Rents in Megacities Can't Go Up Forever

As rents and home prices in the most productive megacities continue to climb, the obvious question is whether this is sustainable. Will New York, San Francisco and London become unstoppable juggernauts, soaking up more talent and becoming more expensive each year? Maybe not. I can see several reasons this growth in megacities will prove bounded rather than spiraling out of control.

We live in a special time where clustered activities are unusually important for economic growth. Some activities, such as dentistry and cement production, don’t cluster geographically very much, for obvious reasons. In contrast, finance (New York and London), information technology (the Bay Area), and entertainment (Hollywood and New York) are the most clustered. For whatever reasons, it makes sense to have many of the top decision-makers in one place.