The Week Observed: January 29, 2016

What City Observatory did this week

1. The market cap of cities. What’s the value of a city? We’ve taken a stab at answering that question—at least, the value of a city’s housing. Using a measure called market capitalization, or “market cap” in financial parlance, we can compare the economic weight of cities with major companies. Turns out San Francisco’s housing is worth more than three times as much as Microsoft, and all the housing in Columbus, Ohio is worth about as much as Bank of America. These comparisons may seem weird, but they do reflect real demand and value, and are a reminder of just how massively valuable our housing really is.

2. What is an “unequal” city? Higher levels of national economic inequality are bad. Higher levels of metropolitan area inequality are bad. So what about at the city or neighborhood level? Well, then it gets complicated. Given any level of metropolitan inequality, for some smaller part of that region to be less “unequal,” it would have to exclude some group of people: a neighborhood without rich people, or a municipality without anyone in poverty. But there’s a name for sorting people geographically according to their income: segregation. And segregation actually leads to worse economic mobility for the low-income. Ironically, then, fighting inequality at the local level means creating integrated neighborhoods that register higher levels of “inequality.”

3. Land use and transportation infrastructure: Two sides of a coin. When new highways are quickly filled up with cars, erasing any gains in the fight against congestion, those who want to continue building more and bigger roads sometimes point out that population growth along the highway interpret this as showing that things would have been even worse if it hadn’t been built. But this treats land use and transportation as if they are totally independent of each other—and they very much aren’t. Adding highway capacity out to the suburbs will encourage people to build more houses there; spending those same resources on improving more space-efficient transportation, like buses or trains, in the central city will encourage more development in the central city. That symbiotic relationship can’t be ignored.

4. In some cities, the construction boom is starting to pay off. After a long period of consistently fast rent growth, prices are flat or falling in Seattle, Denver, and Washington, DC, thanks in large part to an apartment construction boom in those cities. In fact, it’s a national phenomenon—the rate of rent growth has fallen by half in response to a 20 percent surge in apartment construction in 2015. Though the historical evidence connecting housing supply and prices is very strong, we had yet to see a housing boom correct price growth during this cycle—but now that evidence is arriving.

The week’s must reads

1. Nearly half of all states—23, to be exact—restrict the use of gas tax revenue for sustainable transportation projects, including transit, bike lanes, and sidewalks. AtStreetsblog, Angie Schmitt reports that dispiriting fact—but also that Colorado recently voted to reverse their own such restriction. That move, Schmitt argues, is one of “five things states can do to bring transportation out of the stone age.” The others: base project funding on clearly articulated goals; adopt more flexible street design standards; use transportation demand management; and give more resources to local governments.

2. We’ve written before about the power of smart transit investments—ones that create fast, reliable service that goes where people need to go, regardless of whether it’s by train or bus. Los Angeles may be seeing the results of the flip side of those policies, however, according to a blockbuster piece by Laura Nelson and Dan Weikel in the LA Times. As they report, the region is seeing dramatic decreases in public transit ridership in the midst of multi-billion-dollar investments in new rail lines. One possible culprit: significant cuts to bus service, which carries most riders in the region. Though it’s not mentioned in the article, the continued growth of parking supply—in part because of legal requirements—is also likely a factor.

3. In the least-in-demand neighborhoods of Baltimore, high-quality rowhomes might sell for just $50,000—but the cost of rehabbing an abandoned home can reach $100,000. Faced with those economics, Baltimore has joined the list of cities that see the demolition of vacant homes as a blight-fighting tool. But is such a plan actually in the long-term interest of the city? At Greater Greater Washington, a panel of writers and planners go back and forth on the virtues of demolition—and what might bring housing demand back to the city.

New knowledge

1. Via CityLab, Reid Ewing and colleagues at the University of Utah have used data from Raj Chetty’s Equality of Opportunity project to measure the effects of urban sprawl on intergenerational economic mobility. They find that upward mobility is significantly stronger in metropolitan areas that are less sprawling. As a region’s “compactness index” doubles, the chances of a child in the bottom quintile’s moving into the top quintile increase from 8 percent to 11.2 percent. Given that “perfect mobility” would be 20 percent, that’s a very meaningful effect.

2. The relationship between a piece of land’s “accessibility”—how quickly someone can get from there to valuable jobs and amenities—and its price is well known: better accessibility means more expensive land. But what’s less well known is howchanges in accessibility on a given piece of land affect its price. Michael Iacono and David Levinson of the University of Minnesota look into the issue, and find that there’s less of an effect than you might think, both for automobile and transit access. They argue that’s likely because American cities tend to have mature transportation networks, and so most new projects will only slightly change the accessibility calculus. For us, the takeaway is that a city’s most accessible areas today are likely to be its most accessible areas for some time to come—so if you want to increase the number of people in accessible locations, it may be most efficient to increase density there.

3. The Brookings Institution released a new Metro Monitor report on the economic status of America’s major metropolitan areas, breaking down progress on “Growth,” “Prosperity,” and “Inclusion.” There are some interesting regional patterns, such as how Texas cities score very high on “Growth” and “Prosperity” (which include metrics like total jobs and average wages) but more poorly on “Inclusion” (which includes metrics like median wages and the employment-population ratio).

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,, or on Twitter at @cityobs.

Land use and transportation infrastructure: Two sides of a coin

In the wake of our posts on the Katy Freeway in Houston, and US PIRG’s report on the country’s biggest highway construction boondoggles, we’ve heard one kind of pushback over and over. Sure, defenders of highway expansion admit, things are just as congested after reconstruction as before. But, hey, that’s a sign of success, because the suburban areas the highways serve saw a huge population boom! If it hadn’t been for the expansion, things would obviously be even worse.

We’ve heard this enough that we thought it merited one more short commentary on its own.

In short, these critics are forgetting that population growth doesn’t happen independently of transportation infrastructure—it’s profoundly shaped by it. In fact, research dating back at least to the 1950s has found over and over that highway construction in the urban periphery is associated with more housing construction there—and the depopulation or urban neighborhoods. It’s the land use side of induced demand: part of the way that highways fill themselves up with cars is by creating demand for housing near them.

So pretty, so much highway demand. Credit: r. nial bradshaw, Flickr
So pretty, so much highway demand. Credit: r. nial bradshaw, Flickr


In the absence of added highway capacity to the suburbs, more of that population growth likely would have been directed to more central locations—especially in a region, like Houston, with relatively lax restrictions on construction. That, in turn, would have reduced driving demand further out on the Katy.

It also would have helped reduce Houston’s dubious distinction the region with one of the longest average commutes in the country, at about 12 miles. Added density—not necessarily in the form of scary highrises, but human-scaled “missing middle” duplexes, townhomes, and small apartment buildings—would help free the region from the financially and environmentally unsustainable treadmill of expanding its automobile infrastructure, and support neighborhood retail districts, schools whose students can walk to class, and viable public transit service.

Of course, none of this is really specific to Houston. While many people talk about the relationship between transportation demand and transportation infrastructure as, so to speak, a one-way street (“more people are living way out in the exurbs, so we need to build more highways there”), the truth is that transportation infrastructure shapes its own demand as much as it is shaped by demand. More highways encourage low-density, auto-oriented development that then requires more automobile infrastructure; streets built for walking, biking, and transit encourage the kind of development that will take advantage of those ways of getting around (assuming, that is, that such development is legal), and create demand for more of them.

The difference is that high-capacity automobile infrastructure, on a per-person basis, is incredibly space-inefficient, expensive to both taxpayers and users, highly polluting, and dangerous. Not only do drivers not come close to paying the costs of building and maintaining highways, car-dependent development patterns impose huge social costs on the rest of us. Walking, biking, and transit infrastructure* generally do not.

* The one exception being that much rail infrastructure, in particular heavy rail subways, is very expensive in North America.

In some cities, the housing construction boom is starting to pay off

To some observers, planners’ promises that more housing supply will push down prices don’t seem to be working. In recent years, rents have jumped substantially, and it doesn’t seem like market forces are working to ameliorate this trend. Although the historical evidence linking faster housing construction growth and slower housing price growth is quite strong, it can often be difficult to convince people who don’t spend lots of time with regression printouts—that is, most people—of the relationship.

But there is good news on that front: rents in Seattle, Denver, and Washington, DC appear to be easing significantly. In what a local business paper describes as an “alarming deterioration”—though renters probably have different words for it—the average Seattle rent fell by $59 in the last quarter of 2015, following a long period of rapid increases. Not coincidentally, vacancies also increased by a full percentage point. The Puget Sound Business Journal reports that landlords have reason to worry that things aren’t going to get any “better” for them: another 21,600 units of housing under construction should hold down rent growth into the coming year, too.

It’s the same story in Denver. After a surge of new construction, vacancy rates shot up from 5 to 6.8 percent in the fourth quarter of 2015. As a result, median rents—which had grown by nearly $250 a month from the first to the third quarter of the year—fell by $7 in the last quarter.

Denver's getting a little more affordable. Credit: H. Michael Miley, Flickr
Denver’s getting a little more affordable. Credit: H. Michael Miley, Flickr


And in Washington, DC, real estate firm Yardi Matrix says that rent increases have been held in check for the past year by the large number of new apartments coming online—and expects the same pattern to hold for 2016.

In fact, this is a national story. Overall apartment construction, which has struggled to keep up with the growing demand for rental units, surged by over 20 percent in 2015—and rent growth slowed to 3.3 percent in December, and is projected by Zillow to fall to 1.1 percent by the end of 2016.

The growth of rents has fallen sharply.
The growth of rents has fallen sharply.


The examples of Seattle and Denver ought to be a model for other cities seeing a surge of central-city housing demand. There is an alternative to the never-ending upward prices of regions like the San Francisco Bay Area, and it involves allowing housing supply to meet demand.

A key issue here is what you might call the “temporal mismatch” between demand and supply.  Demand can change very quickly for a variety of reasons: growth in the local economy, popularity of a particular neighborhood, the unattractiveness or unaffordability of homeownership, demographic changes, and so on. But supply changes slowly, because it takes time for developers to recognize that demand has changed—and then it takes time to design, permit, and build new capacity. This is especially true in places with restrictive land use laws. But when supply eventually responds—as it has in several of these markets—rent increases moderate, and in some cases rents even decline.  

