Devaluation of housing in black neighborhoods, Part 2: Appreciation

Are home prices appreciating more or less in black neighborhoods? Is that a good thing?

Today, in part 2 of our analysis of the home price gap between majority black and predominantly white neighborhoods we look at the pattern of home price appreciation for black and white home buyers. Yesterday, in part 1 of our series, we looked at a Brookings Institution report showing that homes in majority black neighborhoods sold at a 20 percent discount to otherwise similar homes in otherwise comparable neighborhoods. This systematic undervaluation of housing in majority black neighborhoods works out to a national value disparity of more than $150 billion. We took a close look at how this plays out in Memphis, a metro area with a large American population.

Housing appreciation and cyclical variability

A key question the Brooking’s report leaves unanswered is whether the black/white housing differential is larger or smaller than it was 10 or 20 years ago.  If it was larger in the past and is smaller today, that implies that homes in majority black neighborhoods, although still undervalued relative to homes in predominantly white neighborhoods, have enjoyed greater relative appreciation. From the standpoint of wealth creation, the amount of appreciation since you bought your home is likely to matter more than whether the current price of your house is more or less than otherwise similar properties. Another way of expressing this is that homeowners in black neighborhoods had a lower purchase price (or basis) in their home, and even though it is still undervalued, it may have gained more value in percentage terms than homes in non-majority black neighborhoods.

Indeed, Dan Immergluck and his colleagues at the Georgia State University found that for those who bought homes in 2012, price appreciation for black homebuyers from 2012 through 2017 was higher than for white homebuyers.  Immergluck’s data show that in most markets, homes bought by black buyers appreciated more than homes bought by white homebuyers.

Immergluck’s study looks at appreciation rates for black homebuyers compared to white homebuyers, rather than in majority black neighborhoods compared to predominantly white neighborhoods.  As Immergluck reports, nationally, a majority of black homebuyers bought homes in neighborhoods that were not majority black. Home prices appreciated more for black buyers in strong market cities (Boston, California) and least in weaker market cities (St. Louis, Birmingham).

There are noticeable variations in home appreciation by race over the course of the business cycle:  Zillow’s Skylar Olsen, in her report “A House Divided” plotted the change in home values by the predominant racial/ethnic group in each zip code.  Her results show greater volatility for home prices in black plurality neighborhoods.  Her data show home values in plurality black neighborhoods (the green line) and plurality non-Hispanic white neighborhoods (the blue line).  Houses in black neighborhoods declined more in value from 2007 to 20012 ( the housing bust) than did homes in white neighborhoods.

Another recent report, written by Michela Zonta for  the Center for American Progress finds that home values in neighborhoods where black homebuyers purchased homes had lower appreciation rates than neighborhoods where white homebuyers purchased homes. But Zonta’s study uses appreciation rates from 2006 through 2017, and looks at home purchases in 2013 through 2017, so doesn’t reflect the actual return enjoyed by current buyers.  It’s likely that the opposite results reported by Immergluck and Zonta reflect the greater volatility of home prices in predominantly black neighborhoods (with bigger percentage declines in the bust, and bigger percentage gains the the recovery).  Immergluck looks just at the recovery and finds faster appreciation in black neighborhoods, Zonta looks at the whole cycle and finds lower overall appreciation in black neighborhoods.

There’s other evidence of this cyclicality, Zillow’s data show a similar pattern for foreclosed homes, with greater volatility in neighborhoods of color. In the past five years, home values for foreclosed homes in black neighborhoods have rebounded more sharply (doubling in value) than home values for foreclosed homes in white neighborhoods.  Foreclosed homes in black neighborhoods rose in price 110 percent compared to a 70 percent increase in the value of foreclosed homes in white neighborhoods.

There’s also evidence of variations in cyclicality by price tier of the market.  Lower priced housing tends to have greater price volatility than higher priced housing. Some of the faster growth of lower priced housing in the past few years may simply reflect that cyclical pattern and especially greater price volatility for homes in lower price tiers. According to data from the Federal Housing Finance Agency, since 2012, housing prices for lowest tier of the housing market have increased more rapidly than high tier housing. Nationally, between 2012 and 2017, homes in the low priced tier increased by about 40 percent while homes in the highest priced tier increased by about 20 percent.

If Black and Latino households are buying primarily in the lower priced tiers and white households are buying primarily in the higher priced tiers, then this may account for the difference in appreciation observed in Immergluck’s statistics..

Un-answered questions and what’s next

There’s little question that homes in black neighborhoods are systematically devalued compared to otherwise similar homes in white neighborhoods. The resulting devaluation means that homeowners in black neighborhoods have accumulated less wealth than they might have otherwise, but also somewhat paradoxically means that housing in these neighborhoods is more affordable, especially for renters. The causes of this devaluation are deep-seated and slowly changing. The fact that homebuyers, both black and white, have apparently recognized the size and persistence of this value (and appreciation) difference likely prompts investment decisions that only reinforce its existence.

In theory, we should expect the low price of equivalent quality homes in predominantly black neighborhoods to attract buyers, whether they be value-seeking white buyers who are indifferent too or actively seek out neighborhoods of color, or black households. But as Jason Segedy has pointed out, low prices may be an marker of stigma, decline or low expectations, and produce a dynamic that makes it hard to attract new buyers.

What to do about this problem is an equally complicated problem.  Rising home values in predominantly black neighborhoods would represent a gain in wealth for incumbent homeowners, but would also imply at least a nominal decline in affordability. This reflects the deep-seated contradiction between our two goals for housing policy: we want housing both to be a great investment, and to be affordable. Debates over housing value disparities will always confront this obstacle.



How gentrification benefits long-time residents of low income neighborhoods

The new Philadelphia Fed study of gentrification is the best evidence yet that gentrification creates opportunity and promotes integration

To many “gentrification” is intrinsically negative. When wealthier, whiter people move into the neighborhood, it must necessarily mean that lower income people of color are either driven away (to even worse neighborhoods) or suffer from higher rents and loss of community if they stay.

A new study from Quentin Brummet of the University of Chicago and  and Davin Reed of the Philadelphia Federal Reserve Bank, is the best evidence yet that this view of gentrification is fundamentally wrong.  Gentrification creates substantial benefits for long time residents of low income neighborhoods, and causes little displacement. The study shows:

  • There are very small differences in out-migration rates between gentrifying neighborhoods and otherwise similar neighborhoods that don’t gentrify. Over ten years, we would expect about 60 percent of less educated renters to move out of non-gentrifying low income neighborhoods, compared to about 66 percent of less educated renters in gentrifying neighborhoods.
  • Those who leave gentrifying neighborhoods do not end up moving to destination neighborhoods that are measurably worse than the destination neighborhoods of households moving out of poor but not gentrifying neighborhoods
  • The demographic composition of gentrifying neighborhoods, post-gentrification, remains highly mixed, with many less educated renters and homeowners
  • Less educated renters that remain in gentrifying neighborhood don’t see significant increases in rents:  There’s no appreciable difference in rent increases between less educated living in gentrifying and non-gentrifying neighborhoods
  • Demographic changes in gentrifying neighborhoods are those that are generally associated with better outcomes for low income children growing up in these neighborhoods.
  • Poor neighborhoods that don’t gentrify, don’t state the same, they decline:  non-gentrifying neighborhoods lose population and experience declining incomes.
  • Many existing studies of gentrifying neighborhoods that don’t account for high levels of migration even in non-gentrifying neighborhoods, that don’t disaggregate effects by socioeconomic status, and that rely primarily on median rent statistics can produce misleading pictures of neighborhood change.

The Brummet and Reed study focuses on the 100 largest US metro areas, and measures change key neighborhood characteristics between 2000 and 2010-14, using Census data. An important innovation of their work is linking data for individuals across the two time periods, to measure in detail what happened to a neighborhood’s original residents. The study uses a definition based on changes in the relative educational attainment of adults in Census tracts; gentrifying neighborhoods are the low income census tracts in central cities of the nation’s 100 largest metro areas that recorded the highest rates of increase in adult educational attainment over the past decade or so.  They use educational attainment as their key metric for sorting households by socioeconomic status, comparing results for more-educated (college and higher) and less educated households.

Displacement is negligible

The most common critique of gentrification is the notion that it forces long-term residents, especially low income renters, out of the neighborhood. Brummet and Reed stratify households by education level (which is a good proxy for income levels).  They find that gentrification has a very small impact on the tendency of less educated renter households to move away from the neighborhood.  Over a ten-year period, about 60 percent of less educated renters moved out of their neighborhood, regardless of whether it gentrified.  The author’s estimate that for gentrifying neighborhoods, for less educated renter households, the rate is about 6 percentage points higher (66 percent vs 60 percent) over the period of a decade.

Another common concern about those who migrate out of gentrifying neighborhoods is that somehow they are forced to live in locations that are measurably worse than the gentrifying neighborhood they left. Brummet and Reed compare the characteristics of the destination neighborhoods of those who left gentrifying and non-gentrifying tracts, and found no significant differences:

. . . for all types of individuals, movers from gentrifying neighborhoods do not experience worse changes in observable outcomes than movers from non-gentrifying neighborhoods. That is, they are not more likely to end up in a higher poverty neighborhood, to become unemployed, or to commute farther than individuals moving from non-gentrifying neighborhoods

To the extent that there is demographic change in gentrifying neighborhoods, it is a product of the different characteristics of people who move in to a neighborhood, and not due to an increase in the number of people who move out.

