Happy Thursday, everyone - John, here. Welcome back to Urban Tech.
A big welcome to all of our new subscribers since last week. The last month has been our best at Urban Tech. Check out some of our recent pieces:
- The first and second parts of my conversation with post-car real estate developer Culdesac
- A deep dive on Waze and why it's so special
- An examination of Ghost Kitchens and how COVID is impacting the new trend
- Why Instagram has impacted our cities more than a single app
- A look at the construction industry's trillion-dollar productivity deficit
Before diving into today’s long thing, give this post a share. The Urban Tech team would really appreciate it. 🙏🙏🙏
Vox co-founder and writer Matthew Yglesias is known as someone among policy discourse with hot takes. Yglesias would tell you most of his policy views are left of center.Â
His latest idea: America should do everything it can to increase its population to 1 billion people to remain competitive with China and continue as the top economy in the world. Matt is quick to point out that the idea is absurd and nearly impossible given the current setting, but it's not that crazy, which is interesting.
Matt outlines the argument in his new book One Billion Americans: The Case for Thinking Bigger.
Both sides of policy circles have endorsed some of the ideas Matt discusses. Others have found some big holes in the argument and argue the premise is problematic. After reading the book, I think critics are getting a little hung up on the framing tool Matt deploys, which is America should have a billion people. People are missing the parts of the book where the best insights are — a little more on that in a bit.
If you want to read a particularly harsh, but relatively fair critique of the book, Jacob Bacharach does a good job identifying its problems in The New Republic.
I’ll talk about the limitations, but the reason why I wanted to explore Matt’s argument in the book is that he’s one of my favorite mainstream policy writers who focuses on housing and urban issues.Â
Unfortunately for our cities, there are not enough people with high followings who cover housing affordability, economic development, etc. These topics aren’t mainstream issues the way healthcare, national security, and even sustainability are.
I don’t agree with everything Matt argues for, but his writing has been incredibly influential on me for understanding these topics over the years. I think anyone can learn a ton from this book and highly recommend buying it (ideally from a local bookstore).
Let’s dive in.
A Long Thing: One Billion Americans
Here is the main thesis Matt outlines in One Billion Americans:
We should have a billion Americans for two big reasons. One is that in a globe of international competition, it’s good to be a big country as well as a wealthy country. And the United States has historically benefited from having a large population relative to a lot of its competitors.
And then the other reason we should have a billion Americans is that it will make this country a better place. The steps we need to take to get there will improve the country and make us richer as well as larger.
This is what I meant by the billion piece is a tool for Matt to make policy arguments. This scope allows for some pretty straightforward critique, but I’m more interested in the second reason Matt outlines for having a billion Americans.
The framing of drastically increasing a country’s population isn’t even a unique one. Matt acknowledges the idea came from Canadian journalist Doug Saunders’ book Maximum Canada. Matt applied the framing for America.
Part of the argument Matt uses involves invoking fears of China leading the global economy. China is accelerating its economy at a tremendous rate. At some point soon, through sheer population combined with productivity gains, it will overtake the U.S. as the top economy in the world. The math is sound.
against China we are the little dog: there are more than 1 billion of them to about 330 million of us. The good news is that, for now, we still have more wealth and more industrial capacity because Americans, on average, are about four times as rich as Chinese people. But that gap in per capita gross domestic product (GDP) is shrinking. It shows every sign that it will likely continue to shrink.
Matt goes on to explain that with modest increases in wealth across China, it will overtake the U.S. as the largest economy relatively soon.
There is anxiety about China on both sides of the aisle and throughout American culture. Playing off this trend allows some of Matt's ideas to be more accessible to people who might never consider big ideas in housing, energy, and transportation.
The framing is also super useful because it also allows for Matt to analyze one of the most critical domestic trends that's not given enough attention in our society: U.S. birth rates have plummeted over the last ~50 years:
“US population growth famously spurted forward in the post‒World War II baby boom years before slowing down. What’s less well known is that it has continued slowing down ever since and has now reached record lows. The slowdown in actual birth rates has been even more dramatic because the declining number of babies was partially offset for much of this period by a rising number of immigrants.”
“in 2017, the American fertility rate hit a record low of 1.76 expected births over the lifetime of the average woman. In 2018, it dropped to a brand-new record low of 1.72 births per woman.”
America, and many highly developed countries, have a significant population problem. The fertility rate is declining and populations risk shrinking. The total fertility rate is defined as the total number of children that would be born to each woman if she were to live to the end of her child-bearing years and give birth to children in alignment with the prevailing age-specific fertility rates.
Our growth faces serious threat if our population doesn’t continue to grow. This trend of declining birth rates is not slowing down. We should be even more concerned about the number as we go through an economy-changing recession. Brookings in the summer predicted:
“The COVID-19 episode will likely lead to a large, lasting baby bust. The pandemic has thrust the country into an economic recession. Economic reasoning and past evidence suggest that this will lead people to have fewer children. The decline in births could be on the order of 300,000 to 500,000 fewer births next year. We base this expectation on lessons drawn from economic studies of fertility behavior, along with data presented here from the Great Recession of 2007-2009 and the 1918 Spanish Flu”.
