Project Syndicate: Why Do Cities Become Unaffordable?

Cities, as vibrant economic hub, can become unaffordable. Inequality rises, eventually driving some residents away. “If too many lifelong inhabitants are driven out by rising housing prices, the city itself suffers from a loss of identity and even culture,” explains Robert Shiller, professor of economics at Yale University. “As such people depart, an expensive city gradually becomes an enclave of high-income households, and begins to take on their values.” Shiller reports on the Demographia International Housing Affordability Survey, which shows disparities across major global cities: Hong Kong, Sydney, Vancouver, Auckland, San Jose/Silicon Valley, Melbourne, Los Angeles, London and Toronto have the highest high housing-price-to-income ratios. As with any cross-border data, inconsistencies can make comparisons challenging. Problems are compounded when current homeowners resist new housing stock and developers prefer high-cost projects. Low interest rates since the 2008 global debt crisis has contributed to speculation and rising prices. Innovation and market forces may push out people who do not contribute to new endeavors, Shiller notes, and high prices can also signal acceptance of inequality, selfishness and a lack of humanitarian spirit, which in turn generates animosity. – YaleGlobal