As we explored in my last post from the beginning of our republic there has been predictions of the coming demise of high-density big cities. All of them have been wrong. The same is almost certain to be the case of today’s post-pandemic predictions of doom for big cities.

There are two main reasons why those predictions are always wrong. First concentrated talent working face to face significantly boosts productivity. And second, people––particularly young professionals––want to live in high-density, high-amenity urban neighborhoods where you do not have to own a car. It is almost certain the current pandemic will not alter those realities long term.

My last post focused on productivity advantages of high-density big cities. In this post we will look at talent wanting to live in high-density, high-amenity urban neighborhoods.

Evidence of the enduring attraction of big cities and their high-density, high-amenity neighborhoods is present today in the midst of our current pandemic. In a post for City Observatory entitled The exodus that never happened, Joe Cortright writes:

Our recent report, Youth Movement, confirmed the depth and breadth of the long-term trend of well-educated adults moving in large numbers to close-in urban neighborhoods. And the real-time data from real estate market search activity confirmed that cities were still highly attractive, gaining market share in total search activity from suburbs and more rural areas, according to data gathered in April by Zillow and Apartment List.com

Now, with even more data in hand, the picture remains very much the same.  Apartment List.com economists Rob Warnock and Chris Salviati have done a thorough analysis comparing the pattern of apartment search activity in the nation’s 50 largest metro areas between the first and second quarters of 2020; basically the period just before the pandemic struck with full force, and then the three months during which much of America was reeling from the virus and stuck in lock-down, with lots of time to consider possible new living locations.

Bottom line:  As revealed by apartment search activity, interest in cities actually increased in the second quarter compared to the first, relative to other locations, including suburbs, other less dense cities, and rural areas.

What is it about high-density, high-amenity neighborhoods that make them so attractive to young professionals? Then New York City Mayor Michael Bloomberg described it this way in a Financial Times column:

Many newly successful cities on the global stage – such as Shenzhen and Dubai – have sought to make themselves attractive to businesses based on price and infrastructure subsidies. Those competitive advantages can work in the short term, but they tend to be transitory. For cities to have sustained success, they must compete for the grand prize: intellectual capital and talent.

I have long believed that talent attracts capital far more effectively and consistently than capital attracts talent. The most creative individuals want to live in places that protect personal freedoms, prize diversity and offer an abundance of cultural opportunities. A city that wants to attract creators must offer a fertile breeding ground for new ideas and innovations.

In this respect, part of what sets cities such as New York and London apart cannot be captured by rankings. Recent college graduates are flocking to Brooklyn not merely because of employment opportunities, but because it is where some of the most exciting things in the world are happening – in music, art, design, food, shops, technology and green industry. Economists may not say it this way but the truth of the matter is: being cool counts. When people can find inspiration in a community that also offers great parks, safe streets and extensive mass transit, they vote with their feet.

Since Bloomberg wrote this column in 2012 young professionals are concentrating more in big cities. And as Cortright documents in his Youth Movement report concentrating particularly in high-density, high-amenity near-center-city neighborhoods.

The lure of “places that protect personal freedoms, prize diversity and offer an abundance of cultural opportunities” and provide “great parks, safe streets and extensive mass transit” remains as strong today as it did pre-pandemic.

The current predictions of the death of high-density, high-amenity neighborhoods are driven by the belief that high-density makes one far more susceptible to the coronvirus. But as Corthright writes that turns out not to be accurate:

… People might naturally assume that because New York is our densest city, and Coronavirus hit hardest there, that there was some connection. It turns out however, that within the New York metro area, rates of reported cases are actually higher in the suburbs (including Rockland and Westchester counties) than in the five boroughs of New York City. It’s also the case that in the city itself, the hardest hit neighborhoods actually are much less dense than those least affected.

While New York has dominated the awful statistics and headlines of the pandemic, today, the hardest hit area in the US is far away, and far different:  the Navajo Nation.  In the past week, New York’s rate of infection has been surpassed by that on the Navajo Nation, one of America’s least densely settled areas.  The nation covers an area larger than Ireland spread across three states—Arizona, New Mexico and Utah—and consists overwhelmingly of very low density housing.  But its rate has grown to more than 2,449  cases per 100,000 population even higher than New York City’s 2,300.

The underlying problems in the Navajo Nation are not density, but rather poverty, a lack of health care, and housing over-crowding. Interestingly, these same factors were identifies as correlates of Covid prevalence rates within New York City by a Furman Center analysis of zip-code case data.

