"Why the Wealthy Have Been Returning to City Centers"

Source: City Lab (LINK)

Date: November 17,2015

Author: Eric Jaffe

Back in 1980, Americans didn’t pay much of a premium to live in the center of a city. Quite the contrary: many gladly paid more to live farther away. The average price for a two- or three-bedroom home right in the central business district was about $100,000 (in 1980 dollars). That figure dipped a bit as you made your way out of town, but then it popped back up as you entered the suburbs. By the time you were 10 miles away, that home price was higher than it was downtown, and as you kept moving out it pretty much kept going up until you hit truly rural areas.

We all know how that story ends. In the years and decades that followed, center cities made a comeback, and demand for downtown living soared. By 1990, in America’s top cities, those average home prices were higher in the CBD than they were 10 or 15 miles away, according to U.S. Census data. By 2010 the gap was even greater, with city center prices 40 percent higher than periphery prices. The plunge and plateau of home prices by distance from downtown is the statistical equivalent of a black diamond ski slope:

So centrality, however cramped, is worth something. That’s certainly not news to CityLab readers. But identifying just what it is about centrality that’s become so attractive to the well-off young households that might once have preferred more space in the suburbs is an ongoing question, and one that bears on the forces of gentrification and crises of affordability that challenge so many cities today. Among the ineffable thrills of urban life, is there a particular amenity to centrality we can point to and say—that thing, there?

A group of economists has submitted an intriguing answer: a “reduced tolerance for commuting.” As well-educated, high-income, dual-breadwinner households have put in longer hours at the office, they’ve likewise become starved for free time. And since a shorter trip to work is one of the simplest ways to make up for lost moments, they’re willing to pay handsomely for it, as reflected in soaring CBD home prices. Over time, new local amenities emerge—bike-share, cat cafes, cereal shops, what-have-you—“further fueling the gentrification process.”

Here are Lena Edlund and Michaela Sviatchi of Columbia University and Cecilia Machadoof the Getulio Vargas Foundation, a Brazilian think tank, summarizing their case in a new working paper:

This paper proposes that the roots of gentrification can be found in the shrinking leisure of high-income households. This time scarcity, we hypothesize, has propelled centrality to the top of the local amenities list.

To the charts

The scholars rest their case on a series of Census analyses. They focused on survey data from 27 heavily populated U.S. cities, expanding outward from the CBD to the tracts surrounding these areas up to 35 miles away. Altogether the sample consisted of 65,000 or so points of observation between 1980 and 2010.

Let the chart parade commence. First up, we find a rising share of full-time workers with a college degree in the top cities—a trend led by the growth of women in the labor force. By 2010, the share of full-time workers with at least a bachelor’s degree was 24 percent higher in the center than the periphery, and the share of those with a master’s was 50 percent higher. Preference for centrality was even more pronounced among those working especially long hours (50 or more a week), according to the researchers.

The data for men show similar trends, with shares rising a bit more toward the periphery. (Edlund et al., 2015)

The data for men show similar trends, with shares rising a bit more toward the periphery. (Edlund et al., 2015)

Next the researchers find that skilled jobs are even more concentrated in the core than unskilled jobs. In other words, the types of jobs that high-income, well-educated workers are likely to hold tend to be the ones located downtown.

The data also show that time spent commuting has been on the rise during the study period. That’s true whether you live in the CBD or the periphery, and it’s true across education levels. But it’s especially pronounced for workers with more education, who face even longer commutes as they get farther from the core and the skilled jobs that locate there.

The group’s city-level demand analysis also closely aligned with actual shifts in housing prices. Predicted concentrations of highly skilled workers were three times stronger near the core (0 to 3 miles from the CBD) than the next metro ring (3 to 10 miles), and nearly seven times stronger than in the subsequent one (10 to 20 miles). That finding held up despite several tests to control for outliers (such as New York City) or additional variables (such as crime or racial makeup).

And the caveats

So we have a preference among hard-working, well-educated populations to live near the city center. And a clustering of skilled jobs there. And a rise in commute times across the board in metro areas. Add to those trends a general decline in free time among highly educated classes between 1985 and 2005, and you get the research group’s key takeaway on why the wealthy have returned to the city center:

The driving factor, we have proposed, can be found in a growing corps of high-income-low-leisure households who by virtue of being time starved seek to locate close to work. Thus, our paper adds urban renewal to the list of time-saving machinations of modern life.

Two particular shortcomings of the work merit a mention. For one thing, the researchers studied two- or three-bedroom owner-occupied homes, even though big city units are often smaller and rented. (“Rents and housing prices co-move,” Edlund and Machado tell CityLab, via joint email.) There’s also contrasting evidence that commute times haven’t really changed that muchover the years. (The researchers agree there’s a discrepancy but point out that commuters may misreport their travel times, and that trip inconvenience varies greatly with mode.)

The theory also rests on patching together pieces of indirect data, since there’s no experimental way to test whether or not commute tolerance is the precise factor luring people toward the core. “We don't have direct evidence on this hypothesis,” email Edlund and Machado. “Our case is built on evidence that point in that direction.” And above all, there’s no one single or universal reason people choose to locate near downtown.

But then that’s not so much a problem with city life as the beauty of it.