The economic power of America's superstar cities has made them increasingly unattainable. But "winner-take-all urbanism" can be fixed. Mark Kauzlarich/Reuters

Cities are at the heart of the inequality that divides the nation. They’re also the key to the solution.

This is the last of our series of excerpts from Richard Florida’s new book, “The New Urban Crisis.”

When was the last time you heard a national politician talk thoughtfully about cities and urban policy or make them an integral part of his or her agenda?

Former president Barack Obama grew up in cities and clearly cares deeply about them, but even his administration failed to make any substantial moves on urban policy. The 2016 Democratic primary featured two former mayors, Bernie Sanders of Burlington, Vermont, and Martin O’Malley of Baltimore; a third, former Richmond mayor Tim Kaine, eventually joined the Democratic ticket as Hillary Clinton’s running mate. Aside from O’Malley’s invocations of urban policy (which I helped craft), cities and urban policy were rarely, if ever, mentioned during the 2016 primaries or presidential campaign.

The last time we had a serious national conversation about cities was back in the 1960s and 1970s, during the old urban crisis, when some cities exploded in riots and others teetered on fiscal collapse. Typically, if Donald Trump and other leading conservative politicians talk about cities, it is only to point to so-called liberal failures to solve chronic urban poverty and crime. The closest we get to a conversation about actual urban policy today is when politicians call for greater investments in urban infrastructure as a way to stimulate growth.

The disconnect between the vital economic role of cities and our policymakers’ neglect of them could not be more palpable or troubling. Our ability to innovate and grow the economy depends on the clustering of talent, companies, and other economic assets in cities. Metro areas are our premier platforms for technological innovation and wealth creation, as well as for social progress and the fostering of open-mindedness and political freedom. They are our best laboratories for devising and testing new strategies for creating high-paying jobs and raising living standards.

But our cities and urban areas face deep challenges. The very same clustering force that generates economic and social progress also divides us. Winner-take-all urbanism means that a few places capture a disproportionate share of the spoils of growth, while many more stagnate or fall further behind. Middle-class neighborhoods fade, and the nation splinters into a patchwork of concentrated advantage and disadvantage.

So what can we do to overcome this New Urban Crisis and put our economy and society back on track?

Our understanding of what challenges cities face has been partial and incomplete, the strategies and solutions that have been proposed for it have been too limited and ad hoc to cope with the depth and scope of its challenges. To solve a crisis this deep and systemic, we must put cities and urbanism at the very center of our agenda for economic prosperity.

If our crisis is urban, so is its solution. If we are to again enjoy a widely shared and sustainable prosperity, we must become a more fully and fairly urbanized nation. The scale of investment that is required is daunting, but it is not unprecedented. The good news is that we can make significant gains by using resources that are already at our disposal. To address the full sweep of the New Urban Crisis, we will have to pursue a new strategy for a more productive urbanism for all that can take shape around five pillars that I discuss below:

Make clustering work for us, not against us

Clustering is the key driver of economic growth, and it is absolutely critical that we effectively harness it to create the broadest possible economic and social benefits. As we have seen, the problem here revolves around the urban land nexus: Land is scarce precisely where it is needed the most. We can’t make more land, but we can develop the land we have more intensively and efficiently.

So-called market urbanists argue that the best way to do this is by eliminating restrictive zoning and building codes that limit the market’s ability to build as needed. They make an important point: Zoning and building codes do need to be liberalized and modernized. We can no longer allow NIMBYs and New Urban Luddites to stand in the way of the dense, clustered development our cities and our economy need.

But land use deregulation by itself is insufficient to address the full breadth of the problem. While it will result in new housing being built and in increased density, the high costs of both urban land and high-rise construction mean it is likely to add expensive luxury towers. It will do little to provide the kinds of affordable housing our cities really need. Even free-market economist Tyler Cowen has a certain skepticism toward this approach:

More stuff will be built, urban output will expand, land still will be the scarce factor, and by the end of the process rents still will be high. If we deregulate building, landowners will capture a big chunk of the benefits.

As a result, very little of the benefit will end up trickling down to those who need it most.