And as Emily Badger explores in a New York Times article entitled Density Is Normally Good for Us. That Will Be True After Coronavirus, Too. high-density cities have many health related benefits. She writes:

Since the 1990s, researchers and planners have increasingly come to argue that dense urban environments, derided historically as diseased, can actually foster health. They don’t mean overcrowded tenements, but places where people live close enough to one another to walk where they need to go and to support one another. Such environments offer an alternative to sedentary, car-dependent sprawl, an antidote to growing health problems like obesity.

… In practical ways, density makes possible many of the things we need when something goes wrong. That is certainly true of hospital infrastructure — emergency response times are faster, and hospitals are better staffed in denser places. When one store is closed or out of toilet paper, there are more places to look. When people can’t leave home for essentials, there are alternative ways to get them, like grocery delivery services or bike couriers. When people can’t visit public spaces, there are still ways to create public life, from balconies, porches and windows.

The subtitle of Edward Glaeser’s Triumph of the City summarizes well the enduring value of cities and their high-density, high-amenity neighborhoods: How Our Greatest Invention Makes Us Richer, Greener, Healthier, and Happier. That is not going to change in a post-COVID world.

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For years I have said that the city of Detroit needs more gentrification and congestion. As most of you would expect, the push-back is immediate and intense. Most folks think of the negative consequences of both and instinctively recoil at having more of the negatives.

What people don’t think about is that for both gentrification and congestion the positives far outweigh the negatives. The reason I continue to make the case that Detroit––really all Michigan cities––need more gentrification and congestion is both are signs of demand. People wanting to live and work there and business wanting to locate there. Successful communities (whether it is a neighborhood, community or region) are places with high demand. Places with low demand are some combination of declining and distressed.

In this post I want to focus on the consequences of gentrification. Turns out the negatives from gentrification are far less than most of us believe. Two new research reports provide compelling evidence that gentrification does not push low-income residents out of the neighborhood. That the proportion of low-income residents that move out of low-income neighborhoods is no higher than in non-gentrifying neighborhoods in the same city.

You read that right: gentrification does increase the proportion of low-income residents moving out of a neighborhood. Of course, some do move. But that is true of low-income residents of neighborhoods throughout cities, whether they are gentrifying or not.

CityLab in an article entitled Study: No Link Between Gentrification and Displacement in NYC, reviews the findings of the new research. They write:

… Children in low-income households were very likely to move more than once over this period, regardless of their neighborhood, residence, or demographic group. But low-income children living in neighborhoods that experienced gentrification were not more likely to be displaced than those living in persistently low-income neighborhoods that did not gentrify. In fact, even as neighborhood incomes increased all around them, the majority of these children stayed.

… Low-income children who remained in their gentrifying neighborhoods saw a 3 percent greater decline in neighborhood poverty than those in low-income neighborhoods that didn’t gentrify. Importantly, those families who moved out of gentrifying neighborhoods did not appear to end up in worse neighborhoods than those who moved out of persistently low-socioeconomic status areas.

So not only did in the case of this study Medicaid recipients in New York City not move out of gentrifying neighborhoods at a higher rate than those in non-gentrifying neighborhoods, most Medicaid recipients in gentrifying neighborhoods stayed and enjoy real benefits from the gentrification.

City lab continues:

The finding that gentrification is not correlated with displacement for poor children may be counterintuitive, to say the least, but it lines up with other efforts to study the long-term outcomes for original residents of changing neighborhoods. A recent study conducted by the Federal Reserve Bank of Philadelphia and the U.S. Census Bureau also found that gentrification does not strictly drive displacement. Over a long time period, the census evidence shows a modest increase in mobility (that is, displacement) for low-income renters in gentrifying neighborhoods. But the residents who do leave do not wind up living in more disadvantaged areas, and the residents who stay experience certain measurable benefits.

Joe Cortright in a post for his City Observatory, entitled How gentrification benefits long-time residents of low income neighborhoods, summarizes the findings of the new research this way:

… what the data show, is that for many residents and neighborhoods, gentrification is a good thing. It raises property values for long-time homeowners, increasing their wealth. It doesn’t appear to be associated with rent increases for less educated renters who remain. Poverty
rates decline, and objective changes in neighborhood characteristics–notably greater income mixing–are associated with higher levels of inter-generational mobility for kids growing up in such neighborhoods. In addition, the data show that poor neighborhoods that don’t gentrify steadily deteriorate on these measures. Implicit in much of the popular discussion and press coverage of gentrification is the assumption that neighborhoods that don’t gentrify will stay the same–but they don’t. Things get worse.

Cortright’s last point is essential: low-income residents of non-gentrifying neighborhoods are worse off than those who live in gentrifying neighborhoods. Neighborhoods without the demand that causes gentrification decline, they do not stay the same. People––and employers––move out of all neighborhoods all the time for a variety of reasons. So when they move out the neighborhood declines unless there is someone who moves in. Neighborhoods with high demand are vibrant, neighborhoods with low or no demand are distressed. There is no in between.