Exposure to poverty declines

The benefit of gentrification is that these more mixed income neighborhoods lower the exposure to poverty for all residents.  Brummet and Reed estimate the average poverty rate of neighborhoods that gentrified declined by 3 percentage points.  As a wide body of research has shown, the poverty rate of one’s neighborhoods tends to aggravate all of the negative effects of poverty, so reductions in poverty improve living conditions and opportunity for residents who remain. The key question is whether many long-term residents of these neighborhoods are able to remain and enjoy these benefits.

The archetypal description of gentrification, from Ruth Glass, who coined the term in the 1960s, is that persons from an upper class totally replace the original lower class residents of a neighborhood. Brummet and Reed show that even in the most gentrified neighborhoods, the amount of demographic change over a decade and a half is relatively small, and gentrified neighborhoods have a high degree of income diversity, with 30 to 60 percent of long term residents remaining, post-gentrification (about the same amount as in non-gentrifying neighobrhoods).  They conclude:

. . . less-educated renters and less-educated homeowners each make up close to 25 percent of the population in gentrifiable neighborhoods, and 30 percent and 60 percent, respectively, stay even in gentrifying neighborhoods. Thus, the benefits experienced by these groups are quantitatively large . . .

Rents for less educated are unaffected by gentrification

After displacement, perhaps the second most commonly cited harm of gentrification is the notion that long term residents are forced to pay higher rents. Brummet and Reed look at the actual levels of rents paid by less educated residents both pre- and post-gentrification.  Contrary to the received wisdom on the topic, they find that rents did not increase for less-educated long-term residents:

. . . somewhat surprisingly, gentrification has no effect on reported monthly rents paid by original resident less-educated renters.

The reason likely has to do with the variation in rental unit size and quality within gentrified neighborhoods.  If many housing units remain smaller, with fewer amenities, less favorably located, they may rent for lesser amounts.  It’s fully possible for median rents to increase in a neighborhood, and for the rents for some other segment of less desirable housing to not increase, or not increase as much. As we’ve noted at City Observatory, it may be more appropriate to look at the 25th percentile of rents to judge affordability for lower income households.  As Brummet and Reed conclude:

These results caution against using simple neighborhood median rents when studying gentrification, as is almost always done. Changes in median rents can miss important segmentation and heterogeneity, leading to incorrect conclusions about how the housing costs paid by different types of households are actually affected.

The dynamics of neighborhood change

Implicitly, much of the discussion of gentrification takes a highly static view of neighborhoods.  It assumes, that somehow, in the absence of gentrification, and neighborhood will somehow stay just as it is.  As Brummet and Reed show, all neighborhoods, including both gentrifying and non-gentrifying lower income neighborhoods, experience substantial turnover in population over the course of a decade or so.

Neighborhoods are always changing, and the low income neighborhoods that don’t gentrify don’t somehow stay the same:  they lose population, and experience declines in income.  The average low income neighborhood that didn’t gentrify between 2000 and 2012 lost 8 percent of its population, and saw a decline in average incomes of 21 percent (Tables 4 and A5). Also:  change in gentrifying neighborhoods is not a zero sum game, with each new resident replacing, one-for-one, a previous resident:  Gentrifying neighborhoods saw their total population increase 21 percent.  These results parallel closely the findings from City Observatory’s own Lost in Place study of neighborhood change from 1970 to 2010 that showed that high poverty neighborhoods that didn’t gentrify lost 40 percent of their population over four decades, while gentrifying neighborhoods recorded increases in population.  This underscores why adding new housing in gentrifying neighborhoods can be an important ingredient in assuring they remain diverse and equitable.

Are these results really surprising?

While the Detroit Free Press labeled these results “surprising”, — “Study reveals surprising results about Detroit gentrification,” — they actually fit the pattern of a growing body of careful studies of neighborhood change.  Martin and Beck found that there was almost no difference in out-migration between gentrifying and non-gentrifying poor neighborhoods.  Ingrid Gould Ellen and her colleagues, using data on kids born to families receiving Medicaid benefits showed virtually no displacement due to gentrification, and also showed that residents who moved generally relocated to similar neighborhoods. Lance Freeman‘s work has shown that displacement rare, Jacob Vigdor has shown that long-time residents are somewhat more likely to stay in gentrifying neighborhoods than non-gentrifying ones.

There’s a decided “man-bites-dog” character to media reporting on this paper.  The Detroit Free Press summarizes the findings as “challenging the notion than gentrification is as harmful as many believe.” The Philadelphia Inquirer headlined its story, “Effects of gentrification on long time residents are not as negative as typically perceived, Philly Fed study says.” CityLab talks about the “Hidden Winners” from gentrification; apparently, gentrification is so widely known to be A BAD THING, that it’s counter-intuitive to think that existing residents might benefit. For example, Kriston Capps of CityLab writes:

Often it goes without saying that the drawbacks of neighborhood change—above all the displacement of existing lower-income residents, but also increases in rents and upticks in cultural conflicts—greatly outweigh any benefits.

It is probably too much to ask, but what the data show, is that for many residents and neighborhoods, gentrification is a good thing.  It raises property values for long-time homeowners, increasing their wealth. It doesn’t appear to be associated with rent increases for less educated renters who remain. Poverty rates decline, and objective changes in neighborhood characteristics–notably greater income mixing–are associated with higher levels of inter-generational mobility for kids growing up in such neighborhoods.  In addition, the data show that poor neighborhoods that don’t gentrify steadily deteriorate on these measures. Implicit in much of the popular discussion and press coverage of gentrification is the assumption that neighborhoods that don’t gentrify will stay the same–but they don’t.  Things get worse.  That’s the relevant story for many places, and its simply not reported.

Methodology and definitions

What makes this study special is that it tracks residents over time as they move in and out of different neighborhoods. The bugbear of most displacement studies is that they rely on comparing one-time snapshots of neighborhood composition, and don’t track individuals.  There’s also an implicit assumption in much work in the field that any time someone moves out of a neighborhood that’s evidence of displacement.  But as Brummet and Reed painstakingly illustrate, population dynamics in urban neighborhoods are far more dynamic that usually thought. As we’ve noted at City Observatory, the average tenure for renters in the US is less than two years. With their longitudinal tracking of individual households, Brummet and Reed estimate that about three-fifths to three -quarters of all renters and a third to forty percent percent of all homeowners will move away from their low income neighborhood over a-ten year period (Table 1). Failing to control for this background of steady change biases many gentrification studies.

Brummet and Reed use confidential and anonymized census data from 2000 and the 2014 American Community Survey to track the residential location of individuals over time. This connected, longitudinal data series is a gold standard of measuring neighborhood change. Snapshot comparison studies can’t tell whether a decline in the number of households with incomes below the poverty line is due to such households enjoying higher incomes, are is due to lower income households moving out of the neighborhood.

One critical ingredient in any study of neighborhood change is the definition of gentrification. Brummet and Reed develop two measures:  one is a continuous measure of demographic change that examines the degree to which a neighborhood gentrifies, the second is a more commonly used-binary measure that divides all lower income, central city neighborhoods into two categories, gentrifying and non-gentrifying, based on whether they are in the top 10 percent of such neighborhoods nationally on this index.

Policy Implications: Leverage gentrification for good

Change of all kinds is hard, and for residents of low income communities, there’s a long and sad history of most changes, many of them promised to make things better, only making things worse.  So its little surprise that their should be skepticism about gentrification.  But unfortunately, the knee-jerk reaction to the perception of negative effects from gentrification has generally been a series of policies that promise to only make the problem worse:  rent control, NIMBY development restrictions, and inclusionary housing requirements. As Brummet and Reed write:

. . . concern that gentrification displaces or otherwise harms original neighborhood residents has featured prominently in the rise of urban NIMBYism and the return of rent control as a major policy option.

The fact that gentrification is mostly benign, and in many respects beneficial to long-term residents should change the policy calculus.  Rather than blocking growth and development in gentrifying neighborhoods, cities should recognize that gentrification creates benefits and also leverage this investment to provide more opportunities for less-well off households to live in great urban neighborhoods  

This could provide new options for policies designed to increase children’s exposure to high-opportunity neighborhoods, for example by targeting subsidies to help them stay in neighborhoods that are improving around them.  . . . Accommodating rising demand for central urban neighborhoods, such as through building more housing, could maximize the integrative benefits we find, minimize the out-migration effects we find, minimize gentrification pressures in nearby neighborhoods, and minimize

As we’ve argued at City Observatory, using tax increment financing to subsidize affordable housing in neighborhoods experiencing rapid change.  Tapping the property appreciation in gentrifying neighborhoods leverages increased wealth to assure that a neighborhood is inclusive.

This study is perhaps the best evidence we have yet of the nature and extent of gentrification in US cities.  It should dispel many of the widely repeated myths and misunderstandings about neighborhood change.  If we better understand the dynamics of urban neighborhoods, we’ll view gentrification not as a scourge, but as an opportunity to use the growing demand for urban living to build cities that are more diverse and inclusive.

