Urban Land Economics

For decades now, professionals and academic experts have been predicting the death of American urban areas due to advancements in social technologies and the persistence of high levels of crime and poverty within cities. Edward Glaeser, professor of Political Economy at Harvard University, explores the future prospects of metropolitan cities in his 1998 research paper “Are Cities Dying?” published in The Journal of Economic Perspectives. The purpose of Glaeser’s research was to understand the costs and benefits of urban life and determine whether the costs of congestive forces associated with cities were beginning to outweigh the positive agglomerating effects. Only when cities’ costs outweigh their benefits, Glaeser believes, could the argument be made that urban areas are beginning to decay. After examining both the benefits and costs to individuals who live in cities, Glaeser concludes that relatively homogenous and low-density cities in the western portion of the United States are well positioned for future growth. However, Glaeser speculates that heterogeneous, impoverished, and decaying urban areas will decline due to their high costs of poverty and crime.

Boston has had its fair share of triumphs and downturns as an economy. However, it has uniquely recovered through every cycle stronger than it was before. Examining Boston’s historic timeline, Glaeser found that the city was able to recover as a direct result of their skilled work force, providing evidence that human capital is the ultimate economic driver for long-run urban health. In Professor Edward Glaeser’s article, Reinventing Boston, he analyzes how Boston has survived and reinvented itself during each economic downturn.

The paper, Consumer City, challenges the notion of traditional research that cities are formed due to production. Glaeser et al. (2001) claim that although production is an important factor for the formation of cities in cities, cities are driven by the demand for consumption.

In their article “Subcenters in the Los Angeles region” published in Regional Science and Urban Economics (1991), Genevieve Giuliano and Kenneth Small investigate the employment subcenters in the Los Angeles region using 1980 Census journey-to-work data. They attempt to answer the question of why the composition of LA is so different relative to other major US cities, such as New York and Chicago, and whether there are measurable economic rationales for this economic makeup. The paper presents an empirical analysis of employment and population patterns of subcenters in the Los Angeles region. The goal of their research was to explain the regions urban economics by addressing LA’s employment density and work commute patterns in order to show exactly how much of the city’s industry is subject to urban sprawl. Giuliano and Small have three objectives within their essay: (1) to develop a method for systematically identifying employment subcenters; (2) to apply it to data from the Los Angeles region; and (3) to analyze the functions and distribution of centers and their associated commuting flows.

Land use regulation and zoning laws are all around us. From neighborhood covenants to local Madison (Wisconsin) law forbidding buildings to be taller than the Capitol—these types of restrictions show their effect on both current homebuyers and the general public every day. Keith Ihlanfeldt’s paper, “The Effect of Land Use Regulation on Housing and Land Prices,” was published in 2007 in the Journal of Urban Economics to investigate the effects of land use restrictions on housing and vacant land prices, as well as on house and lot sizes. Literature on this topic previously existed, but Ihlanfeldt felt it had many shortcomings and uncertainties, and wanted to further analyze the topic with a new and improved model. His main goals of the paper were to find out whether increased land use regulation restrictions did in fact have a monetary effect (and if so, in what ways) on developed houses and vacant land.

Land use regulations can be seen all across the United States, but what causes more or less regulation and how can we measure it? Joseph Gyourko, Albert Saiz, and Anita Summers provided a current ranking of communities based on the regulation in the housing market in their survey from the Urban Studies Journal Foundation titled “A New Measure of the Local Regulatory Environment for Housing Markets: The Wharton Residential Land Use Regulatory Index” (2008). The goal of the authors is to explain this measure of regulation and the underlying data in order to provide a basis for future analysis of housing markets with regard to regulation.

Rent control policies are a system implemented by the government intended to establish rent price ceilings for rental properties. In the past, many studies have been conducted on the consequences of rent control on efficiency and equity. In their 2005 paper, “The Effect of Rent Control on Commute Times,” Robert Krol and Shirley Svorny instead explore the impact on household location decisions, as evidenced by long commute times. The main basis for this research is the assumption stated by economic models that predict utility maximizing households will weigh the benefits of moving against the costs. Svorny and Krol theorize that rent controls limit mobility and extend commute times, therefore ruling out otherwise beneficial moves.

Poverty and homelessness have been major issues in the United States. From this, the government has tried to intervene by creating programs to assist low-income families and combat poverty. It is debated how federal tax revenue should be used to help house low-income families. Federal housing assistance was created during the Great Depression and up until the late 1970s the main focus has been on public housing projects. The government has focused on two policies to help house low-income families: public housing and vouchers for private housing. Housing vouchers have become more and more popular since the late 1970s. In the research paper Experimental Analysis of Neighborhood Effects, Kling et al. (2007) wanted to find out if neighborhood effects exist for those in public housing and, if so, does switching neighborhoods and out of public housing assistance have a positive effect?

Between 1970 and 2000, governments have spent more than $25 billion to establish or expand rail transit infrastructure in 16 major MSAs in the United States. Massive funds have also been invested to maintain and improve existing rail lines. In their paper “Effects of Urban Rail Transit Expansions: Evidence from Sixteen Cities, 1970–2000”, published in 2005 in the Brookings-Wharton Papers on Urban Affairs, Baum-Snow and Kahn evaluate the effectiveness of this spending. With all of this money being spent, Baum-Snow and Kahn set out to answer the question: To what extent has rail transit investments triggered new ridership? Through the use of regression, the authors create a theoretical model to evaluate commuting mode choice adjustments as a result of new rail transit construction. Heterogeneous responses of the public in regards to public transit use of new rail infrastructure are then gathered after using explanatory variables such as the year the system was built, distance to the city center, and physical structure of the metropolitan area as a whole. These results are then used to quantify the welfare benefits and draw conclusions about how successful rail transit projects are across certain cities in the United States. By building off of prior studies and studying 16 U.S. cities throughout 1970–2000, this paper also sheds light on the importance of the variation in the decentralization of MSAs and how city structures impact commuting mode choice in response to new rail infrastructure.

Financial wealth and housing wealth are the two largest and most important assets held by a household in many countries, including the United States and the Netherlands. In the article published in 2001, “The Relationship between Financial and Housing Wealth: Evidence from Dutch Households,” Stefan Hochguertel and Arthur van Soest analyze financial and housing wealth in the Netherlands and attempt to determine how these two types of investment decisions are interrelated. In the past, studies similar to this one had focused only on the implications of housing decisions on financial wealth decisions and not vice versa. Hochguertel and van Soest develop an empirical model that explains how housing investment demand and financial wealth holdings impact one another. The authors’ goals were to determine if homeowners have different demand for financial wealth than renters, how house prices affect the probability of homeownership, and whether or not housing wealth is affected by the level of financial wealth held.

The research study conducted by Christopher R. Cunningham (2006) titled “House Price Uncertainty, Timing of Development, and Vacant Land Prices: Evidence for Real Options in Seattle”, seeks to explain value created by real estate options and how those affect both timing of development as well as vacant land prices. In his work, Cunningham (2006) aimed to seek out the effect of these options on the factors listed above. Through his findings, Cunningham (2006) concluded that the uncertainty of house-prices leads to a delay in development construction, as well as an increase in vacant land prices.