We all know the story: Much of the world is becoming increasingly less equal thanks to the new knowledge economy. Using data from the Federal Reserve Bank of New York, the NY Times (Emily Badger and Kevin Quealy) recently published this interesting piece on "4 decades of inequality" in American cities. This is what the findings look like:
In 1980, the United States was relatively flat in terms of wage inequality (except for maybe Fairfield). In fact, inequality in a place like Binghamton, New York was about the same as in New York City. But thanks to decline in the former and growth in the latter, New York City is now a much more unequal place.
Economic growth is usually considered a good thing, but inequality is not. Emily and Kevin rightly call attention to the fact that -- according to the above charts -- these two things seem to come together as one package. See New York, Chicago, San Francisco, San Jose, Washington, D.C., and so on.
The other takeaway from these charts is the way in which inequality seems to correlate with metro area population. We know that as the population of a city increases it tends to also become more productive. And so what we are seeing here are those urban agglomeration benefits accruing to some, but not all.
There's a lot that can be inferred from these charts.
Emily Badger's recent piece on "how 'developer' became such a dirty word" has been getting passed around within the industry over the last few days. I had a chuckle when I read this bit:
The notion that development is inherently bad, or that developers are inherently bad actors, seems to ignore that the communities residents want to protect from developers were once developed, too, and often by people who made money at it. (That is, unless you believe in “immaculate construction.”)
The article hits on a number of points that are absolutely true. There's generally a lack of understanding around the economics behind new housing. And the cost structures, today, are dramatically different compared to the suburban-industrial complex.
To provide one example, our cost consultant, Finnegan Marshall, recently shared with me a chart (dated April 2019) that broke down the various government fees that typically make up every new condo suite in Toronto.
What it showed is that between 20-24% of the price of a new condo is generally compromised of government fees and taxes that span all three levels of government. This includes everything from development charges (impact fees) to parkland dedication.
Similarly, the article quotes one developer from Montgomery County who estimates that the impact fees alone for his projects are usually upwards of $60,000 per housing unit. (This is pretty cheap compared to Toronto.)
I raise this as an example because development charges/impact fees have become an important source of revenue for cities across both Canada and the US. They often offset lower property taxes. (Whether this is appropriate is an entirely other debate.)
And so I find it paradoxical that many homeowners would like to simultaneously see lower property taxes, no new development, and more public services and infrastructure.