Brief Lecture on Urban Decentralization and Income Segregation

1. Brief Lecture on Urban Decentralization and Income Segregation NR 377 Land Use Policy and Economics Austin Troy University of Vermont

2. Income segregation • Simple monocentric model would suggest that rich occupy most valuable (central) land • Why is it the opposite? • Households find location providing best tradeoff between land and commuting cost • Because the rich person consumes much more housing, they save much more for each move out

3. Income segregation • In other words, MB=MC at much closer point to CBD for the poor • They have less to gain from moving outward because they can’t afford to consume nearly as much housing (that is, as big houses) • But their commuting costs are not much less than that of the rich • As income increases, housing consumption increases faster than commuting costs

4. Segregation and Income Elasticity • Income elasticity of demand for housing is high; that is, housing consumption goes up significantly (is elastic) in response to income increase • When IEDH is large relative to income elasticity of commuting cost, gap between MB curves will be much greater than gap between MC curves

5. Income segregation-High IEDH relative to IECC MB(rich) MC(rich) $40 MC(poor) $20 MB(poor) U’ U’’

6. Income segregation- similar IEDH relative to IECC MB(rich) MC(rich) $40 MC(poor) $20 MB(poor) U’’

7. Why do poor have steeper housing price functions? • Slope function • Increase in income both t and H(u) • If D for housing is more responsive to income than commuting costs are to income (due to increase in opportunity cost), then rich have flatter curve;that is they have a powerful urge to consume land

8. Income Segregation and Bid Rents Rich BR is flatter: 1.If IEDH > IED of commuting costs or 2. because of the draw of suburban land and the negatives of central city living BR-rich BR-poor u*

9. Empirical Evidence • One study (Wheaton 1977) has found that IEDH is roughly equal to IECC • If this is the case, then different income groups should be living in the same places • Other explanations needed: lots of potential reasons

10. One reason is employment: Why decentralized manufacturing? • Intracity truck: in tug of war between desiring to be near workers and be near central export node, the latter began to lose out as trucks reduced price of getting freight to and from the node. I.e. cost of moving freight high relative to moving people in old days; now the opposite • Now manufacturers locate close to suburban highway interchanges. Beltways maximize access to interstates; result in manufacturing ring

11. Suburban manufacturing without truck Total cost $ i=ideal location w/out truck labor cost Freight cost Firm locates at city center Distance

12. Suburban manufacturing with truck $ j=ideal location with truck Total cost labor cost Freight cost Firm locates at city center Distance

13. Manufacturing bid rent and beltways

14. Additional factors pulling manufacturing towards suburbs • Single story plants using assembly line production; require more land than traditional multi story plants • Airports: require a lot of land and tend to be on fringes; many firms transport by air freight • Cars: with demise of hub and spoke streetcar system, firms now locate where they are most reachable by car: highway exits.

15. Offices drawn to suburbs by • -Decoupling of operations: increase in splitting offices into front and back offices • Better communication and connectivity: email, phones, Internet, teleconferences • Many businesses now are less reliant on face to face meetings • However, there will always be advantage to downtown clustering for certain types of firms that require face to face contact