Single-family zoning, a policy that bans apartments, is widespread in Los Angeles County. The median city bans apartments on 80% of its land for housing.

Cities with more widespread single-family zoning have higher median incomes, more expensive housing, and higher rates of homeownership.

Single-family zoning blocks renter households and low- and moderate-income households from accessing affordable housing in affluent, high-opportunity cities.

Editor’s Note:  City Observatory is pleased to publish this guest commentary by Anthony Dedousis of Abundant Housing LA.

For over a century, single-family zoning has defined the landscape of American cities. Single-family zoning, which prohibits the construction of apartments, including modest townhouses and duplexes, essentially mandates single-family detached houses as the only legal housing option. While single-family zoning predominates in suburbs, it is surprisingly common even in large cities, where apartments are often banned on over 75% of the land zoned for housing.

When a city limits housing types, it limits who can live in that city. Single-family homes are more expensive than apartments; limiting the housing stock to standalone homes thus raises the cost of living. Single-family zoning fits into a constellation of land use restrictions, including minimum lot sizes and on-site parking requirements, which raise housing costs and create barriers based on income and race. 

Here in California, efforts to reform exclusionary zoning and promote denser housing have met with fierce opposition from wealthy homeowners and anti-gentrification activists. Even modest reform proposals like Senate Bill 9, which would legalize duplexes, have attracted hostility from similar corners. As policy and research director at Abundant Housing LA, a “Yes In My Back Yard” organization that advocates for more housing, I sought to better understand the interplay between zoning, income, and race in the Los Angeles area. The outstanding examination of single-family zoning in the Bay Area by the UC Berkeley Othering and Belonging Institute inspired my methodology and interest in this topic.

By analyzing zoning data from the Southern California Association of Governments and demographic data from the American Community Survey, I determined how widespread single-family zoning is in each of L.A. County’s 88 cities. I found that cities with more pervasive single-family zoning tend to have higher median household incomes, higher median home values, higher homeownership rates, and are often more racially segregated.

This two-part series will dive deep into the connection between these variables: Part 1 explores income, housing costs, and homeownership, while Part 2 will focus on race and segregation.

Single-Family Zoning, Income, and Housing Costs

Apartment bans are widespread in L.A. County; the median city zones over 80% of the land for housing as single-family. Even in the City of Los Angeles, America’s second-largest city, apartments are banned on 80% of the residentially-zoned land. 

Cities with widespread apartment bans are often high-income enclaves, like Calabasas in the western San Fernando Valley, Palos Verdes Estates in the South Bay, and La Canada Flintridge in the San Gabriel Valley. However, single-family zoning is common even in some lower-income cities, like Compton, South Gate, and Lancaster.

Some pairs of neighboring cities hint at a link between single-family zoning and cities’ socioeconomic makeup. In Lawndale, a lower-income city in the South Bay with a Latino majority, just 8% of the land for housing is zoned single-family. Its neighbor, Torrance, bans apartments on 80% of the land zoned for housing. Torrance’s median household income is $34,000 higher than Lawndale’s, and just 17% of the city’s population is Latino. Other city pairs, like Claremont/Pomona and Cerritos/Hawaiian Gardens, have similar dynamics.

To explore this link, I grouped cities into five buckets, based on their prevalence of single-family zoning:

• 0-50% of residential land zoned single-family (13 cities)
• 50-70% of residential land zoned single-family (11 cities)
• 70-80% of residential land zoned single-family (16 cities)
• 80-90% of residential land zoned single-family (23 cities)
• 90+% of residential land zoned single-family (23 cities)

For those who want more information about individual cities, a here is a spreadsheet showing which zoning bucket each city falls into, as well as other key statistics.

There’s a clear link between more single-family zoning and higher household incomes. In cities with the most single-family zoning, median incomes are more than twice as high as in cities with the least single-family zoning.

Cities with more single-family zoning also tend to have more expensive homes.

The median home value in the most restrictive cities is nearly $700,000, 63% higher than in the least restrictive cities.

Cities with more single-family zoning also have much higher rates of homeownership, especially in very restrictive cities. This stands to reason: apartment-dwellers tend to be renters, so a widespread ban on apartments acts as a backdoor ban on renter households.

Next, I looked at the relationship between single-family zoning and income for individual cities. Here, it’s important to remember that many suburbs were incorporated explicitly to maintain income and racial barriers; for example, suburban Lakewood incorporated in the mid-1950s to avoid annexation by larger, more urban Long Beach. It’s also worth noting that the City of Los Angeles is by far the largest city in L.A. County by population and area, and that zoning, income, and housing costs vary hugely between the city’s neighborhoods.

With these caveats aside, we can see that nearly every city with a high median household income also has a high prevalence of single-family zoning. There are almost no cities with high incomes and low single-family zoning prevalence, though 20 cities have both high single-family zoning (above 75%) and below-average median household incomes.

Similar patterns emerge when we compare single-family to median home values and to homeownership rates.

Taken together, we can see that cities with wealthier populations, more expensive homes, and higher rates of homeownership are likelier to have widespread apartment bans. Single-family zoning thus acts as a barrier preventing renter households and low- and moderate-income households from accessing affordable housing in affluent, high-opportunity cities, a point that the Berkeley team made convincingly in its Bay Area analysis.

Analyzing housing policy, income, wealth, and exclusion in cities also requires us to analyze race and segregation. In Part 2, I will dig into the relationship between cities’ zoning, racial composition, and prevalence of segregation.

Single-family zoning, a policy that bans apartments, is widespread in Los Angeles County. The median city bans apartments on 80% of its land for housing.

Cities with more widespread single-family zoning have higher white and Asian population shares, and lower Black and Latino population shares.

Cities with more widespread single-family zoning are more segregated relative to Los Angeles County as a whole.

Single-family zoning acts as a significant barrier to Black and Latino Americans accessing affordable housing in affluent, high-opportunity cities.

Editor’s Note:  City Observatory is pleased to publish this guest commentary by Anthony Dedousis of Abundant Housing LA.

In Part 1 of this series, I examined single-family zoning in the cities of Los Angeles County, and found that cities with more restrictive zoning tend to have higher median incomes, housing costs, and homeownership rates. In Part 2, I dive into the link between zoning and cities’ racial composition, and found that cities with more pervasive single-family zoning tend to have lower Black and Latino population shares, and are more racially segregated relative to Los Angeles County as a whole.

Sadly, this was not a surprising finding: in the United States, income and race are closely linked, and racial discrimination helps to explain much of the wealth gap between white and nonwhite Americans. Also, in many cities, single-family zoning was often introduced as a way to maintain race-based barriers to housing opportunities without violating civil rights laws.

In 1916, Berkeley, California became the first American city to implement single-family zoning; one motivating factor was a desire to exclude Black-owned businesses and families from a white neighborhood. After a 1917 Supreme Court case overturned local laws forbidding Black Americans from purchasing homes in white neighborhoods, many cities used exclusionary zoning as a way around the ruling. 

