Thursday, December 8, 2016

Opportunity Cost and migration back to city centers.

Here is a terrific analysis as to the reasons there is a nominal/notional increase in the movement people towards a central city.

While the info is extremely useful regarding this trend, I see it also as a lesson in Opportunity Cost(s).

Read it for the content but also for an economics lesson.

What's Driving Downtown Revitalizations?

Downtown areas across the country have been undergoing revitalizations in the last decade. While this has led to some concerns of bubbles, in reality it reflects a slower moving structural trend that extends back to the 1980s. New York City, for example, has come a long way. A 1981 film, Escape From New York, depicted the city's fictional near-term future, when a 400% increase in crime would lead the government to turn it into a giant prison. New research from the Census Bureau sheds some light on why the revitalizations that make Escape From New York seem less plausible today are occurring. 
First, it’s important to not exaggerate the extent of the downtown revival. As Jed Kolko has documented, as far as population and job growth go, the move toward more dense places is mostly about a relatively small number of higher-income, working-age, educated households. 
This is probably partly because of the inability of these places to get much denser, either because of regulatory or physical constraints. So instead of massively growing populations in downtown cores, we’re seeing slight population growth and significant price gains. 
The census research—from Lena Edlund, Cecilia Machado and Maria Sviatschi—swats down a few theories of urban revitalization. They point out that lower crime rates are an unlikely driver, as the start of the revitalization predates the drop in crime. In addition, downtown revitalizations have been occurring in European cities that never had much of a crime wave to begin with. Traffic congestion outside the core is also an unlikely explanation, as even cities with declining populations, such as Detroit, have experienced downtown revitalizations. 
They also point out that while amenities may play a role, many large urban downtowns have had a high level of cultural and other amenities for decades. Amenities are likely to amplify downtown revival, however, as increased purchasing power downtown increases amenities, which in turn draws in more high-income households that value the amenities. Amenities nevertheless are unlikely to be “ground zero," or a first mover, in the downtown revitalization trend. 
Instead, the authors argue that greater labor force participation and longer hours of work among high-skilled households are the main driver. In theory, they suggest, when work hours are short, the more affordable suburbs are desirable. But when work hours are long, leisure time becomes scarcer and more valuable, and the shorter commute makes the city more desirable. As a result, as hours worked have gone up for skilled households over time, they have come to prefer the city more. 
And indeed, hours worked have gone up for the rich. Educated women have entered the workforce in growing numbers, and skilled people are increasingly working long hours and consuming less leisure time. This scarcity of leisure time makes a shorter commute more important.The census analysis shows that house prices near the central business district of a city were lower than in the suburbs in 1980, but this has reversed over time. Since 1990, being close to downtown has had a stronger and stronger positive impact on prices. Their results also show that the value of being close to downtown has grown more in cities that experienced stronger growth in the demand for skilled labor. 
Overall, theories about the causes of downtown revitalizations are difficult to test and this study is unlikely to be the last word. This research at least suggests that the role of increasing work hours among the most-skilled deserves more consideration.

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