Media Briefings

The Relationship Between Urban Density and Affluence
 
In a recent New York Times article columnist Farhat Manjoo states: “Cities are the standard geographical unit of the global economy. Dense urban areas are quite literally the “real America” - the cities are where two-thirds of Americans live, and they account for almost all national economic output.”

The implication is that since high-density urban areas are the places that create all the nation’s wealth, we should facilitate the creation of more such places and encourage more people to live there.  But is this conclusion correct?  Does legislation such as Senate Bill 50 (or SB 50), which sought to density urbanization in California make sense?

Consider the facts.

Manjoo’s observation that nearly all of America’s economic output is produced in cities, is primarily based on research performed by the McKinsey Global Institute.  In a study tiled,  Urban America: US cities in the Global Economy, McKinsey found that, in 2010, 85 percent of economic output was produced in what it termed “large cities.” But a closer look reveals that these are not dense cities or dense urban areas; but instead, they are metropolitan areas, all of which have more rural land than urban.  In fact, McKinsey simply defines “large cities” as the 259 metropolitan area labor markets with more than 150,000 population.  This includes not only the megacities of metropolitan New York and Los Angeles, but also such places as Madera, California, Joplin, Missouri, Elkhart, Indiana and Bangor, Maine.  And contrary to popular opinion, America does not have any  dense urban areas.  That is, none  of these 259 metropolitan areas is characterized by “dense urbanization,” as defined by either historical or international  standards.

Obviously, there are pockets of high density within some U.S. urban areas, but overall densities are, in fact, low in every U.S. urban area!  Data from the premier urban area, New York, makes the case. The four densest boroughs of New York city (Manhattan, Brooklyn, The Bronx and Queens) each have higher densities than any of the largest 100 incorporated  cities in the United States . But the other borough, Staten Island, is largely post-War suburban and is less dense than at least 75 municipalities in California Outside the “city of New York,”  suburban densities average about one-half that of the Los Angeles suburbs.  These low suburban densities more than neutralize the hyper-densities of Manhattan and the rest of the urban core - so much so that the “New York urban area,” as defined by the Census Bureau, has a lower density than Los Angeles and San Francisco.  And surprisingly, the New York urban area is even less dense than San Jose,whichis composed almost entirely of post-War suburbia, with only a negligible urban core.

Before World War II American urban areas were far denser than today.  In 1940, the central cities in metropolitan areas were called metropolitan districts.  These urban cores of over one million population were home to two-thirds of their corresponding metropolitan area’s population; that’s more than four times higher than the current ratio.  Today, urban cores contain on average 14.5 percent of the population in metropolitan areas with over 1,000,000 residents.

In addition, Manjoo mentions that “cities are where two-thirds of Americans live.”  This is a vivid example of the semantic problems associated with the term “city.”  These so-called “cities” are not the same thing as the metropolitan areas cited by McKinsey.  They are from a Census Bureau report totaling the 2010 U.S. population of incorporated municipalities, which are popularly called “cities.”  These include all the legal entities of every size which are called “cities.”  They range from the city of New York with its 8.5 million residents to the “city” of Monowi, Nebraska with a population of 1, as well as the 19,500 jurisdictions in between.  Many of these so-called “cities” are in rural areas, outside of urban areas.  Indeed, many residents of the cities defined as metropolitan areas live in unincorporated areas, not in incorporated municipalities.  For example, in 2010, nearly 6,000,000 residents of the New York metropolitan area lived outside  cities as defined in the Census Bureau report.  So, there is nothing wrong with the Census Bureau report or the McKinsey Global Institute report, but proper use of either requires understanding what it means by “cities.”3

As highlighted by McKinsey, economic production is nearly monopolized by metropolitan areas. And this continues to be the situation based on a 2017 analysis by Wendell Cox, a Senior Fellow at the Center for Opportunity Urbanism. 
 
