To change the world, we need to change the world…

Editor’s Note:  Ethan Seltzer is an Emeritus Professor in the Toulan School of Urban Studies and Planning at Portland State University. He previously served as the President of the City of Portland Planning Commission and as the Land Use Supervisor for Metro, the regional government. He has lived and worked in Oregon and the Portland region since 1980 and is a contributor to City Observatory. We’re pleased to present Ethan’s latest commentary here:

On a plain reading of the evidence, climate change is occurring in real time. Its effects are being felt, in Oregon and around the world, today and not in some distant and uncertain future.

Transportation GHG emissions have risen during each of the past three years and have grown from 35% of the statewide total in 2014 to 39% in 2016.

Oregon and the nation are off track in curbing vehicle greenhouse gas emissions and straying further away from the necessary pace every day. While electric vehicle sales are ramping up, new gasoline-fueled SUVs are entering the national fleet in far greater numbers. Even California, considered by many to be at the forefront of GHG reduction efforts, is seeing transportation emissions headed upward.

Oregon Global Warming Commission, 2018 Biennial Report to the Legislature for the 2019 Oregon Legislative Session

Recently the Oregon Global Warming Commission made its report to the 2019 Oregon Legislature. Among its findings were two stark conclusions: first, that Oregon was not on track to meet its 2050 carbon emission goals, and second, that rising emissions from the transportation sector particularly were moving us wildly off course.

Transportation is now the largest source for carbon emissions, with passenger car and truck emissions accounting for over half of what the transportation sector emits overall. With a strong economy and continuing population growth, our transportation related climate emissions are soaring despite reported improvements in both fuels and overall vehicle efficiency.

Now, with the Intergovernmental Panel on Climate Change’s most recent report, flagging the need for rapid progress towards reducing emissions by 2030, not 2050, Oregon’s subpar performance lends new urgency to efforts to make real change in our use of fuels in order to reduce, substantially, associated carbon emissions. Simply put, electrification of the vehicle fleet, clean fuels, and other technological fixes are important, but won’t enable us to meet our goals, goals appearing to be less ambitious then they need to be by the day.

What Oregon needs now is not just a low-carbon future, but a low-car future.

The good news, if you can call it that, is that we know what we need to do, and what we need to do is largely within our grasp. Decreasing our over-reliance on travel by car and light truck, the pivotal points of consumption identified by the Oregon Global Warming Commission, is something we don’t need the Trump administration to facilitate, and it’s not in the hip pocket of the oil or auto lobbies either.

In addition to making travel a smaller source of carbon emissions, we need to make travel less necessary for sustaining our households and achieving our dreams. For some time, we’ve known that there is a close connection between urban form, the way we’ve physically arranged the places we live, work, and play, and the degree to which we need to slide behind the wheel of a car to make it all mesh. Twenty-five years ago most transportation plans were developed with the expectation that land use would never change, and that the job of infrastructure was to chase new sources of demand for service.

Today we know that where things happen has a huge impact on whether we need more infrastructure to facilitate more interconnections, or less. In a scant quarter of a century, our understanding of “vehicle miles travelled” has gone from a blunt measure of system function to a variable in an equation we, and our communities, can direct. While it used to be revolutionary to posit changes in urban form as a strategy for obviating or minimizing the need for new investments in infrastructure, today it’s seen as a commonsense approach to deploying scarce public resources.

Add to changes in urban form a progressive approach to pricing the use of infrastructure already coursing through our communities, and we have two powerful levers with which we, at the local level, can dramatically affect Oregon’s ability to meet its carbon emission goals. No dramatic technological breakthroughs are needed, only dramatic breakthroughs in political will. We have only ourselves to blame for not making great strides towards the emissions goals we say we seek to serve.

Which is why it’s so perplexing to see so many on the right side of the climate issue so unwilling to advocate for meaningful reductions in vehicle miles travelled as a primary vehicle for action and results. How, for example, as both Jenny Schuetz writing the Brookings Institution’s blog “The Avenue,” and Alex Baca, writing for Slate, have pointed out, can a progressive “Green New Deal” completely leave out land use and urban form as key strategies?

