How luxury housing becomes affordable

Build expensive new “luxury” apartments, and wait a few decades

One of the most common refrains the the affordable housing discussion is “developers are targeting the high end of the market” and new apartments are just unaffordable.

Although we–and others–have pointed out that building more high end housing keeps those with high incomes from moving down market and out-bidding those with less income for the existing housing stock, we still hear this argument. For remaining doubters, have a look at Noah Smith’s thought experiment, asking what we think would happen to housing prices  if we suddenly demolished 10,000 units of expensive housing.

But today, we take a slightly longer perspective. Housing blogger Iain MacKenzie, who runs the definitive Next Portland website, tracking new housing and commercial developments in the Rose City, shared with us a couple of fascinating historical clips from the city’s paper of record, The Oregonian. They show that today’s affordable housing often started life as self-described “luxury” housing when it was originally built.

The first example dates back a half century, to the 1960s, when in the wake of urban renewal the city was building a wave of new apartments. The Oregonian of January 9, 1966 described the city’s booming market for new luxury accomodation:

“Luxury apartments, which start at $135 for a one bedroom unit and rapidly climb out of sight, have been sprouting in Portland at a breathless rate, and more are planned or abuilding.  The total investment in such properties is certainly above the $100 million mark here.”

One of these complexes was the Timberlee in suburban Raleigh Hills, a close-in suburban neighborhood. According to the Oregonian, the Timberlee on SW 38th Place was one of the most prosperous of the 13 apartment complexes it examined in its story, with 97 percent of its 214 units rented.

Of course, the Timberlee Apartments are still around.  While none of the units are currently for rent, according to, rents in the area run from about $1,000 for studios and one bedroom to $1,300 and more for two bedroom and larger apartments.  By today’s standards, the Timberlee seems modest, and a bit dated, rather than luxurious.

The Timberlee apartments are typical of those that were built around the country in the 1960s and 1970s.  As we’ve chronicled, similar vintage apartments in the Atlanta suburb of Marietta, started life as the preferred housing of (mostly white) young couples and singles, but as they aged, became so affordable that they constituted low income housing. The city spent $65 million of taxpayer money to buy and demolish these apartments, displacing hundreds of families.

Ian’s second clipping goes back just more than a century, to Christmas Day, 1910, when Portland was enjoying a small construction boom–interestingly, triggered by the advent of a tougher building code that would have made apartments more expensive or impossible to build in some neighborhoods.  Just as with today’s inclusionary housing ordinance, there was a land rush as developers filed for building permits in advance of the deadline.

But back to our story.  The 1910 article plays up the luxury of the new dwellings under construction.

The purpose of the builds is to establish a model for high-class apartments .  . . The building will follow the latest style of construction in vogue in New York, and will embody the extreme of luxury with every possible attention given to comfort. Some new features in the way of modern conveniences will be introduced, the aim being to attract the desirable class of patrons, those who will be willing to pay as high as $150 a month for the five and six room apartments which they house will contain.

One of the new luxury apartment buildings constructed in 1910 was the Belmont Court, on the city’s growing East Side. Plans called for a modern 24 unit-apartment building with a range of conveniences.

Some fine dwellings of this class are being planned for the East Side. MacNaughton & Raymond have designed for E. L. Taylor a three-story brick veneer apartment-house 50×100, to be built at East Fifteenth and Belmont Streets and to cost $30,000. It will have seven three-room apartments on each floor and 24 in all, including the janitor’s quarters and two other suites in the basement.

More than a century later, the Belmont Court building still stands. In fact, two of its apartments are for rent just now. According to Zillow, average apartment rents in Portland are about $1,600 per month. With studio apartments renting at just under $1,100 they’re not exactly cheap, but they cost less per square foot than newly built units, and with a Walk Score of 92, there located in a neighborhood where one can conveniently live without a car.

Another interesting historical change.  Described as three-room apartments when they were built, the Belmont Court apartments are today described as studios.  They have a separate living area, kitchen and bathroom (each of which, a century ago, merited counting as a separate room).  In an era when a large fraction of urban residents were boarders in boarding houses, a private kitchen and bathroom may indeed have been a luxury.

Here’s the takeway:  New housing is almost always built for and sold to the high end of the marketplace.  It was that way a hundred years ago and fifty years ago. But as it ages, housing depreciates and moves down market. The luxury apartments of two or three decades ago have lost most of their luster, and command relatively lower rents. And the truth is--that’s how we’ve always generated more affordable housing, through the process that economists call “filtering.”  And the new self-styled “luxury” apartments we’re building today will be the affordable housing of 2040 and 2050 and later.

What causes affordability problems to arise is when we stop building new housing, or build it too slowly to cause aging housing to filter down-market. When new high priced housing doesn’t get built, demand doesn’t disappear, instead, those higher income households bid up the price of the existing housing stock, keeping it from becoming more affordable.  Which is why otherwise prosaic 1,500 foot ranch houses in Santa Monica sell for a couple of million bucks, while physically similar 1950’s era homes in the rest of the country are either now highly affordable–or candidates for demolition.

Special thanks to Iain MacKenzie and NextPortland for their original research ideas and sharing these vintage news articles.

Housing policy lessons from Vienna: Part I

Is Stadt Wien the model for US urban housing policy?

We’re pleased to welcome a guest commentary from Mike Eliason of Seattle. Mike is a passivhaus designer with Patano Studio who is interested in baugruppen, mass timber, ultra low energy buildings, and social housing.  Vienna is often mentioned as a model for how American cities might do a better job of providing more widespread affordability. While tantalizing, many of the descriptions of the secrets of its reported success are cryptic and incomplete. A couple of weeks back, Mike shared with us a number of interesting insights about what’s behind Vienna’s policy, and at our invitation, he’s presenting them at City Observatory. You can follow Mike and his musings on urbanism on twitter (

Part I:  Paying for housing.

This is a two-part series on housing policy in Vienna and how it could be a model for progressive housing policy in Seattle, where I live, or other American cities struggling with affordable housing. The first part is an overview of financing and subsidies. Part two, coming tomorrow, looks in detail at how zoning and development supports housing affordability.

I was in Vienna for the Passivhaus  conference this past spring, and the highlight was spending several hours discussing housing development over several days with city staff. For the uninitiated, a Passivhaus is an ultra-low energy building that incorporates a high level of thermal comfort and building durability – as well as a buoy against energy poverty. By the closing plenary, I had come to the same conclusion that Lloyd Alter expressed – Vienna shouldn’t be selling its Passivhaus buildings (of which there are many) to the world, but rather it should be selling the idea of the city itself. I left with the belief that Vienna is doing almost everything right, and Seattle, while building a lot, is doing almost everything wrong.

Photo: Mike Eliason

As a result, I was excited to see Crosscut’s recent article, ‘the City that Solved Homelessness’  which offers a good introduction to social housing in Vienna. However, it misses a few key points, and it is these key points that Seattle should model in order to form a more diverse, just, and livable city.

First a little orientation.  Vienna is comparable in size, income and living conditions to large US metro areas.  

Vienna median income is roughly USD$36,000. Being the capital, it has a large population at 1.88M, and its growth rate is 2.4% between 2015-2016. Vienna is one of the most livable cities globally (Mercer’s ranked it number one for the 8th year in a row, Seattle at 45th, and almost half of the city is green space, with large, accessible parks contributing to a high quality of life. The city’s total area is 160 square miles. It also features a highly comprehensive and inexpensive transit system. The average apartment size is 750 square feet.

For comparison, Seattle’s median income recently passed $80,000. The city has a population of 710,000 – but the metro area is 3.8 million (Vienna’s is 2.6 million – though on considerably less land) and is growing at 3.1%. Seattle’s transit system is not comprehensive, though it did pass a $54B transit levy last year. The city’s total area is 85 square miles.  City-owned park land is 12% of total. The average apartment size in King County is 810 square feet (single family houses are just under 1,500 square feet).