For those wanting to pursue the topic more I highly recommend the book The New Brooklyn: What it Takes to Bring a City Back by Kay Hymowitz. She is a fellow at the Manhattan Institute, but more importantly for this topic, is a longtime resident of Brooklyn. She describes herself as one of its first gentrifiers. The book does not sugar coat the negatives of gentrification, but presents the case compellingly that the positives far outweigh the negatives.

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Cortright found:

The number of well-educated young adults living in the nation’s largest cities increased 19 percent between 2012 and 2016, about 50 percent faster than the increase outside these large cities.

Well-educated young adults were already highly concentrated in large cities, and are more concentrated today; in 2012, a 25 to 34 year old with a four year degree was about 68 percent more likely to live in a large city than the typical American; by 2016, they were 73 percent more likely to live in a large city.

He found that in 51 of 53 cities there has been growth. (The two with declines are Rochester, New York and Tucson, Arizona.) Detroit’s young professionals grew from 10,532 to 17,261. Grand Rapids grew from 12,517 to 18,012. Good news for both. But they both have a long way to go to be a talent magnet.

There were nine cities that saw the number of young professionals grow by more than 20,000 from 2012-2016. New York City is in a league of its own adding nearly 84,000 for a total of nearly 763,000. The other cities in the top nine were in order of their growth: Los Angeles, Chicago (no Chicago is not collapsing), Philadelphia, Austin, Houston, Seattle, Boston and San Fransisco.

This, of course, is not new. It’s a continuation of college-educated Millennials choosing to live in central cities in much larger proportions than previous generations. Why it matters to all of us, is that the regions that are anchored by a vibrant central city that is a talent magnet are high-prosperity regions.

Each of the top nine central cities listed above anchors a region with per capita income higher than both metro Detroit and metro Grand Rapids. Ranging from $51,566 in metro Austin to $84,675 in metro San Fransisco (which is a separate region from Silicon Valley) compared to $48,692 in metro Detroit and $46,519 in metro Grand Rapids. (You can find the regional per capita income data here.)

It is also worth noting that, with the exception of Houston, all are a finalist for Amazon’s HQ2. And, of course, Detroit and Grand Rapids are not.

Amazon’s HQ2 search is representative of the new reality that in the growing high-wage knowledge-based sectors of the global economy talent—those with a four-year degree or more—is the asset that matters most and is in the shortest supply. And that is directly connected to prosperity, measured by per capita income. Because knowledge-based sectors are the only part of the American economy that is both growing and high wage.

The lesson that Michigan needs to learn––and is having a hard time doing so––is that vibrant central cities––particularly Detroit and Grand Rapids––are essential to regional and the state’s return to high-prosperity. And that requires public investment in placemaking. As we wrote in our new state policy agenda report:

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In this post I want to explore the importance of four-year degrees to state and regional prosperity. A core finding of our research is that states with high per capita income––except for energy-driven states––share four characteristics

• They are over concentrated in knowledge-based industries
• They have a high proportion of adults with a four-year degree
• They have at least one big metropolitan area with even higher knowledge-based industry and college-educated adults concentrations
• They have a vibrant central city that anchors their big metro(s)

In 2015 of the top fifteen states in per capita income, three were energy driven. Of the other 12 all were in the top 15 in the proportion of adult with a BA or more. Michigan was 32nd in per capita income and 32 in college attainment.

Joe Cortright of Impresa, Inc. has been researching for decades the common characteristics of prosperous metropolitan areas. He has found that, just like states, the single best predictor of regional prosperity is the proportion of adults with a four-year degree or more.

He recently updated the data. He writes:

The data presented here imply that a 1 percentage point increase in the four-year college attainment rate is associated with about a $1,250 per year increase in average incomes in a metropolitan area, an increment we refer to as the Talent Dividend.  This cross-sectional relationship suggests that if a metropolitan area were to improve its educational attainment by one percentage point on a sustained basis, that it would see a significant increase in its income.

Over time, the strength of this relationship, and the size of the talent dividend effect has been increasing.  When we computed the relationship using 2010 data, the correlation coefficient was .60 (.67 in 2016) and the size of the talent dividend was $860 (in current dollars).  These data suggest that educational attainment has become even more powerful in determining economic success than just a few years ago.

The most prosperous region in the Great Lakes is Minneapolis. Its college attainment rate is 40.5% with a per capita income of $56,723. By contrast metro Grand Rapids has a college attainment rate of 31.7 percent and a per capita income of $46,519. Metro Detroit has a college attainment rate of 30.4 percent and a per capita income of  $48,692.

