Inclusionary zoning programs are too small to make a dent in housing affordability

Two of the most respected names in housing research are Lance Freeman and Jenny Schuetz.  Freeman is professor urban planning at Columbia University and author of a series of papers examining neighborhood change, and considering whether and when gentrification leads to the displacement of neighborhood residents (it’s rare). Schuetz is an urban economist, now working for the Federal Reserve, who’s written an impressive series of papers addressing everything from mortgage foreclosures, to neighborhood retail, to the effects of land use regulation on housing prices. Earlier this month, Freeman and Schuetz co-authored a new paper on housing affordability policies for the Department of Housing and Urban Development’s quarterly Cityscape journal.

Their article poses the question “Producing Affordable Housing in Rising Markets, What Works?”   The paper looks a range of state and local policies to subsidize or facilitate the construction of more affordable housing, including statewide housing fair share laws, direct subsidies, support from tax increment financing and inclusionary zoning (IZ).

At City Observatory, we’ve been highly skeptical of the effectiveness of inclusionary zoning. While inclusionary zoning gets top mention as a preferred policy by many affordable housing advocates, there’s precious little evidence that its ever had more than a token effect on the size of the housing affordability problem in any city. In addition, because inclusionary zoning requirements essentially shift the cost of housing subsidies onto new development, they raise its cost, and likely reduce the number of units that get built–which tends to aggravate housing shortages and further accelerate prices. We’ve written that inclusionary zoning has a scale problem, and its a question that this paper investigates directly.

Here’s the quantitative evidence to that point: Freeman and Shuetz compiled data on 150 different inclusionary zoning programs in five different regions of the country.  To illustrate the scale of these inclusionary zoning programs relative to the market, they show the total number of existing housing units in 2000 in the jurisdictions with inclusionary zoning, and for reference show the number of units financed through the federal Low Income Housing Tax Credit (LIHTC)

They conclude:

Average annual production under local IZ programs varies systematically across regions, but in all areas has contributed only a modest amount of affordable housing.  * * * Expressed as a share of the existing housing stock, affordable housing produced under IZ is less than 0.1 percent of existing housing in all regions.

One of the big questions about inclusionary zoning is whether the added costs imposed on developers increase the price and depress the supply of market provided housing, thereby offsetting the (small) gains from affordable units. In Seattle, Sightline’s Dan Bertolet has calculated that if the added cost of IZ requirements reduces construction by just two apartment projects, it will more that offset the positive supply effect from the inclusionary affordable housing construction. Freeman and Schuetz only briefly touch on the questions how the cost of inclusionary zoning’s requirements are likely to affect housing supply and prices.  They observe:

Existing research has found mixed results of local IZ programs, with some evidence that IZ contributes to higher housing prices, reduced construction, and a shift toward smaller housing units, but these effects vary across regions and time periods.

In their policy recommendations however, they are quite clear: local governments should reduce cost-increasing zoning and building requirements, and up-zone residential areas, allowing for more apartments and accessory dwelling units. If you take that advice at all seriously, you should think twice before imposing an IZ mandate on new development.

We understand the political attractiveness of inclusionary zoning programs, they don’t seem to cost any money:  You require developers to build 1 or 2 affordable housing units for every ten new apartments that they build.  Maybe your city offers up a density bonus, or expedites permit handling, but unlike conventional public housing, the city doesn’t have to lay out any of its cash to get more new affordable housing. That’s why Evan Roberts of StreetsMN described it as politically understandable, though terrible policy. Its the kind of solution that is congruent with a kind of morality-tale explanation of housing unaffordability: it’s the fault of greedy developers and heartless landlords, so its only fair to somehow dragoon them into paying for the solution.While showy and contentious, however, the real world results of inclusionary zoning have been at best paltry, and the risks that inclusionary requirements will depress housing supply–and thereby drive up rents, ought to persuade policy makers to look more broadly if they are to find practical solutions to this problem.

Your 1,200 word bluffer’s guide to Richard Florida’s new book

Richard Florida’s new book “The New Urban Crisis: How our cities are increasing inequality, deepening segregation, and failing the middle class–and what we can do about it,” came out last week.

The book touches on many of the issues that are near and dear to us at City Observatory, and in the coming weeks, we’ll have much to say about the arguments, evidence and recommendations advanced in the book.

But today, we’ll start off with just a simple synopsis of what the book says.

If Florida’s 2002 “Rise of the Creative Class” was a manifesto, The New Urban Crisis is a lamentation and encyclopedia. The lamentation is that the continued and growing success of the creative class is widening the divisions in our country and within our communities. The encyclopedia is some 37 pages of references to much of what has been written about cities, poverty, inequality, segregation, and urban economic growth in the past decade.

The book is divided into ten chapters, each built around a single theme.

Chapter 1 describes an “urban contradiction”: Economic success is now driven by urban, knowledge-based economies, but as it is, success is becoming more concentrated in cities, and specifically in some cities rather than others, and within cities in particular neighborhoods. Cities are indispensable to having an innovative and globally competitive economy, but by their nature, they create divisions and inequality.

Chapter 2 argues that we live in a world of winner-take-all urbanism, that the economic advantages of being in a big city trump and undermine the competitive position of smaller cities. The kinds of industries that are now driving the economy flourish in just a few urban locations, where firms and workers cluster. Big, successful cities are taking an increasing share of the economic pie, and undercutting the economic position of everyone else.