As Baca points out, leaving out urban form is not just technically nuts, it also perpetuates longstanding patterns of inequality and racial injustice in our metropolitan regions, patterns that proponents of the Green New Deal suggest are, in fact, the very things it will address. Or, as Steven Higashide writes in The Hill, “It’s not enough to build more transit, as long as federal policy continues to subsidize the highway-and-sprawl machine.” As he puts it, the “highways as usual” policies of the Federal government, reinforced by the inertia of state DOTs, have to change for infrastructure policy in this country to become a tool for reducing carbon emissions associated with transportation.

Both these authors and the Oregon Global Warming Commission have found the same thing: transportation emissions are going to frustrate the best of our climate goals unless we find ways to diminish our dependence on auto travel for every minute aspect of our modern lives.

How ironic that in this age of the internet we are actually moving backwards on meeting our transportation-related climate targets. And how tragic that our investiture of hope in technology is diverting too many of us from addressing both the real challenges and finding real solutions to our inability to meet our carbon goals: reducing vehicle miles travelled in our metropolitan regions.

Climate activists would be well-advised to engage land use planning and urban redevelopment as targets for fundamentally changing the trajectory for local carbon emissions. We know how to design and build cities to favor walking, biking, and transit over car travel. We know how to do it in ways that make our cities both more efficient and, at the same time, healthier and more just for everyone.

And, thanks to years of moving money from the Federal level to the states and localities to build highways, we have created systems that rely on single points of contact for planning and allocating funds—local, state, and federal—to regional transportation systems. These “metropolitan planning organizations” for transportation are an activist’s dream: one-stop points of leverage to insist on investments for reducing rather than increasing, consciously or not, vehicle miles travelled in our communities.

In sum, the way we travel, not to see Aunt Mae but on a daily, weekly basis, is killing us and our hopes for the future. It’s not hypothetical, it’s real. The solutions are not theoretical, we know what they are. And without them, the best of our technological fixes will remain major disappointments. Changing the world we live in everyday is what we, together, have to do.

When gas prices stopped diving, Americans again began to drive less

The most fundamental point in economics is that people respond to incentives. Make something cheaper to buy, and people will buy more of it. Make something more expensive, and they’ll buy less. That’s plainly the case when it comes to driving, and one of the biggest and most visible costs of driving is the price of a gallon of gas.

The relationship between prices and driving isn’t perfect and instantaneous. People make decisions about where to live, how far they’re willing to commute to work, whether to own a car (or a second car) and whether to use various other modes (cycling, transit and walking) on a long-term basis. But, especially over time, prices influence all of these decisions.

There’s a tendency in much of the literature to treat the elasticity of vehicle miles traveled relative to gas prices as something that adjust quickly on a daily or weekly basis.  But consumers are more influenced by larger and longer term changes in prices than short term fluctuations.  Day-to-day and week-to-week price changes are likely to be “infra-marginal”–too small to notice, and therefore too small to affect behavior. If the price of gas this week is a nickel or a dime less per gallon that a week ago, I’m not likely to do anything different.  But when prices are either much higher or much lower for an extended period of time–say a dollar a gallon higher than last year at this time, I’m much more likely to factor that into my decisions about how much to drive, what kind of vehicle I buy, where I look for housing or my next job and so on.  In essence, we can and should safely ignore the short term fluctuations, but pay a lot of attention to the longer term patterns.

Let’s take a look at the connection between gas prices and driving in the US over the past couple of decades. Our data come from the US Department of Transportation (which produces monthly estimates of the total number of miles driven in the US) and from the US Department of Energy, which tracks the retail price of gasoline on a weekly basis. To account for the effects of population growth over time, we’ve divided total miles driven by the US population, and estimated the number of miles driven per person per day in the nation. Gas prices are expressed in current dollars (i.e. not adjusted for inflation). On the following chart, gas prices are shown in red, and per person daily vehicle miles of travel are shown in blue.

Long Term Patterns of Vehicle Travel:  Four Phases

Over the past two decades, we’ve experienced four distinct phases in the price of gasoline and the attendant patterns of American driving.

