Recently, Lydia DePillis of the Washington Post contrasted two strategies for U.S. cities looking to grow their populations, drawing on a 2001 report from the Brooking Institution focused on the future of the District of Columbia:
The report set out two paths. The city could cater to the young adult and empty nester demographics, by zoning for large apartment buildings in the downtown core and fostering buzzy entertainment districts. Or it could attempt to retain middle-income families, by investing in schools and incentivizing larger housing units. The former strategy would be a fast way to bring in more people and rapidly expand the tax base. The latter could take a while — and potentially put the city back in fiscal peril.
The reason the latter path could “potentially put the city back in fiscal peril” relates to the concept of the “demographic dividend,” which David E. Bloom, David Canning, and Jaypee Sevilla explore at length in a 2003 Rand Corporation report:
Because people’s economic behavior and needs vary at different stages of life, changes in a country’s age structure can have significant effects on its economic performance. Nations with a high proportion of children are likely to devote a high proportion of resources to their care, which tends to depress the pace of economic growth. By contrast, if most of a nation’s population falls within the working ages, the added productivity of this group can produce a “demographic dividend” of economic growth, assuming that policies to take advantage of this are in place. In fact, the combined effect of this large working-age population and health, family, labor, financial, and human capital policies can effect virtuous cycles of wealth creation. And if a large proportion of a nation’s population consists of the elderly, the effects can be similar to those of a very young population. A large share of resources is needed by a relatively less productive segment of the population, which likewise can inhibit economic growth.
You see where I’m going with this: something similar obtains for cities within a given country, and this raises thorny issues for a country like ours in which we have a relatively high degree of fiscal decentralization and free migration. Some cities have large working-age populations as a share of their total populations, and some really fortunate cities have large college-educated working-age populations as a share of their total populations, which makes it easier to finance infrastructure and social services. (Whether these resources will be deployed effectively is a separate matter. Many if not most “superstar cities” are attractive to productive workers not because of the quality of local public services but because of fixed amenities and economic agglomerations that are extremely sticky, thus allowing local public sector workers to extract rents from taxpayers, which helps explain why a city like Los Angeles is governed so poorly.)
One of the issues DePillis raises is that the rising housing prices associated with gentrification in urban cores tend to encourage outmigration from cities to suburbs. She identifies a problem of affluence, which is that when high-income families living in a city deem the local public schools acceptable, homes quickly appreciate in value. Low-income families find it difficult to afford homes in the catchment areas of the most well-regarded urban public schools, and so they will often leave the gentrifying urban core for low-cost housing options in the suburbs. DePillis concludes on the following uninspiring note:
The city’s best chance to keep its population in balance over the long term — bringing in and keeping the wealthy while allowing the poor to stick around — is to build as densely as possible in areas the childless enjoy, which frees up roomier row houses that families prefer. Those big condo buildings can also be constructed to allow for units to be combined, if parents-to-be want a second bedroom and are willing to sacrifice the backyard.
And then, all that tax revenue generated by childless millennials will be enough to keep up with demand for the services that low-income families need to hang on.
While I agree with the strategy DePillis identifies for cities, it’s worth thinking through the dilemmas facing suburban communities, the subject of my next column. For now, I’ll raise one minor issue, which is that low-density communities suffer from a financial productivity problem. Financial productivity, which Charles Marohn defines as the total value per acre, is much higher in dense, multi-use urban environments than in sprawling, single-use environments. When you have densely-packed retail establishments and multi-family housing along a road, you can rest assured both that the road will be used and that the revenues generated by the buildings on either side of it will be more than sufficient to finance its upkeep. When you instead have single-purpose neighborhoods dominated by single-family dwellings, financial productivity tends to fall. There are, of course, affluent suburban communities where densities are low yet where local tax revenues can meet the challenge of financing (limited) local infrastructure. As a general rule, however, these are towns which present high barriers to low- and middle-income households. Combining inclusiveness and financial productivity seems to require density. More on this to come.