Chapter 3 says cities are increasingly occupied by the elites, those with the highest levels of education, who are disproportionately members of Florida’s creative class. The super wealthy are concentrating in a few leading centers, as is much venture capital investment. But the concentration of wealth and talent doesn’t seem to be having a stultifying effect on creativity in these places.

Chapter 4 discusses gentrification. It relates the widespread media coverage of gentrification, including Spike Lee’s famous rant, and says that the pain the gentrification causes is real and should be taken seriously. It also cites literature pointing out that gentrification and displacement are extremely rare and restricted mostly to superstar cities. The growth of concentrated poverty is a bigger problem than gentrification.

Chapter 5 discusses income inequality in cities and presents measures of the degree of wage and income inequality. Like the nation as a whole, the distribution of income in cities is becoming more unequal. Florida argues that few cities are able to combine income growth with reductions in inequality.

Chapter 6, entitled “The Bigger Sort” looks at the spatial dimension of income inequality: economic segregation. Florida reports on the literature showing that within cities, rich and poor now live further apart than ever before. A similar widening divide separates American’s when they are divided into Florida’s creative class, the service class and the working class.

The Patchwork Metropolis, described in Chapter 7 is Florida’s classification of metropolitan spatial form into four different categories: based on the relative concentration of the “creative class” relative to others. The four categories are:

1. Creatives “re-colonize” city centers,
2. Creative live in the suburbs,
3. Bifurcated metros, where creative are found disproportionately on one side of a metro area, and
4. The scattered archipelagos of creatives.

Florida says the pattern in each metro is shaped by a combination of the strength of the urban core, the nature of the transit system, the location of universities and the presence of natural amenities.

Chapter 8 shifts our attention to the suburbs, and reviews evidence on the growing levels of poverty in the suburbs (as an aggregate). Once the bastions of the American middle class, now more poor Americans live in suburbs than anywhere else. Florida notes the environmental and social costs of sprawl and the political cleavages and emerging voting patterns.

Chapter 9 broadens the book’s perspective from its domestic focus to global cities. Florida presents the well-known statistics about the growing number of people living in cities globally, and focuses on the economic progress of those living in urban slums.

Chapter 10 is Florida’s policy recommendations, grouped under the slogan “Urbanism for all.” The chapter begins with a quantitative synopsis of the books findings called the “New Urban Crisis Index” which ranks US metro areas top to bottom; high scoring cities are where “the crisis is most acute.”

Here are the main recommendations:

• Make clustering work for us. Florida argues the New Urban Crisis is due in part to laws that restrict the use of land where it is most valuable and in highest demand. He rejects both lasseiz-faire market urbanism (abolishing all land use controls) and hyper-density (urban economies are powered not by high-rise, but mid rise development, that reinforces a pedestrian scale.
• Invest in infrastructure to support density. We should build more high speed rail to connect cities, and invest in more transit within cities to connect the poor to opportunities.
• Build more affordable rental housing. Current housing policies are too tilted toward homeownership; more people, especially young one’s are renters, and an increasing number of renters are cost-burdened, especially in “superstar” cities. Rent control and inclusionary zoning have limited appeal and applicability, so government will have to pay for the new housing.
• Turn low-wage service jobs into middle class work, by raising the minimum wage, and indexing it to local living costs. We’ll also need to re-engineer service jobs to make them more productive.
• Florida straddles the “people v. place” controversy by arguing we should invest in both to reduce poverty. We need to spend more on places, especially schools in disadvantaged neighborhoods and in people through provide expanded early childhood education and implement a negative income tax.
• Donald Trump’s victory caused Florida to re-write his final recommendation. There’s no hope of federal action to implement any of these recommendations, so Florida calls for “empowering cities and communities.” With America deeply split between red and blue, there’s no way to achieve a national consensus, so we should just revert to local solutions. It’s unclear what form this empowerment might take; one example: Florida suggests that groups of cities and suburbs would oversee transit and transportation. The burden of solving the New Urban Crisis falls upon mayors and other urban leaders.

The New Urban Crisis Index

An Appendix includes the methodological details and ranking of each of the nation’s 359 metropolitan areas according to Florida’s New Urban Crisis Index. The Index itself is a composite of four equally weighted sub-indices: 1. Income inequality, 2. Wage Inequality, 3. Income Segregation and 4. Housing affordability. According to this index, Bridgeport, CT, Los Angeles, New York and Gainesville have the most acute “urban crises” while Jefferson City, MO, Fond du Lac, WI and Wassau WI have the least.

County data can’t tell us much about thriving urban neighborhoods

New county-level census population estimates became available last week, and Jed Kolko produced an interesting analysis published by FiveThirtyEight concluding that “America’s Shift to the Suburbs Sped Up last year.”  While there’s nothing wrong with Kolko’s math, we think there are several reasons to believe that this data shouldn’t be taken as some have suggested, as evidence that the demand for cities is decreasing.

While some critics want to portray this as evidence that urban revival is inflated, Kolko concedes that the move back to city centers is real:

That revival is real, but it has mostly been for rich, educated people in particular hyperurban neighborhoods rather than a broad-based return to city living. To be sure, college-educated millennials — at least those without school-age kids — took to the city, and better-paying jobs have shifted there, too. But other groups — older adults, families with kids in school, and people of all ages with lower incomes — either can’t afford or don’t want an urban address.

More broadly, we think there are several key reasons why this county level data shouldn’t make anyone glum about the continuing prospects for urban growth and revitalization.

