Month: November 2014

Are suburbs really happier?

Posted on by Joe Cortright

A few months back our friends at CityLab published the results of a survey looking at differences in attitudes about cities and suburbs under the provocative headline, “Overall, Americans in the suburbs are still the happiest.”

Their claim is buttressed with a reported finding that 84 percent of all the respondents in suburbs said that they were “satisfied with their communities”, while only 75 percent of those who reported living in cities felt the same.

While at first glance, this seems to be pretty cut and dried, a closer look at the data suggests that the answer is far less clear.

As with all surveys, it’s worth paying very close attention to the actual question asked, the size of the survey’s margin of error, and the other factors that determine how respondents answer particular questions.

When we consider each of these factors, it actually turns out that it is difficult to make a strong claim that suburban residents are happier than their urban kin.

First, consider the question asked in the State of the City survey.  It isn’t about “happiness”—it’s actually about satisfaction.  This is more akin to a consumer satisfaction.   There’s actually a well-developed happiness literature that asks people about their overall level of happiness. The conventional question is very internally focused, and doesn’t refer to place. The Pew Center has a good introduction to this subject here.   So when we interpret these data, we should think of them not showing whether people are more or less happy than others living elsewhere, but whether they are satisfied or dissatisfied with their communities.

Second, in interpreting survey results, it’s important to consider the sample size and the sampling distribution of error.  The overall survey included 1,656 respondents and the reported margin of error for the survey was plus or minus 3.4 percentage points.  But that margin of error holds only for the entire sample—subgroups of the population (like just the one-third or so of respondents living in cities) are fewer in number and therefore have a larger percentage point margin of error.  That number isn’t reported.  But differences of less than four or five percentage points between sub-groups of the sample are likely to be borderline significant at best.  When differences between sub-groups are small, we shouldn’t make too much out of them.

Third, we know that happiness (or in this case, satisfaction) is correlated with income.  Higher-income people are more likely to say they are happy; lower-income people less likely.  So if suburbs have more higher-income people and cities have more lower-income people, the apparent difference in reported satisfaction could be the product of income, rather than location.  This appears to be the case for the data reported here.

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Like published happiness research, the State of the City survey shows that reported satisfaction is highly correlated with income. Some 88 percent of those with incomes over $75,000 said their community was excellent or good; only 66 percent of those with incomes of less than $30,000 said the same. It’s worth noting here that the impact of income is larger than the impact of location in influencing satisfaction (a 9 percent difference between city and suburb as opposed to a 22 percent difference between high and low-income groups.  These data suggest that the real headline finding of this survey should be “higher income people are more satisfied with the places they live.”  The unsurprising takeaway here is that more income enables you to afford to live in a community that makes you happy. We could get a more direct answer to this question by looking directly at income data.  While the CityLab article didn’t publish the findings on income by city and suburb, we can observe the differential effect of income on satisfaction levels in cities and suburbs by looking at two other variables—education and home ownership—which tend to be correlated with income.If we look just at the college educated, we find that the differences between cities and suburbs shrink by about half:  College-educated urban residents are almost exactly as satisfied as college educated suburban residents (80 percent v. 85 percent).

If we look just at homeowners—who in general have higher incomes than renters—we find that the differences between cities and suburbs almost entirely disappear.  Urban homeowners, for example, are almost exactly as satisfied as suburban homeowners (84 percent v. 87 percent).

Finally, we might want to consider how the race of respondents influences community satisfaction.  When you dig into the data by race and ethnicity, the entire difference in reported levels of satisfaction appears to be the result of the differential racial and ethnic composition of cities and suburbs.  Non-Hispanic whites living in cities were almost exactly as likely to report being satisfied with their communities (84 percent) as non-Hispanic whites living in suburbs (83 percent).

It’s definitely worth looking hard at data on personal happiness and community satisfaction, but in doing so, it’s critical that we take care to understand what the data are—and aren’t telling us.

Why Black Friday Just Isn’t Worth It

Posted on by CityObservatory Guest

If you’ve ever contemplated getting up at 3, 4, or 5 am only to brave large crowds to fight over scarce merchandise, well, think again. Instead of looking into census data this Thanksgiving, we thought we’d look at more “fun” data, specifically, Black Friday shopping habits– and whether or not they make sense.

