For reasons both Macro and Micro we should suspect that this period of unusually low GDP growth will be followed by a period of unusually high GDP growth.

From a disaggregated, but not quite micro, perspective my continuing thesis includes:

  1. Home construction is unsustainably low
  2. Household formation is unsustainably low
  3. Even given (2), (1) is so bad that vacancies are falling and rents are tightening
  4. Yet, (2) is implicitly caused by (1) because weak construction is depressing employment

Thus there are the makings of a boom stirring. Construction will pick up. This will lead to falling unemployment. This will lead to rising household formation. This will lead to ever more construction.

In a world of high gasoline prices, low crime and weak household balance sheets there is every reason to expect that we will see a historic increase in new urban apartment complexes.

This will be exacerbated by the public school flip that it will set off. Young couples will flood into low crime, cheap transportation and quite frankly the only available housing of the city. They will send their smart well prepared young children to public schools. They will show up at the local PTA. They will lobby the city government for reform.

This will cause a dramatic rise in the performance of city schools, making urban neighborhoods even more attractive. Gentrification will accelerate. The suburbs will reach a tipping point where the schools are worse and the neighborhoods less prestigious. The reversal will intensify as high status becomes associated with raising a family in the city.

In a relatively short time, American cities will have flipped inside out. Or right side out given your perspective. America has always been the outlier here. A flood new skyscrapers will be created.

While the North East corridor is primed for this type of thing given its current built environment, new building permitting may play a vital role. We may be looking at the new urban south. I am thinking Florida, Texas, Georgia and North Carolina. These are places where its still legally possible to raze whole neighborhoods to put up big shinny buildings. 

They also have not insignificant urban cores in Tampa, Miami, Houston, Dallas, Atlanta and Charlotte. Austin and Raleigh are much smaller but are hooked up to the fast growing tech industry.

This trend will be enhanced if driverless taxis are approved in the near term as this will take the pressure off of new mass transit construction.

This is of course, over the medium term. Over the longer term we get virtual schools and offices, tiny passengerless car-robots and cheap solar power which may promote a resuburbanization.

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