Population Externality Bleg
By Bryan Caplan
Suppose a city’s population exogenously rises. You might think that price theory clearly implies that demand for real estate will rise. But that’s not so. In theory, higher population could generate a congestion externality so awful that demand for real estate actually falls.
If you’re having trouble picturing this, imagine how much you’d pay to live in Manhattan given current conditions. Now imagine how much you’d pay to live in Manhattan if the streets were so crowded you had a 10% chance of being trampled to death every time you left your apartment. A sufficiently massive population could drive Manhattan rents down to zero.
Theoretically, then, the effect of population on real estate prices is ambiguous. In the real world, though, I’ve never come across a credible example of an real estate market where crowding has blatantly reduced rents. My bleg: Has anyone got a credible candidate for me? I’ll accept examples from any part of the world in any time period. I’ll even accept cases involving a sudden influx of destitute refugees into an area.
What have you got for me?