Recently, several articles have talked about whether or not it’s worth it to brave the early morning ritual, especially given the widespread use of online shopping and success of “Cyber Monday.” Why go out when you can line up your shopping cart in your PJ’s, and hit a button to order and send? Moreover, especially since the Great Recession, many of the best times to go seasonal shopping haven’t been during Black Friday. Some years, when volume lags below expectations, retailers offer even bigger discounts later in the season. While it’s impossible to know for sure when to get the best deals, there are a few things we do know.

First, I went online to several large retailers to see what sales they were promoting for the day. I found several items popular amongst multiple retailers, such as an iPad, Beats headphones, tv’s, and an Xbox One. Prices were largely similar across retailers, and on average were discounted about 21-23% from regular prices. (Keep in mind these are on big ticket items- Beats headphones can be on sale for more than 50% off, but an Xbox One has a max savings of 17%. While that’s still significant given the price of an Xbox, it is likely that smaller-ticket items will have less than 20% savings.)  IBM reports that last year the average amount spent on Black Friday was $120 ($200 for consumer electronics) — meaning a typical shopper saved approximately $25 according based on our estimate of average Black Friday discounts.

But what about those things that detract from Black Friday– how do you account for the “cost” of going? The answer to an economist may be obvious, but to others, probably not: your time, in the classical sense, is worth money. Every minute you spend shopping, watching tv, or generally spending your leisure time, you are not spending time on work. In theory, the time you don’t spend on work is costing you the money you could be making if you were working. Hence, time is money. Frankly, however, our behavior doesn’t seem to to imply that people believe their time is worth much; people drive 20 minutes to get a slightly better deal on gas, spend days repairing a car when a mechanic could fix it in under an hour … or shop for hours to get the best price. A person earning $25,000 a year, working 50 weeks for 5 days a week and 8 hours a day, makes $12.50 an hour. By the same logic, someone making $50,000 a year nets $25 an hour, and someone making $75,000 earns $37.50 an hour. If people actually valued their time at these rates per hour, it wouldn’t make sense for them to spend hours getting to the store, shopping, and getting home on an early Friday morning. Basically, if someone saved $25, but spent 3 hours (at $12.50 an hour) shopping, they effectively lost $12.50. If you spend $200 (the average electronics bill), your net savings are only $4.50.

Check it out for yourself: at what point does it make sense for you to go out on Black Friday?

(Just slide the amounts to the right and left to estimate how much you believe your time is worth, how much you typically spend, etc.)

What’s worse: this doesn’t account for basic costs like gas and mileage, or more rare costs such as getting into a wreck because you’re too tired, or the occasional (but real) occurrence of injury due to in-store conflict like trampling. It doesn’t account for psychic costs like aggravation with other shoppers or crowds, or include the fact that actually being leisurely on vacation time– instead of spending it at a crowded store– can make you more productive at work. Finally, it doesn’t allow for the fact that very often, the items that Black Friday shoppers most want are taken by the first few shoppers, and the items with the biggest savings are then no longer available. (As an aside: we could build this into the model with relative ease- and you could too! Contact us if you want more information on how we built this.)

Of course, many like the ritual– and it’s hard to quantify happiness associated with that. So even if you value your time anywhere close to your wage, you could still value the time with your family (or away from them) more than that time.

Whether or not you go out on Black Friday is of course your prerogative. But remember that your time is valuable- and frequenting your local stores could save you time and effort. Happy Thanksgiving!

Our Shortage of Cities: Portland Housing Market Edition

Posted on by Joe Cortright

The big idea: housing in desirable city neighborhoods in getting more expensive because the demand for urban living is growing. The solution? Build more great neighborhoods.

To an economist, prices are an important signal about value:  rising prices for an object or class of objects signal increasing value relative to other objects.  In our conventional supply and demand framework, rising prices are often symptomatic of a growing demand or a limited supply:  that consumers now want more of some commodity or product than is currently available in the market.