Quentin Brummet and Davin Reed, The Effects of Gentrification on the Well-Being and Opportunity of Original Resident Adults and Children, Philadelphia Federal Reserve Bank Working Paper 19-30, , July 2019.


Why homeownership is frequently a bad bet

Home buying is a risky bet: There’s a 30% chance your house will be worth less in five years

It’s a widely agreed that promoting homeownership is a key means to help American households build wealth.  But as we and others have argued, homeownership can be a risky and problematic investment for many households–and is fundamentally at odds with the other pillar of housing policy–that housing ought to be affordable.

The latest reminder of the risky business of home ownership comes from financial blogger Felix Salmon, writing at Axios:

You wouldn’t make a 5x leveraged bet on the S&P 500 — not unless you were an extremely sophisticated financial arbitrageur, or a reckless gambler. Even then you wouldn’t put substantially all of your net worth into such a bet. Stocks are just too volatile. But millions of Americans make 5x leveraged bets on their homes — that’s what it means to borrow 80% of the value of the house and put just 20% down.

While homes are much less volatile than individual stocks, they’re just as volatile as the kind of diversified stock indices most people invest in.

The bottom line: Any given home has roughly a 30% chance of ending up being worth less in five years’ time than it is today. If you can’t afford that to happen, you probably shouldn’t buy.

Salmon links to data from housing investment firm Unison that plots the volatility of home prices in markets around the country. It turns out that home prices are nearly as volatile as major stock indices:

You can observe this volatility in markets around the country.  Almost on cue, the latest data for several markets around the country, ones that you wouldn’t expect, is showing how risky housing purchases can be. For example, prices in Portland and Seattle have both declined in the past year, showing that even “hot” markets with strong economies can experience home price volatility. Portland prices are down 1.6 percent over the past 12 months, Seattle’s are down 4.5 percent in the same time, according to Zillow. Zillow also predicts Seattle prices will decline into next year.

Whether homeownership turns out to be a wealth-building, or wealth destroying endeavor depends a lot on timing and luck–you have to buy the right house, at the right time, in the right neighborhood, for the right price. And the way housing and credit markets generally work, the most financially vulnerable households tend to make their housing investments at the wrong time, in the wrong neighborhoods and for the wrong price, and end up paying more both for their homes and their mortgages, putting them in the position of maximum exposure to market volatility.

There’s a wealth of biased information out there about the merits and safety of homeownership.  While media reports frequently draw attention to hot markets, and emphasize places where prices are increasing, there is considerable variability. It’s still the case, more than a decade after the housing bust, that inflation-adjusted home prices have yet to recover to their pre-collapse highs.  Even in the worst of times, for example, realtors are telling people “it’s a great time to buy a home.” In fact, when it comes to the real estate market, it’s always a good time for the buyer to beware, or at least be aware, of the risks of homeownership.

Note:  The commentary has been revised to more accurately characterize the business specialization of Unison.

About those swelling suburbs

Faster suburban population growth doesn’t signal a preference for suburbs:  Here’s why
Last week, the Wall Street Journal reported suburbs growing faster than cities.  The article, “American suburbs swell again as a new generation escapes the city.”  The article looks at Census data showing that some of the nation’s fastest growing cities are sunbelt suburbs. The article notes:

After several years of surging urban growth, Apex [North Carolina] and suburbs like it now account for 14 of the 15 fastest-growing U.S. cities with populations over 50,000, according to the census.

Millennials priced out of popular big cities are flocking to Frisco, Texas, Nolensville, Tenn., Lakewood Ranch, Fla., and Scottdale, Ga. — not exactly household names but among the fastest-growing destinations in the U.S.

“The back-to-the-city trend has reversed,” said William Frey, a demographer at the Brookings Institution, citing last year’s census data.

Millennials, the generation now ages 23 to 38, are no longer as rooted as they were after the economic downturn. Many are belatedly getting married and heading to the suburbs, just as their parents and grandparents did.

There are no reasons to Census population counts, but there are good reasons to question the superficial claims that some have made that these population trends signal Millennial disenchantment with urban living or a newfound love of suburban tract homes.  Here’s why:
1.  Today’s young adults, especially those with college degrees are vastly more likely to choose to live in close-in urban neighborhoods today than their predecessors in earlier generations.  As our reports on the Young and Restless show, the number of well educated young adults is increasing twice as fast in close-in urban neighborhoods than the rest of metropolitan areas.
2.  Simply counting heads doesn’t reflect the demand for urban living.  High and rising rents & home prices in urban centers show demand is outstripping supply.  Higher relative prices for city homes v. suburban ones is the most powerful evidence of consumer preference for cities. As we’ve demonstrated in our posts on the “Dow of Cities” urban homes now command higher prices relative to suburban ones. 

3.  Cities were able to grow population robustly up to the point where their housing market slack was exhausted.  Now city growth is limited by how fast we can add new housing, which is not fast enough. The failure of cities to grow as rapidly as suburbs really points to a shortage of supply, not a lack of demand.  You have to assume that housing is equally and essentially infinitely elastic in both cities and suburbs in order to interpret simple comparisons of population data as measure of revealed preference.
Rising rents and suburban growth mean we’re not doing enough of this.
4.  The long term trend shows that cities have improved their historical growth compared to earlier decades, while growth in suburbs is lower now than in the 90s or the aughts.  Focusing on the year-over-year  “horse-race” comparison of annual population growth rates misses the point that suburban growth is lower than in the 2000-2010 decade, and urban growth is higher than in that previous decade.
5.  Ultimately, the policy implication of all this is not that Americans, especially younger ones, are disenchanted with cities and want more suburbs.  In fact, it’s exactly the opposite.  The unrequited demand for urban living indicated by high rents and home prices, and the complaints about having to move to suburbs to afford homes signals that policy needs to respond by creating more housing in cities.  When we finally make it as easy to build new housing in cities as we do in suburbs, for example, by allowing missing middle housing to be built, we’ll see urban population grow more rapidly.


In Oregon: The middle isn’t missing any more

Oregon moves decisively to legalize missing middle housing

Oregon became the first state in the nation to comprehensively bar local governments from imposing exclusive single-family residential zoning, and to effectively open up nearly all residentially zoned land to duplexes, triplexes and fourplexes. HB 2001 passed the Oregon House and Senate, and is on its way to Governor Kate Brown’s desk for signature. The bill is important in its own right, and the politics behind its passage, and the way it fits into the framework of land use law in Oregon, has important lessons for housing advocates nationwide.

Another Oregon First:  (Re-)Legalizing Missing Middle Housing

In the wake of the epic failure of California’s much ballyhooed SB 50, which would have liberalized multifamily housing in transit served areas, Oregon’s success in enacting HB 2001 has caught the attention of the housing wonkocracy.

The New York Times’ took notice: ace urban reporter, Emily Badger tweeted about the passage of HB 2001. CityLab flagged the legislation in its article “Upzoning Rising: Oregon Bans Single-Family Zoning.” Local journalists also trumpeted the bill.  Portland’s Oregonian told its readers HB 2001:

. . . will allow duplexes, triplexes, fourplexes and “cottage clusters” on land previously reserved for single family houses in cities with more than 25,000 residents, as well as smaller cities in the Portland metro area. Cities with at least 10,000 residents would be required to allow duplexes in single-family zones.:

Alt-weekly Willamette Week chimed in:

Oregon Legislature passes nation’s first state-wide ban on single family zoning in cities. Two- three- and four-unit buildings will now be allowed in urban Oregon neighborhoods on lots where only one home was previously allowed

The Libertarian Reason magazine–generally skeptical of anything that comes out of deeply blue Oregon–was also laudatory. Its headline:  “Oregon becomes first state to ditch single family zoning.”  Reason tempered its acclaim by calling the state’s land use planning system “a mixed bag” because it retained urban growth boundaries, even though we and others have noted the boundaries serve to reduce public service costs by limiting expensive-to-serve low density sprawl.

Credit for political leadership in getting this bill passed goes squarely to Oregon House Speaker Tina Kotek, who made the bill a personal priority this session. The definitive telling of the political and policy story behind HB 2001 comes from Sightline Institute’s Michael Andersen.  Sightline’s Andersen and Madeline Kovacs (founder of Portland for Everyone) have been key figures in building the case for addressing missing middle housing in Oregon. But Andersen’s work shows how supporters crafted a broad-based coalition that ultimately generated bipartisan support for the bill.

One of Sightline’s signal contributions–which can and should be applied elsewhere–is de-escalating the rhetoric around the bill. Many in the media (and opponents) like to characterize this bill as “banning single family zoning,” which sounds to many ominously like banning single family homes. Andersen and Kovacs have carefully argued that the objective is not to ban single family homes, but to legalize two- to four-family housing. They’ve cleverly, and accurately, embedded that point in observations that these housing types were long allowed nearly everywhere, and that neighborhoods that have this diverse inheritance of housing are among the state’s most desirable.

Free at last! Free at last! Thank God Almighty, free at last!    Four fourplexes in NE Portland, now legal throughout Oregon cities.

Andersen’s article, “Re-legalizing fourplexes is the unfinished business of Tom McCall” should be required reading for all YIMBY advocates. Making the housing debate about allowing more of what people want, rather than taking something away, is a strategy others should emulate.

