When we only look at the number of people who commute on transit, we’re missing others—especially students and the retired—who rely on transit for other reasons.
Housing policy is at the bottom of many of the nation’s economic and social problems, even where it seems unlikely. In this piece, I sketch out how zoning laws exacerbate the racial education gap.
A story of “ethical landlording” isn’t as ethical as it seems. But it points the way to a better possibility: a housing capital gains tax to fund affordability.
In the last year or two, there has been a resurgence of awareness and debate about the big, structural issues facing America’s persistently poor neighborhoods. But one part of the equation has largely been left out: stigma. A large body of research has shown that stigma and reputation, above and beyond other factors, can have serious negative consequences for urban neighborhoods—and that it falls most harshly against majority black neighborhoods.
A series of articles came out this summer about the decline in bus ridership, positioning rail as the urban transit mode of choice going forward. But a closer look at the numbers show that where bus service has held steady or grown, so has ridership—the problem is that bus service has been cut in cities all around the country. Nor do those cuts seem to be predicted by falling ridership beforehand.
The common narrative about gentrifying neighborhoods is that demographics change—towards wealthier, and usually whiter, residents—largely because older residents are pushed out by rising prices. But a study from the Philadelphia Federal Reserve confirms most previous research in finding that the real driver of change is who’s moving in—not who’s leaving. Despite the conventional wisdom, the researchers find little evidence of widespread displacement.
The American Highway Users Alliance touted the widening of the Katy Freeway in Houston as a “success story” in the fight against congestion. There’s only one problem: congestion got worse after the project. Oops.
Our second-most-read post this year was all about “illegal neighborhoods”—but in this post, we point out that in many other countries, walkable communities with a diversity of housing options are still perfectly legal. Going off of Sonia Hirt’s excellent new book, Zoned in the USA, we take a quick tour of how zoning works in other countries. Hint: “low density residential” doesn’t have to outlaw neighborhood corner stores or lowrise apartment buildings.
Gas prices have fallen precipitously, which almost everyone takes to be good news. But there’s a dark side, too: As prices have fallen, driving has increased—and with it, greenhouse gas emissions, traffic congestion, and injuries and deaths caused by car crashes. The lesson: pricing has a big effect on driving and its negative consequences. We don’t have to wait for gas to get more expensive, however—raising the gas tax, or levying congestion or parking charges, could have the same effect and raise revenue for transportation service and maintenance.
A sign announcing congestion charges in London. Credit: mariordo59, Flickr
While stories about displacement in gentrifying neighborhoods abound, more direct, egregious examples of displacement in suburban areas are often left behind. We focused on one particularly galling example of an Atlanta suburb using eminent domain to demolish an apartment complex predominantly occupied by lower-income people of color, to be replaced with a commercial development.
Wider roads are safer roads. We should be concerned about having “enough” parking. Land uses generate a fixed number of vehicle trips. These old rules of thumb are deeply flawed, and have led to unsustainable, expensive, and environmentally dangerous urban planning. It’s time for some new rules of thumb.
How we feel about bad rules of thumb. Get it? Credit: Jesper Ronn-Jensen, Flickr.
There are two big theories about who controls urban development. One says it’s a coalition of business interests and developers, who push past zoning regulations with ease; the other says it’s homeowners, who are able to quash most development they fear might negatively affect their property values. A new study from NYU takes a look at Bloomberg-era New York City—which ought to be as favorable a territory for developers as exists in the US—and finds evidence instead that homeowners dominate even there. White neighborhoods, areas near high-testing schools, and places with high population growth are all more likely to be downzoned (have allowed density reduced) than upzoned (have allowed density increased).
This Fall, a series of studies came out suggesting that many of the most-feared impacts of gentrification were much less of a big deal than widely thought. One paper by the Philadelphia Fed found little evidence for displacement in gentrifying neighborhoods in that city; another in New York found that residents of public housing in gentrifying neighborhoods benefited, with higher incomes and better schools.
Our guest writer, Robert Liberty, takes a look around his Portland neighborhood and realizes that almost everything he likes about it has been made illegal. There’s the buildings without parking lots; the homes, shops, and jobs at light industrial sites all within walking distance of each other; the apartments and single family homes side by side; the street narrow enough to cross easily and discourage speeding cars. Why are these things illegal again?
Newsflash: everyone hated your home when it was new, too. While a debate over allowing apartments in single-family home neighborhoods prompted an appeal to the inherent goodness of early 20th century bungalows, it turns out that romanticizing past eras of homebuilding is dangerous business. But there are lessons to learn from our urbanist forefathers and -mothers, like the good that can come out of allowing a city to grow, and allowing many kinds of homes for different kinds of people.
Another open field built over and ruined. Credit: Skokie Heritage Museum
The income gap between black and white households is one of the major racial inequalities in American society. It’s also highly correlated with residential segregation.
Fitch, the investment rating company, released a report earlier this year showing that real estate in city centers was consistently outpacing more outlying properties in appreciating value. That’s strong evidence of the resurgence of demand for urban living.
It’s a little-talked-about issue, but subsidies to freight trucks are a major government transportation expenditure—as much as $128 billion a year, according to a Congressional Budget Office report.
Back in July, we published a three–partseries about what exactly it means for housing to be affordable. Our basic argument was that the most standard measurement—whether your housing costs are more or less than 30 percent of your income—is inadequate to the task, for several reasons:
First, it doesn’t allow for lower-income people to need a larger percentage of their income for other necessities, or for people of the same income levels to have different financial obligations, like children or medical expenses;
Second, it leaves out other location-based costs, like transportation;
And finally, it doesn’t account for the quality of housing or the surrounding community.
Instead of the 30 percent threshold, we endorsed something called the “residual income” approach. That method suggests that you determine what a household needs to spend on all non-location-based (that is, housing and transportation) necessities, and then whatever’s left is “affordable.”
But what’s the difference in the real world? Well, an astute reader, Josh Lehner, put together a table that compares the ratio of rent to income and the residual of income left over after rent for each ZIP code in Oregon. Here’s what that looks like:
As you can see, there’s a clear relationship between the two measures: as the ratio increases, the residual mostly decreases, which in each case suggests that housing is less affordable. (Note that this chart doesn’t include transportation-based costs. Ideally, of course, it would—but for the purposes of this illustration, it’s not crucial.)
But despite that general pattern, there’s an enormous amount of wiggle room. If you look just above and below the line that separates ZIP codes where median income is below 30% of median rent from those where it is above, you see some of the starkest contrasts.
ZIP code 97630 (rural Lakeview Oregon), for example, is just below the threshold of affordability, with the rent-income ratio at 29.2 percent. But the median household in that area makes only $23,500 a year; at the median rent, they would have just $16,636 left over to spend on everything else: food, clothing, medical care, child care, and so on. For many households, that’s likely not enough.
Meanwhile, ZIP code 97002 (Aurora, a small farming town within commuting distance of Portland and Salem) is just above the threshold of affordability, with a rent-income ratio of 31.8 percent. In this community, median household income is $47,173, and the after-rent residual income is $32,173—a much more comfortable cushion. Yet the most common measurement of housing affordability would declare the median resident of ZIP code 97002 “rent burdened,” and the median resident of ZIP code 97630 not “rent burdened.”
Obviously, this is a very simplistic exercise that’s missing quite a bit—including many of the considerations we included in our original series. But even the simple act of plotting rent cost ratios against residuals adds an important dimension (if you’ll excuse the graph pun) to our understanding of what housing affordability actually means: we can see, not with theoretical arguments but real-life data, that simply knowing whether a rent cost ratio is above or below 30 percent leaves out a lot of other very important information.
This post was originally published on September 3rd, 2015.
1. The Katy isn’t ready for its closeup. When the Texas Department of Transportation tried to sell the public on its Katy Freeway expansion project, part of the story was that it would ease congestion. We covered how that worked out last week. (Not well, is the answer.) Another part involved renderings of the final product. Amazingly, given that they’re depicting a 23-lane superhighway, there are almost as many people and trees in their renderings as cars. Using distorted images of major, disruptive infrastructure projects is a time-honored tradition—but one that ought to end.
2. About that “consensus” on zoning. Earlier this month, in the Washington Post, the economist Ilya Somin argued that we’re reaching a cross-ideological consensus that strict zoning is doing more harm than good in American cities by driving up housing prices and promoting sprawl. But look beyond the community of national policy wonks—by, say, going to a neighborhood development meeting—and it looks like there’s something like a consensus in the other direction. The political path forward on zoning reform is going to be more complicated than that, but we’ve got a few ideas.
3. Who’s really rent-burdened? In light of all the recent discussions of rising rents, we reprise a post from earlier this year, showing that by far the most commonly used metric of housing affordability—the 30 percent ratio of housing costs to income—misses a lot of other important factors. A big one is how much income a household has left over after paying housing costs for other necessities; others include the cost of transportation inherent a home’s location—less if it’s transit-accessible, more if it’s not. Getting a better handle on what affordability really means, and who is most affected, is crucial for moving towards solutions.
The week’s must reads
1. In almost every city in the country, new buildings are required to provide off-street parking—and lots of it. Those parking requirements end up encouraging sprawl by creating large surface parking lots, making homes and businesses more expensive thanks to costly-to-build garages, and subsidizing car ownership and driving. On top of that, most parking requirements are based on one-size-fits-all estimates of how much traffic a given building will generate—and those estimates are usually far too high. (See Strong Towns’ “Black Friday parking” campaign.) Fortunately, a growing number of cities are recognizing those issues, and are reducing, or even eliminating entirely, their requirements. Next City reports on a Strong Towns effort to track all those efforts across the country.
3. A new lawsuit from a coalition of civil rights groups in Maryland argues that that state’s governor, Larry Hogan, violated the Civil Rights Act when he canceled a planned rail line in favor of more spending on roads and highways. As Emily Badger writes at the Washington Post, the group alleges that the move was a transfer of resources that will disproportionately harm black residents, who are more likely to rely on public transit. Transportation policy has a long history of being a focus in civil rights, from highway displacement to the Montgomery bus boycott, but this lawsuit aims to reinvigorate that connection at a time when civil rights issues in housing and policing are gaining a higher national profile.
New knowledge
1. We’re a little late on this, but Zillow’s November report has a glimmer of good news for the rental housing market: price increases are significantly slower than in 2014, possibly as a result of the steady increase in new apartments being completed. Interestingly, single family rents are growing faster than multifamily rents. Also notably, for-sale housing price growth is picking up steam.
2. What’s the connection between slavery and present-day economic inequality and innovation? A study from the Washington Center for Equitable Growth tackles this perhaps unexpected question, and argues that the particular kind of inequality fostered in many Southern states during and after the period of slavery has left an institutional legacy lasting to the present day. They write that slave societies developed fewer advanced educational institutions, focusing instead on low-cost, low-skill labor for economic development. In part as a result, they have under-developed institutions and business cultures for promoting innovation and knowledge-based industries. A key bit of evidence: patent rates in the 19th century were much lower in the South—and remain much lower today.
3. Who lives near rail? A new Census report looks at the Washington, DC area, andhow demographics near rapid transit stations have changed over the last several years. It finds that young adults and people with high levels of education are particularly likely to live near rail stations—yet another piece of evidence confirming the growing demand for urban, transit-accessible neighborhoods, especially among the “Young and Restless.” As long as neighborhoods with great transit remain in short supply, we can expect them to command premium prices that put them beyond the reach of many households.