Like Seattle, Vienna is growing, having added 30,000 residents in 2016. Also like Seattle, most of those are one person households. Both cities are responding by adding a fair amount of housing, but their approaches are vastly different.  Vienna has been producing roughly 10,000 units per year, and is aiming to increase production to 13,000 per year by 2018. Seattle’s on pace for about 7,000 this year, about the same as last year. The SPÖ (Social Democratic Party of Austria) leading the city last year introduced the ‘wohnbauoffensive – a plan to reduce obstacles to construction and permitting, as well as *increasing* annual housing production by 30% in order to meet demand. Yes, that’s right – lefties who don’t deny supply and demand exist, and that the housing shortage must be addressed by building more housing – at all levels – as quickly as possible.

Vienna does have some history with housing shortages. Much of the foundation that makes Vienna successful today comes from 1920s and 30s era Red Vienna:, and the gemeindebauten  and are critical to the city today. While some cities like Berlin and Dresden sold off large portions of their social housing post-reunification, and today are struggling with housing, Vienna has made a point to not just keep the social housing they previously built, but to rehab them (gentle urban renewal) and build new ones at a steady clip. A brief history of the city’s social housing can be found here.

National policy plays a critical role. Vienna’s affordable housing is largely funded by federal taxes. Vienna uses these taxes to subsidize affordable housing construction, rehabilitations, and preservation. Bigly – 577 million euros ($656M USD) expected for 2017. In Seattle, we’re going a different route, and will be attempting to tax landowners and/or future residents via Inclusionary Zoning/MHA . Vienna’s social housing has almost a century of positive results, and even today this approach builds several thousand dense, affordable, high quality units per year. Inclusionary Zoning has 30 years of mixed to paltry results. Yes, Seattle has the housing levy which was significantly increased last election, but this is a small fraction by comparison and the need is great.

Vienna builds thousands of units like these annually (Mike Eliason)

In addition to subsidizing the construction of new housing, Vienna will spend nearly 200M ($227M USD) rehabbing their existing housing stock in 2017 – some of it even to Passivhaus standards. Energetic retrofits are a key component of buoying residents against energy poverty, as well as providing comfortable and more durable housing.

Proportional spending for Seattle would be roughly $260 million annually, however – there’s a massive rub. On a per square foot basis, the cost of construction is roughly half what it is in Seattle – for buildings that are generally of higher quality and performance. This phenomenon is the direct result of something Seattle should be undertaking, Bauträgerwettbewerbe (housing developer competitions). I will expand on these and the other innovative things Vienna is doing to expand affordable housing in the next segment.

This article has been revised to clarify a reference to the size of single family homes compared to apartments in King County.

Part 2 of this series appears here.

Housing Policy Lessons from Vienna, Part II

Allowing multi-family housing in all residential zones, and aggressively promoting private bidding lowers housing costs

We’re pleased to welcome a guest commentary from Mike Eliason of Seattle. Mike is a passivhaus designer with Patano Studio who is interested in baugruppen, mass timber, ultra low energy buildings, and social housing.  Vienna is often mentioned as a model for how American cities might do a better job of providing more widespread affordability. While tantalizing, many of the descriptions of the secrets of its reported success are cryptic and incomplete. A couple of weeks back, Mike shared with us a number of interesting insights about what’s behind Vienna’s policy, and at our invitation, he’s presenting them at City Observatory. You can follow Mike and his musings on urbanism on twitter (

Part II:  Zoning and development in Vienna

Previously, I discussed demographic and funding allocations of social housing in Vienna, compared to Seattle. (Part I of this series is here.) This segment will look at the zoning and development policies, compared to Seattle.

Urban Planning in Vienna is incredibly comprehensive, and the city undergoes a rigorous citizen engagement  and planning exercise when developing or redeveloping areas. The Bauträgerwettbewerbe are a critical component of achieving high quality, dense, and livable housing cost effectively. Teams compete to develop and receive subsidies for individual projects, and are judged by a diverse panel on the economics of the project, the architecture, ecology of the building, and the social mix. The city has effectively leveraged its purse to push the price of construction down, making developers compete on the merits and economics. This results in buildings that are incredibly innovative across the board – you can see past winners here, and there’s even a 24-story cross laminated timber tower underway in Seestadt Aspern.

Seattle’s planning process is less comprehensive. Much is left to the market to decide where things should go. Large developments are the exception, rather than the norm. And while Seattle has attempted to stimulate innovation , those efforts have largely fallen flat. Not only does Seattle thwart innovation, but we also allow homeowners to slow and kill housing units through excessive design review and other forms of predatory delay.

The amount of land zoned exclusively for single family houses in Vienna is zero. Just 9% of the dwelling units in Vienna are single family homes. In Seattle, 44% of dwelling units are single family homes and almost 75% of non-industrial parcels are reserved for this least dense, least sustainable form of housing. We’re constantly digging out of a hole, and until we start thinking more holistically and at a drastically larger scale, we’ll never get out.

2010 Vienna population density map, source: Stadt Wien

​Vienna has neighborhoods, but density isn’t limited to just a few urban villages. The density of Vienna is largely centralized and relentless. Seattle’s Urban Villages held promise, but many are severely gerrymandered and the zoning within them is largely deferential to single family zoning inside and outside the demarcated areas. Vienna’s zoning is broad and deep – generally 6-8 stories over several blocks – whereas Seattle’s density usually starts well under 8 stories and steps down to single family zoning quickly, making for weak, car-dominated urbanism and high housing prices. Vienna has walksheds that are nearly three-quarters of a mile in new development. We hope that Seattle get to ½ mile walkshed one day.

Additionally, Vienna, isn’t afraid to convert former industrial lands to housing, a topic that is taboo in Seattle. Vienna recently redeveloped one of its airports just minutes from the city to the Seestadt Aspern district which will house 20,000 residents and 20,000 jobs, on less than 600 acres – plus parks, schools, stores, etc. Likewise, the former railyards in Nordbahnhof district are also being redeveloped into dense urban housing for 25,000 – with parks, schools, institutions, jobs. Seattle could be doing this, but tragically, we have more land zoned for industry than we do for multifamily housing. We do redevelop a fair amount of industrial land – but mainly for just different types of jobs (e.g. offices instead of manufacturing). And while we’ll likely never turn Boeing Field into a larger version of Seestadt Aspern – we should be looking more critically at how and where we can easily accommodate more housing.  

Crosscut’s Joe Copeland wrote in his piece describing Vienna housing policies that much of the new social housing in Vienna is low rise – and while projects on the outer districts do trend toward lower buildings, much of the social and market housing built today would not be considered low rise by Seattle residents. Most projects are greater than 4 stories, and though they are dense, they provide amenities unheard of in Seattle – especially for non-luxury housing. To get a glimpse of recent housing projects in Vienna, go here.

Vienna’s history of extensive density allows for another innovative form of gentle urban renewal – rooftop additions (aufstockungen). Rooftop additions are everywhere in Vienna, and in some places the city is allowing market rate to be built to offset rents for the remainder of the building. In others, the city itself is adding roof top units as it rehabs existing buildings. While several hundred are underway each year, it is estimated that 25,000 rooftop housing units could be added over existing buildings.We would be hard pressed to easily accommodate 25,000 new units *over* existing single family homes in Seattle.

Tenure in Austria is wholly different from the U.S. For one, housing contracts in Austria are primarily indefinite, versus one-year contracts. This reduces the stress of constantly having to find new housing or accept rent increases. As an added security, because Vienna’s social housing is intended to result in economically diverse communities, there is only a limit upon starting tenancy, and increased wages do not result in households being pushed into market rate rentals. Additionally, depending on the type of unit, some can be passed on to family members. This ensures that there are no neighborhoods that are overwhelmingly wealthy or poor, but rather a diverse mix. To this point, some of the most expensive single family houses in Vienna sit opposite the street of gemeindebauten. Seattle’s rampant exclusionary zoning prevents this sort of mixing from happening. Instead of slowing gentrification, our restrictive zoning accelerates it.

Vienna, like Seattle, is also majority renter. This means the city does not have land use policies that are easily co-opted or dominated by homeowners. The city encourages very broad participation in planning. There are no policies preserving single family homeowners views, street parking, etc. And unlike Seattle, most parks are surrounded by dense, multifamily neighborhoods. Fifty percent of Vienna is green space, and going forward – the city is aiming to keep that ratio despite adding new housing. Such a goal would be extremely difficult given the plethora of land dedicated in Seattle to sprawl, essentially. Vienna’s planning documents are a thing of beauty.