The Context:  Housing in Oregon’s land use planning system

For observers outside Oregon, it’s a little bit hard to make sense of this legislation. There’s a huge amount of context and existing structure built in to the law and politics of the Oregon land use system that make this system work.

First, a bit of history. Oregon adopted comprehensive state-regulated land use planning in 1973. The core elements of the system are a series of statewide land use goals and a supporting infrastructure of regulations that govern and limit the discretion of city and county planning officials. Local land use plans are reviewed, and have to be approved, by the state Land Conservation and Development Commission. In addition, local land use decisions that violate state requirements can be appealed to a statewide Land Use Board of Appeals.

State laws and regulations limit local government’s ability both to allow development and to prohibit it.  Most famously, Oregon has drawn urban growth boundaries (UGB) around all of its cities, spelling out which places are off limits for urban scale development. Here, state law precludes what local governments can allow.

The less well known feature of the Oregon system is that the state also prescribes the kind of developments that local governments must allow within urban growth boundaries. Cities cannot, for example, ban apartments or require exclusively large-lot residential development. In fact, the state’s land use plan requires local governments to designate land for a range of housing types. In addition, the state requires that if land is designated for a particular residential use, say apartments, that development applications have to be approved under “clear and objective” approval standards.  In the Portland metropolitan area, a special housing rule applies to local governments, requiring each locality to meet specified minimum housing densities, and to zone for a range of housing types.

And the evidence, in the form of much more compact development patterns, shows that this has worked. Robert Liberty, a long time advocate, scholar and government official deeply involved in Oregon’s planning system summarized the pattern of urban growth in Portland before and after the adoption of the UGB and the housing rule. The minimum densities required under land use planning increased the housing capacity of single family zoned lands from 129,000 homes to more than 300,000.  A decade after the plans were put in place, a review showed that cities required to provide for 10 units per acre jurisdiction-wide met 95 percent of that goal, and jurisdictions assigned at least 8 units per acre actually exceeded that goal. (City Observatory readers will likely recognize Liberty as the author of one of our favorite essays, “My Illegal Neighborhood.”)

More recently, Portland’s regional government, Metro, which is charged with developing a housing needs analysis for the metropolitan area, examined the pattern of urban growth in the past decade.  It found that the region has continued to reduce the amount of land needed for each new single family home, with average lot sizes for new dwellings falling by half since the 1980s. The region has expanded its housing supply mostly by infill and redevelopment, rather than by building on vacant land on the region’s periphery.  Over the past decade, three-quarters of all new housing units in metropolitan Portland were built on in-fill sites in already developed areas, or by redevelopment of existing built-up properties.


For four decades, the Oregon system has precluded local governments from playing “beggar thy neighbor” in addressing regional housing demand.  Every city in the Portland area has to shoulder a share of the responsibility for allowing for new housing construction. It’s one of the reasons that Portland has the highest level of economic integration of any large metropolitan area in the nation: it’s effectively impossible for local jurisdictions to use land use restrictions to preclude a range of housing types. With this system in place, re-legalizing missing middle housing types isn’t so much a revolutionary step as it is an evolutionary one.

Key Provisions of HB 2001

The headline provisions of HB 2001 require local governments to allow four-plexes in all residential zoned areas in larger cities, and allow at least duplexes in the residential areas of smaller cities.  The key change to Oregon law is in Section 2, which reads:

(2) Except as provided in subsection (4) of this section, each city with a population of 25,000 or more and each county or city within a metropolitan service district shall allow the development of:

(a) All middle housing types in areas zoned for residential use that allow for the development of detached single-family dwellings; and

(b) A duplex on each lot or parcel zoned for residential use that allows for the development of detached single-family dwellings.

Middle housing types are defined to include duplexes, triplexes and fourplexes and “cottage clusters.” The metropolitan service district includes 24 cities and three counties of the Portland metropolitan area. The effect is that nearly all city and suburban neighborhoods in the Portland area, and smaller metro areas around the state will be required to allow missing middle housing in single family zones. According to the Sightline Institute, 2.5 million Oregonians, about 60 percent of Oregon’s population lives in places where at least fourplexes will be allowed and 2.8 million live where either duplexes or fourplexes will be allowed.

But HB 2001 goes further.  It creates a right to subdivide existing dwellings into multiple units, and provides for an expedited process for review of applications to subdivide existing single family structures. Section 8 of HB 2001 directs the State Department of Consumer and Business Services to draft alternate approval standards for the conversion of single family structures into two- to four-plex buildings. This section also sets a 3-week review process for such permits, and establishes appeal rights for those denied building permits. The conversion of larger, under-used houses into multiple homes may be the biggest and most immediate impact of the legislation.

HB 2001 gives cities and counties until 2022 to revise their plans to comply with the law.  The state will also be providing $3.5 million in funding for grants, technical assistance and other work to aid in implementing the law.

The Market Urbanism blog questioned, for example, whether, Oregon cities might simply downzone single family neighborhoods or impose parking requirements to evade or nullify the requirement to allow duplexes and fourplexes.

Question about this Oregon zoning deregulation: does it stop cities from downzoning in terms of bulk to make the state law dead letter? And does it stop them from imposing onerous parking requirements on the new units?

In short, that’s already largely precluded by the Goal 10 requirements that  require a housing needs assessment, and meeting minimum levels of density city-wide.  In addition, specific provisions of HB 2001 preclude arbitrary restrictions on approving missing middle housing.  For example, section 7 of HB 2001 prohibits conditioning approval of accessory dwelling unit within urban growth boundary on off-street parking availability or owner occupancy. In addition, the HB 2001 generally prohibits deed restrictions that would preclude the construction of missing middle housing types.

The Takeaway:  State action is needed to realize affordable housing

Oregon’s HB 2001 justly deserves praise as a big step forward in addressing housing affordability. Its passage reflects well on state leadership in this important policy issue. But it’s critical to note that HB 2001 is built on a decades-long foundation of key state mandates and limitations on local discretion in the housing market. Under Goal 10, the state has long precluded Oregon local governments from the kinds of exclusionary practices that are common elsewhere; it has developed a well-functioning system for reviewing and approving local plans, and holding local governments accountable for their implementation.

While we’re nothing but pleased about Oregon’s move to re-legalize missing middle housing, we don’t harbor any illusions that this step, by itself, is likely to redress the imbalance between supply and demand for housing in great urban neighborhoods that has created our current shortage of cities.  What it signals to others nationally is a way out of the woods from our current devolution of nearly all housing supply decisions to local governments, who inherently have motives to constrain supply and divert demand to other places. The “homevoter” bias of local governments, coupled with the prisoner’s dilemma of whether to zone land for affordable housing types, undercut the ability of any local government, however noble, to redress housing market imbalances.  Instead, it falls to state governments, whose ambit is wider, and who can force every jurisdiction to “play fair” in the zoning game, that holds the key to improving housing affordability.

Oregon’s experience points out that this is entirely possible, but will require a good deal more re-engineering of the division of state and local roles in land use planning than seems to be implied by a one-off ban exclusive single family zoning. In the years ahead, states will need to step up and assert the wider public interest in assuring that a range of housing types are allowed throughout every neighborhood.

The devaluation of black neighborhoods: Part 1.

Lingering racism holds down property values in majority black neighborhoods

For most American households, their home is their largest financial asset; how valuable that asset is, and whether it appreciates has a profound impact on a household’s financial well-being. Unsurprisingly, a big component of the racial wealth gap in the United States has to do with differences in rates of homeownership, and also in the value of homes owned by black and white households.

There’s a profound gap between the value of homes in majority black and predominantly white neighborhoods in the nation’s metropolitan areas, according to estimates from the Brookings Institution. Even after adjusting for home characteristics and neighborhood attributes, homes in majority black neighborhoods sell at a 20 percent or greater discount to otherwise similar homes in predominantly white neighborhoods.

The reasons for and implications of the value gap between white and black neighborhoods are complex. Lower value housing means incumbent homeowners have less wealth–but also implies that rents are lower and housing is more affordable in black neighborhoods than predominantly white ones. The devaluation of housing in black neighborhoods is primarily a result of the continued resistance many white homebuyers have to consider black neighborhoods, but also likely reflects the growing tendency of higher income black households to move to more suburban and integrated neighborhoods.

The Black/White Home Value Gap in Memphis

To get an idea of what this means in just one city, we look at the data for Memphis.

  • Homes in majority black neighborhoods in Memphis are devalued by $2.3 billion compared to homes in predominantly white neighborhoods, according to estimates from the Brookings Institution.
  • The typical home in a majority black neighborhood in Memphis sells for about $88,500, about $25,000 less than a similar house in a predominantly white neighborhood.
  • Depressed values in black neighborhoods are correlated with lower wealth, but paradoxically may contribute to affordability.

These estimates come from a recent report from the Brookings Institution undertakes a detailed comparison of home prices in majority black neighborhoods compared to other neighborhoods in the United States. The report–The Devaluation of Assets in Black Neighborhoods— by Brookings scholars Andre Perry and David Harshbarger and Gallup’s Jonathan Rothwell uses home price data from 113 cities around the country and finds a consistent pattern of undervalued homes in majority black neighborhoods.

