Achieving urban sustainable “green growth” is now a hot research and policy topic. A city that can attract the footloose-skilled to live and work will continue to be a hotbed of intellectual innovation and growth.

New graduates of leading universities such as Berkeley and Stanford can move to any city to live and work. Why is San Francisco likely to remain a magnet for such individuals? What can the Mayor do to enhance San Francisco’s “livability”? Unlike colder cities such as Boston or New York City, San Francisco’s climate offers an immediate leg up in its competition to attract the best and brightest. As urban crime has fallen throughout the United States, urbanites are willing to venture outside more and walk in their cities. An attractive, clean environment and climate only enhances this desire.

Forward-looking mayors of many leading cities are thinking through how to enhance their city’s quality of life and environmental quality.  In a growing city, policy makers must handle the challenge of providing transport infrastructure, electricity, open green space, and basic water treatment to local constituents.

Urban researchers have argued that major cities such as New York City, Boston and San Francisco have made a dramatic transition from “production cities” and are transforming themselves into “consumer cities” where people want to live and play [1]. Urban greenness enhances such experiences and makes such cities even more desirable.

Many of us have an intuitive sense of what sets a green city, such as Portland, Oregon, apart from brown urban centers, like Mexico City. Green cities have clean air and water and pleasant streets and parks. Green cities are resilient in the face of natural disasters, and the risk of major infectious disease outbreaks in such cities is low. Green cities also encourage green behavior, such as the use of public transit, and their ecological impact is relatively small.

Green cities are not merely aesthetically pleasing; they are key engines of economic growth in the modern skills economy. For example, living and working close to the Presidio does not cause one to be smarter and more productive. Instead, such green amenities select and attract the skilled; where the skilled cluster, innovations and cross-industry synergies take place with the net result being robust economic growth [2].  The modern economic growth literature emphasizes that human capital is the key determinant of growth [3].

Green cities act as a magnet, attracting the highly educated as they pursue both a high standard of living and a high quality of life. A virtuous cycle is set off as footloose employers (i.e., Google, Microsoft) locate in areas where the skilled want to live. This further attracts more skilled workers and high-end commercial restaurants and retail stores to cater to this niche market.

There is no “free lunch” however. A city that pursues “greenness” as an economic development strategy will experience gentrification. One consequence of this trend will be rising home prices. This will squeeze out poorer renters, new immigrants and even the middle class as they search for homes.

What impact does greenery have on economic performance, and how?

Why are homes so expensive in San Francisco today? Americans are quite mobile. More than 3% of us migrate across states each year. You could move to North Dakota tomorrow and find a nice $50,000 home to buy, but relatively few people cash out, sell their San Francisco real estate and move there. This reveals that people are willing to pay a great amount of money to live in San Francisco.

The typical resident of San Francisco is highly educated. Census data from 1990 reveals that 35% of adults in San Francisco County in 1990 had at least a college degree. Cities that attract the skilled experience more subsequent economic growth. From 1940 to 1990, a 10 percent increase in a metropolitan area’s concentration of college-educated residents was associated with a .8 percent increase in subsequent employment growth [4].

The educated seek out high quality-of-life cities, and their presence within a city creates a strong interest group dedicated to “greening” the city.

For example, people with more education tend to be more patient and more likely to support costly investments that address long-run environmental threats [5].  More educated people are more likely to demand in-depth analysis of environmental issues, setting in motion a virtuous cycle by providing incentives for the media to research and present stories on pollution and the environment. People with more education tend to play a more active political role – educational attainment is positively associated with the likelihood that a person votes [6],  and more educated people are more likely to vote for environmental regulation in California’s direct initiatives [7]. 
   
Do green cities outperform their non-green counterparts economically?

One simple way to identify high-performing cities is to identify those cities with high per-capita incomes that are growing over time and where the volatility of recessions does not lead to a steep decline in per-capita income. In the United States, where households are quite mobile, the population is migrating to warmer-winter, coastal areas [8].  What happens to the colder northeast center cities that people are vacating?

There are several older center cities in the United States, such as Detroit, St. Louis and Philadelphia, which are not performing well. In these areas, the center cities are losing population and any growth that is taking place is at the suburban fringe. As middle class households leave the center cities and employment declines, this hollowing out produces “ghost towns.” These cities suffer from cold winters and are not perceived to be green. St. Louis’ population has declined from 900,000 to 500,000 over the last 30 years. This matters because the housing stock is highly durable. As demand for living in such “brown” cities declines, real estate prices in such cities have plummeted [9]. Such low real estate prices act as a poverty magnet, exacerbating urban social problems as the poor hyper-segregate.

