Construction along University Avenue in St. Paul is hot. Yes, it’s a decade-old trend, but the number of new building right now is highly striking. Most such development stems from the Metro Green Line, opened in 2012, light rail linking Minneapolis and St. Paul downtowns.
The phenomenon of burgeoning construction in a locality is not unique. It happens in suburbs all the time. Streets and large shopping areas spring up in long-vacant land as do hundreds of houses and apartments of various types. University Avenue differs in that it has been in active urban use for some 150 years.
Applied economic theory is evident in all of this, both bread-and-butter demand and supply, but also the economics of location. And the Green Line plays a significant role here. But this begins with the insights of Johan von Thunen, a German estate manager living from 1783 to 1850, before widespread railroad building occurred here or in Europe.
Von Thunen lived in Pomerania, a vast region of marginally farmable land near the Baltic Sea. He noted that types of farm produce and land values both varied with distances from market cities. In other words, what mattered to landowners was location, location, location.
A concentric circle closest to the city center produced things like fresh milk and vegetables, high-value, but perishable. Successive land circles rippling out included growing timber for building and firewood, not valuable but costly for horse-and-wagon transport. Then came storable fruits such as apples and root crops like potatoes or turnips that kept for months after harvest and allowed hauling in over time.
Rye and wheat were even more storable and so were grown further out. Butter and cheese were higher-value products, but dairy herds needed extensive pastures. Ditto for beef cattle, that could be driven to slaughter in the city itself.
The price of land varied upwards with the value of products and downwards with the transport expenses.
Even within one product zone, land prices fell with distance. Consider a wagon of rye. Close in, it held mostly grain with a bit of horse fodder. As distances grew, more fodder was needed and hence less grain hauled. Round trips longer than horses could cover in a day meant using wagon space for bedrolls, a kettle and potatoes for the drivers. The overall outcome was that two different farms of equal agronomic productivity would realize different net revenues from the same crop because of differing transport costs. Thus their land values would also differ.
Fast forward to modern-day St. Paul.
Along the Green Line, new apartment construction varies by at least two factors: the distance from either downtown and the cost of land and existing buildings that must be razed. From the city limits to downtown Minneapolis, denser habitation around the U of M means more costly land. But from Snelling Avenue east to Rice Street in St. Paul, there had been many car sales lots. Those that were adequate in the 1950s were too small for modern dealerships after 1980, so some with “Midway” in their names moved to Roseville or father out.
Within a the urban zone, land values and apartment rents vary with the distance from a Green Line station. People want to live along light rail precisely because they don’t have cars or want to face rush-hour traffic to work or shopping. Rents and home prices might be lower in the exurbs of Buffalo, Belle Plaine or Baldwin, but the savings is squandered for city workers on hundreds of hours behind the wheel and thousands of miles of wear and tear on a car.
Other factors beside distance cause differing land prices or rents. When real estate agents talk of “location,” they don’t just mean distance to work or shopping, but myriad other factors such as public safety, ambient noise, school quality, clean air, parks and so forth that they can lump as “amenities.” Economists might see these as “complements” to the core product of residence location.
There are few supermarkets between the two downtowns, so close walking distance to one is a plus. Ditto for funky little hardware stores or good breakfast places. So razing every existing building to produce an unbroken forest of apartments would lower the overall attractiveness of living there and hence rents and lot prices.
Yet individual developers are subject to the “common-pool resource” problem that inhibits one from stinting while others don’t. So sensible zoning protects quality of living for residents and values for landlords.
Playgrounds and schools mattered greatly to the Beaver Cleaver family model. But social values and mores change. Consider birth rates and family building: Three decades ago, when teaching development economics, one had to disabuse students of the idea that access to modern contraception was the only factor in rapid population growth in poor countries. Catholic Ireland may have banned sale of all contraceptives back then, but had low birth rates. This is because Ireland’s “average age at first marriage” was 29 years for women and 33 for men. In our nation it had hit a low of 20 for women and 22 for men at the height of the baby boom. These had risen by about a year by the mid-1980s. My students back then were graduating in months. Many were engaged and made faces at the idea of holding off marriage and kids for another decade.
Now, U.S. averages exceed Ireland’s 40 years ago. For daughters of women born in this country, the crude fertility rate, or lifetime number of children per woman, is well below population replacement. So access to good schools and parks remain important, but matter less for young renters and first-time homebuyers than they once did.
Things can move in the other direction. COVID is accelerating many changes, including working and learning from home. Perhaps without daily commutes, distance from town will be less important, as would access to the Green Line — but access to reliable internet becomes vitally important, hence its inclusion with roads and light rail in today’s infrastructure debates.
Considerations of these developments doesn’t seem to be deterring central-city developers however. In von Thunen’s day, railroads were a similar “exogenous shock,” the proximities to which changed patterns of production and development together with land values, both in absolute terms and relative to each other. The U.S. West and Midwest would be occupied by peoples of European descent because of this transportation revolution. Where and how we live today remains shaped by this.
One could also analyze current building from the point of changing “complements” as “demand shifters.” These are outside variables that move people’s underlying demand, which is the intrinsic relationship between each of many possible quantities bought at over a range of matching possible prices. But this is a large ball of wax in itself.
St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
Real World Economics: Location an age-old factor in growth - TwinCities.com-Pioneer Press
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