The Brookings Institution compared the sales value of owner-occupied homes in majority black neighborhoods with otherwise similar homes in exclusively white neighborhoods and found that the houses in black neighborhoods sold at a more than 20 percent discount to the homes in white neighborhoods. Here is a summary of the report’s findings for Memphis.


What this table means: This table shows that there are nearly 92,000 owner-occupied homes in majority black neighborhoods in the Memphis metropolitan area; of these, nearly 70,000 are owned by black homeowners. In the aggregate, these homes are worth about $8 billion, but would be worth more than $10 billion, if they were valued the same way as otherwise similar homes in similar, but predominantly white, neighborhoods.  The typical home in a majority black neighborhood has a market value of about $88,000, which is about $25,000 less than a similar home in a majority white neighborhood.

The figures in this table reflect the difference in home values after controlling for house and neighborhood characteristics. The gross difference (without these controls) between home values in majority black neighborhoods and exclusively white neighborhoods is even larger.  Majority black neighborhoods tend to be older, have smaller houses, and havefewer amenities and higher rates of poverty, compared to exclusively white neighborhoods.  Perry and his colleagues used a regression analysis to statistically control for the effects of structural characteristics (home size, age, etc), and neighborhood characteristics (crime rates, schools, commuting distances).  Even after adjusting for these effects–which explain some of the variation in home prices among neighborhoods–homes in majority black neighborhoods were still undervalued.

Economic Effects of Undervaluation

The data make a strong case that homes in majority black neighborhoods are systematically undervalued in comparison to otherwise similar homes in predominantly white neighborhoods. The magnitude of the disparity–the author’s estimate at $156 billion nationally–is also sizable.

The economic effects of this undervaluation are complicated and manifold.  First, it is obvious that homeowners in these neighborhoods, most of whom are black, have less wealth than they otherwise would have if their homes commanded the same values as those in predominantly white neighborhoods. If it weren’t for this devaluation, homeowners in these majority black neighborhoods would have significantly greater home equity.

Beyond that, the picture is more complex, and the effects are mixed. For renters, lower home and property values probably mean they pay lower rents. And it could also be the case that these same homes have long been undervalued, meaning that while current owners have less equity than if they were fairly valued, they may also have paid a lower purchase price to acquire the property.  The Brookings report is candid about these mixed effects:

. . . the devaluation of rental properties is advantageous to renters, in so far as it results in a lower rental payment for similar quality housing. The devaluation of owner-occupied housing makes it easier to acquire the home, but once purchased, it is unambiguously disadvantageous to the owner and occupier, who would otherwise benefit from being able to refinance, borrow, or sell at a higher valuation.

As we’ve often pointed out, there’s an inherent tension in US housing policy between affordability and wealth creation. Houses in majority black neighborhoods may be more affordable (i.e. sell at a discount to otherwise similar houses in predominantly white neighborhoods), but may therefore represent a loss of wealth for their owners.

What causes values to be depressed?

Why would otherwise similar houses in majority black neighborhoods sell for so much less than comparable houses in predominantly white neighborhoods? The first, and most obvious answer is the lingering effects of racism. Many white homebuyers may avoid searching in predominantly black neighborhoods, and the lower demand for housing in these areas causes prices to be lower.  It is also likely that “steering” by real estate agents — directing white buyers primarily to white neighborhoods — also has this effect.

The decline in values is also likely compounded by the decisions of black homebuyers.  Upper- and middle-income black households may rationally choose to buy homes in more integrated neighborhoods, not just for amenities like schools (which were arguably controlled for in the Brookings study), but also because they may believe that such neighborhoods will appreciate more. Over the past four decades, middle-income and higher-income black households have tended both to suburbanize and to integrate.  According to Patrick Sharkey of New York University, a majority of black middle class households now live in the suburbs and almost as many lived in neighborhoods that are not majority black. In 1970, fewer than a third of middle- and upper-income African-American households lived in majority non-black neighborhoods; today it is more than half.  In 1970, only about 20 percent of middle-and upper-income households lived in suburbs; today it is nearly half.

The exit of upwardly mobile black households from majority black neighborhoods has increased economic polarization according to David Rusk of the D.C. Policy Center.  Similarly, the relatively low prices of homes in majority black neighborhoods may mean that these are the only locations that black households with more modest incomes can afford.  The net result may be that lower-income homeowners become more concentrated in majority black neighborhoods. The movement of many black households out of majority black neighborhoods–particularly those households with means–coupled with the continued tendency of white households not to purchase in such areas likely both contribute to the housing price disparities observed in the Brookings report. Finally, as the report points out, the low value of homes in majority black neighborhoods means that homeowners there have less equity in their homes and therefore may find it difficult or impossible to sell and move to a different neighborhood.

Housing prices, like those of other investments, reflect not just the current utility or value of assets, but also the expected return.  Buyers will pay more for housing in areas they expect will appreciate.  Robert Shiller has shown that variations in buyer expectations of future home price appreciation play a key role in the formation of housing bubbles. The same tendency is likely to play out across neighborhoods in metropolitan areas:  Neighborhoods that are perceived as up and coming are likely to have a different price trajectory than neighborhoods that are seen as stagnant or declining.

One finding that these data suggest is that whites are paying a premium to live in all-white neighborhoods.  One implication of the substantial (20 percent plus) differential in home values between comparable houses in majority black and nearly all white neighborhoods is that white households are foregoing the opportunity to get a much less expensive home by buying in a black neighborhood.  Because some white households may be much less averse to having black neighbors, some of what we see as gentrification may be propelled by the substantially lower cost of housing in majority black neighborhoods.

Tomorrow, in part 2 of this series, we’ll take a further look at this issue of wealth disparities, and focus on how housing values in black and white neighborhoods have changed over time, and what challenges that closing this gap poses for policymakers.


Economists & Scientists agree: To save the planet, we have to price carbon

One thing economists agree about: pricing carbon is essential to saving the planet; but if you don’t believe economists, you ought to believe Bill Nye, the Science Guy.

Economists are famous for disagreeing with one another. For every proposition, there is an equal and opposite economist. An even economists frequently have trouble selecting a single conclusion. Harry Truman famously lamented that he wanted a one-armed economist, so that he would never find his advice qualified with “on the other hand.”

Economists of all political stripes support carbon taxes

It’s striking, therefore that the leading lights of the profession, conservative and liberal, freshwater and saltwater, republican and democrat, are all in broad agreement on what it will take to tackle our growing climate crisis.  Their collective statement on climate change was published by The Wall Street Journal.  It’s clear, direct and to the point.  We reprint it in its entirety here.

Global climate change is a serious problem calling for immediate national action. Guided by sound economic principles, we are united in the following policy recommendations.

I. A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary. By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.

II. A carbon tax should increase every year until emissions reductions goals are met and be revenue neutral to avoid debates over the size of government. A consistently rising carbon price will encourage technological innovation and large-scale infrastructure development. It will also accelerate the diffusion of carbon-efficient goods and services.

III. A sufficiently robust and gradually rising carbon tax will replace the need for various carbon regulations that are less efficient. Substituting a price signal for cumbersome regulations will promote economic growth and provide the regulatory certainty companies need for long- term investment in clean-energy alternatives.

IV. To prevent carbon leakage and to protect U.S. competitiveness, a border carbon adjustment system should be established. This system would enhance the competitiveness of American firms that are more energy-efficient than their global competitors. It would also create an incentive for other nations to adopt similar carbon pricing.

V. To maximize the fairness and political viability of a rising carbon tax, all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates. The majority of American families, including the most vulnerable, will benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices.

The letter is signed by these distinguished economists, including among their members Nobel Prize winners, Chairs of the Federal Reserve Bank, Treasury Secretaries, and Chairs of the President’s Council of Economic Advisers.

George Akerlof, Robert Aumann, Angus Deaton, Peter Diamond, Robert Engle, Eugene Fama, Lars Peter Hansen, Oliver Hart, Bengt Holmström, Daniel Kahneman, Finn Kydland, Robert Lucas, Eric Maskin, Daniel McFadden, Robert Merton, Roger Myerson, Edmund Phelps, Alvin Roth, Thomas Sargent, Myron Scholes, Amartya Sen, William Sharpe, Robert Shiller, Christopher Sims, Robert Solow, Michael Spence and Richard Thaler are recipients of the Nobel Memorial Prize in Economic Sciences.

Paul Volcker is a former Federal Reserve chairman.

Martin Baily, Michael Boskin, Martin Feldstein, Jason Furman, Austan Goolsbee, Glenn Hubbard, Alan Krueger, Edward Lazear, N. Gregory Mankiw, Christina Romer, Harvey Rosen and Laura Tyson are former chairmen of the president’s Council of Economic Advisers.

Ben Bernanke, Alan Greenspan and Janet Yellen have chaired both the Fed and the Council of Economic Advisers.

George Shultz and Lawrence Summers are former Treasury secretaries.

Preparation of the letter was organized by the Climate Leadership Council.  More information is available at

And so does Bill Nye, the Science Guy.

One trope of the classic 1950s disaster movie was the coterie of scientists announcing to the world the nature of the new threat (Godzilla, aliens, etc).  In those movies, the world’s leaders believe what the scientists are telling them and act accordingly and even if the first solutions don’t work, they persist. Well, at least that’s how things work in the movie.  In reality, we seem to be very good at ignoring or denying credible warnings from smart people.

