The Economics of Neighborhood. Studies in Urban Economics

292 Pages·1979·14.791 MB·English

by  David Segal

STUDIES IN URBAN ECONOMICS
Under the Editorship of
Edwin S. Mills
Princeton University
Norman J. Glickman. ECONOMETRIC ANALYSIS OF REGIONAL SYS-
TEMS: Explorations in Model Building and Policy Analysis
J. Vernon Henderson. ECONOMIC THEORY AND THE CITIES
Norman J. Glickman. THE GROWTH AND MANAGEMENT OF THE
JAPANESE URBAN SYSTEM
George S. Tolley, Philip E. Graves, and John L. Gardner, URBAN GROWTH
POLICY IN A MARKET ECONOMY
David Segal. THE ECONOMICS OF NEIGHBORHOOD
In Preparation
R. D. Norton. CITY LIFE-CYCLES AND AMERICAN URBAN POLICY
THE ECONOMICS
OF NEIGHBORHOOD
Edited by
DAVID SEGAL
Department of City and Regional Planning
Harvard University
and
Department of Economics
Oberlin College
ACADEMIC PRESS New York San Francisco London 1979
A Subsidiary of Harcourt Brace Jovanovich, Publishers
COPYRIGHT © 1979, BY ACADEMIC PRESS, INC.
ALL RIGHTS RESERVED.
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United Kingdom Edition published by
ACADEMIC PRESS, INC. (LONDON) LTD.
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Library of Congress Cataloging in Publication Data
Main entry under title:
The Economics of neighborhood.
Includes bibliographies.
1. Urban economics—Addresses, essays, lectures.
2. Neighborhood—Mathematical models—Addresses,
essays, lectures. 3. Neighborhood—Economic aspects—
United States—Addresses, essays, lectures. 4. Land
use, Urban—United States—Addresses, essays, lectures.
5. Residential mobility—United States—Addresses,
essays, lectures. I. Segal, David.
HT123.E3 330.9'173'2 78-22534
ISBN 0-12-636250-5
PRINTED IN THE UNITED STATES OF AMERICA
79 80 81 82 9 8 7 6 5 4 3 2 1
List of Contributors
Numbers in parentheses indicate the pages on which the authors' contributions begin.
WILLIAM C. APGAR, JR. (161), Department of City and Regional Plan-
ning, Harvard University, Cambridge, Massachusetts 02138
ROBERT S. BEDNARZ (219), Department of Geography, Texas A & M
University, College Station, Texas 77843
BRIAN J. L. BERRY (219), Department of City and Regional Planning,
Harvard University, Cambridge, Massachusetts 02138
THOMAS P. BOEHM (43), Department of Economics, Washington Uni-
versity, St. Louis, Missouri 63130
LESLEY DANIELS (147), Department of Economics, Washington Univer-
sity, St. Louis, Missouri 63130
BRYAN ELLICKSON (263), Department of Economics, University of Cali-
fornia, Los Angeles, Los Angeles, California 90024
A. MYRICK FREEMAN, III (191), Department of Economics, Bowdoin Col-
lege, Brunswick, Maine 04011
JOHN F. KAIN (161), Department of City and Regional Planning and De-
partment of Economics, Harvard University, Cambridge, Massachu-
setts 02138
CLIFFORD R. KERN (121), Department of Economics, SUNY at Bing-
hamton, Binghamton, New York 13901
STEVEN R. LERMAN (83), Center for Transportation Studies, Depart-
ment of Civil Engineering, Massachusetts Institute of Technology,
Cambridge, Massachusetts 02139
ix
X LIST OF CONTRIBUTORS
CHARLES L. LEVEN (43), Department of Economics, Washington Uni-
versity, St. Louis, Missouri 63130
JONATHAN H. MARK (43), Faculty of Commerce and Business Adminis-
tration, The University of British Columbia, Vancouver, B.C., Canada
V6T 1W5
DONALD K. RICHTER (247), Department of Economics, Boston College,
Chestnut Hill, Massachusetts 02167
DAVID SEGAL (3, 57), Department of City and Regional Planning, Har-
vard University, Cambridge, Massachusetts 02138, and Department
of Economics, Oberlin College, Oberlin, Ohio 44074
ROBERTON C WILLIAMS, JR. (17), Department of Economics, Williams
College, Williamstown, Massachusetts 01267
Foreword
The concept of a neighborhood has been something of a tar baby to
social scientists. Motivated by their feelings, by feelings reported by
friends, and by feelings expressed in opinion polls, sociologists and
urban planners have long assigned an important role to the notion.
Economists, being more concerned with physical than with verbal be-
havior, have held off making neighborhood a focus of analysis, pre-
sumably doubting whether neighborhood characteristics affected
market and other physical behavior.
Interest in public goods was the catalyst that focused economists'
attention on the concept. If neighborhood affects economic behavior, it
must do so as public goods do: Consumption requires only that one be
in the right place at the right time and results only indirectly from
market transactions. The first serious economic measurement was of ef-
fects of neighborhood characteristics on housing demand, using
hedonic pricing models. Evidence rapidly accumulated that people are
willing to pay substantial amounts for desirable neighborhood char-
acteristics.
Demand measurement has been important and has generated high
quality research. More recently, attention has turned to the much more
difficult issues on the supply side. Of course, Tiebout was the first
economist to produce a careful analysis of interaction between private
market decisions and the public sector in controling the supply of
xi
Xll FOREWORD
public goods. Starting in the mid 1970s, several basic theoretical papers
appeared on market provision of public goods. And three papers in this
volume discuss the supply side of neighborhood characteristics.
Beyond doubt, the most difficult questions about neighborhoods