Even after redlining and restrictive covenants were banned in the 1960s, single-family zoning offered an ostensibly race-neutral way to maintain patterns of segregation into the present. Studies have linked more restrictive zoning to lower Black and Latino population shares in Boston-area neighborhoods and in New York’s suburbs. A Berkeley analysis of Bay Area zoning found that cities with more pervasive single-family zoning were likelier to have a higher white population share, higher median incomes, more expensive homes, better access to top schools, and superior access to economic opportunity.

Present-day L.A. County is both incredibly diverse and also highly segregated. While the county overall is 48% Latino, 26% white, 14% Asian, and 8% Black, the racial composition of individual cities varies dramatically. Cities with more widespread single-family zoning tend to be more white, more Asian, less Latino, and less Black. Cities with the least single-family zoning tend to be majority-Latino.

To explore further, I calculated a “Segregation Index” score, which compares each city’s racial composition to the county’s overall demographics. (This is similar to the Divergence Index used as the UC Berkeley team’s preferred metric of segregation, scaled so that 100 would represent the most segregated city in the county.) 

In Los Angeles County, cities with higher Segregation Index scores tend to have larger white and Asian populations and smaller Latino and Black communities, relative to the county average. High-income cities in the South Bay and western San Fernando Valley, as well as Beverly Hills, Glendale, and Burbank, have high Segregation Index scores and high prevalence of single-family zoning.

Segregation index by city (100 = most segregated)

Again, grouping cities into five buckets, based on the prevalence of single-family zoning, shows that cities with more widespread single-family zoning tend to have higher Segregation Index scores. Cities with the most restrictive zoning have Segregation Index scores that are nearly ten times higher than cities with the least restrictive zoning.

Additionally, while not every city with heavy single-family zoning is highly segregated, the most segregated cities generally have widespread single-family zoning.

As with income, this shows how single-family zoning can create or maintain patterns of ethnic exclusion. Single-family homes are more expensive to buy or rent than apartments, and given America’s significant racial income and wealth gap, regulations that mandate more expensive types of housing in a city effectively make that city less affordable to Black and Latino Americans. Barriers to apartment production therefore block many Black and Latino Americans from moving to higher-income areas that offer upward economic mobility, and reinforce the concentration of lower-income families in low-opportunity neighborhoods.

Single-family zoning has a heavy social and economic cost: it makes it harder for families with low or moderate incomes, who are disproportionately Black and Latino, to move to prosperous cities with good schools and jobs. And by raising the cost of housing, it excludes these households from homeownership opportunities. This is profoundly unfair and unnecessary; simply legalizing apartments in these affluent cities would do much to create more affordable housing and homeownership opportunities for people of all backgrounds.

Building a society where opportunity and prosperity are widely enjoyed, regardless of one’s income, skin color, or place of birth, requires us to end single-family zoning. Ending single-family zoning does not mean banning single-family homes. It would simply make single-family houses one of several types of housing that are permissible. Single-family houses would continue to exist alongside duplexes, bungalow courts, and larger apartment buildings, as they already do in neighborhoods throughout California.

Fortunately, a growing number of cities are embracing zoning reform. Minneapolis and Portland were first to legalize small apartment buildings citywide. In 2019, California legalized accessory dwelling units and has seen strong ADU production as a result. Sacramento recently voted to allow up to four homes on any residential parcel, and Berkeley is poised to do the same. Even Santa Monica, no stranger to NIMBY politics, may allow modestly higher housing density in single-family zoned areas. 

Legalizing apartments will make these cities more affordable and welcoming to people of all walks of life. It’s time for every city across America to do the same.

If OregonDOT is serious about “restorative justice” it should mitigate  highway damage by building housing

Around the country, states are subsidizing affordable housing to mitigate the damage done by highway projects

Mitigation is part of NEPA requirements and complying with federal Environmental Justice policy

The construction of urban highways has devastating effects on nearby neighborhoods.  Not only has building highways directly led to housing demolitions to provide space for roadways, the surge of traffic typically undermines the desirability of nearby homes and neighborhoods, leading to the depreciation of home values, the decline of neighborhood economic health, and population out-migration.  That story has been told numerous times across the US; we’ve detailed how the Oregon Department of Transportation’s decisions to build three huge highway projects in the 1950s, 1960s and 1970s decimated Portland’s Albina neighborhood.  This predominantly Black neighborhood lost two-thirds of its population over the course of a little more than two decades. At the time, no one gave much thought to the loss of hundreds or thousands of housing units, or the effect on these neighborhoods.  But increasingly, state highway agencies are looking to mitigate the negative effect of current and past highway construction by subsidizing housing in affected neighborhoods.  Here are three examples from around the country.

The Oregon Department of Transportation claims that it is interested in “restorative justice” for the Albina community, which has identified housing as one of the keys to building wealth and restoring the neighborhood.  And ODOT’s project illustrations show how hundreds of housing units might be built near the project–but these are just vaporaware, as ODOT hasn’t committed to spending a dime of its money to making that happen, to replacing the homes it demolished over the decades.  Based on the past and current experience of other states, there’s no reason that they can’t treat investments in housing as mitigation, just as ODOT routinely spends a portion of its highway budget on restoring wildlife habitat, creating new wetlands, or even replacing jail cells.  A real restorative justice commitment would make up for the damage done, as these examples show.

Lexington Kentucky:  A community land trust funded from highway funds

For decades, Kentucky’s highway department had been planning a freeway expansion through Davis Bottom, an historically African-American neighborhood.  The threat of freeway construction helped trigger the decline of the neighborhood.  When the road was finally built a little more than a decade ago, the state highway agency committed to restoring the damage done to the area by investing in housing.  As part of the Newtown Pike Extension project, the Kentucky Transportation Cabinet acquired 25 acres of land and provided funding to establish a community land trust for the construction of up to 100 homes.

In 2008, the Federal Highway Administration gave the project an award for this project, saying:

The Davistown project is the first CLT ever created with FHWA Highway Trust Funds. Eighty percent of the project, including the acquisition of CLT land and the redevelopment of the neighborhood, will be funded with these FHWA funds.

The FHWA Environmental Justice guide highlights the Lexington CLT as as a “best practice.”

Houston, Texas:  $27 million to build affordable housing to mitigate interstate freeway widening

Houston’s I-45 “North Houston Highway Improvement Project” would, like the I-5 Rose Quarter project, widen a freeway through an urban neighborhood.  The Texas Department of Transportation, as part of the project’s environmental impact review process has dedicated $27 million to build or improve affordable housing in neighborhoods affected by the freeway.

Reno Nevada, State DOT providing land and money to cities and counties for affordable housing

Nevada DOT committed to using highway funds to pay for housing to mitigate effects of freeway expansion in Reno at the junction of I-80 and US 395.

NDOT will provide funds or land already owned by NDOT to others (Cities of Reno or Sparks, Washoe County) to build affordable replacement housing for non-Reno Housing Authority displacements. Those displaced by this project who wish to remain in the area will be given priority access to the replacement housing. After those needs have been addressed, the affordable housing will then be made available to those who qualify for affordable housing but were not displaced by the project. Residents will be considered eligible for this replacement affordable housing if they meet Section 8 eligibility requirements or Reno Housing Authority’s Admission and Continued Occupancy Policy (Reno Housing Authority 2018).