OK:  Appeals to authority may not work. Maybe we need simple dramatics for those of us who can only digest information in the simplest terms.  In that case, let’s turn the microphone over to Bill Nye, the Science Guy, with a media assist from Last Week Tonight’s John Oliver.

Nye explained how a carbon tax is essential to reducing greenhouse gas emissions and solving climate change:

The simple economics of carbon taxation.

Many believe that the problem of climate change is subject to a technical fix. Like engineer Montgomery Scott in an episode of Star Trek, some last minute tweak to the ships engines (reversing the polarity of the di-lithium crystals) will avert catastrophe in the nick of time (i.e. about minute 48 of this week’s show).

Our desire for solutions that are free and easy and that someone else (i.e. Montgomery Scott) does all the work on seem preferable, but they’re hardly realistic.  In the face of a global catastrophe, we’ve got to expect to change our behavior. And frankly, Bill seems to be losing his patience with us.

Even if you believe technology is a critical part of the problem–perhaps especially if you believe technology can solve the problem–its important to recognize that pricing carbon is essential to providing the incentives and financial capital needed to develop that technology.  As long as fossil fuels are cheap, businesses and investors  have no incentive to to develop or buy such technologies; inventors will find it hard to raise capital for such technologies, and consumers will have little reason to buy them. Pricing carbon sends the right signals to everyone, both to stop using the dirtiest technologies, and to refine and improve the cleanest ones. Take it from economists, or from science guys.


A modest proposal: Extend the Americans with Disabilities Act to highways

Let’s require that highways really be accessible to those who can’t drive:  State highway departments should provide bus service on state roads for the disabled

The Americans with Disabilities Act was landmark legislation to make sure that the disabled were not denied equal access to the public realm. The ability to travel freely is an important part of accessibility, and the ADA has made considerable progress in making public buildings, restrooms, city sidewalks and transit vehicles easier for the disabled to use. Highway departments have generally been laggards.

For example, fewer than 3 percent of the sidewalk ramps along Oregon highways comply with the requirements of the American’s with Disabilities Act (ADA), according to a recent report. The lack of ramps is a major mobility issue; state highways are often main streets of smaller towns, and these key bits of infrastructure are critical go giving everyone equal access to their communities and not being halted by barriers.” After threatened legal action, the Oregon Department of Transportation has agreed to start spending several tens of millions of dollars each year to build ramps.  With luck, the department hopes to have the backlog addressed by 2032.

Here’s an example (from California) of the kind of ADA compliance we’re talking about.

This is what ADA compliance looks like now:  A ramp with a little yellow raised-bump warning pad  abutting a crosswalk for crossing a two-lane freeway on-ramp.  Notice that the disabled can’t actually use the freeway.

There’s a ramp that connects the sidewalk on one side of the freeway on-ramp to a similar ramp on the other side of the freeway on-ramp.  Notice that this doesn’t actually make the freeway “accessible” to a disabled user–it simply makes it slightly less likely that they will be killed or injured trying to cross the freeway on-ramp. Such ramps don’t make it possible for the disabled to “use” the freeway, so much as to make it slightly less hazardous when they actually don’t use the freeway.  Even with the ramps in place, it’s still the case that its both physically impossible or simply illegal for a disabled person to use the freeway itself for its intended purpose (traveling from one point to another) unless they have a car and someone who can drive it for them.

Freeways aren’t accessible to the disabled. Why doesn’t the ADA address this?

So while the settlement making these crossings somewhat less pedestrian-hostile  is definitely a positive step, we think it might be a good idea to go further. All the ADA requires now is that those who can’t drive a car have a safe way to cross a road without one. But its still the case that if you don’t own or can’t drive a car, there’s no way for you to use a state highway, unaided, for its intended purpose–getting from one part of the state to another. The highway is only usable by those with the physical wherewithal (and financial resources) to operate a vehicle (usually a car, but in many places, bikes as well).

In contrast, look at how the American’s with Disabilities Act applies to transit providers. There’s a wide disparity between how ADA requirements affect transit agencies as compared with highway departments. Not only do transit agencies bear the cost of retrofitting transit vehicles with wheelchair ramps and kneeling capability, but most also operate complementary on-demand or dial-a-ride services for those with disabilities. As long as you’re want to travel in a transit agency’s service area, they’re generally required by ADA to provide such services.

Transit agencies make their systems accessible to the disabled; highway departments don’t. A lift equipped bus.

These paratransit services are expensive. Portland’s transit operator, Tri-Met, spends about $35 million annually for its LIFT and cab services, providing slightly more than one million rides at a cost of more than $30 per passenger, almost 10 times the cost per passenger of its fixed route transit services (Tri-Met Proposed Budget, FY2016, Exhibits 5 and 6). Fares cover about 4 percent of total LIFT costs, meaning that more than 95 percent of the costs of this service are subsidized from other sources.

There’s a profound double-standard in the ADA when it comes to transportation. Bus companies have to provide separate vehicles for those who can’t use buses or trains, but highway departments have no similar obligation to make provide vehicles to those who can’t drive.

The point of these expenditures is to assure that the destinations served by the transit system are equally accessible to all citizens regardless of their disability status. The same standard, of course, doesn’t apply to highways. If you can’t operate a vehicle due to a disability, the destinations served by the highway system are inaccessible to you, but the state Department of Transportation provides no auxiliary service to those who can’t operate vehicles.

A modest proposal:  have the highway department provide vehicles for those with disabilities

The Americans with Disabilities Act, passed in 1990, was a major expansion of rights for the nation’s differently abled citizens. It generally provides that in employment, and in the public realm, governments, employers and landlords have to provide reasonable accomodation for those who are disabled.

The ADA has led to a wealth of changes in the way buildings, streets, and bathrooms are designed. Cities are rebuilding sidewalk intersections with wheelchair ramps. Parking lots regularly set aside the most convenient parking spaces for use by the disabled. Bathrooms have wider stalls and lower sinks to accomodate those with limited mobility.

But highways, particularly our interstate freeway system is legally inaccessible to those with disabilities.  In most states, its simply against the law to walk (or use a mobility aid) to travel on an interstate freeway.  Millions of Americans, due to disability (and also due to age) are legally or practically barred from making independent and equal use of the taxpayer supported highway system.

According to the US Department of Transportation more than 25 million Americans have travel-limiting disabilities.  Of those with such disabilities, fully 40 percent (or roughly 10 million) are unable to drive.

What we’d propose is extending the ADA to require that highway departments offer passenger vehicle service (like buses or ride hailed cars) to provide access to state highways for everyone. If you have a state highway that connects Portland with Salem, and it is really going to be “accessible” to the disabled, then the state ought to provide transit or some form of dial-a-ride service for those who are so disabled that they can’t operate their own vehicle. On lightly traveled routes, the highway department might subsidize vans; on larger roadways it could subsidize scheduled bus service.

That’s not entirely unimaginable. Already, the Oregon Department of Transportation runs  bus service from the Portland area to Multnomah Falls to reduce traffic congestion to this tourist attraction. The agency could just as easily contract for bus service along interstate routes and major state highways.

The highway department runs buses for tourists, why not for those with disabilities?

If highway departments were required to act with anything approaching the same degree of responsibility to disabled citizens who are unable to use the freeway system, they would provide a wide-ranging system of scheduled buses and on-demand vehicle services. It’s worth asking how that might be paid for. Again, applying an analogy to the transit system, highway departments could charge users of buses or dial-a-ride alternatives exactly the same they charge freeway users:  the combined per gallon gas tax paid by a typical car works out to about 2-3 cents per mile of vehicle travel, so it would be entirely fair to have the disabled pay an equivalent amount for their access to the system as well.

If we’re serious about giving the disabled equal access to the public realm, they ought to be able to travel on the expensive roadway system we’ve built that is so vital to connecting to almost every aspect of modern life.  Ours is really a modest proposal that the agencies operating the nation’s highways provide the same accomodation to the disabled that the nation’s transit operators have provided for decades.


The Week Observed, July 5, 2019

What City Observatory did this week

1. What Oregon’s “single family zoning ban” signals for housing policy. Just before adjourning, the 2019 Oregon Legislature adopted the nation’s first statewide ban on exclusive, single family zoning. The legislation effectively re-legalizes duplex, triplex and fourplex housing in urban neighborhoods that have been restricted to one-family homes. While HB 2001 makes Oregon a national leader, it also builds on a long-established pattern of state law imposing responsibility on local governments to allow and encourage a wide range of housing types.  The real insight from the Oregon experience is that state governments need to take decisive actions to assert an over-riding interest in assuring housing availablity.  Legalizing a wider range of housing in single family zoned areas is just a first step in that direction.

Fourplexes like these in Portland are now legal again in Oregon cities.

2.  Happy Birthday, America!  And thanks for all the contributions of our immigrants. On the Fourth of July we celebrate not only the nation’s birthday, but spend a few minutes reflecting on how America’s historic open door to immigrants from around the world has made our nation stronger and more prosperous–and will continue to do so, if we hold true to our values.

I lift my lamp beside a golden door. Welcome!