First, County level data don’t really tell us much about urban growth.  We’ve made this point before with Kolko’s analysis of job growth.  County boundaries correspond poorly, if at all, with cities or urban density.

Consider Chicago, which gets tarred with the “Biggest Loser” title in Kolko’s tabulations.  While Cook County saw an overall decline in population, the most urban parts of the city, including its Downtown Loop and Northside neighborhoods, continued to rack up big gains.

A more finely grained geographic analysis shows that the closer you get to the city center in most metros, the stronger has been the performance. While its true that the more outlying parts of some cities are losing population, their cores are becoming increasingly vibrant. As we’ve noted, that notion of critical mass at the neighborhood level is one of the defining characteristics of urban growth.

Second, national aggregations conceal local patterns. To be sure, these data show a renewed growth in the sunbelt. And in the biggest sunbelt metros, a big chunk of the growth is in their sprawling suburbs (Houston, Dallas). But the growth in these metros is not representative of what’s happening in many other places.

Third, there’s a baseline issue here.  City growth has decelerated from the past year or two.  But city growth this decade looks far different than it did a decade ago.  While Kolko’s FiveThirtyEight.com post just shows the change in city and suburb growth rates over the past few years (and emphasizes the one-year change between 2015 and 2016), his longer blog post on his own website shows the change in population by type of county since 2001. Taking this longer view, its apparent that growth rates in suburbs have declined sharply since the last decade, while growth rates in urban counties were up.

Between 2001 and 2005, low density suburban counties (gray line) were growing more than 2 percent per year–their growth rates since 2011 are about half that. During that same time, the most urban counties (blue line) were growing sluggishly or losing population–and they’re now growing. While urban counties dramatically underperformed suburban ones last decade, the growth patterns have converged dramatically since then. As a result, when judged against the baseline of the previous decade, more urban counties have accelerated, while more suburban ones have faded.

Fourth, in many places we’re bumping up against the (policy-induced) limits to meeting the market demand for urban living. In the early stages of growth, cities can add population by filling vacant housing. But as vacancy rates fall, the only way to accommodate more people is to add more housing, which is a process that (a) takes time, and (b) is too often unfortunately encumbered by NIMBY building restrictions. That suburbs might grow faster than cities for a time is not necessarily evidence of a declining demand for city living, so much as it is evidence that we haven’t expanded the supply of urban living opportunities to meet that demand.

The real disruptive technology for transportation is road-pricing.

There’s been a surge of interest in road pricing in the past few weeks. In a new study of growing traffic congestion in New York City, Bruce Schaller attributed traffic delays to the expanding number of Uber and Lyft vehicles on city streets. Given the economics of the business, and the concentration of fare-paying passengers in dense urban neighborhoods (plus the added inducement of earning surge fares), ride-share drivers have strong incentives to drive at peak hours in city centers.  The only feasible solution for this, according to Schaller, is to implement some form of road-pricing, as he says:

If TNC growth continues at the current pace (and there is no sign of it leveling off), the necessity of some type of road pricing will become more and more evident. Technological innovations have created new options for design and implementation of a road pricing system that targets the most inefficient use of scarce road space during the times and on the streets where additional vehicles contribute the most to traffic delays. There are thus practical opportunities for officials to design, test and gain public acceptance of a road pricing scheme carefully targeted to reducing unnecessary traffic congestion.

At City Observatory, we’ve long diagnosed traffic congestion as the failure to confront users, particularly peak hour single occupancy car drivers, with anything approaching the full cost of road use. Prices are too low, and demand overwhelms limited capacity (just as Ben and Jerry’s are overwhelmed when they give ice cream away free once a year). When we price road capacity–as Louisville recently demonstrated by pricing its I-65 bridges–we suddenly find that peak hour traffic congestion disappears, and that our infrastructure is more the sufficient to accommodate the demand from travelers who actually are willing to attach even a modest financial value to road use.  Our speculation is that in the absence of road pricing, both fleets of “transportation network company” (TNC) ride-sharing vehicles will aggravate this problem. And its likely to reach crisis proportions when self-driving vehicles lower costs still further. We think we’re rapidly approaching an inflection point that will require a sharp change in the way we pay for roads.

We were somewhat surprised, to read two weeks ago, that Uber has issued a corporate statement of support for road pricing.  The company’s director of transportation policy Andrew Salzburg wrote a short direct  column in Medium–titled “Road Pricing the Solution to Gridlock“–and going so far as to quote the Duranton & Turner paper “The fundamental law of road congestion.”

To tackle this issue at its core, the cost of driving ultimately needs to reflect its cost to our cities. It’s becoming increasingly clear that the most effective way to manage vehicles on the road is through pricing. By charging a fee for all vehicles (private motorists, delivery vehicles, taxis, and services like Uber), road pricing creates an incentive for everyone to share space more efficiently.

Salzburg’s’s endorsement comes not long after two of Lyft’s founders–John Zimmer and Logan Green–published their own Medium essay on “The End of Traffic” which also endorsed road pricing, under the gentler rubric of “smart lanes”:

Smart lanes will supercharge everyone’s commute by being active during peak hours and returning to regular (or “dumb”) lanes in off-peak hours. The smart lanes will be 100% free for any vehicle with three or more people and have a market-based price for vehicles with fewer than three people.

It might not be immediately obvious why these two companies would support road pricing. Right off the bat, they’d be two of the biggest payers of road fees, especially if fees varied by time of day or by location (as they should). These firms disproportionately serve the most congested locations at the most congested times, and so would end up paying a lot. But Uber and Lyft recognize that un-priced roads aren’t really free, and that rationing road capacity by queueing rather than price will cost them (and everyone else) a lot of money.

