Mar 1st 2011, 16:20 by R.A. | WASHINGTON
WHEN analysing markets, it's important to remember that there is both a supply side and a demand side. Economists know this. But sometimes they forget. Wendell Cox (who is not an economist) could be forgiven for forgetting about the supply side, but Richard Green should know better. The issue is this: Mr Cox looks at the Census 2010 data and reports population growth rates for a handful of central cities relative to their suburbs. Since 2000, he says, suburbs have generally grown faster, and this indicates that the "Back to the City" movement isn't real. Mr Green takes him at his word and writes:
I have long rooted for cities (although I confess that I myself live in an "urban" suburb). But facts are facts, and the facts from the 2010 census at this point do not support the idea of a reversal from suburbanization to urbanization.
Well, ok, if someone was arguing that suburbs would empty out while cities grew, then yes, they were mistaken. But I don't think that's the claim that urbanists are generally making. Rather, the suggestion is that demand for central city life has grown relative to demand for suburban life. And the data are consistent with this argument.
Let me make three brief points. First, the turnaround in central city population dynamics over the past decade is quite dramatic. In 2000, the city of Washington was shedding population, continuing a trend that began decades before. But in the ten years to 2010, the city ended up with a net increase in population of over 30,000 people. (And this is in an area of just 66 square miles.) Washington is not alone. New York City's population is at its highest ever level. Philadelphia's population recently shifted from shrinking to growing. To the extent that population trends tell us something, they indicate a sharp reversal in the migration trend that prevailed for most of the second half of the 20th century.
But of course, population growth is an unreliable indicator of demand, because of the all important supply side of the market. Imagine two areas: Gotham and Pleasantville. Say the demand to live in Pleasantville increases a little while the demand to live in Gotham soars. And say that due to differences in land use restrictions, housing supply responds dramatically in Pleasantville and very little in Gotham. Then what we'll observe in Pleasantville is a rapid increase in population and slower growth in prices, and what we'll observe in Gotham is rapid growth in prices and slower growth in population. And this is exactly what we have observed in the real world. Suburbs have seen massive housing growth and rapid population growth, but prices in central cities have soared, even in many places where population numbers are level or falling. If no one wanted to live in central cities, prices for homes there would not rise. And indeed, several decades ago, prices for homes in big central cities were dropping. But that trend has clearly reversed. You can't draw conclusions about demand shifts from population numbers alone. This is a very simple point, and yet its repeatedly ignored.
Finally, it's worth noting that suburban areas are increasingly adding new housing capacity by copying urban development forms. Here in the Washington area, the two largest suburban jurisdictions are Virginia's Fairfax County and Maryland's Montgomery County. Both are in the process of redeveloping major jobs centres from an automobile orientation to tall, dense, walkable, city-like development patterns based around transit.
Suburbanisation in America was the norm for over a generation, so it's a little early to conclude that these trend breaks represent a new development paradigm. But the data from the past decade are consistent with an increase in demand for city life relative to suburban life.
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Dense urban environments are also more energetically efficient - so we should be expanding the dense urban core. Your model does not show this but might be adapted to do so.
Of course, the rise in urban areas could be due to the rise in children born out of wedlock. Suburban "single mothers" need to live somewhere.
And don't forget about the homeless. They are more likely to congregate in areas that offer services - mainly the city, not the 'burbs.
Regards
@hedgefundguy
You really think single mothers and the homeless are driving urban real estate values up? Somewhere I detect a flaw in your logic....
To follow up on the last observation in the post, the 'burbs are not the same 'burbs that I lived in as a kid anymore. The growing development of "towncenters", which are essentially satellite-cities, is a phenomenon I see everywhere. You don't have to go downtown to a city center anymore in order to "go downtown". The new model of the "towncenter" combines residential, office, and retail in one planned area community that is all within walking distance, essentially creating a suburban "downtown", complete with libraries, schools, theater, nightlife, and everything else you might want.
The traditional downtown is relocating out to the 'burbs.
Isn't pointing out the failure of urban areas to increase as much, indicate supply? How can there be a reversal towards urbanization if supply isn't allowed to increase in those areas? Is the only reason prices increased is due to limitations on supply? Where are businesses and jobs going? Are these areas becoming easier or more difficult to get around in? I see less an urban/suburban divide than scattered dense and less dense areas though mass transit tends to be heavily centralized supporting much higher densities.