The U.S. birth rate hit a 35 year low in May. Social Scientists also tend to agree that since 1980 the U.S. fertility rate has remained fairly constant, fluctuating just below and above levels needed for population replacement. Immigration has helped maintain the U.S. growth engine through our declining fertility rates. Matt highlights this in the book:
The slowdown in actual birth rates has been even more dramatic because the declining number of babies was partially offset for much of this period by a rising number of immigrants.
The One Billion Americans framing is problematic for the project because it provides some easy arguments to dispute all the other great ideas in the book. I think it does help Matt highlight some enormous problems for America that not enough people are paying attention to, but I don't know if that trade-off is worth it.
If we hope the American experiment continues well into the future, we will have a billion people at some point. We should be intentional with our plans to build a bigger, stronger country. This point is the main lesson I took from the book. The lessons for planning for a billion people could be applied to help our population reach 400 or 500 million.
I wish Matt would have spent a little more time making that case in the book, so critics didn't take the billion piece so literally.
The Urban Policy Arguments
While I loved the macro arguments Matt makes in the book, I chose to dive into the idea to see what he found regarding urban policy. There’s a lot!
One of my favorite insights is on imagining what 1,000,000 Americans would feel like in our country. We don’t appreciate how much sheer land we have in the U.S. compared to other countries. Our current density is very low relative to other developed countries in Europe and parts of Asia:
A billion Americans won’t turn the country into an overcrowded wasteland; it will be like France—less packed than Germany or Italy. It won’t be nearly as dense as the United Kingdom, and we almost certainly couldn’t become as dense as England no matter how hard we tried.
I know for some this is a jarring statement, but I don’t see a prosperous future for America unless we embrace greater density across the country. We truly need it. What choice do we have? Halt all growth to maintain our current broken status quo? All discussions about housing affordability, sustainability and transportation need to start with maximizing the use of the land we have and use. Density helps us do that. Density is just using our land more efficiently.
Matt also delves into some intersections of tech and cities. He makes an argument about the most significant negative impact of Amazon’s infamous HQ2 “competition”:
The influx of jobs will not be paired with a commensurate influx of new homes and residents. Instead, regional housing prices will be pushed further up. Skilled workers able to get high-paying jobs at Amazon (or to bargain for higher pay at their current employer, thanks to the competition) will come out ahead. So will people who already own a home that’s a convenient commute from the new Amazon office. But working-class renters will get the short end of the stick.
This is the tragedy of HQ2, not the overly debated issue of tax subsidies but the selection of locations that didn’t really need a big new Amazon office—to the point where one of them ended up telling Amazon to buzz off.
I tend to disagree with this assessment. Short-term yes, I think this is probably the most significant negative externality for a metro taking on a project the size of HQ2. Housing prices will rise incredibly fast.Â
Long-term though, I think the signaling that occurs when governments give the kinds of deals they offer to a company like Amazon, which is one the most valuable in the world, perpetuates a trend of the misallocation of resources to attract top companies. I covered these trends more in-depth in my examination of Tesla’s new factory coming to Austin. The conclusion in the piece is that these deals rarely end up benefiting cities and their citizens.
Another key piece Matt zooms in on is the inequity between cities in the U.S. and why some of our assumptions about “superstar” cities are wrong:
“One often hears that economic activity has become more concentrated in a handful of “superstar” cities. But as Jed Kolko, an economist specializing in urban labor markets who now works for the job site Indeed, has shown, this is a mistake. What’s happening is that average incomes are becoming more unequal as superstar cities pull away from the pack. But because the superstar cities are growing so much slower than the power sun belt boomtowns, their share of overall national output isn’t actually growing.”
Matt also lays out a clear argument showing that we have a misallocation of economic resources (companies, industries, talent) and how through pragmatic policies, we could shift these resources to cities like Cleveland, Syracuse, Pittsburgh etc.
helping to provide coordination and overcome collective action problems is the sort of thing governments are good for. That would start with some kind of official legislation declaring that spreading private sector jobs and opportunity out of the most expensive metro areas is a goal of national policy. You’d want to create an agency to facilitate that kind of work, with a mandate to consult with business, nonprofit, and state and local government actors. And you’d need antitrust regulators to clarify that while businesses in the same sector meeting to coordinate prices would be an illegal cartel, meeting to coordinate relocation concepts is encouraged.
Many of the solutions Matt provides are entirely realistic and not even new to economic development scholars:
- Massive zoning reforms to allow for more building and reforms to cut down on inefficiencies keeping people from building
- Creating new research institutions across the country and providing massive subsidies for current ones
- Spread key federal agencies out across the country rather than cluster them in D.C.
- A massive infrastructure reinvestment to fix bridges, roads, and railways
- Visas targeted at bringing highly-skilled immigrants to cities facing a decline in talent
Highly recommend checking out the book just for the collection of solutions Matt includes.
