Jan presented the paper at the first annual UCLA-UCI-USC real estate research day. The finding was straightforward but still interesting: if congestion for commuting to the suburbs is not priced at marginal cost, the urban center will be maintained at less than the social optimum, so the housing stock in the center will deteriorate below the social optimum.
For those who worry about whether this implies that taxing sprawl will reduce the stock of affordable housing, Jan points out that the mechanism for making housing cheaper is greater residential density: with optimal taxation of congestion, one gets very small high quality housing units in the center city.
Here’s the abstract:
The objective of this paper is to show how the same market failures that contribute to urban sprawl also contribute to urban blight. The paper develops a simple dynamic model in which new suburban and older central-city properties compete for mobile residents. The level of housing services generated by older properties depends on current maintenance or reinvestment expenditures. In this setting, market failures that reduce the cost of occupying suburban locations, thus leading to excessive suburban development, also depress central-city housing prices and undermine maintenance incentives, leading to deﬁcient levels of central-city reinvestment. Corrective policies that shift population from the suburbs to the center result in higher levels of reinvestment in central-city housing, therefore reducing blight.
This paper identifies a new factor, the age of the housing stock, that affects where high- and low-income neighborhoods are located in U.S. cities. High-income households, driven by a high demand for housing services, will tend to locate in areas of the city where the housing stock is relatively young. Because cities develop and redevelop from the center outward over time, the location of these neighborhoods varies over the city’s history.
The model predicts a suburban location for the rich in an initial period, when young dwellings are found only in the suburbs, while predicting eventual gentrification once central redevelopment creates a young downtown housing stock. Controlling for other determinants of where the poor live (e.g. proximity to amenities and public transit), empirical work indicates that if the influence of spatial variation in dwelling ages were eliminated, central-city/suburban disparities in neighborhood economic status would be reduced by up to 10 percentage points.
Model estimates further predict that between 2000 and 2020, central-city/suburban differences in economic status will narrow in cities of all sizes and especially so in the larger metropolitan areas as American cities become more gentrified.