![Density and congestion](https://www.econlib.org/wp-content/uploads/2023/07/Screen-Shot-2023-07-10-at-2.49.27-PM.png)
In several recent posts, I pushed back on a claim by Scott Alexander than making cities denser will also make them more expensive. That claim is certainly true for many factors that boost density. But I argued that those density increases that are spurred by the deregulation of construction would usually lower housing prices.
Even in that case Alexander might be correct, but I view the claim as unlikely. For it to be true, the boost to housing demand flowing from an improvement in city quality due to new construction would have to outweigh the supply side effects of adding to the housing stock.
I have a similar objection to Tyler Cowen’s recent claim that New York City’s new congestion charge will reduce welfare. He might be correct, but I believe he puts too much weight on one factor, and too little on several others.
Tyler correctly notes that places like Manhattan generate positive external benefits, due to the productivity-boosting impact of agglomeration (bringing lots of talented people together.) In anything, Manhattan may not be crowded enough. So far I agree. Tyler then suggests that a congestion charge will keep people out of Manhattan, and hence make the place less dense, reducing the productivity of the US economy. That claim seems doubtful, for several reasons.
1. Yes, density and traffic congestion are positively correlated, but they remain clearly distinct phenomena. For instance, imagine that a congestion charge for driving into Manhattan caused commuters from New Jersey and Connecticut to switch to mass transit. That would reduce traffic congestion without reducing density. Unfortunately, mass transit is not a particularly close substitute for the car, and Tyler correctly argues that this factor would not be enough to overturn his result. But now suppose that commuters to Manhattan decided to avoid the congestion charge by moving to the city. Builders might respond by putting up more of those high-rise condo buildings. It might actually make the city denser.
![](https://www.econlib.org/wp-content/uploads/2023/07/toll-booth-300x199.jpg)
It would make no sense to argue that “a measly congestion charge wouldn’t make people move to Manhattan”, as if that were true it would be equally true that a measly congestion charge would not cause jobs to flee to New Jersey. If it is significant enough to affect behavior, it might affect it in the direction toward more density. In addition, the congestion charge might make Manhattan a nicer place to live, which would encourage more people to wish to move there. Orange County is about to put tolls on “the 405”, which makes me feel much better about my decision to locate here. I can’t wait to drive to LA on the new toll road. If I had retired in Manhattan, I’d strongly favor the proposed congestion charge. So why would we expect Manhattan to become less dense. Am I that atypical?
2. Singapore adopted a basic congestion charge back in 1975, and implemented a flexible electronic system in 1998. Since that time, the city has become far denser. You might argue that this is because lots of people have immigrated to Singapore, and has nothing to do with the congestion charge. But isn’t Singapore’s allure partly due to the perception that it’s very well run, and isn’t the congestion charge a part of being well run? London also instituted a congestion charge, and I’m not aware of any of the anti-density effects that Tyler worries about. Would Tyler recommend that London and Singapore abandon their congestion charges and go back to the old system? After all, those cities also share significant positive externalities from the interaction of talented people in a dense place.
Yes, density and congestion are positively correlated. But they are not identical. There’s no logical reason why a policy that encourages density through less restrictive zoning need conflict with another policy that reduces time wasted sitting in traffic through a congestion charge. The issues are related, but not identical. Thus I cannot accept this argument in Tyler’s recent post:
On net, do you think our most important cities should be more or less dense? If you support YIMBYism, which surely does make traffic worse, have you not already answered that question? So either become a NIMBY or — better yet — be a little more consistent applying your intuitions about the net positive externality from Manhattan density. A simple way to put the point is that an export tax on your TFP [total factor productivity] factory is unlikely to be the best way to reduce congestion.
He’s right that an export tax on Manhattan would be counterproductive. But a congestion charge is not an export tax. It’s not even a transport tax. It’s an auto transport tax.