Vienna could be an ideal model for Seattle. It’s dominated by left-leaning politics. It’s majority renter. It builds more social housing than market rate. But our zoning, our lack of vision and leadership, our lack of comprehensive planning, our lack of innovation, and most importantly, our lack of funding make such a model difficult to obtain. Vienna is doing almost everything right. Perhaps it is time for Seattle too, as well.  

How green is my free parking structure? Not very.

Why does the National Renewable Energy Lab give its employees free parking?

The researchers at the National Renewable Energy Lab are hard at work on a lot of cool ideas for reducing pollution and promoting greater energy efficiency. They’re figuring out ways to improve photovoltaics and increase the efficiency of wind energy generation, and are a research leader in integrating these renewable energy sources into utility scale energy systems. The staff are also developing biofuels that could one day replace fossil fuels in transportation and other uses.  They have an entire program dedicated to transportation:

NREL research, development, and deployment (RD&D) accelerates widespread adoption of high-performance, low-emission, energy-saving strategies for passenger and freight transportation. Dedicated to renewable energy and energy efficiency, NREL and its industry, government, and academic partners use a whole-systems approach to create innovative components, fuels, and infrastructure for electric, hybrid, fuel cell, and conventional vehicles.

When the scientists working on tough problems of how to maximize the use of renewables and minimize energy use and pollution are charged with building the place they work, you can bet they’ll put a lot of thought into how to make things as smart and efficient as possible. It’s festooned with arrays of photovoltaic cells to generate electricity on site. Because it’s one of the lab’s newest structures, they’ve extensively modeled the daylighting of the building to minimize lighting requirements, and made extensive use of recycled (and re-cyclable aluminum).  The building’s lights are mostly on only at night, and only when motion detectors recognize occupants. This new $31.5 million building is shooting to be LEED Platinum and even be a “net zero” energy structure.

Net zero, provided you ignore what its used for. (Haselden Construction).

But there’s one big environmental (and energy) problem with this shiny new structure:  It’s an 1,800 space parking garage.  Not only that, but (if you’re Don Shoup, please don’t read this) they don’t charge employees anything to use the garage.  The whole thing strikes us as utterly tone deaf and a flat contradiction to the organization’s mission statement. So, in addition to the lab being located in a suburban office park on the fringe of the Denver metro area, its employees are strongly incentivized–nay, subsidized–to drive their private cars to work.  And that’s exactly what an overwhelming majority of them do.

A giant, free garage encourages energy consumption and pollution

We contacted the Lab to learn more about commute patterns and parking policies.  They shared with use the mode split from their latest (2014) commuting survey.  Not surprisingly, about two-thirds of all workers drive alone to work daily, almost ten times the share that either carpool or vanpool.

Drive alone – 65%

Walk – 0%

Bicycle – 4%

Carpool – 5%

Vanpool – 2%

Transit – 14%

Motorcycle/Scooter – 1%

Telework – 9%*

These figures represent typical commute patterns. As many as a quarter of lab employees telework at least some days, and the lab estimates that telework offsets about 9 percent of commute trips.

We asked about parking prices for commuters.  Lissa Myers, who is the Lab’s Sustainable Transportation &  Climate Change Resiliency Practice Leader told us:

Parking is free on our campus and we have an abundance of it.

That’s the problem, really.  We have an abundance of proven technologies that are “high-performance, low-emission, energy-saving strategies”–they include dense cities, cycling, transit, walking and car pooling.  But technologies don’t work, or don’t work well if we subsidize people to use energy-wasting alternatives and locate large concentrations of workers in places where they have few alternatives but to drive single-occupancy vehicles.

Location, location, location

And because the lab is located on the urban fringe, rather than in a central, transit served location (like say, downtown Denver) its employees have few nearby housing options that would let them bike, walk or take transit to work. The lab has a Walk Score of 30 (out of a possible 100) making it “car dependent”–the nearest coffee shops, restaurants and grocery stores are more than a half mile away, and generally on the other side of the I-70 freeway, meaning that if they leave the lab for errands or a meal, its most likely they’ll drive.

Promoting renewable energy is (and energy conservation and greenhouse gas reductions) is a matter of both technology and incentives. An agency that’s supposedly dedicated to these tasks ought to do a better job of aligning its policies with its mission. There’s little hope that people will use a non-polluting bicycle or take transit to work, for example, if they have free use of parking.

Excess capacity

We also have to note the capacity of the NREL garage, relative to the size of the institution is enormous. The garage, completed in 2012, contains 1,800 spaces, while the lab has just 1,500 employees.  So that’s about 300 spaces more than are needed to provide one space per employee.  Based on the lab’s mode split, only slight more than 1,000 spaces are occupied per day (about 975 by single occupancy commuters, about 30 more by carpools (if we assume 2.5 workers per carpool), and about 6 spaces for van pools (assuming six workers per van pool) and the equivalent of 8 spaces by motorcycles and scooters (assuming 2 two-wheelers per parking space).  That means the garage has almost 75 percent more capacity (1,800 spaces supplied for about 1,025 vehicles) than is needed to house NREL’s worker’s vehicles–and that a price of zero to the users.  (To be sure, the garage also accommodates visitors, but that doesn’t materially affect our analysis.  According to the NREL’s economic impact statement, the lab gets about 25,000 visitors per year, which works out to about 100 visitors per day; if they each needed a parking space for an entire day, that would work out to about 100 parking spaces. In reality, typical demand would be less because most visitors stay less than an entire day and many arrive in multi-occupancy vehicles or via transit or hired vehicles).

Having built the garage, their are powerful bureaucratic incentives to see it as full as possible; that, and employee resistance to having to pay for something that they’ve been given for free, means this problem is likely to persist. It’s hard to say what’s worse: an over-sized garage that’s mostly empty (representing a waste of resources that could be better used for other things, like say research on clean energy) or a garage that’s nearly full of single-occupancy vehicles (because its free to users). As we’ve suggested, and as our colleague Tony Jordan reminds us, dedicated parking garages are likely to become big stranded assets with the advent of autonomous vehicles. But it looks like that’s not something that’s on NREL’s mind.  The agency’s construction manager Tony Thornton tells the American Galvanizer’s Association NREL wanted a building that would last  for a 100 years. Whatever they’re planning for renewable energy, it doesn’t look like they expect it to influence car ownership or driving patterns, if they expect their parking garage to be around through 2100.

Aerial view of NREL Parking structure and adjacent surface lot (Google Maps)

The claim that a parking garage can be “zero net energy” requires casting a blind eye to the structure’s central purpose. It’s only zero net energy if you completely ignore the energy used by the cars it’s designed to store, and that you ignore how building garages and subsidizing their use prompts more driving, more energy consumption and more pollution.



Reality check: Poverty rates are much lower in suburbs

Despite what you may have heard, poverty rates in suburbs are on average half what they are in urban centers

There’s a growing chorus about the so-called suburbanization of poverty. A couple of years ago, Alan Ehrenhalt’s Great Inversion argued that the wealthy and well-educated are moving to cities and the poor are being displaced to suburbs, in essence reversing the historical pattern of urban settlement in the US. The Brookings Institution has issued a series of reports noting that the number of poor persons living in suburbs has increased faster in cities. A new book from the University of Washington’s Scott Allard is the latest in a series of reports that focus on poor people living in suburbs.

There’s a political sub-text to all of these arguments: You can’t escape or ignore poverty simply by moving to the suburbs. As a result, the argument goes, you’ve got to be a supporter of an anti-poverty agenda, no moatter where you live; poverty isn’t just an urban issue.because its not confined only to cities.  So if you’re elected to Congress, whether you represent an urban district or a suburban one, you ought to support programs that fight poverty. Brookings’ Elizabeth Kneebone makes this point explicitly; her report chronicles suburban poverty rates by congressional district, and she tells The Atlantic in a story entitled “Rising suburban poverty is a bi-partisan problem

“The numbers really underscore how cross-cutting an issue poverty is—it’s not just a red or a blue issue or an inner-city or suburban issue.”

Fair enough. We ought to be willing to fight poverty whereever its present. While we understand the value of political talking points that can help build a broader geographic constituency for the federal programs–like Section 8 vouchers, food stamps (SNAP), and the earned income tax credit–all of which do wonders to blunt the effects of poverty, we worry that the attention focused on suburban poverty has tended to overshadow the fundamentally urban character of poverty, especially concentrated poverty.

