Abstract
Since the reformulation of urban economics in the 1990s—led by people like Paul Krugman, Masahisa Fujita, and Anthony Venables—a number of enlightening books have appeared that outline the main reasons for current urban growth, identify the problems arising from unrelenting urbanism, and present the range of policies available for alternative urban futures. In The Wealth and Poverty of Regions (2010), Mario Polèse demonstrates how agglomeration processes will continue to drive city growth even when the costs of transportation and communication are falling. Then in Triumph of the City (2011), Edward Glaeser extolls the virtues of smart densification and argues that our material success in the years ahead will depend very much on how we continue to nurture our urban environments. More recently still, in The Rise and Fall of Urban Economies (2015), Storper, Kemeny, Makarem, and Osman show how specialization, human capital, and institutions variously interact to make some cities much more productive than others in the New Economy. In fact, many people now speculate that the more developed nations are experiencing a long-term sorting process where some cities will continue to grow while others will continue to decline. Urban Economics and Urban Policy is as revealing as these other three books in that it shows how successful some cities have become in spite of their evident shortcomings in the areas of policy and governance. Like the other volumes, this new book is most remarkable because it so often challenges the conventional wisdom—in fact, Cheshire, Nathan, and Overman make the general claim that many urban policies, enacted in an earlier time, have had either unintended or counterproductive consequences that are not widely recognized. It goes without saying that these dated policies have often been very costly both to the cities and to their wider regions. However, this book is different from the others in that most of the empirical material is drawn from Great Britain, although the various claims would seem to apply elsewhere. In any case, all four books are highly recommended for those readers, especially nontechnical ones, who are interested in the interrelated urban topics of land use, housing, labor markets, infrastructure development, and governance.
Chapter 2, which summarizes the reasons for city growth, begins by examining the resurgence of population growth experienced in many British cities during 2001 to 2011 after a widespread contraction had taken place during the prior decade. Other evidence is given for the decade-to-decade persistence of wage disparities across that nation’s very largest cities. But those same cities fortunate enough to have the highest wages also experienced the most rapid employment growth during that period, suggesting that a separation has taken place between the nation’s richer and poorer places—even when they are geographic neighbors, like growing Newcastle and declining Sunderland. Three processes are seen to be especially important in creating this spatial dualism. First, agglomeration economies (which all have high distance decay) are now recognized to be heterogeneous across industries. In fact, spatial externalities appear to confer greater benefits on service activities than on most forms of manufacturing; as a result, those places specializing in private and public services have become much more productive in recent years. Second, the better institutions and thicker labor markets of large cities grant workers more opportunities to upgrade their skills, and the wider population bases of those cities enhance the chances that individuals will find suitable partners locally (thereby forming stable two-earner households). Finally, large cities offer much wider variety in both private and public goods, and some large cities—like Miami in the United States and Vancouver in Canada—have become globally recognized as centers of (often conspicuous) consumption. Thus, when the more developed nations entered into postindustrialism in the 1970s, the cities that first benefitted were the ones specializing in traded services or high-tech manufacturing, and this head start was reinforced by the other advantages that large cities enjoy in production externalities, worker reskilling, and goods consumption. At the same time, urban housing markets adjusted locally to these changes—and to the uneven geography of natural amenities—so that, even though real wage disparities were clearly less-than-nominal wage disparities, a long-term process took place that sorted cities into “winners” and “losers.” This sorting was, in turn, replicated across the neighborhoods of the very largest “winning” cities, like London and New York, because the wages of so many workers (especially those with low skills or in the public sphere) were not sufficiently responsive to local pressures. At different times regional and national governments have addressed these inter- and intracity welfare gaps by using some mix of place-based and person-based policies, but most of these interventions have proven to be unsatisfactory or even ineffectual. The remainder of the book looks at these broad issues in more detail.
Chapter 3 focuses on residential segregation and the notion of variety in urban neighborhoods. This remains a topic of great interest to urban policy makers where current thinking suggests that income likely trumps race or ethnicity in the formation of segregated neighborhoods (“Racial Segregation,” 2016). Cheshire et al. provide a nice discussion of how heterogeneity in preferences and inequalities in income necessarily leads to sorting and, eventually, to residential segregation. This process is, of course, self-reinforcing because richer (poorer) inhabitants can (cannot) upgrade their local amenities and make their neighborhoods more attractive. It is here that the discussion gets interesting because the authors next claim that the formation of “specialized neighborhoods” actually benefits all urbanites because the welfare of any household is largely determined by only two things—the degree of compatibility it enjoys with neighboring households and the bundle of local goods and amenities that closely match its own budget and preferences. However, the commonly held view is that this segregation is bad not only in terms of equity, but that “mixed neighborhoods” even serve to enhance the overall welfare of society. It is only in the past 15 years or so, however, that rigorous research has begun to address this important question of neighborhood effects. Longitudinal studies in several countries suggest that the character of prior neighborhoods has little or no effect on one’s prosperity 20 or 30 years later; controlled cross-sectional studies lead to similar but more nuanced results. The reader leaves this chapter having been largely convinced that in determining one’s chances or opportunities in life, who you are is much more important than where you live. Thus, from a policy perspective, scarce public monies would be much better spent on upgrading the education or skills of low-income workers than on trying to make communities more homogenous.