There are some other important lessons if you dig into the numbers a bit. As the Denver Post points out, the vast majority of new construction in that city, as elsewhere, has been at the high end of the market. As a result, vacancy rates are highest in more expensive neighborhoods. In part, this is just the nature of new construction: it generally costs much more money to build new than to maintain an older building, and so new construction will target relatively higher price points. In addition, the long buildup of higher-end demand in central cities gave developers a strong incentive to build to that market. As higher-end demand is better met and rents stabilize or fall, it may become more profitable for developers to target slightly less affluent parts of the market.

But this also shows the importance of allowing, and encouraging, low-construction-cost “missing middle” housing over broad swaths of a city. That’s the kind of development that’s most likely to be able to meet the housing needs of moderate-income households, without a subsidy—if not right away, then after it has downfiltered a bit.

But already, the power of increasing housing supply to halt rapidly rising rents is playing out in real time in cities across the country. That’s something to celebrate.

The Week Observed: January 22, 2016

What City Observatory did this week

1. Which federal agency has a big role to play in housing affordability? The answer might surprise you. The Federal Reserve has announced a plan to increase the interest rates it charges banks, putting the brakes on the economy in an attempt to hold back inflation. But it turns out that if you subtract housing, the Consumer Price Index is actually going down. People worried about inflation, then, should really be worried about the price of housing. Fortunately, the Fed could conceivably do something about that: by targeting its purchases of securities to construction loans and mortgages in multifamily housing, it could keep down interest rates in the housing sector and encourage more supply, helping to hold down the growth of rents.

2. For highway advocates, it’s about the journey, not the destination. Our earlier piece about the folly that was the expansion of the Katy Freeway in Houston got some pushback: If the government widened road, and congestion is even worse than before, doesn’t that mean that the road is really popular, and the project was a success? In short: no. When drivers don’t see the costs of their decision to drive—in the form of pollution, more deaths and injuries from crashes, more inefficient land use, and the extra congestion they impose on everyone else—more highways just mean more driving, and more costs. Moreover, if congestion is both a reason for expanding highways and a sign that such an expansion has been a success, then there will be no end to the highway-building—which is maybe the point.

3. Are jobs really returning to the city? We’ve long argued that the economic center of gravity of US metropolitan areas is shifting towards urban cores. Jed Kolko, formerly of Trulia, takes issue with that conclusion, however, and argues that the evidence for such a shift is much more ambiguous. We lay out exactly why we disagree: The shift appears to transcend economic cycles, is picking up steam in the most recent data, and the data that appears ambiguous to Kolko is based on county-level numbers that include both urban cores and far-away suburbs—a good reason for ambiguity if the goal is to understand how job growth is different in those two types of built environments.

4. Why not make housing assistance to the low-income as easy as assistance to the high-income? Recently, we argued that if we’re serious about addressing affordability, Housing Choice Vouchers could be made universal, available to everyone whose income qualifies them—as opposed to the current situation, in which limited funding means roughly three out of four people who qualify don’t get assistance. But there are problems with that plan, including the fact that in many places, finding landlords who accept vouchers can be difficult. So here’s another idea: A refundable housing tax credit. That both avoids the problem of landlord compliance, and helps model low-income subsidies on the things that make high-income subsidies—like the mortgage interest tax deduction—so popular: they’re easy, automatic, and universal.

The week’s must reads

1. Streetsblog NYC‘s Charles Komanoff savages a New York City report on the traffic impacts of new for-hire vehicles, like Uber or Lyft. As Streetsblog points out, the study isn’t actually based on the copious data available on such services, as well as regular taxis; instead, it’s based on interpolating “hypothetical 2010 and 2020 traffic estimates.” Those estimates conflict with other estimates made by outlets like the New York Times. And even the presentation of data seems designed to be opaque, as evidenced in the chart that Streetsblog highlighted below.

2. Next City published a feature on a topic that’s been dear to our hearts: “missing middle” housing, and its role in providing a diversity of human-scaled housing options to help create and maintain diverse neighborhoods. From townhomes to lowrise apartments, “missing middle” housing provides a way to gently add density that supports transit and walkable community shopping districts, as well as smaller units that are more affordable or accessible to lower-income people, singles, and the elderly.

3. On the heels of our stories about Houston’s Katy Freeway, US PIRG has released a study on the worst “highway boondoggles”: huge and expensive infrastructure projects that failed to succeed even on their own terms, reducing traffic congestion. In addition to the Katy, US PIRG’s list includes I-405 in LA, which was expanded at a cost of over $1 billion without reducing travel times, and US 101 in Silicon Valley. They cover well-established research about induced demand and the futility of fighting congestion with more and bigger roads, and point out the disjunction between the resources we spend on adding road capacity while skimping on maintenance for roads that already exist.

New knowledge

1. Researchers from Harvard and UC-Davis found a connection between air pollution and violent crime in Chicago by correlating incidents of crime on either side of major highways by which way the wind was blowing that day. They find that downwind areas—the ones receiving more highway-related pollution—saw 2.2 percent more violent crimes. While that may be a small (but statistically significant) effect, they’re also measuring small differences in pollution, suggesting that larger, more consistently elevated levels of pollution may have more substantial effects.

2. Via Streetsblog Chicago, the Center for Neighborhood Technology released areport and accompanying website on off-street parking in Washington, DC. CNT researchers looked at parking utilization at over 120 buildings to create a statistical model of where off-street parking—which, as in other cities, is generally required by DC’s zoning regulations—is most underused. On average, they found, parking is overbuilt by about 40 percent, representing a massive transfer of resources to subsidize car use. You can also see a similar site CNT made for Seattle.

3. A new study out of the University of Minnesota’s Institute on Metropolitan Opportunity finds that while there are some areas of the Twin Cities experiencing declining affordability and reductions in poverty, they’re in parts of town with already above-average incomes and housing prices. In contrast, lower-income areas that are often described in local media as gentrifying are mostly exhibiting “signs of decline,” including falling average incomes. Rather than gentrification, the study concludes that “a much greater danger is a growing gap between struggling and prosperous neighborhoods.”

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,, or on Twitter at @cityobs.

What is an “unequal” city?

Why does economic inequality—as opposed to just poverty—matter? There are a lot of reasons, but a big one is that higher levels of inequality make it harder to improve your economic position. As Federal Reserve Chair Janet Yellen has argued, the bigger the gap between rich and poor, the harder it is for the children of rich and poor to have equal opportunities to make their lives what they would like. So at the national level, more inequality means less economic mobility.

But at more local levels, the story is more complicated. The massive study on economic mobility carried out by Raj Chetty and his colleagues and released last year found that more unequal metropolitan areas were, in fact, worse for mobility.

The relationship between economic mobility and metro area (CZ) economic segregation. Credit: Chetty et al, "Where is the Land of Opportunity?"
The relationship between economic mobility and metro area (CZ) economic segregation. Credit: Chetty et al, “Where is the Land of Opportunity?”


But they also found that in more economically segregated metropolitan areas, low-income children were less likely to make it out of poverty. In part, that makes sense: in segregated regions, poor children are more likely to grow up in neighborhoods, or municipalities, with high concentrations of poverty—which in turn leaves fewer resources for the kinds of public and private amenities, from schools to stores, that help people improve their quality of life.  

What does that mean for inequality? Well, high levels of segregation are created by economically homogenous neighborhoods:  rich people live near other rich people, poor people live in neighborhoods of high poverty. In other words, more segregation equals more neighborhood-level equality. A wealthy suburb where everyone earns six figures is going to have very low levels of income inequality; ditto a neighborhood where almost everyone is economically struggling. In that sense, given high levels of regional inequality, sub-regional equality—in a neighborhood or municipality—isn’t really a good thing.

That’s an important caveat to coverage of urban inequality, like this one from Fast Company, covering a report from the Brookings Institution. At a national and regional level, high levels of inequality are very bad. But local policy is mostly made by municipalities at a sub-regional level. And the only way for municipalities to pursue more equality is, in effect, by pursuing economic segregation.

Boston, the city where Brookings reported inequality has grown the most. Credit: bill_comstock, Flickr
Boston, the city where Fast Company reported inequality has grown the most. Credit: bill_comstock, Flickr


As we’ve written before, this is admittedly counterintuitive. With most other national issues—poverty, say, or school segregation—we can take a problem we know to exist across the country and drill down to see which regions, cities, and neighborhoods are most badly affected. But doing the same with inequality ends up being quite misleading. It means something very different for a city or neighborhood to have a high 95/20 ratio than for the country as a whole. It would be a great thing for national inequality levels to fall; but does anyone think Chelsea in New York City would be a more “equal” place if its public housing residents were all removed, leaving only the wealthy and reducing its 95/20 ratio? Would it be unprogressive to create affordable housing in a place like Winnetka, Illinois, increasing local inequality thereby making it a place where both rich and poor could live?

This is not to dispute, as Brookings argues, that there are trade-offs: Low-income households in economically integrated neighborhoods—that is, neighborhoods with high levels of economic inequality—may face higher prices for some goods and services. But on net, there’s little evidence that they’d be better off if all the rich people decamped for some exclusionary community. (As they are, in fact, increasingly doing.) Ironically, then, if local officials want to fight national inequality, they ought to focus on creating integrated, affordable neighborhoods—even if that means those neighborhoods appear more “unequal.”

The market cap of cities

What are cities worth? More than big private companies, as it turns out: The value of housing in the nation’s 50 largest metropolitan areas ($22 trillion) is more than double the value of the stock of the nation’s 50 largest corporations ($8.8 trillion).

Market capitalization is a financial analysis term used to describe the current estimated total value of a private company based on its share price. It’s a good rough measure of what a company is worth, at least in the eyes of the market and investors. The market capitalization—or “market cap,” as it is commonly called—is computed as the current share price of a corporation multiplied by the total number of shares of stock outstanding. In theory, if you were to purchase every share of the company’s stock at today’s market price, you would own the entire company.

Checking up on your cities. Credit: OTA Photos, Flickr
Checking up on your cities. Credit: OTA Photos, Flickr


In roughly similar fashion, we can compute the market capitalization of cities—or at least of their housing stock. We start with Zillow’s estimate of the market value of owner-occupied housing in each of the nation’s largest metropolitan areas which is computed by estimating the current market price of each house in a metropolitan area, and sum that value over all of the owner occupied houses. We also estimate the value of rental housing. For rented units we use a commonly accepted technique of estimating current values based on the income generated from rent. (Americans paid about $535 billion in rent in 2015, according to data compiled by Zillow; we can use this data and some financial formula to estimate the value of rental housing. Details of this calculation are explained below.) Then we add together the value of all owner-occupied housing and the value of rental housing to compute the total market cap of housing in each metropolitan area in the US.