Must read

1. At his blog Parking Minute, Tony Jordan explores the Federal Reserve Bank of Minneapolis planned 800-space parking garage. Remarkably, for an institution full of economists, it’s far from clear that any economic principles or thinking have gone into the project. For one thing, the Minneapolis Fed has been extremely vague on how much the garage will cost, and how it will be paid for. Real economists would insist that the users of the garage (colloquially referred to as a parking “ramp” in Minnesotan), would pay the full costs of its construction and operation. Question of the day:  Will the Federal Reserve apply the same market principles to its own operations that it prescribes for others and the economy as a whole?  Or are they really asphalt socialists?

2. Building a case for transit without ever mentioning the inconvenient necessity of addressing climate change. Richard Florida and Stephen Pedigo have an interesting new report–Stuck in Traffic–telling Miami that if it wants a strong and vibrant economy, it really needs to invest in transit.  Florida and Pedigo make a solid case that talented workers view dense, interesting, integrated transit served cities as desirable locations to live and work, and that failing to provide more transit will likely handicap South Florida’s economy. That’s a fair point, and borne out by our own research, but it’s striking that their argument about the importance of transit to Miami’s future goes out of its way, it seems, to avoid mentioning climate change. There’s no mention of climate change, global warming; or carbon; the report is more concerned about rising traffic levels, and has nothing to say about rising sea levels, which seeds an odd omission in a state already experiencing regular flooding.  Their report contains one instance of the word “climate”–on page 4, lamenting the unwillingness of Floridians to walk, despite the region’s sunny climate.  The only mention of pollution is a repetition of the shopworn and disproven claim that idling traffic is a major source of air pollution. In addition to transit, we think that the smart, young workers Miami needs to attract will also care about whether their city has any kind of realistic plan for responding to climate change. This report seems to suggest that’s a taboo topic in the Sunshine State.

Another reason to think harder about transit?

3. Lessons in urban agriculture from New York: Fuggedabout it. One of the most heart-warmingly trivialized notions of how we might cope with urban food insecurity and the supposed high environmental cost of moving food is urban agriculture: growing food in cities. While a handful of projects have shown it is technically possible to grow food in cities, a new analysis of New York’s experience shows that its vastly more costly than conventional production and has few if any environmental benefits. And urban farming almost always overlooks that urban land would be better used for housing–increasing urban density reduces vehicle miles of travel. That’s not to say that urban farming can’t meet demand for small amounts of perishable or unique goods, or be a productive use for small plots of land; it’s just not a scalable solution for farming or food consumption.

In the News

1. City Observatory’s analysis showing that pedestrian death rates in the US are now 75 percent higher than in Europe was highlighted in Real Clear Policy.

2. City Lab’s Laura Bliss has a review of the policy battle behind Oregon’s HB 2001, re-legalizing missing middle housing, and quotes City Observatory’s Joe Cortright.


The Week Observed, July 12, 2019

What City Observatory did this week

About those swelling suburbs.  Much was made last week of a Wall Street Journal story noting that 14 of the 15 fastest growing cities with populations greater than 50,000 were suburbs. As with previous such reports, that’s been taken to mean that America’s urban revival is waning and that like previous generations, Millennials are revealing their true love of suburban living. We take issue with those claims, noting that well-educated young adults are still concentrating in cities more than previous generations, and that somewhat slower city growth in recent years, especially coupled as it is with high and rising rents, is a sign that we’re bumping up against the limits of housing supply in cities, not that demand for urban living has waned.

Must read

1. How the law made driving mandatory, and everything else illegal. A few months back, Greg Shill wrote an epic law review article detailing the ways in which the legal system has been systematically tilted to privilege car travel and discourage or make illegal other forms of transportation, particularly walking and biking. He’s back with a taut article at The Atlantic summarizing his analysis:  “Americans shouldn’t have to drive, by the law insists on it.”  From changes to who has the right of way on roads, to the tort law standards applied to drivers, to the way speed limits are set, to the allocation of funds to the tax system, we’ve written our laws to favor car travel. Little wonder we’ve become so dependent.  The net effect, as Shill argues is:

Instead of merely accommodating some people’s desire to drive, our laws essentially force it on all of us—by subsidizing it, by punishing people who don’t do it, by building a physical landscape that requires it.”

2. Carbon pricing works.  Although proposals for cap and trade or cap and invest, and other indirect forms of carbon pricing are moving forward slowly in the US, there’s growing international evidence that carbon pricing, even at relatively modest levels, shifts consumption and investment decisions in ways that produce reductions in carbon emissions. Today’s case-in-point:  the UK carbon price floor.  Put in place in 2013 as a fix for a poorly designed trading system, the UK charges utilities the equivalent of about $25 for each ton of carbon emitted. According to a new report from Canada’s EcoFiscal Commission, the fee as helped produce a dramatic decline in carbon emissions, which have fallen more rapidly in the UK than in the rest of Europe.

At the margin, adding a price to carbon systematically encourages people and businesses to make lower carbon investment and consumption choices, and raises the financial returns from new low carbon technologies. If we’re going to seriously tackle the climate crisis, getting prices right will be a powerful impetus for collective action.

3. The amazing disappearing home mortgage interest deduction.  One of the biggest changes included in the 2017 tax reform bill passed by Congress was the effective elimination of the mortgage interest deduction for most moderate income families.  Increasing the standard deduction, to $24,000 for married couples, dramatically reduced the number of households who can itemize deductions and take advantage of the mortgage interest deduction. The change took effect in 2018, which means that tax returns filed in 2019 are the first to show the effects of the new provision.  Tom Cusack of the Oregon Housing Blog notes that IRS data for returns filed through May show that the number of households claiming the mortgage interest deduction has fallen by more than 60 percent (more than 17 million fewer than in the previous year), and the volume of mortgage interest deducted has fallen by about $128 billion.

It’s striking that this is one of the biggest changes in federal housing policy in decades. It will be interesting to see how the loss of this key tax break influences home ownership in the years ahead. The remaining beneficiaries of the deduction tend to be even higher income households.  (Hat tip to Tom Cusack of the Oregon Housing blog).

New Knowledge

Yes, today’s young adults are behaving differently than those in previous generations. At City Observatory, we’ve long noted that today’s young adults, especially the group we call the Young and Restless (college-educated 25 to 34 year olds) are doing things differently than previous generations. We’ve chronicled their increasing tendency to choose to live in close-in urban neighborhoods. Economist Jeff Tucker at Zillow has pulled together some terrific data on other key behaviors of young adults over the past several decades. This chart shows the difference in rates of marriage, child-bearing and homeownership for 23 to 34 year olds.

The data show a steady–and persistent–decline in all these behaviors.  In 1975, nearly four-in-five young adults had already been married; today it’s less than half. Three-in-five had kids in 1975; today its 37 percent. And while nearly half were homeowners in 1975, it’s less than 28 percent today. Despite the frequent contrarian stories you hear, none of these trends has reversed, or even weakened, in recent years.

That’s not to say that many, even most, of these young adults won’t eventually marry, have kids and buy houses. But they’ll do it much later in life, and cumulatively the effect of that delay profoundly changes the shape of demand for housing, and as we’ve frequently said, adds to our shortage of cities.

This chart is drawn from Jeff Tucker’s June 2019 presentation to the King County Assessor’ Office.

In the News

Slate’s Henry Grabar quotes City Observatory’s analysis of US and European pedestrian death rates in his article “Don’t count on US regulators to make self-driving cars safe for pedestrians.”


The Week Observed, July 26, 2019

What City Observatory did this week

1. Why gentrification is good for long time residents of low income neighborhoods. We take a close look at a new study from the Philadelphia Federal Reserve Bank that challenges much of the frequently repeated claims about gentrification. It finds that there’s relatively little displacement from gentrifying neighborhoods, that low income residents don’t experience significant rent increases, and that neighborhood poverty declines in a way that is consistent with higher levels of inter-generational mobility for low income children. It also shows that otherwise poor neighborhoods that don’t gentrify experience population loss, reminding us that all neighborhoods are continuously changing.

2. The devaluation of housing in black neighborhoods, Part 1. According to estimates from the Brookings Institution, houses in majority black neighborhoods sell at a 20 percent discount to otherwise similar homes in otherwise comparable neighborhoods that are predominantly white. This disparity in home values means that homeowners in predominantly black neighborhoods have about $150 billion less in home equity than they would if their homes were valued in the same way as homes in predominantly white neighborhoods. This large disparity in home values is a major component of the black-white wealth gap.  We explore the reasons behind this gap and some of its implications.

3.  The devaluation of housing in black neighborhoods, Part 2: Appreciation. Whether housing is a good investment depends heavily on its rate of appreciation. Homes in black neighborhoods lost value more rapidly than homes in white neighborhoods in the housing bust.  In the recovery, the pattern seems to have reversed, with black homebuyers experiencing somewhat greater appreciation in most markets than white buyers in those markets. While appreciation signals greater wealth for those who bought homes, it may also mean diminished affordability for renters and for other buyers going forward. The inherent contradiction between our two goals of housing policy (that it ought to be both a great investment and affordable) bedevil the policy decisions around reducing the racial wealth gap.