I suspect their are at least three reasons why the TNC’s might be pushing ahead here:

First, they may be genuinely altruistic. They recognize that road-pricing will stem congestion, and provide better travel times for everyone. If urban transport markets get saturated and car travel becomes slower, the growth of demand and the profitability of the TNC industry could be sapped. Less congestion would be better for business.

Second, they may be trying to get ahead of the game and avoid a system where TNCs get burdened with fees, and other road users do not. As the Schaller report makes clear, its tempting to blame TNCs as being the sole or major cause of growing congestion. Even though that isn’t entirely fair–every vehicle on the road at rush hour contributes to congestion, not just the last one–the TNCs could easily get painted as the villains, and then get socked with the bill. The fact that their vehicles are already fully instrumented, and in many cases required to share data with municipalities, makes them an easy target for fees and taxes (already many municipalities piggyback many fees on TNC operators, as they do taxi operators). In a world where TNCs pay road use fees, and private car owners do not, TNC’s would be at a significant competitive disadvantage.

Third, the more we move to marginal, per-trip pricing for all car travel, the stronger the case for people to not own cars, and instead to rely on a diverse array of modal options optimized for each trip: routine commutes, mostly by transit or bike, urgent ones by TNC.  Already, we’ve shown that the uptake of TNC’s like Uber is highest in those cities with the highest parking costs. High parking costs make owning and using a private car of one’s own relatively less attractive that using and Uber or Lyft vehicle when you need one. Road pricing would reinforce that calculus, and ultimately expand the market for the TNCs.

As Congressman Earl Blumenauer explained last week, the end of the gas tax as a viable means of road finance is now clearly in sight. Self-driving cars and electrification are looming ever larger.

With more fuel-efficient and zero emission vehicles, the bottom will fall out of the transportation funding model. All autonomous vehicles entering service will be electric. This will hasten the death spiral of how we fund transportation.

The result is the we face a once in a century inflection point for re-thinking our road finance system. If we do it in a way that comes closer to getting the prices right–and that specifically includes peak hour road pricing–we could potentially make major improvements to urban transportation.

Perhaps these two companies that have so disrupted urban transportation have put their finger on the next big disruption. Uber and Lyft are on board for road pricing. Do I hear an “Amen!,” Waymo?

What City Observatory did this week

1. Carmaggedon stalks Atlanta. Following an arson-caused blaze, a key section on Interstate 85 in Atlanta collapsed, and is likely to be out of service for at least a couple of months. Since the roadway carried about a quarter million cars every day, the media were quick to predict that Atlanta was in for a hellish dose of carmaggedon. But the lesson from other freeway closures in Los Angeles and Minneapolis is that travel demand actually adjusts pretty quickly to the reduced capacity. The regularity with which this occurs is a reminder that car travel is not an ineluctable force of nature, but a product of the incentives and investments that we make, and that we can change it without the world coming to an end.

2. Ben & Jerry’s crash course in transportation economics. April 4 was the annual “free cone day” at Ben & Jerry’s ice cream parlors across the country. The company dished up more than a million free scoops of ice cream. But the low price had a downside: long lines of people waiting to get Chunky Monkey and Cherry Garcia. Whats going on here is the perfect metaphor for how our road system operates every day. The price is set to zero, so demand overwhelms supply and we have long lines at rush hour. The lesson: if we priced the road system–like Ben & Jerry’s price ice cream 364 other days a year–we could eliminate the lines and be sure our transportation finance system was solvent.

3. Migration is making counties more diverse. A new study of county level migration trends since 1990 shows that the net effect of migration, especially by white young adults has been to make American counties more racially and ethnically diverse. Young whites are disproportionately moving from whiter suburban counties to less white urban ones, and the net effect of their migration is to increase diversity in both places. In contrast, the numerically much smaller migration of older Americans tends to reinforce existing racial and ethnic patterns. But on balance, the much larger migration of young adults is increasing racial and ethnic diversity at the county level.

4. New York City isn’t shrinking, it’s growing. Some commentators, focusing on data showing net domestic out-migration from some cities, like New York, are calling the end of the back to the city movement. But especially in the case of New York, this view ignores the critical roles of foreign immigration and natural population increase. Not only is New York still an immigrant gateway to America, its population structure is now younger than the rest of the US, and as a result, the city has many more births than deaths. Every borough of New York has recorded a population increase since 2010. As a result of the demand for urban living, New York, like many cities, is bumping up against the limits of its housing supply. Out-migration says more about our failure to increase that supply than it does about any growing disenchantment with cities.

Must read

1. No more roads. With a Republican health care plan in limbo, it looks like the next major legislative priority of the Trump Administration may be infrastructure.  Writing at Slate Henry Grabar says the last thing that America needs is more roads and bridges. Looking back over the past couple of decades, Grabar reports that in urban areas, we’ve been building roads faster than we’ve been growing population, with the net effect that the maintenance burden is increasing. Urban road mileage has grown at exactly twice the rate of population. Today, there’s a mile of urban road for every 215 residents, in 1980, it was one mile per 273 residents. Highway advocates routinely play bait-and-switch with the maintenance backlog–decrying the cost of growing decay, but then using added funds to further expand the road network.

