Comment on Shiller: Urban Density Drives Housing Price Increases

Abstract

While agreeing with the overestimation of potential growth of urban land prices by many if not most market participants, I can’t help arguing against the model posed in Shiller’s article. It’s not overall country population density that counts, it’s the degree of urbanization. While the original Solow model is too simple to apply blindly to multi-centered urban agglomerations, the point of that model still applies. Increasing urbanization implies increased costs of travel and hence higher land prices where location results in lower transportation costs to and from work. That source of urban land price real growth continues to apply, especially in the urban centers that are more successful in attracting migrants. That’s a real source of land price inflation that continues to be important, even if overestimated by the unwashed public.