All cities suffer recessions. Some can be especially harsh. For example, a city such as Detroit, that is highly specialized in car production, is especially vulnerable to national reductions in demand for new cars. A “green city” is implicitly insured against such shocks. If its “golden goose” declines, people will still want to live there and this phenomenon will attract other industries to migrate there. That is why “Wall Street” has remained in Wall Street despite the September 11, 2001 terrorist attacks and despite massive improvements in information technology that would allow its business to be conducted from any number of locations. One explanation for this fact is that high-powered executives gain from face-to-face interaction and deal making – and that these executives enjoy living in New York City.

Green cities solve a co-ordination problem. The skilled want to live close to each other to transact business but they face communication costs of agreeing where to locate. Green cities represent a co-ordination device [10]. 

The typical macroeconomist focuses on trends in average population well being in determining whether a society’s standard of living is improving. In a heterogeneous society, this average may not be reflective of anyone’s actual experience. The philosopher John Rawls made famous the notion of focusing on the well being of the least well off in a society. Is it obvious that this group is made better off by greening a city and more generally improving its quality of life?

A recent important line of housing research has examined whether housing supply regulations have raised home prices [11].  Edward Glaeser, Joe Gyourko and Raven Saks have shown that regulation in major cities in California and the Northeast, including Boston and New York City, has a significant impact on reducing the supply of housing [12]. 

For example, in New York City, opponents of new buildings sometimes appeal to local zoning boards to block construction, arguing that it would lower the value of their homes by cutting off sunshine and blocking their views of Central Park. The net result of such lawsuits is to reduce the supply of new housing and drive up prices relative to less regulated markets. Environmental regulation intended to protect critical habitats has had a similar effect in California [13].

Incumbent homeowners in the most desirable cities (such as San Francisco and Vancouver) gain the greatest home price appreciation from such supply restrictions because they own a scarce, valuable asset [14]. In such superstar cities, the finite number of housing units combined with the growing demand fueled by the growth in the number of wealthy people, means that the middle class will be unlikely to be able to afford living in the desirable cities [15]. 

Sprawl and Center City/Suburban Competition

Over time, cities grow in population size. Where within the city should this growth take place? In a heterogeneous society where people differ with respect to their age, income and tastes for housing, a metropolitan area should offer a variety of different housing options to cater to the broader public. Center cities that can reduce their urban crime and improve their environmental quality will find that singles and married couples without children will be happy to live there. Richer people, on the other hand, demand newer, more spacious homes and these homes are more likely to be supplied in the suburbs.

How does the spatial pattern of population growth affect a city’s “greenness”? Many urbanists hope this growth will take place in high-population-density areas near the city center that are already serviced with basic infrastructure. Such compact development protects fringe farmland from encroachment and increases the likelihood that new residents commute by public transit (a green technology) to work [16]. 

It is well known that much urban growth in the United States takes place at the fringe of cities. Such popular books as Joel Garreau’s Edge Cities documented the growing employment centers popping up near suburban road connections. Suburban workers seeking newer, larger homes and shorter commutes are attracted to such suburban locations. Firms that want to build large corporate campuses are also attracted to areas featuring cheap land far from the city center. Major companies are building corporate campuses in the suburbs. Microsoft’s campus in Richmond, Washington will be ten million square feet after its expansion is complete, and will host 12,000 workers [17].  Google now has 5,680 employees and is adding a million square feet to the 500,000 it now occupies in Mountain View, California.

Conclusion

Today, major cities around the world are investing large sums of money to “green” themselves. By the year 2016, New York City’s planners foresee extensive redevelopment of the waterfront removing past vestiges of defunct manufacturing. Even China, as it prepares for the 2008 Olympics in Beijing, has begun to invest heavily in greening this major city.

If San Francisco can maintain and enhance its greenness, measured both on local and global environmental criteria, then it will guarantee its ability to continue to attract the young and skilled to live and work there.

I have argued that a city’s greenness depends not only on its climate and physical location but in addition on the choices made by consumers, firms and governments within the city. Urban greenness is not a free lunch! The pursuit of urban greenness (through growth controls and housing regulations) does have unintended consequences that introduce important equity issues.

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Matthew E. Kahn is a Professor at the Institute of the Environment at UCLA. He is the author of Green Cities: Urban Growth and the Environment (Brookings Institution Press 2006). He blogs on environmental and urban economic topics at greeneconomics.blogspot.com.

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