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THERE GOES THE NEIGHBOURHOOD
How and Why Artists, Bohemians and Gay
Effect Regional Housing Values
By Richard Florida and Charlotta Mellander (3/2007)
Introduction
“Want to know where a great place to invest in real estate will be five or 10 years
from now? Look at where artists are living now,” so wrote a 2007 Business Week
story provocatively titled, “Bohemian Today, High-Rent Tomorrow.” A wide body of
studies has shown that artist and gay populations act as urban pioneers and that their
location choices can have substantial upward effects on housing prices (Castells 1983;
Ley 1994; Zukin 1995; Smith 1996). But artistic and gay populations are relatively
small and the evidence of their direct effect on housing prices is limited and
anecdotal. There are roughly 330,000 working artists in the United States and
approximately 1.3 million total “bohemians” if we count everyone who works in arts,
design, entertainment and media occupations, amounting to approximately 1.3 percent
of the US workforce in 2000. There are 8.8 million self-identified gay and lesbian gay
people in the United States, roughly 4 percent of the adult population (Gates and Ost
2004). Still, the basic idea that gay and bohemian populations effect on housing prices
surely makes for good headlines. And the notion has become an accepted
conventional wisdom among many urbanists and real estate developers. But, a basic
question remains: Can groups that are this small really have a significant effect of
housing prices? This is the core question for our research.
Housing prices, according to economic theory, are set at the intersection of
supply and demand. Acting on the demand side are wages and income, while the
availability of housing units conditions the supply side. Where new home building
can occur relatively easily, supply increases to meet demand and prices stay more or
less stable. Alternatively, when incomes rise in highly desirable areas or those with
complex or constraining zoning, appreciation will be more rapid (Glaeser et al 2005,
2006). The rise of so-called “super-star cities” has been noted, where appreciation far
outpaces the national average because these are desirable places where supply limited
(Gyourko et al 2006). In certain markets, then housing commands a premium.
We argue that artistic and gay populations effect housing values through two
classes of mechanisms. An important study by Glaeser et al (2001) finds that urban
rents have risen faster than urban wages. They thus conclude that demand for location
is driven by something other than the wage level - an urban amenity premium. They
introduce a simple formula for this: Urban Productivity Premium + Urban Amenity
Premium = Urban Rent Premium. We extend this idea of an urban amenity premium,
arguing that bohemians and gays affect housing values on the supply side through an
aesthetic-amenity premium. Artists and bohemians are direct producers of amenities;
their location will thus directly reflect higher levels of amenity. Furthermore, their
location also reflects them. As selective buyers with an eye for amenity, authenticity
and aesthetics, locations where artists, bohemians and gays concentrate are likely to
be highly sought after for their cultural amenities, desirable neighborhood character,
and aesthetic quality of the housing stock.
Second, we argue that bohemian, artistic and gay populations reflect a second
premium – a tolerance or open culture premium. Markusen and Schrock (2006)
describe an “artistic dividend” through which arts and cultural activities increase the
vibrancy and diversity of metropolitan areas, influencing other industries and
generating growth. Florida (2002a, b, c) introduced a measure of the producers of
artistic and cultural amenities - the “Bohemian Index“- and found it to be associated
with concentrations of talent and innovation. Florida and Gates (2001) found a
positive association between concentrations of gay households and regional
development. This tolerance or open culture premium acts on the demand side by
reducing barriers to entry for human capital; increasing the efficiencies of human
capital externalities and knowledge spillovers; promoting self-expression and new
idea generation; and facilitating entrepreneurial mobilization of resources, thus acting
on regional income and real estate prices.
Our argument can be summarized in a simple equation: Regional Income +
Regional Amenity Premium + Regional Openness Premium = Regional Housing
Values. We introduce a combined measure of bohemian and gay populations – the
Bohemian-Gay Index as a proxy measure for regional amenity and regional openness.
We then operationalize our model and use a variety of statistical techniques analysis
to test the efficacy and performance of Bohemian-Gay Index against other variables
that are expected to effect housing values: income, wages, technology, and human
capital. Some might argue that bohemian and gay populations are not causal but
instead are themselves a function of higher income, higher human capital locations.
Taking this into account, we separate the direct and indirect effects, in a structural
equation model and path analysis, to further examine these variables in a regional
system. The analyses are cross-sectional, and based on data for 331 US metropolitan
regions for the year 2000.
The key findings confirm the general theory and hypotheses. The Bohemian-
Gay Index has substantial effects on housing values across all permutations of the
model and across all region sizes. It remains positive and significant alongside
variables for regional income, wages, technology and human capital. In addition to its
direct effect on housing values, the Bohemian-Gay Index also has a substantial direct
effect on other key variables, particularly income, and because of that has an
additional indirect effect in housing values as well. We thus reject the hypothesis that
Bohemian-Gay Index only reflects higher incomes or higher human capital. The
consistency of the findings clearly establishes that it works independently alongside
those factors to condition housing values.