The Week Observed is City Observatory’s weekly newsletter. Every Friday, we give you a quick review of the most important articles, blog posts, and scholarly research on American cities.
Our goal is to help you keep up with—and participate in—the ongoing debate about how to create prosperous, equitable, and livable cities, without having to wade through the hundreds of thousands of words produced on the subject every week by yourself.
If you have ideas for making The Week Observed better, we’d love to hear them! Let us know at jcortright@cityobservatory.org, dkhertz@cityobservatory.org, or on Twitter at @cityobs.
Suffice it to say that while we’re happy to see this issue get press in the Post, much of this argument seems misguided. For one, people have been making arguably left-of-center, egalitarian arguments against zoning since at least the 1920s; and the most sustained attack on exclusionary zoning in American history occurred in the 1960s and 70s as an outgrowth of the Civil Rights Movement, hardly a bastion of libertarianism.
More importantly, though, anyone who thinks there is a “consensus” about the damage caused by too-strict zoning ought to attend the next community development meeting in their neighborhood. While there may appear to be a policy consensus among national-level policy wonks, things look very different on the ground, including the ground on which zoning policy is actually made. Arguably, something very close to a consensus has existed on zoning for quite some time—at least since the 1970s—and it’s not that it’s too strict. It’s that it’s doing a great job, and if anything needs to be stricter.
Nor is this really an “ideological” issue. Rather, it’s a financial one: homeowners dominate local development politics in large part because their homes make up such a large proportion of their total wealth that any decline in property values could devastate them. (Or, conversely, cut into huge capital gains, if they are lucky enough to own property in, say, San Francisco’s Mission neighborhood.) As a result, they’re extremely wary of any change to their surroundings that might reduce their property values—and zoning gives them the legal ability to stop those changes.
So even to the extent that there’s a consensus about the damage of zoning among policy wonks, part of that consensus is also that zoning is incredibly difficult to change, because the interest local homeowners have in preserving it is so powerful.
Houston: not actually a libertarian urbanist paradise. Credit: Katie Haugland, Flickr
But the solution obviously can’t be an end run around democratic planning. Though it may now be causing problems of its own, the revolt against top-down urban policy in the 1960s and 70s was reacting to real and devastating projects, from highways to urban renewal clearance, that booted hundreds of thousands of people from their homes—and those people were usually people of color, immigrants, low-income, or otherwise vulnerable. It’s hard to imagine how removing democratic protections against such abuses would result in much more progressive outcomes today. (In fact, some municipalities are continuing good old fashioned urban renewal clearance projects anyway.)
Rather, the path to zoning reform probably has two branches. First, make property values a less pressing issue for homeowners. We’ve covered some of William Fischel’s proposals along those lines, including reforming preferential tax policies like the mortgage interest deduction and capital gains exemptions that make housing a particularly valuable investment.
Second, make the democratic process truly democratic by allowing input from everyone significantly affected by a policy—which means making some housing decisions at a citywide, regional, or even state level, rather than neighborhood by neighborhood. While it may seem like a purely local issue whether or not an apartment building goes up on your block, we know now very well that it’s not. The sum of many decisions to block such construction makes neighborhoods, cities, and even entire regions much more expensive than they need to be, both in terms of housing costs and transportation costs as a result of sprawl.
When housing decisions are made hyper-locally, the only interests taken into account are those of nearby residents, who may have worries about their property values, the visual “character” of the neighborhood, or even more directly exclusionary concerns about the type of people who will leave near them. It also creates a sort of “prisoner’s dilemma” in which no neighborhood wants to be stuck with “undesirable,” or costly, land uses. But when decisions are made at a broader geographic level, the people who stand to gain from new housing—renters and potential buyers who want more housing options, businesses that might gain more customers, and people thinking about how more density might support the regional transit system—also get to have a voice. Scholars of zoning and segregation have argued that more local fragmentation in decisionmaking is a crucial part of using land use laws to impede integration.
Finally, zoning reform is a necessary, but not sufficient, part of a comprehensive housing plan—and including the other parts may be an important piece of assembling the political coalition for more equitable cities, bringing in more traditional affordable housing advocates and neighborhood activists. As Jamaal Green writes at Rooflines, changing land use laws to allow more housing, and more varied kinds of housing, can do a lot: slow the growth of regional housing prices; encourage integration by creating more affordable mixes of housing in high-demand neighborhoods; reduce transportation costs by allowing people to walk to some destinations and more effectively use transit; and so on. But while it’s a crucial part of making more equitable and sustainable cities, it doesn’t address every problem. Direct housing support, either through vouchers, public housing, or both, will always be necessary for people who can’t afford private housing even in efficient markets; tenant protections are needed to prevent landlord abuse, whether through illegal evictions in high-priced communities or neglect in low-demand areas; and expanded public transit is needed to efficiently and affordably connect people in all communities to jobs and services. Making zoning changes a clear part of this broader agenda is important to building broad support.
At a hyper-local level, there is no consensus that zoning needs to be made more flexible to allow more, and more varied, housing. That’s not an accident: it’s because hyper-local democracy includes people who may be adversely affected by more housing, but not most of the people who would benefit. But we do believe that most people want their cities to be affordable, diverse, and sustainable. Making housing plans at a broader level might allow people to act on those principles, rather than on their local fears—and, just as importantly, give those who stand to benefit from less exclusionary policies a democratic voice in the process.
1. Don’t bank on it. Hillary Clinton, as part of her campaign for President, has proposed a National Infrastructure Bank to help local governments pay for crucial infrastructure maintenance and upgrades. But it’s not so clear that such a bank is the answer to America’s infrastructure problems. Rather, the bank would likely face a number of issues, including simply displacing other sources of borrowing for projects that would have been funded anyway and leaving localities without any additional revenues with which to pay loans back. But the fundamental issue is that America’s infrastructure problem has little to do with the ability to borrow capital, and more to do with mixed up priorities and the lack of revenue with which to repay borrowing and maintain existing infrastructure.
2. Homevoters v. the growth machine. There are two big theories about who controls urban development. One suggests it’s a coalition of business interests who run roughshod over regulations like zoning; the other is that a democratic group of homeowners uses zoning effectively to block development that might hurt their property values. A new study out of NYU tries to answer the question of which is right—and comes down firmly on the homevoter side. That’s the most plausible explanation, they say, for why neighborhoods near good schools, or with growing populations, actually see many more downzonings—or reductions in allowed density—even though developers and business interests would surely like to add more housing there.
3. Reducing congestion: Katy didn’t. Several years ago, Houston spent $2.8 billion to expand capacity on its Katy Freeway, making it—at 23 lanes—one of the widest in the world. Afterwards, the American Highway Users Alliance cited the Katy widening as a victory against congestion. But it turns out that in the years since then, travel times have actually increased dramatically—as any urbanist familiar with “induced demand” could have told them from the beginning.
4. Where did all the small apartment buildings go? We’ve written about the“missing middle” before: the fact that American cities build lots of single family homes and some large apartment buildings, but few of the smaller, lowrise apartment buildings that make up important parts of many walkable urban and suburban neighborhoods. Using data from the Census, we show that hasn’t always been the case: as late as the early 1980s, apartment buildings with fewer than 10 units made up nearly half of all new multifamily units. That’s now down to about seven percent.
2. For cities like Detroit, where abundant vacant homes create public safety hazards and unsightly conditions in many neighborhoods, demolition has become a major anti-blight strategy. Reuters takes a look at Detroit’s post-bankruptcy plan to demolish 80,000 homes—and the question of exactly how much such a plan should cost. Beyond that issue, though, demolitions appear to be showing progress on at least some fronts: the city credits them with a massive decrease in arsons, and an independent report suggested that home prices near demolitions increased by an average of 4.2 percent.
3. At City Observatory, we’ve been proponents of pricing road use to make drivers internalize the external costs of their travel, including added congestion, environmental damage, and deaths and injuries from accidents. Governing looks at a growing trend of cities getting revenue from public rights of way. Most exciting is San Francisco’s parking initiative, which uses demand-dynamic pricing to regulate the number of parked cars and the length of time they stay in the style of Donald Shoup.
New knowledge
1. At the Brookings Institution, William Julius Wilson describes how economic segregation, layered on top of racial segregation, has put low-income black Americans at an extreme risk of being victimized by violent crime. The gap between higher-income and lower-income African Americans has grown especially rapidly since the 1970s.
2. The mortgage interest tax deduction: it’s a highly skewed policy that gives the biggest benefits to very wealthy homeowners and provides nothing to all to those who rent, or who don’t earn enough to itemize their deductions. Dylan Matthews at Vox is the latest to assail the tax deduction, showing that simple, common-sense reforms—including capping the home value that’s eligible for the deduction at $500,000, and turning the entire program into a 15 percent credit so it can be accessed by people who don’t itemize deductions—would make a huge difference in making the policy more progressive. (See the Tax Policy Center’s report that informed much of Matthews’ article here.)
3. The American Institute of Architects has released new survey data about what builders believe people are asking for in 2015. Notably, reinvestment in developed, walkable areas continues to gain ground: 65 percent more of the surveyed firms said infill development is gaining popularity than losing; 55 percent more said proximity to public transit is gaining popularity; and 48 percent more said walkable neighborhoods are gaining popularity. (Hat tip to Streetsblog USA.)
The Week Observed is City Observatory’s weekly newsletter. Every Friday, we give you a quick review of the most important articles, blog posts, and scholarly research on American cities.
Our goal is to help you keep up with—and participate in—the ongoing debate about how to create prosperous, equitable, and livable cities, without having to wade through the hundreds of thousands of words produced on the subject every week by yourself.
If you have ideas for making The Week Observed better, we’d love to hear them! Let us know at jcortright@cityobservatory.org, dkhertz@cityobservatory.org, or on Twitter at @cityobs.
When it comes to selling huge new road projects to the public, the highway lobby and their allies in government have many tools. Last week, we wrote about one of them: touting initial declines in congestion as success, without bothering to follow up as induced demand eliminates those gains in just a matter of years.
But that tactic, used by the American Highway Users Association with Houston’s effort to get rid of congestion bottleneck on the Katy Freeway, is hardly more honest than another used by the US Department of Transportation on the Katy project. The DOT features the $2.8 billion effort on the webpage of USDOT’s “Office of Innovative Program Delivery.”
Let’s take a walk!
To show what a great project this is, they offer visitors to their website this photo of a green, people-friendly highway. As you can see, it features exactly as many pedestrians as it does cars. If the image had no caption, you might be forgiven for thinking that the project in question was a park or an open space, rather than a freeway. This particular view—which is probably seen by almost none of the freeway’s regular users—is very different from what most see. After all, the Katy Freeway carries roughly 300,000 vehicles per day; we don’t have pedestrian numbers for the roads alongside it, but we’re skeptical that it’s anywhere within several orders of magnitude.
Using distorted images to downplay the visual impact of massive freeways has a long tradition in US engineering practice. It was a tactic honed to perfection by the master builder himself, Robert Moses, in New York more than half a century ago.
