Inequality and the City

Paul Krugman

NOV. 30, 2015

New York, New York, a helluva town. The rents are up, but the crime rate is down. The food is better than ever, and the cultural scene is vibrant. Truly, it’s a golden age for the town I recently moved to — if you can afford the housing. But more and more people can’t.

And it’s not just New York. The days when dystopian images of urban decline were pervasive in popular culture — remember the movie “Escape from New York”? — are long past. The story for many of our iconic cities is, instead, one of gentrification, a process that’s obvious to the naked eye, and increasingly visible in the data.

Specifically, urban America reached an inflection point around 15 years ago: after decades of decline, central cities began getting richer, more educated, and, yes, whiter. Today our urban cores are providing ever more amenities, but largely to a very affluent minority.

But why is this happening? And is there any way to spread the benefits of our urban renaissance more widely?



Let’s start by admitting that one important factor has surely been the dramatic decline in crime rates. For those of us who remember the 1970s, New York in 2015 is so safe it’s surreal. And the truth is that nobody really knows why that happened.

But there have been other drivers of the change: above all, the national-level surge in inequality.

It’s a familiar fact (even if the usual suspects still deny it) that the concentration of income in the hands of a small minority has soared over the past 35 years. This concentration is even higher in big metropolitan areas like New York, because those areas are both where high-skill, high-pay industries tend to locate, and where the very affluent often want to live. In general, this high-income elite gets what it wants, and what it has wanted, since 2000, has been to live near the center of big cities.

Still, why do high-income Americans now want to live in inner cities, as opposed to in sprawling suburban estates? Here we need to pay attention to the changing lives of the affluent — in particular, their work habits.

To get a sense of how it used to be, let me quote from a classic 1955 Fortune article titled “How Top Executives Live.” According to that article, the typical executive “gets up early — about 7 a.m.. — eats a large breakfast, and rushes to his office by train or auto. It is not unusual for him, after spending from 9 a.m. until 6 p.m. in his office, to hurry home, eat dinner, and crawl into bed with a briefcase full of homework.” Well, by the standards of today’s business elite, that’s actually a very relaxed lifestyle.

And as several recent papers have argued, the modern high earner, with his or her long hours — and, more often than not, a working partner rather than a stay-at-home wife — is willing to pay a lot more than the executives of yore for a central location that cuts commuting time. Hence gentrification. And this is a process that feeds on itself: as more high earners move into urban centers, these centers begin offering amenities: — restaurants, shopping, entertainment — that make them even more attractive.

We’re not just talking about the superrich here, or even the 1 percent. At a guess, we might be talking about the top 10 percent. And for these people, it’s a happy story. But what about all the people, surely a large majority, who are being priced out of America’s urban revival? Does it have to be that way?

The answer, surely, is no, at least not to the extent we’re seeing now. Rising demand for urban living by the elite could be met largely by increasing supply. There’s still room to build, even in New York, especially upward. Yet while there is something of a building boom in the city, it’s far smaller than the soaring prices warrant, mainly because land use restrictions are in the way.

And this is part of a broader national story. As Jason Furman, the chairman of the White House Council of Economic Advisers, recently pointed out, national housing prices have risen much faster than construction costs since the 1990s, and land-use restrictions are the most likely culprit. Yes, this is an issue on which you don’t have to be a conservative to believe that we have too much regulation.

The good news is that this is an issue over which local governments have a lot of influence. New York City can’t do much if anything about soaring inequality of incomes, but it could do a lot to increase the supply of housing, and thereby ensure that the inward migration of the elite doesn’t drive out everyone else. And its current mayor understands that.

But will that understanding lead to any action? That’s a subject I’ll have to return to another day. For now, let’s just say that in this age of gentrification, housing policy has become much more important than most people realize.


[The problem in Singapore is a little different. New York is the business engine and economically active people want to move in and live there. Then when they retire, they move out - out of the inner city, the busy city, the expensive city, to quieter more affordable, lower maintenance, slower-paced neighbourhoods. There is no such option in Singapore. Though some do move to say Johor or Batam/Bintang. Or even Australia.

I look forward his thoughts on what action could be taken (re Housing Policy), but Singapore will probably have to find out own way. Not that we cannot learn from others.]



See also: Micro Apartments: Utopia or Dystopia?

And, Hong Kong Style Microflats arrive in US