Arguments against the book
The main argument against the book is from those who are incredibly pessimistic about how a world with a drastically changing climate could handle a billion more people. This response is an entirely valid argument and one Matt tries to address:
We should do a lot to address climate change. But we shouldn't prevent poor countries from becoming richer, we shouldn't prevent poor people from moving to opportunity, and we shouldn't prevent people from having children. We should try to develop and deploy cleaner ways of making electricity.
The United States is actually one of the countries that is best situated to weather a change in the climate. I don't want to downplay the sort of costs and problems that we face. But compared to a tropical country or more agricultural country, we are better situated to withstand changes. So us being open to people moving here from around the world is actually a major contribution that we make to the adaptation side of climate change.
This is a bit of an oversimplification of how Matt addresses it in the book but more or less the response. Matt brushes away valid climate criticism a bit too easily in the book for my taste. It's easy to see why this is the biggest critique of the book and rightfully so. Climate change is arguably the biggest challenge we face as a society.
The second main argument against the idea is that it's unethical to add a billion more people to a pretty chaotic world. Matt doesn't provide a huge moral justification for why it's ethical to add a billion people. We have to assume it is when reading the book.
These criticisms are entirely valid. The book falls short in many areas, but I do still think there are plenty of great ideas/solutions in it even if the framing is problematic.
Other miscellaneous thoughts I felt were important
- People sometimes suspect that the higher wages earned in big metropolitan areas are purely a kind of selection effect—the most talented and ambitious people are most likely to move there. There is probably some of this, but two economists, Lionel Fontagné and Gianluca Santoni, studied this in some detail and concluded that the key issue is that “denser commuting zones seem to offer a better match between employers and employees.”
- A particularly acute form of the depopulation spiral is seen in the wave of rural hospital closures the United States has experienced over the past decade. Some of this reflects foolish decision making like the tendency of Republican-dominated states to refuse Medicaid expansion, thus depriving their population of health care and their local providers of customers. But the broader trend is visible in both expansion and nonexpansion states.”
- The median white American, after all, is forty-four years old, while the median Black American is thirty-four, and the median Hispanic American is just thirty. In other words, a much larger share of the white population is already out of the childbearing years and not in a position to take advantage of any new programs.”
- Bloomberg columnist Noah Smith points out, most research shows that research parks underperform traditional universities in terms of sparking innovation perhaps because universities “have systems in place for facilitating tacit exchange of knowledge through seminars, networking events and casual social interactions among researchers.”
Final Thought
I think Felix Salman’s assessment for the NYT gets it right:
Many economics books devote themselves to cataloging the world’s ills, and then end with a curiously short “solutions” chapter that doesn’t really solve most of the problems in the book. “One Billion Americans” is a novel twist on this model. It starts with one curiously short and unconvincing chapter on the problem of having less than one billion Americans, and then dives into a long catalog of solutions. Most of them are very good ideas. But none of them solve the problem.
While I’m less critical of the framing tool than Salman, I think it ultimately becomes more of a distraction for the rest of the book's good ideas than helpful for making the case. Give the book a read for yourself and let me know your thoughts.
A Medium Thing: A New Startup for Buying a Second Home
A new startup, Pacaso (pronounced like Picasso), launched this past week. The company's mission is "to make second homes more accessible."Â
Former Zillow CEO Spencer Rascoff and Austin Allison (who also was at Zillow after Zillow acquired his company dotloop) are the company's cofounders. The team includes a ton of other top talent from Zillow as well.
The theme of second homes is one picking up momentum as a result of COVID.
The way Pacaso makes buying a second or vacation home accessible is:
Buyers considering a second home can tell Pacaso where they want to buy, how much they want to spend and how much time they expect to spend in the house. Pacaso and its real estate agent partners will help them find the perfect home and set up a professionally managed LLC uniquely designed for co-ownership. The buyer will purchase their desired share — for example, half of the home, which will guarantee them access to the home for half the year — and Pacaso will briefly purchase the remainder of the home, before reselling the remaining portion to vetted buyers. Pacaso will manage the property, and owners will use Pacaso's mobile app to make scheduling easy and equitable. Buyers will pay a 10 percent fee at the time of purchase, and then will pay an annual property management fee equal to 1 percent of the purchase price.
Pacaso raised $17 million in Series A funding, with Maveron leading the round and additional investment from Crosscut and Global Founders Capital. Among the individual investors are former Starbucks CEO Howard Schultz; leading real estate coach Tom Ferry; former Zillow President of Media and Marketplaces Greg Schwartz; and Amazon CEO of Consumer Worldwide Jeff Wilke. Pacaso has also secured $250 million in debt financing to purchase shares of homes.Â
Debt financing is prevalent in real estate ventures for funding deals and scaling.
I'm pretty optimistic about the company looking at the initial details. The founding team is excellent. Zillow is maybe the company with the best search and optimization for residential real estate.Â
This piece will be crucial for Pacaso, as well as it builds out its marketplace. Through optimization and analytics, the company can capitalize on millions in revenue by finding undervalued real estate assets in desirable locations.