Moses was trying to persuade the city to build an epic suspension bridge from Brooklyn to Battery Park, on the lower tip of Manhattan. The bridge would have alighted on a five-story-tall causeway, dominating most of the Battery. But Moses sold the project with an “artist’s conception” that made the bridge almost disappear. Let’s turn the microphone over to Robert Caro, in his epic biography, The Power Broker:
Moses’ announcement had been accompanied by an “artist’s rendering” of the bridge that created the impression that the mammoth span would have about as much impact on the lower Manhattan Landscape as an extra lamppost. This impression had been created by “rendering” the bridge from directly overhead—way overhead—as it might be seen by a high flying and myopic pigeon. From this bird’s eye view, the bridge and its approaches, their height minimized and only their flat roadways really visible, blended inconspicuously into the landscape. But in asking for Board of Estimate approval, Moses had to submit to the board the actual plans for the bridge. . . .
When the real impact of the proposed bridge became apparent, it provoked opposition among some of the most influential New Yorkers. The Brooklyn-Battery Bridge was one of the few projects that Moses failed to pull off. (He was instead forced to build a tunnel under the harbor). But while he lost this particular round, the Moses legacy lives on in the kind of visual puffery and misdirection favored by highway builders everywhere: distorted, false-perspective artist’s renderings that show projects in a way they’ll never be experienced by actual humans.
From the promise of congestion relief that is quickly erased by induced demand, or deceptive imagery designed to conceal a project’s scale and impacts, there are plenty of good reasons to be skeptical of the sales pitches used to sell automobile infrastructure.
There are two big theories about who controls the pace of development in American cities and suburbs.
One is the “growth machine.” In this telling, developed by academics like Harvey Molotch in the 1970s, urban elected officials and zoning boards are highly influenced by coalitions of business and civic leaders interested mainly in economic growth and maximizing the price of the land they own.
The growth machine view. Credit: Matthew Rutledge, Flickr
The other, developed later by the economist William Fischel, is the “homevoter hypothesis.” Fischel argues that real power—at least in the small to moderately-sized municipalities in which the majority of Americans live—is held by homeowners, who are also interested primarily in maximizing the value of their property: their homes.
The homevoter view. Credit: Richard Masoner, Flickr
These two theories closely track two of the major camps in the debate about what’s wrong with American housing policy. If you believe in the growth machine, either because you’re a reader of Molotch or it just happens to coincide with your general worldview, you’ll probably believe that US cities suffer from too much development, pushed on an unwilling populace by a profit-driven elite for whom zoning and planning is an inconvenience at most.
If you’re in the homevoter camp, conversely, you’re likely to think that the problem is too little development, as NIMBY homeowners scare local elected officials into blocking any housing development that might compromise their property values—either simply by increasing the housing stock, and thus the number of “competing” sellers, or by introducing “undesirable” kinds of people or buildings.
As you can see, there’s quite a bit riding on which of these theories is right—or, more realistically, in what proportions, where, and in which ways, each is right and wrong. One suggests that development laws ought to be made more restrictive; the other that they ought to be less. One suggests that there may already be a broad democratic coalition in favor of a rational housing market, but that coalition is frustrated by a smaller number of more powerful interests; the other suggests that the broad democratic coalition of homeowners, at least at a hyper-local level, is getting exactly what it wants when home values spiral upwards.
A study published last year from Vicki Been, Josiah Madar, and Simon McDonnell of NYU took a crack at pitting these theories against each other to see which did a better job of explaining zoning changes in New York City from 2003 to 2009, under former mayor Michael Bloomberg.
Growth machine or homevoter? Credit: Center for American Progress, Flickr
As the authors themselves admit, their choice of place and time give the growth machine position a leg up: even Fischel, who coined the “homevoter” name, suggests that his theory probably applies best to smaller municipalities, without the huge business interests of major cities. It’s also most likely to matter in places where most people own their own homes—and New York City has one of the lowest homeownership rates in the country, with just 36 percent of homes being owner-occupied. Finally, the billionaire businessman Michael Bloomberg is, at least superficially, as good an avatar of the “growth machine” coalition as one can imagine.
To distinguish between the two theories, the study compared “upzones” (a zoning change that increases allowed density) and “downzones” (a zoning change that reduces allowed density) with several factors:
First, land close to infrastructure and services, like rail stations and high-performing schools. If the growth machine theory is correct, these places should see more upzones, as developers try to take advantage of these valuable locations. If the homevoter theory is correct, these places might see more downzones, as homeowners try to protect the value of their property against other, competing homes.
Second, market growth and rising home prices. The growth machine theory would suggest places with rising prices would also see more upzones.
Neighborhood demographics. Growth machine theory might suggest that demographics associated with high real estate values, like wealthier and whiter neighborhoods, would see more upzones. Homevoter theory would say those places would see more downzones, as more powerful homeowners are more able to enact their anti-development orientation.
Homeownership rates and voter turnout. Both high homeownership rates and turnout would result in more downzones, according to homevoter theory.
So what did the results looks like?
Interestingly, proximity to high-quality infrastructure and services made land more likely to be changed in both directions—that is, land far from high-quality infrastructure and services was more likely to remain in its original zoning category. But in almost every case, proximity was especially likely to lead to more downzones. For example, parcels in high-performing school districts were 43 percent more likely than the typical parcel to be upzoned—but 392 percent more likely to be downzoned.
Correlations with market growth were weaker—but they suggested that growing markets were associated with downzoning. Parcels in neighborhoods seeing rapid population growth were 41 percent more likely to be downzoned, for example. Parcels in neighborhoods seeing rapid home value increases were about 20 percent less likely to be upzoned, although they were also 27 percent less likely to be downzoned.
Downzoning was very strongly correlated with whiter neighborhoods: parcels in Census tracts that were over 80 percent white were more than seven times more likely to be downzoned than parcels in tracts that were less than 20 percent white.
Parcels in tracts with high homeownership rates were 43 percent more likely to be downzoned, and 25 percent less likely to be upzoned. Parcels in districts with high voter turnout were 230 percent more likely to be downzoned, and 53 percent less likely to be upzoned.
So what does this tell us? Well, in every case where the evidence clearly points to one theory or the other, the winner is the homevoter hypothesis. Homes near high-performing schools—sources of great value to which Fischel says homeowners pay particular attention—were overwhelmingly more likely to have their maximum density reduced, rather than increased, as developers and business interests would surely prefer. Neighborhoods with rising demand, similarly, tended to see more anti-development zoning, to the extent that a growing population tended to lead the government of New York City to allow fewer homes to be built. Very white neighborhoods were particularly likely to see density caps lowered. And homeownership and voter turnout rates had exactly the results expected by the homevoter theory. (Although the voter turnout results could, arguably, also be seen as compatible with the growth machine.)
These outcomes are all the more stunning because of where and when they took place: New York City under Michael Bloomberg, which, again, is one of the very last settings you would expect to find “homevoters” in charge of development.
Of course, none of this means that big landowners, businesses, and developers aren’t also trying to influence the development process in their favor, and sometimes succeeding. Perhaps the most fascinating results of the study actually suggest a somewhat more complex dynamic: if land near parks and high-performing schools are more likely to be both upzoned and downzoned, then you can imagine a story in which these amenities lead to increased competition between the growth machine and homevoters. According to this report, homevoters appear to win the vast majority of the time—but developers also score a few victories, getting more upzones than are granted (or, perhaps, requested) in less valuable territory.
As we wrote in our review of William Fischel’s new book, Zoning Rules!, and contra Ilya Somin’s argument about a growing pro-zoning-reform consensus, these findings also suggest that those who would like to moderate home price increases through smarter development policy may have a daunting political hill to climb. More about that in an upcoming post.
Here’s a highway success story, as told by the folks who build highways.
Several years ago, the Katy Freeway in Houston was a major traffic bottleneck. It was so bad that in 2004 the American Highway Users Alliance (AHUA) called one of its interchanges the second worst bottleneck in the nation wasting 25 million hours a year of commuter time. (The Katy Freeway, Interstate 10, connects downtown Houston to the city’s growing suburbs almost 30 miles to the west).
Obviously, when a highway is too congested, you need to add capacity: make it wider! Add more lanes! So the state of Texas pumped more than $2.8 billion into widening the Katy; by the end, it had 23 lanes, good enough for widest freeway in the world.
It was a triumph of traffic engineering. In a report entitled Unclogging America’s Arteries, released last month on the eve of congressional action to pump more money into the nearly bankrupt Highway Trust Fund, the AHUA highlighted the Katy widening as one of three major “success stories,” noting that the widening “addressed” the problem and, “as a result, [it was] not included in the rankings” of the nation’s worst traffic chokepoints.
There’s just one problem: congestion on the Katy has actually gotten worse since its expansion.
Sure, right after the project opened, travel times at rush hour declined, and the AHUA cites a three-year old article in the Houston Chronicle as evidence that the $2.8 billion investment paid off. But it hasn’t been 2012 for a while, so we were curious about what had happened since then. Why didn’t the AHUA find more recent data?
Well, because it turns out that more recent data turns their “success story” on its head.
We extracted these data from Transtar (Houston’s official traffic tracking data source) for two segments of the Katy Freeway for the years 2011 through 2014. They show that the morning commute has increased by 25 minutes (or 30 percent) and the afternoon commute has increased by 23 minutes (or 55 percent).
Growing congestion and ever longer travel times are not something that the American Highway Users Alliance could have missed if they had traveled to Houston, read the local media, or even just “Googled” a typical commute trip. According to stories reported in the Houston media, travel times on the Katy have increased by 10 to 20 minutes minutes in just two years. In a February 2014 story headlined “Houston Commute Times Quickly Increasing,” Click2Houston reported that travel times on the 29-mile commute from suburban Pin Oak to downtown Houston on the Katy Freeway had increased by 13 minutes in the morning rush hour and 19 minutes in the evening rush over just two years. Google Maps says the trip, which takes about half an hour in free-flowing traffic, can take up to an hour and 50 minutes at the peak hour. And at Houston Tomorrow, a local quality-of-life institute, researchers found that between 2011 and 2014, driving times from Houston to Pin Oak on the Katy increased by 23 minutes.
Even Tim Lomax, one of the authors of the congestion-alarmist Urban Mobility Report, has admitted the Katy expansion didn’t work:
“I’m surprised at how rapid the increase has been,” said Tim Lomax, a traffic congestion expert at the Texas A&M Transportation Institute. “Naturally, when you see increases like that, you’re going to have people make different decisions.”
Maybe commuters will be forced to make different decisions. But for the boosters at the AHUA, their prescription is still exactly the same: build more roads.
The traffic surge on the Katy Freeway may come as a surprise to highway boosters like Lomax and the American Highway Users Alliance, but will not be the least bit surprising to anyone familiar with the history of highway capacity expansion projects. It’s yet another classic example of the problem of induced demand: adding more freeway capacity in urban areas just generates additional driving, longer trips and more sprawl; and new lanes are jammed to capacity almost as soon as they’re open. Induced demand is now so well-established in the literature that economists Gilles Duranton and Matthew Turner call it “The Fundamental Law of Road Congestion.”
Claiming that the Katy Freeway widening has resolved one of the nation’s major traffic bottlenecks is more than just serious chutzpah, it shows that the nation’s highway lobby either doesn’t know, or simply doesn’t care what “success” looks like when it comes to cities and transportation.
