The price of autonomous cars: why it matters

If you believe the soothsayers–including the CEO of Lyft–our cities will soon be home to swarms of autonomous vehicles that ferry us quietly, cleanly and safely to all of our urban destinations. The technology is developing–and rolling out–at a breakneck pace. Imagine some combination of Uber, electrically powered cars, and robotic control.  You’ll use your handheld device to summon a robotic vehicle to pick you up, then drop you off at your destination. Vast fleets of these vehicles will flow through city streets, meeting much of our transportation demand and reducing the ownership of private cars. Big players in the automobile and technology industries are making aggressive bets that this will happen.  But, the big question behind this, as we asked in part one of this series yesterday, is “how much will it cost?”

While the news that Uber is now street-testing self-driving cars in Pittsburgh–albeit with full time human supervisors–has heightened expectations that a massive deployment is just around the corner, some are still expressing doubts.  The Wall Street Journal points out that the initial deployment of autonomous vehicles may be restricted to well-mapped urban areas, slow speeds (under 25 miles per hour) and good weather conditions.  It could be twenty years before we have “go anywhere” autonomous vehicles.

And those looking forward and contemplating the widespread availability of self-driving cars are predicting everything from a new urban nirvana to a hellish exurban dystopia.  The optimists see a world where parking spaces  are beaten into plowshares, the carnage from car crashes is eliminated, where greenhouse gas emissions fall sharply and where the young, the old and the infirm, those who can’t drive have easy access to door-to-door transit. The pessimists visualize a kind of exurban dystopia with mass unemployment for those who now make their living driving vehicles, and where cheap and comfortable autonomous vehicles facilitate a new wave of population decentralization and sprawl.

To an economist, all of these projections hinge on a single fact about autonomous vehicles that we don’t yet know:  how much they will cost to operate.  If they’re cheap, they’ll be adopted more quickly and widely and have a much more disruptive effect.  If they’re more expensive than private cars or transit or biking or walking, they’ll be adopted more slowly, and probably have less impact on the transport system. (It’s worth noting that despite their notoriety, today’s Uber and Lyft ridesharing services have been used by less than 15 percent of the population).  Whether autonomous vehicles become commonplace–or dominant–or whether they remain a niche product, for a select segment of the population or some restricted geography, will depend on how much they cost.

As we reported yesterday, the consensus of estimates is that fleets of autonomous vehicles would likely cost between about 30 and 50 cents per mile to operate sometime in the next one to two decades. That’s potentially a good deal cheaper than the 50 to 85 cents average operating cost for a conventional privately owned vehicle.  All of these estimates assume that the hardware and software for navigation and vehicle control, including computers, sensors and communications, though expensive today, will decline in cost as the technology quickly matures. Some of those savings come from a combination of electric propulsion, and perhaps smaller, purpose built “pod” vehicles. But most of the savings comes from greater utilization. Privately owned cars, it is frequently noted generally sit idle 90 percent of the time. In theory, at least, fleets of autonomous vehicles would be more nearly in constant motion, taking up less space for storage, and doing more work.


Peak demand and surge pricing

A couple of things to keep in mind as we ponder the meaning of these estimates:  First, cost is not the same as price. While these figures represent what it might cost fleet owners to operate such vehicles, the prices they charge customers will likely be higher, both because they’ll want a profit, and because travel demand at some peak times (and locations) will exceed capacity.  

And that’s the big obstacle to realizing the theoretical higher utilization of autonomous vehicles. Demand for travel isn’t spread evenly throughout the day. Many more of us want to travel as certain times (especially early in the morning and late in the afternoon) and the presence of these peaks, as we all know, is the defining feature of our urban transportation problem. Whiz-bang technology or not, there simply won’t be enough autonomous vehicles to handle the demand at the peak hour, for two reasons:  first, fleet operators won’t want to own enough vehicles to meet the peak, as those vehicles would be idle all the rest of the time.  The second issue is what Jarrett Walker has called the “geometry” problem: there simply isn’t enough room on city streets and highways to accommodate all the potential peak travelers if they are each in a personal vehicle.  

Consider a practical example. One prominent study, by Columbia University’s Earth Institute, predicts that it would be possible to run autonomous vehicles in Manhattan for 40 cents per mile.  That’s far cheaper than current modes of travel–including taxi, ridesharing, private cars and even the subway or bus for trips of less than five miles–so it’s likely that many more people will want to take advantage of autonomous vehicles than there will be vehicles to accommodate them. So, at the peak, autonomous vehicles will undoubtedly charge a surge fare, just Uber and Lyft do now.

The competitive challenge to transit, especially off-peak

Most of the estimates presented here suggest fully autonomous vehicles will be cheaper than privately owned conventional vehicles.  It’s also likely that they may be less expensive than transit for many trips. In many cities the typical bus trip is only 2 or 3 miles in length; if the price of an autonomous vehicle is less than 50 cents per mile, the cost of such a trip (door-to-door, in an non-shared vehicle) will be less than the transit fare.  Autonomous vehicles could easily cannibalize much of the transit market, especially in off-peak hours.

And because they can charge fares much higher than costs at the peak, operators will likely discount off-peak fares to below cost.  That may mean at non-peak times, autonomous vehicles may be available to travelers at prices lower than the estimates shown here.  Simply put, as long as operators cover their variable costs–which are likely to be electricity and tires–they needn’t worry about covering their fixed costs (which can be paid for from peak period profits).

Behavioral effects of per-mile pricing

The silver lining here–if there is one–is that the kind of per mile pricing that fleet vendors are likely to employ for autonomous vehicle fleets will send much stronger signals to consumers about the effects of their travel decisions than our current mostly flat-rate travel pricing.  Today, most households own automobiles, and have pay the same level of fixed costs (car payments, insurance) whether they use their vehicle or not for an additional trip. Because the marginal cost of a trip is often perceived to be just the cost of fuel (perhaps 15-20 cents per mile), households use cars for trips that could easily be taken by other modes. That calculus changes  if each trip has a separate additional cost–and consumers are likely to alter their behavior accordingly. Per mile pricing will make travelers more aware–and likely more sensitive to–the tradeoffs of different modes and locations. The evidence from evaluations of car-sharing programs, like Zip-car, show that per mile pricing tends to lead many households to reduce the number of cars they own–or give up car ownership altogether.

The price of disruption

If these cost estimates are correction, and if autonomous cars are actually feasible any time soon, the lower cost of single occupancy vehicle travel and a different pricing scheme will likely trigger greater changes in travel behavior. At the same time, other institutions, like road-building agencies and transit providers may see a major disruption of their business models.  A move to electric cars threatens the principal revenue source of road-building agencies, the gas tax. And an overall decline in vehicle ownership coupled with more intense peak demand could be a state or city transportation department’s fiscal nightmare.  Whether that happens depends a lot on whether these forecasts of relatively inexpensive autonomous vehicles pan out.

How much will it cost?
How much will it cost–and who will end up paying?




How much will autonomous vehicles cost?

Everyone’s trying hard to imagine what a future full of autonomous cars might look like. Sure, there are big questions about whether a technology company or a conventional car company will succeed, whether the critical factor will be manufacturing prowess or software sophistication, and all manner of other technical details.

How much will it cost?
How much will it cost?


But for economists — and also for urbanists of all stripes — a very big question has to be:  How much will autonomous cars cost?  We’re going to tackle this important question in two parts.  Part one–today–assembles some of the estimates that have been made.  We’ll aim to ballpark the approximate cost per mile of autonomous vehicles.  In part two–tomorrow–we’ll consider what this range of estimates implies for the future of urban transportation, and for cities themselves, because transportation and urban form are so closely interrelated.

So here is a first preliminary list of some of the estimates of the cost per mile of operating autonomous vehicles.  We’ve reproduced data from a number of sources, including universities, manufacturers, and consulting firms. Its difficult to make direct comparisons between these estimates, because they not only employ different assumptions, but also forecast costs for different future years (with unstated assumptions about inflation). There’s some significant disagreement about the cost of operation of current vehicles, which range from 59 cents per mile to 84 cents per mile.  (For this commentary, we’ve assembled these estimates without undertaking our own analysis of their accuracy or reliability; we encourage interested readers to click through and read each of these studies and draw their own conclusions about their utility).

ford_av$1.00 per mile.
Ford (2016) thinks it can reduce the cost of highly automated vehicles to about $1.00 per mile, making them highly competitive with taxis which it estimates cost $6.00 per mile.
rmi_av_203551 cents per mile (2025), 33 cents per mile (2040)
Rocky Mountain Institute (2016) estimates that in 2018, autonomous vehicle costs will be roughly competitive with current vehicles (about 84 cents per mile), but will steadily decline, to 51 cents per mile by 2025 and 33 cents per mile by 2040.
morgan_stanley_share_owned50 cents per mile (2030).
Morgan Stanley (2016) estimates autonomous vehicles will cost about 50 cents per mile by 2030, compared to about 74 cents per mile for privately owned standard vehicles."

kpmg_201643 cents per mile.
KPMG (2016) estimates costs of 43 cents per mile total. It estimates current cars have variable costs of 21 cents per mile and fixed costs of 61 cents per mile for a total of 84 cents per mile. KPMG estimates new shared AVs would cost 17 cents per mile variable, and 26 cents per mile fixed (43 cents per mile total) with $25K car fully depreciated in 3 years being driven about 40K miles per year.
deloitte31 to 46 cents per mile.
Deloitte (2016) estimates costs of 46 cents to as little as 31 cents per mile for autonomous vehicles; the latter estimate corresponds to low speed purpose built pods.
barclays_201629 cents per mile (2040)
Barclay’s (2016) estimates the costs of autonomous vehicles at .29 per mile by 2040, compared to about 66 cents per mile for conventional, privately owned vehicles today.
earthinstitute_201315-41 cents per mile.
Columbia University Earth Institute (2013) estimates costs of autonomous vehicles would be about 41 cents per mile for full-sized vehicles and could be as little as 15 cents per mile for purpose-built low speed vehicles. This compares to costs of 59 to 75 cents per mile for conventional privately owned automobiles.

The estimates for future costs range from as much as a dollar per mile (Ford’s near term estimate of its cost of operation for what it refers to as “highly automated vehicles),” to an estimate of 15 cents per mile a decade or more from now for the operation of small purpose-built low-speed urban “pods”–like Google’s prototype autonomous vehicle.  Overall, the estimates imply that fleets of autonomous vehicles could be operated in US cities in the next decade or two for something between 30 and 50 cents per mile.

And, for a variety of reasons–which we’ll explore in more detail tomorrow–the deployment of autonomous vehicles is much more likely to occur in cities. The critical factor is that market demand will be strongest in cities. According to the Wall Street Journal, autonomous vehicles will initially  be restricted to low speeds, avoid bad weather and stay within carefully circumscribed territories (given the cost and complexity of constructing the detailed maps  autonomous vehicles to navigate streets), all factors that point to cities.

These estimates hinge on a number of important assumptions about operating costs. The highest estimates usually assume some form of automating something resembling existing vehicles; operating costs are assumed to be lower with electric propulsion and smaller vehicles. A key cost driver is vehicle utilization and lifetime; fleets of autonomous vehicles are assumed to be used much more intensively than today’s privately owned cars, with a big reduction in capital cost per mile traveled.

There are some other big assumptions about whole categories of costs, and the policy environment looking forward. Todd Litman raises the concern that autonomous vehicles will require relatively high expenditures for cleaning, maintenance and vandalism repair, as much as hundreds of dollars per week.  Its not clear that any of the estimates for the costs of operating electric vehicles include any kind of road user fee to replace gas tax revenues now paid by internal combustion powered vehicles.

Despite they uncertainties, the available estimates suggest that successful autonomous vehicles could be substantially cheaper than today’s cars. And if they’re available on-demand and a la carte–freeing users from the cost of ownership, parking, maintenance and insurance–this may engender large changes in consumer and travel behavior. Tomorrow, we’ll explore what these effects might be.


