Faculty and Research

Agglomeration Economics
Editor(s): Edward Glaeser
© University of Chicago Press, 2010
Pages: 67-104

Publication type: Chapter

Research Archive Topic: Business Economics and Public Policy, Corporate Finance, Real Estate

Abstract

Urban success increasingly has taken two different forms in the post-war era. One involves very high house price growth with relatively little population growth. The other pairs strong population expansion with mild house price appreciation. We document the heterogeneity across MSAs in the long-run house price growth rate and show that house price growth and housing unit growth tend to be inversely related. Income growth, too, varies widely across MSAs and high house price growth markets experience both high income growth and a right-shift of their entire income distribution. We then discuss four possible explanations for these relationships. One is differences the growth of urban amenities; another is changes in urban productivity; a third is differential growth in agglomeration economies; the last explanation relies on growth in the population of rich households at the national level. These households differentially sort by income into supply-constrained metropolitan areas, with the rich having to outbid other potential residents for the scarce slots available in supply-constrained metropolitan areas. The evidence suggests that this latter explanation is responsible for a significant portion of the urban outcomes we see, but it also is clear that much more work is needed to pin down the relative contributions of these basic factors.

© 2010 by the National Bureau of Economic Research

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