Back in August, we wrote about the phenomenon of the “missing middle”: the fact that today’s urban (and suburban) development tends to take the form of either single-family homes or very large apartment buildings, but not so much in the middle.
And that’s a problem! Small apartment buildings perform a vital function in classic “illegal neighborhoods,” creating a stock of market-rate housing that is generally cheaper than houses, as well as adding crucial density to support walkable neighborhood commercial districts and transit, all at a lowrise scale that many people think “fits” with single family homes. After all, from triple deckers in New England, to two-flats in Chicago, to small apartment buildings in cities of all sizes all across the country, most popular older neighborhoods already include a large stock of these structures.
In our first post on the subject, we dug up statistics about the “missing middle” in metro areas around the country, using statistics from the last decade to show that extremely few homes are built in buildings that hold between two and four units.
But data from another Census report, the “2014 Characteristics of New Housing,” breaks down construction into more categories—and goes back all the way to 1972. Which allows us to see that the missing middle hasn’t always been missing.
In fact, back in 1972, nearly a third of all multifamily homes were constructed in buildings with two to nine units—a typical size for lowrise apartment buildings. Significantly fewer, about a fifth, were built in very large structures with over 50 units. Small apartments peaked in 1981, with 46 percent of all new multifamily units.
Since then, though, they’ve fallen off a cliff.
In 2014, just seven percent of new multifamily homes were in buildings with fewer than 10 units. But nearly half—48 percent—were in buildings with 50 units or more.
Don’t get us wrong. There’s nothing wrong with big residential buildings. They’re necessary, in fact, for creating very high density areas in and around central business districts, and in large or high-cost cities’ urban cores, where space is at a premium.
But most urban neighborhoods don’t need 50-unit buildings, and it’s hard to imagine overcoming the opposition to such development in currently lowrise communities. And while the reaction to Seattle’s HALA proposal suggests that even small apartments are going to be unwelcome in many single-family neighborhoods, there are plenty of neighborhoods that are already mixed, where adding housing two, five, eight units at a time could help keep up with demand and create a broader diversity of housing options. That’s important both for price diversity, and to make room for people to “age in place,” downsizing from large homes they can’t take care of any more without having to leave their neighborhood. If the only options are large apartment buildings or single family homes, that seems like a recipe for political polarization and continued economic segregation.
What’s behind this shift? A huge amount of it, most likely, is about zoning. As building regulations tightened in the 70s and afterwards, American cities are increasingly divided into two types of development areas: urban cores where very large projects are allowed, and everywhere else, which is generally reserved for single family homes. There may also be a financing component, as getting bank loans for smaller projects may increasingly be a challenge. It’s probably also an indication that the number of sites where multi-family developments are so scarce—and therefore expensive—that it’s simply uneconomical to develop them for anything smaller than a 50 unit building.
But either way, as we wrote back in August, American cities can’t meet their housing challenges, or create liveable, walkable neighborhoods, with just two settings—single family homes and huge apartment buildings. It’s time to find the missing middle.
1. A $1.6 billion proposal. A film school teacher in San Francisco had some people talking about “ethical landlording” as a solution to the problem of too-high real estate prices. But substituting the private whims of land owners for prices as a way to determine who wins access to scarce housing isn’t necessarily an improvement. We have a different idea: tax capital gains on housing. In 2013 alone, SF area residential property increased in value by $159 billion. A tax that collected just one percent of that value could create a public funding stream for a significant amount of affordable housing.
2. Pulling a FAST one. Congress has finally agreed on a five-year transportation bill—but it’s hardly cause for celebration. With the so-called “FAST Act,” the federal government has officially severed the connection between the gas tax and funding for the Highway Trust Fund, acknowledging what has long been true: drivers don’t pay for the cost of using public roads. But rather than using that acknowledgement to expose drivers to more of the costs of their driving, the FAST Act commits a kind of bank robbery, raiding the Federal Reserve’s cash, an irresponsible one-time budget stopgap that leaves the question of long-term financing still unresolved.
3. Climate concerns steamrolled by FAST Act and cheap gas. Even as the UN hosts major climate change talks in Paris, our national transportation policy is pushing us in the wrong direction. With gas prices lower than they’ve been in years, it should be a good time for a small increase in the gas tax and other measures that make drivers internalize some of the costs they impose on society by driving—like greenhouse gas emissions. But the new FAST Act takes no such actions. In the meanwhile, cheap gas is already leading Americans to buy less fuel efficient cars, which will remain on the road for a generation, releasing 140 metric tons more carbon than if gas prices hadn’t fallen.
4. Cities have reason to be wary of Fed moves. After years of keeping interest rates low to stimulate the economy, the Federal Reserve is planning to raise them substantially over the coming years. While Fed rate changes may seem distant to the issues of urban neighborhoods, city leaders and residents should be concerned. For one, low interest rates have encouraged the construction of multifamily buildings that have added people and vitality to many inner-city neighborhoods. But more broadly, if the Fed’s rate hike slows the broader national economy, that slowdown will be felt on the ground in the economic health of cities and neighborhoods across the country.
The week’s must reads
1. It can be very challenging to explain to most people why they would benefit from less parking in their neighborhood, or where they go shopping—after all, most people only think about it when they’re frustrated that they can’t find a spot. But now, you can just direct them to this minute-long video from the City of Ottawa. As part of its campaign to reduce its parking requirements, the City made a video to help its citizens understand why they should want that—and it’s one of the best quick explanations for non-planners that we’ve seen.
2. So you want transit-oriented development in your community, but you don’t have any rail lines. Good news! It probably doesn’t matter. Via Streetsblog California, Daniel Chatman of the University of California, Berkeley writes that it’s not proximity to rail transit that seems to have the biggest impact on reducing residents’ driving. Instead, reducing parking requirements, providing high-quality bus transit, and creating shopping and service destinations within walking distance of housing seem to be the most important factors. As Chatman points out, that’s a good thing: rail transit is scarce and expensive to build, but it turns out you don’t need it to get many of the benefits associated with it.
3. Angie Schmitt writes up a new report arguing that suburban office parks are in trouble. The real estate firm Newmark, Grubb, Knight and Frank looked at markets in five major US cities and found that a key issue is that offices in more traditional urban areas have access to a larger number of amenities, which more isolated suburban offices need to pay to replicate inside their own campuses. They estimate that 14 to 22 percent of suburban office space is obsolete. Proximity to transit is also important: offices more than a quarter-mile away from a new light rail line in Denver had vacancy rates nine percent higher than those within a quarter mile.
New knowledge
1. Racial segregation continues its slow decline in American metropolitan areas, even as it remains at very high levels. William Frey at the Brookings Institution has parsed 2010-14 American Community Survey data to update our understanding of residential racial separation. Notably, some of the most segregated regions in the country saw the largest declines: in Chicago, for example, the average black resident’s surrounding neighborhood was 72.2 percent black in 2000, but 64.4 percent black in the 2010-14 ACS data. Overall, 45 of 52 metropolitan areas registered decreases.
2. In Los Angeles County, a full 14 percent of all land is used for automobile parking. In much of the county, there are more than 11,000 parking spaces per square mile. In many cases, those spaces were built as a result of legal requirements to provide off-street parking—a mandate for more sprawling development, and an implicit subsidy to drivers, who receive “free” parking whose cost is hidden in the higher cost of real estate or goods and services. A team of researchers have investigated how parking requirements have dramatically added to LA’s parking supply since 1950, with excellent graphics. Surprisingly few cities have a comprehensive inventory of parking supply, making this a model of the kind of information that would enable better-informed discussions of parking policy.
3. From Norway, new research adds to the evidence of social benefits from taxing housing. In addition to generating revenue (that could be used, as we propose above, for directly creating affordable housing), taxes on residential real estate can moderate demand for housing by removing its preferential tax status as a financial investment. That, in turn, can lower prices. This study suggests that taxing housing like any other capital asset would (in Norway) reduce housing prices by as much as 18 percent. While the exact numbers would obviously be different in the US—and certainly vary from place to place within the US—the basic dynamics are the same.
The Week Observed is City Observatory’s weekly newsletter. Every Friday, we give you a quick review of the most important articles, blog posts, and scholarly research on American cities.
Our goal is to help you keep up with—and participate in—the ongoing debate about how to create prosperous, equitable, and livable cities, without having to wade through the hundreds of thousands of words produced on the subject every week by yourself.
If you have ideas for making The Week Observed better, we’d love to hear them! Let us know at jcortright@cityobservatory.org, dkhertz@cityobservatory.org, or on Twitter at @cityobs.
Democratic presidential front-runner Hillary Clinton laid out the broad outlines of her plan for a National Infrastructure Bank, which would make low interest loans to help fund all kinds of public and private infrastructure. In an explainer for Vox, Matt Yglesias lays out the case for an infrastructure bank, and sets out some of the key assumptions behind the idea.
The basic outlines are these: The federal government would endow the bank with funds and empower it to borrow from the Treasury. It would make loans on generous terms—low-interest, long-term, fixed-rate—to states and local governments, and in some cases to private firms, to build major infrastructure projects. In some cases, repayment of the loans might even be deferred for a number of years. The bank would be directed to favor projects that had important national benefits, including job growth and environmental improvement.
Credit: Loco Steve, Flickr
In theory, if a national infrastructure bank wisely chose projects, and if it dispensed money efficiently, it might avoid some of the problems that plague our current system of infrastructure finance. But those are big “ifs.”
In practice, there are real reasons to believe that a national infrastructure bank won’t miraculously overcome the problems that plague American infrastructure.
A bank has to be capitalized. As the debates over the effectively bankrupt Federal Highway Fund have shown, there’s simply no stomach in Congress for raising revenues to pay for new infrastructure spending. Unwilling to ask users or taxpayers to pay more for roads and other infrastructure projects, Congress has resorted to increasingly desperate and gimmickyproposals, including a proposal to capture a portion of repatriated corporate profits, and transferring funds from the Federal Reserve’s balance sheet. Both measures end up costing the federal government more money in the end.
Banks want to be paid back. The finance problem with infrastructure projects is not the availability of capital for projects that generate a positive cash flow, it’s the lack of cash flow: states and localities have pretty much tapped out their own revenues (like the gas tax), and are generally unwilling or unable to take on toll-financed projects. The key problem is that most infrastructure projects simply don’t generate cash flows that can be used to retire debt.
Absent some new revenue source or some pricing mechanism—higher state gas taxes, or road and bridge tolls, or a vehicle miles traveled fee—it will be difficult to do more or different projects than we’re doing right now.
A Bank may mostly substitute for existing financing rather than prompting additional investment. The nature of bank financing is that they want the borrowers to take on the project management and revenue risks. This is especially the case for low interest rate financing—you only get low interest rates if you lower the bank’s risks to nearly nothing. That means that the projects that would be most appealing to a national infrastructure bank would also be the one’s that are the financially strongest—and the most capable of getting financing now (see below).
Making more money available on concessionary terms from a national infrastructure bank might simply lead to substitution of cheaper Infrastructure Bank money for slightly more expensive municipal bond financing. One of the problems with the existing infrastructure lending program TIFIA (Transportation Infrastructure Finance and Innovation Act) is, according to the US DOT, that for some projects in “TIFIA may displace, rather than induce participation by capital markets.”