The Week Observed: September 30, 2016

What City Observatory did this week

1. Where are African-American entrepreneurs?  A new Census Bureau survey, undertaken in cooperation with the Kauffman Foundation provides a detailed demographic profile of the owners of the nation’s businesses. It reports that there are about 108,000 African-American owned businesses with paid employees (i.e., not counting self-employed entrepreneurs). We look at the distribution of African-American owned businesses in the fifty largest metropolitan areas, and find some surprising patterns.

2.  Counting people and cars with Placemeter.  We review our experiences using Placemeter—a web cam that when pointed at a road or sidewalk, counts the number of cars, bikes and pedestrians. Its an inexpensive and flexible technology that puts traffic counting within easy reach of businesses, individuals and neighborhood groups. This kind of “little data” can help democratize the planning process.

How much will it cost?
How much will it cost?

3.  How much will autonomous vehicles cost?  Its easy to be captivated by the fast pace of technological developments in autonomous vehicles. But the big question that economists—and urbanists—should be focusing on is: how much will these vehicles cost? We assemble some of the studies that have been made so far. They show that initially fleets of autonomous vehicles might cost about a dollar mile to operate. But, as the technology matures and the business scales up, costs are likely to fall.  Many estimates fall in the range of 30 to 40 cents per mile—well below the cost of today’s conventional, privately owned cars.

4.  The price of autonomous cars: Why it matters. Part 2 of our examination of the likely cost of autonomous vehicles examines the potential impacts of fleets of inexpensive AVs on the nation’s cities. At 30 to 40 cents per mile, AVs would be highly competitive not just with cars, but many transit trips as well. The key limiting factors will continue to be the highly peaked demand for urban transportation and the limited capacity of city streets. A la carte per mile pricing could make travelers more willing to consider alternate modes on a trip-by-trip basis, and may reduce car ownership. Fleets of autonomous vehicles may also disrupt the business models—and fiscal stability—of road-building and transit operating agencies.

This week’s must reads

1.  President Obama on zoning:  OK urban policy wonks, try to get accustomed, however briefly to the glare of the national media spotlight. On Monday, President Obama proclaimed himself a YIMBY (Yes in my backyard) as his administration weighed in on how local zoning decisions affect housing affordability.  The administration released a “toolkit” of policy ideas that will be very familiar to City Observatory readers, calling for fewer limitations on building more densely, as a way of lessening housing costs. Importantly, the toolkit calls for communities to consider eliminating minimum parking requirements.  To paraphrase Vice President Biden, this is a big deal.

Official portrait of President Barack Obama in the Oval Office, Dec. 6, 2012. (Official White House Photo by Pete Souza) This official White House photograph is being made available only for publication by news organizations and/or for personal use printing by the subject(s) of the photograph. The photograph may not be manipulated in any way and may not be used in commercial or political materials, advertisements, emails, products, promotions that in any way suggests approval or endorsement of the President, the First Family, or the White House.

2.  The high price of affordable housing.  One component of the solution to housing affordability is building more subsidized housing. But in practice the practical impact of subsidized units is limited due to very high construction costs.  In Portland, alt-weekly Willamette Week reports that the city is contracting with non-profits to rehab existing housing units at a cost more than double the per square foot cost of new construction. Private builders say the city fails to put much weight on cost-effectiveness and that it chooses “cool projects with lots of expensive bells and whistles.” The article estimates that if the city could reduce its costs of construction by even 10 percent, it could have built an additional 1,400 units of affordable housing in the past decade.

3. The mythology of HOT lanes.  The most widespread practical application of road-pricing is the growing implementation of high-occupancy toll lanes. At Streetsblog, Kevin Posey asks some hard questions as to whether HOT lanes are living up to the high policy expectations that have been set. He appraises the claims that HOT lanes reduce congestion in general purposes lanes, whether they overtax the capacity of high occupancy lanes, and whether they encourage (or discourage) transit and carpooling.


New knowledge

1.  The impact of carbon taxes.  Since 2008, British Columbia has had a real, live carbon tax. The tax has been gradually raised and now works out to about $30 per ton (rule of thumb: when it comes to carbon taxes, a dollar a ton works out to about 1 cent per gallon–when burned a gallon of gas produces about 20 pounds of carbon dioxide).  Werner Antweiler and Sumeet Gulati of the University of British Columbia explore how the carbon tax has influenced driving and vehicle purchases in the province. They find that the carbon tax has accounted for about half of the 15 percent decline in per capita gasoline consumption in BC since 2008, and is the product of both somewhat more efficient vehicles and less driving.

2.  Oil prices and housing markets.  A new working paper from the Federal Housing Finance Administration looks at how oil prices affect the pattern of home prices within metropolitan areas. Urban economists have long documented the presence of a “rent gradient”: home and land prices tend to decline as distance to the central business district increases. Using zip code level data on home prices, William Larson and Weihua Zhao show that as oil prices increase—increasing the cost of transportation—the rent gradient gets steeper (prices for homes closer to the center appreciate relative to more peripheral homes.

3.  Central neighborhood change.  Nathanial Baum-Snow and Daniel Hartley undertake an elaborate statistical decomposition of the factors driving population change in urban centers in a new working paper from the Federal Reserve Bank of Chicago. Looking at very small downtown core areas (a 2 kilometer/1.6 mile radius around the central business district), they look at who’s moving in and who’s moving out.  While population in these centers declined in the aggregate from 1980 to 2000, they rebounded sharply from 2000 to 2010, driven primarily by the in-migration of white, college-educated residents. Less educated minorities moved out of these neighborhoods throughout the entire 1980-2010 period.

Chart shows change in fraction of adults with a college degree, by distance (kilometers) from the center of the central business district, by decade.

The Week Observed: September 23, 2016

What City Observatory did this week

1. America’s most creative metros, ranked by Kickstarter campaigns. One of the most popular ways to raise funds for a new creative project–music, a video, an artistic endeavor, or even a clever new product–is Kickstarter. Website has created an impressive visualization of nearly 100,000 kickstarter campaigns. We use that data to rank US metros by number of kickstarter campaigns per capita. The unsurprising leaders: Austin, Portland and San Francisco. See how your city compares, and use Polygraph’s data visualization to identify the top indie entrepreneurs in your area.


2. Successful cities and the civic commons.  Cities are more than just collections of businesses, buildings and infrastructure:  the social fabric of cities–they way they enable us to easily connect with one another–is important both to their economic function and to the civic realm. As we pointed out in our report Lost in Place, in many ways the social fabric of cities has been stressed and torn by growing segregation and privatization of many parts of our lives, from travel to entertainment to leisure. But there are growing signs of a revival of investments in the public realm that try to strengthen the social and civic functions of cities. Knight Foundation and others have launched a new initiative to reimagine the civic commons, with targeted funding for five cities around the country.

3. Caught in the prisoner’s dilemma of local planning. While the principle of local control has a lot of political resonance and popular support, when it comes to meeting our housing challenges, in creates a terrible conundrum. While every neighborhood in a city or metropolitan area would benefit from more affordable housing if greater density were more widely allowed, each individual neighborhood is reluctant to be the first (or only) place that allows more density, for fear that it alone will bear the brunt of change. This prisoner’s dilemma dominates many local zoning fights and is very much in evidence as New York tries to implement its new mandatory inclusionary zoning program.

4. Lessons in supply and demand: Housing Market edition. We recognize that many people bristle at the mention of economic terminology, but in our view its hard to make sense of our current housing affordability problems without explicitly thinking about supply and demand. Specifically, the demand for urban living has increased rapidly, and continues to do so; meanwhile the supply of great urban neighborhoods–and housing in those neighborhoods–has grown only slowly. The inevitable result is higher rents. Tackling our “shortage of cities” is a fundamental challenge.

This week’s must reads

1. Another NYC Affordable Housing Project gets shot down. In New York City, a proposal to build 209 units of affordable housing in Queens in an area currently zoned for manufacturing has apparently died, due to opposition by the local city councilor. As we’ve noted, the Achilles heel of Mayor de Blasio’s mandatory inclusionary zoning program is the need for project-by-project up-zonings. So far, in both of the cases that have come forward, the up-zonings have provoked neighborhood outcry, and led local city councilors to oppose the project, which given the City Council’s deference to issues in member’s own districts, is the kiss of death. Yet more evidence that hyper-localism in decision-making makes it extraordinarily difficult to tackle housing affordability.

2. The Jane Jacobs Centennial. Writing at the New Yorker, Adam Gopnick uses his review of two recently published biographies of Jane Jacobs to assess her contribution to our understanding of cities. He argues that some of her insights haven’t weathered the test of time well, but in many ways, her work continues to be as fresh and provocative as when she wrote it. And in important ways its prescient about the situation we now find ourselves in, as Gopnick notes: “The new crisis is the ironic triumph of Jacobs’s essential insight. People want to live in cities, and when cities are safe people do. Those with more money get more city than those with less.”

3. Bonus Must Watch: City Observatory’s Daniel Kay Hertz on Chicago Newsroom. You’ve read his commentaries here on City Observatory, now you can watch him on video as well, discussing a range of issues from urban sprawl, to changing demographics, and even optimal bus-boarding process (the latter really get him going). A full hour of urban wonkiness.


New knowledge

1. How zoning has re-shaped American cities.  For decades, the conjecture among many academics was that zoning simply ratified the kinds of land use patterns that were already in place. But a new study of Chicago comparing land use patterns prior to the adoption of that city’s zoning code in 1923 with current development shows that zoning strongly influenced subsequent development. In a new NBER working paper, entitled Zoning and the Economic Geography of Cities, Allison Shertzer, Tate Tinam and Randall Walsh, examine parcel level data on land uses and market values from the 1920s and look to see how they are related to today’s development patterns. Their key findings: zoning does have an impact, and may be more influential in the location of different activities than either geography or transportation networks.  They also find that exclusive residential zoning tends to drive up home prices. In addition, zoning seems to have greatly reduced mixed use development: in 1922, 82 percent of the developed blocks in Chicago had at least some commercial activity.

2. How city center service-exporting businesses drive the UK economy. A new report  Trading places: Why firms locate where they do from the UK Centre for Cities looks at the location and growth of different industries. It divides businesses into those that export goods, those that export services and those that serve local demand. This is especially important for the service exporting sector which has powered the UK economy, as goods production as continued to decline. Fully 32 percent of Britain’s high-skilled jobs in service exports are located in city centers, more than double the proportion (14 percent) of all jobs. The report concludes with some pointed advice for new Prime Minister Theresa May: “The geography of Britain’s jobs and firms means that supporting growth in our cities will become increasingly important for improving the performance of the national economy.”

2. The 2016 Census Planning Database.  The Census Bureau has released its annual compendium of geographically detailed data on population demographics and housing designed for use by planning technicians. This isn’t new information per se (the most recent data is taken from the 5-year American Community Survey results from 2010-2014). What it does do is assemble this information in a form–with census tract and block group estimates, and with baseline comparisons for similar geographies to Census 2010.  Even by Census Bureau standards this is a giant mass of data; the national block group data is a 160 MB file.

The Week Observed: Sept. 16, 2016

What City Observatory did this week

1. Cities are powering the rebound in national income growth. There was great news in this week’s Census report: After years of stagnation, average household income saw its largest one-year gain on record (5.2 percent). But underlying that story was another one: household incomes in central cities surged even faster (7 percent), growth in suburbs was more middling (4 percent) and incomes in rural areas kept shrinking (by 2 percent). This isn’t just about “winners” and “losers,” though. The underlying force here is that cities are better than suburbs or the countryside at producing the goods and services that the current U.S. economy is best at. As much as we might want to turn rural areas into economic winners, we can’t.

2. McMansions: Fading away? A few months after one (bogus) trend story claimed that McMansions were back, there’s a new round of talk that McMansions are passe. It’s powered by a Trulia discovery that homes of 3,000 to 5,000 square feet, built between 2001 and 2007, don’t command the premiums they did in 2012. Nice to know, but it’s hardly surprising if people paying for flashily large homes prefer homes built to the latest fashions. A more fundamental factor, maybe: McMansions’ tendency to be far from urban activity, which commands more of a premium than it did before.

