The debate over upzoning has reached Paul Krugman, who is a strong supporter of liberalization (and an opponent of rent control), on the grounds that rich cities like New York and San Francisco are hotbeds of productivity and people should be allowed to move to them in greater numbers. Per Krugman, zoning rules in rich cities force people out, so instead they live in environments where they are less productive and thus earn lower wages, such as the Southern US. Dietrich Vollrath, an economist studying economic growth, makes a different suggestion:
Of course, there is an equivalent solution – move everyone in San Francisco to Houston or Atlanta. The reason SF is the most productive city is not because of some fixed, inherent quality of the location at 37.78 degrees North, 122.41 degrees West. It’s certainly not because of it’s fantastic summer climate. San Fran is the most productive city because it so happened that a unique collection of nerds coalesced there starting in the 1960’s. More nerds were attracted to the bright, shiny things that the original nerds were making, and now I have an iPhone. But here’s the thing about nerds – they are easy to move. You can easily strap one to a dolly and wheel them anywhere you want.
This is the economic equivalent of proposals for population dispersal used in discussions of poverty: urban renewal tends to involve such dispersal, with negative effects on community life, social support networks, and crime. (See for example what I wrote of proposals on the Israel left to disperse black refugees away from South Tel Aviv; while I fingered just one political party, the others seem to believe the same today.) Of course, the people Dietrich characterizes as nerds are not oppressed and are not going to turn to crime because of lack of opportunity, but they will not be as productive in Houston as they are in San Francisco, for similar reasons.
The key to the Bay Area’s success in the tech sector is not that it has people who came from all over the world, who could equally congregate elsewhere. On the contrary, as per a Wired infographic, tech giants tend to hire locally: the top universities feeding Silicon Valley firms are in the Bay Area (including San Jose State, and not just Stanford and Berkeley), and the top university feeding Microsoft is the University of Washington. The Bay Area, and to a lesser extent Boston and Seattle, has a culture that propels people with interests in science and engineering toward programming. New York’s culture is different, and propels them to finance. In addition to different regional cultures, there are also university cultures: Harvard may be in Cambridge, but is far less important as a tech feeder than MIT, with fewer than half as many grads per capita going to Silicon Valley.
Dispersing people away from the Bay Area means dispersing them toward regions in which the business and social networks do not favor the same activities, and do not reward them as much. Houston has a core of nerds working for NASA, who may be interested in working for private tech firms that find themselves priced out of Boston and San Francisco. But those nerds are used to what is presumably a totally different business culture. If these private tech firms are started by local Houstonians, then they will have a business culture familiar to Houstonians, and alien to any San Franciscan they hire.
People in the software sector have specific ideas about how to do things, reinforced by what works in their industry; as a result, their ideas regarding public transit, a mature industry in which immense capital requirements and routinized tasks make the modern startup model inapplicable, are often painful and wrong, as I’ve ranted here, here, and here, and as Jarrett Walker has ranted here, here, here, and here. This also goes in the other direction – a corporate culture built around mature technology is unlikely to create innovative smartphone apps. If Uber were a Washington firm, it would be better at lobbying for regulations that would retroactively legalize it and give it favorable insurance requirements, but then it wouldn’t have invented a new way of hailing cabs in the first place. This is historically related to the growth of the Bay Area as a tech hub in the first place, as explained in Regional Advantage: Boston got there first, but its traditional corporate hierarchies couldn’t innovate at the same rate as the flatter networks of the Bay Area. One of the candidate US Sunbelt cities for poaching the tech cluster in Dietrich’s proposal, Dallas, is the home of Texas Instruments, where the integrated circuit was invented, but it is today a tertiary tech cluster because of this problem of corporate culture.
But all this assumes the tech cluster would even exist in whichever low-cost city it moved to. There is no real reason for it to do so. If high prices lead to an exodus of tech firms from the Bay Area, the community will dissipate rather than relocate. The richest members of it – Google, Apple, Facebook, the major venture capital firms – have the money to stay in the Bay Area, and to pay employees extra to cover rent in San Francisco. It’s the weaker members, typically startups, who are in danger of being priced out, and they are probably going to move to many different cities, depending on personal ties.