2. Why car insurance costs more in minority neighborhoods. In an in-depth piece of statistical investigative journalism, Pro Publica drills into the differences in auto insurance rates in different neighborhoods in California, Texas, Missouri and Illinois. It finds that otherwise identical drivers in predominantly minority neighborhoods pay higher auto liability insurance rates than those in white neighborhoods. The difference in rates isn’t explained by differences in losses: even controlling for claims expense, insurance rates are higher in minority neighborhoods. While Pro Publica highlights the racial dimension of this disparity, there’s a distinct city/suburb split here, as their map of metro Chicago makes clear. Premiums charged relative to claims paid are much higher in the city than in the suburbs (darker colors on this map). This seems to indicate that insurers charge city residents more for car insurance than is warranted by the losses in cities.

New ideas

1. New York Walk up report. Smart Growth America and George Washington University have collaborated on a new report that classifies New York area neighborhoods based on their index of walkability. The report uses four broad categories, from most walkable (Walkable Urban Places, or WalkUps), to car dependent ones. Like earlier reports, this one points out the big value differences between the most walkable neighborhoods and suburban, car dependent ones. “The average square foot of walkable urban real estate is valued at $541, a 150 percent premium, or two and a half times more than region’s drivable suburban real estate.” While its fair to say that some of this is related strictly to “walkability” there are also big differences in transit access, and most importantly centrality, between these property types–the most walkable areas are chiefly in Manhattan, while driveable suburban areas are mostly outside the five boroughs of New York City. Much of what’s being measured here isn’t just walkability, but rather a classic urban rent gradient; people are willing to pay much higher rents to live close to the center than on the periphery.

2. Market-timing & credit availability make housing a bad investment for low income households. As we’ve noted at City Observatory, low and moderate income households tend to suffer from a “buy high/sell low” tendency in the housing market. A new study of credit availability and the timing of home purchases adds some additional evidence to this theory. In a study entitled, “Housing Wealth Reallocation Between Subprime and Prime Borrowers During Recessions,” Ayse Sapci and Nam Vu find that higher income households tend to purchase homes disproportionately in recessions (when prices are lower and credit is less available) and sub-prime borrowers tend to do the reverse (buying housing when prices are high and credit standards have been relaxed. Their key conclusion:

Even after controlling for demographic and financial differences across groups, we find that prime borrowers are more likely to buy investment homes during recessions compared to recoveries, whereas subprimers are more likely to lose their primary homes. These results point to a dramatic difference between subprimers and primers: while subprimers are most harmed by the collapse of the housing market, primers can take advantage of lower house prices.

Given these dynamics, its really hard for owning a home to be a ticket to wealth creation for those of modest means–and in fact, as the collapse of the housing bubble shows, it can be a powerful wealth-destroying strategy.

City Observatory in the news

If Atlanta can weather the loss of a freeway segment that carries a quarter of a million cars a day, maybe that’s a signal that Syracuse could live without an obsolete stretch of Interstate freeway that slices through the center of town, writes Charley Hannegan, a columnist for Syracuse.com.

What City Observatory did this week

1. Too soon to write off city revival? The release of the Census county-level population estimates two weeks ago led to a series of quick-reaction analyses of what the data portend for the “back-to-the-city” movement that’s been seen in the past several years. Unfortunately, county level data is a poor guide to understanding city population trends. And while it appears that city growth has moderated compared to the past year or two, cities are growing more rapidly than a decade ago, while suburbs are growing more slowly. In addition, we are likely reaching a point where city growth is constrained not by a diminished preference for urban living, but by the failure of supply to keep up with the growing demand for cities.

2. Has Portland’s rent fever broken? In early 2016, rents in Portland were growing at double-digit levels, prompting its City Council to enact one of the nation’s most demanding inclusionary zoning requirements. But over the past twelve months, new apartment supply has apparently been catching up with demand. According to data tabulated by ApartmentList.com and Zillow, rents in Portland have been flat over the past year, and the city has recorded some of the lowest levels of rental inflation of any large metro area in the US. Plus, there are thousands of  more units in the construction pipeline, many of them motivated to get building permits before the new inclusionary zoning requirements kick in. More supply is likely to further moderate rents in Portland in the year ahead.

3. Why might Uber and Lyft support road pricing? In the past few months, key executives at the nations’ two largest transportation network companies have editorialized in favor of road pricing. At first glance, this seems odd, inasmuch as both firms would be among the biggest payers of such fees. But looking forward, there are good reasons to think that road pricing would spur further growth of their business models–as well as potentially improving the flow of traffic in cities.

Must read

1. Henry Grabar’s review of The New Urban Crisis. Richard Florida’s latest opus has hit the shelves, and while we’re still reading our copy at City Observatory, Slate’s Henry Grabar offers up his views. If you don’t have the book, there’s an excerpt at CityLab. Grabar’s key point: while Florida presents a good synthesis of the literature and data on growing income inequality and economic segregation within metro areas, his composite “urban crisis index” creates a mish-mash of cities with very different problems and characteristics. That, and November’s Trump victory seem to have quashed Florida’s (and everyone else’s) hope that national policies will take on a seriously city-centered approach to any of the nation’s most pressing problems. There’ll be more to discuss in the weeks ahead, but Grabar offers some useful questions to start the debate.

2. The Economist on Parkaggedon. The venerable London-based global newsmagazine the Economist channels its inner Donald Shoup in a long article and editorial making the case for better pricing parking. While there’s little new here for those who following parking closely, its a prominent and extremely well-argued case for reforming the way we think about parking.  Bottom line: Don’t let people park for free.