The Atlantic underscored this in its reporting of earlier Brookings work in 2014.  “Fully 88 percent of Atlanta’s poor live in the suburbs,” they noted.  That seems like a huge number, until you realize that the City of Atlanta accounts for only about 8 percent of the population of the Atlanta metropolitan area–which means the city has about a 50 percent larger share of the region’s poor than it does of the region’s population. Most of the poor live in the suburbs because, according to the way municipal boundaries are drawn in the Peach State, almost everyone lives in a suburb. (As we’ve discussed at City Observatory, at least one Atlanta suburb has hit on its own strategy for fighting suburban poverty: it uses tax dollars to buy up and demolish affordable apartments; but that’s another story).

The case for the suburbanization of poverty appears in a new book, Places in Need from the University of Washington’s Scott Allard.  In an interview with CityLab last week, he summarized the argument:

Does every type of suburb have a poverty problem?

A lot of our discourse around suburban poverty says, “Well, suburban probably is really a problem for old inner-tier suburbs that are bordering higher poverty neighborhoods in cities.” But poverty is pervasive across the suburban regions of all metro areas, whether they’re new or old. In fact, the rates of change have been more severe in newer suburbs—those built after 1970—than in older suburbs. When you break out the suburban regions, there are more poor people in the newer suburbs combined than in the older suburbs.

Claiming that poverty is “pervasive” is at best misleading.  Poverty is highly unevenly distributed across metropolitan areas, and is far more concentrated in urban centers. Simply counting the number of poor in suburbs and noting that its growing, dramatically mis-characterizes the geography of poverty in US metro areas.  The best way to understand this is to look at the University of Virginia’s Luke Juday‘s charts of the poverty rate of US metro areas computed by distance from the central business district.  On this chart, the orange line shows poverty rates in 1990, and the purple and blue lines show poverty in 2010 and 2015 respectively.

There are two ways of looking at these data:  level and change.  When it comes to the level of poverty, its generally the case that poverty rates are highest in the center, and the further you live from the center of a metropolitan area, the lower the poverty rate (there’s a modest uptick in poverty beyond 20 miles from the center.  In general though, poverty rates within five miles of the urban center are more than 20 percent, and poverty rates 10 or more miles from the center are about 10 percent.

The other way of looking at the data is in terms of change.  And its fair to note that poverty rates have ticked down slightly in the absolute center of metro areas (within about 2-3 miles from the center, poverty rates have declined about 2-3 percentage points over the past 15 years or so). And beyond 5 miles from the center, poverty rates are uniformly a few percentage points higher than they were in 1990. The poverty curve has flattened very slightly. Poverty rates in suburbs are not as low as they were a couple of decades ago, but we’re no where near the “great inversion” where poverty rates are higher in suburbs than in cities.

The other thing that this telling of suburban poverty leaves out is the crucial role that concentrated poverty plays in perpetuating intractable, multi-generational problems. Its bad enough to be poor, but all of the negative effects of living in poverty are amplified by being in a place where a high fraction of one’s neighbors are also poor: you get higher crime, fewer job opportunities, worse schools and public services, and the cumulative effect of this disadvantage is to permanently lower the life chances of the kids who grow up in these places. The results of the “moving to opportunity” studies show that poor kids who are able to move to lower poverty places have measurably better personal and economic outcomes than their otherwise identical peers who remain in high poverty neighborhoods.

And what the data show is that neighborhoods of concentrated poverty are still disproportionately found in cities. Last month, the Joint Center on Housing Studies at Harvard released its annual state of the nation’s housing report, which took a close look at the geography of concentrated poverty. The JCHS report looked at extremely poor neighborhoods, those with poverty rates of 40 percent or higher (where the effects of concentrated poverty are the most pernicious). They divided the nation’s metropolitan neighborhoods into three categories, based on density.  Some 60 percent of those living in these very poor neighborhoods lived in the densest third of metropolitan neighborhoods. Strikingly, concentrated poverty was about 5 times more prevalent in the densest third of neighborhoods as in the least dense third of neighborhoods (59 percent vs. 12 percent).

There’s nothing wrong with making the point that there are at least some poor people in most neighborhoods in the United States, and that holds whether those neighborhoods are urban or suburban. And as American population has increasingly decentralized more people, including more poor people, live in suburbs. But those observations shouldn’t distract us from the point that the most devastating and pernicious form of poverty is concentrated poverty, and concentrated poverty is still a disproportionately urban problem.

What’s the biggest threat facing cities?

Politico’s survey of experts leaves out the most important challenges, in our humble opinion.

A couple of weeks back, Politco, the wonky-insider beltway news source queried a dozen of the nation’s urban thought leaders about the biggest crises facing cities in the years ahead. “What’s the greatest risk that cities face?

Mayors, Governors, scholars, think tank denizens and others all offered up their thoughts. It’s a classic summertime policy expert listicle. But what should be a slam dunk actually falls short of putting its finger on the real threats.

But let us start from offering our own “greatest risks”–which are unfortunately missing from Politico’s litany.

First, there’s the issue of concentrated poverty. Our work–and the work of innumerable scholars of far greater pedigree–confirms that concentrated poverty is one of the most pernicious and growing blights on the nation’s cities. As bad as it is to be poor anywhere, all of the negative effects of poverty are amplified when one lives in a neighborhood where a high fraction of one’s neighbors are also poor. Crime is higher, public services are worse, education and economic prospects are slim. The work of Raj Chetty, and others shows that kids growing up in these neighborhoods have permanently lower life prospects as a result. Breaking down concentrated poverty–which has actually been increasing–is the greatest risk for many cities. The closest anyone came was former Maryland Governor Martin O’Malley, who framed the issue as one of income inequality, a related, but actually different problem.

To that we can add a second, and related problem: housing affordability. The growing demand for urban living has pushed up rents in many of the nation’s cities, and and is a challenge both to economic growth and opportunity.

And surprisingly, as long as we’re talking about great risks, its remarkable that no one mentioned climate change. Climate change is arguably an existential threat to civilization, and cities have a key role–due to their inherent greenness–in fashioning a solution.

Of the risks to cities flagged by Politico’s experts, we were most impressed by the case made by Brookings Institution’s Jennifer Bradley.  She makes a subtle but important point about the the civic commons.  Too often, we’ve let “public” become a synonym for second rate. Bradley makes a strong case that we need to do better in the public realm, and make cities, and public spaces and public services places of pride and utility for everyone:

America’s cities have never fully realized their promise of opportunity and integration, but to the extent that mixing and advancement happens, it is supported by a robust public realm where people can come together and know each other as fellow residents; by strong public schools that prepare a city’s children and introduce them to each other; by extensive public transit that overcomes neighborhood isolation. Public shouldn’t mean “for use by the poor.” It should mean “for the good of all of us.”

Other problems are real and deserve mention.  Former North Carolina Governor Pat McCrory and Manhattan Institute Fellow Stephen Malanga appropriately reminds us that too many cities have massive unfunded pension liabilities that threaten their ability to provide public services. Former Memphis Mayor A. C. Wharton points out that conservative state legislatures have greatly limited the ability of cities to tackle important urban problems by preempting their authority. Brookings’ Amy Liu points out the big gap in labor market outcomes between whites and most people of color (a serious problem, that is more than just urban).

Bruce Katz–also of Brookings–calls out Washington DC as the threat to cities, and argues for greater local initiative: cities can’t wait for Washington to solve their problems. We agree that Washington DC is a threat to cities, but not for this reason. So much of what the federal government does, in tax policy, in maintaining (or dismantling) the social safety net, is likely to have enormous impacts on cities. For example, if the Affordable Care Act (Obamacare) is shredded, cities will be left to deal with a growing population of uninsured. Similarly, if the Federal Reserve decides that we’re at full employment, and starts reining in the economy. every city’s economic development problems will become that much more difficult.