Photo: Dean Terry.

3. Inclusionary zoning: Don’t screw this up, Portland. As our hometown deals with the costs of a housing shortage, it’s likely headed toward a requirement that some new buildings offer a certain percentage of units to lower-income people at below-market rents. Unfortunately, IZ policies in other cities have failed to create meaningful numbers of low-cost units. The risk here is that even with countervailing incentives, rules like this will dampen new construction, especially of higher-density buildings. Our Joe Cortright argues that steps to minimize the potential damage of an IZ program should include a slow phase-in, a simple approval process and an initially low (but rising) fee on developers that opt out of on-site units.

4. Should parking prices reflect opportunity costs? Think of it as Uber’s “surge pricing,” but for parking: when a certain block or neighborhood is in high demand, meter rates rise to keep a few spots open at all times. That’s the techno-utopian dream of today’s parking reformers, but their supply-and-demand formula misses one key factor. What if a space has public value as something other than a parking space, like a bus lane or a parklet? There’s no simple market mechanism for setting the value of such amenities, so cities must ultimately try to find it themselves.

The week’s must reads

1. An overlooked metric: income volatility. Monthly income isn’t just annual income divided by 12 — and the difference is a major force in the lives of middle- and low-income Americans. Jonathan Morduch and Rachel Schneider tracked transactions by 200 households for a year and found that the typical household earning 36,000 a year will spend five making significantly more or less than $3,000. Since 92 percent of Americans say they prioritize financial stability over higher income, urban policies should take this volatility into account and look for ways to mitigate it.

2. Ford’s plan to reinvent mobility. After years of talking in theory, the country’s oldest major automaker is putting its cards on the table. Ford Motor Company will buy the 2-year-old private shuttle startup Chariot and partner with bike-share industry leader Motivate to create an online service called FordPass that will offer integrated private transit by shuttle and on 7,000 shared bicycles around the Bay Area. It plans to expand Chariot to five more cities in the next 18 months. “Sometimes the old technologies are best,” San Jose Mayor Sam Liccardo said at the announcement.

San Francisco Mayor Ed Lee, arriving at work by bike share. Photo: San Francisco Bicycle Coalition.

3. How Seattle killed microhousing. It’s rare to read a blow-by-blow explanation, complete with anecdotes, of a good municipal policy suffering the death of a thousand cuts. Architect and developer David Neiman tells the story of how this happened in Seattle. He begins with a young woman who most cities would love to have as a resident and shows how one decision after another made it impossible to build more of the sort of home that has made her life possible.

4. How about “Schools on Safe Routes” instead? Strong Towns’ Charles Marohn has a biting observation about the armies of advocates and pros working to retrofit biking and walking routes into school sites using “Safe Routes to Schools” funds: where were those people when new school locations were being determined? He’d rather see the “billions spent annually on new schools be spent in neighborhoods that are already safe for children, neighborhoods where children are actually located.”

New knowledge

1. How to make private transit work for the public interest. Cities and transit agencies have things that Uber, Chariot and other mobility startups want — like parking spaces and public right of way. They should use those to negotiate for things the public wants from private companies, like equitable coverage, open data and contracted services. A new report from Transit Center offers lessons for transit agencies on planning for a new multimodal age.

2. Pick your poison: sprawl, demolish or displace. An analysis of 60 years of U.S. housing outcomes by economist Issi Romem for the contractor service BuildZoom finds a classic “trilemma” for urban regions. They can accommodate growth by sprawling into rural areas; they can accommodate growth by allowing physical change to occupied areas; or they can minimize housing construction and watch home prices climb. (BuildZoom observes that since 1950, most metro areas have chosen either “sprawl” or “displace.”) Data and maps for 569 metro/micro areas are open and downloadable.

3. Race-neutral school admissions can lead to less gifted student bodies. When it scrapped its race-aware admissions process for a race-blind system in 2007, Chicago Public Schools also created a complicated workaround for preserving socioeconomic diversity without selecting for race. In a new National Bureau of Economic Research working paper, Economists Glenn Ellison and Parag Pathak analyze the new policy and conclude that it’s much less efficient: not only are fewer low-income students admitted, they’re less academically gifted than if race had been considered. The authors consider various alternative approaches.

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.

Lessons in Supply and Demand: Housing Market Edition


Its apparent to almost everyone that the US has a growing housing affordability problem. And its generating more public attention and public policy discussions. Recent proposals to address housing affordability in California by Governor Jerry Brown and in New York, by Mayor Bill de Blasio have stumbled in the face of local opposition. Its a delicate moment in housing policy debates.

So now we’re being told, by our very smart friends at the Sightline Institute, that we ought not to talk about urban housing problems using the terms “supply and demand.”  Excuse us if we politely, if firmly–and wonkily–choose to disagree.  Housing affordability problems, in Seattle, San Francisco, and just about everywhere have everything to do with supply and demand.

No escaping the laws of demand and supply.
No escaping the laws of demand and supply.


OK, sure:  for general audiences, saying supply and demand may cause some people’s eyes to glaze over, and for others, it may be taken as a sure sign that one has succumbed to a heartless neo-liberal paradigm.  For many people, we know, any mention of economics reminds them of a painfully unpleasant under-graduate course. And Sightline has prudent advice about how to talk about the problem in the media.  They say:

Avoid supply and demand language; opt instead for messages that describe the housing shortage, such as building enough homes and plenty of housing; and a range of housing choices

But for us at City Observatory, this is a teachable moment. The demand for cities and for great urban neighborhoods is exploding.  Americans of all ages, but especially well-educated young adults are increasingly choosing to live in cities.  And in the face of that demand, our ability to build more such neighborhoods and to expand housing in the ones that we already have is profoundly limited, both by the relative slowness of housing construction (relative to demand changes), and also because of misguided public policies that constrain our ability to build housing in the places where people most want to live, to the point in many communities, we’ve simply made it illegal to build the dense, mixed-use, walkable neighborhoods that widely regarded as the most desirable.

Our key urban problems–housing affordability, concentrated poverty, gentrification, long commutes–are all either directly caused or significantly worsened by this imbalance between housing supply and demand.  

But there’s a studied disbelief in many media outlets that market forces have anything to do with housing. NIMBY’s believe that blocking new construction will keep prices down, when the opposite is true.  As a result, we paradoxically pursue strategies that make housing affordability problems worse.

Two recent bits of evidence remind us that supply and demand are very much at work.  A terrific analysis, written by Financial Times reporter Robin Harding and echoed by Vox’s Matthew Yglesias shows how even in a big dense city, increasing supply to meet demand keeps prices in check. In Tokyo, one of the world’s largest and densest metropolises, housing prices have barely budged in the past two decades, because Japan makes it relatively easy to build new housing. Local jurisdictions and neighbors don’t have effective veto power over new development, so when demand increases, supply responds relatively rapidly, and as a result house prices remain much more affordable.

Closer to home, Yardi Matrix is a real estate data research firm tracks and regularly reports on changes in rents and housing occupancy in major markets around the nation.  They’ve noted nearly 300,000 new apartments will be completed this year. As a result, in many markets supply is finally catching up to demand, and rental price inflation is going down in places like San Francisco, Denver, Austin and Houston.  For example, after seeing double digit growth in rents for several years, rents in San Francisco are up just 3.5 percent in the last 12 months, according to Yardi. In some places, such as the oil patch, where demand has declined due to layoffs in the energy sector, rental prices have actually declined.

While these trends are hopeful signs, and while they clearly illustrate that the market forces of supply and demand are very much at work, there’s still much to be done to re-work our public policies to address affordability, urban livability and equity.  We don’t expect the demand for urban living to abate any time soon–in fact, there’s good reason to believe that it will continue to increase.  And it’s still the case that we have a raft of public policies – from restrictions on apartment construction and density, to limits on mixed use development, to onerous parking requirements, and discretionary, hyper-local approval processes – that make it hugely difficult to build new housing in the places where it’s most needed.

Many of the problems we encounter in the housing market are a product of self-inflicted wounds that are based on naive and contradictory ideas about how the world works.  We believe that housing should both be affordable and a great investment (which is an impossible contradiction), and we tend to think the laws of supply and demand somehow don’t apply to one of the biggest sectors of the economy (housing). At their root, our housing problems–and their solutions–are about understanding the economics at work here. So in our view, it’s definitely time to talk about supply and demand.

Kickstarting your local creative economy

One of the cleverest adaptations of web-technology is the development of crowd-sourced funding for new products and business ideas.  The biggest of these crowd-sourced funding platforms is Kickstarter, which since its launch in 2009, has generated funding for ideas like the pebble smartwatch, the “coolest” cooler and a revival of the Mystery Science Theater 3000 television series.  Most Kickstarter campaigns are for relatively small amounts, raising between $1,000 and $10,000 and are popular ways of raising funding for creative projects ranging from music albums and films to games and art.  Since its inception, Kickstarter has raised more than $2.6 billion for more than 112,000 projects.

The website has used data on the location and industry of Kickstarter campaigns to create a city by city, industry-by-industry visualization of these business plans.  Using data from more than 90,000 Kickstarters, their interactive infographics display the relative size of the campaign (based on money pledged to each project), and projects are color coded by industry (music, film and video, design, publishing, art, theater and games, among other categories).

In these diagrams, the overall size of each cities constellation of dots corresponds to the volume of funding raised via Kickstarter, and the size of each dot represents the value of pledges.  The concentration of colors of each diagram is indicative of the industrial focus of Kickstarter campaigns in that city. You can mouse over any dot on the diagram to see details on the particular project.


Not surprisingly, the nation’s largest metro areas (New York and Los Angeles) account for the largest number of Kickstarter campaigns.  New York has more than 11,000 Kickstarters; Los Angeles has more than 8,000. The campaigns in some cities are heavily skewed toward local industrial specializations–Nashville’s for example, consists mostly of music projects (the red dots in the chart above).  Its worth exploring the infographics for different cities to see the number and variety of projects funded in different locations.

At City Observatory, we focus on metropolitan areas, so we’ve tabulated’s Kickstarter data by metro area (aggregating multiple cities within a metro, such as Tempe and Scottsdale along with Phoenix, and Cambridge and Lawrence along with Boston).  To get an idea of the relative importance of Kickstarter to each metro economy, we’ve computed the number of Kickstarter campaigns in each metropolitan area per 10,000 population. As you can see, there’s wide variation among metropolitan areas.


Perhaps unsurprisingly, many of the usual suspects of the creative economy show up at the top of the chart. On a per capita basis, Austin, Portland and San Francisco have the highest number of Kickstarter campaigns, with between 80 and 100 campaigns per 100,000 population. Among metropolitan areas with one million or more population, the median metropolitan area has about 20 campaigns per 100,000 population. The metro areas with the fewest Kickstarter’s per capita include Riverside, Virginia Beach and Hartford, each of which have fewer than 8 campaigns per 100,000 population.

As the authors of the Polygraph visualization note, many of our conventional yardsticks for measuring the creative economy are dominated by data sources that capture large scale enterprises, but not grass roots and D-I-Y activities. Because Kickstarter has few barriers to entry, and is accessible even to individual artists, its one way to measure creative efforts that simply don’t show up in other sources. So have a look at the Kickstarter data for your city, to see how it stacks up.

Portland considers inclusionary zoning

What should cities do to tackle growing housing affordability problems? Is inclusionary zoning a good way to provide more affordable housing, or will it actually worsen the constrained housing supply that’s a big cause of higher rents?  

Will Portland build more? (Flickr: A. Davey)
Will Portland build more? (Flickr: A. Davey)


In the next few months, the city of Portland, Oregon will be considering the terms of a new inclusionary zoning (IZ) policy. Like similar policies in other cities, the Portland IZ proposal will likely require developers of new multi-family housing projects to set aside some portion of newly built units to be rented at a discount from market rates. Earlier this year, the Oregon Legislature repealed the state’s ban on inclusionary housing requirements. (Oregon and Texas were reportedly the only two states that explicitly prohibited mandatory inclusionary zoning).

