Sometimes, so-called “Smart Growth” construction of residential, high-rise buildings is not smart at all. In fact, it actually can turn out to be “Dumb Growth”—and in some urban locales, such as much of the Bay Area, very dumb growth indeed. It is a complicated story:
The simple explanation for this comes out of an Economics 101 course—it is a phenomenon called “inelasticity of demand as it relates to price”. In an extremely land-scarce, highly desirable(climatologically and topographically) urban locale such as San Francisco, or even Berkeley, all we do when we build skyscrapers is, in effect, to provide more surface area for habitation in a given square yard of land.
Normally, in land-abundant, modestly desirable urban locales, this increase of supply, in the face of a constant LEVEL of demand for the commodity, will result in declining ability of the sellers of the commodity(in this case real estate) to maintain prior price levels, all other factors being equal. This means general purchasing power affordability levels for all real estate goes up. But what happens, in land-scarce, highly desirable locations, is that the very construction of these high-rise structures in itself creates a new, even more intense “vibe” that makes more and more people intensely want to live there.
Then demand becomes what is called, in economic terms, “inelastic”—it doesn’t go down as prices for the growing commodity stay the same or go up, because buyers are "price-inelastic" in response. They are prepared to pay just about whatever is demanded, just to become one of the chosen few who can say they live in these rarified locales. And, it is not as if the renting or purchasing of this new “land” in these buildings reduces in any way the number of inhabitants living elsewhere in the area. It just means more inhabitants per square mile, more congestion, more gridlock, in part because most of the lower level “worker bees” in these urban locales can no longer afford to live there and are condemned to longer and longer commutes—mostly in cars because of the paucity of effective and sufficient public transport.
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