David Dudley, who edits CityLab, points out that the advent of autonomous vehicles could pose as big a threat to cities as did the automobile a century ago. We think he has a good point. And as technological issues goes, we think this is a much more pressing problem than the presence of so-called broadband deserts (which are the threat identified by the New America Foundation, which not surprisingly,

But some of what experts have labeled threats strike us as, at best pet peeves. Winner for most obscure–and probably imaginary threat–skyscrapers. Saskia Sassen seems to think we’re imperiled by tall buildings. (Given the effects of single family zoning on housing affordability and economic segregation, we’re inclined to think that the reverse is true:  our cities are imperiled more by too many short buildings than too many tall ones.)  Harvard’s Diane Davis and Lily Song lament the present unevenness in the uptake of new mobility services like ride-hailing and bike sharing (but this inequity strikes us as wholly subsidiary to the dominance of private auto transportation in most cities).

Regardless of whether you agree with us (or any of Politico’s experts) its a great question to reflect on in the summer: What are the greatest risks confronting cities in the year or years ahead.

We’ve got our list: economic segregation, housing affordability, climate change and revitalizing the civic commons.  What’s yours?


Climate Change: A 2-cent solution

Let’s put a price on using the atmosphere as a garbage dump for carbon

For almost six months, Chicago has been charging shoppers a 7 cent fee for using disposable plastic grocery bags. Rather than banning the bags outright, the city settled on the fee as a way to preserve consumer choice and yet encourage less use of the plastic bags. Those who don’t bring their own bags to the store pay a the 7 cent fee, which is itemized on their receipt; the grocer keeps 2 cents for their trouble, and the nickel per bag goes to the city. (Other places have enacted similar fees: in the UK, shoppers pay 5 pence for plastic bags).

If we’re willing to charge 7 cents for this, why not 2 cents per pound of carbon?

Initial reports offer a good news/bad news story about the impact of the fee. It’s generating substantially less revenue than the city had hoped, but that’s because with just this small financial incentive, shoppers have quickly changed their behavior. Consumers are bring their own re-usable bags to the store, and plastic bag consumption is down by more than 40 percent. The Chicago Sun Times quotes one of the researchers studying the impact of the bag fee on consumers:

They recognize “that this bag is something that was free, and now it’s not,” Palmer said. “Every time customers go to a grocery store, they see that 7-cents-a-bag tax on their receipt.”

The relative ease and simplicity of the bag fee got us thinking about how we might apply the same idea to another, somewhat more serious environmental problem: climate change. What would happen if we asked consumers to pay, say 2 cents per pound, for every pound of carbon that they emitted into the atmosphere? If consumers got some small signal that dumping carbon into the atmosphere wasn’t “free” then they’d have a strong incentive to change their behavior.

Of course, this actually isn’t a new idea. But how we package it is important. Carbon tax advocates have always talked about pricing in “dollars per ton” but that puts it a little bit out of the reach of daily life and the average consumer. Talking about pounds of carbon makes it a little bit more comprehensible, and puts it in the same context as the plastic bag fee. Is it unreasonable to ask everyone to pay, for example,  just two cents for every pound of carbon they emit?

And two cents is pretty darn close to the correct number. While there are various recommendations for the appropriate level for a carbon tax, currently a number of experts are suggesting something like a tax of $40 to $80 per ton.  Divide that number by roughly 2,000 (we’ll just ignore whether the experts want that tax for a metric or an imperial ton) and a $40 per ton tax on carbon works out to about a 2 cents per pound tax.

Just to put that in perspective with our shopping bag, recognize that a typical polyethylene shopping bag weighs about five or six grams. So Chicago is charging consumers about 1 cent per gram for their shopping bag.  That’s roughly 200 times more than a 2 cent per pound tax on carbon (about 450 grams in a pound, so our 2 cents per pound tax works out to less than .005 cents per gram).

What does that mean in practice? Consider our most common form of carbon emissions: driving a gas-powered car.  If your car gets 20 miles per gallon, it produces about one pound of carbon per mile. There are slightly more than twenty pounds of carbon generated by burning a gallon of gas, so a five-mile round-trip to the store would generate about five pounds of carbon, which would cost you a dime with our proposed  2 cents per pound carbon fee. So in this scenario, if you’re buying two bags of groceries, your bag fee (in Chicago) would be 14 cents and your carbon emission fee would be 10 cents. Although if instead of driving your car, you rode your bike, and brought your own bags, you could save almost a quarter.

As a result, the fee we’re talking about to save the planet is not out of line with what we’re perfectly willing to ask consumers to pay to discourage the visible, but largely nuisance effects, of plastic bags.

A small fee, say 2 cents a pound on carbon would send consumers small, but pervasive signals about the effects of their buying choices and travel behavior on the environment. Sometimes–just as when you forget to bring your own bag, you might be willing to spend the 7 cents to have the convenience of a plastic bag, you pay for the privilege (and in the case of a carbon fee, generate revenue that could be used to reduce our dependence on fossil fuel, and offset the regressive effects of the tax). But overall, the fee would bias consumer (and investor) decisions in favor of all kinds of things that resulted in lower carbon emissions. It would make solar energy, and electric cars, and walkable urban places more economical, and make fossil fuel, gas-powered cars, and sprawl even less attractive than they are today. It would automatically reward businesses, inventors, and investors who came up with lower carbon ways to get all of the goods and services we value. It would gradually, but powerfully push us in the direction of lower carbon emissions and greater sustainability.

Shopping bags are a visible, annoying form of pollution. The are a regular feature of litter almost everywhere in the world. And while they’re a blight, and an unnecessary one, the fact is we’re willing (at least in Chicago) to make consumers pay a fee that reflects the environmental damage they cause, and to give a gentle nudge to their behavior in a direction that is better for the environment. And it’s working–plastic bag use in Chicago has dropped 42 percent already.

So why aren’t we willing to do the same with carbon? Perhaps its as simple as this: Carbon dioxide (the most common form of carbon pollution) is invisible.  We can’t see it.  If you’re car exuded fist-sized lumps of carbon at the rate of one per mile and they cluttered the roadway, we’d probably acknowledge the problem and agree to do this almost instantly. But the carbon evanesces into an invisible–and global–atmosphere, slowly, but surely raising global carbon levels and steadily raising the planet’s temperature. Plastic shopping bags aren’t an existential threat to the planet, so why are we willing to charge consumers 200 times as much (per pound) for these bags as we would charge for carbon emissions?

Is a couple of pennies a pound for carbon pollution too much to ask?

Note:  Reader @mateodechicago points out that Chicago’s bag fee applies to paper as well as plastic bags.



The Week Observed, July 28, 2017

What City Observatory did this week

1. Housing policy lessons from Vienna, Part II. In the second of his two guest commentaries, Mike Eliason takes a close look at land use laws and development processes in Vienna–a city generally recognized for its success in making affordable housing widely available to its citizens. A key difference between Vienna and US cities: virtually none of the city’s residential land is zoned exclusively for single family residences; in essence, its legal to build apartments in every residential neighborhood. Not only that, but the city hasn’t been shy about expanding up and out. It’s currently in the process of liberalizing rooftop additions to existing buildings (including its own social housing), and also has aggressively redeveloped under-used industrial sites to create dense new housing. It’s a good example of how more density and more supply play a critical role in meeting demand and keeping rents reasonable.

Photo: Mike Eliason

2. In a New York minute. New York City is famously fast-talking and fast-moving, but in the past few years traffic on the city’s streets has slowed appreciably.  South of 60th Street in Manhattan, average speeds have fallen almost 20 percent since 2010, according to city data. Surprisingly, this has happened even though the number of vehicles entering the island of Manhattan has fallen since 2010. The decline in speeds on city streets slows motorists, but also slows the bus system, lowering its productivity, and prompting more transit riders to opt for the increasingly crowded subway. A key part of the congestion problem seems to stem from the growth of ride-hailing vehicles (like those dispatched by Lyft and Uber) which are drawn to the dense, lucrative urban market.  Without some form of peak hour road pricing, this problem is likely to get worse.

Must read

1. Speed kills. The National Transportation Safety Board, which famously investigates high profile automobile, rail and airplane crashes, has stepped up to say that speeding is a major hazard to the nation’s health and safety. According to the NTSB, more than 112,000 people have died in crashes attributable to speeding in the past decade.  Streetsblog has an excellent summary of their report.  One critical NTSB recommendation: highway engineers should junk the out-dated and unscientific 85 percent rule (that says the appropriate speed limit on a highway ought to be the speed that 85 percent of the drivers don’t exceed). That rule, based on fragmentary data on rural roads from the 1950s, is routinely used to justify higher speed limits. But even fixing the 85 percent rule won’t solve the problem: too many roads, especially in urban environments, are designed with lane widths, sight distances, and signals that prompt drivers to go faster than is safe, especially for pedestrians and cyclists sharing (or trying to share) these roads. It’s a welcome sign that NTSB is moving past vehicle safety features and driver behavior to think about the way roads contribute to crashes and deaths.

