Tuesday, May 29, 2012

Cause and Effect

The last decade has seen a proliferation of ideas about cities and their environment.  One theme that recurs is the idea that cities must become "cool places" with a specific set of amenities to attract college grads.  Ed Glaser has previously made that argument.  The state of Michigan under governor Granholm pushed the "cool cities" initiative which was supposed to market Michigan's cities to college grads.

The problem, of course is one of causality.  Do cities attract college grads with amenities?  Or do college grads moving into a city attract the amenities?  Adam Ozimek quotes a new book by Enrico Moretti that makes the case for the latter.

"While it is true that economically successful cities tend to be culturally rich and open-minded, he argues that Florida essentially gets the causation backwards"

It is interesting that a key piece of evidence is Berlin, a city once lauded by Matthew Yglesias for low rents. Matt writes:

"For that matter, both of those essays recapitulate things I've read elsewhere about why Berlin has Europe's hottest art scene. It's all about the rent. Berlin was built in the first half of the twentieth century to serve as the financial and business hub of the German Empire. Then during the Cold War, it was doubly-built as the industrial center of East Germany and as a subsidized showpiece of the superiority of capitalism in West Germany. Then comes reunification and it turns out that all the business in Germany is conducted in Frankfurt or Munich or Hamburg or the Rhine-Ruhr area and now you're left with this massively overbuilt city. The result -- extremely low rents compared to the western world's other major capital cities and a vibrant/innovative food/tech/scene that's the envy of the world."

Adam, by contrast, writes:

"Yet despite this, Berlin has had the highest unemployment rate in Germany over the past 10 years, nearly double the national average, and the second lowest growth in income per capita. Even the creative class are unemployed in this city: 30% of social scientists, and 40% of artists are jobless. Similarly, Tyler Cowen calls Berlin ”a big playground with relatively little business life or production, lots of space, and amazingly low rents”."

Comparatively, Chicago has low rents for a big US city, but also low pay.

For Chicago the problem of affordable housing stock is tied into both supply of housing stock and wages.

In 2009, renters needed to make about $33,000 annually to afford the median monthly rent of $823 in Cook County for a two-bedroom apartment while spending no more than 30 percent of their incomes on housing. The median income of renters in 2009 was $31,367. About 40 percent of Cook County households are renters.

The median household income in Chicago trail Illinois' average and the general US average.  For Chicago, with no shortage of amenities, things are looking more like Berlin.

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