Second homes is also a trend that is accelerating even outside of vacation homes. There is tremendous potential here as more wealthy people embrace remote work, and perhaps trade in one house in the Bay Area or NYC for a home in Dallas and a vacation home in North Carolina. It's not hard to see more people making this choice.
Pacaso is a company and service designed for a relatively high-earning class of people. Most people looking at second homes are incredibly wealthy. You're incredibly lucky if you own one home in America.
That said, after looking at Pacaso's model and team, I think the company can truly open up having a second home to millions of people. Real estate investments remain one of the best ways to create wealth in America. Unlocking more investment opportunities, as long as they don't allow people to over-leverage themselves easily, is always a good thing in my opinion.
If Pacaso's vision resonates with you, their team shared with me they will be posting the first wave of jobs they are looking to fill in the coming days — so bookmark Pacaso's career page.
What I’m Reading this Week:
The Wall Street Journal: San Francisco Office Rents Tumble and Show No Sign of Bottoming
- Things continue to look dismal for office space landlords. There are no apparent signs of relief, and San Francisco’s office market may be facing the most challenging situation.
- From Peter Grant at the Journal: “San Francisco office rents fell 4% from the end of March to the end of September, a decline that was more than double that in any other major U.S. city, according to data firm CoStar Group Inc. San Francisco office owners signed only 700,000 square feet in new leasing deals in the third quarter, down about 81% from 3.6 million square feet during the same period in 2019.”
- “San Francisco office rents soared over the past decade as dozens of startups flocked there, convinced that an address in the city was crucial to their image and would help attract top talent. Companies that in previous years might have anchored their workers in nearby Silicon Valley now saw greater prestige in San Francisco, which younger employees also preferred over the surrounding suburbs.”
- Some are optimistic they will return, citing recoveries to previous events like the Doc-com bubble. Still, it will be interesting to see how the market navigates a rally with an increasing share of remote workers.Â
Reuters: Airbnb seeks to raise roughly $3 billion in IPO
- Reuters confirmed last week Airbnb is looking to raise about $3 billion in its upcoming IPO. Speculation is the IPO will take place at some point in December.
- The excellent reporting team at The Information, including Cory Weinberg, also published a detailed examination of Airbnb’s financial situation going into the IPO. See below for some great graphs from The Information showing the company’s finances.
- “Airbnb burned through more than $1.2 billion in cash between mid-2019 and mid-2020, according to previously undisclosed figures, as the plunge in global travel earlier this year eroded a balance sheet already weakened by big increases in spending on hiring and marketing.”
- “The cash drain wiped away more than a third of what the company had on hand as of March 2019, financial documents seen by The Information show. The biggest portion of the cash burn came in the first quarter of this year, when the company had to dole out travel refunds as Covid-19 broke out, underscoring how the pandemic depleted Airbnb’s reserves.”
- Airbnb has a lot of cash on hand, mainly due to the company taking out close to $2 billion in high-interest loans in preparation for the COVID slowdown.
- Airbnb will likely use the funds raised in the IPO to pay for these debts.
- At points like in 2018, Airbnb has been profitable. Leading up to the IPO, a story about how it can get there again relatively quickly is what the company will be looking to land.
- Final thought: I genuinely love Airbnb’s product and mission. I’m also tremendously impressed by how the company has navigated an economic downturn that has been particularly brutal for the travel industry. Airbnb’s leadership should get serious credit for their resilience and focus. It wasn’t too long ago folks speculated Airbnb would shelf the IPO until at least 2021. The company now needs to sell the long-term sustainability of its business model to Wall Street.
HousingWire: Gary Keller steps back from Keller Williams amid major corporate restructuring
- One of the world's largest real estate brokerages announced a new CEO and corporate restructuring this week.
- Austin-based Keller Williams, which has been around since 1984, faced new pressure from tech-forward competitors like Compass and eXp Realty in recent years.
- "Keller Williams, a privately-held company, reported in August that its North American agents closed 272,000 deals during the second quarter, for a sales volume of $85.3 billion. That was down 15% from the prior year."
- Keller Williams handles a high volume of deals, so it will be fascinating to watch how the company continues to compete in an industry that tech continually looks for ways to disrupt.
TechCrunch: Uber sells $500M stake in its freight business as the ride-hailing giant works to conserve cash
- Not too long ago, Uber was trying to be everything in the transportation space.
- “The COVID-19 pandemic upended that business strategy, prompting Uber to offload its shared micromobility unit Jump, double down on delivery with its acquisition of Postmates and, now, to sell a stake in its growing, but still unprofitable logistics arm, Uber Freight.”
- “Uber said Friday that an investor group led by New York-based investment firm Greenbriar Equity Group has committed to invest $500 million in a Series A preferred stock financing for Uber Freight . The deal values the unit at $3.3 billion on a post-money basis. Greenbriar managing partners Michael Weiss and Jill Raker will join the Uber Freight board. Uber didn’t name the other investors.”
Thanks for reading this week’s edition! Please share it with someone who you think would like it and hit the like button at the top of the page if you really enjoyed it.