2. Red tape and fees do increase the price of housing. One of the most attractive myths of housing policy is the idea that we can load all of the costs of achieving housing affordability by charging developers more for housing, either through linkage or impact fees, or requirements like inclusionary zoning. Sightline Institute’s Dan Bertolet takes a careful look at these arguments, and concludes that the myth that regulation is costless persists because it excuses counterproductive housing policies. Bertolet notes that higher costs for development tend not just to affect the cost and price of units that are built, but that they tend to depress the number of units that get built, and this supply-constricting effect tends to drive up the price of all housing. Regulations that limit density and that require off-street parking tend to drive up costs in the most highly valued locations–urban neighborhoods.

3. A must watch video on parking. OK, so maybe you aren’t so obsessed with parking that you’ll want to wade through every one of the 900 or so pages in Don Shoup’s masterpiece “The High Cost of Free Parking.” Now, there’s a painless, and even entertaining seven-minute video that conveys Shoup’s key insights about how our naive belief in free parking has diminished the livability and viability of our cities. Vox and Mobility Lab deserve kudos for this slick and powerful video.

New ideas

How state and local taxing and spending stimulate the economy. Upjohn Institute economist Tim Bartik has a new paper that explores the economic stimulus from state and local fiscal policies. While its well-understood that federal fiscal policies can stimulate the economy, Bartik examines how the pattern of state and local taxes and spending can stimulate job creation. He focuses on the difference in the marginal propensity to consume of high income households compared to the rest of the population. Those in the top ten percent of the income distribution spend a smaller share of their income, and importantly, spend less of it locally than the rest of the population. As a result, shifting the tax burden of any amount of public expenditure from the bottom 90 percent to the top 10 percent tends to result in greater spending in the local economy, and as a result, more jobs.

The Week Observed, July 14, 2017

What City Observatory did this week

1. Climate change: the two-cent solution. The City of Chicago charges its residents a fee of 7 cents for each disposable grocery bag. The fee provides revenue and more importantly, creates an incentive for consumers to use their own recyclable bags. The small fee is working; plastic bag use is down 42 percent. Why not apply this same concept to carbon pollution? If we charged just 2 cents per pound for every pound of carbon emitted, we’d create strong incentives to use (and to develop) less polluting alternatives. Its remarkable that we readily accept a bag fee that’s about 200 times higher (per unit of weight) than a carbon emissions fee–perhaps its because plastic bags are a visible and local source of waste, whereas carbon dioxide is invisible, and its effects global.

2. What’s the biggest threat facing cities?  A recent article at Politco asked more than a dozen urban experts their opinion of the most serious threat to cities in the year’s ahead. The answers ranged from the sensible and obvious (pension crises, major changes in the federal budget) to the obscure and odd (Saskia Sassen frets about the menace of skyscrapers). In our view, Politico left out at least two of the biggest threats to cities: economic segregation and housing affordability. We offer a quick synopsis of the various threats, and invite our readers to ponder this challenge.

3. Exaggerating the extent of suburban poverty. A popular theme in the past few years has been noting that America’s suburbs aren’t immune from poverty. Poverty rates have increased in suburbs, and in the aggregate more poor people live in suburbs than in the central municipalities of large metro areas. But those statistics miss the key fact that poverty rates, and especially concentrated poverty are far more prevalent in city centers than in suburbs. Moreover, suburbs are not an undifferentiated mass, many effectively exclude nearly all low income households. Poverty rates still decline sharply with distance from the city center. In the 50 largest metro areas poverty rates within 5 miles of the city center are over 20 percent; beyond ten miles they average about 10 percent. And neighborhoods of concentrated poverty are about five times more common in the densest part of metro areas than in the least dense.

Must read

1. Excluding affordable housing from white neighborhoods. The New York Times reports on a proposal to build affordable housing in Houston’s Galleria neighborhood. The proposal’s been strongly opposed by the (mostly white) neighbors, and was rejected by the City Council. Funding for the project comes in part from the federal Low Income Housing Tax Credit (LIHTC), which at least in theory should be governed by the fair housing law, which aims to reduce segregation. But the Times analysis of LIHTC data shows that while only about a third of census tracts in large metro areas are majority-minority, about 54 percent of LIHTC funded projects have been built in such neighobrhoods since 2000, which has effectively reinforced patterns on racial segregation.

2. Are foreign investors driving up housing prices in Seattle and Vancouver? Sightline Institute’s Dan Bertolet takes a close look at the high end housing markets in these two Pacific Northwest cities to tease out the impact of foreign investment on housing prices. It’s widely believe that speculative buyers, especially from China, have pushed housing prices higher in Vancouver, prompting the provincial government to levy a special tax on foreign purchases. Will that cause speculative capital to shift to Seattle? Bertolet finds that the impacts even in Vancouver appear to be small, and that it’s most likely that its the growing local demand for housing, coupled with legal and practical limits on the rate at which housing supply can increase that’s chiefly fueling high prices and rents in these two markets.

3. A record number of apartments are likely to be delivered this year. Using data from Yardi Matrix, reports than nearly 350,000 apartments are likely to be added to the nation’s housing stock in 2017, the largest number in two decades. As a result of the surge in completions, rents are softening, and in some markets, even declining: “From an affordability standpoint, things are starting to look better for renters,” according to Doug Ressler, Yardi Matrix senior analyst. “Rent growth is slowing down, even in the country’s most expensive markets and it doesn’t stop at that. ” The RentCafe story has market by market estimates of the number of apartments expected to come on line in 2017.

New ideas

New ideas will return next week.

The Week Observed, July 21, 2017

What City Observatory did this week

1. How green is my free parking structure?  Not very.  The National Renewable Energy Lab does cutting edge research on wind, solar and renewable energy. One area where their thinking isn’t cutting edge:  their new parking garage.  Not only did the federal lab build an 1,800 space garage for its 1,500 employees, they all get to park for free.  Free parking and the lab’s unwalkable suburban location lead about two-thirds of lab employees to drive alone. No matter how many solar panels you put on a garage, its just never going to be an environmentally friendly structure.

Net zero, provided you ignore what its used for.

2. The secrets of Vienna’s housing affordability. Vienna is often held up as an example of how a city can provide affordable housing for all its residents. Guest commentator Mike Eliason reports on his study of the key policies behind the city’s housing Part I looks at the way the city (and the Austrian national government) fund housing. In short, social housing is much more generously funded than in the US.  Part II, coming next week looks in more detail at the land use policies and development processes that underpin affordability.

Photo: Mike Eliason

Must read

1. The aspirational roots of black suburbanization. Writing at Corner Side Yard, Pete Saunders reviews some of the recent data on the suburbanization of the nation’s black population. In many metro areas, the African-American population in central cities is declining, while it is increasing in the surrounding suburbs. In the aggregate, in the 20 largest metro areas the White non-hispanic population is increasing in the principal (or center) city, and decreasing in the suburbs. For blacks, population is essentially flat in the center, and increasing in the suburbs. What’s behind these trends? Saunders is quick to dismiss the idea that it’s displacement from gentrification. Instead, he argues, the dominant factor is the aspiration of many black households for things the suburbs have always offered: “They will do so for the same reasons people before them did — affordability, good schools, lower crime.  They are doing so in part because suburbia is something that eluded them for so long, and is now within their grasp.”

2. Corporate Headquarters: They don’t play in Peoria. Caterpillar is just the latest big corporation to announce its moving its corporate headquarters away from its suburban or small town location.  The company will shift its headquarters from Peoria to Chicago. While the move mostly affects 300 or so senior staff, and not the company’s thousands of blue collar jobs, it is symbolic. Just two years ago, the company had told city government it would be expanding in Peoria. As with other companies moving to the big city, a chief factor seems to be to gain better access to talented workers.