On September 12, the Northwest Chapter of the Urban Land Institute held a forum to discuss inclusionary zoning.  I was one of the panelists speaking at this event:  here’s a quick synopsis of my remarks and some observations about the presentations and discussion.

First, despite the enthusiasm among legislators and housing advocates for inclusionary zoning, there’s precious little evidence that it’s had a meaningful impact on alleviating the shortage of affordable housing in major US cities.  As we’ve reported at City Observatory, at least to date, these programs have produced remarkably few units in some of the nation’s largest and strongest real estate markets.

The bigger concern about inclusionary zoning is that it tends to drive up the cost of building new housing, thereby restricting supply, and actually aggravating market-wide affordability problems.  While the comparative handful of new units set aside for low or moderate income households are visible, there is an invisible cost in the form of units not built, and consequently, higher market rents for everyone. Whether, and how much, inclusionary zoning drives up costs is a subject of intense debate.

Mike Wilkerson of ECONorthwest presented a summary of his firm’s recent analysis of inclusionary policies (commissioned by the Urban Land Institute). They constructed pro-forma financial assessments of several common housing types (three-story stacked flats, “four-over-one” podium apartments and concrete and steel apartment towers) and examined their financial feasibility under a range of assumptions about market rents, land costs, incentives (tax breaks and density bonuses), and set-aside levels. The full report is well worth a read–and we’ll explore it in detail in a future commentary.

In his remarks, Wilkerson used the ECONorthwest analysis to examine the likely impacts of the proposed inclusionary zoning in the Portland market.  Portland has experienced some of the fastest rental growth in the nation in the past year, especially in close-in urban neighborhoods.  A key takeaway from Wilkerson’s remarks:  inclusionary zoning requirements are likely to skew developer choices away from higher density construction (like apartment towers) and toward lower density development (stacked flats and podium development). The combination of higher construction costs and higher needed market rents for towers means meeting IZ requirements is disproportionately burdensome for  denser construction. This is especially important in Portland, and its downtown and central neighborhoods, where the city’s comprehensive plan envisions high rise density as key method for meeting expected population growth.  On its face, the ECONorthwest findings should give policymakers in Portland pause about moving forward with inclusionary zoning.

But there’s an additional wrinkle. As thoughtful and comprehensive as the ECONorthwest analysis is, it is still just one firm’s pro-forma model of development costs. And there’s a good deal of uncertainty about some key assumptions that necessarily drive this kind of analysis.  

The ECONorthwest study joins a growing body of research that attempts to model current development costs and the impacts of inclusionary (and other) requirements on the cost and likelihood of housing development. We profiled several of these at City Observatory in July. Each of these analyses represents a solid, fact-based effort, but they come to quite different conclusions about whether and under what circumstances inclusionary requirements are feasible. As a result, no one knows for sure what will happen when these policies are implemented.

Uncertainty is a big risk.

A big challenge with Portland’s proposed inclusionary zoning program is that no developer can know, with any certainty, how big a cost the inclusionary zoning requirements impose, or how easy or difficult will be the process to get development approved under the new rules. As experience with New York’s new mandatory inclusionary zoning has shown, the entire program can be tripped up in the project-level approval process. As a result, many developers are likely to take a wait-and-see attitude–to let others go first, and then make an investment decision when the costs and contours of the new system are better understood.  The effect is almost certain to be a fall off in housing investment. Moreover, this could happen even if the program itself is well-designed and has incentives and cost offsets that lower developer costs; until this is proven in practice, it’s likely to be a deterrent to investment. And paradoxically, because less new housing will be built, prices are likely to be higher than they otherwise would be–worsening the affordability problem (except for those fortunate enough to get reduced price apartment).

It may be that the city will decide that inclusionary zoning requirements are fundamentally at odds with its development objectives (higher density in the urban core) or judge them to be counterproductive to solving the affordability problem.  But if it does decide to go ahead with an inclusionary zoning ordinance, there are several design features that might minimize the risk of the potential negative effects of such a policy. First, it could consider a long phase-in of the inclusionary requirements, to give developers time to carefully study and fully understand the costs and implications of the policy, and the effects of its incentives. Second, the city could establish a simple and clear approval standards for inclusionary projects; discretionary approvals and complex review processes are likely to magnify uncertainty.  Third, at least initially, it should set a relatively low in lieu-fee for developers who want to opt-out of building inclusionary units on-site. The availability of the in-lieu fee gives developers financial certainty that they know the costs the ordinance imposes, and is therefore likely to lessen the chilling effect on investment associated with the uncertainty of a new program. The fee could escalate over time to increase the incentive to build housing on site, once the costs and effectiveness of the program are demonstrated.

As we’ve frequently said at City Observatory, the underlying problem of affordability in Portland (and around the country) stems from our shortage of cities.  Simply put, the demand for urban living is growing much faster that the supply of great urban spaces. This is a strong market signal that we need to be improving urban neighborhoods in more places, and building more housing in the places that are already in high demand. There’s growing evidence in many markets that the supply response–building more apartments–is beginning to blunt the rate of rent increases. The last thing any city concerned about affordability should do is get in the way of increasing housing supply.

A standard rule of medicine–which turns out to be good advice for public policy, as well–is “first, do no harm.” Portland’s City Council would be well advised as it considers an inclusionary zoning policy to design one that doesn’t, even inadvertently, sidetrack the current supply response in the housing market.

Cities are powering the rebound in national income growth

Behind the big headlines about an national income rebound: thriving city economies are the driver.

As economic headlines go, it was pretty dramatic and upbeat news:  The US recorded an 5.2 percent increase in real household incomes, not only the first increase  since 2007, but also the biggest one-year increase ever recorded. Its a signal that the national economy is finally recovering from the Great Recession (the worst and most prolonged economic downturn in eight decades).

Fittingly, The Wall Street Journal headline proclaimed the good news:


But dig deeper into the data, and there’s an even more interesting development: The big growth in US incomes was powered by the growth in incomes in cities.  The following chart shows the inflation-adjusted change in incomes between 2014 and 2015 for the nation’s cities, suburbs and rural areas.  The key numbers here are seven, four and two:  the average city household’s income grew seven percent, the average suburban household’s income grew four percent and the average rural household’s income declined by two percent. (NOTE: This two percent decline appears to be an error based on changed geographic definitions for what constitutes rural areas, see our comment below).  The more urban you were in 2015, the faster your income rose.


Source:  Census Bureau, Income and Poverty in the United States: 2015

For those who follow this data closely, this is yet another strong piece of evidence that the US national economy is being powered by what’s happening inside cities.  If the nation’s incomes had grown only as fast as those in rural and suburban areas, the national income increase would have been cut roughly in half, to an underwhelming 2.5 percent. The gain in city incomes hasn’t escaped the attention of other analysts. At Vox, Tim Lee flagged the disparity between city and suburban and rural income gains, summarizing it as “a fundamentally urban recovery.”

As we pointed out last year, urban centers are, for the first time in decades, gaining jobs faster than their surrounding peripheries.  Measured by job growth, large metropolitan areas–those with a million or more population–have grown much faster than smaller metros and rural areas. The shift to the center is also reflected in housing prices; homes in vibrant urban centers have registered significant increases relative to the price of suburban homes.

There’s an unfortunate tendency to portray this data in a “winners” and “losers” frame: Vox headlines its story as cities getting richer and rural areas getting left behind. But really what’s at work here is a fundamental shift in the forces that are propelling national economic growth. The kinds of industries that are growing today, in technology, software and a range of high value services, are industries that depend on the talent, density and vibrancy of city economies for their success. It’s not that we’ve somehow simply reallocated some activities that could just as easily occur in rural areas to cities; much of this growth is uniquely the product of urban economies.

A particularly misleading connotation of the word “recovery” is that it seems to suggest that in the wake of a recession, economies rebound simply by restoring exactly the kinds and patterns of jobs and industries they lost. What really happens is what Joseph Schumpeter famously called “creative destruction”: the economy grows by creating new ideas, jobs, and industries, often in new locations. As we shift increasingly to a knowledge-driven economy, that process is occurring most and fastest in the nation’s cities, where talented workers are choosing to live, and where businesses seeking to hire them are starting, moving and expanding.

This is not your father’s or your grandmother’s recovery. The US economy is changing in a fundamental way to be more urban-centered and urban-driven. Its an open question as to whether we’ll recognize that this is now the dynamic that drives the national economy, and fashion policies that capitalize on cities as a critical source of economic strength.

A few technical notes

The data for these estimates come from the Current Population Survey which is used to generate national estimates, rather than the more fine grained geographies reported in the American Community Survey. For its annual report on income and poverty, the Census Bureau provides only a limited geographic breakdown of income data. Specifically, they report the differences in income and poverty for metropolitan and non-metropolitan areas, and within metropolitan areas, the differences between “principal cities”–generally the largest and first named city in a metro area–and the remainder of the metropolitan area.  Although city boundaries are less than ideal for making geographic comparisons at the national level, it is a rough, first-order way of charting the different trajectories of cities and suburbs.

When the 2015 ACS data becomes available later this year, we and others will want to examine in more closely to better understand the broad trends from this week’s report.

UPDATE: September 19:  Census Report likely under-estimated rural income growth

The New York Times Upshot points out that the reported decline in incomes in rural areas is probably an error, due to the changing definition of what constitutes “rural” areas in the Current Population Survey.



Counting women entrepreneurs

Entrepreneurship is both a key driver of economic activity and an essential path to economic opportunity for millions of Americans. For much of our history, entrepreneurship has been dominated by men. But in recent decades, women have overcome many of the social and other obstacles entrepreneurship and as a result, the number of women active in starting and growing their own businesses has been increasing.

A new survey, conducted by the Census Bureau, in cooperation with the Ewing Marion Kauffman Foundation, provides a rich source of data about the economic contributions of women-owned businesses. The Annual Survey of Entrepreneurship is the first iteration of a survey that gathers data which asks detailed questions about key demographic characteristics of business owners, including gender, race and ethnicity, and veteran’s status. And unlike other business data, the entrepreneurship survey reports data by age of business, allowing us to examine separately the economic contributions of newly formed businesses.

The survey focuses on businesses with paid employees, and so generally excludes self-employed individuals working on their own. In 2014, the survey reports that there were more than 5.4 million businesses with a payroll in the United States. Of these, about 270,000 businesses were public corporations (or other business entities for which the gender or other demographic characteristics of owners could not be ascertained). These businesses employed almost 60 million workers (52 percent of total payroll employment).  The remaining 5.1 million firms with identifiable owners employed about 55 million workers.  The survey concludes that nearly 1.1 million businesses, or 20.4 percent of those with individually identifiable owners, were owned exclusively by women and employed about 8.5 million workers.  About 10.8 percent of these women-owned businesses had started in the past two years, compared to about 8.9 percent of all employer firms.  Women-owned businesses are found in all economic sectors, but are disproportionately represented in education, health and social services, where they comprise about 28 percent of all employer businesses.

The report also offers data on business ownership patterns for the 50 largest US metropolitan areas.   We thought it would be interesting to see how different areas ranked in terms of the share of all businesses with employment that were owned by women.

Here’s a listing of the number of women-owned businesses, the share of total businesses owned by women for these fifty metropolitan areas.


Among the cities with the highest proportions of women-owned businesses with a payroll are Denver, Atlanta and Baltimore, with nearly 1 in 4 businesses (for which demographic characteristics of owners could be identified) being owned by women.  The metropolitan areas with the lowest fraction of women-owned businesses include Salt Lake City, Memphis, and Birmingham, where only about 17-18 percent of businesses are owned by women.

When we map the fraction of women-owned businesses, some geographic patterns become apparent.  In general, the proportion of women businesses is higher in Western metropolitan areas, and in many Southern metropolitan areas, particularly in Florida, Texas and Georgia.  In the Northeast, Midwest and in much of the South, the share of women-owned businesses tends to be much smaller. Washington and Baltimore appear to be outliers in their geographic region, as do St. Louis and Kansas City. From Philadelphia to Boston, the Northeast corridor has below average shares of women-owned businesses.