Talk next week,
JT
Happy Thursday, everyone - John, here. Welcome back to Urban Tech.
A big welcome to all of our new subscribers since last week. The last month has been our best at Urban Tech. Check out some of our recent pieces:
- The first and second parts of my conversation with post-car real estate developer Culdesac
- A deep dive on Waze and why it's so special
- An examination of Ghost Kitchens and how COVID is impacting the new trend
- Why Instagram has impacted our cities more than a single app
- A look at the construction industry's trillion-dollar productivity deficit
Before diving into today’s long thing, give this post a share. The Urban Tech team would really appreciate it. 🙏🙏🙏
Vox co-founder and writer Matthew Yglesias is known as someone among policy discourse with hot takes. Yglesias would tell you most of his policy views are left of center.Â
His latest idea: America should do everything it can to increase its population to 1 billion people to remain competitive with China and continue as the top economy in the world. Matt is quick to point out that the idea is absurd and nearly impossible given the current setting, but it's not that crazy, which is interesting.
Matt outlines the argument in his new book One Billion Americans: The Case for Thinking Bigger.
Both sides of policy circles have endorsed some of the ideas Matt discusses. Others have found some big holes in the argument and argue the premise is problematic. After reading the book, I think critics are getting a little hung up on the framing tool Matt deploys, which is America should have a billion people. People are missing the parts of the book where the best insights are — a little more on that in a bit.
If you want to read a particularly harsh, but relatively fair critique of the book, Jacob Bacharach does a good job identifying its problems in The New Republic.
I’ll talk about the limitations, but the reason why I wanted to explore Matt’s argument in the book is that he’s one of my favorite mainstream policy writers who focuses on housing and urban issues.Â
Unfortunately for our cities, there are not enough people with high followings who cover housing affordability, economic development, etc. These topics aren’t mainstream issues the way healthcare, national security, and even sustainability are.
I don’t agree with everything Matt argues for, but his writing has been incredibly influential on me for understanding these topics over the years. I think anyone can learn a ton from this book and highly recommend buying it (ideally from a local bookstore).
Let’s dive in.
A Long Thing: One Billion Americans
Here is the main thesis Matt outlines in One Billion Americans:
We should have a billion Americans for two big reasons. One is that in a globe of international competition, it’s good to be a big country as well as a wealthy country. And the United States has historically benefited from having a large population relative to a lot of its competitors.
And then the other reason we should have a billion Americans is that it will make this country a better place. The steps we need to take to get there will improve the country and make us richer as well as larger.
This is what I meant by the billion piece is a tool for Matt to make policy arguments. This scope allows for some pretty straightforward critique, but I’m more interested in the second reason Matt outlines for having a billion Americans.
The framing of drastically increasing a country’s population isn’t even a unique one. Matt acknowledges the idea came from Canadian journalist Doug Saunders’ book Maximum Canada. Matt applied the framing for America.
Part of the argument Matt uses involves invoking fears of China leading the global economy. China is accelerating its economy at a tremendous rate. At some point soon, through sheer population combined with productivity gains, it will overtake the U.S. as the top economy in the world. The math is sound.
against China we are the little dog: there are more than 1 billion of them to about 330 million of us. The good news is that, for now, we still have more wealth and more industrial capacity because Americans, on average, are about four times as rich as Chinese people. But that gap in per capita gross domestic product (GDP) is shrinking. It shows every sign that it will likely continue to shrink.
Matt goes on to explain that with modest increases in wealth across China, it will overtake the U.S. as the largest economy relatively soon.
There is anxiety about China on both sides of the aisle and throughout American culture. Playing off this trend allows some of Matt's ideas to be more accessible to people who might never consider big ideas in housing, energy, and transportation.
The framing is also super useful because it also allows for Matt to analyze one of the most critical domestic trends that's not given enough attention in our society: U.S. birth rates have plummeted over the last ~50 years:
“US population growth famously spurted forward in the post‒World War II baby boom years before slowing down. What’s less well known is that it has continued slowing down ever since and has now reached record lows. The slowdown in actual birth rates has been even more dramatic because the declining number of babies was partially offset for much of this period by a rising number of immigrants.”
“in 2017, the American fertility rate hit a record low of 1.76 expected births over the lifetime of the average woman. In 2018, it dropped to a brand-new record low of 1.72 births per woman.”
America, and many highly developed countries, have a significant population problem. The fertility rate is declining and populations risk shrinking. The total fertility rate is defined as the total number of children that would be born to each woman if she were to live to the end of her child-bearing years and give birth to children in alignment with the prevailing age-specific fertility rates.
Our growth faces serious threat if our population doesn’t continue to grow. This trend of declining birth rates is not slowing down. We should be even more concerned about the number as we go through an economy-changing recession. Brookings in the summer predicted:
“The COVID-19 episode will likely lead to a large, lasting baby bust. The pandemic has thrust the country into an economic recession. Economic reasoning and past evidence suggest that this will lead people to have fewer children. The decline in births could be on the order of 300,000 to 500,000 fewer births next year. We base this expectation on lessons drawn from economic studies of fertility behavior, along with data presented here from the Great Recession of 2007-2009 and the 1918 Spanish Flu”.