Together, the 50 largest publicly traded private corporations in the United States had a market capitalization of $8.8 trillion at the end of 2015. The total market value of housing in 2015 in the 50 largest metropolitan areas was $22 trillion. For reference, the gross domestic product—the total value of all goods and services produced in the US in 2015—was estimated at $18 trillion. It’s hard to find things measured in trillions of dollars, so we’ve juxtaposed GDP against the market cap of housing and businesses. Keep in mind that the GDP is a flow (trillions of dollars per year) while the value of corporations and housing is a stock (trillions of dollars in value at one-point in time).

The following table shows the market value of housing in each of the nation’s 50 largest metropolitan areas and the current market capitalization of the nation’s 50 largest publicly-traded private sector businesses.

For metro areas, the value of housing is divided into two components (owner-occupied housing) shaded blue, and rental housing (shaded orange).

The most valuable company is Apple, with a market cap of $541 billion; the most valuable metro area is New York, where the market value of owner-occupied and rental housing is $2.9 trillion—more than five times higher. The current market value of Apple is about the same as the current market value of housing in Seattle (the twelfth most valuable market on our list).

Some modest-sized metros have housing that’s worth as much as the entire value of some very well-known corporations: IBM’s market cap ($128 billion) is about equal to Indianapolis housing ($138 billion). Orlando’s housing ($208 billion) is valued at more than 25 percent over all of Disney ($164 billion). Three Seattle-based companies (Microsoft, at $418 billion; Amazon, at $285 billion; and Starbucks, at $84 billion) are worth more combined ($787 billion) than all the housing in Seattle (about $617 billion).

The differences are smaller at the bottom end of our two league tables. The fiftieth largest firm, the oil services company Schlumberger, is worth about $15 billion more than the fiftieth most valuable metro housing market, Buffalo: $82 billion versus $67 billion.

Buffalo! Credit: Zen Skillicorn, Flickr
Buffalo! Credit: Zen Skillicorn, Flickr


It may seem strange to compare the market value of houses with companies, but this exercise tells us more than you might think. Just as the share price of a corporation reflects an investor’s expectations about the current health and future prospects of a company, the price of housing in a metropolitan area also reflects consumer and homeowner attitudes about the quality of life and economic prospects of that metropolitan area. So, for example, as the price of oil has fallen, weakening growth prospects in the oil patch, it’s quickly translated into less demand and weaker pricing for homes in Houston. Just as stock market investors purchase and value stocks based on the expectation of income (dividends) and capital gains from their ultimate sale, so too do homeowners (and landlords)—they count on the value of housing services provided by their home as well as possible future capital gains should it appreciate.

In fact, these two commodities—housing and stocks—are among the most commonly held sources of wealth in the United States. And while the financial characteristics of the two investments are dramatically different the underlying principle is the same, making market cap is a useful common denominator for assessing the approximate economic importance of each entity.

Each day, the financial press reports the market’s assessment of the value of individual firms, through their stock prices. But viewed through a similar lens, the housing markets of the nation’s cities are by this financial yardstick an even bigger component of the nation’s economy.

Technical Notes

How we computed the value of rental housing. In real estate, the value of rental housing is usually estimated using a “cap rate” capitalization rate, that approximates the rate of return on capital that real estate investors expect from leasing out apartments. To estimate the current market value of apartments, we take Zillow’s estimate of the total amount of rent paid in each market and deduct 35% to estimate “net operating income”—the amount the investor receives after paying maintenance, other operating expenses, and taxes—and then we divide this number by a capitalization (cap) rate of 6%. Both of these figures (net operating income and capitalization rates) are rough estimates—values vary across different times of properties, different markets, and over time with financial conditions (such as with the change in market interest rates).

Many thanks to Zillow’s Chief Economist Svenja Gudell and Aaron Terrazas for doing the hard work here of estimating property values and rental payments. For more keen insights on housing markets, follow their work at Zillow’s Real Estate and Rental Trends blog.

For highway advocates, it’s about the journey, not the destination

Last month, we called out the American Highway User’s Alliance (AHUA) for trumpeting the Katy Freeway as a congestion-fighting success story. The Katy, as you will recall, is Houston’s 23-lane freeway, which was recently expanded at a cost of $2.8 billion.

Although the AHUA hailed that expansion in a report as the kind of project that cities could undertake to reduce traffic bottlenecks, after the freeway opened, congestion became even worse than before, according to traffic records compiled by Transtar. In just three years, peak hour travel times increased by more than 50 percent; a trip that had taken 42 minutes in 2011 took 64 minutes in 2014. We also pointed out that the images of the freeway produced by the Texas DOT and recycled by the US DOT, which portrayed the world’s widest freeway as a pedestrian-dominated greenspace, are a profoundly Orwellian greenwashing of auto-centric policies.

Let's take a walk!
Let’s take a walk!


Predictably, freeway apologists emerged. Houston blogger Tory Gattis maintains that the expansion of the Katy freeway was “not a mistake,” arguing that congestion just means that the government investment was being fully utilized. He added: “Just imagine how much worse it would be if we hadn’t widened to 23 lanes.”

That freeway moves way, way more people than it did before as well as offering the congestion tolled lanes which didn’t exist before. Bottom line: the government invested in a piece of infrastructure that has proven extremely popular and highly utilized—isn’t that what we want from government investments of tax dollars? [emphasis in original]

In short: not in this case. Why? Because, in a context where drivers are vastly undercharged for the costs of their automobile usage, drivers will tend to use their cars such that the total social costs of car use—most of which they don’t see—exceed the benefits. Building more freeways, and inducing more car demand, means digging further into that hole, exacerbating social problems like pollution, deaths and injuries from car crashes, and, yes, more total hours waiting in traffic.

And then there’s the counterfactual: what would have happened if Houston had not just not built the Katy Freeway, but perhaps had spent that same $3.2 billion on other investments, like better transit or denser housing? The evidence from cities that have torn out freeways is that reduced capacity reduces demand. And ultimately, transportation investments shape urban form, which in turn profoundly affects transportation demand. Houston has built a self-perpetuating auto-dependent growth model.

Gattis has constructed a kind of rhetorical perpetual motion machine for justifying highway construction. Step 1: Our highways are full and congested therefore we need to expand them. Step 2: The expansion generated more traffic, and the highways are full, therefore the expense was justified. Step 3: Repeat, infinitely.

A chief effect of the expansion of the Katy Freeway has been additional, sprawling low density development 30 miles east of Houston’s downtown—and trips from these suburbs have flooded the expanded Katy Freeway. With this kind of logic, it’s little surprise average commutes in Houston average commutes in Houston are 42 percent longer than in other large metro areas—ranking second only behind Atlanta, according to data compiled by the Brookings Institution.

Credit: Brookings Institution
Credit: Brookings Institution


This Sisyphean philosophy of transportation planning was perfectly—if unwittingly—captured in a recent Washington Post headline, from its traffic columnist, “Dr. Gridlock”:

Screen Shot 2016-01-19 at 11.18.20 AM

Maybe it’s just that highway engineers have their own perverse spin on that mantra that “It’s about the journey, not the destination”—especially when it comes to building more roads. The inevitability of induced demand in urban settings means that trying to reduce congestion by widening highways means you’ll end up chasing your tail, forever. Which to some is a feature, not a bug—if you’re in the asphalt or concrete business, or are a highway engineer, that’s not a bad thing—it’s a guarantee of lifetime full employment. So little wonder that the asphalt socialists are really indifferent to whether multi-billion dollar highway projects have any effect on congestion at all.

But for the rest of us this worldview is costly, unsustainable and undermines livability. When we prioritize “getting there” over “being there” we sacrifice the quality of urban space. As our friends at Strong Towns have pointed out, optimizing urban streets for auto traffic eviscerates walkable neighborhoods and main streets. The sprawl and decentralization produced by freeways hollows out urban space—each addition highway through urban center was associated with an 18 percent decline in city population—plus it’s an increasingly bankrupting the public sector.

Are jobs really returning to the city?

At City Observatory, we’ve cataloged a series of indicators that point to the the growing economic strength of city centers—including on the metric of job growth. But in a new blog post, Jed Kolko looks at county-level data for the past 15 years, and declares that city jobs aren’t really back, concluding: “It’s hard to make the case that economic activity has fundamentally become more urban.”

Are jobs coming back to downtowns like Austin's? Credit: Michael, Flickr
Are jobs coming back to downtowns like Austin’s? Credit: Michael, Flickr


As for evidence that job growth in urban counties has picked up since 2007, Kolko calls that a “cyclical,” rather than “structural,” trend—i.e., one that is inherently temporary.

Kolko uses county level data on employment focusing on the period from 2000 to 2015, classifying counties in large metropolitan areas as either urban (if they are the most populous or central county in the metropolitan area), higher-density suburban (not the most central, but still densely settled), lower density suburban (in a metro area, but lower density). He also presents data on smaller metropolitan areas, and non-metro areas, but we’re going to focus on patterns within large metro areas.

We have a huge amount of respect for Jed Kolko and his work. But on this point, we respectfully but firmly disagree on the interpretation. We look at the same data, and draw some different conclusions—here’s why:

Central counties are accelerating; suburban counties have decelerated

Job growth in central, urban counties is accelerating. Central counties are growing faster in the 2007-15 cycle than in the 2000-2007 cycle. All other counties are growing slower than in the earlier period. So, for example, central county growth accelerated from zero in the 2000-2007 period to approximately 0.4 percent in the 2007-15 period; meanwhile growth in suburban counties decelerated—slowing from 0.8 percent in 2000-07 to 0.4 percent in 2007-15 in higher density suburbs, and slowing from 2.0 percent to 0.7 percent in lower density suburbs. Dense central counties are growing faster than they were before 2007; suburbs are growing more slowly than they were before 2007. That’s evidence that job growth is becoming “more urban.”

Credit: Jed Kolko
Credit: Jed Kolko

We’ve had two economic cycles since 2000, and central counties are doing better in this second cycle

Kolko downplays the significance of these changes by saying that they are simply cyclical, and describes the entire period 2000 to 2015 as a singular cycle. But since 2000 there have been two macroeconomic cycles, not one. According to the National Bureau of Economic Research, there was a peak in 2000, a trough in 2001, another peak in 2007, and another trough in 2009 and we’re working towards another peak today. If we define a cycle as the time between two peaks, this 15-year period is very nearly two complete cycles. The key point is there have been two expansionary cycles in the last 15 years and the performance of central counties is very different in this most recent one. That suggests that this urban acceleration is actually its own phenomenon, and not simply a contractionary phase of a cycle whose growth favored the suburbs.