3. Would a land tax help solve California’s housing affordability problems? In an op-ed in the Los Angeles Times, three UCLA scholars–Michael Lens, Paavo Monkkonen and Michalel Manville (none of them strangers to City Observatory readers)– step up to argue that a tax on land value (rather than on improvements) such as housing, stores or offices, would be the right way to help subsidize affordable housing (and incentivize additional housing supply). While its tempting to think that loading the cost of subsidies on developers (through so-called linkage fees) will somehow force developers or newcomers to foot the bill for affordable housing, the evidence is these policies (and others like inclusionary zoning) backfire, and discourage the construction of new housing, driving rents higher.  Putting a tax on land value would discourage inefficient, low density uses, and make new housing more economical. For too long, California’s post-Proposition 13 tax system has created an inequitable system that reinforces a NIMBY-dynamic that exacerbates the state’s housing affordability problem. Absent a bold rethinking of the tax system, it will be extremely difficult to change that situation.

New ideas

Whither (or perhaps wither) the Corporate Campus?  We’re big fans of the folks at SPUR, the Bay Area organization that study’s the region’s economy, housing and transportation systems. Their Alison Arieff is the lead author of a comprehensive report looking at the future prospects of the corporate campus. The new Steve Jobs-inspired, Norman Foster-designed chrome doughnut in Cupertino may turn out to the the apex of the suburban office.  Arieff and her colleagues examine how corporate campuses are changing, and where they’re headed. Their report is a fact-filled description of the history of the suburban office campus, the recycling and re-use of space in Silicon Valley, and the challenge posed by the increasingly urban-centric nature of innovation. An accompanying op-ed in the New York Times synopsizes some of Arieff’s main points, but you’ll want to read the entire report.


The Week Observed, July 7, 2017

What City Observatory did this week

1. Why median rents are an incomplete and often misleading indicator of housing affordability. Our colleague Daniel Hertz shows how the median rent statistics that are often cited to demonstrate whether a neighborhood or city has a housing affordability problem can be a misleading guide. Medians tell us little about the rents or prices in the lower tail on the housing cost distribution, and some neighborhoods have a wide mix of housing types (and prices) while others are much more clustered around the median. Hertz shows that using the lower quartile rent or home value (available from the Census Bureau’s American Community Survey) can provide a richer picture of housing affordability for lower income households.

2. Higher inequality neighborhoods reduce inequality. Here’s a paradox: while wide income inequality at the national level is a sign of growing separation, a high level of inequality in incomes at the neighborhood level actually signifies a place with a high level of economic integration. When a neighborhood has a wide range of housing types (from smaller, affordable and often publicly-subsidized apartments, to larger more luxurious housing) it means that people from a range of different income groups can live near one another, which has the effect of reducing economic segregation.

Must read

1. What’s wrong with Connecticut? Writing at the Atlantic Derek Thompson looks into the woes of Connecticut. The state’s income numbers have long been impressively buoyed by the affluent suburbs bordering New York, but in the past few years that suburban advantage has faded. Two corporate stalwarts (GE and more recently Aetna) have relocated their headquarters outside the state, leading many to question its economic future. And Connecticut faces stiff competition from the newly vibrant city-centered economies in Boston and New York City.

2. Where retail is declining and e-commerce is growing. The New York Times has a nice data visualization showing the decline of employment in retailing (especially in department stores) and the concomitant growth of jobs in e-commerce. Interestingly, there’s a decided pro-urban shift here. Rural areas account for 23 percent of jobs in retailing (where losses are concentrated) but only 13 percent of jobs in e-commerce (where gains are being recorded. It’s further evidence of how technological and economic change is advantaging urban economies.

(Graphic from The New York Times)

3. Another installment in the YIMBYs vs. Socialists Battle.  The California Planning and Development Report relates the latest chapter in the battle between anti-gentrification socialists in San Francisco, and the YIMBY movement (personified by the Bay Area Renter’s Federation), which takes an aggressively pro-development stance as a strategy for tackling housing affordability. The heresy of the YIMBY activists, from the socialist point of view, is that they’ve made common cause with the exploiters (development community) and therefore must be somehow undermining the interests of the downtrodden. All this is served up with heaping helpings of invective. CP&DR’s Josh Stephens tries to spell out the common ground between the two camps, but both the rhetoric and personal animosity have already become quite heated. Look for all this to come to a head in the next few weeks when the national YIMBY annual conclave touches down in Oakland.

New ideas

An increase in concentrated poverty in New York City. While gentrification tends to generate headlines, the steady expansion of concentrated poverty is a far larger and more pernicious problem. The Furman Center at New York University has just released its analysis of data from the American Community Survey plotting the increase in concentrated poverty–neighborhoods where more than 30 percent of residents live in households with incomes below the federal poverty line. One in five New York City neighborhoods have poverty rates in excess of 30 percent; more than half of the neighborhoods in the Bronx are high poverty by this standard. The share of New York City’s population living in high (or extreme) poverty neighborhoods increased from 20.5 percent in 2006-10 to 23.1 percent in 2011-15 (after falling in the period since Census 2000.  About 45 percent of all New Yorker’s living in poverty live in neighborhoods where the local poverty rate exceeds 30 percent.

In a New York minute

Why are travel speeds in Manhattan dropping?

There’s a kind of ominous tidbit in New York City’s most recent mobility report.  Travel on streets in Manhattan is getting slower.

Here’s the data, computed from the report, showing the average travel speed on streets south of 60th Street in Manhattan:

The difference between 9.35 miles per hour and 8.21 miles per hour doesn’t seem like a lot, but it works out to noticeably longer trips in this urban environment. If we take a 1.5 mile trip (the median taxi ride in New York is between 1 and 2 miles), the average trip now takes about a minute a twenty seconds longer than it did just a few years ago: about 11 minutes rather than 9 minutes and 40 seconds.  That delay affects a lot of people: there are about 360,000 taxi trips daily in Manhattan, and about 1.8 million people ride buses on the city streets, and are also affected by delay.

There are lots of reasons why travel might be getting slower, among them:

The economy is rebounding. More jobs in New York means more commuters, more shoppers, more business and more traffic.

There are more “for hire vehicles.”  The number of taxi trips is down, but that’s been more than offset by the huge increase in for-hire vehicles, especially those provided via ride-hailing transportation network companies (TNCs), like Uber and Lyft. Bruce Schaller’s report earlier this year confirms that the growth of ride-hailing has contributed materially to the decline in traffic speeds.

Interestingly, despite the rebounding economy, fewer vehicles are entering Manhattan. With fewer vehicles, it’s puzzling as to why travel speeds should be getting worse. The evidence here is at best circumstantial, but here’s a hypothesis: While fewer vehicles are coming into Manhattan, those that are coming are more likely to be taxis or other for-hire-vehicles looking for customers. They may be lingering longer.

If so, there’s a kind of tragedy of the commons at work here. Additional cars and drivers are drawn into Manhattan due to the dense concentration of potential fares and customers, enhanced by the prospect, at least in the case of TNCs like Uber and Lyft, of earning even more when prices are multiplied during “surge” periods. And neither taxis nor TNCs have a strong incentive to leave Manhattan (fewer fares, and at least for trips to New Jersey, the prospect of bridge tolls). As more and more cars concentrate in Manhattan, streets become even more clogged and traffic moves more slowly. And it isn’t just cars that are affected, of course, its the city’s buses as well. Slower bus transit times mean longer trips for bus passengers and lower efficiency for the transit system (driver costs, which are largely time based, are higher per passenger carried and per mile traveled when the buses move more slowly. City wide bus speeds have dropped 2 percent according to the Mobility Report. And bus ridership in New York has been declining since 2009.

Of course, what’s been happening below ground, in the New York subway has been very much in the news in the past couple of weeks. Charles Komanoff has estimated the congestion and delays on the subway cost its riders $1.4 billion a year. And there’s a connection: the slower buses go, the more likely it is people will take the subway. And that appears to be exactly what’s happened. Since 2010, the number of bus trips has declined by 46 million annually, while the number of subway trips has increased by 159 million per year.  One way to reduce the pressure on the subway system is to make buses more attractive.

The Transit Center has put forward a series of ideas for improving bus service and travel speeds in New York:  better signal timing, optimizing routes, automating fare collection, allowing all-door boarding, increasing deployment of “Select Bus Service”, with exclusive lanes for buses on some routes.  All of these would help, but for buses operating in mixed traffic, arterial travel speed may be the most important constraint on productivity improvements.