In addition to identifying the gender of business owners, the survey also provides insight on other ownership characteristics, including race and ethnicity; we’ll examine some of these findings in a future commentary. The Census plans to conduct its new survey of entrepreneurs on an annual basis. This promises to be a useful was of benchmarking efforts to draw more Americans of every stripe into business ownership.

McMansions Fading Away?

Just a few months ago we were being tolderroneously, in our view–that the McMansion was making a big comeback. Then, last week, there were a wave of stories lamenting the declining value of McMansions. Bloomberg published: “McMansions define ugly in a new way: They’re a bad investment –Shoddy construction, ostentatious design—and low resale values.”  The Chicago Tribune chimed in “The McMansion’s day has come and gone.” Whither are these monster homes headed?

Even “Downton Abbey” is past its heyday (Highclere Castle)

First, as we’ve noted, its problematic to draw conclusions about the state of the McMansion business by looking at the share of newly built homes 4,000 feet or larger (one of the standard definitions of a McMansion). The problem is that in weak housing markets (such as what we’ve been experiencing for the better part of a decade in the wake of the collapse of the housing bubble) the demand for small homes falls far more than the demand for large, expensive ones. So the share of big homes increases (as does the measured median size of new homes). And indeed, that’s exactly what happened post–2007: the number of new smaller homes fell by 60 percent, while the number of new McMansions fell by only 43 percent, so the big homes were a bigger share (of a much smaller housing market).  Several otherwise quite numerate reports gullibly treated this increased market share as evidence of a rebound in the McMansion market; it isn’t.

We proposed a McMansion-per-millionaire measure as a better way of gauging the demand for these structures, and showed that the ratio of big new houses to multi-millionaire households did indeed peak in 2002, and has  failed to recover since. We built about 16 McMansion per 1,000 multi-millionaires in 2002, and only about 5 in 2014.

Another way of assessing the market demand for behemoth homes is by looking at the prices they command in the market. What triggered these recent downbeat stories about McMansions was an analysis entitled “Are McMansions Falling out of favor” by Trulia’s Ralph McLaughlin, looking at the comparative price trajectories of 3,000 to 5,000 square foot  homes built between 2001 and 2007 and all other homes in each metropolitan area.  McLaughlin found that since 2012, the premium that buyers paid for these big houses fell pretty sharply in most major metropolitan markets around the country.  Overall, the big house premium fell from about 137 percent in 2012 to 118 percent this year.


In a way, this shouldn’t be too surprising. Part of the luster of a McMansion is not just its size, but its newness. Like new cars, McMansions may have their highest value when they leave the showroom (or the “Street of Dreams” moves on). According to the Chicago Tribune’s reporting on this story, apparently today’s McMansion buyer wants dark floors, gray walls, and white kitchen cabinets, very different materials and color schemes than last decade’s big houses. As they age, we would expect all vintage 2005 houses to depreciate, relative to the market. This gradual decline in value is essential to the process of filtering–housing becomes more affordable as it ages. (And at some point, usually many decades later, when the surviving old homes acquire the cachet of “historical” — they may begin appreciating again, relative to the rest of the housing stock).

There’s another factor working against the McMansion, in our view. In general, these large homes have generally been built on the periphery of the metropolitan area, in suburban or exurban greenfields. As we’ve shown, the growing demand for walkability and urban amenities has meant an increase in prices for more central housing relative to more distant locations. Its likely that this trend is also hastening the erosion of the big house premium.

Finally, there is a financial angle here, too. McMansions were at the apex of the housing price appreciation frenzy of the bubble years. You took the sizable appreciation in your previous house, and rolled it over into an even larger house–hoping to reap further gains when it appreciated. The move-up and trade-up demand that fueled McMansion demand has mostly evaporated. Despite gains in recent months, nominal home values in most markets haven’t recovered to pre-recession levels, and adjusted for inflation, many home owners have yet to see a gain on their real estate investment. According to Zillow, the effective negative equity rate (homeowners who have less than 20 percent equity in their homes) was 35 percent.

There will always be people with more money than taste, so there will always be a market for McMansions (or whatever fashion they might evolve into next). But many of the market factors that combined to boost their fortunes a decade ago have changed. Consumers now know that home prices won’t increase without fail and the interest in ex-urban living has waned. Homeownership overall is down, and much of the growth in homeownership will be among older adults (who probably won’t be up-sizing).

Where are African-American entrepreneurs?

Entrepreneurship is both a key driver of economic activity and an essential path to economic opportunity for millions of Americans. Historically, discrimination and lower levels of wealth and income have been barriers to entrepreneurship by African-Americans, but that’s begun to change. According to newly released data from the Census Bureau, its now estimated that there are more than 108,000 African-American owned businesses with a payroll in the U.S.

The new survey, conducted by the Census Bureau, in cooperation with the Ewing Marion Kauffman Foundation, provides a rich source of data about the economic contributions of African-American-owned businesses. Called the Annual Survey of Entrepreneurship, this is the first iteration of a survey that gathers data which asks detailed questions about key demographic characteristics of business owners, including gender, race and ethnicity, and veteran’s status. And unlike other business data, the entrepreneurship survey reports data by age of business, allowing us to examine separately the economic contributions of newly formed businesses.

The survey focuses on businesses with paid employees, and so generally excludes self-employed individuals working on their own. In 2014, the survey reports that there were more than 5.4 million businesses with a payroll in the United States. Of these, about 270,000 businesses were public corporations (or other business entities for which the gender or other demographic characteristics of owners could not be ascertained). These large corporate businesses employed almost 60 million workers (52 percent of total payroll employment).  The remaining 5.1 million firms with identifiable owners employed about 55 million workers.

The survey concludes that about 108,000 businesses, or roughly two percent of those businesses with individually identifiable owners, were owned exclusively by African-Americans. Together these businesses employed more than 1 million workers nationally.  On average, African-American owned businesses are younger than other businesses; about 14.1 percent of these African-American-owned businesses had started in the past two years, compared to about 8.9 percent of all employer firms. Africanowned businesses are found in all economic sectors, but are disproportionately represented in  health and social services.  About 28 percent of African-American owned businesses are engaged in health and social services, compared to about 12 percent of all individually owned businesses.

The report also offers data on business ownership patterns for the 50 largest US metropolitan areas.   We thought it would be interesting to see how different areas ranked in terms of the share of all businesses with employment that were owned by African-Americans.

Here’s a listing of the number of African-American owned businesses per 1,000 African-Americans in the population in each of the fifty largest US metropolitan areas. Think of this as an indicator of the likelihood that an African-American owns a business with a payroll in each of these places. Overall, about three in one thousand African-Americans in these fifty large metropolitan areas own a business.

Among the cities with the highest proportions of business owners among the African-American population are San Jose, St. Louis, Denver and Seattle. Each of these cities has about six or seven African-American entrepreneurs per 1,000 African-American residents. San Jose is famously the capital of Silicon Valley, which may explain why such a relatively high fraction of its African-American residents own businesses with a payroll. In contrast, Louisville, Buffalo, Memphis and Cleveland have much lower rates of African-American entrepreneurship, each of these metro areas has fewer than two African-American entrepreneurs per 1,000 African-American residents.

Another way to think about this data is to compare the share of the population in each metropolitan area that is African American with the share of entrepreneurs who are African American. The following chart shows this information. As one would expect, as the share of the African-American population increases, so too does the fraction of entrepreneurs who are African-American. There are some clear outliers. As shown on the chart, St. Louis has somewhat more African-American entrepreneurs than one would expect, given the size of is African-American population, and conversely, New Orleans has fewer. But on average, entrepreneurship is much less common among African-Americans than the overall population, in every metro area. On average, the share of the African-Americans who are entrepreneurs is about one-fifth their share of the population of a given metropolitan area.

In a previous post, we examined the geography of women-owned businesses.   The Census plans to conduct its new survey of entrepreneurs on an annual basis. This promises to be a useful was of benchmarking efforts to draw more Americans of every stripe into business ownership.

The Week Observed: Sept. 9, 2016

What City Observatory did this week

1. Counting Women Entrepreneurs.  The Census Bureau has just released the results of its new survey of entrepreneurs, and we report its key findings on the extent and geography of women-owned businesses.  There are more than 1.1 million women-owned businesses with more than 5 million employees; about one in five businesses is now headed by a woman owner.  Female-headed businesses are still more common in the West and in some Southern cities than in the Northeast and Midwest.

2.  Back to School:  Three charts that make the case for cities.  Recognizing that students may not be the only one’s who may have taken a summer break, City Observatory offers a quick refresher on the economic case for urbanism. It comes in the form of three charts that show the growing importance of walkability to commercial land values, the key role that transit access places in promoting residential values, and more data that show the movement of young adults to city centers.  These three charts underscore the economic momentum behind the move to cities.


3.  Why the median rent is a misleading indicator of housing affordability. Its pretty standard practice to use median rent (or housing prices) to compare the affordability of housing in different locations.  But this misses the key fact that while some cities and neighborhoods have a wide variety of housing, others are much more homogenous. It turns out that having more variety generally means greater affordability. We show how to use data on the 25th percentile of rents as an alternative measure of affordability.

The week’s must reads

1. Welcome to Uberville. Are transportation  transportation network companies (aka ride-sharing) the solution to transit’s last mile problem or an existential threat to public transit service? Altamonte Springs, Florida, a suburb of Orlando has formed a partnership with Uber and is subsidizing some trips. At The Verge, Spencer Woodman examines how this new public private arrangement is playing out, and what it might mean for other communities.

2. Parking reform hits bureaucratic resistance in Seattle.  Parking requirements have increasingly been identified as a key contributor to rising rents and fights over neighborhood parking impacts are a key objection to higher density. As part of its housing affordability “grand bargain,” Seattle endorsed the establishment of parking benefit districts, which would establish pay parking in some areas and return a portion of the net revenues to local neighborhoods. The idea is to promote more efficient use of on-street parking, and buffer local residents from the impact of pay parking. Pilot implementation of the idea has been stymied by bureaucratic opposition from the city’s transportation department. Sightline Institute’s Alan Durning describes the controversy and offers up a  point-by-point rebuttal of the objections that the agency has raised to the parking benefit district plans.

3.  The geography of poverty in Boston. Concentrated poverty amplifies all of the negative effects of poverty on the well-being and economic opportunities of the poor. The Boston Globe explores how the location of public housing and the allocation of Section 8 housing vouchers actually reinforces the segregation of the poor. More than two-thirds of public housing and vouchers go to house families in neighborhoods classified as “low” or “very low” opportunity areas. The opposition to a more balanced distribution of affordable housing is a key factor in perpetuating these historic patterns. The Globe story is a terrific combination of data-based reporting, first-hand accounts of how a better neighborhood can change a family’s opportunities, and insights into the seemingly insurmountable obstacles that reluctant jurisdictions can employ to block affordable housing.


New knowledge


1. Forty years of zip code level home price data. The Federal Housing Finance Agency has posted four decades worth of zip code level data on housing prices.  FHFA has calculated a quality-adjusted, repeat-sales home price index for 1975 through 2015. The data also include an interactive map that allows quick comparisons of home price changes. This map shows changes since 2000, with the biggest increases colored red. Dark green represents the biggest declines.


2. The Transport DataBook.  Yonah Freemark of Transport Politic has compiled an impressive list of trend and ranking data for urban transportation. You’ll find data and clearly presented charts on vehicle miles traveled, modes of travel, transit ridership, operations and finances. Yonah regularly updates these charts as new data becomes available.

3.  Where the kids are.  Chicago public radio station WBEZ has taken block-level Census data and used it to identify the pattern of households with and without children under 18.  You’ll see a recurring pattern here:  households without children (light blue dots) tend to predominate in city centers; households with children (yellow dots) are disproportionately in less central locations.  You can zoom to any location in the country.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.

