Urban Decline and Durable Housing

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.