3. Alon Levy debunks the vacuum tube. The hyperloop is generating a new round of hype in transportation circles. At Pedestrian Observations, Alon Levy does some basic fact checking on the cost assumptions and physics of building a system of pneumatic tubes to shoot people from city to city. He concludes that hyperloop advocates make some heroic (and unsubstantiated) assumptions about cost, and that a fawning and deferential press gives Elon Musk a pass on outrageous claims because he’s a wealthy techno-celebrity. Levy also points out that the lateral acceleration and g-forces that a hyperloop would create would make a roller-coaster ride tame by comparison.

New ideas

We’re spending less time traveling. While headline grabbing “cost of congestion” reports seem to paint a picture of ever increasing traffic and lengthening commutes, there’s another source of data about our travel habits that show a very different trend. A new paper from George Washington University’s Chao Wei and Chen Song compiles decades of time use data to examine travel behavior relative to other uses of time. The federal government has long surveyed American’s on their use of time, asking respondents to fill out time diaries that record all of their activities on given days. This source of data shows that actually, the amount of time that working Americans spend traveling to and from their jobs has actually decreased over the past couple of decades.  The following chart shows the change in time spend working (the blue line) and the time spent traveling to and from work (the red dotted line) since 1975. While commuting time increased in the 1980s and 1990s, the time diary data suggest that commute times have declined since then, and are now 10 to 20 percent less than they were in 1975.

City Observatory in the news

More than just call centers. The Portland Business Journal looks at the way that software companies increasingly rely on ongoing relationships with their user base to continually refine and improve their products. As Joe Cortright explains, far from simply offering highly scripted hand-holding, the customer support function in many firms is a critical part of the product development and improvement process.

What City Observatory did this week

1. How we measure segregation depends on why we care. Daniel Hertz explores the various ways we measure the geographic separation of different racial and ethnic groups. There’s a widely used dissimilarity index, that looks at differences between two groups, like blacks and whites. There are broader measures that look at population diversity. The different measures tell us about different aspects of segregation, and remind us that segregation is not a simple, one-dimensional problem.

2. The cliff notes version of The New Urban Crisis. Urbanists everywhere are reading and talking about Richard Florida’s latest opus exploring what he calls “The New Urban Crisis.” Has he re-canted the creative class message? What problems are inherent to 21st century urbanism, and which can be solved? And who can solve them? To get you started, we offer a short outline of the book. In the coming weeks, we’ll have more to say about what’s in the book. Be ready for the discussion.

3. Why is affordable housing so unaffordable? Cities and states are struggling to come up with more money to help build additional affordable housing, but they’re finding their money doesn’t go very far. Unit costs of constructing new apartments in San Francisco, for example, are in the $600,000 to $800,000 range, and even more modestly priced metropolitan areas like Portland and Minneapolis are not able to build many units because of high costs. Private builders have come forward in Portland with offers to build more spartan units for as little as $100,000 each, and there are proposals to adopt pre-fab, off-site construction techniques, but until something radical happens, the high cost of construction will be a big barrier to the public sector building enough units to make a serious dent in the housing affordability problem.

4. Happy Earth Day, Oregon! Let’s widen a freeway! Saturday April 22 is the 47th installment of Earth Day, and if the rate of climate change is any indication, not a sign that we’ve made much progress. Some places, like Oregon, have legislated bold goals to reduce greenhouse gas emissions . . . a few decades from now. In the mean time, the highway lobby has its own plans for celebration: a billion dollars worth of freeway-widening projects in the Portland area. Its doubly ironic that a city that made national headlines for tearing out a downtown freeway when environmentalism was new four decades ago, has somehow forgotten that building more freeways just generates more traffic and pollution.

Must read

1. Will Boomers age in place? Day-by-day, the baby boom generation is getting older. While housing market experts have long maintained that boomers will want to “age in place,” declining health, changing preferences and shifting real estate markets are all likely to impact those decisions. As has regularly been the case over the decades, the sheer numbers of boomers simultaneously lurching into and out of markets as changed whole industries. As boomers look to sell their mostly suburban, single family homes, there’s the danger there’ll be a huge glut on the market, just as demand by younger generations has shifted back towards cities. The result, the University of Utah’s Art Nelson suggests, is likely to be the case that many boomers will be “stuck in place” by the low value of their homes.

2. The high cost of negotiated community benefit agreements. Social justice advocates have increasingly turned to negotiating formal “community benefit agreements” (CBAs) to assure that when new developments go forward, that those impacted by growth are change are compensated. In Oakland, California, developers on one apartment complex signed aCBA worth nearly $800,000 on a 400 unit apartment project; another apartment agreed to a $1.8 million CBA. In both cases, the money went to a range of investments in the nearby community and contributions to local non-profits. And these amounts were on top of development impact fees that the City already imposed.  SPUR’s Robert Ogilivie looks at the downside of CBAs:  the delay and uncertainty associated with the negotiation of a community benefit agreement makes it hard for developers (and prospective tenants) to know in advance whether the decision to choose a particular location will be cost-effective, or even possible.

3. Tesla’s parking problem. How’s Elon Musk going to solve urban transportation problems, either with his sleek Tesla vehicles, his swoopy Hyper-Loop or magically inexpensive highway tunnels, if he can’t even figure out how to solve the parking problem at his own offices? That’s the question that’s posed by an article in the Wall Street Journal chronicling the crazy competition for parking spaces at Telsa HQ.  Streetsblog Angie Schmidt has the details, in a post entitled “Tesla’s Parking problem says a lot about Elon Musk’s particular brand of tech saviorism.”  Our advice: have Elon read Don Shoup’s High Cost of Free Parking. He might also pay attention to what his colleagues at Uber and Lyft are saying about the need for road pricing.