Credit: Ken Lund, Flickr
Banks don’t design projects, DOTs do. While it’s tempting to assert that a national infrastructure bank will somehow only choose meritorious, sustainable efficient projects, the history with TIFIA—the closest thing we have to a federally sponsored infrastructure bank—is that it too is highly tilted to big highway projects. Case in point: a $412 million low interest TIFIA loan to widen a toll road in Southern California. Hardly a sustainable or innovative or particularly meritorious project—but thanks to a stream of toll revenue, it could plausibly commit to repay the federal loan. Clothing the lending function with the fancy new title of “infrastructure bank” may do nothing to change the actual process of project selection.
Cheap money creates its own incentive problems. Despite the good intentions of those who would set some broad policy oversight on the projects to be selected, preferential funding for some projects may have unintended consequences. Projects of national significance creates perverse incentives that encourage gamesmanship and gold-plating.
If there’s special bonus federal funding for special projects, look for states and localities to re-package their pre-existing project plans as one’s that fit the national criteria. If you can get access to some special pot of federal funding for your bridge, etc, then you can back out your own resources.
And once projects get cast as being of national or regional significance, local concern for efficiency or cost-effectiveness often gets tossed out the window. Big, nationally significant projects have the unfortunate tendency to experience the mega-project disease, and in part because of their size and importance, generate huge cost overruns as in the reconstruction of the PATH train station at the World Trade Center.
And it’s not like states haven’t figured out how to borrow money. The premise of the Infrastructure Bank idea is that our problem is too little access to financing. But when they have a cash flow, municipal governments have little problem borrowing against it—and in fact, that’s part of the problem with transportation finance. The political allure of borrowing to build big capital projects is undeniable—you get the jobs and the ribbon cutting in your term, and spread the costs over the next two or three decades, when your successors will have to deal with complaints about the taxes levied to repay the debt service.
In fact, if you have revenue, it’s fairly easily to go to the capital markets: The state of California has about $87 billion in infrastructure debt, according to its Legislative Auditor’s office. North Carolina Governor Pat McCrory has proposed borrowing $3 billion for roads and other infrastructure projects. Borrowing to pay for roads is as old as the automobile, the first road finance bonds were issued by Massachusetts in the 1890s. By 1992, states and localities had cumulative debt outstanding for road building of more than $47 billion.
For some states, arguably, the problem is not that they don’t have enough access to debt, but that they’ve relied on it far too heavily. The state of Washington for example, was on track to spend 72 percent of its gas tax revenue on debt service—effectively short-changing basic maintenance. Earlier this year it passed a new gas tax increase to fill the gap—and surprise, committed to borrowing against those funds for $8.8 billion in new projects—mostly freeway widening.
There’s plenty of high-minded rhetoric at the UN climate change conference in Paris about getting serious about the threat of climate change. According to the Los Angeles Times, Secretary of State John Kerry is optimistic that, “even without a specific temperature-change limit and legally binding structure, a climate change agreement that negotiators in Paris are hoping to reach this week has the potential to change the world.”
Kerry said that if the more than 190 nations at the Paris conference sign on to a plan in which they have confidence, the private sector will take the reins and innovate new sustainable-power technologies that will ease climate change.
The theory seems to be that if we convince the market that we’re really, really serious about doing something about climate change, then patterns of innovation and investment will change, and we’ll create and actually invest in the kinds of things that will lead to big emission reductions.
Credit: Elliott Brown, Flickr
But back in Washington, the new FAST Act, and our eagerness to hide from ourselves the true cost of our transportation, are making a cruel joke of that rhetoric. The signals we’re sending, in terms of policy and prices, are leading us to drive and pollute more—making it harder to do anything to solve an increasingly evidence climate crisis.
As every driver knows, the price of gasoline has plunged by more than a dollar per gallon in the past year. If ever there were a time when it might be politically possible to ask drivers to pay just a slightly larger fraction of the costs of building and maintaining the roads they use—not to mention the costs of polluting the atmosphere—you’d think it would be now. But you would be wrong.
Cheaper gas is already prompting Americans to drive more—butthedamagewilllastmuchlongerthanthelowprices.That’sbecausecheaper gas is also prompting people to buy heavier, dirtier, less-fuel-efficient new vehicles. According to the University of Michigan, the average fuel economy of the typical new car sold today has declined from a high of 25.8 miles per gallon last year to about 25.0 miles per gallon today. That may not sound like a lot, but it’s a scary development for several reasons.
For one, cars are long lived assets, so poor fuel economy today locks in a lifetime of inefficiency. The typical new vehicle lasts more than 15 years and chalks up more than 150,000 miles. Over its lifetime, a vehicle that gets 25 miles per gallon will consume about 186 more gallons of gas than a car that gets 25.8 miles per gallon.
The agents of our destruction. Credit: Ray Forster, Flickr
To get an idea of what that means, let’s think about the number of cars that will be sold over the next five years—the lifetime of the FAST funding package. Currently, cars and light trucks are selling at an annual rate of about 17 million units per year. At that rate, Americans will buy about 85 million new cars over the next five years. If they all have a fuel economy of 25.0 miles per gallon (and they don’t become less efficient as they age) rather than the 25.8 miles per gallon of cars sold last year, they’ll consume an extra 15.8 billion gallons of gas over their lifetime.
That has at least two important impacts worth thinking about.
First, each gallon of gas produces about 19.64 pounds of carbon. So the additional gasoline burned by buying less efficient vehicles will lead to about 140 million more metric tons of carbon being emitted into the atmosphere over these vehicles lifetime. (For reference, that’s about the same as the total CO2 emissions of the State of Georgia in 2013—136 million metric tons). And that’s simply because because of the low, low price of driving, consumers opted for less fuel efficient vehicles.
And second, over the life of these cars, consumers will have to pay for that much more gasoline. At the current national average price of about $2.25 a gallon, that works out to about $35 billion more over the life of the vehicles purchased in the next five years. To put that number in context, recall the the subsidy for the FAST Act comes from diverting $58 billion from from reserves of the Federal Reserve system. So new car buyers will end up spending about 65 cents more on gasoline for their less efficient, more polluting cars for every dollar shifted from the banking system to subsidize roads.
Transportation continues to be one of the principal sources of greenhouse gases. So while the world’s leaders, including those from the US are making serious-sounding noises in Paris about finally needing to something about climate change, the bipartisan policy consensus in Washington is to continue a system that insulates drivers from the costs of their actions, and by doing so encourages more driving, less efficient vehicles and more pollution.
Secretary Kerry is right: we need to send the private sector (and that includes consumers) clear signals about the seriousness of the climate change problem so that they make sound decisions about how to invest. But the short-sighted decisions we’ve made to continue to insulate car users from the costs of their decisions, coupled with the very low price of gasoline (which itself doesn’t reflect at all the damage that burning it does to the climate) is prompting Americans to drive more, and to buy dirtier, less-efficient vehicles that will only make it harder to tackle climate change.
1. Engaged communities, civic participation, and democracy. A guest post from the Knight Foundation’s Carol Coletta begins by noting some dismal numbers on voting in American cities—especially by younger people. But civic engagement can’t just be about once-in-a-while actions; it has to be a daily practice. Carol gives an example of a intervention into public space in Philadelphia, funded by the Knight Cities Challenge, that created a place for people from different backgrounds to “live life in public,” creating the foundation for a healthy civic society.
2. Is foreign capital destroying American cities? In the Guardian Cities, Columbia University professor Saskia Sassen expressed some alarm about the number of real estate purchases by large multinational corporations in cities around the world—creating a “de-urbanizing dynamic” and reducing diversity. But while there’s good reason to question some high-profile, large-scale corporate development deals, the larger question of the role of big corporations in our cities is less clear. Most corporate purchases are from other corporations, and Brooklyn—which Sassen singles out in her piece—has seen a dramatic rise in small businesses as well as large-firm employment.
3. You need more than one number to understand housing affordability. In October, we wrote a post called “Housing affordability beyond the median,” pointing out that the usual metric we use to gauge housing prices—the median—actually hides a huge amount of important information. Since then, two other researchers have jumped into the effort at creating more complex measures of affordability. Redfin, the online real estate company, created maps showing “affordable,” high-end,” and “mixed” neighborhoods, based on the distribution of costs within neighborhoods; and John Ricco of Greater Greater Washington created graphs showing how median prices are distributed by neighborhood across cities. Both are important moves to give our understanding of housing prices—and what counts as “affordable”—more nuance.
The week’s must reads
1. How common is gentrification? At Planetizen, Michael Lewyn makes the seemingly obvious, but little-acknowledged, point that it all depends on what you mean by “gentrification.” Many of the studies suggesting that gentrification is very widespread count any poor neighborhood that sees a notable decrease in poverty—even if it remains well above its region’s average poverty levels. Other researchers (including us, in our “Lost in Place” report) define gentrification as a more substantial transformation: moving from double the national poverty rate to at or below the national poverty rate, or (in the case of another study) from majority-non-white to majority-white. Using those definitions, gentrification is extremely rare. Lewyn also notes, citing “Lost in Place,” that “de-gentrification”—low-income or middle-class neighborhoods becoming poorer—appears to be much more common than the reverse.
2. Grab your headphones and take a listen to this talk by Harvard’s Raj Chetty at Equity Summit 2015, where he talks about his ground-breaking research on segregation and economic mobility—the heart of the American Dream. What correlates with upward mobility? What kinds of places foster it? Chetty’s research gets to the heart of City Observatory’s mission: creating the kind of cities that allow the American Dream, and it’s worth listening to Chetty himself explain what that means.
3. Sometimes pictures tell the story as well as words can. That’s the case withCleveland.com‘s historic photos of central Akron, tracing its history from a compact city with continuous urban fabric and high-quality public spaces to one methodically ripping apart that very fabric and destroying public spaces with highways, parking lots, and other interventions meant to appeal to private cars. (There’s a frame-by-frame description of what you’re seeing at the link, but if you need even more words about highways and cities, try this piece by Alana Semuels at The Atlantic.) Below, Akron in 1938 and the same shot in 2010.
New knowledge
1. If you’re getting this email, you’ve probably already decided that racial segregation is bad. But just in case, here’s another angle on the issue from researcher Jessica Trounstine at the University of California, Merced. She finds that more segregated cities spend less money on public services, all things being equal, than more integrated ones. And the difference is large: moving from the 25th percentile of segregation to the 75th percentile means about $100 less per person on all public services. By way of comparison, the average expenditure on police is just $180 per person. Why is that? Trounstine writes: “When a city is residentially segregated by race, issues cleave along racial and not just spatial lines and groups are more likely to be intolerant, resentful, and competitive with each other…. Less able to build consensus, [these cities] also have lower levels of spending on a wide range of public goods—from streets, to sewers, to assistance for the poor.”
2. And even more evidence that desegregation leads to more equitable economic outcomes. Eric Chyn at the University of Michigan revisits data from the Moving to Opportunity program, in which families in public housing were given vouchers to move to higher-income communities, and finds that the long-run effects are even larger than previous studies had indicated. Children in families given these vouchers were nine percent more likely to be employed as adults, and earned wages that were 16 percent higher. Importantly, Chyn also finds evidence that the people who choose to take vouchers actually benefit less from relocation than those who don’t choose to take them, suggesting further underestimates of the benefits from previous studies.