Phase 1:  2000-2005:  The era of cheap gas.  Until 2004, gas prices in the US were less than $2 per gallon.  The consistent low price of gasoline led to steady increases in driving by Americans.  Toward the end of this phase, gas prices had risen somewhat, but these rises only slowly had an effect on travel behavior. By this measure, “peak driving” in the US was in June 2005, when Americans drove 27.7 miles per person per day. At the time, gasoline cost an average of about $2.13 per gallon. But by 2005, with gas prices exceeding $2 per gallon, the growth of travel slowed and then flattened out entirely.

Phase 2:  2005-2014:  Expensive gas:  From 2005 onward, gas prices were much higher than in the previous era.  American’s travel started to decline on a sustained basis, and then, with a spike of gas prices to more than $4 per gallon, combined with the great recession, vehicle miles traveled per person fell dramatically.  And even as the recession ended (in 2009), per person travel continued to decline.  During the first five years of the recovery, through 2014, gas prices rose back to more than $3.50 per gallon, and driving continued its slow and steady decline. By 2013, the typical American was driving about 25.7 miles, more than 2 miles per person per day less than at the peak.By 2015, Americans were driving fewer miles than any time in the previous 15 years.

Phase 3:  2014-2016:  Cheaper gas again. In the middle of 2014, oil prices–which had hovered near $100 a barrel––suddenly collapsed to less than half that level, and gas prices fell with them. Consumers reacted quickly. In April 2014, gas prices averaged more than $3.70 a gallon, and people drove an average of 25.7 miles per day. Some 22 months later, in February 2016, with prices averaging about $1.75 a gallon, consumers were driving about 26.7 miles per day, about 4 percent more.

Phase 4:  2016-2018:  A rebound in gas prices.  Over the past two years, gas prices have again trended upward, rising from less than $2 per gallon to nearly $3 per gallon.  As they’ve done so, the growth in per capita driving has slowed, and–once again–reversed.  Vehicle miles traveled per person peaked in late 2017, and have been trending down again since then.

The lesson here is clear:  Cheap gas produces more driving; Expensive gas leads Americans to drive less.  That fundamental relationship has important implications for the fiscal, social, and environmental consequences of car transportation.  As we’ve noted at City Observatory, more driving is directly implicated for the surge in road fatalities in the past five years. Cheap gas also generates more car traffic, congesting roadways and taxing infrastructure.  And with more miles driven by heavier vehicles, cheap gas is directly responsible for the growth in greenhouse gas emissions.

There’s a tendency to dismiss the importance of the price elasticity of travel demand by overemphasizing the weak short term relationship between gas prices and driving. But as the lesson of these four phases clearly illustrates, that’s a mistake.  Sustained high prices for gasoline lead to real reductions in vehicle miles traveled, in pollution and in car deaths.  If we price travel appropriately, consumers will make different decisions–one’s that significantly reduce the social and environmental costs of car travel.  Prices matter and should be at the heart of all of our efforts to cope with climate change and build stronger and safer communities.

What City Observatory did this week

1. The limits of our current approaches to providing affordable housing. We present a summary of some remarks offered by Rob Stewart, a principal with JBG Smith Real Estate, reflecting on his experience working on housing issues in Washington DC. Broadly speaking, there are two ways we tend to go about encouraging more housing affordability: the supply side approach of encouraging the market to build more housing, and the subsidized housing approach, offering tax credits and other support for the construction of new, purpose built, rent-restricted housing. In practice, our current systems of subsidizing affordable housing produce relatively few units (because new construction is so expensive) and also have tended to reinforce existing patterns of economic segregation (because new units get built in or near high poverty neighborhoods).

2. A third way approach to addressing housing affordability and integration. We explore a new proposal from the Washington Housing Initiative to combine private and public (or philanthropic) capital to buy existing apartments and maintain their affordability for low and moderate income families. By buying units in the likely path of revitalization, the plan can maintain affordability in exactly the kind of neighborhoods that are likely to offer greater opportunities for low and moderate income households. In addition, this strategy would break the tendency of existing subsidized housing programs to perpetuate patterns of economic segregation.