The U.S. birth rate hit a 35 year low in May. Social Scientists also tend to agree that since 1980 the U.S. fertility rate has remained fairly constant, fluctuating just below and above levels needed for population replacement. Immigration has helped maintain the U.S. growth engine through our declining fertility rates. Matt highlights this in the book:
The slowdown in actual birth rates has been even more dramatic because the declining number of babies was partially offset for much of this period by a rising number of immigrants.
The One Billion Americans framing is problematic for the project because it provides some easy arguments to dispute all the other great ideas in the book. I think it does help Matt highlight some enormous problems for America that not enough people are paying attention to, but I don't know if that trade-off is worth it.
If we hope the American experiment continues well into the future, we will have a billion people at some point. We should be intentional with our plans to build a bigger, stronger country. This point is the main lesson I took from the book. The lessons for planning for a billion people could be applied to help our population reach 400 or 500 million.
I wish Matt would have spent a little more time making that case in the book, so critics didn't take the billion piece so literally.
The Urban Policy Arguments
While I loved the macro arguments Matt makes in the book, I chose to dive into the idea to see what he found regarding urban policy. There’s a lot!
One of my favorite insights is on imagining what 1,000,000 Americans would feel like in our country. We don’t appreciate how much sheer land we have in the U.S. compared to other countries. Our current density is very low relative to other developed countries in Europe and parts of Asia:
A billion Americans won’t turn the country into an overcrowded wasteland; it will be like France—less packed than Germany or Italy. It won’t be nearly as dense as the United Kingdom, and we almost certainly couldn’t become as dense as England no matter how hard we tried.
I know for some this is a jarring statement, but I don’t see a prosperous future for America unless we embrace greater density across the country. We truly need it. What choice do we have? Halt all growth to maintain our current broken status quo? All discussions about housing affordability, sustainability and transportation need to start with maximizing the use of the land we have and use. Density helps us do that. Density is just using our land more efficiently.
Matt also delves into some intersections of tech and cities. He makes an argument about the most significant negative impact of Amazon’s infamous HQ2 “competition”:
The influx of jobs will not be paired with a commensurate influx of new homes and residents. Instead, regional housing prices will be pushed further up. Skilled workers able to get high-paying jobs at Amazon (or to bargain for higher pay at their current employer, thanks to the competition) will come out ahead. So will people who already own a home that’s a convenient commute from the new Amazon office. But working-class renters will get the short end of the stick.
This is the tragedy of HQ2, not the overly debated issue of tax subsidies but the selection of locations that didn’t really need a big new Amazon office—to the point where one of them ended up telling Amazon to buzz off.
I tend to disagree with this assessment. Short-term yes, I think this is probably the most significant negative externality for a metro taking on a project the size of HQ2. Housing prices will rise incredibly fast.Â
Long-term though, I think the signaling that occurs when governments give the kinds of deals they offer to a company like Amazon, which is one the most valuable in the world, perpetuates a trend of the misallocation of resources to attract top companies. I covered these trends more in-depth in my examination of Tesla’s new factory coming to Austin. The conclusion in the piece is that these deals rarely end up benefiting cities and their citizens.
Another key piece Matt zooms in on is the inequity between cities in the U.S. and why some of our assumptions about “superstar” cities are wrong:
“One often hears that economic activity has become more concentrated in a handful of “superstar” cities. But as Jed Kolko, an economist specializing in urban labor markets who now works for the job site Indeed, has shown, this is a mistake. What’s happening is that average incomes are becoming more unequal as superstar cities pull away from the pack. But because the superstar cities are growing so much slower than the power sun belt boomtowns, their share of overall national output isn’t actually growing.”
Matt also lays out a clear argument showing that we have a misallocation of economic resources (companies, industries, talent) and how through pragmatic policies, we could shift these resources to cities like Cleveland, Syracuse, Pittsburgh etc.
helping to provide coordination and overcome collective action problems is the sort of thing governments are good for. That would start with some kind of official legislation declaring that spreading private sector jobs and opportunity out of the most expensive metro areas is a goal of national policy. You’d want to create an agency to facilitate that kind of work, with a mandate to consult with business, nonprofit, and state and local government actors. And you’d need antitrust regulators to clarify that while businesses in the same sector meeting to coordinate prices would be an illegal cartel, meeting to coordinate relocation concepts is encouraged.
Many of the solutions Matt provides are entirely realistic and not even new to economic development scholars:
- Massive zoning reforms to allow for more building and reforms to cut down on inefficiencies keeping people from building
- Creating new research institutions across the country and providing massive subsidies for current ones
- Spread key federal agencies out across the country rather than cluster them in D.C.
- A massive infrastructure reinvestment to fix bridges, roads, and railways
- Visas targeted at bringing highly-skilled immigrants to cities facing a decline in talent
Highly recommend checking out the book just for the collection of solutions Matt includes.
