The red state/blue state divide is a persistent feature of American politics. Political differences among states are also associated with important economic differences, and a similar patterns hold across and within metro areas. Big cities are more likely to be blue, and smaller towns and rural areas are red. The more densely populated portions of every metro area are also more likely to be blue. Understanding and eventually bridging these fissures is a major challenge for the nation.

In an article in last week’s New York Times, urbanist Richard Florida seems to have, if perhaps only inadvertently, given aid and comfort to the persistent myth that people are somehow worse off in big cities compared with smaller towns and suburbs.

It could be that this impression is amplified by the headline writer’s provocative question: “Is life better in America’s Red States?” While he doesn’t directly answer this question, Florida seems to imply that because housing is on average cheaper in red states, people who live there must be better off.

But is it the case that cheap housing is a reliable marker of economic well-being?

While it’s true that average home prices are higher in blue states, it’s important to consider why that is, and what it signifies. First and most importantly, blue state housing prices are driven higher because incomes and economic productivity are higher in bluer states and bluer cities. GDP per capita tends to be higher in metro areas that favored President Obama’s re-election by the widest margin, as shown here:


Note: if you hover over the orange trend line, you will see that the p-value is low and significant at the 1% threshold. (The p-value measures the statistical likelihood that the relationship between vote margin and productivity –measured by GDP per capita–is different from zero).  It measures correlation and tells us nothing about causality.    You can see the now familiar red-blue pattern on the attached map; the size of circles for each city corresponds to GDP per capita:  

The question then is, are higher housing prices in blue places an indication that the standard of living is lower?

Focusing on dollars per square foot misses the important fact that, unlike our stone age ancestors, we don’t rely on shelter solely as a means of warding off the cold, dark and wild beasts. We don’t value houses just as boxes—location matters. The reason the price of a square foot of land in Manhattan is worth as much as an acre of farmland in North Dakota has everything to do with the access it provides to a range of services, experiences and goods.

To an economist, if people are willing to pay a higher price for something—like housing in Manhattan or San Francisco or Honolulu—it’s a good indication that it has a higher value. A big part of the reason housing prices are higher in bigger cities than small ones is that we value the personal and economic opportunities that come from being close to lots of other people. As University of Chicago economist and Nobel Laureate Robert Lucas famously put it: “What can people be paying Manhattan or downtown Chicago rents for, if not being near other people?”

Harvard’s Ed Glaeser, author of Triumph of the City, has explored this theme in great depth. Increasingly, he argues, the biggest driver of city growth is the consumption advantages of living in cities, with close proximity to a wide range of goods, services, experiences, social interactions and cultural activities. This “consumer city” theory means that cities increase the well-being of their residents by facilitating all kinds of consumption. Indeed there are whole categories of goods, and especially services that are simply unavailable at any price outside major cities: think of everything from diverse ethnic restaurants to specialized medical care to cutting edge live art and music.

Provocative new work by Jessie Handbury shows once you adjust for the variety and quality of goods available in different places, the cost of living in big cities is actually lower than smaller cities. Her work looks at variations in the price and availability of food. It’s almost certain that differences in services are even more skewed in favor of city residents.

Moreover, looking just at differences in housing costs ignores important city advantages of density, proximity and convenience. Higher rents invariably provide city residents with better physical access to jobs, shopping, culture and social interaction. As Scott Bernstein and his colleagues at the Center for Neighborhood Technology have shown, savings in transportation costs in cities largely, and in some cases fully, offset differences in rents.

People who live in blue cities drive much less on average than those who live in red cities, and the savings in time and expense are substantial. My own work shows that residents of blue Portland Oregon drive about 20 percent less than in other large metro areas, saving them more than a billion dollars a year in transportation costs.

Florida makes one point that we all ought to pay attention to: as a nation we’d be much better off if we created more opportunities for people to live and work in blue cities. Because residents in big blue cities are so much more productive than otherwise identical workers in smaller red cities, we take a substantial hit to national economic productivity and growth. Enrico Moretti estimates GDP would be 13 percent or so higher if it weren’t for constrained population growth in these highly productive cities.

There’s an old adage that claims than an economist is someone who knows the price of everything and the value of nothing. Assuming that difference in house prices per square foot across metropolitan areas accurately reflects cost of living differences is arguably wrong. Cheap houses entail high costs for other things—like transportation—and to believe cheap houses automatically equals better quality of life misses the huge and tangible differences in the price and availability of a whole range of goods, services and experiences that make life nicer.

The political message here ought to be the high prices for blue cities generally, and the growing market premium for housing in dense, urban neighborhoods particularly, is a signal that Americans want more cities, and more opportunities for urban living. It’s a fair criticism of blue cities to say that they haven’t done a good enough job of making it possible for more people to live there—and this has a lot to do with local land use planning. But it has also been amplified by decades of federal subsidies to sprawling low-density development.

One final addendum on Richard Florida’s political analysis: as troubling as the persistent red/blue divide is among states and cities, it’s probably wrong to attribute the 2014 election results to this dichotomy. The huge fall off in turnout, especially among younger voters compared to 2012, is clearly the big driver of November’s red tide. Not only was 2014 the lowest off-year election turnout—only 37 percent—in six decades, but the electorate skewed far older in 2014 than in 2012. Voters over 65 made up 22 percent of voters in 2014, up from 16 percent in 2012; voters under 30 made up 13 percent of the electorate down from 19 percent in 2012. The 2014 red surge wasn’t so much geographic as it was demographic.