Here’s why I was reminded of the earlier debate with Scott Alexander. Deregulating construction will certainly add to housing supply, which tends to reduce prices. It might also make the city more desirable, which would push in the other direction. But note that many homeowners oppose housing construction precisely because they fear for the quality of their community. So the latter affect is ambiguous.
Similarly, a congestion charge will certainly reduce time wasted sitting in traffic, which has a clear positive impact on welfare. Also less noise and air pollution. (It’s also an efficient way to raise revenue, allowing for reduction of more distortionary taxes (or spending on mass transit, if you prefer.)) It might reduce density, by making it hard to drive into the city, but it also might raise density by making Manhattan a more desirable place to live. Thus a clear benefit (less congestion) and a possible harm (less density?)
On balance, I suspect that both Scott Alexander and Tyler Cowen have put too much weight on a single factor. I cannot say for certain that they are wrong, but I lean toward the boring conventional wisdom on both issues. (Which annoys me, as I prefer to be a contrarian.)
READER COMMENTS
TGGP
Jul 10 2023 at 6:04pm
It’s not odd for a psychiatrist like Scott Alexander to understand this issue less than an economist does. It’s weird though for Tyler Cowen, even misrepresenting his own co-blogger on the issue.
Thomas L Hutcheson
Jul 10 2023 at 7:25pm
Tyler could possibly be correct about the specific congestion charge and its structure. It must be an argument that the Pigou tax is too large. If the charge reduces the inconvenience of driving into the city, it should increase the value of the trips. The low value entries will be priced out. Number of cars entering the city is not the proper metric. It is the same argument as for raising parking fees until there is no uncertainty about finding a spot to park. You ration the space to those who value it the most.
Scott’s mistake is different. It is that a marginal reduction in the obstacles to building in any arbitrarily defined area (city, neighborhood) might fail to reduce rents/rent equivalents in that area (true) and that means it might be undesirable/welfare reducing (false).
Philo
Jul 11 2023 at 12:22am
Yes; what is being sold for $N (the cost of, say, gasoline and depreciation and existing tolls) without congestion pricing is different from what is being sold for $N + K (where $K = the congestion charge) with congestion pricing. The former is a much longer (duration) trip than the latter. (It may also actually cost more in gasoline consumption). So Tyler’s remark that “demand curves slope downward” is beside the point.
MarkW
Jul 11 2023 at 7:07am
My thought on the congestion pricing is that the last thing NYC needs is any more headwinds against workers returning to the office. Yes, one possibility is that the congestion prices will lead more people to commute by transit. But another is that it will lead people to spend more days working from home rather than coming into the office. And this being New York, it seems almost inevitable that the congestion charge will become a revenue source more than a traffic management mechanism, so that even if it turns out to have bad side effects it will be impossible to get rid of.
MarkW
Jul 11 2023 at 9:37am
Although, on second thought, high congestion charges may assist with the return to the office for the desirable, highly-compensated finance and tech workers for whom $25/day is a trivial sum and being able to drive quickly to the office for a mere $25 would be a godsend. But, of course, the authorities can’t admit to using high congestion charges to assure quick, convenient auto commutes for the wealthy, can they?
Thomas Hutcheson
Jul 11 2023 at 11:47am
You have grasped the point of congestion pricing, to raise the value of the congested good. Tyler was just trying to show off as being a contrarian. 🙂
Kenneth Duda
Jul 11 2023 at 12:19pm
Tyler wrote:
> If you support YIMBYism, which surely does make traffic worse …
Does he have a reference on this? Because on its face, it seems backwards. Higher density means less commuting. Have you ever tried getting out of Palo Alto in the afternoon rush hour? Freeway access turns into a parking lot. YIMBY would improve this, not make it worse, because people could actually live in the same city where they work.
Scott Sumner
Jul 11 2023 at 4:08pm
I had a similar thought. If people move to Manhattan, then they are less likely to commute by car and more likely to commute by foot or by train.
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