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Urban Decline and Durable Housing

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  • Edward L. Glaeser
  • Joseph Gyourko

Abstract

Most of America’s largest cities in 1950 have declined since then. In these declining areas, most homes cost less than the cost of new construction. In 1990, nearly 60 percent of all owner-occupied single-unit residences in Midwest central cities were valued at less than the cost of construction. Indeed, these declining cities appear to persist because of the durability of housing. We present a durable housing model that explains a number of facts about urban dynamics. Housing durability explains why city growth rates are leptokurtotic, and why cities grow more quickly than they decline. Housing durability can explain the striking persistence of city growth rates among declining cities. Housing durability explains why positive shocks to cities appear to increase population more than prices and why negative shocks appear to reduce price more than population. Finally, and most importantly, durable housing may explain why declining cities appear to attract individuals with low levels of human capital. Both authors gratefully acknowledge financial support from the Research Sponsors Program of the Zell/Lurie Real Estate Center at Wharton. Glaeser also thanks the National Science Foundation. Jesse Shapiro and Christian Hilber provided excellent research assistance. This paper is dedicated to our teacher, Sherwin Rosen, who taught us all much about housing markets.

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Paper provided by Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania in its series Zell/Lurie Center Working Papers with number 382.

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Handle: RePEc:wop:pennzl:382

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  1. Goodman, John Jr. & Ittner, John B., 1992. "The accuracy of home owners' estimates of house value," Journal of Housing Economics, Elsevier, vol. 2(4), pages 339-357, December.
  2. Edward L. Glaeser & Matthew E. Kahn & Jordan Rappaport, 2000. "Why Do The Poor Live In Cities?," Harvard Institute of Economic Research Working Papers 1891, Harvard - Institute of Economic Research.
  3. Glaeser, E.L. & Scheinkman, J.A., 1993. "Economic Growth in a Cross-Section of Cities," Harvard Institute of Economic Research Working Papers 1645, Harvard - Institute of Economic Research.
  4. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  5. Robert M. Solow, 1973. "Congestion Cost and the Use of Land for Streets," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 602-618, Autumn.
  6. Jonathan Eaton & Zvi Eckstein, 1994. "Cities and Growth: Theory and Evidence from France and Japan," NBER Working Papers 4612, National Bureau of Economic Research, Inc.
  7. Krugman, Paul, 1991. "History and Industry Location: The Case of the Manufacturing Belt," American Economic Review, American Economic Association, vol. 81(2), pages 80-83, May.
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  1. > Real Estate and Housing Economics
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