Once away from the Bay Area, they’d have to not only contend with a new urban culture, but also deal with it as a small minority. The same factors that cause unassimilated minorities to stay in their ethnic enclaves, even when discrimination is not a factor (ultra-Orthodox Jews own much of the housing in Brooklyn even outside their enclaves), favor clustering of industries. A hundred thousand Bay Area nerds could possibly remake parts of Houston in a way that’s favorable for their economic production; ten thousand could not. They’d have to rely on local venture capital firms, which are almost certainly looking for different business models. They’d have to recruit new workers from universities with student populations with different interests, expectations, and summer internships. In analogy with forced assimilation of ethnic whites in early- and mid-20th century America, they’d assimilate, to a nationwide economy with much lower per capita income than is normal in their sector.
The second assumption is that, if Houston became the next San Francisco, it would eventually accommodate a larger pool of tech workers. This is not necessarily true: Houston has a liberal process for permitting new construction, including of apartments, but only subject to onerous parking minimums and setbacks, which it doesn’t call zoning but which appear on the zoning codes of cities that do have zoning. It makes it easy to build new sprawl, but not so much new density, and eventually, the sprawl is going to lead to long commutes, producing the same rising prices in the deed-restricted and de facto zoned center that are seen in San Francisco and other coastal US cities. Fast-growing exurbs exist at the edge of metro areas everywhere in the US; the reason there’s not much growth in the expensive metro areas is that these exurbs are so far from the center that the commutes are too long for people to bother.
This is worse outside the US. The exact same problems of high costs coming from high rents exist in most other developed countries, only they don’t have fast-growing cities as large as Dallas, Atlanta, or Houston. Stockholm is rent-controlled and, judging by the almost complete absence of high-rises, tightly zoned; there are likely many people who’d move here if market-rate rents were in line with construction costs, but instead they have to live in Norrland, Malmö, and other peripheral areas. Houston’s metro area is not much smaller than the Bay Area’s, but in Europe, the cheaper cities are far smaller than their respective countries’ more expensive cities (often the capitals). The business networks formed in those cities would have to be smaller and less specialized. This is similar to the situation in the US involving New York’s great size, except that smaller Boston, San Francisco, and Washington achieve equivalent or higher incomes, so Houston should not be penalized for not being a hypercity.
The only problem is that Europe has no Houston. Its cheap larger cities, such as Naples and Berlin, have high unemployment and low incomes. Browse per capita income net of rent (see definitions here) by regions of European countries here, and per capita income by US metro area or county here. Houston and Dallas are both richer than the US average, and Atlanta is about 10% poorer. Berlin is 20% poorer than the German average, and 40% poorer than Munich’s region, Upper Bavaria, part of a general pattern of East-West inequality, driving a flight from the former East Germany to the West. In Italy, with its north-south divide, the southern regions, including Naples’ Campania, are about half as rich as Milan’s Lombardy, leading to a similar pattern of more immigration to the north. To tell people to move there and start their own social networks is, in American terms, like to tell people to move to Mississippi. In the smaller European countries we do not see such large income gaps, but we also do not see large metro areas with affordable housing.
Now, those rich capital cities (or non-capital ones, in the case of Milan) usually have rent control, which is how they achieve such high levels of per capita income even after subtracting rents. The people from the provinces who might have moved to them if they were cheaper do not benefit from this rent control, and have to either wait years for an apartment to open up or pay exorbitant rents. This reduces interregional mobility, and is a predictable side effect of a system in which housing is allocated to people based on how long they’ve lived in the city.
The idea of making do with tight zoning restrictions in some cities by bypassing them and developing alternative networks around the Houstons of the world is attractive, but fatally flawed. San Francisco – and Munich, and Stockholm, and Paris, and the major cities of Switzerland – is productive for reasons that go beyond individual denizens, who can be moved elsewhere freely. This, ironically, goes against the grain of San Francisco’s tech culture, which uses technology to overcome regulatory failures: NextBus and similar apps try to overcome byzantine bus schedules, Uber and Lyft try to avoid taxi medallion restrictions, AirBnB tries to overcome hotel regulations. The tech sector’s thinking is often that bad regulations should be subverted rather than reformed. It works in some cases and fails in others; in the case of zoning, it’s doomed to failure, on every level, from trying to shrink dwelling sizes to fit more people in, to recreating business clusters in cities with less awful zoning rules, as Dietrich proposes. Like Dietrich, I am pessimistic about the ability of the US and most European countries to reform their zoning rules to allow more intense urban development (or about Japan’s ability to allow more immigration), but on the other hand I also don’t think there’s any workaround avoiding a massive political fight about it.