Arkansas Bribes Tech Yuppies with Bitcoin, The Lower Manhattan NIMBY Peninsula, Dictators Build Great Houses

This Week in Startup Cities: January 17, 2022

You’re reading Startup Cities, a newsletter about startups that build neighborhoods and cities.

This week:

• Arkansas Bribes Tech Yuppies With Bitcoin

• The Lower Manhattan NIMBY Peninsula

• 🔥 Hot Takes from the Comments: Do Dictators Build Great Houses?

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The Good People of Northwest Arkansas are Bribing Tech Yuppies With Bitcoin

(Bloomberg)

Earlier this year I started to receive super aggro Facebook ads from “Northwest Arkansas” :

The group has upped the ante and now offers $10,000 in Bitcoin for those who move.

Let’s start with the salty take.

These programs feel like the labor market equivalent of state-led startup “incubators”. Such efforts with startups rarely work. HBS’s Josh Lerner in Boulevard of Broken Dreams says that when it comes to boosting entrepreneurship, “far more often than not, public programs have been failures” (7).

But instead of courting startups, cities and regions like Northwest Arkansas now target the “remote worker” A.K.A. cashed-up Tech Yuppies. Arkansas knows that remote workers are rootless cosmopolitan “anywheres” who can pack up and leave because an Instagram influencer told them to. Migrant Tech Yuppies carry coastal worldviews, high levels of education, and six-figure salaries.

The model seems to be:

1. Give Tech Yuppies just enough money to entice them

2. Disburse the incentive in 12 monthly payments, so Tech Yuppies can’t take the money and run

3. Invite Tech Yuppies to lots of events. Help them buy a house and meet people.

4. Assume that after they make friends, buy a McMansion, and enroll little Tommy in school, the switching costs of moving will be too high for Tech Yuppies to leave

Clearly, funding these programs from taxes would be a bad look. Regions like NW Arkansas would rake revenue from people with lower-than-average incomes and give it to people with way-above-average incomes. This seems unfair. The Walton Family Foundation funds NW Arkansas’s effort, so this criticism doesn’t apply here.

However, city governments are essentially large corporations. They enjoy wider powers than their private-sector counterparts. It seems weird that third parties like Sam Walton’s heirs must subsidize these large corporations to make their product — the city — attractive enough for people to move there.

Popular opinion hates direct subsidies for industrial concerns (or Amazon HQs) to relocate. But here we have cities getting subsidies from third parties to give to rich Tech Yuppies. So should we see this as innovation or as a symptom of mismanagement and decline in today’s cities?

OK, enough negativity!

A positive take is that programs like this are a healthy form of competition between local governments. The 10k is like a signing bonus to join a city.

You could argue this isn’t that different from subsidized leases or loss-leader strategies pursued by many real-estate developers. These firms might give an anchor tenant free or discounted rent to relocate. (Though these developers use their own money!)

Maybe we overlook the funding and agree this is a good idea because it works! I’ll admit when I saw these ads I thought: “Would Northwest Arkansas be that bad?”

But I’m not sure. In 2020, my wife and I were selected for a similar program in Tulsa, Oklahoma. I’m somewhat embarrassed to admit that, despite the $20,000 incentive, we moved to Denver instead. Turning down 20k to move somewhere is surely the height of Tech Yuppie privilege.

But it means that, even with a subsidy and a lower cost of living, the expected value of moving to Tulsa wasn’t worth it for us. In fact, we chose a much more expensive city (Denver) who paid us precisely zero dollars.

To me, this illustrates the overwhelming power of people and place. Denver’s urbanism was more attractive to us. And we knew we’d have a tech community there. So off we went, $20,000 poorer. As they say in Hip Hop: network effects rule everything around me.

This shows that getting people to move is hard.

Although the nonprofit estimates it received 35,000 applicants, only about 50 people have migrated to Northwest Arkansas so far.

Tulsa has had more success with 1,400 members (though this number may include wives/husbands, children, mother-in-laws etc). We can also look at the Free State Project, a crowd sourcing effort to move ideologically-aligned people to New Hampshire during the 2010s. The 20,000 signups everyone-must-move trigger has already been hit, but Wikipedia reports only 5,000 moved.

These outcomes show that the “cloud sourcing” strategy for Startup Cities may be harder than people think. Perhaps this difficulty favors approaches like that of _build, which piggybacks on existing cities. It’s easy to join a Discord and say you’ll be part of some future city. But it’s much harder to move — even if you’re paid to do it.

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The Lower Manhattan NIMBY Peninsula

(NYT)

Manhattanites should colonize a huge chunk of New York harbor, says economist Jason Barr.

Barr dubs this new landmass “New Mannahatta”. New Mannahatta would eat Governor’s Island and put Red Hook (a hopelessly remote neighborhood today) a tiny jump from the shore. It might also mitigate the more severe effects of Climate Change. But, as you would expect, the idea attracted the usual poorly-reasoned backlash.

I love the idea. The only terrible thing on this map is that residents of New Mannahatta would have to ride the atrocious G Train. Barr’s proposal channels the can-do spirit of mid-century America, when normal people still thought it was cool and plausible to propose big stuff to build.

And it could make New York a lot better:

Imagine replicating from scratch a diverse neighborhood that contains housing in all shapes and sizes, from traditional brownstones to five-story apartment buildings to high-rise towers. If New Mannahatta is built with a density and style similar to the Upper West Side’s, it could have nearly 180,000 new housing units.