Arguments against the book
The main argument against the book is from those who are incredibly pessimistic about how a world with a drastically changing climate could handle a billion more people. This response is an entirely valid argument and one Matt tries to address:
We should do a lot to address climate change. But we shouldn't prevent poor countries from becoming richer, we shouldn't prevent poor people from moving to opportunity, and we shouldn't prevent people from having children. We should try to develop and deploy cleaner ways of making electricity.
The United States is actually one of the countries that is best situated to weather a change in the climate. I don't want to downplay the sort of costs and problems that we face. But compared to a tropical country or more agricultural country, we are better situated to withstand changes. So us being open to people moving here from around the world is actually a major contribution that we make to the adaptation side of climate change.
This is a bit of an oversimplification of how Matt addresses it in the book but more or less the response. Matt brushes away valid climate criticism a bit too easily in the book for my taste. It's easy to see why this is the biggest critique of the book and rightfully so. Climate change is arguably the biggest challenge we face as a society.
The second main argument against the idea is that it's unethical to add a billion more people to a pretty chaotic world. Matt doesn't provide a huge moral justification for why it's ethical to add a billion people. We have to assume it is when reading the book.
These criticisms are entirely valid. The book falls short in many areas, but I do still think there are plenty of great ideas/solutions in it even if the framing is problematic.
Other miscellaneous thoughts I felt were important
- People sometimes suspect that the higher wages earned in big metropolitan areas are purely a kind of selection effect—the most talented and ambitious people are most likely to move there. There is probably some of this, but two economists, Lionel Fontagné and Gianluca Santoni, studied this in some detail and concluded that the key issue is that “denser commuting zones seem to offer a better match between employers and employees.”
- A particularly acute form of the depopulation spiral is seen in the wave of rural hospital closures the United States has experienced over the past decade. Some of this reflects foolish decision making like the tendency of Republican-dominated states to refuse Medicaid expansion, thus depriving their population of health care and their local providers of customers. But the broader trend is visible in both expansion and nonexpansion states.”
- The median white American, after all, is forty-four years old, while the median Black American is thirty-four, and the median Hispanic American is just thirty. In other words, a much larger share of the white population is already out of the childbearing years and not in a position to take advantage of any new programs.”
- Bloomberg columnist Noah Smith points out, most research shows that research parks underperform traditional universities in terms of sparking innovation perhaps because universities “have systems in place for facilitating tacit exchange of knowledge through seminars, networking events and casual social interactions among researchers.”
Final Thought
I think Felix Salman’s assessment for the NYT gets it right:
Many economics books devote themselves to cataloging the world’s ills, and then end with a curiously short “solutions” chapter that doesn’t really solve most of the problems in the book. “One Billion Americans” is a novel twist on this model. It starts with one curiously short and unconvincing chapter on the problem of having less than one billion Americans, and then dives into a long catalog of solutions. Most of them are very good ideas. But none of them solve the problem.
While I’m less critical of the framing tool than Salman, I think it ultimately becomes more of a distraction for the rest of the book's good ideas than helpful for making the case. Give the book a read for yourself and let me know your thoughts.
A Medium Thing: A New Startup for Buying a Second Home
A new startup, Pacaso (pronounced like Picasso), launched this past week. The company's mission is "to make second homes more accessible."Â
Former Zillow CEO Spencer Rascoff and Austin Allison (who also was at Zillow after Zillow acquired his company dotloop) are the company's cofounders. The team includes a ton of other top talent from Zillow as well.
The theme of second homes is one picking up momentum as a result of COVID.
The way Pacaso makes buying a second or vacation home accessible is:
Buyers considering a second home can tell Pacaso where they want to buy, how much they want to spend and how much time they expect to spend in the house. Pacaso and its real estate agent partners will help them find the perfect home and set up a professionally managed LLC uniquely designed for co-ownership. The buyer will purchase their desired share — for example, half of the home, which will guarantee them access to the home for half the year — and Pacaso will briefly purchase the remainder of the home, before reselling the remaining portion to vetted buyers. Pacaso will manage the property, and owners will use Pacaso's mobile app to make scheduling easy and equitable. Buyers will pay a 10 percent fee at the time of purchase, and then will pay an annual property management fee equal to 1 percent of the purchase price.
Pacaso raised $17 million in Series A funding, with Maveron leading the round and additional investment from Crosscut and Global Founders Capital. Among the individual investors are former Starbucks CEO Howard Schultz; leading real estate coach Tom Ferry; former Zillow President of Media and Marketplaces Greg Schwartz; and Amazon CEO of Consumer Worldwide Jeff Wilke. Pacaso has also secured $250 million in debt financing to purchase shares of homes.Â
Debt financing is prevalent in real estate ventures for funding deals and scaling.
I'm pretty optimistic about the company looking at the initial details. The founding team is excellent. Zillow is maybe the company with the best search and optimization for residential real estate.Â
This piece will be crucial for Pacaso, as well as it builds out its marketplace. Through optimization and analytics, the company can capitalize on millions in revenue by finding undervalued real estate assets in desirable locations.