But there’s another reason to be skeptical. Houston—the paragon of sprawling Sun Belt development, the archetypal expansive metro where developers can build what and where they want unencumbered by zoning or land use restrictions—consistently ranks alongside New York, Los Angeles, and San Francisco on my indicators of inequality, segregation, and the New Urban Crisis. Greater Houston ranks eleventh among the large metros on my New Urban Crisis Index. Though its housing is more affordable than those cities, it is relatively expensive compared to other metros and suffers from among the highest levels of inequality and segregation in the country.

Radical deregulation of land use and housing potentially runs the risk of killing off the proverbial goose that lays the golden egg. Urban economies are powered not by extreme residential density and huge towers, but by the mid-rise, mixed-used density that promotes mixing and interaction. The world’s most innovative places are not the skyscraper districts and vertical sprawl of Hong Kong or Singapore, but the former industrial neighborhoods of New York, San Francisco, and London, which are filled with mid-rise buildings, factory and warehouse lofts, and the occasional high-rise, arrayed along streets that enable constant mixing and interaction to take place. As Jane Jacobs warned long ago, “In the absence of a pedestrian scale, density can be big trouble.”

Extreme land use deregulation may well end up damaging our most innovative urban districts by encouraging too much vertical sprawl and turning them into deadened condo canyons. It is precisely these kinds of mixed-use neighborhoods that are in short supply, because we effectively stopped building them during the suburban era. Every time we kill one off, we lose an irreplaceable asset for innovation.

Although we certainly need to eliminate backward-looking regulations, we must also take care not to undermine our most precious and unique urban ecosystems. To accomplish this, we need to reform urban land use regimes to ensure that they have the flexibility required for the urbanized knowledge economy and are able to channel development in ways that enhance, and do not undermine, the creative, innovative, and productive capacities of urban economies.

The most effective approach to spurring denser and more clustered development is to switch from our current local reliance on the property tax to a land value tax. Whereas the property tax taxes land and the structures on top of it, a land value tax taxes the underlying value of the land itself. In this way, it creates significant incentives for property owners to put that land to its most intensive use. The basic idea goes back to David Ricardo, who developed influential theories of free trade and comparative advantage in the early 18th century. Ricardo saw the unearned income that comes from land as pure waste.

The most influential proponent of the land value tax was the late-19th-century economist Henry George. In his book Progress and Poverty, he argued that such a tax would not only make more effective use of land, but also raise wages, reduce inequality, and generate greater productivity. The basic premise is that the less developed land is, the higher it is taxed. George suggested that undeveloped land be taxed at a rate of 100 percent, minus the improvements made to it. Absent such improvements, he argued, all of the land’s value should return to the public commons. In today’s cities, property owners who use their land for, say, undeveloped surface parking lots would be taxed at a very high rate. A small apartment building would be taxed at a lower rate, and a larger one at an even lower rate. This system would provide greater incentives to put land in high-priced urban centers to its most efficient and productive use, increasing density and clustering.

Furthermore, under the current property tax system, landlords and property owners not only have disincentives to add density and further develop their properties, but they are able to reap extraordinary rewards, or rents, by simply profiting from the increase in property values that is created by neighborhood upgrading and the ongoing appreciation of real estate values. The High Line Park in New York, for instance, created a huge increase in the land value of surrounding property, which generated windfalls for real estate developers, but little if any of those gains were returned to the park or the broader community.

While New York City’s High Line has proved to be a successful civic amenity, most of its economic benefits have gone to developers, not the wider community. (John Schults/Reuters)

The same is true on a smaller scale in virtually every urban neighborhood that is seeing an influx of new residents, new restaurants and cafés, new and better schools, or reductions in crime. A land value tax can help ensure that those benefits are shared more broadly by the public, because the rise in the value of the land that occurs through these broader neighborhood improvements is also captured by the tax and returned to the public, where it can potentially be used to invest in needed services and help close economic gaps in the community.

Another intriguing idea involves using local tax policy to essentially co-opt NIMBY opposition to new development. The basic idea, referred to as tax increment local transfers, is to allow the residents of neighborhoods to share in the tax revenues that come from new development—for example, by rebating and reducing their own property taxes over a period of time.

As politically difficult as it might seem to change local tax structures in these ways, the land value tax is attracting broad support from a wide array of economists and urbanists on both sides of the aisle. It is a move that would encourage more building where it is needed, increase density and clustering, and help to make both our cities and the economy stronger.