3. Dangerous by Design. It’s a very well-researched annual report, but it’s a grim one: Smart Growth America has once again tabulated the toll that our nation’s transportation system takes on pedestrians.  In the past decade, more than 5,000 Americans have been killed while walking on the nation’s streets and roads. While the death toll for those in cars has gone down, the toll for pedestrians is up sharply. More importantly, the patterns of deaths are neither random nor accidental: sprawling metro areas with car-dependent travel systems have consistently higher pedestrian death tolls. More driving means more dying. Higher-speed multi-lane arterials are a particular menace to pedestrians.

4. Happy Groundhog’s Day’s Oregon: You’re stuck in a loop on climate. Groundhog’s day is coming up again, and we take our usual annual look at how Oregon is doing in achieving its legally adopted goal of reducing greenhouse gas emissions to a fraction of their 1990 levels. Pledging allegiance to the goal is a standard feature of local politician’s Earth Day messages, but as in year’s past, progress is sadly lacking. The state’s Greenhouse Gas Commission reports that while the state has made some progress in reducing powerplant and industrial emissions, carbon from transportation continues to increase, and there’s essentially no way the state will ever reach its carbon reduction goals.

Must read

1. Oregon homebuilders question legalizing missing middle housing. Here’s a great story from our own backyard, reported by the Daily Journal of Commerce‘s Chuck Slothower and brought to wide attention by Iain MacKenzie of NextPortland. Oregon House Speaker Tina Kotek has introduced legislation to legalize duplex, triplex and fourplex housing in residential zones in larger cities in Oregon. You’d think that a group that builds homes, and purports to oppose regulation we be on board with this. Not so much:  Oregon Home Builders Association says they’re worried that the bill will undercut the case they’re trying to make for expanding urban growth boundaries to allow more low density housing on the periphery of metropolitan areas. That’s pretty cynical, to be sure, and shows that despite their name, the organization may not really be interested in seeing more homes built.  In addition, it undercuts the oft-repeated claim that consumers “prefer” suburban living: if the only way to sell more suburban houses is to block the construction of more housing in urban centers, that’s a pretty good indication that the only reason many consumers bought suburban single-family homes was because they had been denied the opportunity to purchase an affordable duplex, triplex or fourplex home.

2. How to fix congestion in Manhattan in five easy steps. The advent of ride-hailed vehicles has pushed New York City’s streets to the limit of what they can handle if traffic isn’t priced in some fashion.  In testimony to the New York City Council, Charles Komanoff outlines a five point plan for applying congestion to Manhattan.  The key: levelling the playing field among taxis, ride-hailed vehicles and privately owned cars. He proposes that rather than single out some modes for surcharges (like the ones imposed on ride-hailing) that all vehicles should pay for using congested city streets in Manhattan. Ride-hailed vehicles and taxis would pay per minute for their time in the center, while private vehicles would pay a cordon charge to enter. And to encourage greater efficiency by Uber and Lyft, Komanoff would add a surcharge for cruising city streets looking or waiting for fares. Komanoff’s modeling suggests this plan would increase traffic speeds and reduce congestion and raise about $1.7 billion annually to support the city’s struggling transit system.

3. Congestion pricing and the green dividend in Boston. The City of Boston’s Green Ribbon Commission has just released its report, recommending that in addition to electrifying buildings throughout the city (to enable them to use wind and solar power for heating and cooling), that the city should implement some form of congestion pricing, to reduce automobile use and encourage mass transit, walking and cycling. The plan also recognizes that higher urban densities would facilitate this shift and specifically urges the city to upzone urban neighborhoods. The task force also calculated a shift to greener, denser living would save Bostonians $600 million per year by 2050, through lower energy bills, a classic example of what we call the green dividend. (A hat tip to Curbed Boston).

New Knowledge

Pollution from cars and trucks lowers student performance in schools near highways. For decades, we’ve know about the negative health effects of air pollution, but a new economic study shows that air pollution imposes a significant cognitive cost on young learners. This study looked at the correlation between air pollution levels near schools and the academic performance of students in those schools. It found that students attending schools located near and downwind from busy highways had lower rates of academic performance, higher absenteeism and higher rates of disciplinary problems than those attending less polluted schools. The more traffic on nearby roads, the larger the decline in scores on state standardized tests.