Federal Regulations encourage or require mitigating impacts.

The key environmental law governing federal highway projects is the National Environmental Policy Act.  It requires that agencies identify the adverse environmental impacts of their decision, and then avoid, minimize or mitigate those impacts.  In particular, NEPA mitigation includes “restoring the affected environment” and “compensating for the impact by . . . providing substitute resources or environments.”  Using highway funds to replace housing demolished by a freeway is one key way in which the negative effects of a highway project on an urban community can be mitigated.

CFR § 1508.20 Mitigation.

Mitigation includes:

(a) Avoiding the impact altogether by not taking a certain action or parts of an action.

(b) Minimizing impacts by limiting the degree or magnitude of the action and its implementation.

(c) Rectifying the impact by repairing, rehabilitating, or restoring the affected environment.

(d) Reducing or eliminating the impact over time by preservation and maintenance operations during the life of the action.

(e) Compensating for the impact by replacing or providing substitute resources or environments.

A federal executive order on Environmental Justice directs agencies to pay particular attention to the impacts, including the cumulative impacts of agency decisions on low and moderate income people and people of color.  THe Federal Highway Administration’s Environmental Justice Policy specifically identifies impacts on neighborhoods as “adverse effects” of federal highway projects, and calls for both mitigating these impacts, and considering alternatives that minimize adverse impacts on communities.

1. Adverse Effects. The totality of significant individual or cumulative human health or environmental effects, including interrelated social and economic effects, which may include, but are not limited to: bodily impairment, infirmity, illness or death; air, noise, and water pollution and soil contamination; destruction or disruption of human-made or natural resources; destruction or diminution of aesthetic values; destruction or disruption of community cohesion or a community’s economic vitality; destruction or disruption of the availability of public and private facilities and services; vibration; adverse employment effects; displacement of persons, businesses, farms, or nonprofit organizations; increased traffic congestion, isolation, exclusion or separation of minority or low-income individuals within a given community or from the broader community; and the denial of, reduction in, or significant delay in the receipt of, benefits of FHWA programs, policies, or activities.

FHWA Policy:  It is FHWA’s stated policy to mitigate these disproportionate effects by providing “offsetting benefits” to communities and neighborhoods, and also to consider alternatives that avoid or mitigate adverse impacts.

What is FHWA’s policy concerning Environmental Justice?  The FHWA will administer its governing statutes so as to identify and avoid discrimination and disproportionately high and adverse effects on minority populations and low-income populations by:

(2) proposing measures to avoid, minimize, and/or mitigate disproportionately high and adverse environmental or public health effects and interrelated social and economic effects, and providing offsetting benefits and opportunities to enhance communities, neighborhoods, and individuals affected by FHWA programs, policies, and activities, where permitted by law and consistent with EO 12898;

(3) considering alternatives to proposed programs, policies, and activities where such alternatives would result in avoiding and/or minimizing disproportionately high and adverse human health or environmental impacts, where permitted by law and consistent with EO 12898

Taken together, the NEPA requirements for mitigation, and the FHWA’s policy on environmental justice require FHWA projects—like the I-5 Rose Quarter Freeway Widening—to address the cumulative totality of the project’s effects on the neighborhood, including the disruption of community cohesion, the displacement of people and businesses and increased traffic congestion.  The current project adds, as we have shown, to a long history of federally supported highway projects in the Albina neighborhood that have had devastating cumulative effects, including particularly, the destruction of hundreds of housing units, which are essential to the economic well being of the neighborhood and its residents, who, historically have been lower income and people of color.  It is fully consistent with federal environmental policy and environmental justice requirements for ODOT to devote funds to rebuilding housing as a way to mitigate the damage it has done to the Albina neighborhood.

The intentionally misleading re-brand of the failed Columbia River Crossing conceals the key fact that it is a 12-lane wide, 5 mile long freeway that just happens to cross a river, not a “bridge replacement.”

It’s vastly oversized and over-priced, with current cost estimate ranging as high as nearly $5 billion (before cost-overruns), which will necessitate round trip tolls of at least $5 for everyone using the bridge.

Almost a decade ago, plans for a gigantic freeway-widening between Portland and Vancouver collapsed in the face of budget concerns and deep community disagreements about the project.  For the past year, the Oregon and Washington transportation departments have been trying to breath life into the zombie project—with the help of $40 million in consultants. The project’s-PR led marketing effort has systematically concealed the fundamental facts of the project, while promoting meaningless, unquantified and unenforceable platitudes about promoting equity and responding to climate change.

Like the original Columbia River Crossing (CRC) project, its an intellectually bankrupt sales pitch, not an honest conversation about alternatives.

It’s been apparent for months now that ODOT and WSDOT are trying to pressure the two states into recycling the project’s current record of decision–now more than a decade old.  That “ROD” as it’s called, specifies a massive freeway expansion illustrated above.  While the agency is hinting at the possibility of “design” tweaks—it’s apparent that their plan is to simply recycle the failed CRC proposal.

They’ve rebranded  it the “I-5 Bridge Replacement” but that’s an intentionally misleading title.  Sounds innocuous, right?  Who can be against merely “replacing” a bridge?

The only part of that branding that’s right is the number 5.

But they’ve left out the real meaning of the “5” in the title.  There are really three “5’s” that really define this project.  According to the project’s own documents: It’s five miles long, it’’ll cost $5 billion, and they’ll charge you $5 for a round trip.

It’s not a bridge “replacement” — It’s a five-mile long, 12-lane wide freeway that just happens to cross a river.  It stretches five miles from Lombard to Mill Plain Boulevard.

It’s 12 lanes over the Columbia River, and even wider on Hayden Island, as the above illustration shows.  Congressman Peter DeFazio has called the plan “gold-plated.” (Manning, Jeff. “Columbia River Crossing could be a casualty of the federal budget crunch”, The Oregonian, August 14, 2011).

It’s going to cost upwards of $5 billion, a—and likely more because they routinely have massive cost overruns.

According to their tolling financial estimates, which are part of the current finance plan, they’ll charge a minimum toll of $2.60 each way to cross the bridge, which works out to more than $5 per round trip. Peak tolls would be higher, and heavy trucks would pay four times as much as cars ($20 per round trip, minimum).

It’s time for ODOT and WSDOT to be honest about what they’re really proposing, the 5-5-5 project: 5 miles of freeway, $5 billion, $5 tolls per round trip.

In 2020, US residential values increased by $2.2 trillion

Those gains went disproportionately to older, white, higher income households

Capital gains on housing in 2020 were more than three times larger than the total income of the bottom 20 percent of the population.

Little of this income will be taxed due to the exemption on capital gains for owner-occupied homes

Gains to homeowners dwarf the profits made by developers, foreign investors, or Wall Street home buyers.

Rising home prices are a transfer of wealth to older generations from younger ones.

So much of our housing debate is a search for suitable villains on which to blame a lack of affordability.  Our problems must be due to rapacious developers, greedy landlords, absentee speculator owners, buying new housing and holding of the market, and private companies buying up and renting out single family homes.  These are the cartoon characters who get blamed for driving up prices.  But they aren’t the ones to blame, and they’re not the ones who are making a killing in the housing market.

