobility. All of this poses real challenges for community and society. Once last thing: I think the correlation is being driven by the fact that high growth places have high housing prices. As more and more people get priced out, more become renters by necessity, as in for example New York or London or Silicon Valley.

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