Transatlantic advice on city development strategies

We’ve all been paying a lot more attention to developments in Britain since June’s Brexit vote. As we noted at the time, some of the same kinds of political divides that play out in America—between globally-integrated, knowledge driven cities and more rural areas that are older, less-educated—also happen in Britain. (Population density helps explain the red blue division in the US and the leave/remain divide in England.)

A city across the pond (Flickr: Salerie)
A city across the pond (Flickr: Salerie)

The UK’s Centre for Cities, a London based think tank studies many of the same issues on the other side of the Atlantic that we find so interesting at City Observatory. We were particularly struck by one of their recent reports looking at economic development strategies for cities. Much of what is said in this report could be said with equal force — if in slightly different English — for cities in the U.S.

Paul Swinney and Elli Thomas of the Centre have written a strongly historically grounded description of urban economies, entitled A Century of Cities: Urban Economic Change Since 1911. Looking at economic trends over the past 100 years, they draw a stark contrast between cities that were dominated by mass production, and which have clung to older manufacturing industries, and those cities that embraced services and build a knowledge economy.

In Britain, this plays out as a North/South divide. London and other smaller cities in the South, like Reading and Brighton, developed a strong service sector and thriving new industries. The North the Midlands and Wales, all clung to manufacturing, and relatively low skill jobs like call centers and distribution. Not only did incomes in the South outpace those in the rest of the country, so did job creation: For every job created in the North, Midlands and Wales, 2.3 jobs were created in the South.

Swinney and Thomas offer sharp and clear policy advice. Three takeaways from their report make every but as much sense on this side of the Atlantic as in the UK. From their report:

  1. Improving the skills of the workforce. Knowledge businesses require high skilled workers. The ease with which they can recruit these workers is a key determinant of where they locate.
  1. Supporting innovation. High-skilled workers don’t just work anywhere – they cluster in successful cities. This is because a worker isn’t more productive just because of the qualifications that he or she holds, but also because of the workers he or she works with and the institutions that he or she works in. The ‘knowledge networks’ that workers are part of are place specific, and cities need to be able to facilitate innovation and the creation of new ideas via their knowledge networks to increase long-run productivity.
  1. Dealing with the scars of industrial legacy. The 21st century economy requires less employment space – an office has a smaller footprint than a factory. And this employment space tends to be in a different part of the city – jobs in our most successful cities have been concentrating in their city centres. This shift has left large swathes of empty land and buildings in some cities, so encouraging density of employment should be done alongside dealing with land remediation.

All three of these points mirror analyses we’ve done here at City Observatory. Businesses are increasingly choosing locations based on worker availability, and, for the first time in decades, jobs in city centers are growing as fast or faster in than the suburbs.

The critical factor is a city’s ability to reinvent itself and its economy in the face of major technological or economic changes. In many ways the argument made here is similar to one that Harvard’s Ed Glaeser has made about New York and Boston compared to other rust-belt cities in the US. Places that embraced trade and openness and had a well-educated population have been much more successful in adapting to industrial change than more insular, less-educated places.

Or, more simply put: Nostalgia is not an economic strategy. Economies don’t go backwards, and efforts to forestall, or reverse fundamental economic changes are usually costly and ineffective. The challenge of economic strategy is to plan for the kind of economy we’re likely to have in the future, not pine for the restoration often-imaginary glory of an economy past.

And that, in a way, is a sub-text of the Brexit vote: a majority of voters, dismayed with the changes wrought by globalization and epitomized by the European Union, and with their patience worn thin by the lingering effects of the worst economic downturn in eight decades, not surprisingly voted for the past. Meanwhile, the young, the best-educated, and those living in cities voted to remain, and move forward. The question of whether we go forward, or try to go back, is one that is equally relevant on both sides of the Atlantic.


The Week Observed: Sept. 2, 2016

What City Observatory did this week

1. Which cities and metros shop most at small retail firms? A new “big data” set from the JPMorganChase Institute offers some answers. It uses 16 billion transactions from the bank’s customers in 15 metro areas to estimate the share of retail spending that goes to businesses of different sizes — as defined by the share of the local market they control in their product category. Since developers and politicians often speak of the value of small businesses, we mined the data to find out which metro areas spend more of their money at small firms. In a separate finding, the Institute itself found that residents of urban centers spend more at small businesses than residents of suburbs.

2. The variable value of walkability. Living in a walkable neighborhood is more prized in some cities than others. A new Redfin study found that each point on a house’s Walk Score adds $4,000 to its value in San Francisco, Washington or Los Angeles, but only $100 to $200 in Orange County or Phoenix. We’ve got qualms about the analysis (it didn’t control for the fact that walkable neighborhoods also tend to be closer to downtowns) but it adds nuance to the truth that people place value on proximity.

3. The politics of grand housing bargains. Interested in housing politics but lost track of the details of New York City’s affordability battle? We’ve got the one-pager for you, including a brief summary of Mayor Bill de Blasio’s two-pronged attack on high rents; a short update on the zoning battles since his bills passed; and some lessons for similar bargains in other cities. Here’s one: it can be helpful to bundle low-payoff, high-visibility affordability measures with high-payoff, low-visibility ones.

4. British lessons for American cities. Two months after Brexit, we look at a recent report from the UK think tank Centre for Cities, “A Century of Cities: Urban Economic Change Since 1911.” Stateside readers will find a useful mirror of the U.S. experience. Cities with high-skill workers have thrived, while those that remained dependent on physical work have not. For every job created in the industrial North, Midlands and Wales, 2.3 jobs were created in the services-dominated South. Even in the world’s first superpower, nostalgia is not a valid economic strategy.

The week’s must reads

1. The futility of economic development metrics. What gets measured gets improved — unless you can’t actually measure it to begin with. Municipal economic development organizations should stop fooling themselves that they can calculate precise economic payoffs for their investments, argue Ryan Donahue and Brad McDearman of the Brookings Institution. Tax incentives and other short-term job-attraction strategies can nudge firm location decisions from “maybe” to “yes,” but they can’t turn “no” to “maybe” — which makes attempts to calculate the ROI for any particular initiative ridiculous.

2. White flight from a developing “ethnoburb.” “Asians are only ‘model minorities’ when they are small in number with minimal influence,” writes Anjali Enjeti in Pacific Standard. In her Atlanta suburb of Johns Creek, 23 percent of the relatively prosperous population identifies as Asian — and it’s spurring all-too-familiar reactions from white people who fail to see anti-Asian behavior as racist. “Race, not education, is the fuel for white flight,” she writes.

essers flickr
Photo: Charlie Essers/Flickr.

3. A communitarian case for exclusionary zoning. It may be “gratifying” to suggest that “zoning conflicts are strictly class-based conflicts about assets between owners and newcomers,” writes USC planning professor Lisa Schweitzer, but it’s not that simple. Plenty of renters oppose new development, and for strongly held reasons, including “the desire that individuals have to maintain a specific culture.” YIMBYist progressives may believe in the righteousness of their goals, but pretending conflict doesn’t exist makes it harder to build coalitions for change.

4. “Peak Car,” revisited. Economic growth, low gas prices and easy auto credit have driven “blistering growth” in driving over the last two years, but is it permanent? The Frontier Group, one of the first observers to call the 2004-2014 slowdown in driving growth as more than a blip, takes a hard look at recent numbers and argues that though some assumptions (like continued expensive gasoline) have been dashed, others (like the sensitivity of consumers to gasoline prices or the impact of autonomous cars) are apparently in flux or hugely unpredictable.

New knowledge

1. Housing markets don’t seem to be self-correcting. The U.S. housing markets that were the most expensive in 1986 are mostly the still the most expensive, according to a Trulia analysis by Ralph McLoughlin. What’s changing fast, though, is the yawning gap between the priciest tier and the rest of the country. What’s driving this “great divergence” in housing prices? McLoughlin finds two strongly predictive factors: income growth and housing supply. Some lower-construction metros (like Miami) saw prices spike without much income growth, and some faster-construction metros (like Austin) added income but didn’t join the price spiral.

2. Incomes rise faster in integrated cities. Urban economies work better when high-skill and low-skill workers, and in some cases workers of different races, live relatively close together. Cities that were highly segregated by race and skill level in 1980 were less likely to see worker incomes rise over the next 25 years, according to a 2013 study by Huiping Li, Harrison Campbell, and Steven Fernandez revisited this week by the Chicago Policy Review. They also found that big income gaps between suburbs and central cities were associated with slower long-term income growth in the suburbs.

3. Exploring the city/suburb “regime change.” A paper from Penn’s Institute for Urban Research, authored by Arthur Acolin, Richard Voith & Susan Wachter offers a crisp, readable summary of the literature and some of the key data on the shifting economic and population balance between cities and suburbs. They conclude that the shift to a knowledge economy, the growing importance of education and the importance of place-based consumption amenities is likely to continue to drive growth toward the center. Whether cities can realize this potential opportunity hinges critically on fiscal, policy and governance questions.

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.

Parking meters and opportunity costs

What if we could make parking spaces in high-demand areas more widely available, while also making better use of under-used parking spaces elsewhere?

Think of it as Uber’s “surge pricing,” but for parking. (Though it elicits some grumbles from a consumer perspective, we think surge pricing can make lots of sense: it encourages more efficient choices by riders, and brings out more drivers when they’re most in demand).  

The old model of parking. Credit: Jim Ellwinger, Flickr
The old model of parking. Credit: Jim Ellwinger, Flickr


One of the arenas that “smart city” proponents are most excited about is managing the supply of public parking spaces using dynamic prices. In prior decades, cities had very limited options with respect to pricing: they might be able to vary prices by time of day and neighborhood, but they had limited information and resources to really tailor prices to demand, and couldn’t respond to unusual events or changes.

But new technology allows cities to respond to real-time demand, raising prices where there are no available spots to encourage turnover and make sure that people who really need to park have a space to do so, and lowering prices on blocks with lots of extra capacity to encourage more use of the public resource. On both ends, by better reflecting the real value of public parking spots, cities can more efficiently use one of their most precious resources: space.

What New Haven, and San Francisco and other cities are doing is working to operationalize the insights from Don Shoup’s masterwork, The High Cost of Free Parking. One of Shoup’s precepts is that the price of on-street parking ought to be set at a level where there are about one or two free parking spaces on every block (or about 85 percent occupancy). This assures that there are always spaces available for those who want them (and are willing to pay) and cuts down on “cruising” to find free spaces. Since the value of parking varies significantly by time of day, and from block to block, ideally rates ought to change according to those variables as well. But common practice is to charge the same price almost everywhere in the city, and to change prices by time only very crudely. These policies do precious little to reflect demand, and therefore assure adequate supply.

That said, this is one of those instances where getting the right answer depends on asking the right questions. In this case, “What should the price of parking be here?” shouldn’t be allowed to entirely eclipse the bigger question: “What is the best use of this public space?”

A slide from the New York City Planning Department shows where eliminating parking could improve public safety.
A slide from the New York City Planning Department shows where eliminating parking could improve public safety.


In some ways, in fact, the rich new data on parking demand and dynamic prices might help cities decide that larger question. If, for example, parking on one street remains under-utilized even when prices are pushed down below a certain level, maybe that space would be better used in some other way: space for street vending carts, or additional sidewalk, or green space, or a bike or bus lane.

But even where prices are high, other uses might beat out the value created by parking. On a downtown street with lots of pedestrian traffic, would a food cart or newsstand owner be willing to pay more for the right to a prime location than potential parkers? Would the benefits to public safety of extra sidewalk space or a bike lane outweigh the revenue of the parking meters? What about creating a bus lane that eliminates a bottleneck for thousands of riders a day, dramatically increasing the road’s efficiency, by getting rid of 20 or 100 parking spaces?

In other words, dedicating public space for one use always incurs the opportunity cost of not using it for something else, and our decisions about what to dedicate public space to ought to take those opportunity costs into account. Pricing parking acknowledges and values these tradeoffs in a straightforward way.