Invest in infrastructure for density and growth

Infrastructure is certainly the topic du jour among politicians of all stripes. Donald Trump called for substantial investments in it to stimulate the economy. The administration of Prime Minister Justin Trudeau in Canada is doing just this, making a huge financial commitment to infrastructure to spur economic growth and create better jobs. But a menu of random projects won’t do the trick, and pouring money into more roads and bridges will only hold us back. What we need are strategic investments in the kind of infrastructure that will push us closer together instead of spreading us apart. That means shifting infrastructure investment away from roads and highways that spread us out and toward mass transit that helps cluster people and economic activity closer together.

The United States invests shockingly little in mass transit. Much of the transit we do have in cities like New York is a legacy good, often more than a century old. (The extensive transit systems of New York and London were largely developed before the advent of the automobile.) In fact, the scarcity of such transit-served locations is the reason that land and housing around subway and transit stops has become so expensive. Transit-served neighborhoods provide better access to jobs and improve residents’ chances for upward mobility. Expanding transit will increase the number of these locations and enable greater numbers of people, especially less advantaged people, to gain access to them.

Of course, transit works best in already dense places, such as New York City, San Francisco, Chicago, Boston, and Washington, D.C. Although such cities already have transit, they could use still more of it, especially to connect outlying areas to their urban centers and reduce congestion and reliance on cars.

Transit is also needed in more sprawling metros, particularly those that have grown increasingly large and congested. The development of metro areas faces a geographic limit as they grow larger. When metro areas reach a threshold of 5 or 6 million people, cars and roads are no longer a very effective way to move people around. The United States has quite a few metro areas that are roughly this size—for example, the Bay Area, Greater Washington, D.C., Boston, Philadelphia, Houston, Dallas, Atlanta, and Miami. These metro areas are already at or near their outward limit for geographic expansion based on the car. It is increasingly difficult, if not impossible, to add sufficient housing through further outward expansion.

Increasing density in the urban center, and especially in the suburbs, is the only way sustainable growth can be achieved. Investing in transit and reducing reliance on the car is a key mechanism for generating denser, more clustered development in both central and outlying areas. One bright spot of the 2016 election was that voters in many states and localities across the nation voted to increase expenditures for transit.

Transit infrastructure can also help expand the outward reach of metros. Over the course of the twentieth century, the introduction of each new form of transportation—the streetcar, subways, and the car—expanded the commuting zone for workers, allowing cities and metro areas to expand outwardly. Better, faster transit, including high-speed rail in some places, could vastly expand the commuting zones and labor sheds of today’s metro areas, allowing workers to commute from homes in more affordable places to jobs in more productive ones.

New York City’s Second Avenue subway line, a rare major new investment in urban mass transit. (Elizabeth Shafiroff/Reuters)

Not everyone who works in a superstar city or leading knowledge hub has to live in one. High-speed rail can help to link separate metros together in larger and more formidable mega-regions. This has already happened in some parts of the country without the benefit of high-speed rail, namely, the so-called Amtrak Corridor running between Boston, New York, Philadelphia, Baltimore, and Washington, D.C., an area with a population of more than 50 million people and economic output north of $2 trillion. It can better connect metros to one another by dramatically reducing the time it takes to move between them.

True high-speed rail (traveling at speeds like France’s TGV or Japan’s Shinkansen) could reduce the travel time between New York and Boston, or New York and Washington, D.C., to less than ninety minutes, and between Dallas and Houston, or Dallas and Austin, to about the same; trips from Los Angeles to San Francisco, or Pittsburgh to Chicago, would shrink to a more manageable two and a half hours. This could substantially expand the functional labor markets of these places, enlarge their economies, and bolster their overall economic competitiveness.

It is time to level the playing field for mass transit by reducing the outright subsidy we give to the car in the form of roads and highways. Cities in other parts of the world, including London, have begun to institute congestion charges, which make drivers pay for their use of busy roads to help alleviate traffic, sprawl, and pollution. Ultimately, this is not about choosing one form of transportation over another. It’s about ensuring we have the infrastructure that can move people around efficiently, create the density and housing affordability we need, and most of all, help to spur overall economic growth.

