Friday, 10 June 2016

Why are big cities becoming expensive places to live?

Arnold Kling argues that the reason may be upward sloping demand curves:
But one possibility I want to throw out there is that people want affluent neighbors. If I want an affluent neighbor, and an affluent neighbor is going to live in a neighborhood with high prices, then in some sense I want to live in a neighborhood with high prices. In the extreme, this makes my demand for neighborhoods upward-sloping. Higher prices make me want to live there.
Back to cities. Suppose that an important “urban amenity” is having a lot of affluent people around. Young singles may wish to meet potential marriage partners who are affluent. People who have acquired affluent tastes (sushi, yoga, wine) may want to be around people with similar tastes.
Given the cost of housing, you would have to have very strong preferences for the "urban amenity". I can't help thinking there must be cheaper way to take advantage of the amenity.

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