MIT Center for Real Estate Week 5: Employment Decentralization, “edge” cities. • Measuring Decentralization, space versus jobs. • Wages, the urban labor market and the incentive for decentralization. • Local agglomeration, clustering, transportation infrastructure, planning and other “limits to sprawl”. enter for Real E National % of office space in CBD as opposed to MIT C state Suburbs (source: CBRE) enter for Real E Washington D.C.: City and Suburban MIT C state Office Space (source: CBRE) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 District of Columbia Suburban Maryland Northern Virginia enter for Real EMIT C state Decentralization “flattens” the cumulative W.D.C. spatial distribution of office space. [Source: geo-coded building data, CBRE] 0% 20% 40% 60% 80% 100% 120% Pe rcent of Stock 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 M iles out from Center 1980 2002 enter for Real E The Distribution of Office Using Jobs Across The MIT C state NY CMSA [Source: Employment Zip file, 1999] 120% 100% 80% 60% 40% 20% 0% 0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 Information, Real Estate, Prof essional Services Finance Management of Companies, A dministrative Services .5 enter for Real EMIT C state Cummulative Employment and Population (%) Figure 7: Los Angeles Spatial Distributions Employment Population 1 .75 .25 0 0 10 20 30 40 50 60 70 Distance from Center of the CBD (miles) enter for Real E Figure 6: New York Spatial Distributions Cummulative Employment and Population (%) Distance from Center of the CBD (miles) Employment Population 0 5 10 15 20 25 30 35 40 45 50 55 0 .25 .5 .75 1 MIT C state MIT Center for Real Estate b Concentration = ∫ e(t) dt 0 b Where: e(t): cumulative fraction of jobs (population) at distance t b: distance at which 98% of population live. Figure 8: Employment and Population Centralization in a Sample of 120 Cities Employment Centralization Honolulu Wichita DesMoin .8 Syracu Erie Rochest Jacksonv Birming Oklahom Jacksonv Pensac Tulsa Sarasot Tucson Fresno Anchor Lansing SanAnton Austin NewOrle Sacram Montgom Columb Charlest Portland AtlCity Chatta Minneap FortWay Allent Toledo ColSpr Biloxi Peoria Houston SaltLake Wash Lincoln .7 .6 Columb Clevel .5 Albany Atlanta August Baltim BatonR Boston Buffalo Canton Charlot Chicago Cincinn Columb CorpChr Dallas Dayton Daytona Denver Detroit ElPaso Evansv Flint FtMyers GrRapids Greensb Greenv Harrisb Hartford Huntingt Indianap Kalamaz Kansas Knoxv Lancast LasVegas LexFay Lrock LosAng Louisv Lubbock Madison McAllen Memphis Miami Milwauk Mobile Modesto NewYork Norfolk Omaha Orlando Philad Phoenix Pittsbu Providen Provo Raleigh Reading Reno Richmond Roanoke Rockf StLouis Salem SanDieg SanFran SantaB Savannah Scranton Seattle Shrevep SthBend Spokane Springf Stockton Tampa Waco Waterb WPalmB Worcest Youngst .5 .6 .7 Population Centralization enter for Real E Employment Dispersal and commuting MIT C state • If people can commute only inward (not true but a useful assumption!). Then the number of people traveling inward at any point is the difference between the cumulative number of jobs located up to that point and the cumulative number of workers living up to that point. • Proof: if the number of inward travelers at distance (t) is less than this difference then not all jobs up to t are being filled. If the reverse, then there are more commuters than jobs up to t and jobs beyond t are not being filled. • Implication: jobs must be more centralized than residences for positive traffic flow in the allowed direction. • With complete job-residence dispersal: no commuting! • With centralized employment traffic worst at the edge of the business district enter for Real EMIT C state F ig u re 4: L an d U se an d T ravel C o sts, 2 m illio n in h ab itan ts, m ixed u se city, h igh ag g lo m eratio n 1.2 500 450 % of Total 1 400 350 0.8 300 0.6 250 200 0.4 150 100 0.2 50 0 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 Dista nce (1/10 M ile) Cum ulative E m ploym ent Cum ulative P opulation Travel Costs/mile Figure 6: Land Use and Travel Costs, 2 million inhabitants, mixed use city, low agglomeration 0 1 0 50 0.2 0.4 0.6 0.8 1.2 % of Total 100 150 200 250 300 350 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 Distance (1/10 Mile) Cumulative Employment cum ulative Population Travel Costs/m ile [...]