Even within the latest cycle, central counties are accelerating

Also, the within cycle pattern of change doesn’t square with this attempt to dismiss this as a cyclical change. Kolko’s argument is, implicitly, that the strength of cities was due to some temporary, special factors in the early post-2007 period. If that was the case, then one would expect the suburbs to reassert themselves as the cycle matured (and the the unchanged underlying structural advantages came into play). But Kolko’s evidence doesn’t square with that view: Central counties are performing better at the end of this cycle; if it were truly “cyclical,” then as the cycle progressed, you would expect suburbs to be erasing the difference. Instead, the pattern remains the same.

The other implication of the “no structural change” hypothesis is that Kolko expects growth trends to revert to the kind of housing bubble pattern of the 2000-2007 period. (Part of the reason suburban counties grew faster had to do with the growth of sprawling, single family subdivisions, and attending shopping centers and office parks.) There’s precious little evidence that those trends are re-asserting themselves.

The key point is that something very different is going on in the pattern of job growth within metropolitan areas in the period since 2007 than in the period prior to 2007. Kolko is essentially arguing that there’s no meaningful information to be extracted from subdividing that 15-year period into two segments—and that instead we need to look at the entire period as one trend. We disagree.

And finally, even if you regard 2000 to 2015 as a single cycle, there’s no reason to believe that the housing bubble was not the anomalous part. If you discount recent city growth using the cyclical argument, you’re suggesting that the 2000 to 2007 period was “normal,” and everything since then has been a temporary cyclical departure from that pattern. When this cycle is complete, and things return to “normal,” then we can expect the previous pattern to reassert itself. We don’t think so: the housing market continues to be weak, especially for the kind of sprawling, single-family development that propelled growth in the bubble.

County-based measures are crude and produce inaccurate comparisons

Finally, this is wonky, but it needs to be said: Counties are the wrong units for making these comparisons.Even “central” counties vary wildly from region to region in their size and centrality—and they often contain both urban and suburban areas. When they contain suburban areas, they’re often the kind of inner-ring suburbs that are seeing the worst economic performance. Central counties in some metros (Atlanta or Miami) are tiny (less than 10 percent of the MSA), while in other metros (San Jose, Phoenix, Jacksonville, or Austin), the central county makes up a majority or near-majority of the region’s economy. In some places, the central county includes a vibrant urban core and nearby neighborhoods, as well as declining older urban neighborhoods and industrial areas. A finer geographic parsing is needed to detect whether the urban core is growing.

Screen Shot 2016-01-20 at 11.43.51 AM


Both of these scenes show jobs in Cook County. Credit: Google Streetview
Both of these scenes show jobs in Cook County, IL. Credit: Google Streetview


For example, Chicago’s Loop and North Side could be gaining jobs like crazy (as they are) while suburban Cook County (especially the southern and western suburbs) could be losing jobs and population, and Kolko’s county level analysis would lump them together—missing or discounting the central job growth. Similarly, in the Seattle area, both Microsoft’s suburban Redmond campus and Amazon’s downtown South Lake Union headquarters are in the same county (King). Kolko’s county data simply doesn’t register where growth was happening in the Seattle area. The only way to determine whether centers are doing better than the rest of metro areas is to use a more geographically fine-grained measure than counties—which is something we did in our Surging City Center Jobs report.

So here are four takeaways:

  • Don’t rely only county based data to make comparisons or draw conclusions about the health of city center job growth.
  • Central counties are performing much more strongly in in the 2007-15 cycle than in the 2000-2007 cycle. Suburbs and smaller counties are performing worse than they did in the earlier cycle.
  • The change in performance between these two cycles is indicative of structural change in economic growth patterns within urban areas: central areas are getting more growth (due to the expansion of professional and personal services and knowledge industries in the core); peripheral areas are performing worse than they did, especially during the housing bubble because they’re not buoyed by housing and sprawl.
  • The within-cycle pattern of change (with central counties performing well late in the cycle) is consistent with the hypothesis that there has been a structural change in metropolitan employment growth patterns.

In a way this is a “half full, half empty” debate. Jed’s telling you the city center jobs glass is still half empty; we’re saying it’s half full—and that it was essentially empty in the last cycle (2000 to 2007). Not all job growth is happening in city centers—that’s not our point—but it seems clear that in this economic expansion, unlike the last one, large metro economies and central cities are leading the way. That’s an important development, in our view. Whether it continues and grows remains to be seen—and we look forward to exploring this question.

Which federal agency has a big role to play in housing affordability? The answer might surprise you

The big economic news of the past month was the Federal Reserve Board’s decision to begin raising interest rates after years of leaving them at near-zero levels. The first increase in the short-term interest rate the Fed charges banks will be one-quarter of one percent, but there’s an expectation that the Fed will continue to raise rates through the remainder of the year.

Shadow boxing at the Fed

The theory behind the Fed’s policy is that rate hikes are needed to normalize financial markets—it’s unusual for interest rates to hover near zero for so long—and to fend off the prospect of inflation. The Fed raises interest rates when it fears that inflation might be getting out of hand, and it wants to tamp it back down.

As we’ve argued before, this move isn’t doing cities any favors, as it’s likely to hold back economic growth before urban areas, like the rest of the country, have returned to the growth path they were on prior to the Great Recession. The timing and wisdom of this rate increase is very much in question. Never mind that there’s virtually no evidence of inflationary pressure in the economy today, nor has there been for decades. Many of the Fed’s officials came of professional age in the seventies, when inflation was a real concern, and like so many aging generals, they are still re-fighting the last war. As The Economist’s Ryan Avent observes, the economy has changed a lot since then, what with technology, globalization, the decline of unions, and a steady attenuation of wage and price expectations, but “The Fed seems not to realize that it is risking America’s recovery out of fear of an inflationary dynamic that it ruthlessly and utterly eliminated three decades ago.”

So what are the portents of inflation that worry the Fed? For most workers, wage increases have been negligible. Health care costs are subdued. Although macroeconomists generally discount food and fuel prices on account of their short-term volatility, sustained reduction in energy prices (i.e. oil costing something closer to $30 a barrel for a year or more, rather than the roughly $100 a barrel it has averaged for the past few years) can’t be erased from the inflation numbers.

As the Wall Street Journal’s Ben Leubsdorf points out, the only segment of the economy that’s exhibiting significant price increases is rental housing. But because shelter makes up a third of the consumer price index, the growth of housing prices is hiding weak growth in virtually all other sectors. In fact, if you exclude rents from the consumer price index, price levels are decreasing, not increasing. In other words, the Fed is taking steps to fight inflation when much of the economy is experiencing deflation.


The measure of rent in the consumer price index includes both the payments by renters, and an allowance for an equivalent cost for homeowners.* Over the past twelve months, rent is up 3.2 percent, faster than any other component of the consumer price index. In that same time, thanks to declining energy prices, the overall index is up only 0.5 percent.


Can the fed deal with rents directly?

The fact that rising rents are the chief contributor to price increases in the macro economy implies that the Fed’s monetary policy is problematic for a couple of reasons:

First, if, outside of housing, prices are falling, that suggests that it is premature for the Fed to raise interest rates. If the economy is in a deflationary condition, raising rates is likely to cut growth and possibly even drive the economy into recession. The turmoil in global financial markets in the past few weeks is evidence that many investors are uneasy about the health of the worldwide economy.

But second, if rising rents are the underlying inflation threat, then a very different policy response is called for. As we’ve noted at City Observatory, the reason for the big run up in rents has a lot to do with the nation’s shortage of cities, and of the shortage of multi-family rental housing, especially in walkable urban neighborhoods.. While there’s been a resurgence of construction of this kind of housing, in general, the supply response hasn’t been big enough, or fast enough, to blunt the rise in rents.

And here’s the interesting point: the Fed’s policies play a critical role in housing finance. The principal channel through which monetary policy works is by influencing economic activity in interest rate sectors of the economy. The way the Fed fought inflation in the sixties, seventies and eighties was by jacking up interest rates, choking off the flow of credit to the housing sector, and cooling off the economy. As Economist Ed Leamer summarized it provocatively: “housing is the business cycle.”

Interest rates for construction loans and for commercial real estate purchases strongly influence the feasibility of new investment in rental housing. If interest rates on these loans rise, fewer new apartments will get built, demand will continue to outstrip supply, and rents will likely be pushed up further. If the Fed is worried about inflation, maybe it needs to make sure we keep building more apartments.

A Modest Proposal

All this suggests that if the Fed takes its inflation-fighting mandate seriously, it might want to consider a sectorally targeted policy for multi-family housing. For example, if the Fed were to shift some of its purchases of securities to include a greater share of construction loans and mortgages on multifamily rental property, it could hold down growth in interest rates (or even drive rates down) in this sector, which would encourage more construction—adding to supply and helping to address inflation in the one sector where it seems to be a problem. And while the Fed seems concerned that its easy money policy may be prompting bubbles in other sectors, rising rents are a sign that more investment is needed in this sector to forestall the kind of supply constraints that fuel inflation.

The Fed is generally keen to deflect responsibility to Congress and the President for addressing what are referred to as “structural” problems in the economy. In general, the Federal Reserve also eschews sectoral interventions in the economy. But it’s not unprecedented. During the financial crisis in 2008, the Fed was instrumental in creating a number of special purpose financial facilities to help assure the liquidity of the banking industry—out of a concern that a structural implosion in this structure would cause serious damage the entire economy. To promote the economic recovery, the Fed later engaged in a program of “quantitative easing” buying up long term government bonds—and mortgage backed securities—to help hold down long term interest rates and buoy investment.

Of course, finance isn’t the only policy of importance here: cities have to zone land for apartments. But absent the ready availability of financing, new apartments won’t get built. And if long-term rates rise, that’s likely to reduce the number of new projects that go forward. So far, at least, mortgage rates have remained stable in spite of the first step in the Fed’s “normalization” process. But stay tuned.

Late last year, Jason Furman, the Chair of the White House Council of Economic Advisers gave a major speech connecting the dots between local zoning and problems of housing affordability and inequality.  The critical—but largely unnoticed role that rising rents are playing in inflation is another indicator of the growing economic importance of what happens in cities.  So perhaps it’s time for Janet Yellen and her colleagues at the Fed to take a closer look at what’s happening in the nation’s cities as they set monetary policy.

