What City Observatory did this week

Caveat Rentor: the problem with flawed rental inflation statistics. We highlight the continuing problem of erratic and unreliable rental price indices. A recent column by a financial journalist reports an apparent bubble in one-bedroom apartment prices based on an index generated by Zumper. Not only are these data implausible, they’re not at all borne out by other data by more credible rental housing sources (which show little fluctuation over the same time period). As we’ve pointed out before, services that simply calculate median values based on their on proprietary listings are subject to composition effects than greatly bias their results. So when looking at rental markets, be sure that your service has a sensible methodology that produces consistent and plausible results.

Must read

1. Devin Bunten explains how we got in this housing mess. Devin is an economist with the Federal Reserve who will soon join the Harvard urban economics faculty. She’s got a longish think piece in Frank News exploring the roots of our housing problems and their connections to policy and inequality. She weaves together a number of familiar themes–a big investment in highways and housing following World War II, imprinted with some strongly segregationist features, and also unearths some little known facts (as it accelerated funding for single family homes, Congress killed the largest federal program to help underwrite apartment construction). Together, these policies fueled white flight, and the disparate trajectories of inner cities and suburbs led directly to wide wealth disparities between blacks and whites. Now much of this divide is perpetuated by zoning. It’s a reminder, though, of the subtle power of national policy to reshape the urban landscape. (Hat tip to Alex Baca).

2. Another billion dollar lesson in induced demand. The Texas Department of Transportation has just wrapped up a $1.6 billion dollar project widening I-35W through Fort Worth, and still its backed up for a mile most days and sometimes as much as four miles, according to the Fort Worth Star-Telegram. Not to worry, motorists, yet another project in a few years will add capacity, and alleviate this particular bottleneck.  But as we all know by now, the addition on un-priced highway capacity in urban environments simply generates more traffic, and congestion soon returns to previous levels.

New Ideas

The downside of peer effects. Those who follow City Observatory regularly will know we’re keenly interested in neighborhood effects–how the characteristics of your neighbors influence your life and prospects. In general, we look at the positive aspects of peers–having a strong set of peers helps provide friends, role models, and networks to advance onseself during life. But there are also negative peer effects. A new research paper from Scott E. Carrell (University of California, Davis); Mark Hoekstra (Texas A&M University); Elira Kuka (Southern Methodist University) explores the spillover effects of attending school with children exposed to domestic violence. They find that exposure to a disruptive peer during elementary school reduces earnings at in ones mid-twenties by an average of 3 percent. The overall effects may be substantial; the authors estimate that exposure to children linked to domestic violence explains as much as five percent of the rich-poor earnings gap.

In the news

A video Joe Cortright’s interview on Portland’s housing market is available at Multi-Family Market Watch.

In its monthly newsletter Housing Reads, DePaul University’s Institute for Housing Studies highlighted our City Observatory commentary pointing out that we have federal preemption of local land use regulations that interfere with our access to television, but not for affordable housing.