The study use a sophisticated methodology to tease out the effects of school level pollution, looking at students who moved between schools.  They conclude:

. . . children who move to a school downwind of a major highway have lower test scores and a higher likelihood of behavioral incidents and missing school than when those same children attended schools with similar characteristics that were not downwind of a major highway. The effects are larger for more heavily-trafficked roads, and the effects appear to last even after the child moves away from a downwind school. This suggests that once damage from pollution is done, even during middle childhood, it might persist, potentially affecting outcomes far into the future.

Jennifer Heissel, Claudia Persico, David Simon, Does pollution drive achievement? The effect of traffic pollution on academic performance. NBER Working Paper No. 25489.

What City Observatory did this week

1.  Measuring Anti-Social Capital.  Thanks to the scholarship of Harvard’s Robert Putnam, the idea of social capital has become firmly entrenched in the policy lexicon. Putnam and others developed some innovative measures of social capital, looking at voting, volunteering, and attitudes about civic affairs and behaviors of personal engagement. This week we update one of our favorite measures of “anti-social” capital:  the number of security guards per capita in each large US metropolitan area. The employment of security guards is a fundamental measure of the degree of distrust and suspicion in a community:  we need to hire guards to protect people and property and to deter people from engaging in anti-social behavior. There are some big variations among US metro areas in the number of security guards.  See where your city ranks.

2. The Market Cap of Cities. Business analysts like to summarize the relative size and importance of publicly-traded companies by computing their “market cap” or market capitalization:  the aggregate dollar value of their shares based on current prices. These figures show that tech giants like Amazon, Google, and Apple are the biggest public companies around. We’ve used the same approach to compute the market cap of cities, as judged by their housing markets. Home prices are like apartment prices: they reflect the value the market attaches to living in different cities. Using Zillow’s estimates of single family home values and our own estimates of apartment values, we’ve estimated the market cap of the nation’s largest metro areas. Collectively, they’re worth $30 trillion–more than the fifty largest companies combined.

3. The proposed half-billion dollar freeway widening in Portland will do nothing to lessen daily traffic congestion. City Observatory readers are intimately familiar with induced demand, and know the “fundamental law of roadway congestion” that afflicts urban transportation. You can’t build your way out of congestion no matter how many free lanes you add because they’ll just attract more traffic. It turns out that even the two agencies proposing the $500 million mile-long widening of Interstate 5 in Portland concede that this is the case. We provide quotes from officials at the Portland Bureau of Transportation and the Oregon Department of Transportation acknowledging that the project won’t lessen recurring traffic jams.

4. The problems with Angie’s List. Streetblog’s Angie Schmidt has a long list of grievances against ride-hailing companies:  they’re adding to traffic, cutting into transit ridership, and more. There’s some validity to these concerns, but we think Uber and Lyft are not the problem. Instead, most of what’s laid at the feet of ride-hailing is really a result of our under-pricing of valuable and limited road space, particularly in cities and at peak hours. All of the perceived problems of ride hailing would be substantially reduced if we charged everyone for their use of this scarce and valuable resource. Don’t blame the player, blame the game.

Must read

1.  Why upzoning actually does matter to getting more affordable housing.  The cause celebre in planning circles this week was the publication of Yonah Freemark’s study of upzonings in Chicago. Freemark found that even though Chicago changed its zoning code to allow more density near transit stations, new development didn’t occur, and home prices went up. Though Freemark was much more guarded about his interpretation of the findings, others unsurprisingly, used it as “proof” that upzoning doesn’t help with affordability. CityLab published a very thoughtful rebuttal to this claim from City Observatory contributor Alex Baca and Cleveland State scholar Hannah Lebovitz.  A key point:  allowable zoning is just one step in a very complex and political process, one that in Chicago is regularly trumped by Aldermanic privilege, and subject to considerable negotiation and often political veto.  To those who would use the study as ammo to argue against up-zoning, Baca and Lebovitz say:

