Fast metro growth=lower incomes

Study links poverty, growth

David Crossley, Jan 04, 11.

Faster metropolitan growth rates are associated with lower incomes, greater income declines, and higher poverty rates, according to a study by Eben Fodor (pdf) for Fodor and Associates. The study finds that the 25 slowest-growing metro areas outperformed the 25 fastest growing in every category and averaged $8,455 more in per capita personal income in 2009.

Most cities in the U.S. have operated on the assumption that growth is inherently beneficial and that more and faster growth will benefit local residents economically. This examination of the 100 largest metro areas, representing 66% of the total U.S. population, shows those that have fared the best have the lowest growth rates. Even metro areas with stable or declining populations tended to fare better than fast-growing areas.

This study compared income levels, unemployment rates, and poverty rates with growth rates for each metro area. In every category, faster-growing metro areas fared worse than slower growing areas. Residents of the 25 slowest-growing metro areas averaged $8,455 more personal income per capita than in the 25 fastest-growing areas. They also had lower unemployment and poverty rates. The nine-year study period captures the effects of the Great Recession, and changes from 2007 to 2009 show that faster-growing metro areas were more severely impacted.

Growth clearly provides benefits to some elements of the local population (see Molotch, 1976; Logan, 1988; and Fodor, 2001). Foremost among these are the real estate, financial, and land development businesses. Growth generates demand for more housing and commercial space that these businesses build, sell, and finance. Higher demand increases real estate prices, commissions, and loan fees, and makes the development business more profitable. These business interests represent a wealthy and politically influential constituency in most cities that advocates in favor of increasing local growth. They are organized and represented through their local trade associations: the homebuilders’ associations, the realtors’ associations, the mortgage bankers’ associations, and the local chambers of commerce.

While certain businesses prosper from growth, the balance of the community seems to suffer. The statistics showing that fast-growing areas tend to have lower and declining incomes, indicate that any gains by the businesses that directly benefit from growth are more than offset by losses to the balance of the local population. In other words, a small segment of the local population may benefit from faster growth, but the larger population tends to see their prosperity decline.

This study found that public policies and economic development strategies that seek quantitative growth of a metro area may have short- and long-term adverse consequences for local residents. A path of high growth today may lead to negative consequences lasting well into the next decade.

Assuming we are interested in promoting the economic welfare of urban residents, we should re-evaluate our policy emphasis on growth. The impacts of urban growth on communities are poorly understood. Given the findings of this study, the magnitude of public investments in growth, and the potential economic consequences for urban residents across the country, more research is clearly warranted on this important topic.

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