Must read

1. Childless cites?  Views differ.  Last week, The Atlantic’s Derek Thompson published an essay decrying the emergence of childless cities.  What with their high rents, small units, and weak schools, we’re told, cities are invariably hostile environments for families with children.  That’s a provocative thesis, but is it true?  Writing at Planetizen, Michael Lewyn challenges the data on declining numbers of kids in cities.  In effect, it’s always been the case that larger households with kids were somewhat more likely to live in suburbs than cities (mostly because single person households are concentrated in urban locations).  But the key question, is whether than suburbanization of kids is increasing or not.  Lewyn’s evidence suggests that it isn’t:  the birth dearth is affecting suburbs as much as cities, and many cities, including New York, Washington and San Francisco are all recording increases in the number of kids. Additionally, from the policy standpoint, there’s the question of what we do about enabling and encouraging families to live in cities. As Hanna Love and Jennifer Vey of the Brookings Institution write, childless cities aren’t a fait accompli. Addressing housing affordability, by expanding supply will likely ease rents and make cities more affordable for households who’d like to stay. And, as Washington DC’s experience has shown, universal pre-school programs are a powerful inducement to households to stay in cities.

2. The primacy of cars.  Two recent articles got us thinking about how the unspoken primacy of cars in the public realm is starting to be questioned in a serious way.   For example, the conception of parking in the public imagination is undergoing a seismic shift: from “why isn’t there ‘enough’ parking”” to ‘who decided that free private car storage was a legitimate use of the shared public realm?’  Take the New York Times, whose Style section offered the observation:

City street parking should be considered public space.  The current setup is ridiculous:  In front of millions of New Yorkers’ apartments, for one example, there are 9-by-18-foot plots of space, available to anyone in the city . . . if they have a car and want to leave it there. Less than half of the city’s residents own cars, and far fewer can lay claim to any kind of outdoor space. So from Fort Worth to Philadelphia, why not let people use these patches of cement for something they can actually enjoy? Let people set up a table with some food, a little grill, a folding table to sit at and enjoy the sun, and each other. Make space next to the sidewalk. Hatch 10,000 tiny little public spaces in cities that are starved for some life.
Or, more pointedly, listen to alt-weekly Willamette Week’s Dr. Know (aka Marty Smith) take in response to a letter worrying that more apartments in a downtown neighborhood will just slow traffic by increasing the number of pedestrians looking to cross crowded streets:
. . . the tacit assumption that “traffic” means, exclusively, people in cars  [is a] concept is so thoroughly baked into our culture that you don’t even notice it, like the water in a Spongebob cartoon. Pedestrians can’t be traffic—they’re the enemy of traffic! They mill about in the crosswalk, like cattle, and make us late for stuff. Besides, if they were going anywhere important, they’d be in a car.
If we think about that space in the street as something other than subsidized, first-come-first-served private car storage, and we regard people walking on the street as equal, not subordinate, to vehicles, maybe we can reverse some of the damage that’s been done to the public realm in the past century.
3. A grim reminder of the carnage wrought by auto dependence.  The Washington Post tabulates the death toll from driving in the 21st Century.  More Americans have died on streets and highways since 2000 than in World War I and World War II combined. The two world wars killed 535,000 Americans; more than 640,000 people have died on America’s roads in the past two decades.  That figure omits 30 million injured in car crashes. It’s a testament to our callousness and insensitivity that we don’t treat this topic with the gravity than the regular and predictable human toll ought to motivate. Apparently, we really don’t care.

New Knowledge

Was job polarization real?  One of the leading labor market stories of the past couple of decades has been the notion of job polarization, that a combination of technological and market shifts was destroying middle wage jobs, and shunting more workers into either the high or low end of the wage spectrum. A new study from Jenniver Hunt  of Rutgers and Ryan Nunn of the Brookings Institution challenges that claim.

The nerdy detail here is that analyses of job polarization are based on occupational data.  The Bureau of Labor Statistics classifies people into one of about 330 occupations, and also reports on the average level of wages paid to persons working in that occupation.  Most of the literature finding job polarization takes these occupational average wages to compute the number of persons in low, medium or high wage work.

That would be fine, if everyone an occupation earned the average wage. The trouble, as Hunt and Nunn point out is that there’s huge variation in wages within occupations.  In fact, there’s more variation in wages within occupations than there is among occupations. The result, they conclude is that you simply can’t use occupational data to make meaningful statements about the changes in the number of workers earning high, middle or low wages.

. . . occupation mean wages are unsuitable for the analysis of wage inequality: most of the increase in wage inequality is within and not between occupation; occupation mean wages do not capture the bottom of the individual wage distribution; and middle–wage workers are distributed widely across occupations. Computerization and automation may be increasing wage inequality, but the hypothesis cannot be studied through the lens of occupations and does not find support in our analysis.

Hunt and Nunn compile an alternative set of data from the Current Population Survey that overcome the problems inherent in the occupational data, and test whether there’s been job polarization.  They find that while there has been a decline in middle wage jobs, that’s chiefly been because of the increase in high wage jobs.

Hunt and Nunn’s data show that while there has been a decline in middle wage jobs (the red and green lines on this chart), the biggest changes have been a decline in jobs in the lowest quarter of the wage distribution and an increase in jobs in the highest quarter of the wage distribution.  The nature and timing of these changes are a challenge to an oft-repeated story about job polarization.




Happy Birthday America; Thanks Immigrants!

We celebrate the fourth of July by remembering that a nation composed overwhelmingly of immigrants owes them a special debt.

Lighting the way to a stronger US economy since 1886.

America is a nation of immigrants, and its economy is propelled and activated by its openness to immigration and the new ideas and entrepreneurial energy that immigrants provide. Its commonplace to remind ourselves that many of the nation’s greatest thinkers and entrepreneurs, Andrew Carnegie, Albert Einstein, Andy Grove and hundreds of others, were immigrants, if not refugees. All six of America’s 2016 Nobel Laureates were immigrants. The latest American Survey of Entrepreneurs, conducted by the Census Bureau shows that immigrant entrepreneurs who have started companies are both more likely to be concentrated in the important computer and information technology industries, and that these companies are stronger in innovation that similar firms started by native born Americans.

The fact that America stood as a beacon of freedom, and a haven from hate and oppression, has continually renewed and added to the nation’s talent and ideas. Immigration has also played a critical role in helping revitalize many previously depressed urban areas and neighborhoods. As Joel Mokyr explained in his terrific book “A Culture of Growth,” the key factor triggering the Enlightenment and the Industrial Revolution was the ease with which heterodox and creative thinkers could find sanctuary in other countries and spread their thinking across borders. The US was founded on the kind of openness and tolerance than underpinned this process, and flourished accordingly.

What’s true for our nation is especially true for the cities that power the nation’s economy. The health and prosperity of city economies hinges directly on their ability to be open to newcomers and new ideas. Immigrants are a source of economic energy for urban economies. Robert Shiller, winner of the Nobel Prize in Economics, quoting urbanist Jane Jacobs:

Cities grow organically, she said, capturing a certain dynamic, a virtuous circle, a specialized culture of expertise, with one industry leading to another, and with a reputation that attracts motivated and capable immigrants.

The critical role of immigration is abundantly clear when we look at the health and productivity of the nation’s urban economies. The metro areas with the highest fractions of foreign-born well-educated workers are among the nation’s most productive.

Metros with the most foreign born talent

Our benchmark for measuring foreign-born talent is to look at the proportion of a region’s college-educated population born outside the United States. We tap data from the Census Bureau’s American Community Survey, which tells us what share of those aged 25 and older who have at least a four-year college degree were born outside the United States. (This tabulation doesn’t distinguish between those who came to the US as children and were educated here, and those who may have immigrated to the US later in life as adults, but shows the gross effect of all immigration). In the typical large metropolitan area in the United States, about one in seven college educated adults was born outside the nation. And in some of our largest and most economically important metropolitan areas, the share is much higher: a majority of those with four-year or higher degrees in Silicon Valley are from elsewhere, as are a third of the best educated in New York, Los Angeles, and Miami.


Foreign born talent and productivity

We’ve plotted the relationship between the share of a metropolitan area’s college-educated population born outside the United States and its productivity, as measured by gross metropolitan product per capita.  Gross metropolitan product is the regional analog of gross domestic product, the total value of goods and services produced, and is calculated by the Bureau of Economic Analysis.  The sizes of the circles shown in this chart are proportional to the population of each of these metropolitan areas.

These data show a clear positive relationship between the presence of foreign-born talent and productivity.  Several of the nation’s most productive metropolitan areas–San Jose, San Francisco, New York and Seattle–all have above average levels of foreign-born persons among their best educated.

Of course, these data represent only a correlation, and there are good reasons to believe that the arrows of causality run in both directions: more well-educated immigrants make an area more productive and more productive areas tend to attract (and retain) more talented immigrants. But it’s striking that some of the nation’s most vibrant economies, places that are at the forefront of generating the new ideas and technology that sustain US global economic leadership, are places that are open and welcoming to the best and brightest from around the world.

There are many of reasons to oppose Trump Administration’s repeated attempts to close America’s borders to immigrants. The most important reasons are moral, ethical and legal. But on top of them, there’s a strongly pragmatic, economic rationale as well: the health and dynamism of the US economy, and of the metropolitan areas that power the knowledge-driven sectors of that economy, depend critically on the openness to smart people from around the world.