At City Observatory, we’re proud to announce we’ve found the real estate speculators reaping the literally trillions of dollars of gains from our capitalist housing system:  millions of homeowners, who are statistically higher income, whiter and older than the overall US population.

Last year, according to calculations from Zillow, the value of existing residential real estate in the US grew by $2.2 trillion.  (New construction added a paltry $275 billion in new homes and apartments to that total).  Given current price trends, Zillow expects another $2 trillion or so increase in residential values in 2021.

In the post-pandemic era, we’re getting a bit inured to counting  “trillions.”  To put the amount of housing capital gains in perspective, the $2.2 trillion dollar one-year increase in home values is more than three times the total pre-tax income of the bottom twenty percent of US households (less than $600 billion in 2017, according to the Congressional Budget Office).

To get an idea of exactly who reaped those gains, we took a look at data compiled by the Federal Reserve Board on the demographics of homeownership. The Fed’s triennial Survey of Consumer Finance provides estimates by age, race and income of homeownership rates and the average value of housing for the nation’s households.  Using these data, we computed the number of households by race and age of the household head (which the Fed Survey tactfully calls “the reference person”) and by the income of the household.  We’ve combined the value of owner-occupied residential property with other residential property owned by households (i.e. second homes, investment houses or apartments).  The Fed’s estimates (based on its household survey) are somewhat different from Zillow’s (derived from its database of homes), but both put total value of US residential real estate in the $30-$40 trillion range.  To a first approximation, these data on the age, race and income of homeowners are our best guide to who reaped the $2 trillion in residential capital gains this year.  That assumption masks some variability in housing price appreciation across markets and classes of homes, but this should be a good rough indicator of the demographics of the nation’s housing wealth winners.

The gerontopoly of housing wealth

As we’ve noted before at City Observatory, older Americans hold most US housing wealth, and have been chalking up a disproportionate share of gains as housing has appreciated.  The latest data from the Federal Reserve show that households headed by a person aged 55 and older own 56 percent of all residential housing wealth in the US. It’s a fair guess that these older homeowners reaped most of the gain in home values in the past year.

As Ed Glaeser has pointed out, rising real housing costs are a straightforward transfer of wealth from younger generations (who must buy the now more expensive homes) to older generations (who own the housing, and will reap gains when it is sold).

The long shadow of race

For a long list of reasons—including discrimination in housing and labor markets, redlining, and segregation—households of color have been systematically denied the opportunities to accumulate housing wealth.  That pattern is still very much in evidence in the latest Fed data:  Non-Hispanic white households own almost 80 percent of all the housing wealth in the US, implying they also reaped 80 percent of the residential capital gains, or about $1.6 billion.

Rising home prices effectively increase the wealth of white households relative to households of color.

High income households own most housing 

While homeownership is touted as a means of wealth accumulation, it has mostly worked out for high income households. While the ownership of real estate is not as skewed to high income households as is the ownership of financial assets like stocks or bonds, it is still the case that the highest income 20 percent of the population owns 59 percent of all the residential housing value in the US.

These data suggest that about $1.2 trillion of the gain in home values went to the top 20 percent of the population, meaning that their residential capital gains exceeded by a factor of about two the total pre-tax income of the bottom 20 percent of the population.

Housing appreciation is untaxed, which benefits older, white and wealthier households

The skewed ownership of housing wealth means that the gains in wealth are highly concentrated in households that are older, whiter, and higher income than other Americans.  But unlike wage income, income from housing appreciation is mostly un-taxed. As a result, the capital gains exclusion for housing is regressive and inequitable.  The capital gains exclusion for owner-occupied real estate,is much more valuable to high income households because they are more likely to own homes, own more expensive homes, and generally face higher tax rates that low income households.

In reality, the $2.2 trillion in capital gains that US residential property owners reaped in 2020 will be lightly taxed, to the extent they are taxed at all.  Federal law exempts from capital gains the first $500,000 in gains on the sale of owner occupied property (for married couples filing jointly).  That is to say that you would need $500,000 of appreciation to have any capital gains liability.  As a practical matter, few households pay capital gains taxes on residential real estate appreciation.  The tax-favored status of income from residential real-estate speculation is a quintessential feature of our system that attempts to promote wealth-building through home ownership.  While well intended, it systematically rewards older, whiter and wealthier households, and effectively denies opportunities to build wealth to the third of the population that is renters.  In many ways, it is the worst of all worlds, making housing more expensive for those least able to afford it, and providing most of the gains to those who are already most advantaged.

There’s one final irony here:  policies to broaden access to homeownership now, by providing subsidies or other support for lower income, younger, and minority homebuyers don’t rectify these gaps, they likely make them worse.  Steps to amplify demand in a surging market tend to drive prices up further, which further enriches incumbent homeowners at the expense of first-time buyers.  If you could enable people to somehow buy houses at 1990 or 2010 prices, they could be assured of wealth gains, but the risk is that buying now offers no such expectation of long term gains. Promoting homeownership primarily helps those who are selling homes, not those who are buying them.

The search for villains

Rather than talk about the capital gains that flow to older, wealthier, whiter households, much of the housing debate is a melodrama, looking to cast suitably evil villains on which to blame the crisis.  It’s fashionable to finger Wall Street investors (who for the past decade or so have been buying up single family homes and renting them in many US markets), foreign buyers of luxury condominiums in New York, Miami, Seattle and other hot cities (who let the units sit vacant while speculating on higher values), and greedy developers, who make excessive profits by building new homes.  None of these supposed villains accounts for more than a trivial part of the problem; at most, they’re picking up crumbs, compared to the the trillion dollar gains logged by incumbent homeowners.

A recent article in the New York Times suggests Wall Street backed investors now own as much as $60 billion in single family real estate.  That’s sounds ominous, but it’s less than 1 percent of the $35 trillion or so of residential investment in the US.  If all these investors earned a 10 percent capital gain in 2020, they would have collectively gotten about $6 billion or a couple of tenths of one percent of the $2.2 trillion in home values. It’s also fashionable to blame the construction of luxury condos in a few superstar cities—held vacant by rich, often foreign speculators.  The trouble is that such units are a tiny slice of the housing market, and there’s no evidence they affect overall housing costs.

And then there are the developers.  Supposedly they make a killing from building new housing. When housing price are appreciating, especially as fast as they have in the past year, the profits that developers earn from building new housing are dwarfed by the capital gains reaped by existing homeowners.  Our friend Josh Lehner, an economist with the Oregon Office of Economic Analysis, has an insightful study estimating the profits earned by homeowners and developers in Oregon over the past decade.  Lehner estimates, that on average, developers reap a margin of about 14 percent on new housing construction.  By comparing that total (14 percent of the value of new housing built in any year), with the appreciation of the existing housing stock in that same year, Lehner is able to show how developers profits stack up against the capital gains enjoyed by incumbent homeowners.  It isn’t even close:

Applied to Zillow’s estimates of national level new construction, Lehner’s 14 percent of building value estimate suggests that developers netted less than $40 billion nationally, an amount equal to about 2 percent of the gains that accrued to owners of existing homes.  It’s not the greedy developer that’s benefiting from rising home prices, it’s the NIMBYs next door who reap the gains.  As our colleague Daniel Kay Hertz has pointed out, we tend to conveniently forget that essentially all of the existing housing stock came into being, not by immaculate conception, but by the profit-motivated efforts of earlier generations of developers. If anything, because new development increases housing supply, it blunts housing price appreciation, so more development tends to increase affordability.