Cortright  describes the bottom line this way:

This chart tells you the most important thing you need to know about urban economic development in the 21st century: if you want a successful economy, you have to have a talented population. Cities with low levels of educational attainment will find it difficult to enjoy higher incomes; cities with higher levels of educational attainment can expect greater prosperity. As Ed Glaeser succinctly puts it: “At the local level fundamentally the most important economic development strategy is to attract and train smart people.” And critically, because smart people are the most mobile, building the kind of city that people want to live in is a key for anchoring talent in place. And, importantly, the economic research shows that the benefits of higher educational attainment don’t just accrue to those with a better education: people with modest education levels have higher incomes and lower unemployment rates if they live in metro areas with higher average levels of education.

Exactly! No Michigan does not have too many residents with a BA. No metro Detroit does not have too many residents with a BA. No metro Grand Rapids does not have too many residents with a BA. The exact opposite is the case. The state and its two biggest regions need to get more college educated to be high prosperity. End of story!

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Michigan’s fundamental challenge to regaining its status as a high prosperity state is that it consistently ranks in the mid thirties in college attainment. A major reason for that is that the states’ two big metros are not talent magnets. In an economy where those with a four year degree are increasingly concentrating in big metropolitan areas.

Joe Cortright in a blog for City Observatory entitled Why Talent Matters to Cities (cities meaning regions) provides an update on the alignment of college attainment with a region’s per capita income. Cortright writes:

… there’s a strong, positive correlation between educational attainment and per capita income. The metro areas with the highest levels of education have the highest levels of per capita personal income. … The coefficient of determination of the two variables–a statistical measure of the strength of the relationship–is .67, which suggests we can explain two-thirds of the variation in per capita personal income among metropolitan areas, simply by knowing what fraction of their adult population has a four-year degree.

 … Over time, the strength of this relationship, and the size of the talent dividend effect has been increasing. When we computed the relationship using 2010 data, the correlation coefficient was .60  … These data suggest that educational attainment has become even more important in determining economic success than just a few years ago.

This data, Cortright continues, “tells you the most important thing you need to know about urban economic development in the 21st century: if you want a successful economy, you have to have a talented population. Cities with low levels of educational attainment will find it difficult to enjoy higher incomes; cities with higher levels of educational attainment can expect greater prosperity.”

End of story! It still is a lesson Michigan policymakers and those who most influence them are having a hard time learning. Michigan and its metropolitan areas need to make preparing, retaining and attracting talent their top economic priority. If they don’t Michigan will continue to be a low-prosperity state anchored by two low-prosperity metropolitan areas: both Detroit and Grand Rapids.

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The widespread belief among far too many Michiganders that central cities are part of the past and are now liabilities where “they” live is part of the reason Michigan has fallen from one of the most prosperous states in the country to one of the poorest.

We have explored in these posts frequently the new reality that vibrant central city neighborhoods are increasingly where young professionals are concentrating. (See this Wall Street Journal article entitled “Young Drive an Urban Rebound” for an overview of the trend.)

A new report by Joe Cortright of City Observatory provides compelling evidence that central cities are now where businesses––particularly those in knowledge-based sectors––are increasingly locating. Cortright writes:

For over half a century, American cities were decentralizing, with suburban areas surpassing city centers in both population and job growth. It appears that these economic and demographic tides are now changing. Over the past few years, urban populations in America’s cities have grown faster than outlying areas, and our research shows that jobs are coming with them. Our analysis of census data shows that downtown employment centers of the nation’s largest metropolitan areas are recording faster job growth than areas located further from the city center. 

Cortright found that the average annual job growth from 2002-2007 was 1.2 percent in the periphery in the 41 largest metropolitan areas compared to 0.1 percent in the city center (defined as the area within 3 miles of the center of each region’s central business district). From 2007-2011 that has completely reversed; with job declines of 0.1 percent annually in the periphery compared to job gains of 0.5 percent in the center city.

The City Observatory report is worth reading. For those who want a summary the New York Times wrote an analysis of the report that is also worth checking out.

The Times article tries to answer the question “why is this happening?” They write:

The recession accelerated the recent decline in urban sprawl. Industries based outside cities, like construction and manufacturing, were hit much harder than urban ones like business services. Jobs disappeared everywhere, but more rapidly outside cities.

But the data indicate that more lasting forces are at work. People increasingly desire to live, work, shop and play in the same place, and to commute shorter distances — particularly the young and educated, who are the most coveted employees. So in many cities, both policy makers and employers have been trying to make living and working there more attractive.

In a knowledge-based economy employers increasingly are following talent rather than talent moving to where the jobs are. Talent is the asset that matters most and is in the shortest supply. Young talent particularly are concentrating in vibrant central cities. Knowledge-based businesses need talent most so they are increasingly locating in central cities to access that talent.

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