Second homes is also a trend that is accelerating even outside of vacation homes. There is tremendous potential here as more wealthy people embrace remote work, and perhaps trade in one house in the Bay Area or NYC for a home in Dallas and a vacation home in North Carolina. It's not hard to see more people making this choice.
Pacaso is a company and service designed for a relatively high-earning class of people. Most people looking at second homes are incredibly wealthy. You're incredibly lucky if you own one home in America.
That said, after looking at Pacaso's model and team, I think the company can truly open up having a second home to millions of people. Real estate investments remain one of the best ways to create wealth in America. Unlocking more investment opportunities, as long as they don't allow people to over-leverage themselves easily, is always a good thing in my opinion.
If Pacaso's vision resonates with you, their team shared with me they will be posting the first wave of jobs they are looking to fill in the coming days — so bookmark Pacaso's career page.
What I’m Reading this Week:
The Wall Street Journal: San Francisco Office Rents Tumble and Show No Sign of Bottoming
- Things continue to look dismal for office space landlords. There are no apparent signs of relief, and San Francisco’s office market may be facing the most challenging situation.
- From Peter Grant at the Journal: “San Francisco office rents fell 4% from the end of March to the end of September, a decline that was more than double that in any other major U.S. city, according to data firm CoStar Group Inc. San Francisco office owners signed only 700,000 square feet in new leasing deals in the third quarter, down about 81% from 3.6 million square feet during the same period in 2019.”
- “San Francisco office rents soared over the past decade as dozens of startups flocked there, convinced that an address in the city was crucial to their image and would help attract top talent. Companies that in previous years might have anchored their workers in nearby Silicon Valley now saw greater prestige in San Francisco, which younger employees also preferred over the surrounding suburbs.”
- Some are optimistic they will return, citing recoveries to previous events like the Doc-com bubble. Still, it will be interesting to see how the market navigates a rally with an increasing share of remote workers.Â
Reuters: Airbnb seeks to raise roughly $3 billion in IPO
- Reuters confirmed last week Airbnb is looking to raise about $3 billion in its upcoming IPO. Speculation is the IPO will take place at some point in December.
- The excellent reporting team at The Information, including Cory Weinberg, also published a detailed examination of Airbnb’s financial situation going into the IPO. See below for some great graphs from The Information showing the company’s finances.
- “Airbnb burned through more than $1.2 billion in cash between mid-2019 and mid-2020, according to previously undisclosed figures, as the plunge in global travel earlier this year eroded a balance sheet already weakened by big increases in spending on hiring and marketing.”
- “The cash drain wiped away more than a third of what the company had on hand as of March 2019, financial documents seen by The Information show. The biggest portion of the cash burn came in the first quarter of this year, when the company had to dole out travel refunds as Covid-19 broke out, underscoring how the pandemic depleted Airbnb’s reserves.”
- Airbnb has a lot of cash on hand, mainly due to the company taking out close to $2 billion in high-interest loans in preparation for the COVID slowdown.
- Airbnb will likely use the funds raised in the IPO to pay for these debts.
- At points like in 2018, Airbnb has been profitable. Leading up to the IPO, a story about how it can get there again relatively quickly is what the company will be looking to land.
- Final thought: I genuinely love Airbnb’s product and mission. I’m also tremendously impressed by how the company has navigated an economic downturn that has been particularly brutal for the travel industry. Airbnb’s leadership should get serious credit for their resilience and focus. It wasn’t too long ago folks speculated Airbnb would shelf the IPO until at least 2021. The company now needs to sell the long-term sustainability of its business model to Wall Street.
HousingWire: Gary Keller steps back from Keller Williams amid major corporate restructuring
- One of the world's largest real estate brokerages announced a new CEO and corporate restructuring this week.
- Austin-based Keller Williams, which has been around since 1984, faced new pressure from tech-forward competitors like Compass and eXp Realty in recent years.
- "Keller Williams, a privately-held company, reported in August that its North American agents closed 272,000 deals during the second quarter, for a sales volume of $85.3 billion. That was down 15% from the prior year."
- Keller Williams handles a high volume of deals, so it will be fascinating to watch how the company continues to compete in an industry that tech continually looks for ways to disrupt.
TechCrunch: Uber sells $500M stake in its freight business as the ride-hailing giant works to conserve cash
- Not too long ago, Uber was trying to be everything in the transportation space.
- “The COVID-19 pandemic upended that business strategy, prompting Uber to offload its shared micromobility unit Jump, double down on delivery with its acquisition of Postmates and, now, to sell a stake in its growing, but still unprofitable logistics arm, Uber Freight.”
- “Uber said Friday that an investor group led by New York-based investment firm Greenbriar Equity Group has committed to invest $500 million in a Series A preferred stock financing for Uber Freight . The deal values the unit at $3.3 billion on a post-money basis. Greenbriar managing partners Michael Weiss and Jill Raker will join the Uber Freight board. Uber didn’t name the other investors.”
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Talk next week,
JT