Wall Street investors, speculating oligarchs, and greedy developers all make signature villains in the housing affordability melodrama, but they really conceal the identity of those who are actually reaping the gains of rising housing prices.

The experience of the past year illustrates the profoundly broken nature our current strategy of “wealth building through home ownership.”  The benefits of home price appreciation accrue disproportionately to those who already have wealth, and if anything, they tend to worsen the existing disparities of wealth among households.  As existing housing appreciates, it increases the wealth of the incumbent homeowners, who are disproportionately white, older and wealthier, and drives up housing costs for those who don’t now own homes.  And our tax system amplifies these inequities by allowing nearly all of this income to go untaxed.  The myth of homeownership as a universal wealth building strategy is the real villain here.

ODOT proudly spends road funds on mitigating the impact of its highways:  if you’re an invertebrate.

The highway department mitigates noise pollution, rebuilds jails, and even compensates neighborhoods

But if we repeatedly pushed highways through your neighborhood, all you’ll get is condolences, wider overpasses, and a pictures of housing for which there’s no money

The Oregon Department of Transportation regularly spends millions of dollars to mitigate and offset the damage its highway projects due to plants and animals, to wetlands, to the quiet of residential neighborhoods.  They’ve made a practice of creating mitigation banks, that offset past and future damage from highway projects. And they’ve even set up permanent funds to provide for the maintenance of these areas over decades.

ODOT talks a good game about its interest in offsetting the damage freeway construction did to the historically Black neighborhoods of North-Northeast Portland, but the damage they really did was in wiping out housing, and destroying the critical mass of population in the neighborhood, turning it into a car-dominated landscape of parking lots, drive-throughs and gas stations.  At City Observatory, we’ve shown that ODOT highways were principally responsible for decimating the Albina neighborhood. ODOT’s Highway 99W (Interstate Avenue) cut the neighborhood off from the river and demolished houses in 1951; the I-5 Freeway cut the neighborhood off from the rest of North and Northeast Portland in 1962, and the unfinished Prescott Freeway flattened another portion of Albina in the early 1970s. Together these freeway projects and the changes they enabled caused the neighborhood’s population to decline by two-thirds. (The red bounded areas below were largely destroyed by ODOT highway construction).

The most tangible way to achieve “restorative justice” in Albina is to do what the agency routinely does around the state:  restore the habitat it destroyed.  In an urban setting, that habitat is, most critically, housing.  ODOT demolished hundreds of housing units for the i-5 Freeway, and the traffic its roads generated destabilized the neighborhood and wiped out most of the rest.  Building housing, lots of it, in Albina, a neighborhood that’s poised for a comeback, would be a fitting way to mitigate the harm it has done.

Instead, the agency seems bent mostly on a superficial effort to sell a wider overpass. If it’s serious about reparations for the damage it did to Albina, ODOT should be making a major contribution to restoring housing in the neighborhood.

ODOT’s routinely pays to mitigate the damage its highways do

It’s hardly far-fetched to suggest that ODOT fix the damage that its projects do to the surrounding environment.   ODOT has established mitigation banks to restore disturbed wetlands, fish spawning areas and seasonal ponds.  It pays for extensive sound walls to block the noise generated by highways that affect nearby homes and businesses.

Here’s a classic example:  In Southern Oregon, highway construction has wiped out hundreds of acres of “vernal ponds”—areas that flood in the rainy season and dry out the rest of the year.  These ponds are home to some distinct plants and animals, like the fairy-shrimp and wooly meadowfoam.  Recognizing the damage that previous freeway construction had done, and in an effort to offset that (and likely future damage) ODOT has created an 80-acre conservation bank as part of its project to expand Highway 62 in Southern Oregon.  In all, ODOT Has more than 200 acres of oak savannah and vernal pools in Southern Oregon. Importantly, ODOT’s own report describes the establishment of the habitat as “compensatory” for the damage done by past, present and future roadbuilding.

Perhaps even more importantly, ODOT’s investment is actually prospective:  It recognizes that its future actions will likely cause even more damage to the environment and its created more habitat that its destroyed, in effect to serve as bank to offset likely future damages. ODOT paid to acquire the land, and set up a half-million dollar endowment to assure that exists, in perpetuity.

The Oregon Transportation Commission has already approved nearly $3 million in funding for another mitigation bank called the Columbia Bottomlands.  It’s designed to offset damage to wetlands from future projects, including the proposed effort to revive the Columbia River Crossing (Oregon Transportation Commission, December 6, 2019, Consent Agenda, Item 13).

Other major ODOT projects have similar mitigation expenditures.  For the Newberg-Dundee bypass, ODOT is creating twice as much wetland habitat as the project is destroying.  For the Pioneer Mountain-Eddyville project, ODOT paid for improving fish habitat on nearby streams.  ODOT makes all these payments to mitigate environmental damage, in part, because it is required to do so by the National Environmental Policy Act.

Sound walls to mitigate freeway noise

When freeways were first built in the 1950s and 1960s, the state highway department did nothing to offset the effects of noise on nearby homes and businesses. But since the 1970s, it has become commonplace to spend a portion of any project’s budget on “noise walls” to buffer nearby uses. An extensive set of sound walls is proposed as part of the I-5 Rose Quarter Freeway widening project.

ODOT’s guidelines suggest that it will pay up to $25,000 per residence for sound reduction.  Nationally there are more than 2,700 miles of sound walls; in just the three-year period 2008-2010, the Federal Highway Administration spent roughly half a billion dollars on sound wall construction.  Recently, ODOT spent $2.6 million on a sound wall to benefit several dozen homes in South Salem near I-5.  It’s particularly important to note that much sound wall construction was remedial and retrospective: the first noise walls were built years or decades after the freeways were first built, they were an intentional effort to correct past damage.

Highway money for jails and some neighborhoods

In 1980, the right of way for the I-205 East Portland Freeway passed through the site of the Rocky Butte Jail.  The Federal Highway Administration paid $53 million (over $160 million in today’s dollars) for the construction of the Multnomah County Justice Center in downtown Portland.  

There’s even precedent for compensating for the negative effects of freeways on surrounding human neighborhoods.  When ODOT built the I-405 freeway through Northwest Portland in the 1970s, it created a multi-million dollar community development fund.  The chief difference:  Northwest Portland is a largely white neighborhood; Albina was a largely Black neighborhood. The fund still exists and is now administered by the Oregon Community Foundation, but still gets its funding from highway-related revenues.  Among other things, the fund has supported the renovation of the Hillside Community Center in the Northwest hills.  For the record, when ODOT built the stub-end of the never-completed Prescott Freeway through Albina in 1973, it didn’t create a similar fund for the predominantly Black neighborhood devastated by construction.