3. The “great inversion”—the return of demand for dense, inner-city neighborhoods—is well-established now. But what’s driving it? New research from researchers at UC-Berkeley and the University of Pennsylvania suggests that access to amenities like restaurants, retail, and entertainment is driving much of the demand from young, college-educated people. In contrast, other hypotheses, including shorter trips and slowing household formation, provide much less explanatory power. The authors argue that this means the revival of American downtowns has more staying power than believed by those who argue that urban living is a temporary trend.
The Week Observed is City Observatory’s weekly newsletter. Every Friday, we give you a quick review of the most important articles, blog posts, and scholarly research on American cities.
Our goal is to help you keep up with—and participate in—the ongoing debate about how to create prosperous, equitable, and livable cities, without having to wade through the hundreds of thousands of words produced on the subject every week by yourself.
If you have ideas for making The Week Observed better, we’d love to hear them! Let us know at jcortright@cityobservatory.org, dkhertz@cityobservatory.org, or on Twitter at @cityobs.
Later this month, the Federal Reserve Board (or “the Fed,” as it’s often referred to) will raise interest rates. After seven years of very loose monetary policy designed to facilitate economic recovery from the Great Recession, the Fed now apparently thinks that the economy is healthy enough to stand higher interest rates.
Clearly, the financial markets will be paying rapt attention; in fact, guessing the date of the rate increase has been the principal occupation of Fed watchers for two years. But beyond the headlines, should cities care?
Janet Yellen, Chair of the Federal Reserve. Credit: Day Donaldson, Flickr
Yes. To begin with, there are some direct impacts on city finances. Municipal governments are big borrowers, especially for things like public works, and if the Fed’s rate rise pushes up interest rates, then that means it will be more expensive for cities to borrow to fund those projects.
But cities should also be concerned about the effect on national economic growth. While the recovery from the Great Recession has been a long, slow slog, cities in particular have seen steady economic growth for the past several years.
Arguably, housing is the sector of the economy most sensitive to changing interest rates. Low interest rates make housing investments more attractive, and the one bright spot in a still deeply depressed housing market—multifamily construction in cities—has depended heavily on the Fed’s extended period of low rates. Multifamily starts have fully recovered to their pre-recession levels, while single family starts have languished at near historic lows. As we’ve noted, the trend toward apartment construction is attributable to a number of factors: a growing demand for urban living; poor credit availability (and creditworthiness) among young adults who have traditionally purchased entry homes; strong rent growth; plus relatively attractive interest rates for the kinds of institutional and large-scale investors who finance apartment construction.
Credit: SounderBruce, Flickr
While many of these factors aren’t going anywhere, rising interest rates may determine whether some apartment construction projects go forward. A significant rise in long term interest rates could mean that some apartment projects don’t pencil out. Thirty year mortgages are currently running about 3.72 percent.
The big question for the housing market is whether long term rates increase. Fed policies chiefly affect short-term rates, and the link between long-term and short-term rates is indirect and variable. The Federal Reserve’s main policy lever is the federal funds rate, which plays a key role in determining short term interest rates, but which affects longer term interest rates, like mortgages with, as the economists are wont to say “with long and variable lags.” The Fed uses its financial transactions, including the rates it charges to banks, and its purchases of securities, to target a particular short-term interest rate. That, in turn, influences other interest rates in the economy. Back in 2008 and 2009, the Fed successively reduced short term interest rates to almost zero to help support the economy during the Great Recession. A majority of the Federal Reserve Board of Governors seems to think that they should “normalize” their policy and raise rates.
This is what “highly accommodative monetary policy” looks like. It is coming to an end.
In June, Zillow economists projected that Fed tightening via short term interest rates would push up mortgage rates. Assuming a constant spread between short and long term rates, they estimated that rates on 30-year fixed mortgages would rise from rise from 3.84 percent in May 2015 to 4.63 percent by December 2015, 5.63 percent by December 2016, 6.88 percent by December 2017, and 7.75 percent by December 2018. Some economists seem to think that short-term rate increases will have little impact on long term rates—in economists’ parlance, the yield curve will flatten. They think that economic growth is sufficiently well-established that long term rates will rise very little.
While the immediate effect on cities may well be seen in the housing sector, the larger concern has to be the state of the macroeconomy. If overall job growth (which has been running at about two percent annually) falls off, it makes nearly all of the economic challenges facing cities worse. Falling job growth would likely lead to higher rates of unemployment, weaker wage growth, and lower tax collections. Many economists think the Fed tightening is premature, that the economy is not fully recovered, and that there are significant downside risks to raising rates now. One former Fed Economist argued that the economy is still operating well below potential, and can expand further with little fear of inflation. Others note that the recent appreciation of the U.S. dollar can be expected to be a drag on U.S. economic growth, and that an interest rate hike would add add to this drag.
At City Observatory, we generally focus our analysis on cities and metropolitan economies, and look at economic trends as they play out in particular geographies. But occasionally, it’s important to step back at consider the broader national macroeconomic context. City and metro economies each have their own dynamics, but ultimately find their options shaped by trends in the national economy. This is one of those times.
It’s become increasingly popular to assert that cities can replace federal policy activism to tackle many national and global problems. And while we take a backseat to no one in stressing the importance of cities, in some cases, if the national government gets key policies wrong, it can be almost impossible for cities to make progress. If timidity about potential inflation prompts the Fed to engineer a rate rise that slows economic growth—or pushes us into a recession—much of the progress that cities have made in growing jobs and expanding opportunity will be at risk. In the months ahead, keep a close eye on multifamily housing starts and the job growth rate to see whether the Fed got it right—or not.
Whatever remained of the fig leaf claim that the US has a “user pays” system of road finance disappeared completely with the passage of the so-called FAST Act.
It would be better to call the new transportation bill the “Free Ride” Act, because that’s exactly what it does: gives auto users something for nothing. It’s more money for road building, scraped together from arithmetically questionable raids on the Strategic Petroleum Reserve and the Federal Reserve Bank, and a series of other gimmicks.
As we pointed out earlier, this legislation represents the triumph of the asphalt socialists—in their view, our transportation problems can be best solved by more subsidies for the old policies. As Yonah Freemark observes, the biggest chunk of this subsidy comes from a transfer of $53 billion from the Federal Reserve System. In effect, bank robbery is now national policy for road finance.
Live feed from Congress. Credit: Henry Burrows, Flickr
As everyone now knows, the 18 cent per gallon federal gas tax that has been the mainstay of the Highway Trust Fund hasn’t been raised in two decades and the combined effects of declining driving, more fuel efficient vehicles, and inflation have pushed the fund to bankruptcy. But rather than ask users to pay a higher fees—reflecting the higher costs of maintaining roads—Congress ruled out a gas tax increase, and instead did in a big way, what its done several times in smaller ways before: bail out the Highway Trust Fund with general funds. Because of budget rules, the general fund diversions have to be “paid for”—which Congress did by a series of one-time accounting devices and asset sales.
And Delaware Senator Tom Carper argued, “the bill is paid for is simply irresponsible…Congress is passing the buck by using a grab bag of budget gimmicks and poaching revenues from unrelated programs for years to come in order to pay for today’s transportation needs.” Financial blogger Barry Ritholtz called it the “dumbest way” possible to pay for infrastructure.
But it’s not just the revenue side of the new transportation bill that’s rotten. On the spending side, the FAST Act leaves largely unchanged the practice of allocating most revenue to state DOTs. Those departments, in turn, disproportionately allocate money to new highway construction, rather than more sustainable transportation needs. The bill sets up a new National Highway Freight program which will allocate about $1.25 billion annually to the states by formula and another $900 million annually for “Nationally Significant Freight & Highway Projects” to be awarded on a competitive basis for “multi-modal” freight projects. But 90 percent of the funds are earmarked for highways, and since virtually all roads carry at least some truck traffic, it’s far from clear that these funds will be anything other than yet another pot of funding for subsidized road construction.
Credit: Nick Douglas, Flickr
As is now common with major congressional legislation, it will take further days or weeks of sleuthing by the experts to discover and understand all of the bill’s arcane provisions. This 1,300 page bill is no exception. If you’re looking to understand some of the ins and outs, a good place to start is the official U.S. Department of Transportation summary. Transportation for America’s more opinionated view of the FAST Act’s the best and worst provisions is here; their verdict: the net result is to use tomorrow’s dollars to pay for yesterday’s ideas. And Deron Lovaas of the Natural Resources Defense Council aptly describes the bill as the “sum of all lobbyists”—noting a number of obscure provisions that are only distantly related to transportation policy.
There will be no doubt much back-slapping and congratulation that Congress has finally passed a long-term transportation bill after a series of short-term, patchwork fixes. But in reality, Congress has done nothing to address the underlying causes of the decline in national transportation funds—the steady erosion of the gas tax by inflation, improved fuel efficiency and stagnation of driving levels—and has utterly failed to craft a solution that asks the users and beneficiaries of the transportation system step up and pay for its costs.
What Congress has done is completely demolish the “user pays” idea, and simply kicked the can down the road—this time by five years, rather than 90 days or six months. There’s nothing sustainable about the one-time revenue sources Congress has thrown into the pot here: once they’ve raided the Fed’s balances, for example, they can’t do it again. But in five years, when the one-time money runs out—sooner, if Congress’s creatively optimistic estimates of the revenue produced by its gimmicks aren’t realized—we’ll be facing exactly the same underlying problems.
Chief among them is that our transportation system has excess demand for service because most users aren’t confronted with a price that reflects the cost of providing roads. Subsidized auto travel has lead to sprawling, car-dependent automobile travel patterns that generate additional traffic, congestion, pollution and crashes—and further burden the transportation system. The opposition to gas tax increases, and tolling, shows that most road users simply don’t attach any value to system expansion, or that they favor more spending on roads—but only as long as they personally don’t have to pay for it.
So maybe the FAST Act isn’t such in inappropriate name for this legislation: It will serve as a continuing reminder that instead of a serious and responsible solution, Congress simply chose to pull a fast one.
Last week, San Francisco Magazine reported on what, at first glance, just looks like another those-crazy-San-Franciscans-and-their-crazy-housing-market story. It begins with a film school teacher who had bought a home in the Mission neighborhood twenty years ago for just $90,000, recently decided to move, and put her home on the market—sort of.
While similar homes in the area were going for over a million dollars, the teacher announced that she would give the next occupant of her home close to a $500,000 discount, selling for $650,000 and not accepting higher bids. In exchange, her many suitors would have to explain why they were a particularly good fit for the neighborhood, and sign a ten-year “cultural promissory note,” committing to provide some sort of cultural value to their new neighbors.
At CityLab, Kriston Capps has already made the case that this sort of “ethical landlording” is hardly the solution to San Francisco’s—or New York’s, Boston’s, etc.—housing problems. Capps zooms in on the fact that leaving the question of who gets to live in a neighborhood up to the people who currently live there could reach some dark places very quickly:
Instead, the point of the exercise was to exclude buyers. Lee aimed to exclude outsiders, exclude people who might complain about Dia de los Muertos, exclude people who don’t fit her vision of a Mission resident. This kind of character screening could bring up some ethical issues or implicit biases. Maybe nothing that rises to the level of discrimination under the Fair Housing Act, but still.