concern the interaction between supply and demand and the proper
role of public sectors. The papers in this volume show clearly that
neighborhood is a concept that can be analyzed by economists' tools.
The volume brings together a set of valuable contributions and should
stimulate additional research.
EDWIN S. MILLS
Princeton University
April 1979
Acknowledgments
This set of original essays attempts to integrate neighborhood into
contemporary notions of the urban economy. Neighborhood is seen
here the way an economist might be inclined to view it, as a good
having demand, supply, and equilibrium aspects.
The book is a product of many hands. The authors owe apprecia-
tion for critical review and helpful comments from Ed Mills, John
Meyer, George Peterson, Martin McGuire, Bill Wheaton, and Frank
Westhoff. Special thanks are owed to colleagues in the Department of
City and Regional Planning for inspiration along the way, including
Brian Berry, Dave Harrison, and John Yinger.
A debt is also owed to Donna Shalala, Assistant Secretary for Policy
Development and Research at the U.S. Department of Housing and
Urban Development, for providing resources to convene the authors for
a public reading of their papers and to defray editorial costs. The
biggest debt on the ledger is to Friederike Snyder for continuing and
enthusiastic support throughout the project: To her this volume is dedi-
cated.
1
Introduction
DAVID SEGAL
1. NEW CONCERN FOR NEIGHBORHOODS
Always a household word, "neighborhood" has now become a
policymaker's word as well. Neighborhood preservation and revitali-
zation have become twin themes of the president's national urban pol-
icy, as well as the central focus of the first lady's public-service efforts.
A National Commission on Neighborhoods was formed in 1977, and
preserving historic buildings and neighborhoods has become a new
national obsession.
Why all this now? Certainly neighborhood quality has always been
close to the heart of urban settlers. Neighborhood, after all, is an exten-
sion of one's own house. While most workers travel beyond their
neighborhood on work trips, school, church, shopping, and recrea-
tional trips are frequently intraneighborhood.
Part of the reason is that a national awareness has been mounting
that our policies of local finance, home subsidy, and road building
have, until recently, tilted urban development in favor of new suburban
communities, to the neglect of the inner suburbs and central city neigh-
borhoods. A system of subsidies, some explicit and some hidden, has
3
THE ECONOMICS OF NEIGHBORHOOD Copyright © 1979 by Academic Press, Inc.
All rights of reproduction in any form reserved.
ISBN 0-12-636250-5
4 DAVID SEGAL
promoted new construction over the rehabilitation of existing struc-
tures and, because of this, government intervention in urban markets
has shown a distinct locational bias: Government policies have pushed
the rate of return on investment in older neighborhoods below its
preintervention equilibrium level, with the predictable private-sector
response (Peterson, 1977). Other urban policies, primarily urban
renewal, have destroyed neighborhoods more often than they have
developed them.
Whether such an area bias was the intention of policymakers over-
seeing urban development is, of course, a moot point. The postwar
baby boom and growth in household incomes had shaped a willing cli-
entele. National elections were no longer determined by an electorate
that was largely city: By 1968 the Dayton housewife had moved with her
family to the suburbs.
Because neighborhoods are viewed as rungs on a socioeconomic
ladder, public funds for improvements having high visibility in low-
income enclaves have often appealed to taxpapers. Community Action
programs and the Model Cities program were efforts at redistribution
toward target neighborhoods, programs that Mayor Kenneth Gibson of
Newark has disparagingly referred to as providing "cool it" money.
Whatever the success of these programs, a half-dozen presidential com-
missions on urban problems since the late 1960s have advocated some
kind of neighborhood dimension in urban policy. The latest national
commission will likely support the same goal. 1
Some of the current national concern to revive older urban neigh-
borhoods may have sprung from a variety of sources other than altru-
ism. Alonso (1977) and others have suggested that neighborhood and
locational preferences may be shifting because of the emergence of a
new demography. Urban households, according to this view, are now
increasingly smaller in size, have fewer children, better education,
higher income, and more frequent labor-force participation by adult
females. He speculates that such households may have a relatively
stronger preference for city-based public goods and amenities. (Evi-
dence supporting the in-city locational preferences of upper-income
households in New York City is cited by Kern, Chapter 6 of this vol-
ume.)
Others have suggested that a series of price shifts has increased
households' interest in older neighborhoods. A big jump in the relative
price of new residential construction in the early 1970s may have played
a role. The sharp rise in public service costs and property taxes that are
1 An inventory of the "neighborhood" proposals of previous commissions may be
found in Yin (1977).