Build more affordable rental housing

In our most expensive cities, housing has become unaffordable for all but the top one-third of society’s most advantaged people. Essential service providers, including police and firefighters, teachers and hospital workers, and restaurant and retail workers, are being pushed farther and farther away from urban centers and other key centers of economic activity. In some of these places, it is becoming so hard to attract workers for these functions that large-scale commercial developers are calling for “urban workforce housing.” The lack of affordable housing in these places is starting to hinder their ability to reproduce themselves and keep their economies running.

The problem of housing affordability may be most acute in superstar cities and tech hubs, but it extends far beyond them. Too many Americans across the country, especially low-income renters, are spending too much of their incomes for housing. And our housing system is strongly oriented toward single-family housing in sprawling suburbs and against the more affordable, clustered rental housing that urbanized knowledge capitalism requires.

A big part of the problem is U.S. housing policy itself. Designed to stimulate suburbanization, our current housing policy massively subsidizes homeowners. The federal government provides an estimated $200 billion in annual subsidies for homeownership via tax deductions for mortgage interest. When the indirect costs are accounted for, the subsidy may run as high as $600 billion, four to twelve times as much as the nation spends on housing assistance to those in need (roughly $46 billion a year). The top 20 percent of income earners gain 75 percent of these benefits, and the top 1 percent hauls in 15 percent. These policies badly distort the housing market, causing it to produce too much spread-out single-family housing and not enough clustered rental housing.

The shift from single-family suburban homes to multifamily rental housing, which I have referred to as the great housing reset, is already under way, despite these distortions. Homeownership has declined substantially from its peak of the mid-1960s, and it is headed even lower. Over the past decade or so, more Americans—especially those in high-priced superstar cities and knowledge hubs—have become renters. The number of renter households increased by 9 million between 2005 and 2015, the largest one-decade increase on record. By the end of that period, 43 million Americans were renters, and the share of renters had grown from 31 percent to 37 percent of the population. More than seven in ten Millennials between the ages of eighteen and thirty-four are renters, as are more than half the residents of New York, Los Angeles, and San Francisco.

Renting is more closely aligned with the needs of the urbanized knowledge-based economy than homeownership. Renters are more likely to live close to work or use transit to get to their jobs, while suburban homeowners are more likely to commute long distances in their cars. Building more rental housing and less single-family housing is in sync with and reinforces the urban clustering that stimulates innovation and economic growth. Still too many renters are seriously burdened by their housing costs, many of them caught in a death spiral of rising rents and declining incomes.

It’s time to redirect federal housing subsidies away from affluent homeowners to the less advantaged renters who really need them. Doing so will help create demand for rental units, stimulate more construction of apartment buildings, and generate more clustered development. Continuing unfair subsidies to single-family homeowners only encourages sprawl, which undermines the density and clustering that drive growth while adding substantial other costs to our economy.

These measures, along with rational reform of land use restrictions and investments in transit, will help spur the construction of more affordable condos and rental apartments. But it still will not be enough to make housing affordable for less advantaged groups, especially in expensive superstar cities. Not surprisingly, a 2016 study of the San Francisco Bay Area found that a combination of building more private-market-rate housing and more subsidized housing is required to address the region’s housing affordability challenge.

Luxury high-rise The Charles towers over First Avenue in Manhattan; some of the apartments cost more than $50 million. (Brendan McDermid/Reuters)

There has been no shortage of proposed solutions for providing more affordable housing for those truly in need. They include expanding rent control, building more publicly subsidized housing, and making use of so-called inclusionary zoning—that is, mandating that developers construct affordable housing units in exchange for being able to build bigger, taller, high-end projects. While the aims of such policies are admirable, they can be costly and inefficient.

The most effective way to help those who are truly in need is to raise their incomes. Direct public support in the form of housing vouchers can be a part of that. But getting them better, higher-paying jobs is even more effective.

Turn low-wage service jobs into middle-class work

Right now, our economy simply does not have enough high-paying jobs to support a new middle class. We need large numbers of better jobs with higher wages to help lift people out of poverty and enable them to afford better housing. Some will say that Trump and the Republicans are in the way here, but a lot can be done on this front by states and cities and the private sector.