* Technical note: The shelter component of the consumer price index measures the increase in housing costs based on the current cost of occupancy. For renting households, this includes their rent. For homeowners, the Bureau of Labor Statistics calculates “owners equivalent rent”—the amount that homeowners would have to pay if they rented their homes, rather than owned them. Changes in the amount of this “imputed rent” are used to figure inflation in housing costs.

Why not make housing assistance to the low-income as easy as assistance to the high-income?

Earlier this month, we argued that Housing Choice Vouchers, also known as Section 8 vouchers, ought to be provided to every household with a qualifying income. The limited funding for vouchers today leaves millions of people—over three-quarters of those who qualify—without help when official public policy has declared that they need it. We also pointed out that we could pay for the entire voucher expansion—and dramatically increase housing assistance to middle-income homeowners—simply by ending one kind of housing subsidy, the mortgage interest tax deduction, to households making over $100,000 a year.

Screen Shot 2016-01-04 at 12.37.02 PM
We will never stop showing this chart.


But there are a number of tactical issues with this plan. For one, there’s the part where the federal government—the same one that has not been in a hurry to spend much money on social services for quite a while—decides to create a new entitlement worth tens of billions of dollars. More prosaically, there’s also the problem of finding landlords who actually accept vouchers. In most of the country, it’s perfectly legal not to, leading to situations where people wait years to get off the voucher waiting list, only to discover that they can’t actually find a place to use the voucher once they have it. And even where Section 8 discrimination has been outlawed, enforcement is, to put it lightly, lax.

But don’t worry, there’s another solution: refundable tax credits. In case you forgot, credits represent money that comes straight off your tax bill, while deductions (as in, the mortgage interest one) reduce the amount of your income that’s taxed. And a refundable tax credit means that if you owe less money in taxes than the credit is worth, the government actually writes you a check for the difference. Surprisingly enough, one of the most notable refundable tax credits—the Earned Income Tax Credit, or EITC, which basically supplements the income of low-income workers—enjoys ideologically broad support, from Milton Friedman to Bernie Sanders.

So what would our housing tax credit look like? Possibly, a lot like the EITC and Housing Choice Vouchers smushed together. Tenants would report their income and rent to the IRS as they did their taxes; those whose income fell below 50 percent of their area’s median income would qualify for refundable tax credits that made up the difference between 30 percent of their income and whatever their rent was, up to some predetermined fair market rent.

Of course, if we wanted to to take this opportunity to improve on the way vouchers currently work, we could do that, too. That might look like tweaking the “area” used to determine “Fair Market Rents,” moving perhaps from metropolitan regions to ZIP codes, or other smaller units that would allow vouchers to be more useful in higher-income, higher-opportunity neighborhoods; or acknowledging that the 30 percent ratio for housing costs doesn’t make sense for everyone; or whatever else.

One complication is that tenants would have to somehow verify their rents. But that wouldn’t have to be too hard—a copy of the lease, or some signed IRS-specific form, ought to be enough. It would, in any case, almost certainly be less of a hassle from the landlord’s perspective than participating in Section 8.

And the advantages are pretty big. For one, although money spent through tax preferences is every bit as real as money spent through programs like Section 8, tax credits are much easier to sell politically: They can, not untruthfully, be described as tax cuts, rather than new spending, even though functionally they are almost identical. Second, perhaps even more importantly, a refundable housing tax credit would require much less cooperation on the part of landlords. In fact, the rent verification system could be designed in such a way that landlords would never need to know up front whether their tenants intended to use the housing tax credit, any more than they currently know whether their tenants use the EITC. In that way, any apartment charging Fair Market Rent or less would be usable by housing tax credit recipients, vastly expanding housing options for low-income renters.

For example, these apartments. Credit: Michael Coghlan, Flickr
For example, these apartments. Credit: Michael Coghlan, Flickr


Lastly, a refundable housing tax credit should theoretically cost about as much as a straightforward voucher expansion, which the Congressional Budget Office pegged at $41 billion a year over ten years. And really, if you take away one thing from these posts, it’s that figure. While $41 billion isn’t overwhelming compared to the size of the federal budget—or even compared to what we already spend on housing subsidies to people who arguably don’t need them—its effects would dwarf the marquee affordable housing initiatives coming out of places like New York City and San Francisco. While local efforts to relieve the housing cost burdens of low-income residents are laudable, the scale of the problem in very high-demand regions is simply beyond the budgets of cities to deal with.

If we’re serious about closing the gap between market rents and what low-income people can afford, we have to be serious about the scale of the resources that need to be brought to bear. (We also need to be serious about making sure that gap isn’t larger than it needs to be by combating exclusionary zoning that’s designed to push market prices higher.) Making housing assistance an entitlement through either vouchers or a tax credit doesn’t have to be the only way we do it, but any other solution will have to be of a similar size.

The current voucher program is small-scale, stigmatized, and more complicated than it needs to be. It doesn’t reach all those in need, many landlords simply refuse to participate, and both tenants and landlords have to deal with a bureaucratic system to receive benefits. In contrast, the housing benefits we give to the middle-class and wealthy are large, normalized, and automatic: anyone who itemizes their income tax deductions receives the mortgage interest tax deduction. Maybe we should take advantage of the less burdensome way we dispense housing assistance to those who don’t really need it, and use the same method to provide housing assistance to all of those who really do.

Why can’t cheaply-built houses be an affordability solution in expensive cities?

You may be surprised to hear that condos, all else equal, are more expensive than houses. You should be, because it’s not true. But that didn’t deter Joel Kotkin, the one-man cottage industry of curious urban criticism, from claiming so from his perch at Chapman University. As SF Weekly dutifully reported, Kotkin and his colleagues have released a report that claims multifamily buildings—at least those over four stories or so—can’t be cheaper than single-family homes, because “higher density construction is far more expensive to build.”

As far as it goes, that’s a fair enough claim. Taller, bigger buildings need more elaborate foundations, bigger work crews, and expensive features like elevators, which all drive up the cost of construction per square foot.

And if we constructed buildings floating out in space, that might make condos more expensive. But down here on Earth, buildings are built on land. And land costs money.

Screenshot from, showing a chart from the Globe and Mail, his commentary and a quote from the article.
Screenshot from, showing a chart from the Globe and Mail, his commentary and a quote from the article.


And especially in high-demand housing markets, it’s land costs that make single-family homes so expensive. That’s because single-family homes have to absorb all of the price of the land they sit on in their own prices. If you build multiple homes on the same piece of land, then each of the homes only has to absorb a fraction of the land’s price.

That doesn’t just help to explain the difference in price between houses and condos. It helps explain the difference in price between single-family homes in different places.

Source: Redfin
Source: Redfin


Screen Shot 2016-01-13 at 9.18.28 AM
Source: Redfin


The first photo above is a house in San Francisco. It costs $899,000. The photo below it is of a house in Detroit. It costs $26,000. If you were to simply look at the structures—that is, if these buildings were floating out in space—then these prices would make no sense. But the San Francisco home is not that expensive because the building itself is so amazing, nor is the Detroit house so cheap because the building is so terrible. Rather, each reflects the demand for their locations: that is, the price of the land they sit on.

Land costs are also part of why yearning for the old days of moderate-cost bungalows is unproductive. A century ago, in most cities, it was possible to find relatively cheap land within commuting distance of downtown—partly because the invention of streetcars had just radically expanded the definition of “commuting distance”—so if you could build a house cheaply, you might end up with a relatively low-cost home. But as cities grow, and especially as their metropolitan economies grow, there’s more and more people competing for a fixed amount of land within easy commuting distance of job centers. As a result, the price of easily accessible locations—that is, land—increases substantially. At that point, it doesn’t really matter so much if you can build a home very cheaply, because the cost of the land it sits on will ensure that the total price of construction will be very high.

(Of course, in San Francisco, the supply of land for multi-family housing is further artificially constrained by zoning regulations. Because most of the city is zoned for very low-density use, the relatively few sites on which one is allowed to build new apartments or condominiums is very scarce and therefore very expensive.  Further constricting the number of places where multi-family housing could be built in San Francisco—as Kotkin suggests—would drive up the price of all housing, single family and multifamily, newly built or existing, even higher.

There are basically two ways to resolve this problem: Find cheaper land—that is, build out on the suburban periphery, pushing sprawl further away from the city center—or divide the cost of the land by more than one home.

The Week Observed: January 15, 2016

What City Observatory did this week

1. Bending the carbon curve in the wrong direction. After years in which Americans were driving less, cheap gas is helping to push those numbers back up—erasing a full sixth of the progress we had made against transportation-related greenhouse gas emissions. Unfortunately, we can’t expect that this backsliding will entirely disappear if and when gas prices go back up, either, as Americans are buying less fuel-efficient cars that will continue to be on the road for years to come.

2. Pulling it all together. We write a lot at City Observatory—nearly a post every weekday. We thought the new year was a good opportunity to pull back and ask what all this adds up to—in other words, what have we learned? We put together an outline of our work under four big headings: The growing economic importance of city centers; The shortage of cities; The need to rethink transportation policy; and The challenge of segregation, integration, and neighborhood change.

3. Why can’t cheaply-built houses be an affordability solution in expensive cities? Noted urban skeptic Joel Kotkin and his colleagues at Chapman University recently released a report arguing that, because per-unit construction costs rise rapidly in buildings above four or five stories, the real route to affordable housing must be through smaller single-family homes. We rejoin that this would only be true if homes weren’t built on land. But where land is involved, it is also a cost—and it explains why low-cost single-family homes in very expensive cities are basically an impossibility.

4. The many faces of exclusionary zoning. A new study, which we flagged in last week’s The Week Observed, looks at the relationship between particular kinds of land use regulation and economic segregation. They confirm that there is a connection, though they raise some questions about exactly what the mechanism is for the exclusion of the poor: traditional low-density zoning or arduous approval processes. (We argue both are almost certainly at play.) They also confirm something like the “prisoner’s dilemma of local planning” issue: the more land use is locally controlled, and the less state-level involvement, the worse the segregation.

The week’s must reads

1. The Knight Foundation has announced the 158 finalists for its Knight Cities Challenge, a competition to fund ideas that “help Knight cities to attract and retain talent, expand economic opportunity, and create and strengthen a culture of civic engagement. The finalists include turning neighborhood free libraries into wifi hotspots, creating “urban glens” in vacant lots, and “permit corps”: connecting city residents with student navigators of city regulations and codes.