Διαβάστε ολόκληρο το κείμενο πιέζοντας εδώ
THERE GOES THE NEIGHBOURHOOD
How and Why Artists, Bohemians and Gay
Effect Regional Housing Values
By Richard Florida and Charlotta Mellander (3/2007)
Introduction
“Want to know where a great place to invest in real estate will be five or 10 years
from now? Look at where artists are living now,” so wrote a 2007 Business Week
story provocatively titled, “Bohemian Today, High-Rent Tomorrow.” A wide body of
studies has shown that artist and gay populations act as urban pioneers and that their
location choices can have substantial upward effects on housing prices (Castells 1983;
Ley 1994; Zukin 1995; Smith 1996). But artistic and gay populations are relatively
small and the evidence of their direct effect on housing prices is limited and
anecdotal. There are roughly 330,000 working artists in the United States and
approximately 1.3 million total “bohemians” if we count everyone who works in arts,
design, entertainment and media occupations, amounting to approximately 1.3 percent
of the US workforce in 2000. There are 8.8 million self-identified gay and lesbian gay
people in the United States, roughly 4 percent of the adult population (Gates and Ost
2004). Still, the basic idea that gay and bohemian populations effect on housing prices
surely makes for good headlines. And the notion has become an accepted
conventional wisdom among many urbanists and real estate developers. But, a basic
question remains: Can groups that are this small really have a significant effect of
housing prices? This is the core question for our research.
Housing prices, according to economic theory, are set at the intersection of
supply and demand. Acting on the demand side are wages and income, while the
availability of housing units conditions the supply side. Where new home building
can occur relatively easily, supply increases to meet demand and prices stay more or
less stable. Alternatively, when incomes rise in highly desirable areas or those with
complex or constraining zoning, appreciation will be more rapid (Glaeser et al 2005,
2006). The rise of so-called “super-star cities” has been noted, where appreciation far
outpaces the national average because these are desirable places where supply limited
(Gyourko et al 2006). In certain markets, then housing commands a premium.
We argue that artistic and gay populations effect housing values through two
classes of mechanisms. An important study by Glaeser et al (2001) finds that urban
rents have risen faster than urban wages. They thus conclude that demand for location
is driven by something other than the wage level - an urban amenity premium. They
introduce a simple formula for this: Urban Productivity Premium + Urban Amenity
Premium = Urban Rent Premium. We extend this idea of an urban amenity premium,
arguing that bohemians and gays affect housing values on the supply side through an
aesthetic-amenity premium. Artists and bohemians are direct producers of amenities;
their location will thus directly reflect higher levels of amenity. Furthermore, their
location also reflects them. As selective buyers with an eye for amenity, authenticity
and aesthetics, locations where artists, bohemians and gays concentrate are likely to
be highly sought after for their cultural amenities, desirable neighborhood character,
and aesthetic quality of the housing stock.
Second, we argue that bohemian, artistic and gay populations reflect a second
premium – a tolerance or open culture premium. Markusen and Schrock (2006)
describe an “artistic dividend” through which arts and cultural activities increase the
vibrancy and diversity of metropolitan areas, influencing other industries and
generating growth. Florida (2002a, b, c) introduced a measure of the producers of
artistic and cultural amenities - the “Bohemian Index“- and found it to be associated
with concentrations of talent and innovation. Florida and Gates (2001) found a
positive association between concentrations of gay households and regional
development. This tolerance or open culture premium acts on the demand side by
reducing barriers to entry for human capital; increasing the efficiencies of human
capital externalities and knowledge spillovers; promoting self-expression and new
idea generation; and facilitating entrepreneurial mobilization of resources, thus acting
on regional income and real estate prices.
Our argument can be summarized in a simple equation: Regional Income +
Regional Amenity Premium + Regional Openness Premium = Regional Housing
Values. We introduce a combined measure of bohemian and gay populations – the
Bohemian-Gay Index as a proxy measure for regional amenity and regional openness.
We then operationalize our model and use a variety of statistical techniques analysis
to test the efficacy and performance of Bohemian-Gay Index against other variables
that are expected to effect housing values: income, wages, technology, and human
capital. Some might argue that bohemian and gay populations are not causal but
instead are themselves a function of higher income, higher human capital locations.
Taking this into account, we separate the direct and indirect effects, in a structural
equation model and path analysis, to further examine these variables in a regional
system. The analyses are cross-sectional, and based on data for 331 US metropolitan
regions for the year 2000.
The key findings confirm the general theory and hypotheses. The Bohemian-
Gay Index has substantial effects on housing values across all permutations of the
model and across all region sizes. It remains positive and significant alongside
variables for regional income, wages, technology and human capital. In addition to its
direct effect on housing values, the Bohemian-Gay Index also has a substantial direct
effect on other key variables, particularly income, and because of that has an
additional indirect effect in housing values as well. We thus reject the hypothesis that
Bohemian-Gay Index only reflects higher incomes or higher human capital. The
consistency of the findings clearly establishes that it works independently alongside
those factors to condition housing values.
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