The strategies that politicians typically offer up for rebuilding the middle class will not even come close to solving the problem. Many (most notably Trump himself) like to talk about bringing middle-class manufacturing jobs back to America. But only 20 percent of Americans do blue-collar work of any sort today, and that includes huge numbers of construction and transportation workers. Just 6 percent of workers actually make things in factories. Even if we were able to bring large numbers of manufacturing jobs back—and even if the much-publicized successes with advanced and so-called artisanal manufacturing continue apace—these new jobs will still amount to just a drop in the bucket. In today’s global, tech-driven economy, manufacturing will never be the economic force and the backbone of the middle class that it once was.

As we have seen, the largest and fastest-growing segment of our economy is the low-paid service sector, where more than 60 million American workers, making up more than 45 percent of our national workforce, toil in low-skilled, low-wage, precarious high-turnover jobs. Transforming low-paid service jobs into middle-class work is not nearly as outlandish a proposition as it may seem at first glance. It’s analogous to how we turned the low-paying manufacturing jobs of the late 19th and early 20th centuries into the family-supporting blue-collar jobs of the 1950s and 1960s. Henry Ford’s insight—that assembly-line workers should be paid enough to buy the cars they were making—gets to the nub of the matter.

As my father liked to remind me, he left school at age thirteen to work in a factory. It took the work of nine family members—his father and mother, his six brothers and sisters, and him—to generate enough income to support the family. But when he came back after serving in World War II and took up work in the same factory, his old job paid enough to allow him to support a wife and kids, buy a house, and put my brother and me through Catholic school and college.

His job, like millions of others, had been transformed by New Deal policies. As a society, America created policies and institutions that turned manufacturing jobs from low-paid work to higher-paid middle-class work. We need to do the same for the millions upon millions of service workers who occupy the lower rungs of the economic ladder today.

A good place to start is by lifting the wage floor. States and cities that are taking the lead on raising the minimum wage. Growing numbers of them across the country are raising the minimum wage on their own—and not just progressive cities like Los Angeles, New York, and Seattle. In the 2014 midterm elections, four solidly red states—Alaska, Arkansas, Nebraska, and South Dakota—voted to increase their minimum wages to levels that are some of the highest in the nation when living costs are taken into account.

Conservatives will raise the usual objection that lifting the minimum wage will drive up prices and force more people out of work than it will help. But setting the minimum wage at roughly 50 percent of the prevailing median wage would have no such ill effects. And it’s worth remembering that the federal minimum wage effectively stood at 55 percent of the median wage back in 1968.

Given the tremendous variations in housing costs across the country, it is important that the minimum wage reflect the local cost of living. Just as we typically index policies to the rate of inflation, we need to index the minimum wage to take geographic differences in living costs into account. If we set it to 50 percent of the prevailing local median wage, the minimum wage would vary from state to state, or even from metro to metro or city to city.

We will still need a concerted effort to turn the large number of low-wage service jobs into family-supporting jobs. There is substantial evidence that paying better wages to service workers would do much the same for companies in the service sector as it did for manufacturing firms. Many of the most successful retail and hospitality companies of the past couple of decades—Trader Joe’s, Costco, Zara, Whole Foods, Four Seasons, and others—pay their workers substantially more than minimum wage and substantially more than their competitors as part of a broader “good jobs strategy” to generate higher levels of engagement, drive innovation, limit turnover, and achieve better customer service.

Upgrading low-wage service jobs would create other additional benefits for workers, companies, and the economy as a whole. More engaged workers would boost company productivity and profits. Millions upon millions of better-paid service workers would add considerably to demand. And improving the performance of the service companies in the aggregate would add to the productivity and efficiency of the economy broadly.

Higher-paying service jobs can also promote creativity and innovation in less direct ways. One of the best critiques of my own theory of the creative class came from a member of Austin’s creative class, who showed that a key element of that city’s high-powered creative economy was its high-paying service jobs. He pointed out that the locally headquartered Whole Foods provided a large number of flexible, high-paying day jobs for local artists and other creatives, which added up to substantially more support to Austin’s creative economy than the artistic and cultural initiatives of local government and local private foundations combined. Better-paying service jobs can boost the creative economy by helping its participants cover the rent.

