Tyler Cowen Doesn’t think Megacity Rents will go Up Forever

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File this under predictions about the distant future, but not necessarily analysis that should impact your near to mid term real estate investment decisions.

Leading cities have become so expensive in large part because two of these clustering sectors — finance and information technology — have been ascendant. There is no particular reason to expect those trends to continue forever, and that will bind rents in affected cities.

Many more economic sectors tend to be spread out geographically — such as higher education, caring for the elderly, installation of smart-home equipment, fracking, restaurants — and if more economic activity takes these forms, to some extent rents will equalize across different cities.

And this:

There is yet another reason the growth of very high productivity cities will reach a limit, namely that the wealthiest people are not always the most creative. Often wealthy people were very creative; that is how they earned their money. But looking forward, the supercreators of the next generation just aren’t that rich yet, and they may prefer to experiment with their new ideas in lower-rent environments, if only because that will make it easier to hire other people.

And finally:

[M]egacities have a problem making it affordable to raise large or even medium-size families. How many of us could live in San Francisco, London or New York City and bring up three children in a decent neighborhood with good schools? Only the already well-to-do can manage such a feat. The result is that cities do not replenish themselves, and rely on continual injections of outside talent, most of all through immigration.