NEWSWEEK: So what makes a city a “superstar city”? Todd Sinai: It is a place that is special and unique enough that people keep wanting to live there, even as prices rise.
How many of these cities are there today in the United States? Somewhere in the low twenties.
The first superstar city was San Francisco? The key thing is that they are areas that can’t be developed further to a large extent, but demand for them keeps growing. That describes places to varying degrees, and San Francisco has always been a clear example in that very early on. It filled up, and it became hard to develop new housing there. Los Angeles was a very early example of this as well.
What are more recent examples? Boston, New York, San Diego.
What would be a surprising example of a superstar city that doesn’t have as much glamour, cachet or great weather? Glamour, cachet and great weather explain why people want to live in that city in the first place. But it doesn’t explain why people are willing to pay ever bigger premiums to live in those places. The weather in San Francisco or L.A. is presumably no better than it ever was.
Yes, but the weather in L.A. is a lot better than Minneapolis. Exactly. Some people who care about weather always prefer to live in L.A. relative to Minneapolis. Then there’s a whole set of people who would have liked to live in L.A. but weren’t willing to pay the premium to live there, so they choose the price of living in Minneapolis over the price of living in L.A. But over time that price differential between L.A. and Minneapolis has gotten bigger, and that’s what superstar cities is all about, how it is possible that that price gap can continue to get bigger.
And that’s all a function of demand? That’s all a function of the fact that demand is growing, not because these superstar cities are getting nicer, but because we are growing essentially more people in the U.S. who like that kind of thing.
And also because there are more people who have a lot of money in their pockets? There are both more people and there are more people with more money.
Take off your professional economist’s hat and tell me if this a good thing or a bad thing. My response to that is usually “it just is,” it’s a force of nature. Whether you think it’s a good thing or a bad thing, there’s really nothing you can do about it. Suppose you think it’s a bad thing, and what you really want is great socioeconomic diversity in the city you live in. Well, the people who provide that socioeconomic diversity over time are less and less able to afford to live in the city where you want them to be. As there’s a larger, wealthier clientele of people who can live in them, they outbid all those other people and they crowd them out.
So Manhattan may one day become an island of investment bankers and stock brokers? Exactly.
And if our children follow in our footsteps and become underpaid academics and journalists, they won’t have a shot at ever living in San Francisco. Exactly. Early on in this project, I was having a conversation with someone who was complaining that his daughter had elected to be a schoolteacher and couldn’t afford to live in the Boston suburbs near where he lived. As a society, we have to think really hard about whether living in a particular location is a birthright or whether if you choose a profession that is less compensated in income, you are forgoing the choice of living in places where you’d like to live.
Now ironically, nearly all of these really expensive cities we’ve been talking about are considered to be bastions of the liberal establishment. That is, in large part, because it seems that liberals tend to prefer cities.
And not because liberals necessarily make a lot of money. I have really no idea on which way that goes.
To halt or reverse this process, the city fathers in San Francisco and New York City would have to OK massive construction of new housing. Housing construction is one way to open the floodgates to people who can afford less expensive housing. Another way is to subsidize those people to be able to live in certain locations, and low-income housing tends to do that.
Would that be a good idea? That gets back to whether you think diverse cities are good or homogenous cities are good. I tend to like living in diverse cities, I think they’re more interesting. [On the other hand,] one thing you see in relatively more homogenous cities is that the stuff people like about those cities is more plentiful.
Where does your hometown of Philadelphia rank? It falls into the next tier of cities. We have cities in the U.S. that tend to be preferred by clienteles, and at some point the supply of them is bought up, they’re filled up, they’re built out and at that point prices start to be bid up. At some point, people looking to live in their ideal city say, “I can’t afford that,” or “I’m not willing to pay the premium to live there,” but my second choice would be, say, a Philadelphia.
What would be a surprising entry among those 20-odd superstar cities? You’re starting to see cities like Portland, Ore., on those lists, and they’re on for very interesting reasons. A city that has found a way to keep itself small can have high house-price growth, even though it’s not at the top of a lot of people’s lists, it just needs to be at the top of enough people’s lists. Portland has very strong zoning and growth controls, so development is very hard there. For a very long time, it has had high house-price growth not because of any inherent geographic constraints or inability to build, but because legislatively they have chosen to limit their supply.
If housing is going to become ever more expensive in these superstar cities, who’s going to come in and clean these rich people’s houses and walk their dogs and serve them $4 lattes at the local Starbucks? Datawise, we don’t really know. Here’s what I surmise: the people who work for them may very well be willing to drive an hour and a half to do that. The service sector also gets paid more in cities where this happens, so they do get to ride the coattails a bit and get compensated for the fact they’re living in a more expensive place.
Is this superstar city phenomenon being reproduced outside the United States? We think it is. I don’t have data on this, but you tend to see the same pattern in the hot cities in other countries where there is a limited ability to construct. London is my favorite international example. It’s a worldwide demand, and the people who can live in London aren’t necessarily native Londoners. They are the world’s rich and elite who can afford to live there.
You grew up in a suburb of Boston. Do you ever imagine moving back there on your salary? My wife and I have fallen in love with Philadelphia. We think it’s a terrific city, we could not do better anywhere, given the prices here and what you get for it. It’s really a gem.