Chapter 4 examines the very high prices paid for city land and the extreme volatility that persists in the prices for urban housing, particularly in the British context. The authors compare the land-use regulation practices of that nation to those of the Netherlands, Germany, and the United States, while clarifying that the British approach of “urban containment” has changed very little since the Town and Country Act was enacted in 1947. Like the inhabitants of those other nations, Britons have demanded more private space—both inside and outside their homes—as they have become more affluent, but public policy has precluded any substantial granting of this extra space. As a consequence, land and housing prices have both risen to astronomical levels, especially in and around London. The establishment of new towns has certainly created some new housing in other regions of the nation but in truth has done very little to ameliorate the housing affordability situation in and around the primate city. Why? Because the market fundamentals have simply not been recognized or addressed by federal policy makers.
The following two chapters examine the widespread costs imposed by urban containment in Britain and outline alternative land-use policies that would be more successful than current ones. Here the authors first cite a litany of studies revealing that the existing system (a) reduces the quality of British housing (especially for middle and low-income families), (b) inflates urban office rents and lowers retailing activity, and (c) distorts the true social costs of brownfield versus greenfield development. In the third case, which is especially interesting, policy makers often fail to acknowledge two basic facts: first, that the supply of brownfield land usually does not geographically match the demand for productive, developable land, and second, that the value placed on greenfield land often exhibits a high level of distance decay where only those living right next to those lands value them highly. The authors go on to suggest that price signals should be used to more efficiently allocate urban land and that centralized control over land supply should be relinquished so that more rule-based development at the local level can be adopted. They recognize, of course, that their recommendations will be greeted with skepticism by many planners and with bitter resistance by many government officials. Non-British readers might well be surprised by the degree of concern that is expressed by the authors, who envision a dystopian collapse of the nation’s land-use system unless serious reforms are soon made.
In chapters 8 and 9, the authors look at urban policies in a more general way. Devolution is given a lot of attention and the well-known Tiebout-Oates literature is invoked as a basis for arguing that fiscal decision making in Britain should be made more congruent with the boundaries of major metropolitan areas (Functional Urban Regions). The thinking here is that experimentation in fiscal policy would become more flexible and implementation of policy would become more efficient if done at the metropolitan scale. Although the (largely European) findings are mixed on this issue, the balance of studies does suggest that devolution enhances both regional equity and an overall sense of well-being among people. However, the current situation in Britain encourages cities outside of London to form partnerships to leverage out federal resources for development, and this has led to a very messy situation. (By early 2016, the ruling Conservative party had linked its own devolution plans, largely funded by the return of local business rates, to choosing “executive” mayors who would not be accountable to the metropolitan area’s various elected assemblies. Moreover, some metropolitan areas, like Manchester, could choose to exercise decision-making power over a greater range of public goods and services than could other areas.) Then, at the very end of the book, the discussion returns to a more detailed comparison of place-based and people-based policies. The authors restate their skepticism regarding most area-based initiatives, whether they target firms (subsidies), households (mixed neighborhoods), or the built environment (social housing). The last of these is, of course, a highly charged political issue where, truthfully, very few attempts have been made anywhere to evaluate the effectiveness of different social housing measures. The authors conclude by restating their main position: Large cities should be given more freedom to attract new and dynamic firms, to improve the knowledge and skills of local workers, and to upgrade schools and transportation infrastructure by using a variety of means that conform to local or regional circumstances.
A key theme of this informative book is that policy makers and government officials must come to realize that our large metropolitan areas now interact in city systems where the socioeconomic changes experienced in some places will eventually be felt in other places. Spatial adjustments are made to either national or global shocks in both the housing and labor markets of large cities, and urban policies should begin to recognize that many place-based policies fail to recognize these market forces and therefore are only short-term palliatives. Instead, our policies should recognize that scarce land must be used much more effectively and workers must be continuously reskilled to enhance their knowledge and mobility in an era of rapid urban change.
Although the contents of the book are largely drawn from a series of London School of Economics policy papers drafted by the authors, along with colleagues like Stephen Gibbons and Steven Sheppard, the material is arranged in an orderly and coherent way. The authors are upfront that most of the material deals with the British (actually, English) experience, but sincere efforts are made to relate matters to parallel issues and cases on the continent and in the United States. While some of the discussion could have been enhanced by noting the work of North Americans like Roger Bolton (neighborhood sense of place), William Fischel (home voter hypothesis), Andrew Haughwout (metropolitan fiscal redistribution), and Elena Irwin (land uses at the fringe), none of this other research would have deflected the main contention of the book that now is the moment in time for British urban policies to be scrutinized, tested, reconsidered, and improved upon.