That’d be awesome. But... won’t New Mannahatta have the same building restrictions as Old Manhattan? 40% of the buildings on Manhattan would be illegal to build today. Would we ever get “a diverse neighborhood that contains housing in all shapes and sizes” like the old Upper West Side?

There’s reason to doubt that city managers grok Barr’s logic. Here’s Barr:

In 2014, Mayor de Blasio announced an affordable housing plan that would build or preserve 200,000 affordable units. Despite this, rents continued to rise because construction did not keep pace with population and income growth.

Past mayors thought that “preserving” so-called “affordable units” is a serious solution to the supply constraints on housing. The results speak for themselves. Are such people mentally prepared to New Amsterdam the East River?

Barr proposes long-term land leases for New Mannahatta. This is a great idea, as NYC could become a long-term steward and residual claimant on the whole neighborhood. This would better align the incentives for municipal agencies than selling off the land. NYC should send delegates to Singapore to learn the ropes.

How about a supercharged enterprise zone with no restrictions on density? The city can lease large chunks of land to a firm (or multiple firms) and take equity in the enterprise(s), enjoying the upside. Maybe Cul de Sac Tempe is ready to franchise?

In my ideal world, all the key decision makers in city agencies would receive (non-voting) equity in the neighborhood on a 10-year vesting schedule. Surely this is illegal, but a guy can dream, can’t he? (I once naively tried to do something similar with a municipal land bank in Middle America. I quickly realized how taboo real incentives are in today’s cities.)

Until we get some commitment from City Hall to make it easier to build, I have no choice but to dub the project: the Lower Manhattan NIMBY Peninsula [Barr proposed “New YIMBY City”, which I must admit sounds better].

Mayor Adams, build up this neighborhood! (Also, I recommend Barr’s wonderfully empirical book: Building the Skyline).

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🔥 Hot Takes from the Comments: Do Dictators Build Great Houses?

Globe-trotting entrepreneur Tudor Iliescu offered this contrarian take on last week’s piece on market urbanism:

I've been fortunate to grow up in a place that has never had ANY restrictions on building. Maybe there are some legal directives, it's just that up until now, there has been 0 [enforcement], which essentially allowed land owners / constructors to do their thing.

Despite (because of?) this, new buildings (mostly homes, some industrial), are crazier, uglier, of bad quality materials, which essentially decreased any sense of harmony, not to mention beauty and sustainability.

It's also mind-boggling that during communist times (also effectively no building restrictions), new buildings were better by any standard. Now, during capitalism (or some perverted form of it), it got worse.

For me, as a free market urbanism promoter, I think it's important to understand exactly why all of this happened like this.

I have a theory (hint: 1971), but I'm still figuring things out.

I’m eager to hear Tudor’s 1971 theory! But until then…

The Unseen Costs of Ceausescu’s Monument to Himself

I think authoritarian regimes are often capable of building physical stuff and doing it well.

There’s an inherent difference between complicated vs. complex engineering. A complicated system can be understood and decomposed into constituent parts. These parts can be spread out across brains (engineering teams) and built. Think: Apollo mission or Manhattan Project. It’s why the Soviet Union could have a robust space program.

But complex systems are different. They tend to demand freedom and the ability for agents within the system to change. This is why the Soviet Union could not "engineer" an economy.

In general, older buildings tend to be overbuilt because builders had no way to model failure states. We overbuilt to trust the structure. The "floating steel" structures of today require modern tools like computer simulations (Paging @lukeweatherstone from BridgeBlog to correct me here).

Authoritarian regimes also don't care about opportunity cost. They can build things and achieve any arbitrary "high standard" because they run the show. I'm reminded of Ceausescu's Palace in Romania, where the regime ravaged the city and starved industry to get resources to build this administrative monstrosity.

Was this a triumph of authoritarian building? Well – only if you ignore everything that Romania didn't get so that Ceausescu could reach his fever dream. (Wikipedia reports the palace is 70% empty today.)

Under freer conditions, we see the full range of people's opportunity costs. Is a person who buys a used $10,000 trailer (with an obligatory above-ground pool and inflatable lawn Santa) guilty of bad taste and choosing bad materials? I doubt it.

They're purchasing the housing that's appropriate given the constraints and opportunity costs that they face. This is also how we should understand the "hideous" organic slum urbanism of many developing environments.

Individual buildings are complicated systems. But what about cities? Just complicated or complex? It’s a big question, but I’d argue that any city — and certainly any vibrant, successful city — contains a certain degree of roiling spontaneity that’s best described as complex. Individual freedom matters to create complexity.

The Hideousness of Freedom

Tudor also brings up a central tension in the city-building space: giving people freedom to build often seems to lower the total value of a given community. Color-of-your-curtains-controlling HOAs exist for a reason!

I respond:

"Free market urbanism makes ugly environments" is only true if you assume that there’s no residual claimant on the entire neighborhood/city itself. Imagine an apartment complex or shopping mall at a larger scale.

In this model, a firm/entrepreneur is interested in maintaining an aesthetic because it maximizes the value of the enterprise — which depends on the externalities within the community.

So much of the so-called disorder that we see in “freer” cities is a result of subdivision – fragmented property ownership – where externalities are not adequately captured or managed by a firm.

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Where else should we New Amsterdam? What’s your favorite evil-dictator building? And how much BTC do you need to move to Northwest Arkansas? Tell me in the comments 👇

And don’t forget: Startups Should Build Cities!