But that’s not all that’s missing here. Proponents of “smart parking” say that one of their goals is to increase the usage of “underutilized” parking spaces. Often, that may mean increasing the total amount of driving. But, of course, driving incurs all sorts of extra social costs: pollution, wear and tear on public roads, injuries and deaths from crashes. When calibrating the appropriate price of parking on public space, should cities take those costs into account?

Counting People and Cars: Placemeter

We confess:  we’re data geeks.  We love data that shows how cities work, and that give depth and precision to our understanding of policy problems.  But truth be told, most data we — and other analysts — work with is second-hand:  its data that somebody else gathered, usually for some other purpose,  that uses definitions and methods that don’t quite capture what we’re trying to get at.  Information about employment and wage trends, for example, is gleaned from tax and administrative records.  Working with this “secondary” data means that you’re always trying to extract meaning from something that doesn’t exactly measure what you’re interested in; this is why data analysis is often as much an art as it is a craft.

So when a new technology comes around that let’s us generate our own personalized, customized data, we get pretty excited.  (For you foodies, its kind of like going from only having store-bought industrial tomatoes, to growing sun-ripened heirloom varieties in your own backyard–sort of).  But what we’re talking about here is our own, home-grown, artisanal data.

Placemeter, a New York based startup has developed image processing software to count cars, people and bikes in urban environments. Their technology uses existing cameras (it can analyze a stream of real time data) or you can buy one of their Placemeter devices (currently $90) or use any fairly standard wi-fi enabled web-cam. Placemeter then sells their monitoring and data services for between $30 and $90 per month per location counted (locations can be a street, sidewalk, building entrance or area).

For the past several months we’ve been experimenting with the company’s Placemeter device. Placemeter is a small, plastic box, slightly larger than a deck of playing cards.  It has a camera, a wifi tranceiver and an embedded processor.  It attaches to the inside of a window and is powered by a small AC-power brick.  You point it out the window, connect it to your local wifi network, and then log into a web page that lets you see the camera’s eye-view of the area outside your window.  Using your web-browser, you identify cordons (Placemeter calls these “turnstiles”) by using a mouse to draw lines on the image from the camera.  Then Placemeter starts counting the number of people, bikes and vehicles that pass through the turnstile.  It logs this information, by turnstile and by direction, and also provides a handy set of diagnostics that let you view counts by hour or by day and by direction.  (You can also export a CSV formatted log file that can be used by any standard spreadsheet or analysis program). The company has squarely addressed privacy concerns: the Placemeter analyzes the data stream in real time, and doesn’t store personally identifying information or images, just the results of its own computations of the numbers of people and vehicles it has counted.

For our CityObservatory test, we positioned the sensor to face a residential street with two-way traffic and with paved sidewalks on either side of the street.  As shown in the grainy, low-resolution photo below–captured through the Placemeter device camera, we established three turnstiles, one for the street, and one for each sidewalk.  Turnstiles are shown as bright green lines. A vehicle is just crossing Eastbound through the turnstile that crosses the roadway. Our camera has an oblique view across the street.

Placemeter Turnstiles on a Residential Street (webcam image)

Placemeter Turnstiles (Author)
Placemeter Turnstiles (Author)

A key limitation of our version of Placemeter is that it doesn’t distinguish between the type of object that goes through a turnstile:  so whether its a car, truck, or bicycle, any vehicle traveling through our street-centered cordon would be recorded as a single vehicle.  On a street with a marked bike lane, it would be possible to establish separate turnstiles for the general travel lane and the bike lane, but accurate counts would require a camera angle that allowed you to see both lanes clearly.  Placemeter has recently come out with a new version of its software that is designed to distinguish between people, bikes and cars; we have not tested that version yet.

Placemeter’s dashboard shows hour by hour counts and provides a historical baseline computed from the previous three weeks of data.  Here’s a chart for early July.  The weekday traffic shows a common “double hump” pattern, reflecting morning and evening rush hours and a mid-day dip.  Weekend traffic is lower, with a single mid-day to evening peak. Traffic on this residential street falls to nearly zero over night.  The much more subdued traffic (especially in the morning hours) is apparent on the July Fourth holiday:  Instead of the usual 257 vehicles between 8am and 9am, there were just 50.

In addition to these hourly counts, Placemeter’s dashboard also summarizes counts by day and direction in a bar chart format.  Here what that looks like:

Placemeter Daily Counts

To judge the accuracy of the Placemeter vehicle counts, we compared them to a vehicle count conducted by the City of Portland.  The most recent city data were from January 2015, and were recorded on five weekdays on the same street and block face as that covered by our Placemeter setup.  For comparison purposes, we examined our daily data for the same week in January 2016 (one year later).  The city statistics show an average daily traffic of 5,233 vehicles while our Placemeter count is 4,843 ADT.  The two counts also show a similar directional pattern (the city figures show a 52%/48%westbound to eastbound split; our figures also show 52%/48%.

We’re awash in claims about how big data will transform the world. But there’s also an important role for little data, especially when its data that can be precisely focused on the places and issues you find interesting.

It levels the playing field for bikes and pedestrians. As we’ve pointed out, when it comes to some modes of transportation, especially biking and walking, they’re effectively invisible and therefore disenfranchised from policy discussions, simply because we have no data about them.  We’re awash in data about how many cars are traveling and how fast–or slowly–they travel, but have precious little information about the use of active modes.

Placemeter can be a boon to planners and transportation agencies.  Its less expensive–and by our very crude reckoning–roughly as accurate as other methods of traffic counting.  It provides basic analysis tools and archived data.  Placemeters are flexible and easy to set up, and its possible to use existing web-cams to generate data.

It can be a terrific tool for evaluating projects and events.  One of the toughest evaluation tasks is judging the impact of limited duration events (rallies, festivals and concerts, traffic associated with football games).  Placemeter lends itself to recording activity in very small geographies–like the entrance to a building or a single pathway in a park.

Finally, while its not free, its also not terribly expensive.  So this provides the opportunity to democratize access to data. If a civic group, a neighborhood organization, or just an individual citizen wants to get their own data on how a roadway or other public space is being used, they don’t have to depend on anyone else to get it.  Easy access to lots of “little data” may be just as disruptive as the much ballyhooed “Big data.”


Back to school: Three charts that make the case for cities

Its early September, and most of the the nation’s students are (or shortly will be) back in the classroom. There may be a few key academic insights that are no longer top of mind due to the distractions of summer, so as good teachers know, now is a good time for a quick refresher–something that hits the highlights, and reminds us of the lesson plan.  So it is today, with City Observatory.

Pay attention class (Flickr: Jeff Warren)
Pay attention class (Flickr: Jeff Warren)

There’s a growing tide of data illustrating the economic importance of vibrant urban centers. Here are three charts we’ve collected in the past year that underscore the importance of city centers, walkability and transit access—some of the critical factors behind city success.

Chart 1: Walkability drives commercial land values

Real Capital Analytics tracks commercial real estate values in cities across the United States. Like many of us, they’ve noticed the growing importance that businesses place on being located in walkable areas—because that’s where their customers and workers increasingly want to be. And the desirability of walkable areas gets directly reflected in land values. RCA constructed a price index for US commercial real estate that compares  how values are growing in highly walkable areas compared to car-dependent ones. No surprises here: over the past 15 years commercial real estate located in the most walkable areas has dramatically outperformed less walkable areas.


RCA uses a repeat sales index to track changes in property values over time. Their data show that not only have property values in highly walkable central business district locations fully recovered since the 2008 recession, they’ve gained more than 30 percent over their previous peak. Meanwhile, commercial property values in car-dependent suburbs languish at pre-recession levels. As we’ve noted at City Observatory, the growing disparity between central and suburban property values is a kind of “Dow of Cities” that shows that illustrates the economic importance of centrality.

Chart 2: Transit access boosts property values

In addition to walkability, another aspect of great urban spaces—transit accessibility—is also a strong predictor of property values. The Center for Neighborhood Technology looked at trends in residential real estate values in Boston, Chicago, Minneapolis-St. Paul, Phoenix, and San Francisco, between 2006 and 2011, and found that property in transit served locations dramatically out performed property values in places with limited transit. They found strong evidence to support the view that “access to transit” is the new real estate mantra. Over this five-year period, transit-served locations outperformed the typical property in their region by about 40 percent, while property values in non-transit served areas underperformed the regional average.


Chart 3: People are increasingly moving to urban centers

Luke Juday at the University of Virginia’s Demographics Research Group has done a terrific job of compiling Census data to map the relationship between population trends and centrality—how close to the center of the central business district do people live. Juday’s work can show whether specific population groups are, in the aggregate, moving closer to the urban center, or are decentralizing. His interactive charts show data for the top 50 metropolitan areas, and clearly illustrate the centralizing trend that characterizes well-educated young workers—something that we’ve explored in our reports on the Young and Restless. For example, consider this chart of the location of 22 to 34 year olds by distance from the central business district in 2000 and 2012.



The data in this chart are a composite of the 50 largest metropolitan areas in the U.S. In 2012, the fraction of the population within a mile of the center of the central business district (the darker line) in this key young adult demographic approached 30 percent, a substantial increase from 2000 (the lighter line). Meanwhile, the share of the population in more outlying areas declined. This is powerful evidence of the growing preference of young adults for urban living.

At City Observatory, we’re data-driven. These three charts, taken together with four others we highlighted earlier, make a strong case for the growing economic importance of cities. Walkability, transit access and the movement to city centers are big economic drivers. That’s the lesson that all of us–students and urban leaders alike–need to be keeping in mind.


For low-income households, median home prices aren’t always what count

Affordable housing is an issue rife with statistics: median rents, median housing costs, percentage of people who are “housing cost burdened,” and so on. Previously, we’ve written about some of the issues with many of these statistics, including the untrustworthiness of most “median rent” reports and which rent statistics are more trustworthy.

But another issue—which we touched on last year—deserves more sustained attention: median housing costs are a really incomplete way to understand housing prices. This is especially true if what you really care about is affordability for lower-income households. After all, low-income households are unlikely to be buying mid-priced housing, even in an affordable market. What you really ought to be looking at, then, is housing that is relatively low-priced.

If this doesn’t make sense yet, imagine a town with three families and three houses. Two families are high-income, and one is low-income. In this situation, for the low-income family, it probably doesn’t matter whether the two more expensive homes cost $300,000 or $1,000,000—because they’re going to be getting the cheapest home regardless. What matters is how much that home costs. But the “median housing cost” won’t tell us anything about that.

There’s far less public data about non-median housing prices, but the Census does offer data on 25th percentile home values—that is, homes that are cheaper than 75 percent of all the housing stock in a given area. And that data is illustrative of some of the issues that measuring affordability with downmarket housing can demonstrate.

Take two suburbs in the Chicago metropolitan area, Frankfort and Oak Park. Frankfort is a newer town on the very southern fringe of the region. Predominantly new development—over 70 percent of homes were built since 2000—the housing stock is quite homogenous, with 95 percent of units single-family homes, and 94 percent owner-occupied.

A typical street in Frankfort, IL, with large single-family homes. Credit: Google Maps
A typical street in Frankfort, IL, with large single-family homes. Credit: Google Maps


Oak Park, by contrast, lies on the western border of the city limits. With much of its development dating back to before the advent of zoning, it has a much more heterogenous housing stock, mixing large and small single family homes, as well as a large multifamily stock that ranges from a handful of downtown midrises to four-story apartment blocks to three-flats.

These towns have virtually identical median housing values, according to the 2014 five-year American Community Survey: $348,600 in Frankfort, and $354,400 in Oak Park. If the medians were all we looked at, we’d conclude that these two places were about equally affordable for low-income people, with Oak Park possibly being slightly worse.

But the 25th percentile prices tell a very different story. In Frankfort, with its limited range of types of housing, that figure is $269,500. But in Oak Park, where the median home value is slightly higher than Frankfort’s, the 25th percentile home is nearly $50,000 lower: $222,100.

