What if houses lasted months instead of decades?
Because of the durability of houses, past development ideas lead to lingering structures – regardless of demand. What does this mean for cities that climate change makes unattractive?
If homes weren't durable (and thus melted in one year like a piece of pizza), how many people would live in Detroit today? Glaeser and Gyourko argue that Detroit's population would be much smaller. Past investment decisions in real estate development sometimes turn out to be a irreversible mistake. We end up with infrastructure, housing and buildings where we currently do not need it. If Detroit had remained the car capital of the world, then the housing built there in the 1930s-1950s would be quite valuable today but given the decline of Detroit's "golden goose" industry the durable housing stock lives on. Demand for Detroit housing is low and the result is very low home prices (under $20,000) and the city thus becomes a poverty magnet and this effect feeds on itself.Skip to next paragraph
Mathew is an economics professor at UCLA and has written three books: Green Cities (Brookings Institution Press); Heroes and Cowards (Princeton University Press, jointly with Dora L. Costa); and in fall 2010, Climatopolis: How Our Cities Will Thrive in the Hotter World (Basic Books).
Subscribe Today to the Monitor
This case study matters for thinking about climate change adaptation. If, due to climate change, a city such as Phoenix faces extreme heat conditions and water shortages in the year 2040, will it become the "next Detroit"?
I sketch this quick example because I received a very reasonable email this morning from Jim Gleeson of the London School of Economics. Since I am a graduate of the LSE, I believe I owe him a serious answer. Here is his comment.
"If Moscow's quality of life declines relative to other Russian cities, do you believe that people won't move to a relatively nicer city?"
"This is the bit I'm concerned about. Looking at the US example, the greatest population growth in the last ten years has been in hot, relatively sprawling Sunbelt cities, not in temperate, relatively dense places. Professor Kahn has elsewhere established that 'liberal' cities tend to restrict new housing supply. My concern is that these are often the same cities where we expect demand to rise as a result of climate change. Isn't there a real danger that housing supply won't be sufficiently elastic in these places for the required economic and demographic adjustments to take place?"
When I was a graduate student, we were taught that asset prices (such as homes and stocks) quickly reflect new news. If due to climate change, Phoenix becomes unlivable and this becomes common knowledge in the year 2030 then home prices there will fall sharply. Land owners will suffer an income effect. Renters who live there will merely face a transition cost of moving to a new city and trying to stay in touch with their social network (Facebook will help). Phoenix employers are likely to seek out new locations and thus for many workers they would not switch jobs as they switch cities.
In Climatopolis, I assert that different cities will be affected differently by climate change and that there will always be geographic areas where we can rebuild future urban infrastructure. Consider San Francisco. Here is a flood map created by the Pacific Institute. This is exactly what we need from the climate scientists. We need precise GIS maps concerning under different scenarios how much coastal real estate is at risk. Given the possible damage caused by extreme low probability scenarios, it is important to map out worst case scenarios. I predict that insurance companies and city governments will both have an incentive to do this in the future.