New ideas

Peak Voiture? Data from France shows that car travel in its largest metro areas actually peaked about 15 years ago, and has been declining everywhere since then. The following data show car trips as a percentage all trips in the country’s principal urban areas. (Ile de France is the Paris metropolitan area). A tip of the chapeau to Rue 89Lyon which presented these numbers in an excellent story relating how down-grading the autoroute through Lyon to a boulevard will actually facilitate travel and improve urban life.

City Observatory in the news

Joe Cortright is interviewed about Detroit’s rebound, and how to cope with concerns about gentrification in the Center for Michigan’s monthly magazine “Bridge“.

A New York Magazine “Science of Us” feature asks “Is everyone focusing too much on gentrification?” The story quotes City Observatory’s Joe Cortright and our study “Lost in Place” looking at the persistence and growth of high poverty neighborhoods in the nation’s largest metropolitan areas.

What City Observatory did this week

1. The latest from the Louisville travel behavior experiment. Just before the New Year, Louisville started charging tolls to cross its newly-widened I-65 bridge. When it did, traffic across the bridge fell by almost half. Part of the reason was that motorists could take a very short detour and cross the Ohio River on an un-tolled Second Street Bridge. But that bridge was recently closed temporarily as part of the city’s annual Thunder over Louisville celebration. So, did the absence of a free crossing boost traffic on the tolled bridge? Traffic cam photos suggest that the toll bridge is still lightly used at peak hours. But photos are far from the best evidence, which would be actual traffic data. Unfortunately, Riverlink, the I-65 toll collectors, haven’t released any traffic data since the first month of tolling, so we don’t know how things are going. In related news, however, Kentucky did announce that it had signed a $300,000 contract for a consultant to determine whether toll revenues would be sufficient to repay the bonds issued to finance bridge construction, which may be a sign that that there’s some trouble in this river city.

2. The 0.1 Percent Solution: Inclusionary Zoning’s fatal scale problem. A new study from noted urban scholars Lance Freeman and Jenny Shuetz looks at the effectiveness of local policies to promote housing affordability. They take a close look at more than 50 inclusionary zoning programs in five different states and conclude that they’ve had an miniscule effect on housing supply, contributing less than 0.1 percent to the building stock, with an average of fewer than ten affordable units per year. Freeman and Schuetz argue that to address affordability local governments need to upzone widely to allow greater density and cut-back on regulations to lower development costs and encourage more supply.

3. Word of the day: Hagiometry. You know doubt already know about “hagiography”–works of art or literature that glorify a particular person (usually the person who commissioned the work). While old-school hagiography may no longer be in fashion, in our data-driven world, a new form of fawning portraiture has emerged, with all the flourishes and exaggerations that have been traditional in the genre. The key difference is that its flattery with numbers, rather than paint or words. We take a close look at some of the common flaws that underlie the economic impact studies that gin up impressive sounding numbers to help sell everything from ballparks to big box retail stores.

4. What does it mean to be a Smart City? The term “smart city” is all the rage, and in generally focuses heavily on technology, and how we might better exert control over systems from streetlights to water systems to traffic by instrumenting everything in sight. But in our view this highly centralized, engineering view of cities smacks of the kind of heavy-handed approach to cities exemplified by the master builder Robert Moses. In contrast, the real smarts, or intelligence of cities stems from their ability to bring people together, in a fashion better described by the work of Jane Jacobs. We shouldn’t be so enamored of technology that we forget that cities succeed because largely because they enable their residents to easily connect to one another in the urban environment.

Must read

1. How affordable housing lotteries work in practice. Inclusionary zoning programs require developers of new apartment buildings to rent out a portion of their units at below market rates. To qualify households have to have income that is in some target range (generally less than 80 percent or less than 60 percent of area median income) with rents pegged to their income level. Because rents are much cheaper than market, there are many more applicants for such housing than available units, so city’s conduct lotteries to allocate the units. City Living, describes how the process works in practice. They emphasize that there’s much more demand among the lowest income groups than moderate income groups (there are more than 1,000 applicants for each unit in two of the three lowest income categories, and as few as 15 applicants for each unit in the “highest” but still moderate income category. That’s hardly surprising: the higher your income the relatively less attractive the affordable unit is compared to market prices.

2. The high cost of starchitecture-London’s Garden Bridge edition.  For the past several years, a new signature bridge has been in the offing for central London. Called the Garden Bridge, this pedestrian only structure would provide a landscaped path over the Thames. The design looks a bit like a freeway overpass with an overgrown hedge. The Happy Pontist, a bridge aficionado and critic writing in the UK chronicles the megaproject bloat that has engulfed the project. Originally proposed at a cost of about 60 million pounds in 2013, the project’s pricetag is now likely to exceed 2o0 million pounds–if the project goes forward. One of its leading proponents, former London Mayor Boris Johnson is out of office, and his successor is likely to be willing to write off sunk costs of 46 million pounds. And as the Happy Pontist notes, the problem is that the so-called “professionals” in architecture, transport and engineering who might have warned about the likely results of this folly did almost nothing to warn their clients or the public of the risks involved.