Other governments have sought to mitigate their neighborhood impacts by building housing.  The University of California San Francisco’s medical campus has agreed to build nearly 1,300 units of housing, with one-quarter of them reserved as affordable, as part of a community benefits package associated with the approval of the expansion of its Parnassus Heights Hospital.  And this is being paid for by the University, not the city. The explicit purpose of the agreement is to offset potential damage to the neighborhood according to San Francisco Supervisor Dean Preston:

“Just as a doctor’s oath requires them to do no harm to their patients, we want to make sure that the UCSF development plans do no harm—and in fact, benefit—surrounding communities and the city,”

The need for reparations in Albina

Just as fish ladders on dams only partially mitigated the epic destruction of native salmon runs in the Pacific Northwest, building covers over a widened freeway is only the most minimal mitigation of the damage done to Portland’s historically Black Albina neighborhood.

ODOT’s map of the project area makes it clear that in 1954, prior to the construction of the freeway there were hundreds of houses, and that the gridded, walkable fabric of Albina was very much intact.  It wasn’t simply the construction of the freeway that transformed the area, it was the flood tide of car traffic that rendered much of the area inhospitable to residential inhabitation.  As we’ve documented at City Observatory, these ODOT highway projects led to the loss of hundreds and hundreds of housing units and led to a decline in population in Albina from more than 14,000 in 1950 to about 4,000 in 1980.

Whether we’re talking mitigation or reparations, ODOT owes this neighborhood something much better that a few hundred square feet of noisy, largely unusable or undesirable space on a freeway cap, surrounded by an increasing flood of automobile traffic.  Instead, it should be looking to mitigate the damage to the neighborhood in exactly the same fashion it did for Highway 62 in Southern Oregon:  by restoring the pre-existing habitat.  The way to do that is not through freeway covers, or a single building site atop a freeway overpass, but by subsidizing the construction of hundreds of housing units that can restore the density, urban form and walkability of Albina that existed prior to the freeway’s construction.

And while ODOT’s “Independent Cover Assessment” consultants have produced illustrations showing how as many as 750 new apartments could be built on or near the Rose Quarter project, ODOT hasn’t come up with a single dime of the $160 to $260 million it would cost to build the housing depicted in its images.

To sum up:  ODOT can spend real dollars when it comes to protecting vernal ponds, restoring wetlands, improving fish habitat, or lessening sound impacts on nearby houses.  It can use highway dollars to replace jail cells. It can even contribute money for neighborhood improvement—at least in historically white neighborhoods.  But when it comes to North/Northeast Portland, where their freeway intentionally targeted and wiped out hundreds of housing units (which they never replaced), and whose traffic destabilized the neighborhood, and led to decades of decline, ODOT has, at most, condescending rhetoric, and feeble and misleading promises about “freeway covers” which in fact are badly fragmented, noisy and pedestrian hostile land perched over a widened I-5 freeway..

Why doesn’t ODOT recognize the habitat of Albina as worthy of protection and recompense?  If it can restore twice as much wetland as a freeway destroyed, why can’t they restore twice as much housing as they demolished?

What City Observatory this week

1. It’s not a bridge replacement, it’s a 5 mile long, 12 lane wide freeway that just happens to cross a river.  The Oregon and Washington highway departments are trying to revive the failed Columbia River Crossing project, peddling it as the “I-5 bridge replacement” project.  That’s incredibly misleading moniker.  While it sounds modest an innocuous, its anything but:  It’s really a 5-5-5 plan:  Spend upwards of $5 billion widening five miles of the I-5 freeway, and pay for (a fraction of the total costs) by charging each vehicle round trip $5.  The images of the project—which the two DOTs have carefully excised from their public presentations—show a monster freeway that Representative Peter DeFazio called “gold-plated.”

It’s a sly and deceptive bit of marketing to dub this giant freeway widening plan a “replacement,” but creating the illusion that this is just fixing a dilapidated and outdated structure is exactly the way state highway departments divert money that could be used for repairs to underwrite oversized boondoggles.

2.  We found the speculators who reaped $2 trillion in profits from the housing market last year.  The public discussion about housing affordability often devolves into a search for villains:  greedy developers, foreign investors, Wall Street banks buying up single family homes.  But new data from the Federal Reserve shows who pulled in $2 trillion in capital gains from housing in 2020:  older, whiter, richer homeowners. Last year’s gains from housing appreciation were three times greater than the total pre-tax household income of the bottom twenty percent of the population.  And under the federal tax code—which generally exempts $500,000 in housing capital gains from taxation—most of that income is tax-free.

As this chart shows, more than half of all the nation’s residential real estate, about $20 trillion worth, is in the hands of the wealthiest one-fifth of all households.  They are the ones who are the big winners from the increases in home values attributable, in significant part, to the policies designed to encourage home ownership.  And while these policies build wealth for mostly older, whiter homeowners, there’s no comparable wealth-building program for the one-third of the nation’s households who rent and who are disproportionately younger, lower income people of color.

Must read

1. Housing lessons from the old school masters.  The Urban Institute’s Yonah Freemark contrasts the generous and geographically well-distributed pattern of social housing in European cities with the much smaller and segregated public housing in the US.  As much as one third of housing in large metro areas in the United Kingdom and France are publicly owned or subsidized, compared with less than 10 percent in comparable US cities.  Here Freemark compares the shares of housing in each of the nation’s three most populous cities that are either social or subsidized housing:

In the US, housing subsidies reach perhaps of fifth of those who are technically eligible; in Europe, housing benefits are much closer to universally available to those who qualify.  And Freemark points out there’s an important spatial difference in social housing on the two sides of the Atlantic.  In the US, most public or subsidized housing is concentrated in city centers, and usually in low income neighborhoods or a dis-favored urban quarter.  In Europe, its far more common to have social housing spread throughout a metro area, including both cities and suburbs.

2. Why artificially cheap gasoline is the opposite of just.  The reason we drive—and pollute—so much in the US is that car ownership and use is heavily subsidized.  One of the deepest subsidies in the US is the very low price of fuel.  Road taxes don’t even cover the cost of building and operating roads, much less the social and environmental damage of driving.  US fuel taxes are roughly one-fifth the average of other industrialized countries.  Charging a price that reflected these costs would lead people to drive less, buy more efficient cars, and choose safer and more environmentally sustainable modes of transport.  But we’re told that any increase in fuel prices would be somehow unfair to low income households.  The Frontier Group’s Tony Dutzik challenges that thinking, pointing out that low income families bear the brunt of climate change, and are disproportionately carless, meaning they also suffer from being second class citizens in a car-dependent world. Most of the economic benefit of artificially low fuel and road prices flows to higher income households, which is inequitable. And in a global context, delaying effective action to reduce US greenhouse gas emissions actually does more to hurt the poor around the world, who are much more vulnerable than even low income Americans.