2. For all the talk of growing suburban poverty, urban centers are still much poorer than the metropolitan periphery. But for those people who do find themselves in car-dependent suburbs with very low incomes, the consequences are serious. The Washington Post has a piece on what it’s like trying simply to live, apply for jobs, and work in a place where the cost of participating in society is the thousands of dollars needed to buy a car, insure it, maintain it, and keep it fueled. It’s a reminder that transit and walkable communities aren’t just environmentally friendly and (often) more pleasant: they’re crucial for low-income people, people with disabilities, or the elderly, who can’t or don’t drive.

3. We don’t generally include stories in The Week Observed as examples of whatnot to do, but this was so egregious we’re making an exception. Wake County, North Carolina’s Triangle Business Journal covers a proposed bus rapid transit project in that region—and then declares that “It’s a system that only works if [planning director] Maloney and team can get executives out of their BMWs and into the bus terminals.” To do that, they need “shiny, newer” buses that “look and feel different from what they perceive [transit] to be right now.” Allow us to say: pish posh, and wrong on both counts. A transit system can be highly successful without necessarily attracting the very wealthiest people; and plenty of transit systems have attracted executives, not with fancier buses but with service that rivals cars for travel time and reliability. No one ever added an hour to their commute each way because the bus got shinier.

New knowledge

1. CityLab flags a new neighborhood change study from Elizabeth Delmelle at the University of North Carolina at Charlotte. Delmelle looks at LA and Chicago in 1970, assigning every Census tract to one of five neighborhood typologies, and then checking back again in 2010 to see whether, and how, they’ve changed. The results dovetail in many ways with our own work, including Lost in Place, in that the study finds that “struggling” areas were much more likely to remain low-income than to transition up in a way that might be considered gentrification.

2. It can be hard explaining to non-urbanists why adding more parking is a bad thing. But Eric Jaffe at CityLab reports on a new study that provides a very good answer: because it causes people to drive more to use up the available parking. Researchers from the State Smart Transportation Initiative and the University of Connecticut provide the strongest evidence yet that lots of parking and lots of driving aren’t just related—the relationship is actually causal. Take, for example, the two charts below: the first one shows how increased parking supply predicts increased driving; the second tries to see how increased driving predicts increased parking supply. As you can see, the first correlation is much stronger than the second.

3. A new poll from Time Magazine looks at the true size of the “gig economy.”They find that 45 million people, or about 22 percent of the working age US population, have offered some kind of “gig” service—from driving, to handyman fixes, to food delivery, and so on. These Americans are also disproportionately male, non-white, young, and urban. About a third of those 45 million people rely on gigs for over 40 percent of their income. Time points out that the implications of these findings aren’t totally clear: while workers in this sector may enjoy more independence or schedule flexibility, they also lack many of the protections and benefits of full-time workers.

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,, or on Twitter at @cityobs.

Pulling it all together

At City Observatory, we post several new commentaries each week on a variety of urban themes, and aim to provide discrete, coherent analyses of specific questions, and contributing to the policy dialog about cities. At the start of a new year, we’d like to pull back a bit, and reflect on what we think we’ve learned, and how these varied pieces add up to a cohesive vision.

So what follows is not a manifesto, but more an outline of of the knowledge assembled in our work at City Observatory, since we started in October 2014. Here’s a list—not entirely exhaustive—of what we came up with, grouped into four big themes:

The growing economic importance of city centers

Credit: Jonathan Miske, Flickr
Credit: Jonathan Miske, Flickr


The demand for cities is rising.

Talented young people are increasingly choosing to live in urban centers.

People are increasingly seeking dense, diverse, interesting, transit-served, bikeable and walkable communities.

This is leading to a surge in city center jobs.

Cities are powering the nation’s economic growth in this cycle.

Cities are cleaner, greener, and safer than ever before.

The economic advantage of cities is growing in providing convenience and experiences.

The shortage of cities

We have a shortage of cities, the growing demand for city living is outstripping the supply of great urban spaces, which is producing higher housing costs.

Our land use planning systems, dominated by homevoters, make it too hard to build new housing, especially in the most desirable locations, driving up housing prices.

Hyper-local decision-making can shut out important voices and lead to more segregated cities.

We’ve effectively made the most desirable kinds of housing—dense, diverse mixed use neighborhoods with narrow streets, and a varied range of housing types—illegal.

Other prosperous countries with attractive cities have very different ways of zoning that allow more traditional urban neighborhoods.

The need to rethink transportation policy

Credit: Montgomery County Planning Commission, Flickr
Credit: Montgomery County Planning Commission, Flickr


The big subsidies to parking—socialism for car storage in the public right of way—undermines biking and walking and drives up the price of housing.

There’s no such thing as a free way—taxpayers subsidize car ownership significantly, causing people to drive much more than they would otherwise.

The engineering rules of thumb that are used to forecast traffic, set road widths, require parking are pseudo-science, with perverse effects on cities and humans.

The way we design our roads costs thousands of lives a year. It’s time for another road safety revolution.

When it comes to public transit, what matters is reliability and convenience—not whether it’s rail or bus.

Land use is as important to public transit as the actual transit infrastructure. It’s especially important to have destination density—of jobs, amenities, homes—near transit stations.

The challenge of segregation, integration, and neighborhood change

Economic segregation is growing, the rich and the poor live apart from one another in our cities, this is a product both of the secession of the rich, especially to exclusive suburban enclaves, and by the concentration of poverty.

Gentrification, though rare, is actually reducing economic segregation.

Poor households living in gentrifying neighborhoods are no more likely to move away than poor households in non-gentrifying neighborhoods and report higher incomes and greater satisfaction with their neighborhoods than those living in non-gentrifying neighborhoods.

Unless housing supply increases in high demand locations, rents and home values will rise, and the poor will be priced out of neighborhoods.

High-inequality neighborhoods actually reduce inequality at the city and metro level.

Obstructing new development, even new higher-income development, is a recipe for aggravating problems of affordability and displacement.

Policies that aim to put the burden of paying for affordable housing on developers are unlikely to work. Their margin is too small, and the incentive effects will lead to less housing being built.

The scale of public investment in affordable housing is dwarfed by the housing market—but we can do better.

In the coming year, we’ll look to dig deeper into each of these propositions, and add others to our list. If you take issue with the positions we’ve staked out here, can offer relevant evidence that confirms, denies or sharpens these propositions, or have other ideas that are candidates for this list let us know. We look forward to continuing this conversation in 2016.

The many faces of exclusionary zoning

What exactly is the relationship between land use regulations and economic segregation? Previous research has shown that places with more restrictive land use regulations have higher housing costs and are more segregated by race, but now a new study from UCLA aims to give more detailed answers.

The paper, by Michael Lens and Paavo Monkkonen, differs from previous research on the subject in that it doesn’t use a proxy for land use regulations, like observed density or government fragmentation, or an index that sums all the many different components of these regulations. Instead, Lens and Monkkonen test many different kinds of regulation to get a better sense of the “specific pathways through which land use regulations affect income segregation.”

Credit: Robert Couse-Baker
Credit: Robert Couse-Baker


To briefly summarize their analysis, Lens and Monkkonen make four important findings.

  1. Density restrictions—think minimum lot sizes—are associated with more segregation of the rich, though not the poor;
  2. More difficult building approval processes are associated with segregation of the poor.
  3. More fragmented local governments are associated with high overall levels of segregation.
  4. Greater state-level involvement in land use planning is associated with lower overall levels of segregation..

For us, there are at least two big takeaways. Though the authors claim their findings cast doubt on the widely believed connection between low-density zoning and segregation of the poor—the classic “exclusionary zoning” problem—we think it suggests something else. After all, exclusionary zoning works by preventing the construction of housing that might be more affordable to middle- or low-income people, like smaller houses or apartment buildings. Whether that’s done up front by explicitly banning those types of buildings (ie, low-density zoning) or more surreptitiously through an arduous approval process, the result—and the mechanism of exclusion—is the same.

So the issue is less that low-density zoning doesn’t matter for the segregation of the poor, and more that there are many different regulatory tools local governments can employ to get to exclusionary land use. If the way communities block low-income-friendly development is by smothering it in red tape, rather than openly disallowing it, it’s important to understand the distinction to combat it—but equally important to understand that the end result is the same.

We’re also concerned that the author’s methodology doesn’t capture the either-or nature of exclusionary zoning—that is, a community can use either low-density zoning or an onerous approval process to keep out the kinds of housing it doesn’t want. Because cities with very onerous approval processes may feel they are sufficiently protected against the poor without low-density zoning, they may not use it. As a result, the researchers would see a weaker relationship between low-density zoning and segregation, even though a real relationship does exist.

Second, the findings about the effects of the scale at which decisions are made—more hyper-local decision-making associated with more segregation, and more state-level involvement associated with less—confirm once more the important role of politics and democratic structures in the extent to which land use laws become harmful.

Although they often seem to have only a local interest, housing and transportation policies affect entire metropolitan regions, and sometimes beyond. Though it may seem that only the people near a proposed rail station, for example, should have a large say about whether and how it gets built, that rail station also means access—or not—to the people, resources, and jobs in the neighborhood for residents in many other communities. Similarly, the decision of whether to build more housing—particularly lower-cost housing—concerns not just the people who live near the proposed construction site, but everyone who might want to move into such a home—again, especially when moving there would provide access to valuable resources like high-performing schools or jobs. The finding that state policies help minimize the segregating effects of some kinds of land use regulation suggests that broader geographic units can help overcome some of the prisoner’s dilemma problems that plague hyperlocal decision-making.

Finally, we should note that while the authors claim that these findings suggest the economic desegregation would most easily be accomplished by introducing low-income housing into high-income neighborhoods, rather than vice versa, that seems to be a separate issue not directly addressed by their valuable work here—something the authors acknowledged in an email exchange.

There’s a tendency, in land use policy as elsewhere, to view land use regulation through a simple lens: “regulation” is either good or bad. But the Lens/Monkkonen paper helps illustrate that “regulation” is not a single thing, but made up of many distinct parts that can be applied by many different institutions. Excessive restrictions on density clearly aggravate economic segregation, but the extent to which they do so is strongly influenced by the scale at which they’re determined.