3. Why its important to tell the truth about economic change. Writing at Vox, Matt Yglesias challenges the notion that public discussions ought not to challenge the economic worldview of Trump voters. Denying the reality of fundamental economic change and offering up nostalgia as an economic strategy isn’t going to help us move forward. Neither the Appalachian coal industry, nor shuttered manufacturing plants like Lewiston Maine’s paper mill, will be revived. Economies don’t stand still, and they don’t go backwards. Ironically, the historical process of economic development in the US has always been about our willingness to embrace and thrive on change, building new industries, making large scale investments, migrating to opportunity, creating new homes and communities. Nostalgia isn’t an economic strategy, and indulging it is an obstacle to actually solving our economic problems.

New ideas

The economic disadvantages of being a suburban state. A new study published by the Philadelphia branch of the Federal Reserve Bank offers up an in-depth analysis of employment change in New Jersey over the past decade. By many traditional measures, including its high level of educational attainment, the Garden State should be well-positioned to compete in a knowledge-driven economy. But for the past 15 years, its economic performance has trailed that of the nation. The Fed study “Is Urban Cool Cooling New Jersey’s economy,” notes that New Jersey’s economy (which still has employment 2.2 percent below its pre-recession peak) has dramatically underperformed the urban centers of Philadelphia and New York. Essentially all of New Jersey is a suburb of one or the other of these two metropolitan areas, so the culprit seems to be the relative decline in the attractiveness of suburban locations. The Fed study includes a detailed shift share analysis which shows that New Jersey recorded much less job growth in urban-centered industries like finance and professional services, that drove national growth in the latest recovery.  This is more evidence that national job growth is shifting away from suburbs and toward cities.

Why is affordable housing so expensive?

In many cities, affordable housing has a problem:  it’s not affordable. California Governor Jerry Brown made that point again, emphatically, with his new state budget. He’s said that he’s not putting any new state resources into subsidizing affordable housing until state and local governments figure out ways to bring the costs down. Last year, opposition from labor and environmental groups blocked the governors proposal to exempt affordable housing from some key regulatory requirements.  Brown had offered $400 million in additional state funds for affordable housing if that proposal was adopted. Now that money is off the table.

“We’ve got to bring down the cost structure of housing and not just find ways to subsidize it,” Brown said in is budget speech.

And the costs are substantial. In San Francisco, one of the largest all-affordable housing projects, 1950 Mission Street, clocks in at more than $600,000 per unit.  That number isn’t getting any lower: new units in that city’s Candlestick Point development will cost nearly $825,000 each, according to recent press reports. Brown’s point is that at that cost per unit, its simply beyond the fiscal reach of California or any state to be able to afford to build housing for all of the rent-burdened households.

And while the problem is extreme in San Francisco, it crops up elsewhere.  In St. Paul, affordable housing–mostly one bedroom units– in a renovated downtown building cost $665,000 per unit.

In Portland, newly elected Mayor Ted Wheeler has temporarily embargoed any further spending of the city’s recently improved $258 million affordable housing bond issue. Shortly before he took office, the Portland Housing Bureau committed to spending nearly 15 percent of the levy’s proceeds to acquire an existing 263 unit housing complex. The city will pay $51 million in total, about $193,000 per unit for the building. The cost of new construction tends to be even higher. Public projects often involve more elaborate design, LEED certification, additional public spaces and higher overhead costs.

More broadly, the case has been made that much publicly subsidized  affordable housing costs much more to build that market rate housing.  Private developers are able to build new multi-family housing at far lower cost. One local builder has constructed new one-bedroom apartments in Portland at cost of less than $100,000 a unit, albeit with fewer amenities and in less central locations that most publicly supported projects. In Portland, local private developer Rob Justus has proposed to build 300 apartments and sell them to the city for $100,000 each on a turn-key basis to be operated as affordable housing. Another possible cost savings measure: off-site construction. The University of California, Berkeley’s Terner Center has a new report that explores the possibility for pre-fabricated, off-site construction to reduce construction costs.

Portland Mayor Wheeler voices the same concerns as California Governor Brown:

“We’ve added a lot of programs to affordable housing that may be socially desirable. But when the goal is to create the maximum number of new doors, we have to reduce costs and get more supply on the market as quickly as possible.”

In the Twin Cities, Myron Orfield has pointed out that the allocation of tax credits and the concentration of community development corporations in urban neighborhoods has tended to produce more housing in costly urban locations. Orfield also blames the high overhead costs of CDCs.

. . . central city development programs are inefficient, spending much more per unit of new affordable housing in the central cities than comparable housing costs in more affluent, opportunity-rich suburbs. Many of the leading developers working in the poorest parts of the region also pay their managers very high salaries. As a result, the funding system incentivizes higher cost projects in segregated neighborhoods over lower cost projects in integrated neighborhoods.

Perhaps the central problem of housing affordability is one of scale: the number of units that we’re able to provide is too small.  That’s true whether we’re talking about through Section 8 vouchers (that go to only about 1 in 5 eligible households), or through inclusionary zoning requirements (which provide only handfuls of units in most cities). The very high per unit construction costs of affordable housing only make the problem more vexing: the pressure to make any project that gets constructed as distinctive, amenity-rich and environmentally friendly as possible, means that the limited number of public dollars end up building fewer units. And too few units–scale–is the real problem here.

The combination of very limited public funds for affordable housing, even in the most prosperous and liberal cities, and the tendency for publicly subsidized housing to be nearly as costly as new, market rate housing, is a recipe for failure.