... to secure workers = higher travel costs erode the suburban wage advantage • Is the CBD the site with best access to all type of Workers in the region? What about Headquarters? [Shilton] C Market boundary Land Value Yes if zoning creates one! “Laissez Faire” R “Excess Demand” C R Zoning Barrier Land Value Is there a separate “Commercial ” land Market? Land Value MIT Center for Real Estate “Excess Supply”... 1,234 20.74 Boston adapted from DiPasquale and Wheaton (1996) MIT Center for Real Estate Urban “Agglomeration” • Firms of the same type share information and ideas if they are in proximity to each other [non competes?] • Firms of different types that do business with each other find it more convenient if in proximity [transportation costs are trivial and the Internet?] • Workers can switch jobs more... Why firms leave the CBD for a Subcenter • Subcenter workers at d5 pay the same for land as CBD workers living there, but have a shorter commute Hence their wage must be less by the difference in commute: (d5 – d1 ) versus (d2 – d5 ) • Note that land rents still make workers that are employed at each center indifferent about living at different locations around that center • Firms at the CBD now must... cannot contract in the face of suburban competition (its capital is fixed) - Mobile workers will still demand higher wages to work there - Rents will contract and remain below replacement costs to attract tenants who must pay higher wages - Eventually space will deteriorate and not be replaced MIT Center for Real Estate The same argument is at work within central cities The stock of office space is... Real Estate What if zoning limits the amount of commercial space at a “good” location • The center with lower wages is supposed to grow and expand until its advantage is eventually eroded through longer commutes (and higher wages) • Without this growth, its advantage will remain and without greater commuting, wages will remain lower – hence Rents will rise to absorb the advantage • What will happen... commercial land zoning MIT Center for Real Estate Boston Office Market: Nodularity and the distribution of subcenters Office Area, Buildings, and Asking Rents, Boston-Area Towns, 1993, CBRE Town (Cluster Square Feet (thousands) Number of Buildings Rent Back Bay 10,675 66 25.19 Financial District 26,754 141 26.73 South Station 3,053 21 23.50 Andover 1,438 10 16.25 Burlington 3,498 43 18.90 Cambridge 11,103... MIT Center for Real Estate Commuting times in the greater NY CMSA [internal = Origin and destination in same area] Origin Destination Downtown Midtown Internal CT 56.5 56.2 20 NJ 53.2 52.9 22.1 NY 40.6 39.8 40.9 Weighted Avg 42.1 41.3 MIT Center for Real Estate CBD Sub Center Land Rent and Commuting in a city with both a CBD and a suburban Sub Center Land rent rf r(d) r(d) ra commute d1 d6 d1 d5 d2... equilibrium, no one wants to change location of either home or work • For workers at a particular plant – what insures that they are indifferent to different residential locations? Housing Rent (Lecture 2) • For residents at a particular home location what insures that they are indifferent to switching jobs? Different Wages Jobs closer to the center must pay for the incremental additional cost of commuting:... Center for Real Estate Should Office Rents be higher in larger Subcenters? (Archer-Smith, 2003) • Yes, if residential rents are higher from longer commutes • But that necessitates an offsetting agglomeration or other advantage (how to distinguish between the two?) • No if larger subcenters have better transport systems (that’s what makes them larger) • Yes, if as centers grow, they bump up against boundary... higher land rent (equal here to residential), but must also pay higher wages for labor - Wages: 15% more [e.g $13,500] - Rent (per worker): 250 x $15-20 [e.g $4250] MIT Center for Real Estate MIT study of wages and average commuting time by location of employment [POWPUMA] MIT Center for Real Estate Why not a Fully Dispersed Polycentric City? An MSA grows Horizontally with additional sub centers and no . Wages, the urban labor market and the incentive for decentralization. • Local agglomeration, clustering, transportation infrastructure, planning and other. commercial land zoning MIT Center for Real Estate Boston Office Market: Nodularity and the distribution of subcenters Office Area, Buildings, and Asking