What is a Closed Access city?

In my review of the housing boom and bust, I have gradually come to a categorization of major American cities which explains their broad differences.

Among the top 20 cities:

Closed Access cities: New York City, Los Angeles, Boston, San Francisco (and San Jose), and San Diego

These cities all share various peculiar and related characteristics.  High and rising incomes, very low rates of homebuilding, rising rents, rising home prices, and a turnstile migration pattern of high income households moving in and low income households moving out.  These have become enclaves of privilege for high earning workers where both (1) workers and firms that would compete with them are obstructed by high cost of living, and (2) service workers who would have followed those high earning workers into the cities so that they could also capture some of the gains of new economic growth are locked out of that opportunity for lack of homes.  This has created a sort of meritocratic elitist economy.  This is the core challenge of our time.

Contagion cities: Miami, Phoenix, Riverside (CA), and Tampa (essentially inland California, Arizona, Nevada, and Florida)

During the housing boom, there was tremendous out-migration of residents out of the Closed Access cities, because of the lack of housing.  Millions of households have moved out of those cities over the past 20 years.  The Contagion areas are the areas that take in most of that migration.  When this problem peaked in 2004-2006, these cities were overwhelmed with new residents and with former Closed Access homeowners who were reinvesting in Contagion city homes that were much less expensive than their previous homes.  In these cities, we might call what happened a bubble, but what happened there was really the opposite of what was happening in the Closed Access cities.  The price spike in these cities tended to be sharper, for a shorter amount of time, and at much lower price points, than the Closed Access cities.  And, it was tied to very high levels of in-migration of new tenants putting pressure on the local housing stock - both owners and renters.

Open Access cities: Atlanta, Houston, and Dallas (most smaller metro areas also fit this type)

These cities had generous rates of new homebuilding, like Phoenix, Tampa, etc., but they were removed enough from Closed Access cities that they never saw as large a spike in in-migration as the Contagion cities did, so they didn't develop the temporary bubble markets that the Contagion cities did.  Real long term interest rates were low during the boom, which did create moderate price increases in these cities, but prices never moved out of historical norms.

These aren't perfect categories.  Cities like Seattle and Washington, DC have some Closed Access characteristics.  Incomes there are high and housing costs are relatively high.  But, those cities don't have the turnstile migration pattern of the Closed Access cities, because, in spite of some pressures that limit homebuilding, they still manage to build a reasonable number of new units.  Rent inflation in these cities has been generally high, like in the Closed Access cities, but rents have not become so high that households in low tier markets have been forced out of the city by affordability problems.  They can adjust their unit size, location, and amenities within the city.  Maybe this means that Seattle and Washington, DC are infant Closed Access cities, and it's more a matter of degrees than of kind, and when rent inflation eventually causes rents to rise high enough, migration will ensue.  But, the fact of the matter is they really do allow more homes to be built than the Closed Access cities, so the difference between these cities and Closed Access cities will be an interesting topic to follow over time.


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