Ultimately, creating a new middle class will mean that many of us will have to pay a bit more for services. But again, the New Deal era can serve as an example. After the Great Depression, we built a middle class by collectively paying a premium for our cars and appliances. If we were willing to pay premiums for such durable goods to help underwrite the middle class of my parents’ day, then surely we can pay living wages to the people who take care of our children and elderly and provide us with services to create a new middle class today.

Tackle poverty by investing in people and places

Perhaps the most troubling and disturbing aspect of the New Urban Crisis is the spread of persistent, concentrated poverty across both our cities and suburbs. To overcome the crisis, we must address it head-on.

Our current approaches to combating poverty can be divided into two basic categories: people-based approaches that provide resources to poor families or help them move to new and better neighborhoods, and place-based approaches that attempt to improve the conditions of disadvantaged neighborhoods by investing in schools, providing needed social services, and reducing crime and violence. We need to do both.

We’ve already seen how moving families from disadvantaged to more advantaged neighborhoods with better schools can dramatically improve the fortunes of poor children. But obviously, not everyone who lives in an area of persistent poverty will be able to move to new neighborhoods with better schools and more opportunity. Many will be missed, not enough will be given the opportunity to move, and some will prefer to stay where their families and friends are. And moving only the best-performing kids or those from the most motivated families will end up draining the top talent out of the least-advantaged neighborhoods, further concentrating poverty among those left behind.

Overcoming decades upon decades of persistent poverty also requires comprehensive and coordinated place-based investments in disadvantaged neighborhoods. Robert Sampson, who is perhaps the nation’s leading expert on concentrated poverty, has called for “affirmative action for neighborhoods” to ensure that each and every neighborhood offers its residents access to economic opportunity and upward mobility. “What poor residents seem to want most is not to move but simply to have their communities revitalized,” as he puts it.

To be effective, these place-based investments cannot be eked out piecemeal; they must span the full gamut of essential social and economic services, from education and economic opportunity to efforts to reduce crime and violence and more.

Above all, overcoming persistent poverty means tackling the problems of urban schools. Far too many disadvantaged neighborhoods are served by underfunded schools that fail to provide students with the skills and capabilities they need to thrive in the knowledge economy, and where dropout rates remain distressingly high. Since education is the key avenue for upward mobility, underperforming schools trap families and children in an intergenerational cycle of poverty. America’s terribly unequal access to education is among the gravest injustices in our society. It’s not just good schools that are missing from poor neighborhoods: Children from poor neighborhoods are behind before they even get to kindergarten. More early childhood development programs, especially in chronically poor neighborhoods, would help give kids a boost before they get to school and increase overall human capital.

Fundamentally, poverty is the absence of money. Providing every person with a guaranteed minimum income or universal basic income is the most straightforward way to combat it; and the most efficacious way to do that is through a negative income tax, which essentially returns money to the poor so that they can cover their basic needs. Such an approach is a more cost-effective and less bureaucratically cumbersome way of treating poverty than providing myriad direct-assistance programs for housing, food, child support, and the like.

A common criticism is that a basic income program like this would encourage slackers and slacking. But a negative income tax is designed to encourage work and entrepreneurial effort; the amount of government support declines as incomes go up. And it would have numerous other benefits: It would provide a mechanism to pay those who perform essential non-paid work, such as raising children or taking care of sick relatives. Such a guaranteed minimum income could also function as low-cost seed capital by giving people enough money to cover the bills while they develop and launch new businesses. This type of income redistribution could ultimately help limit inequality and boost economic growth.

***

The basic pillars outlined here can begin to form the broad architecture of a new social safety net that can help to mitigate the inequities of the urbanized knowledge economy. Still, it is important to remember that there are long lags between the emergence of new economic structures and systems and the social welfare institutions and policies that are needed to reduce their inequities and enable the development of a broad middle class. It took the better part of a century to develop the social safety net of the industrial age. Those New Deal-era structures are not up to the challenges of winner-take-all urbanism. It is time to build a new social safety net that can address the deepening inequities of urbanized capitalism that are the hallmark of the New Urban Crisis.

This article is adapted from The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class—and What We Can Do About It.

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