That means a typical low-cost housing unit in Frankfort costs over 20 percent more than a typical low-cost unit in Oak Park. That’s a significant difference—it would increase the income level needed to stay under the (flawed) commonly used “cost burdened” threshold by 20 percent as well.

A street with single-family homes on one side and a multi-family building on the other in Oak Park. Credit: Google Maps
A street with single-family homes on one side and a multi-family building on the other in Oak Park. Credit: Google Maps


It’s also probably not a coincidence that Frankfort and Oak Park have very different income demographics. Just 16 percent of Frankfort households earn less than $50,000 a year, compared to 41 percent in the Chicago metropolitan area as a whole; in Oak Park, that number is 33 percent, much closer to the regional average. In other words, there seems to be a straight line from Oak Park’s relatively more diverse housing stock; to more diverse housing prices, as reflected by its lower 25th percentile home price; to more income-diverse residents.

This underscores an issue that we’ve repeatedly emphasized: contemporary zoning codes that widely separate different types of land uses and housing effectively make it illegal  to build neighborhoods that have a wide range of housing types and price points. The kinds of neighborhoods that freely mix large and small houses, apartments, and nearby shops are illegal in most places and and those that do exist are the anachronistic legacy of the pre-zoning era.

Of course, median housing prices still matter, if for no other reason than the shortfall in housing in many major cities has made finding affordable housing difficult for mid-income households as well as low-income ones. And if a place has very high median housing costs, it’s likely that there will be problems further down the scale as well. But to really understand a city’s or neighborhood’s housing cost profile, we do need to go beyond the median, to see what relatively down-market housing looks like. As the examples of Frankfort and Oak Park, Illinois, demonstrate, even places with the same median housing costs can differ significantly at the lower end.

How do I find data on the 25th percentile rent? These data are gathered as part of the American Community Survey.  To get reliable neighborhoood level data, you’ll want to use the Census Bureau’s pooled, five-year estimates; the latest data are from 2010-14.  You’ll want to go to American Fact Finder, and visit Table B25057, “Lower Contract Rent Quartile, Universe: Renter-occupied housing units paying cash rent  more information 2010-2014 American Community Survey 5-Year Estimates.” A table of 25th percentile rents for metropolitan areas is available here.

Successful cities and the civic commons


At City Observatory, we’ve been bullish on cities. There’s a strong economic case to be made that successful cities play an essential role in driving national economic prosperity. As we increasingly become a knowledge-driven economy, it turns out that cities are very good at creating the new ideas of all kinds that propel economic progress.

But cities aren’t simply economic machines. Nor are they merely large and efficient collections of buildings, pipes, wires, asphalt and concrete. Cities are importantly a collective social endeavor, what Ed Glaeser calls mankind’s greatest invention. It is the opportunity for interaction with others in cities that is their special power and attraction. Some of those interactions are purely economic, but they are deeply embedded in a much wider set of connections and relationships.

Despite all the strength and energy of cities today, there’s growing evidence that the web of social connections that ties cities together, and that underpins much of their economic importance, is coming apart at the seams. For decades cities have been pulling apart: sprawl has moved us physically further from one another, and within metropolitan areas, our neighborhoods have become more segregated by income.

As we pointed out in our CityReport, Less in Common, the shared opportunities and spaces that let Americans of all different backgrounds easily interact with one another have been steadily eroded. We spend more time alone, we socialize with others less, we’re segregated from one another by income, and we generally spend less time in public or in the company of those who are different from us.


Click to see the full infographic.

Click to see the full infographic.


 These trends are mirrored in how we get around, relying more and more on cars cars as a mode of transportation, replacing walking and public transit—modes in which, outside a sealed, private machine, you might actually interact with neighbors or others. In fact, while about 30 percent of Americans reported spending time with their neighbors in 1970, that number was down to about 20 percent today.

This privatizing of our once public lives has also manifested itself in further segregation of neighborhoods by economic status, a trend that has been well documented, and which we have explored at length at City Observatory.  Rich and poor Americans have become more spatially divided as we sort into high income and low income neighborhoods. While only 15 percent of Americans lived in rich or poor neighborhoods in 1970, by 2012, that figure was up to 34 percent.

The good news is that there’s a growing recognition of this challenge, and many people and communities are actively looking for ways to rekindle public life. There’s some compelling evidence that the move back to cities is propelled, at least in part, by a hunger for greater opportunities to interact with one another, to—as our friend Carol Coletta puts it—“to live life in public.” This shows up in the growing popularity of  “third places”—coffee shops, bars, farmers markets, and other settings where people gather away from home and work.

Its exciting that Knight Foundation and four other foundations have launched their new initiative “Reimagining the Civic Commons.” Over the next five years, these foundations will fund a $40 million grant program to promote innovative projects in five cities: Akron, Chicago, Detroit, Memphis and Philadelphia. The project aims to fund a series of experiments that consider how we might better use a range of public spaces–parks, libraries, and even sidewalks–to foster greater civic engagement. This could turn out to be a vital bit of public-minded venture capital that can help further illustrate—and develop—the vital role that public spaces play in underpinning a successful city.

Fundamentally, this strategy makes sense because of the strong interdependence of the social and economic network effects in cities. Economists portray city economies as being driven by agglomeration effects–the increased intensity and productivity that occurs when large numbers of people can interact (especially when they have diverse knowledge and backgrounds). As Jane Jacobs argued, diverse, well-connected cities produce the “new work” that propels economic progress. But this diversity and connectedness pays dividends in the form of widely shared opportunity. Raj Chetty and his colleagues have shown that cities with lower levels of racial and economic segregation–where its easier for people of different backgrounds to connect–have higher levels of intergenerational mobility, especially for children of low income families.

At their root, as Ed Glaeser has argued, cities are about the absence of distance between people, and that’s not simply physical distance, but social distance as well. Having a civic realm that works well, where people from throughout the city can easily interact is not a mere public amenity, but a vital component of a successful city.


Caught in the prisoner’s dilemma of local-only planning

The fundamental conundrum underlying many of our key urban problems is the conflict between broadly shared regional interests and impacts in local communities. While we generally all share an interest in housing affordability, and therefore it makes sense that we ought to support an expansion of housing supply in our region, it becomes a different matter entirely when it means more housing in our neighborhood. 

That’s exactly the issue plaguing the implementation of New York’s new mandatory inclusionary zoning law. The program–a cornerstone of Mayor Bill de Blasio’s housing affordability policy–requires developers which receive up-zoning permission to set aside a portion of units in newly constructed buildings for low and moderate income families. While the city-wide policy easily gained a majority of the City Council, the individual up-zoning approvals that would activate the “mandatory” portions of the law have run into difficulties. In the first two projects forwarded under the law–in Manhattan and Queens— strong neighborhood opposition has prompted the local city councilor to withdraw support for the needed zone change–effectively torpedoing the project.

This is a classic example of the a prisoner’s dilemma.  Everyone would be better off if each neighborhood allowed some new development (the added supply city wide would dampen rent increases), but individually the neighbors of new projects would rather than new buildings go up elsewhere. As long as the development approval is highly localized, this will be a persistent problem.

One of the most broadly popular ideas about urban planning today is that decisions should be made locally. After all, who knows better what a neighborhood needs than the people who live there? And what better way to squash any would-be Robert Moses than by empowering the people whose homes he would claim for some new megaproject?

The move to greater local democracy since the disastrously inhumane urban renewal period of the 20th century was undoubtedly necessary. But it has also created new problems that some officials, activists, and residents have been slow to acknowledge.

To begin with, it’s worth noting that “local” is a concept without a solid definition. When people object to policies coming out of Washington, DC, they often say that power needs to be brought back to the states. When they disagree with state policy, they’ll often discover a strong attachment to their region—say, downstate Illinois rather than Chicago. When they dislike something happening in their region, they reinforce the importance of their own particular municipality. And when their city government makes a decision they don’t like, they’ll appeal to the power of their neighborhood—which itself may expand or shrink its boundaries based on the issue.

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Image courtesy of the American Independent Business Alliance.


In other words, there’s no given geographic level at which people magically all agree with each other about what the “right” thing is. Instead, “local” politics tends to be about strategically choosing an arena in which there’s a strong enough coalition in favor of whatever policy you want.

Which, to be clear, is a totally legitimate way to go about democracy. But while the popular image of local power might be a diverse and representative group of families planning a new school or beating back an invasive and unwanted project from City Hall, localism also has a darker side. Much of the move to local planning since World War Two has taken the form of suburban municipalities created largely as a way to segregate their residents from “undesirable” people—generally blacks and the low-income. In fact, places with more fragmented governments (that is, places that are governed more “locally”) also tend to be more segregated. Partly as a consequence, they also have worse outcomes for people at the losing end of that segregation—so that, for example, health disparities between whites and blacks are significantly worse in metropolitan areas with more local governments per capita.

One of the greatest victories of this kind of exclusionary localism came in 1974, when a federal judge ruled that white parents who had moved beyond the Detroit city limits were exempt from any mandatory school desegregation programs, because to bus children across school district lines would be an affront to local control of education. But anyone who listened to the white parents in Nikole Hannah-Jones’ This American Life documentary excoriate their suburban St. Louis government for allowing non-local—and, of course, black—students to attend “their” schools just two years ago knows that this justification for local control is alive and well.

But localism doesn’t just give outlet to some of America’s less savory impulses. It can also pit municipalities or neighborhoods against each other, encouraging people who might be okay with, say, a moderate amount of affordable housing to advocate for having none at all.

To understand why, it’s useful to think of “the prisoner’s dilemma,” a kind of thought experiment that explains why people behave in ways that don’t lead to their own ideal outcome. (We should note that we didn’t come up with the idea to liken neighborhood development to a prisoner’s dilemma. Here’s an excellent interview with David Schleicher, a professor at Yale Law, making a very similar point.)

Imagine two middle-class neighborhoods, A and B. Each can choose a bundle of policies that are either “inclusionary” (allowing multi-family and subsidized housing, providing services attractive to the low-income, and so on) or “exclusionary” (allowing only large, expensive single family homes, eliminating social services, and so on). The residents of both places would like to be inclusive, as long as their neighborhood will remain predominantly middle class.

If both neighborhoods choose “inclusionary” policies, they’ll each become mixed-income, but mostly middle-class, communities. But if only one chooses “inclusionary” policies and the other chooses “exclusionary,” the “inclusionary” community will become disproportionately low-income, because it’s the only attractive, welcoming place for people who need affordable housing and social services.

In this situation, residents of both neighborhoods will be extremely wary of being the first to choose “inclusionary” policies, because unless the other neighborhood also chooses “inclusionary” policies very soon afterwards, their community will become disproportionately low-income. Any doubt about the other neighborhood’s commitment to choosing “inclusionary” policies—doubt that is more than justified, given the current state of American urban policy—will push them to choose “exclusionary” ones for their own community.

The fundamental problem here is that local communities don’t have the power to get other communities to commit to doing the “right thing”: only higher levels of government can do that. Importantly, though, creating this commitment doesn’t have to be any less democratic than smaller-scale decision-making: elected officials in a city hall or state capitol can work with their constituents to craft a policy that ensures all communities reflect the best values of their residents. This might look like a statewide law that requires every municipality to have a certain percentage of its housing designated as “affordable,” or a citywide plan that allows people from different neighborhoods to commit together to certain distributions of accessible housing and social services. Or, taking an international view, it might look like a state- or provincial-level government setting limits on the kind of zoning that municipalities can choose, restricting their ability to outlaw working-class and low-income housing types.

Unfortunately, there are precious few examples of higher units of government imposing rules that break this prisoner’s dilemma for cities. Massachusetts’ “anti-snob zoning” law, which allows affordable housing developers to ignore local exclusionary zoning in places where more than 90 percent of existing housing is considered unaffordable, is one. Another is in Oregon, where communities are required to zone land for a range of housing types, including apartments.

Research suggests that these kinds of laws can significantly improve the housing affordability landscape. Given the growing economic divides between our communities, we would do well to give them a second look.

Editor’s note: We’ve updated this post from a version we first published in September 2015.