Bending the carbon curve in the wrong direction

Gas prices are down, driving is up, and so, too, is carbon pollution. In a little over a year, the US has given up about one-sixth of the progress it made in reducing transportation’s carbon footprint.

For more than a decade, America was making real progress in reducing is car dependence. The growth of driving slowed at the turn of the millennium, and declined from 2004 onward. The average American went from driving about 27.6 miles per day to driving just 25.7 miles per day—a nearly seven percent decline.

Demographic and technological factors played a role, but the big runup in gas prices—especially from 2004 to 2008, when gas broke through the $3/gallon and $4/gallon barriers—appeared to dramatically decrease the demand for driving.

But for more than a year now, gas prices have been ebbing downward. All told, they’ve fallen by nearly half, from $3.62 gallon in early 2014 to $1.92 gallon in most of the nation today.

Screen Shot 2016-01-08 at 3.25.36 PM

And as driving has gotten cheaper, Americans have begun driving more—a simple illustration of what economists call the “price elasticity of demand.” Monthly data on driving from the US Department of Transportation shows driving is up about nine tenths of a mile per person per day over the past year.

Screen Shot 2016-01-08 at 3.26.58 PM

Collectively, we’re driving more than 3.1 trillion miles per year, after holding the line just below three trillion for several years.* That added 100 billion miles of driving per year means more carbon pollution. At a fleet average of about 20 miles per gallon, this added driving implies about 5 billion gallons of additional gasoline and about 44 million tons of carbon emissions nationally. So far, this increased driving has erased about one-sixth of the progress the country made in reducing transportation related carbon emissions since 2008.

And we can’t expect that all these changes will disappear if, and when, gas prices increase again. Because cheap gas has also prompted Americans to buy less fuel efficient vehiclestoday’s prices will lock in lower levels of efficiency for more than a decade.

On top of that, the congressionally approved bailout of the bankrupt highway trust fund (largely paid for with a combination of raiding federal reserve bank balances and selling off the strategic petroleum reserve (at exactly the wrong time) have the effect of insulating highway users from the true costs of building and maintaining the roads they drive on.

Taken together, cheap gas, more driving, and dirtier, less efficient vehicles make a mockery of the high-minded rhetoric coming out of last month’s Paris accords on global warming. While we’ve nominally agreed to take long term steps to reduce our carbon emissions, when it comes to the economic signals that matter—the price we charge for gas and the billions of dollars of subsidies for car travel—we’re clearly bending the curve in the wrong direction. And that makes the ultimate objectives of avoiding climate change harder to achieve and far less likely.

* These calculations are based on the numbers reported in the U.S. Department of Transportation’s Traffic Volume Trends through October 2015. As Tony Dutzik of the Frontier Group reports, initial estimates from 2014 have been revised down, so we may expect a similar downward revision of the 2015 data. Still, the upward trend is evident even with the corrections.

The Week Observed: January 8, 2016

This week, Planetizen named City Observatory one of its 10 best urban websites of 2015, adding that “every single post is essential reading.” We’re extremely grateful for the recognition, and are excited about continuing our work into 2016! (Check out the other great websites Planetizen highlighted at the link, too!)

What City Observatory did this week

1. Make housing vouchers an entitlement—we can afford it. Unlike food stamps, which are available to everyone whose income qualifies them, there are 20 million Americans who qualify for direct federal housing assistance but don’t get it, largely because there simply isn’t enough funding. A new CBO report shows that we could give a housing voucher to every eligible family for about $41 billion a year—far less than the amount we spend subsidizing housing to households earning more than $100,000 through the mortgage interest tax deduction.

2. Houston has something to teach you about public transit. In 2015, Houston made two big transit moves: opening two new light rail lines and completely reorganizing its bus network to offer more reliable and useful lines. As of November, the most recent data available, the light rail lines had 185,000 rides—and the bus system had added 199,000. That’s all the more remarkable because the light rail extensions cost $1.4 billion and took the better part of a decade; the bus reorganization cost a tiny fraction of that to plan, is budget-neutral going forward, and took about a year to put in place. But this isn’t a bus v. rail story. So what is it?

3. The economic strength of American cities in four charts. American cities are increasingly central to the nation’s economy. How do we know? There’s a lot of evidence, but we pick out four big indicators: rising real estate values (“the Dow of cities”); the rent gradient; the walkability premium; and job growth. Below is a chart showing how the rent gradient—that is, the change in housing prices as you move from city centers to more outlying areas—has become dramatically steeper from 1980 to today, indicating increasing demand for inner-city housing.

The week’s must reads

1. Why don’t American cities build more public transit infrastructure? Part of the answer is that we get less bang for our buck than any other country in the world—and it’s not even close. John Ricco at Greater Greater Washington digs into the numbers a bit and runs through some of the theories about what makes American rail projects so expensive, from land acquisition costs to over-engineering. Below is a chart by Ricco, showing the per-kilometer cost of building subways in wealthy countries; the red bars are American projects.

2. Every year, Yonah Freemark at The Transport Politic previews the coming year’s transit projects. In 2016, American cities will see 245 miles of new fixed-guideway systems—more than triple the mileage of 2015. Also, be sure to check out Freemark’s “Transit Explorer” page, with interactive maps of all the new projects in his database.

3. CityLab makes a list of the urbanist terms it hopes are left in 2015. There are some obvious ones—”Uber for [x]”—and a few tweaks at the culture of trendy urban neighborhoods, and their love of everything “artisanal.” But there are some serious entries too: We found ourselves agreeing that the “tale of two cities” cliche often obscures more in conversations about inequality than it illuminates, hiding the many different kinds of people and neighborhoods represented by the terms “rich” and “poor” in every city. Another highlight: Time to end “wider roads = less traffic.”

New knowledge

1. A paper from Michael Lens and Paavo Monkkonen of UCLA adds to evidence thatland use regulations contribute to urban segregation. Lens and Monkkonen find a direct link between restrictive land use policies and higher levels of income segregation—in particular, the isolation of high-income households. In addition, more involvement in land use planning by states is associated with less segregation, and more fragmentation of land use planning by smaller municipalities is associated with more segregation—more evidence that shrinking the pool of people with a say in housing policy leads to more exclusionary policies.

2. Tony Dutzik of the Frontier Group analyzes newly released data on how much Americans are driving. In short: more. Vehicle miles traveled per capita increased by 0.5 percent in 2014 for the first time in a decade, and total VMT has nearly reached its all-time high from 2007. In slightly more encouraging news, the FTA’s numbers represent a downward revision from the first estimates, suggesting we might be able to expect a similar downward change to the initial 2015 numbers. But as we’ve written, as long as gas remains historically cheap, we should expect an increase in driving.

3. Evidence from Europe of the importance of neighborhood stigma: Researchers from Université-Paris Est and the Université de Bourgogne look at nearly 3,000 job applications for positions as cooks or waiters in the Paris area, and compare response rates to the residential location reported by the applicants. They find that holding other factors constant, “a good address can triple the chances of being invited to a job interview.”

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,, or on Twitter at @cityobs.

The economic strength of American cities in four charts

Cities are becoming more important to the economic health of the country. How do we know? We can boil the answer down to four charts, each of which plots a key indicator of urban economic strength.

1. The Dow of Cities

The market value of housing in urban centers is increasing much more rapidly than in more outlying areas, signalling the growing economic importance of central locations and urban living. Since 2000, according to calculations by Fitch Ratings, using data from the Case-Shiller Index, home prices in urban centers have increased 50 percent faster than in more peripheral locations. We call this the “Dow of Cities” because—like the Dow Jones Industrial Average—it signals the increasing value and success of cities.

Screenshot 2015-08-12 20.59.59

2. The Rent Gradient

The way housing prices change as you get further from a city’s downtown is called the “rent gradient.” Over the past four decades, the rent gradient has become much steeper—meaning people are willing to pay more of a premium to live in more central locations. Census data compiled by economists Lena Edlund, Cecilia Machado and Michaela Sviatchi show that this trend is particularly pronounced in the nation’s largest metro areas.



3. The Walkability Premium

A key feature of urbanism is walkability, and there’s a strong correlation between walkability—as measured by Walk Score—and increases in home values. Compelling evidence marshalled by Spencer Raskoff and Stan Humphries in their book Zillow Talk illustrates this trend. Over the past 14 years, the most walkable homes—those rated as “walker’s paradises” and “very walkable”—have consistently outperformed houses in lower-scoring, “somewhat walkable” and “car-dependent” neighborhoods. Although all types of homes saw value declines when the housing bubble burst, houses in walkable neighborhoods have recovered most, and fastest.

4. Job Growth in Large Metropolitan Areas

The success of cities is not just a local phenomenon—it has national implications. In this economic expansion—in the wake of the Great Recession—national job growth is being led by the rapid expansion of the nation’s largest metropolitan areas. According to Bureau of Labor Statistics data compiled by Oregon economist Josh Lehner, employment in the nation’s largest metro areas has increased three percent since 2007, compared to an increase of less than one percent percent in smaller metropolitan areas. Rural areas still have yet to recover their pre-recession levels of employment.


Taken together, these trends tell a compelling story about the economic importance of cities and large metropolitan areas. There’s a growing market demand for urban living. Americans are attaching an increasing value to living in cities, and especially in walkable neighborhoods. And the American economy is increasingly propelled by the success of large metropolitan areas anchored by strong central cities.

The primary implication of this work is that we need to capitalize on the economic power of cities. In addition, while rising prices signal a resurgence of city economic strength, they also pose an important public policy challenge: how to address housing affordability. In our view the underlying issue is what we’ve called a shortage of cities and we can best meet this challenge by improving cities everywhere and also by expanding the opportunities to live in cities by building more housing and doing a better job of helping low income households afford housing. On that front, the evidence points to a two-pronged approach. First, in regions where housing demand strongly outstrips supply, allowing more housing construction is crucial to reducing overall housing prices. Second, we need to dramatically increase direct housing assistance to low-income people who have trouble purchasing housing even in normal markets—for example, by making Housing Choice Vouchers an entitlement.

Make housing vouchers an entitlement—we can afford it

We could extend housing vouchers to every very-low-income household—and expand housing support to the middle class, too — if we were willing to take away just one of the big housing subsidies to people making over $100,000 a year.

But let’s back up.

Previously, we’ve made the case that the SNAP program, or food stamps, is a pretty good template for thinking about how to reform the way we do housing assistance. SNAP is available to everyone below a certain income threshold; if you apply and you qualify, you get money to buy food.

