Paul Krugman: Growing inequality and New York City

Executive elite is driving rents upward in cities – and just about everyone else out

For those of us who remember the 1970s, New York in 2015 is so safe it’s surreal. Photograph: Getty Images

For those of us who remember the 1970s, New York in 2015 is so safe it’s surreal. Photograph: Getty Images

 

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 – the movie Escape from New York? – are long past. The story for many of the iconic US 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 about 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 such as 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 centre 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.

Lifestyle locations

Fortune

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 centres, these centres begin offering amenities – restaurants, shopping, entertainment – that make them even more attractive.

We’re not just talking about the super-rich here, or even the 1 per cent. At a guess, we might be talking about the top 10 per cent. 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.

Housing policy

New York Times
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