 . . . the paper shouldn’t be reduced to a “checkmate, YIMBYs” declarative. No one who is intimately engaged with the complexities of affordable housing in America would suggest that zoning is the sole knob to twiddle to increase affordability—and Freemark doesn’t, either. Zoning is targeted because its origins are inherently racist, bigoted, and exclusionary. But, again, it is not the sole input to making housing more affordable. It’s just the one that, by changing it, allows for many other things that make housing more affordable. . . . But, for now, these findings are inconclusive and in many ways detached from the day-to-day reality of how local-level zoning and planning work. We hope they are not used to validate a continuation of exclusionary practices, or misguided power moves by elected officials in American cities and their suburbs.

Our takeaway:  upzoning is necessary, but not sufficient, to getting more affordability.

After a big drop in the first half of the last decade, the number of white residents in Chicago has grown 9 percent since 2005. Latino growth has slowed significantly, but it’s still up about 5 percent since 2000. Chicago’s Asian population has boomed, growing by 44 percent since 2000.                        

Segregation has created a lack of economic mobility. I’d argue that Chicago is economically stratified to the extent that upward mobility for blacks here is particularly difficult.  . . .  Networks are hard to penetrate. The power structure is rigid. There’s also a lack of residential mobility.

3. Reforming rent control in New York. New York City’s rent control and rent stabilization laws are up for renewal this year, and the Citizen Budget Commission, a local good government group has some thoughts on what the Legislature might consider doing to improve the program. Chief among their suggestions: re-thinking rent stabilization for higher income households. The CBC estimates that more than 28,000 households with annual incomes of $200,000 or more live in rent-stabilized apartments. Collectively rent stabilization saves them about $271 million annually, compared to what they would be expected to pay in the un-regulated market. Phasing out rent stabilization for these households would increase city tax revenues and provide additional resources to support programs for lower income households.

New Knowledge

Technology is making mortgage lending more efficient.  A recent study from the Stern Business School and New York University looks at the performance gains from increasingly computerized process of mortgage loans, one of the effects of “fintech” or financial technology.  Fintech lenders include Quicken Loans, Loan Depot and other companies (Editor’s note: Quicken Loans is a supporting sponsor of City Observatory). These technology based lenders have increased their market share since the great recession, and now account for about 8 percent of US mortgage lending. The study shows that these tech lenders process mortgage applications about 10 days faster than conventional lenders, even after controlling for variations in loan, borrower and territorial factors.  Importantly, the study shows that default rates aren’t higher for these loans, suggesting that the technologically enhanced underwriting is equally prudential in addressing risk.

FinTech mortgage borrowers are attracted to the faster processing times and greater convenience involved with online applications and partial automation of mortgage underwriting. This is consistent with the faster growth of FinTech in census tracts with previously long mortgage processing cycle times and the higher incomes and education of FinTech borrowers. It is also consistent with the high share of refinances for FinTech lenders. We find no empirical support for the hypothesis that FinTech lenders have grown by disproportionately targeting risky, marginal borrowers. Despite the emphasis of the FinTech lending model on online applications and interactions, we also find no evidence that younger borrowers or borrowers located in census tracts with better Internet access are more likely to borrow from FinTech lenders

In the News

Our commentary on ten things more inequitable than road pricing made it to the pages of the Greenwich (CT) Free Press.

What City Observatory did this week

It’s time to get serious about climate change.  We published a guest commentary from City Observatory friend Ethan Seltzer, who takes a critical look at the largely rhetorical approach that the Portland region is taking to the increasing serious menace that is climate change. Globally, the International Panel on Climate Change is warning that time is drawing short to make meaningful progress in reducing carbon emissions. Locally, Oregon’s own Greenhouse Gas Commission reports that the state is losing ground in its efforts to reduce GHGs, almost entirely because of an increase in driving in the past few years. As Seltzer writes, what Oregon needs is not a just a low carbon future, but a low car future.