3. The great ICE hangover.  It’s easy to get enthralled with the idea that electrifying the vehicle fleet will be a simple means to reducing greenhouse gas emissions. But the Transportist’s David Levinson has some sobering thoughts about the fossil fuel hangover implied by the huge existing inventory of internal combustion engine vehicles.  It’s still the case that more than 95 percent of new vehicles have ICE motors, and electric car productions is ramping up only slowly.  In 2030, the vast majority of the nearly 300 million cars on US roads will still be ICE vehicles.  Given the huge sunk costs in both the vehicles, and the fossil fuel industry (from wells to filling stations), there will be strong incentives for both producers and consumers to keep using ICE engines.  As Levinson explains:

One of the undiscussed features of transport electrification is the large number of internal combustion engine (ICE) vehicles that will remain on the road in the absence of prohibition.  There are many stranded incumbents like service stations and their upstream suppliers who will continue to provide fuel for the remaining vehicles, and that fuel will have a lower and lower market price (sans taxes), as demand will have dropped and the supply will not, and existing producers will have huge incentives to pump fuel while it still has some market value. Consumers with older cars will be reluctant to replace their working vehicle when low fuel prices abound. Many just like their cars, and the smell of gasoline is an attractant for some.

It’s a problem that could be solved, Levinson argues, by throwing money at it—about $750 billion by his calculations, to buy-back the existing ICE-engine cars.  There’s a certain internal logic to the idea, but if we’re serious about dealing with climate change, should we be spending three-quarters of trillion dollars here, rather than on more compact urban development, or solar panels?  And why financially compensate those who (a decade or more from now) have decided to buy vehicles we know are contributing to the destruction of the planet.

New Knowledge

The pandemic hasn’t dethroned tech centers. The surge of “work at home” activity during the Covid-19 pandemic has given rise to the idea that tech centers, like Silicon Valley, will lose their edge.  If workers can work remotely, from anywhere, why would they pay the high costs of living in generally more expensive superstar cities.  This is especially true for tech workers, who spend much of their time glued to their computers in any case.

New data from economist Jed Kolko of Indeed.com shows that the geographic concentration of hiring activity by major tech companies hasn’t waned at all during the pandemic.  If anything, the eight leading tech centers have cemented their dominance of tech-related hiring.  While overall hiring growth has been somewhat slower in tech hubs than elsewhere, it’s entirely due to a much weaker performance in non-tech industries in those hubs. The decline in consumer spending by tech workers working remotely has apparently had a vastly larger impact on these tech hub economies than any relocation of tech workers to other metropolitan areas.

Indeed tracks data on hiring announcements by firms in a wide range of industries.  Their data compare the change in job postings in 8 major tech hubs with other large US metros between February 2020 (just prior to the pandemic) and one year later.  Job postings in tech sectors, like IT and software, declined by just about the same amount in tech hubs as other metros.  The big difference in hiring patterns is in other, local-serving industries, like retail, child care and restaurants, where tech hubs had notably larger declines in job postings that other metros.  This suggests that the big impact of work-at-home on local economies has not been to shift the location of tech employment, but rather to reduce local spending in places that have lots of tech workers (who can work remotely, and who have reduced their out-of-home spending as a result).  If or when these tech hub workers return to the office in a post-Covid world, we might reasonably expect those local-serving jobs to rebound as well.

Jed Kolko, “Tech hubs held on to technology jobs during the pandemic,” Indeed Hiring Lab, May 6, 2021. https://www.hiringlab.org/2021/05/06/tech-hubs-held-on-during-pandemic/

In the News

Oregon Public Broadcasting cited City Observatory’s analysis of the destructive effects of freeway building on Portland’s Albina neighborhood in it’s story “A freeway once tore a Black Portland neighborhood apart. Can new infrastructure spending begin to repair the damage?”

Sightline Institute pointed its readers to our story on the true dimensions of the so-called “I-5 Bridge Replacement Project.”

Correction

The originally published version of our commentary, “How ODOT destroyed Albina:  The Untold Story,”  incorrectly claimed that ODOT’s Rose Quarter analysis had not acknowledged the destruction of housing by the construction of Interstate Avenue in the early 1950s.  In fact, one table contained in the project’s environmental justice section concedes that this project demolished at least 80 homes.  We have corrected this story to incorporate this information.  Thanks to a regular reader who pointed this out.  City Observatory regrets this error.

What City Observatory this week

Don’t be fooled again.  The Oregon and Washington state highway departments are up to their old tricks in trying to push a multi-billion dollar highway building boondoggle in the POrtland area.  A guest editorial from David Bragdon, formerly President of Portland’s regional government, recounts the lies and deceptive tactics the agencies used in their failed push for the original Columbia River Crossing a decade ago, which did nothing to improve the region’s transportation system, but squandered roughly $200 million on consultants and botched plans.

As Bragdon relates, the two state DOTs are pushing the same high pressure sales tactics of fictitious deadlines and requirements to get the region’s leaders to go along with what now looks like a $5 billion project.

Must read

1. Why the hybrid office won’t last.  There’s immense speculation that our pandemic-induced experience with work-at-home will lead firms and workers to abandon the idea of getting everyone together in offices or other workplaces.  Other’s maintain we’ll get more of hybrid model, working in the office a few days a week, and the rest of the time at home.  Not so fast, argues behavioral scientist Jon Levy.  Writing in the Boston Globe, he concludes that the productivity advantages of close contact, and the disadvantages of being “out of the loop” when working remotely, will have most (or all) of us headed back to the office, pretty much as soon as vaccine deployment allows.

2.   Brookings:  Reducing greenhouse gases requires changing land use.  Adie Tomer, Jenny Schuetz and two co-authors from Brookings Institution’s Metropolitan Policy Program take a hard look at what it will take to make meaningful progress on fighting climate change.  We’ll certainly need to electrify transportation as much as we can, and clean up electric generation, but that won’t be enough:  we’ve got to fundamentally change American land use patterns.

Simply put, the United States cannot reach its GHG reduction targets if our urban areas continue to grow as they have in the past. After decades of sprawl, the U.S. has the dubious honor of being a world leader in both building-related energy consumption and vehicle miles traveled per capita. Making matters worse, lower-density development also pollutes our water and requires higher relative emissions during the initial construction. That leaves the country with no choice: We must prioritize development in the kinds of neighborhoods that permanently reduce total driving and consume less energy.

There’s little doubt the Brookings analysis is right; if anything though, they might be even more pointed in their policy prescriptions.  For example, liberalizing zoning to ease “missing middle” housing like duplexes and triplexes is important, but the big gains for climate are likely to come from widely legalizing apartments, particularly in transit served locations, as State Senate Scott Wiener has proposed in California.

3.  Maryland dials back a big freeway expansion project.  For several years, Maryland Governor Larry Hogan has been pushing a public-private partnership to widen more than 30 miles of the Capital Beltway around Washington DC.  It appears that the Governor is now backing off from a big part of that plan, at least for the time being.  Local officials opposing the project say it signals a shift in policy from the Biden Administration.  Maryland Matters reports that Montgomery County Council President Tom Hucker says:

. . . the state’s decision to drop a large piece of the original plan appeared to be an acknowledgement that President Biden and U.S. Transportation Secretary Pete Buttigieg have a vastly different philosophy than the prior administration.  The state’s approach “abjectly fails the test for transportation projects that the federal government now has — that they move people and not vehicles, and that they pass a climate test and a racial equity test,” Hucker said. “This 1970s-style project fails those 21st century standards.”