Ultimately, the only way to improve travel times on the street may be to price the roadway. Charging a per mile fee, adjusted to time of day could reduce traffic on busy streets, and enable buses to move faster. Faster buses would be both more productive (more passengers carried per driver hour) and more attractive to riders, potentially relieving pressure on the subway system.

And this isn’t just a New York City problem. The Seattle Transit blog reports that the city’s buses spend 18 percent of their time stopped in traffic, which produces schedule unreliability, and lowers the efficiency and raises the cost of operations.

Ride-hailing services like Uber and Lyft aren’t solely to blame for traffic congestion. But what they do is accentuate the problem, particularly in dense urban environments. Places with a high concentration of customers, the lure of surge pricing, and free streets will attract lots of TNC vehicles. This is exactly what’s happened in San Francisco, where as much as 20 percent of downtown traffic consists of ride-hailed vehicles. And with more traffic comes slower speeds, which imposes high costs on all road users–and importantly, undermines the productivity and attractiveness of transit buses. This is a problem that is only likely to become worse as ride-hailing grows.

Market timing and racial wealth disparities

How buying high and selling low makes housing a bad investment for many disadvantaged groups

One of the enduring features of American inequality is the wide disparity in homeownership rates between white Americans and Latinos and African-Americans. And because homeownership has — or at least was, historically — a principal means by which families built wealth, this disparity in homeownership translated into or amplified racial and ethnic wealth disparities.  There are, of course, many reasons for the disparities in homeownership rates: discrimination in home sales, employment, and education figure as prominent explanations, as does red-lining and exploitative lending practices.

This observation seemingly leads to a straight-forward policy response:  if we want to redress our wealth disparity, we ought to be promoting wider homeownership, especially for racial and ethnic groups, like Latinos and African-Americans. And because access to housing finance is central to ownership, that leads to proposals to liberalize or loosen up lending standards.  That’s exactly the case that was made by the Urban Institute, which said:

For a full mortgage market recovery, we need to expand the credit box again. A number of reforms can be undertaken to encourage lending to creditworthy borrowers who would have qualified before the housing boom. A return to 2005 and 2006 lending practices would be ill-fated, but the pendulum has unquestionably swung too far. Today’s tight standards have locked out many prospective borrowers from homeownership, disproportionately preventing African American and Hispanic families from building wealth and benefiting from the recovery.

The Urban Institute provides copious details on the patterns of mortgage lending, by race and ethnicity over the past decade and a half (with very cool mapping, both nationally and by metropolitan areas). They show that since 2006, mortgage lending to African-Americans and Latinos, as a share of all mortgage originations has fallen sharply.

But would loosening mortgage restrictions and opening up housing finance really result in economic gains to those now shut out of the housing market? Perhaps the most fundamental advice in investing (and the hardest to follow in practice) is “Buy low, sell high.” In a technical sense, this is referred to as “market timing.”

The big lesson of the housing bubble and subsequent bust is that market timing matters a lot to investment results.  If you bought your home in 2000 (or better yet, sometime in the previous decade), you not only saw big gains in the bubble, but you probably came out the other side with your head (and your mortgage) above water. But if you bought at the peak of the bubble, in 2005 or 2006, and especially if you purchased your home with a highly leveraged 90 or 95 percent mortgage (as many did) you saw your investment wiped out–and more.

And as the Urban Institute data make clear, the groups most likely to end up in this wealth destroying “buy high, sell low” situation are Latinos and African Americans:  “African American and Hispanic borrowers took out a greater share of mortgages as housing prices neared their peak, arguably the worst time to take out a loan.”  In 2001, when we were in a recession and house prices (by standards of that decade) were low, these groups made up just 13 percent of all new home mortgages. When lending standards loosened up, the share of minority borrowers surged, and in 2006, African-Americans and Latinos made up almost twice as big a share (23 percent) of new mortgages.  And then, as the bubble collapsed, and lending standards tightened, they were again squeezed out of the mortgage market.


As we’ve noted before at City Observatory, rotten market timing is just one of the problems confronting minority borrowers. In addition, they tend to be charged higher interest rates (typically because they have lower credit scores), they tend to buy in neighborhoods with greater volatility and downside risk, and were–as several billion dollar plus settlements attest–victimized by exploitative lending practices.

From the standpoint of policy, and trying to tackle this persistent wealth gap, the question going forward is whether housing investment in the future will out-perform other investments. Plus, as we’ve pointed out, there’s an inherent tension between treating housing as a wealth-building policy and achieving housing affordability. While relaxing lending standards further (and allowing borrowers to take on greater leverage) might help more Latino and African-American families buy homes, its far from clear than its a strategy that will enable them to build wealth.  It would be great if housing purchases were a risk-free investment that would guarantee a reasonable rate of return, and if all borrowers had the same opportunity to buy at the same terms and at the same times. But that’s not the way the housing market works, even–or especially–when lending standards are relaxed. If we want to redress the big gaps in wealth among racial and ethnic groups in the US, we’ll probably need to consider other policies to do so.

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 earlier—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.

When it comes to transit use, it’s all about destination density

At City Observatory, we’ve written quite a bit about the phenomenon of city center job growth. We did a whole CityReport about the phenomenon, showing that since the Great Recession, urban cores have been outperforming the rest of their metropolitan areas on employment, reversing earlier trends. And just this week, we covered new job numbers showing that larger metropolitan areas—those with at least a million inhabitants—are growing more quickly than smaller ones, and that those regions’ center cities are growing more quickly than their suburbs.

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Why do we care about this? Well, for one, we’re partisans for cities, so that makes us happy. But even if you’re not, there are major benefits to re-concentrating jobs in and around downtowns. And in large part, they have to do with access.

Recall from one of our earlier posts that in many places, suburbanites who take public transit to work are actually richer on average than suburbanites in the same neighborhoods who drive. Why is that? Because in places where high-end jobs are concentrated downtown, those high-end earners can take convenient express buses or commuter rail to work. In contrast, lower-end service workers, whose jobs are scattered around the region, don’t have that option, because suburb-to-suburb transit is often infrequent, slow, and unreliable.

In fact, we can demonstrate that, in many places—particularly those with decent express buses or commuter rail serving their downtown—job location actually matters more than home location in determining how people get to work. That’s very different from how we normally think about the kind of person who takes transit and the kind of person who drives: we generally imagine that the former must live in a relatively dense urban area, and the latter probably lives in a more outlying, suburban one. But while those correlations are true, if the urbanite works in the suburbs, she almost certainly drives; and if the suburbanite works downtown, there’s a good chance he takes the train.

Using data from the American Community Survey, we’ve put together a few maps that show this. The ACS tracks “mode share” (how people get to work) both by home location and work location. In the “home location” map, transit use is heavily concentrated in central cities, but you can see elevated levels of use in a handful of suburbs, too, often along express bus or commuter rail lines. In the “work location” map, however, almost everywhere outside the center city goes blank: virtually no one uses transit to get to jobs in the suburbs, even in “transit-rich” regions like Chicago or Philadelphia.

Source: ACS
Source: ACS
The darkest city in both maps is Minneapolis. Just to its right is St. Paul. Note that this data comes from before the opening of the Green Line light rail to downtown St. Paul.


This principle—that what really matters for how you get to your job, even more than where you live, is where you work—is a big reason that growing employment in city centers benefits everyone in the region, even if they’re planning on remaining in an outlying neighborhood or suburb. (And, importantly, we can extend that principle to other destinations: grocery stores, schools, and so on. What matters is “destination density” near transit.) Creating the option to get to your job via transit does several important things: by reducing driving, it reduces the number of serious accidents, injuries and deaths; it reduces greenhouse gas emissions and pollution; and it dramatically reduces transportation costs, giving households more room in their budgets for other important expenditures. And as a bonus, transit use helps keep the metropolitan footprint smaller.

Those are things that benefit you no matter where you live in a metropolitan region. They offer a lesson for cities, which ought to make the most of these dynamics by zoning more land for a density of jobs, amenities, and other destinations near central transit stations. And it’s part of why we’re cheering on the return of center cities as the engines of America’s job growth.