Capps’ critique is well worth reading in full. We would add two points.
First, this real-life parable does an excellent job of illustrating that the fundamental problem with high-priced real estate markets isn’t that housing is too expensive: it’s that there isn’t enough housing. Because we live in a market economy, we almost always use prices to choose who gets access to highly-sought-after homes, which creates some obvious problems in terms of social equity. But if you don’t discriminate based on price, you’ll still have to discriminate, because there are still more people who want to live somewhere than there are places for them to live.
So in this case, the property owner got rid of (or significantly reduced) the price issue, but the problem didn’t go away: there were so many applications for her home that she had to hold four open houses. To solve this problem, she simply shifted from discriminating based on price to discriminating based on the cultural whims of the current resident (her). The overwhelming majority of people who wanted to live there still lost out. And as Capps hints at, while this particular resident’s whims aren’t necessarily discriminatory in a way that reinforces pre-existing inequalities, there’s very little reason to be optimistic that if we shifted to a system in which everyone discriminated based on their own cultural prejudices, it wouldn’t ultimately end up perpetuating existing patterns of inequality.
(In fact, there’s a good argument that it did so even in this case: After all, having access to organic produce from an “uncle’s farm in Salinas,” as the film teacher suggested might be an appropriate cultural contribution to the neighborhood, is hardly a privilege evenly distributed by race and income.)
The new currency of Bay Area real estate. Credit: Wikimedia Commons
Second, this case highlights the fact that rising home prices create massive capital gains—not just for landlords and developers, but regular homeowners as well. In some cases, this is a actually a big win for equity, particularly when property values increase rapidly in neighborhoods where homeowners are predominantly lower income or people of color. That might represent a small blow against the racial wealth gap. (Although it is likely to be quite a small blow indeed, given research showing that black first-time homeowners actually lost wealth on net in housing over the course of the entire decade of the 2000s. Neighborhoods that see large increases in property wealth are actually disproportionately likely to be white.)
But from a policy perspective, these capital gains represent a huge opportunity. In this particular case, the homeowner was able to earn a nearly 700 percent return on her investment and still leverage half a million dollars to determine the occupancy of her home after she left. But even if we could count on other private residents to use that power as “ethical landlords,” it would leave the housing market open to private discrimination, as we already argued. Moreover, as Kriston Capps pointed out, there’s no guarantee of long-term, let alone permanent, affordability: the next owner is under no obligation to be similarly “ethical.” And finally, very few landlords, no matter how “ethical,” are likely to give up enough profit to provide deep subsidies: even in this case, the film teacher ended up selling for $650,000, which stretches the definition of “affordable” even in San Francisco.
What if, instead, we could harness a small percentage of these private capital gains for publicly-funded, truly affordable housing? After all, we already leverage the profits of developers for affordable housing in the form of inclusionary zoning requirements. But those programs almost never create very many affordable units, simply because preserving five, ten, or even 20 percent of newly constructed units for low-income people doesn’t add up to much when all newly built homes make up a tiny proportion of the community as a whole. In the five years from 2010 to 2014, San Francisco’s inclusionary zoning program produced, on average, 140 units of affordable housing a year—not nothing, but also hardly enough to make a real dent in the issue.
San Francisco is too big for that. Credit: Anita Retinour, Flickr
But a small tax on the capital gains of homeowners whose property values grew the most could produce funds to build or preserve a meaningful number of affordable units. To be more progressive and protect wealth for working- and middle-class homeowners, the tax could be structured so that it only fell on those who earned significantly more than “normal” returns, or whose homes were extremely valuable to begin with. It could also be collected only when a home is sold, to avoid adding to the burden of people with valuable homes but only moderate incomes. (As an added benefit, such a tax could have the effect of deterring other exclusionary behavior by homeowners, if William Fischel’s ideas are correct.)
The money collected could be used, not to sell a $650,000 home to whoever had the best organic produce, but to create permanent (or at least long-term) affordable housing to whoever needed it at prices actually targeted to the low income. How much money are we talking? Well, in 2013, the total value of homes in the San Francisco metropolitan area grew by $159 billion. A regional tax that captured just one percent of that value would generate nearly $1.6 billion a year. San Francisco’s Proposition A, by contrast, passed this November, creates a one-time bond issue of $310 million; and the in-lieu fees raised by SF’s Inclusionary Housing ordinance in 2014 were $30 million. Of course, it’s not quite fair to contrast a regional measure with a municipal one—but the point is that $1.6 billion a year is a lot of money, equivalent to thousands of new affordable units a year. And it’s money that Bay Area governments are currently leaving on the table.
Harnessing these capital gains in places where real estate values are rapidly appreciating to create a stream of truly affordable housing funds is an ethical housing policy. Asking current homeowners and landlords to discriminate based on their own private biases is not.
Be afraid: Big foreign corporations are buying up our cities and stamping out our individuality. Or so warns Saskia Sassen in a piece ominously entitled, “Who owns our cities—and why this urban takeover should concern us all,” published in the Guardian Cities.
The harbinger of our doom, according to Sassen: large corporations are buying up our cities. Worldwide, such businesses bought something like a trillion dollars of real estate in the past year, up from about $600 billion the year before. Based on this single factoid, Sassen argues that that large corporations from countries all over the world own too much urban real estate, and that this ownership threatens the democratic rights and economic opportunities of ordinary city residents.
…large-scale corporate buying of urban space in its diverse instantiations introduces a de-urbanising dynamic. It is not adding to mixity and diversity. Instead it implants a whole new formation in our cities—in the shape of a tedious multiplication of high-rise luxury buildings.
The Barclay’s Center under construction, 2011. Credit: Michael Dougherty, Flickr
Case in point: Brooklyn. Ground zero for global capital’s dispossession of the locally owned city is the Forest City Ratner Pacific Place (née Atlantic Yards) development, a mixed-use residential and office project built atop an old rail switching yard, and adjacent to the new Barclay Center (home of the Brooklyn Nets and New York Islanders). This $5 billion, 22 acre project includes 14 towers with more than 6,000 new homes, including 2,000 promised affordable apartments. Originally developed by New York-based Forest City, the firm recently sold a large stake in the project to Shanghai-based Greenland Holding Group Co.
There are plenty of aesthetic and public policy reasons to dislike Pacific Place/Atlantic Yards. It is yet another public subsidy for private sports franchises, and one can argue that the city should have gotten a better deal for the sizable tax breaks it offered the developer. But as big as this project is—and it is the biggest in the borough—it’s hardly indicative of what’s driving development here.
The implication is that large scale corporate ownership is somehow stifling the diversity and dynamism of the city. Far from being crowded out by big projects like Pacific Place, small scale businesses and entrepreneurs are thriving, and responsible for the real dynamism of the borough’s economy. Earlier this year, the Brooklyn Chamber of Commerce released its first economic report card. It found that between 2009 and 2014, some 9,600 net new businesses opened in Brooklyn, twice the rate of new business formation for the prior decade.In the past three years, the borough has added 5,500 net additional incorporated self-employed individuals, an increase of 19 percent and more than in the rest of New York City combined.
Job growth is powered by small firms and large ones in Brooklyn. Credit: Brooklyn Chamber of Commerce.
A big part of this story is how creative entrepreneurs have flocked to Brooklyn. According to the Center for an Urban Future, between 2003 and 2013, the number of creative businesses in the borough more than doubled. Brooklyn has also become a hotbed for small tech firms and startup activity as well. Most famously, Etsy.com, perhaps the perfect techno-corporate reflection of all things Brooklyn and hipsterish, links 1.5 million sellers of handmade crafts with more than 20 million registered buyers).
We’ve heard Sassen’s lament before: back in the late 1980s, it was the influx of Japanese capital that was turning American city real estate into global corporate colonies. Mitsubishi, flush with cash from Japan’s bubble economy, famously bought New York’s iconic Rockefeller Center, and Japanese investors at one point owned 40 percent of the prime office space in downtown Los Angeles. Michael Crichton’s novel Rising Sun, made into a 1993 movie starring Sean Connery depicted the Japanese investment as part of a dark cabal undermining both American business and government. Despite the concerns of a Japanese takeover of the US economy, nothing of the sort happened. As it turned out, Japanese real estate investors were no more savvy than American ones: Mitsubishi walked away from its Rockefeller deal writing off much of its $2 billion investment.
But the biggest problem with Sassen’s premise is that most corporate real estate purchases are bought from other corporations—meaning there’s no net increase in the amount of corporately-owned property. It’s just being transferred from one corporation to another, and sometimes from bigger global corporations to smaller, more local ones. For example, mega-investor Blackstone just sold $1 billion worth of Los Angeles office buildings to local investors. According to Cushman Wakefield, most of the sales (and purchases) are by US based pension funds, life insurers, real-estate investment trusts and the like. It’s hard to see how exchanging one set of absentee corporate owners for another ought to matter to anyone. Every transaction has a seller, as well as a buyer, son one could just as easily describe the data Sassen cites as revealing a giant sell-off of corporate owned real estate. Effectively, the ownership of real estate is commoditized—pretty much like the money used to finance home mortgages.
Despite the impressive-sounding sums involved, this sort of churn tells us nothing about whether corporate ownership is increasing or decreasing. Despite the article’s central premise that absentee corporate ownership is large and growing, Sassen presents no data on what fraction of all urban real estate is corporate-owned, or whether it’s higher or lower than it was a decade or two decades ago.
There’s actually precious little comparable, national data on the ownership characteristics of real estate, especially commercial and multi-family. Studies of housing ownership patterns in New York and Baltimore by the Urban Institute concluded “we know surprisingly little” about ownership patterns. But from the data they were able to cobble together from local administrative records, they found no consistent relationship between type of owner and maintenance and affordability. In New York, mom-and-pop owned apartments tended be affordable and better maintained (in part, the authors speculate because local owners are more careful in choosing tenants), while in Baltimore, large-scale owners provided better-maintained buildings.
Credit: Urban Institute
As much as Sassen and other may dislike the profile (and symbolism) of high-rise residential towers, it’s clear that the portfolio managers buying real estate actually value functioning urbanity. The Cushman Wakefield report from which Sassen draws her numbers is pretty adamant about the need for human-friendly cities with more public investment and better public spaces:
There are many strands to creating healthy cities but a sensible starting point is allowing—and where possible promoting—walking and cycling through both the infrastructure and public spaces but also via more mixed use facilities. A second must be in providing common space where the city’s residents can meet and relax to provide a lower stress environment, be that on the grand scale of an urban park or High Line.
It could even be the case that Sassen has it backwards: multi-national investors are a lot less interested in controlling or re-shaping the city than figuring out in what direction it’s going, and then investing there. It’s pretty clear that the market is increasingly turning its back on the traditional suburban model of development; investing in big city real estate is the most obvious way the financial types can figure to follow the market for urban living that’s been created not by the machinations of investors, but by the surging demand for urban living, and the kind of diverse, interesting neighborhoods found in big cities. Sassen worries that “large scale corporate buying of urban space…introduces de-urbanizing dynamic.” But far from looking to squelch urbanity, these investors are actually looking to invest in it, and make more of it.