Trends in housing prices point to some significant shifts in consumer demand, especially in the value that consumers attach to urban, as opposed to suburban, locations.  The rising relative price of housing in cities is a strong indication of the growing demand for urbanity–and its unfortunate short supply.

Case in point:  Portland, Oregon.  Let’s take a quick glance back at housing prices in the Portland area over the past decade (courtesy of Zillow’s comprehensive archive of monthly housing price estimates).  For simplicity, we’ll look at four Portland metro area sub-markets–the central city of Portland (home to a little more than a quarter of the region’s population), and the region’s three principal suburban counties–Clackamas and Washington Counties in Oregon, and Clark County, Washington.  The following table shows single-family home prices for 2005, 2007 (the peak year for the region’s housing market), 2010 (the bottom of the bust) and the data for the latest quarter (3rd Quarter 2014).  To simplify comparison between the city and suburbs, I’ve calculated the un-weighted average price for for the three suburban counties.

In 2005, in the heyday of the housing bubble, the city of Portland’s housing prices were $236,000, on average about $20,000 lower than the three suburban jurisdictions, ranging from $3,000 lower than Clark County, to $30,000 lower than Clackamas County.  According to Zillow’s latest estimates the average Portland single family home is now worth about $309,000. Portland’s prices today are about $20,000 higher than the average of the three suburban counties, and its price level is equal to that of the Clackamas, the priciest suburban county.

Not only have houses in the City of Portland re-couped all the value lost to the collapse of the housing market, they are now worth on average about 6 percent more than they were at the peak of the housing bubble.  Meanwhile, the average suburban home is still about 7 percent below its peak price.

The verdict of this shift in housing markets is unequivocal:  housing in the city is now more valuable, and has appreciated faster than suburban housing.  In less than a decade, the city has reversed geographic polarity of the regional housing market:  the average city house sold at a nine percent discount to the average suburban house in 2005; today the average city house commands a seven percent premium.

There are doubtless many reasons for this shift.  We know that young, well-educated workers are increasingly choosing to live in close-in urban neighborhoods.  Over the past decade, the big increase in gasoline prices has made car-dependent suburban locations more expensive and less attractive than urban living.  My 2008 CEOs for Cities report “Driven to the Brink,” reported some early evidence that housing prices fell most on the suburban fringe, and held up best in urban centers.

The falling price of suburban housing relative to city housing is the most persuasive evidence possible about consumer preferences.  Citing the results of a recent opinion survey, some have claimed that Portland-area consumers allegedly prefer suburban locations to urban ones. But the fact that consumers are not willing to pay as much for suburban housing as they are for urban housing, and that while urban home prices are setting new highs, suburban prices are still well below their peaks, shows that the reverse is actually true:  consumers value urban single family housing more than its suburban alternative.

The rising price of urban housing is a market signal that housing in the city has value to consumers–and that we should be making more of it.  Prices are rising because the demand for city living is rising faster than we’ve expanded the supply of urban housing.  The clear public policy implication of the market data is that city and regional governments should be looking seriously at ways to expand the supply of urban housing.  And expanding supply in the city is especially important to addressing concerns about housing affordability:  unless supply expands, we can reasonably expect the growing demand for urban living to push prices still higher, reducing affordability.

While this commentary focuses on the city of Portland, there are good reasons to believe that the nation is experiencing a significant and growing shortage of cities as well.  As Americans rediscover–and recreate–the attractiveness of urban living, this shortage is likely to grow.  Paying close attention to the signals provided by the housing market is key to understanding the nature of this challenge and implementing appropriate solutions.

Technical Notes:  Data for this analysis were obtained from Zillow.com’s city and county ZHVI-Single Family Residential index.  Values are annual averages of monthly data, rounded to the nearest $1,000.  The suburban average presented here is the unweighted average of the price index values reported for the three suburban counties.  Since these four areas are all part of a single, larger metropolitan economy that shares the same industrial and job base, its pretty straightforward to interpret the change in relative prices among sub-markets as indicative of the relative change in consumer preference for these areas.  Also, because so little new single family housing has been constructed in the past several years, these numbers are not meaningfully skewed by the construction of a large number of new houses in any one jurisdiction.