But, it’s important to realize that only the “urban cores” are “dense urban.”  The proportion that is “urban core” varies from zero up to 25% in metropolitan areas such as Phoenix, San Jose, Charlotte, Nashville, Atlanta and more than 250 others.  Meanwhile, only nine metropolitan areas were more than 25 percent “dense urban.”  This ranges up to 52 percent in the New York metropolitan area.  And as of the last Census in 2010, Among the nation’s 353 metropolitan areas with more than 100,000 residents each, the dense urban portions of these metropolitan areas had a weighted average of only 10.5 percent of the population, while 89.5 percent was suburban or exurban.

Based on data from the U.S. Bureau of Economic Analysis, these 353 metropolitan areas accounted for 89 percent of U. S. gross domestic product (or GDP) in 2017.

Contrary to what many policymakers would have you believe, economic output is actually concentrated in the metropolitan areas with the least dense urban  population.  Specifically, 37% of the economic output is produced in the metropolitan areas that are less than 2.5 percent dense urban.  Another 14 percent is produced in metropolitan areas that are from 2.5 percent to less than 10 percent dense urban.  Together, these two least intense categories account for more than 50 percent of the nation’s economic output.

A look at the best performing metropolitan areas in terms of economic output per capita confirms that larger and denser urban cores are not the key to success.  Energy producing Midland, Texas has the highest economic output per capita, at $156,000. Tech giant San Jose trails at $138,000, followed in third place by nearby San Francisco, at $106,000. Bridgeport-Stamford in Connecticut is fourth at $104,000, while rising information technology hub Seattle ranks fifth at $91,000.  The next five cities include (in order), Boston, Des Moines, New York, Washington and Elkhart, Indiana, the “recreational vehicle capital” of the world.
 
The aggregate share of economic production from the 353 metropolitan areas increased slightly between 2010 and 2017, from 88.7 percent to 89.4 percent.  But contrary to conventional wisdom, economic production increased the most in metropolitan areas that are the least dense.  Those with under 2.5 percent of their populations in a dense urban core experienced an increase of 1.7 percent in their share of economic output.  Meanwhile, there was also a smaller 1.1 percent increase in economic output among the metropolitan areas with 25 percent and over in the urban core.

Thus, consistent with the McKinsey research cited earlier, metropolitan areas continue to nearly monopolize economic output.  Of course, this includes New York, Los Angeles and Chicago, but they also include the 350 smaller metropolitan areas, ranging from Tyler, Texas to Grand Forks, ND to Medford, OR and a host of additional metropolitan areas that don’t jump to mind reading such reports.

Given this trend, we offer the following forecasts for your consideration.

First, despite the evidence California policymakers will continue to encourage growth of high-density urban cores.  SB50, introduced by state Sen. Scott Wiener, would allow division of existing houses into duplexes, triplexes and fourplexes in single-family neighborhoods.  Further, higher density apartments could be built-in single-family neighborhoods close to transit.  Boosters believed the bill will relieve the housing shortage, and lower rents.  Yet the worst problems exist in areas of Los Angeles and the Bay Area where densification policies have already been implemented.  At the same time, the measure could have huge adverse impacts on the very neighborhoods, often closest to job centers, which traditionally nurtured middle-class and aspiring working-class families.  This could lead to significant house value losses by families for whom their home is their greatest single asset.
 
Second, densification efforts will further motivate people to exit California and similar states.  Planners continue to believe that people want denser housing. Yet, virtually everywhere, people are moving away from urban core density to lower density suburban and exurban areas or smaller metropolitan areas where single-family homes predominate.  Since 2010, a net 1.8 million people have moved away from the urban core counties of major metropolitan areas, largely to lower density counties.  This applies increasingly to millennials now starting to think about owning property, marriage and having children.  Since 2010, 80% of millennial population growth has been to the suburbs, where single-family houses predominate.  Nearly three-quarters of millennials want single-family detached houses, according to a 2019 report on home buyer preferences by the National Association of Homebuilders.  Increasing the number of expensive, small apartments across California’s big metros runs counter to these preferences.