Must read

1. An affordable housing crisis for whomst?  Allan Mallach, author of one of our favorite books of 2018, The Divided City, has a new article at Shelterforce exploring the variations in housing affordability across US metro areas. He points out the affordability per se is not the problem in many declining rustbelt neighborhoods:  there, the key problem is that low income families don’t have enough income to afford housing. Even though housing values are low in these markets, Mallach explains why private landlords find it difficult to charge rents affordable to the lowest income families:

While house sale prices will keep going down nearly to zero until they reach their market level—if there is one—rentals work differently. Landlords have to factor in how much they need for maintenance, reserves, repairs, taxes, and some combination of mortgage payments and an acceptable return on the value of their equity. Landlords also factor in their expectations. If they think their property is appreciating, they’ll accept a lower annual rate of return on equity, because they figure they’ll make up for it when they sell the property. But if they think it’s losing value, they’ll look for a higher annual rate of return to make up for the fact that they may not get their money back if they try to sell it down the road. The lower their expectations are, the more they will try to increase their net cash flow, cutting back on maintenance, and even not paying property taxes. So even a landlord who owns a house worth $0 on the market may still need to rent it for $700 to cover their costs and get a sufficient return.

If a landlord can’t get the minimum rent they feel they need to make ends meet, they are not likely to lower the rent below that level, which would mean knowingly losing money. Instead, they’re more likely to walk away.

In these markets, building more subsidized affordable housing, through a combination of Low Income Housing Tax Credits (LIHTC), and Section 8 Housing Choice Vouchers may help some families get into better housing, but can easily lead to the abandonment of other market-provided housing.

Moreover, most LIHTC projects are built in high-poverty neighborhoods, areas where sites are available and more CDCs are active, but where total housing demand is not growing. As a result, those projects often cannibalize the existing housing stock; in other words, as new LIHTC units come on line, most of their tenants come from existing rental housing in the same (or similar) neighborhoods, often bringing Housing Choice Vouchers with them. They move out of private market units, or older LIHTC projects, in to areas that already have a large surplus of housing, putting even more units at risk of abandonment.

2. Housing and transport from a Japanese perspective. Japan has some of the world’s highest housing density, wide-ranging inter-city rail systems and urban transit, and surprisingly affordable housing.  How do they do it? In an essay at Medium, Brendan Hare explores some of the key aspects of the Japanese system. For one thing, land use regulation is very different: in areas designated for residential development, it’s generally just as easy to build apartments as single family homes. One practical result: Japan’s private railway companies have managed to finance their expansion, largely without public subsidy, by developing high density housing near train stations. And then there are web of other complementary policies:  as has widely been reported, you can’t legally register a car in Japan unless you can show that you’ve got an off-street parking space in which to store it.  Think of it as a “housing requirement for cars” rather than a “parking requirement for houses,” which is what we do in this country. It’s an informative look at how different institutional arrangements can produce much different and in many respects better outcomes than we experience in the US.

3. Speed kills, and highway engineers are all about speed. In her article, “How a singular focus on speed leads state DOTs to overspend and overbuild,” Smart Growth America’s Beth Osborne has a close look at the fundamental contradiction between the primary motivation of almost every highway engineering decision–making cars move faster–and virtually everything else we want our transportation system to accomplish.  Whether its promoting safety, making urban environments more desirable, better connecting land uses, facilitating walking and cycling, encouraging transit or reducing energy consumption, giving priority to faster car trips generally makes things worse.  Osborne shows that the focus on speed also drives state highway departments to choose expensive, inefficient projects that do little to make the transportation system work well for everyone. As she says, “It’s nearly impossible to square the priority of speed with most other state goals”

And we’ll add:  the constant struggle to square the deeply ingrained philosophy of “faster, faster, faster” with conflicting policy objectives produces a rich array of convoluted public relations gimmicks, as state DOTs pay hard cash for faster roads, but mostly pay only lip service to other policy objectives.