Focus: Detroit’s Young and Restless

Posted on by CityObservatory Guest

Last month, we released our Young and Restless report, tracing the growth of well-educated young adults in in the nation’s largest metro areas. We found that across the nation, college-educated 25 to 34 year olds were much more likely than other metro area residents to choose to live in close-in urban neighborhoods.  While the trend has been strongest in the cities that are well known as talent magnets, our research shows that the pattern holds even for cities that have been struggling.

One of the cities that has experienced the greatest outflows of talent over the past decade or more has been Detroit.  But there are hopeful signs that well-educated young adults are playing a key role in helping to revitalize that city’s urban core.  In this week’s Time, columnist Rana Foroohar describes some of the unfolding efforts in Detroit to tap into the growing demand for urban living.

In the article, Quicken Loans’ CEO Dan Gilbert explains that in order to compete for talent, his firm couldn’t be located in the suburbs.  Detroit is turning up as Foroohar explains because talented young workers increasingly want to live in cities, and the companies that look to employ them are drawn to these same places.

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The full article is available in the November 24 edition of Time, and for subscribers is available online here.

The four biggest myths about cities – #4: Traffic is getting worse

Posted on by Joe Cortright

Fast_Lane

The Myth: Traffic congestion is getting worse

The Reality: Congestion has declined almost everywhere

It’s a common movie trope – a busy commuter rushes out of his downtown office at 5pm, hoping to get only to enter a citywide traffic jam. In reality, traffic congestion across the country has been in steady decline thanks to Americans choosing to drive fewer miles every year and increasingly biking, walking and taking transit for many of their trips—especially in cities.

Using data from GPS devices in millions of vehicles, Inrix tracks highway travel times in the nation’s large metropolitan areas (when they aren’t fear mongering about the costs of congestion). In its past two annual reports, Inrix pointed out that time lost to congestion has fallen dramatically in the United States. In 2011, congestion levels declined 30 percent nationally, and they declined a further 22 percent in 2012. Their travel time index measures the additional time that a typical peak hour trip takes compared to the same trip taken during free-flowing road conditions. A travel time index of 12 means that a trip that takes 20 minutes during free flowing travel conditions takes 12 percent longer—about 22 and a half minutes—during the peak travel period. Traffic congestion, as measured by the travel time index has fallen by about forty percent, from between 11 and 12 in 2010 to about 7 in 2013.

The distance we’re driving has decreased as well. Americans have cut their driving from a peak of 27.5 miles per person per day in 2005, to about 25.5 miles per person per day now.

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Cities are remarkably effective at reducing commute times – the closer you live to work, the less time you spend in the car.

You can learn more about traffic congestion and the dreaded “Carmageddon” in the Questioning Congestion Costs card deck.

Congestion and crime are dropping, kids in cities are safer and healthier than their suburban counterparts, and urban air quality is better than it’s been in decades. The sooner we can shed these outdated myths about city living, the sooner we’ll be on a path to building better places for Americans to live.

Photo courtesy of Neil Kremer on Flickr.

Parking: The Price is Wrong

Posted on by Joe Cortright

There is a central and unacknowledged problem in urban transportation: The price is wrong. Underlying traffic congestion, unaffordable housing, and the shortage of great urban places is the key fact that we charge the wrong price for using roads.

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Nowhere are the effects of mispriced roads more apparent than on-street parking. Only for car storage do we regularly allow people to convert a scarce and valuable public space to exclusively private use without paying for the privilege. In neighborhoods that don’t charge for on-street parking, we have have a system that can only be described as socialism for private car storage. The public sector pays for the entire cost of building and maintaining roads, and even in dense urban settings with high demand, we allow cars to occupy those without paying a cent.

As chronicled in painstaking detail by the godfather of parking wonks, UCLA professor Don Shoup, free parking encourages additional driving, reduces the vitality of urban neighborhoods, makes it harder for local retailers to survive and needlessly drives up the cost of housing. A growing number of urbanists are coming to embrace Shoup’s viewpoint, spelled out in his 700-page tome “The High Cost of Free Parking,” but many of us still cling to the outdated illusion that parking is and should forever be “free.”

For the most part, the pitfalls of poorly priced parking go unrecognized and unexamined — we get stuck in congestion and complain about the shortage of parking. But we don’t typically recognize how the wrong price is the root cause of these problems.

