Did the knowledge economy break the housing market?

This is the first of four post trying to think through the relationship between Ireland’s FDI-led ‘knowledge economy’ and the housing system. I’d also like to thank everyone who attended my book launch on Tuesday, and especially the Irish Times’ Kitty Holland and Soc Dems TD and author Rory Hearne ,for being part of a really stimulating conversation. I’ll also be talking about (and flogging!) the book at the Dublin Radical Bookfair tomorrow.

Many, if not most, housing systems in advanced economies are now under serious strain, especially in larger cities. Housing research over the last decade or so has explained this by focusing on two primary processes: neoliberalization and financialization.

I’ve long worked within these literatures and believe they are essential in understanding how housing systems have transformed. But I have also harboured doubts about whether something is missing here. This is the first in a series of posts that will explore another set of processes of a political economic nature. They relate to the transformation of the broader economy since the 1980s and how these have impacted labour markets. The series doesn’t aim to offer a conclusive account, it’s more to start a conversation, and most of the literature I draw on is international.

The argument can be summarized as follows. The shift from industrial to service based economies, and especially the rise of the ‘knowledge economy’ has had pronounced impacts on both labour markets and cities. Cities because relevant industries tend to be heavily concentrated in the urban cores of ‘successful’ cities (i.e. those that have repositioned themselves to take advantage of this change). Labour markets because of the decline of middle-income work, especially for skilled and semi-skilled routine manual workers, and the growth of both high paid knowledge intensive roles and low-paid service work. Consequently, successful cities end up with a high proportion of high paid knowledge workers who want to live centrally, and many low paid workers who can’t keep up.

What emerges, then, is a ‘double divide’. On the one hand, intra-urban inequality means that housing markets have drifted far out of reach of all but the best paid. On the other hand inter-regional inequality means there is a growing divide between urban dwellers and everyone else. This, of course, relates very closely to the literature on populism as the ‘revenge of places that don’t matter’. I’m still unclear how well this fits the Irish case, which is very different from places like the UK and France which have experienced decades of industrial decline and have huge inter-regional inequality. Over the course of this series, I’ll go through the ideas we find in the international literature ‘step-by-step’. Some of the arguments will be very familiar to some readers, but’s worth breaking the ideas down to better reflect on which aspects might be relevant to Ireland and which not.

Although younger readers might find it hard to imagine today, in the later decades of the twentieth century many major cities across the Global North experienced stagnation and decline, both economically and in terms of population. Much of this was related to deindustrialization, most famously in the example of Detroit’s massive population decline, but common across many cities. London, for example, lost 2.2 million inhabitants (about a quarter of its population) between 1939 and 1991 . From the 1990s, and especially the 2000s, this dynamic was reversed, at least for those cities that were able to reposition themselves to take advantage of what came to be known as the knowledge economy. Richard Flordia’s (2002) ideas of the ‘creative city’ and the ‘creative class’ were emblematic of the optimism around how cities could reinvent themselves in a new economic context.

The era of globally integrated knowledge economies, paradoxically, increased the value of geographical proximity, at least within some of the highest ‘value added’ industries. These include finance, advanced professional services, global marketing and the tech and digital sectors. In short, the knowledge industries. ‘Geographical closeness’, it turns out, ‘is especially important for the transfer and combination of ideas’, and high skilled workers become more productive simply by working in close proximity to other knowledge workers. There is thus a ‘positive feedback loop between “human capital” and the hotspots of the new economy’s rising sectors’, creating the by now well known ‘agglomeration effects’ that characterise contemporary urban political economy across much of the Global North.

Moreover, knowledge industries cluster not just within certain cities, but even within certain neighbourhoods, often located in the urban core. This contrasts to manufacturing industries which typically locate in suburban locations or in smaller cities/towns. Ireland is a good example of this. The first phase of Ireland’s FDI-led economic model was largely based on manufacturing industry for global export. Much of this investment took place in suburban locations (IBM in Dublin 15), small cities (Dell in Limerick, Apple in Cork), or rural areas (Intel and Hewlett Packard in Kildare). The second phase has been characterised by digital firms that have located overwhelmingly right in the heart of the city, in the Silicone Docks.

From a housing point of view, it is enormously significant that knowledge industries tend to cluster in central areas, where housing demand is usually highest and supply most constrained.

The geography of the knowledge economy reshapes labour markets. Economically successful cities become magnets for highly educated, high skilled workers, ‘absorb[ing] the high end of the labour market’, as Le Galés and Pierson (2019) put it. In a mutually reinforcing cycle, the presence of high numbers of high skilled workers further boosts both productivity and investment, as capital searches for ‘talent’. Buchholz et al. argue that:

The most highly-educated workers have been drawn to populous, dense and already education-abundant cities to share ideas and match effectively in a series of spatially-concentrated sectors at the frontiers of knowledge, such as information technology, biotech, finance and professional services.

But the rising tide of the knowledge economy has certainly not lifted all boats.

This has been well studied in the US. The urbanised knowledge economy is linked to growing inequality between highly educated and non-college educated workers, i.e. polarisation between high and low paid workers with fewer jobs in the middle.

For much of the 20^th century urban workers enjoyed a ‘wage premium’. It also meant cities served as social mobility ‘escalators’. By simply moving to a city, workers could improve their economic opportunities and pay.

This is much less clear today, if it is the case at all. There is ‘an increasing gap in the urban wage premium for college-educated and non-college-educated workers’ (Buchholz, 2025: 1923). Indeed, some research has indicated that non-college educated workers now face an urban wage penalty when we take housing costs into account, i.e. housing unaffordability means they are worse off despite moving to places with higher average incomes, higher productivity and more employment options. Successful ‘knowledge economy cities’ are, then, ‘highly internally unequal’.

But this isn’t the only form of inequality at stake. Inequality between ‘successful cities’ and ‘left behind places’ is equally important, including when it comes to housing. I’ll turn to these issues next week.

The Joseph Roantree Foundation are organising a webinar entitled ‘How to talk about homes and migration’. The Housing Agency are doing a seminar series on housing and sustainability over the summer. Clúid have issued a new Call for Tenders for research on community spaces on household wellbeing.