Third, in an increasingly competitive labor market, densification will simply drive away desperately needed workers.  Advocates of forced density often suggest that building more apartments will keep workers in the state.  This is exactly the kind of argument to make at a time of record low unemployment and mounting labor shortages in many industries.  Yet given millennial preferences for single-family houses, forcing higher densities seems irrational.  Some companies, like those in social media, can subsist on a steady diet of 20-somethings crowded together in expensive apartments, but this is not sustainable for most companies or families.  Privileged boomer progressives seem to suggest that a home with a backyard was “good for me, but not for thee.”  In many California cities, they have already instituted land use regulations and densification policies that have put this enviable lifestyle out of reach.  Therefore, it should be no surprise then that households aged 35-44 are disproportionately leaving at the highest rate, based on IRS and Census Bureau data. And,
 
Fourth, rather than boost the economy, densification is likely to accelerate the outward movement of larger mature firms.  Consider this: Bechtel, Jacobs Engineering, Occidental Petroleum, Toyota, Nissan and McKesson, have pulled out of California.  The urban model for SB50 was San Francisco, an increasingly dystopic city with disproportionately few children, outrageous inequality and a disappearing middle class.  Admittedly, San Francisco is out of land, but overall California is barely 5 percent urbanized.  What California needs is not a single-minded focus on cramming more people into less space, but polices that would encourage the building of new affordable homes, notably starter houses.  It did this in the late 1940s through the late 1960s, boosting both homeownership and broad-based economic growth.  But at present, the political realities favor accelerated relocation to Nevada, Arizona, and Texas.

References
1. The New York Times.  May 22, 2019. Farhad Manjoo.   America’s Cities Are Unlivable. Blame Wealthy Liberals.

https://www.nytimes.com/2019/05/22/opinion/california-housing-nimby.html

2. United States Census Bureau. MARCH 04, 2015.  Virginia Hyer, Public Information Officer. U.S. Cities are Home to 62.7 Percent of the U.S. Population, but Comprise Just 3.5 Percent of Land Area.

https://www.census.gov/newsroom/press-releases/2015/cb15-33.html

3. McKinsey Global Institute. April 2012.  James Manyika, Jaana Remes, Richard Dobbs, Javier Orellana, & Fabian Schaer.  Urban America: US cities in the global economy.

https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Urbanization/US%20cities%20in%20the%20global%20economy/MGI_Urban_America_Full_Report.ashx

4. NEWGEOGRAPHY. 12/12/2013.  Wendell Cox. RURAL CHARACTER IN AMERICA’S METROPOLITAN AREAS.

https://www.newgeography.com/content/004088-rural-character-america-s-metropolitan-areas

5. NEWGEOGRAPHY. 3/26/2012.  Wendell Cox. NEW US URBAN AREA DATA RELEASED.

https://www.newgeography.com/content/002747-new-us-urban-area-data-released

6. Citylab.com.  May 21, 2019.  Richard Florida. Blue-Collar and Service Workers Fare Better Outside Superstar Cities. 

https://www.citylab.com/equity/2019/05/costs-of-living-map-home-price-salary-wage-premium-city-data/589894/

7. NEWGEOGRAPHY.com. 06/04/2019.  Wendell Cox. FROM MADERA AND JOPLIN TO NEW YORK: DISPERSED, NOT DENSE URBAN AREAS DOMINATE GDP.

https://www.newgeography.com/content/006318-from-madera-and-joplin-new-york-dispersed-not-dense-urban-areas-dominate-gdp

8. Orange County Register. May 11, 2019.  JOEL KOTKIN and WENDELL COX. Densification efforts like SB50 are the wrong…

https://www.ocregister.com/2019/05/11/densification-efforts-like-sb50-are-the-wrong-fix-to-californias-housing-problem/