Every once in a while though, there’s an event that shines a bright light on the consequences of parking socialism, and demonstrates how getting the prices right can fix things in a hurry. The most recent example is Portland Oregon’s reform of its handicapped parking system.

For years, the rampant abuse of Portland’s generous handicapped parking system was obvious and well-known. On downtown streets, a blue handicapped placard traditionally entitled users to park for free, as long as they liked. In Oregon, all that is required to get a handicapped permit is a note from one’s doctor and a trip to the DMV. As casual visitors to downtown have observed, entire blocks were occupied from early morning until night by rows of cars, each with a deep blue handicapped placard hanging in its rear view mirror.  In an apparent epidemic of frailty, the number of handicapped permits in use in downtown Portland almost doubled between 2007 and 2012. In September 2013, handicapped placard users occupied fully 1,000 of the central city’s 8,000 metered on street spaces.

In July, that all changed. Led by Commissioner Steve Novick (full disclosure: Steve is a long time friend), the city limited free parking to wheelchair users who possessed a special permit. Those with generic handicapped placards can still largely ignore maximum time limits, but they have to pay for the space they use. The city even created special “scratch off” parking tags so that users wouldn’t have to walk to meters to pay:  you can see all the details of the new system here.

Overnight, the parking landscape in downtown Portland changed. Spaces occupied by placard users dropped 70%. Getting the price right freed up 720 parking spots for other, paying users, expanding the effective supply of parking by nearly 10%. The results of the change are described in a new report released by the Portland Bureau of Transportation.

Press reports of the days following the policy reported an eery abundance of vacant on-street parking spaces.

Two weeks after Portland began charging drivers with disabled placards to park in the city’s metered spots, enforcement officer J.C. Udey says he doesn’t recognize his downtown beat. The days of patrolling block after block — after block — lined with the same cars displaying blue placards appear to be over. “It’s open spaces,” he said. “We have so much more parking.”

Brad Gonzalez of Gresham, who was shopping at the Portland Apple Store on Monday, said he couldn’t remember the last time he found a curbside parking spot in downtown so easily. “I found one right away near the store,” Gonzalez said. “It used to be about circling the block and getting lucky, and getting frustrated. Most of the spots were taken by cars with disabled parking signs. It was obvious that there was a lot of abuse.”

The change is even more remarkable in the heart of the central business district. I looked at the six most central parking beats in the city—for those familiar with Portland, an area bounded by Burnside Street on the north, the Willamette River on the east, Jefferson and Market Streets on the south, and 10th and 11th Avenues on the west. (These are beats 1,2,3,4,6 and 11). This area contains a total of about 1,850 on-street metered parking spaces. A year ago, 450 spaces–nearly a quarter of them–were occupied by vehicles with handicapped placards. That’s fallen to 105 placard users–a reduction of 75 percent from the free-parking era. This is the equivalent of adding about 350 parking spaces to the supply of street parking in the heart of downtown Portland.

Freeing up on-street parking spaces makes the transportation system work better: people don’t circle endlessly searching for a “free” parking space; paying customers eager to make purchases can park closer to their destinations, and local governments can use meter revenue to make improvements to the neighborhood that make it more pleasant for residents.

The city’s new report doesn’t spell out how much additional revenue the city stands to make as a result of the change.  A good rough estimate would be that the city nets about $10 per meter per business day; if so, it would clear an additional $1.4 million per year (700 meters times $10 times 200 business days). Parking meter revenues help pay for street maintenance and improvements, which the city says are badly under-funded—so this change will help reduce that gap.

Portland’s Bureau of Transportation is currently undertaking an effort to study and recommend new parking tools policies for city neighborhoods. Hopefully they recognize the lessons from pricing handicap spaces downtown and apply sensible pricing schemes in other areas to make the city’s neighborhoods even greater.

The larger lesson here should be abundantly clear: charging users for something approaching the value of the public space that they are using produces a transportation system that works better for everyone. When we get the prices right, or even closer to right, good things happen. We can’t solve our parking problems until we admit that when it comes to city streets, the price is wrong.