New Knowledge

Effects of Age-based property tax exemptions.  One of the favored classes, when it comes to property taxation, are older households. The stereotype is that older households are often poor and on fixed incomes and should be insulated from the burden of property tax payments, or tax increases or both.  The difficulty with the stereotype, is that while some elderly households are poor, older people generally, and older homeowners as a group are now noticeably wealthier than other households.  A new paper from the National Bureau of Economic Research examines the impacts of age-based property tax exemptions on homeownership behavior.  It finds that the tax exemption is associated with higher rates of housing consumption by elderly households.  Over time, older homeowners have gone from owning houses that were on average smaller, and lower valued than younger homeowners, to owning houses that are larger and more valuable than younger homeowners. The analysis suggests that the presence of exemptions leads older households to own homes longer–which is part of the intended policy effect.  But with more older homeowners, fewer homes come on the market to be purchased by younger homeowners. In applying their modeled findings to Cobb County, Georgia, just outside Atlanta, the author’s estimate that the tax exemption led to an addition 7,600 to 11,700 senior households continuing to own homes in the County, with correspondingly lower numbers of younger households and fewer seniors renting their homes.

H. Spencer Banzhaf Ryan Mickey Carlianne E. Patrick, Age-based Property Tax Exemptions,  Working Paper 25468

In the News

The Seattle Times featured Joe Cortright’s analysis of flaws in the Inrix congestion rankings.

The Portland Oregonian cited Joe Cortright’s critique of the Inrix data in its story on city congestion rankings.

Cortright said the report’s economic impact data points are “fiction.” “There’s no feasible set of investments that would let everyone drive as fast at rush hour as at 2 a.m., and the cost of building that much capacity would be far more than the supposed ‘cost’ of congestion.”

What are cities worth? More than big private companies, as it turns out: The value of housing in the nation’s 50 largest metropolitan areas ($25.7 trillion) is more than double the value of the stock of the nation’s 50 largest publicly listed corporations ($11 trillion).

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

The following chart compares the market cap of the nation’s 50 largest publicly traded corporations (on the right) with the market cap housing in each if the nation’s 50 largest metropolitan areas (on the left).  The magnitude of these numbers is a bit staggering, all values are expressed in billions. The data for housing are broken into two components, the value of single family homes (blue) and multi-family homes (orange).  Sources and methodology for these estimates are described below.

The most valuable company is Amazon, with a market cap of $829 billion; the most valuable metro area is New York, where the market value of owner-occupied and rental housing is over $3.8 trillion—about four times higher. The current market value of Amazon is about the same as the current market value of housing in Seattle or San Jose, the eighth and ninth most valuable housing markets on our list.

Some modest-sized metros have housing that’s worth as much as the entire value of some very well-known corporations: IBM’s market cap ($113 billion) is about equal to New Orleans housing ($120 billion). Orlando’s housing ($255 billion) is valued at more than 50 percent over all of Disney ($166 billion). Two Seattle-based companies (Microsoft, at $827 billion; Amazon, at $829 billion) are each worth more  than all the housing in Seattle (about $776 billion).

The differences are smaller at the bottom end of our two league tables. The fiftieth largest firm, the United Technologies, is worth about 25 percent more more than the fiftieth most valuable metro housing market, Buffalo: $98 billion versus $80 billion.

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

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

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

Technical Notes

Our estimates are based on the market capitalization of publicly traded U.S. based corporations as reported on January 19, 2019.  Our estimates of the value of single family housing in each metropolitan market were generously provided by real estate experts at Zillow.  For more keen insights on housing markets, follow their work at Zillow’s Real Estate and Rental Trends blog.

We supplemented Zillow’s estimates of the value of the single family housing stock by computing the market value of the nation’s multi-family housing using data from the Census Bureau’s American Community Survey. In real estate, the value of rental housing is usually estimated using a “cap rate” or capitalization rate, that approximates the rate of return on capital that real estate investors expect from leasing out apartments. To estimate the current market value of apartments, we multiplied the median rent in each metropolitan area by the number of multi-family housing units in that area.  Then we deducted  35 percent to estimate “net operating income”—the amount the investor receives after paying maintenance, other operating expenses, and taxes—and then we divide this number by a capitalization (cap) rate of 6 percent. Both of these figures (net operating income and capitalization rates) are rough estimates—values vary across different times of properties, different markets, and over time with financial conditions (such as with the change in market interest rates). Our estimates of the value of the housing stock in each metropolitan area differ from those we published in 2016.