Finally, it’s worth considering the missing counterfactual: What would happen if global capital weren’t flowing into major projects in large cities? It’s certainly acceptable to have objections to any project, and Sassen and others may reasonably decide that the scale of Pacific Place is out of place with its surroundings. The large new residential towers will no doubt provide housing to many upper income families. But would Brooklyn—and Brooklynites in surrounding neighborhoods—be better off if it weren’t built? Given the overwhelming demand for housing in New York, if those high income units aren’t built at Pacific Place, their would-be occupants won’t simply evaporate: instead, they’ll likely further bid up the price of all other housing in the borough, worsening affordability for everyone.
As we have pointed out before, the growing relative value of real estate in close-in is a sign of the growing economic strength of, and demand for urban living. We should hardly be surprised that capital is flowing to these areas, but it signals the growing power of urbanism, not its demise.
Back in October, we wrote a post called “Affordability beyond the median.” While most discussions of housing costs measure based on a city’s or neighborhood’s median price, that’s not all that matters.
After all, the median is simply the home for which equal numbers of other homes are more and less expensive. That may be a good definition of “typical,” but it can make us forget that most homes don’t cost the median: they’re either more or less expensive. And it matters just how much more and less expensive they are. In other words, it matters how much housing prices vary. A neighborhood where every home costs $400,000 will have the same median price as a neighborhood where half of all homes cost $400,000, a quarter cost $150,000, and a quarter cost $650,000. But only the second neighborhood has a large number of homes that might be affordable to people with moderate incomes.
In fact, if we’re especially interested in affordability for people with lower incomes—who are likely to be buying relatively cheaper housing no matter the median cost—then we should also care about how much relatively cheaper housing costs. To illustrate the problem, we compared the West Ridge neighborhood in Chicago with suburban Flossmoor. Both have very similar median housing prices, right around $250,000. But a house at the 25th percentile price in West Ridge is much more affordable than one at the 25th percentile price in Flossmoor—and it’s probably not a coincidence that West Ridge is much more economically diverse.
Since then, we’re pleased that at least two researchers have published their own, more nuanced looks at housing costs. First, John Ricco, at his own blog and then at Greater Greater Washington, used our analysis as a jumping-off point to create an interactive chart of housing price curves across neighborhoods in major American cities. Importantly, these curves show the distribution of median rents by ZIP code—not the 25th percentile prices, as we did. Still, by breaking down costs within cities, you can see differences in housing cost dynamics that you can’t with just a citywide median.
Comparing Chicago and Atlanta, for example, shows that two-thirds of the residents of both cities (the numbers along the y axis) live in ZIP codes where median rents are almost identical (the numbers along the x axis). But in the top third, Chicago pulls dramatically away from Atlanta, so that while nowhere in Atlanta has a median rent of over $1,433 per month, a full 10 percent of Chicagoans live in ZIP codes with median rents that high or higher.
Another fascinating report comes from Eric Scharnhorst, an analyst with the real estate website Redfin. Scharnhorst’s work actually predates our October post, though it has only recently been published. In that study, Scharnhorst divides neighborhoods in 20 cities into three types: “high-end,” “affordable,” and “mixed.” In a high-end neighborhood, there are at least three homes that are unaffordable to a median-income purchaser for every one that’s affordable; in affordable neighborhoods, that ratio is reversed. (A home is considered “affordable” if a household earning the median income for their metro area could buy it without paying more than 30 percent of their income.) Any neighborhood that didn’t reach either extreme was labeled mixed.
Like Ricco, Redfin’s study is looking at a slightly different question than we were: their hypothetical purchaser is middle class, while we were more interested in low-income households. But it contributes to an attempt to see housing markets as too diverse and complex to be summarized with a single number.
Scharnhost also produced an incredible series of maps demonstrating his findings. Here are just a sample:
These maps show how different affordability patterns can be from one metro to another. In Detroit, the vast majority of neighborhoods are “affordable,” except for a ring of high-end communities in the outer suburbs and in the “Grosse Pointe” suburbs east of the city along the riverfront. Most of the handful of mixed neighborhoods are in the inner suburbs. In Philadelphia, there’s more of an even divide between affordable and high-end neighborhoods. Mixed neighborhoods are found in inner suburban/outer city neighborhoods, as well as throughout the inner urban core. In Los Angeles, most neighborhoods are high-end, with an “affordable” corridor flanked by mixed areas south of downtown.
In addition to giving residents, advocates, and policymakers a better handle on the state of housing costs in their cities and neighborhoods, it’s notable that in most cities, the largest concentration of “mixed” neighborhoods are in central cities and older suburbs—indirect evidence for one of our hobby horses, which is the way that a diversity of housing types (small homes, large homes, apartments) can foster a diversity of people, along economic and racial/ethnic lines. As these maps show, that housing diversity is more likely to be found in central cities.
Both Scharnhorst’s and Ricco’s analyses and visualizations are worth spending some time with. Check them out!
Today we’re publishing an edited version of a speech given by Carol Coletta, VP of Community and National Initiatives at the Knight Foundation, last month in Portland, OR.
Informed and engaged communities are fundamental to a strong democracy. But many of the signs of those communities are not encouraging:
Newspaper readership has plummeted in recent years. It is a particular problem with local papers. More depressing, no one believes there is yet a business model that will support robust local reporting.
Distrust among Americans is increasing. The share of the population that believes “most people can be trusted” has fallen from a majority in the 1970s, to about one-third today.
Economic segregation has gone up while middle-income neighborhoods decline. Between 1970 and 2009 the proportion of families living either in predominantly poor or predominantly affluent neighborhoods doubled from 15 percent to 33 percent.
Politically, we have sorted ourselves into like-minded geographies. Nearly two-thirds (63 percent) of consistent conservatives and about half (49 percent) of consistent liberals say most of their close friends share their political views.
Credit: hjl, Flickr
Portland State’s own Phil Keisling and Jason Jurjevichlooked at voting behavior in local elections for Knight and found that turnout in most cities is abysmally low—typically hovering around 20 percent.
They also found that the age of those who do cast ballots was anywhere from 13 to 17 years higher than the citywide median age of the adult population. In other words, as Jason put it, “18-34 year-olds are almost entirely abdicating to their grandparents’ generation the key decision of who should actually govern them.”
Phil and Jason also found many “voting deserts” in cities—places where the percentage of people voting is half or less than the already-terrible overall rates—as low as half a percent! It’s tough to have informed and engaged communities when the trends are working so powerfully against them. On the other hand, there are a few hopeful signs.
As cities cut staff and services to parks and recreation, libraries, and public works in recent years, frustrated citizens have begun taking matters into their own hands. Do-it-yourself efforts to improve cities—sometimes known as “tactical urbanism”—continue to heat up, fueled by the massive move of young adults to core cities.
And while Millennials may not be reading newspapers, they lead the country in the civic use of social media. Pew found that half of 18-to-29 year olds decide to learn more about political or social issues because of what they read on social networking sites. Fifty-seven percent engage in political activity on social networking sites and nowhere else.
If only they could be convinced to vote.
Voting isn’t the only means of civic participation, of course. But a high and sustained voter turnout rate is the best single measure of whether all the other things we are doing to promote engagement are working—and that’s why we make increased local voter turnout the North Star for our efforts.
But here’s a conundrum: Knight, as a foundation, doesn’t support “get out of the vote” efforts. We don’t support voter registration. We don’t support efforts to overturn voter suppression.
So what’s left that looks promising?
To get the answer, we turned to Portland. Last year, thanks to my friend and colleague Ethan Seltzer, I had the opportunity to interview the founders of modern day Portland. They told me how they reclaimed power from the small group of elected elites who used to wield their influence from the basement of a downtown hotel.
They decided that if they were to engage Portlanders in the civic life of their community, they had to be convinced to “live life in public.” In other words, they had to be lured from the comfort and privacy of their living rooms and backyards and share public life in the company of strangers.
At the time, there were, they told us, a lot of impediments to doing that. There was, for instance, a prohibition against playing music in the park. Sidewalk cafes were illegal.
So they set out to eliminate as many of the things that discouraged public life as they could. And today, you have a wonderfully rich public realm and many signs of robust public life. Like the founders of modern day Portland, we believe that public life—or “living life in public,” as they put it—is critical to civic engagement.
And yet, many of our so-called “engagement processes” that are codified into law are clearly deficient. There is the requisite three-minute public comment period in every public meeting. Architects and planners must have engagement “specialists” on their teams. App developers have had a field day with their attempts to induce civic engagement via smart phones (many of them supported by Knight funding).
But our efforts are failing miserably. Just look at the rate of voting in local elections. Most Millennials don’t see voting in local elections as a way to express their values, nor do they see local government as a way to get things done. And apparently, a lot of other Americans agree.
As long as opportunities for civic engagement are episodic, tucked away, or on a schedule, I’m not sure we will ever have the broad engagement we need to make our communities successful. We don’t need the occasional well-attended community meeting with 100 people in the audience. We need thousands of people engaged every day in the civic life of their city. And we believe that the places we inhabit everyday can be a far more powerful way to stimulate a culture of engagement than any process or any app.
I want to offer up one very humble example of what’s possible. It’s called the Pop-up Pool in Philadelphia’s Francisville neighborhood, between a very poor neighborhood and one that is seeing a lot of new investment. It is the product of Ben Bryant, who submitted his idea to the Knight Cities Challenge.
Public pools, as you may know, have tortured racial histories; and as private pools have proliferated, support for public pools has waned, leaving a customer base consisting of those with no other options—in Philadelphia, that means usually poor, usually black, and in the case of Philly’s pools, usually under 18.
Ben took a look at Philly’s pools and saw the potential for a much more dynamic neighborhood asset, one that could attract people from the two very different neighborhoods that bordered it.
How to do that? Pretty simple.
Add seating where there was none.
Add a few palm trees to amp up the emotional resonance of the pool as a stay-cation.
Add water Zumba classes that everyone could enjoy while looking slightly dorky doing;
Change the rules so moms could enter the pool with street clothes on vs. a bathing suit.
Promote it daily on social media in ways the city never would.
It was an immediate hit. The pool suffered no loss of existing patrons, but it gained new popularity with residents who discovered the pool for the first time. People of different economic status, different ages, and groups of singles along with parents and children were happily sharing the pool together.
It took less than a week for the City to announce that it planned to convert all of its pools to the pop-up pool model.
Writing in The New Yorker last month, Adam Gopnik described the mixing we need this way: “Cities…shine by bringing like-minded people in from the hinterland (gays, geeks, Jews, artists, bohemians), but they thrive by asking unlike-minded people to live together in the enveloping metropolis…. While the clumping is fun, the coexistence is the greater social miracle.”
If we can crack that one, we can unlock enormous opportunity for Americans.
The future of a city is not made with a few broad strokes by a few key people. The future is made by thousands of people making small decisions every day about what they believe about the future and their role in it. By building up the civic commons—parks, recreation centers, libraries, cultural centers—to support the active sharing of public spaces and activities by a wide mix of people of different economic statuses, different ages, we can encourage people to make those decisions in a way that builds more informed, engaged communities, and a stronger democracy.