Housing is very different. There are a million different housing assistance programs, but all of them are quite limited in scope: if you apply and you qualify, you are simply one of many such people fighting over a much smaller number of vouchers or set-aside affordable units. In some cases, this makes housing assistance more like a lottery game than a social service, as when nearly 2,600 people applied for just 18 homes in San Francisco, 58,000 people applied for 105 homes in New York, or nearly 300,000 people were placed on the waitlist for a Chicago Housing Authority unit. Nationwide, about 20 million people qualify for housing assistance but don’t receive it.

You'll be waiting a long time for a public housing unit at this mixed-income development in Chicago. Credit: Google Maps
You’ll be waiting a long time for a public housing unit at this mixed-income development in Chicago. Credit: Google Maps


But how much would food-stampifying housing policy cost? Surely an unreasonable, pie-in-the-sky amount, right?

Well, fortunately for us, the Congressional Budget Office has already done the legwork to figure it out. In a study published in September, the CBO gamed out a large number of possible directions to take housing policy: bigger, smaller, budget-neutral tweaks, transfers from one program to another, and so on.

One of the options it analyzed was expanding the Housing Choice Voucher (also known as Section 8) program to everyone who qualifies—which, at the moment, is anyone whose income is below 50 percent of “AMI,” or the median income in their area. (In most metro areas, that puts the upper limit for a family of four at between $25,000 and $35,000). The CBO estimated such a policy would cost about $41 billion a year over the next ten years. A more modest approach, targeted to only the extremely low-income—those making less than 30 percent of their area’s median income—would cost about $29 billion a year.

That’s nothing to sneeze at. We already spend about $18 billion a year on Housing Choice Vouchers, so all told, an everyone-who-qualifies voucher program would cost $59 billion a year over the next ten years.

But it turns out there’s another housing program that’s already much bigger than that: the home mortgage interest tax deduction, which cost taxpayers $68 billion in 2014.

What do we get for the mortgage interest tax deduction? Not much, according to the best research available. The goal, ostensibly, is to promote homeownership. Whether or not that’s a good idea in itself—we’ve had our doubts—the fact is that the mortgage interest deduction isn’t actually effective at promoting homeownership. Why not? A big reason is that the vast, vast majority of its expenditures go to high-income households: after all, you only get it if you itemize your deductions, and you get more money for having a more expensive house. That means most of the money is going to people who would have plenty of resources to buy a home without the deduction. Instead, the evidence seems to suggest that one of the main effects of the deduction is to encourage wealthy people to buy bigger houses.

In contrast, when you give low-income people housing subsidies, they spend their extra money on things like better food, healthcare, and education—which directly improve their quality of life and help bring them out of poverty.

Screen Shot 2016-01-04 at 12.37.02 PM

As of 2012, 77 percent of the money we spent on the mortgage interest deduction went to households making over $100,000 a year, an income that would make you richer than four out of five Americans. It also happens that 77 percent of $68 billion, the total value of the mortgage interest tax deduction, is about $52 billion: in other words, enough to give a housing voucher to every single household that needed it, with about $10 billion to spare.

Such a surplus would even allow the federal government to increase the value of the mortgage interest tax deduction for people making under $100,000 a year—people for whom extra cash is much more likely to be the difference between buying a home and not. In fact, redirecting all the money left over after giving all qualifying households vouchers would allow us to increase the value of the mortgage interest deduction for people making less than $100,000 by more than 60 percent. (We’re far from the only people thinking about reforming the mortgage interest deduction, by the way. Representative Keith Ellison of Minnesota has submitted a bill that would convert the deduction into a 15 percent tax credit, available to people who don’t itemize their deductions, and reduce the maximum amount of home value that can be deducted from $1 million to $500,000. His bill would not redirect any money to Housing Choice Vouchers, however.)

Making this work for the broad majority of middle-class homeowners is also important, because the mortgage interest tax deduction is a super popular policy; as much as 90 percent of the electorate supports continuing it. Whether or not it’s the best use of housing policy dollars, getting rid of the deduction entirely is a nonstarter.

But why should it be impossible to give up housing subsidies for the richest fifth of the country in exchange for more homeownership support for the middle class and a guarantee of housing support for all very-low-income people?

Now, importantly, this would not mean the end of our housing problems. In many places, housing vouchers are only moderately useful in combating racial and economic segregation, both because landlords are able (legally or illegally) to discriminate against voucher holders, and because they won’t cover rents in extremely high-cost neighborhoods. Segregation would continue to put low-income people and people of color at disadvantages in terms of access to public resources and economic mobility.

Chicago's WBEZ found widespread evidence of open discrimination against voucher holders—despite such discrimination being illegal in Chicago.
Chicago’s WBEZ found widespread evidence of open discrimination against voucher holders—despite such discrimination being illegal in Chicago.


And in places with extreme housing shortages, prices have surpassed what even moderate-income and middle-class households can afford. While voucher eligibility cuts off at 50 percent of “area median income,” San Francisco recently announced it was building housing for people at 150 percent of AMI, or over $150,000 a year; Bill de Blasio’s big affordable housing program in New York City contains a large number of set-aside units for people making 120 percent of AMI, or about $90,000 a year there.

In these places—and similarly exclusionary neighborhoods and suburbs across the country—the need to pay for housing subsidies to the poor, the working class, and the middle and upper-middle class overwhelms any realistic funding source. More construction is needed to get prices down to a point where subsidies to lower-income people are sufficient, and middle-income households are able to afford housing largely on their own.

But despite these shortcomings, it’s hard to overstate just what a revolution in housing policy entitlement vouchers would be. Affordable housing is a national challenge, but in recent years, it has largely been up to local governments to tinker around the edges of overwhelming need—and even the most ambitious local governments simply don’t have the resources to do much more than tinker around the edges. San Francisco’s massive Proposition A, which voters approved in November, will bond $310 million for affordable housing—its own proponents decided their initial goal, $500 million, would strain the ability of the city to service the debt—which will likely result in less than a thousand net new units of affordable housing. In Chicago, the signature affordable housing policy of the last few years is supposed to create just 1,000 units of affordable housing, even as 300,000 people are on the waitlist for a public unit. In Austin, a community land trust was able to make national news while creating three affordable homes, with 25 more in the pipeline.

Local efforts to to provide housing relief to those who need it are necessary and important. But only the federal government has the resources to address the full scale of the issue. In fact, there is already at least one federal housing program that could be scaled up to take a massive bite out of the housing problem, relieving one of the most terrifying and dangerous consequences of poverty. We could pay for it simply by deciding that households that make more than $100,000, people whose income is above 80 percent of the country’s, don’t need housing subsidies. What kind of government turns down that deal?

Houston has something to teach you about public transit

Houston doesn’t have much of a reputation for public transit, although about 300,000 rides are taken on trains and buses in the region every weekday. Recently, though, the local transit agency, Metro, has been making some big moves.

First, the agency worked with transit consultant Jarrett Walker and a local team led by TEI to completely reimagine its bus network. Rather than a predominantly radial system, where most routes headed towards downtown, the new network relies on a grid of bus lines that come frequently enough for people to use for transfers. As a result, the bus system now helps people reach more varied destinations all over the metro area, not just those downtown—which is crucial in a region as decentralized as Houston’s. It also recognizes that in many cases, a smaller number of more frequent, show-up-and-go lines is superior to a larger number of routes that show up only once an hour, or not at all at off-peak times. Notably, the reorganization, which took effect in August, was designed to be budget-neutral.

Frequent (red) bus lines before the reorganization...
Frequent (red) bus lines before the reorganization…


...and after
…and after


Second, in May, Metro opened two new light rail services: the Green and Purple lines. Together, they run for almost 10 miles south and west of downtown, built at a cost of about $1.4 billion over six years. The rail lines are supposed to improve reliability and comfort over the older bus service, and catalyze economic redevelopment in the neighborhoods through which they pass.

A light rail train in Houston. Credit: wordjunky, Flickr
A light rail train in Houston. Credit: wordjunky, Flickr


How have Houstonians reacted to these projects?

Though bus ridership dipped briefly after the reorganization as riders learned their way around, by November, ridership had not only regained its previous levels but exceeded them by four percent. Walker, the consultant largely responsible for the redesign, estimates that ridership might increase by as much as 20 percent over two years. It’s obviously unclear whether that will happen, but a four percent jump over just two months is a pretty good start.

The Green and Purple lines, in contrast, are off to a slow start. In November, the most recent data available, they were averaging fewer than 7,000 rides per weekday combined. By contrast, the city’s first light rail line, the Red Line, carried almost 55,000 rides.

In fact, it turns out that the total monthly ridership of the Green and Purple lines combined is less than the growth in bus rides since the implementation of the new service pattern: about 185,000 rides on the light rail lines in November, compared with an increase of 199,000 rides on the bus network.

That’s pretty incredible, considering that the former cost $1.4 billion to plan and build over the better part of a decade, and the latter was designed and implemented in just a year for a tiny fraction of the cost—and is budget-neutral going forward, as opposed to the added operations cost of running the light rail lines.

It would be easy to take too much from this. In many cases, new light rail lines have in fact attracted significant ridership: Houston’s own Red Line, for example, or the Green Line in Minneapolis-St. Paul, which opened in 2014 and is already beating forecasts with over 40,000 rides a day. Where already high-ridership bus lines need added capacity or cities are looking to dramatically add density to the urban fabric, requiring high-capacity transit service, rail can and does play an essential role.

A Green Line train in Minneapolis. Credit: Michael Hicks, Flickr
A Green Line train in Minneapolis. Credit: Michael Hicks, Flickr


But as Jarrett Walker has argued, the real issue with transit is less about mode—bus or rail or ferry or helicopter—and more about service. Does the vehicle, whatever it is, come frequently and reliably so that you can show up to a stop and be sure you’ll be able to board soon? And does it actually provide a way to get to your destination in a reasonable amount of time? If yes, people will ride, whether the wheels are rubber or steel. If no, they won’t.

Nor is Houston’s experience exceptional. Last year, we found a national trend of better bus ridership where local transit agencies were improving service—and declines where service was deteriorating.

Ironically, in its article about the opening of the Green and Purple lines, the Houston Chronicle quoted a man who was excited about the trains because, he said, “You can’t trust the bus.” But it turns out that’s not a permanent condition. If you make the bus more trustworthy, riders will come. Resource-starved cities looking for ways to improve their bread-and-butter transit services, connecting residents to the people, jobs, and amenities they need, would do well to look at what’s happened in Houston.