Freeway opponents around the country will want to take a close look at this decision.

Must attend

New Knowledge

Does high speed rail benefit intermediate communities?  One of the explicit objectives of many high speed rail projects is to decentralize economic activity and relieve the perceived pressure on urban centers. But in practice, does the construction of high speed rail to smaller towns actually result in job or population decentralization.

Japan has long had the world’s most extensive high speed train network, and it provides a good laboratory for observing the long term effects on development patterns.  A new study by Hans Koster, Takatoshi Tabuchi, Jacques-François Thisse concludes that high speed rail has the unexpected effect of diminishing smaller intermediate communities.

They explain this seemingly paradoxical finding by noting that improved transportation is subject to distance effects, that is, faster travel is of more importance to longer trips than to shorter ones.  As a result, time savings at closer, intermediate destinations don’t make much difference to location economies.  In fact, better transport creates greater competition for those locations, meaning businesses face more competition from larger hubs.  As they explain:

. . .  there is a trade-off between a ‘hub effect’ and a ‘market size effect’. In presence of long-haul economies, the hub effect implies that a connection to the new infrastructure makes it easier to reach other places through lower transport costs. This in turn attracts more firms and employment. By contrast, the market size effect implies that if a region is small, it is easier for firms to set up a business in a core region and to transport goods or people to the small, connected region instead.

High speed rail may bring a nation or a region closer together, but it doesn’t necessarily have positive benefits to every community connected to the network.  In particular, this study suggests that assumptions that high speed rail would bolster new or expanded satellite cities—an idea proposed for the Pacific Northwest and challenged here by our colleague Ethan Seltzer—has the rail effect almost exactly backward.

Koster, H., T. Tabuchi and J. F. Thisse (2021), “To be connected or not to be connected? The role of long-haul economies”, CEPR Discussion Paper 15905.

In the News

The unlikely couple of Richard Florida and Joel Kotkin quoted City Observatory’s analysis of the migration patterns of the young and restless in their commentary on the likely trajectory of post-Covid cities.

The Oregonian cited City Observatory Director Joe Cortright’s testimony to the Oregon Legislature in its coverage of proposed toll-bond legislation.

Writing in The Oregon Catalyst, Lars Larson highlighted our description of the so-called I-5 bridge replacement project, which is really a $5 billion, 5-mile long 12 lane freeway that will be paid for, in part, by $5 round trip tolls.

What City Observatory this week

1. Needed:  A bolder, better building back. In response to an invitation from its authors, we take a look at a  “grand bargain” proposed by Patrick Doherty and Chris Leinberger for breaking the political log jam around infrastructure.   If there is something to be gleaned from Eisenhower and Lincoln (in addition to FDR), it was that each of them proclaimed and implemented an entirely new and much larger federal responsibility for a key aspect of the nation’s development.  Arguably transportation was timely in 1860 and 1956, but the nation’s needs today are different.  Viewing our problems through the lens of transportation, and constructing a grand bargain that provides more (or somewhat re-jiggered) subsidies for transportation misses the opportunity to make the principal focus placemaking and fixing the shortage and high cost of housing in walkable locations.

2. Why can’t DOT’s do environmental mitigation for people and neighborhoods?  Across the nation, freeways have wrought a terrible toll on many of the nation’s urban neighborhoods.  In Portland, we’ve chronicled how three different highway projects over a period of two decades wiped out hundreds of homes and led to a decline of the historically Black Albina neighborhood.  The Oregon Department of Transportation is back, on the one hand apologizing for what it did then, but also promising to double down by widening the I-5 freeway to ten lanes. While ODOT says it supports restorative justice, its clear that the neighborhood needs, most of all, more affordable housing.  Highway agencies like ODOT routinely spend funds on all kinds of mitigation to offset the negative effects of highways (including habitat restoration, noise walls, and even building jails).  We ask why the principle of mitigation that’s used to justify these expenditures shouldn’t be extended to spending to restore the neighborhoods devastated by past (and present) highways.

Must read

1. Parking is the scourge of cities.  UCLA Professor Michael Manville has an accessible and compelling essay explaining how catering to car storage has damaged the nation’s cities. In particular, parking mandates that block and drive up the cost of housing and commercial development, and which transform the landscape into car-dependent sprawl, have, over a course of decades made it impossible or illegal to build the kind of interesting, walkable spaces Americans value most.

Because parking requirements make driving less expensive and development more so, cities get more driving, less housing, and less of everything that makes urbanity worthwhile. This process is subtle. . . . A commercial requirement of one parking space per 300 square feet means developers will put new retail in a car-friendly, pedestrian-hostile strip mall. And a requirement of one parking space per 100 square feet for restaurants means the typical eating establishment will devote three times as much space to parking as it will to dining. America did not become a country of strip malls and office parks because we collectively lost aesthetic ambition. These developments are ubiquitous because they are the cheapest way to comply with regulations.

2. Recapping the housing affordability debate.  Writing at Planetizen, Todd Litman has a comprehensive and opinionated take on the arguments and factions in the nation’s housing affordability.  Like Caesar’s Gaul, the housing world is divided into three ideological parts:  the free market proponents, the housing experts and the  housing supply skeptics.  The “free market” proponents excoriate regulation, particularly environmental regulations which they blame for high housing prices, but as LItman notes, their analyses entirely omit consideration of transportation costs, which mean that low priced housing in sprawling cities comes with higher total living costs for most households.  The labels give away the conclusion:  Litman argues that the housing experts—with references to 14 peer reviewed studies—show that adding housing supply, by eliminating parking requirements, ending apartment bans, and allowing missing middle housing, all done at scale, can moderate or reduce housing costs.

. . . both Free Market Advocates and Supply Skeptics rely on poor quality evidence, and that neither ideological extreme offers comprehensive solutions to unaffordability problems; their prescriptions are only appropriate in specific, limited situations. Housing experts have solid research that can help guide planners to develop the combination of policies that can achieve affordability and opportunity goals.  . . . If we follow the science we can identify excellent solutions to unaffordability problems. There is abundant credible evidence that large-scale upzoning to allow more affordable housing types in walkable urban neighborhoods can significantly increase housing and transportation affordability for low- and moderate-income households.

All this is presented in Litman’s usual clear and methodical way.  Whether you agree or disagree with his conclusions (we’re in broad agreement), Litman has clearly sketched out the basic positions of the different camps.  If you’re looking to get a useful orientation to the multiple and conflicting views on housing and affordability, you’ll find this an invaluable resource.

3. Testing the assumptions behind placemaking. What’s your theory of change?  Around the country, local community development efforts invest considerable resources in a range of placemaking activities.    Brent Theodos of the Urban Institute reflects on the success factors, and in particular the often un-stated assumptions that underpin these efforts.  He’s got a concise and well argued list of questions that should be top of mind when thinking about the complex processes at work in distressed neighborhoods.

Not all conditions can be solved or addressed locally or even regionally—at least not without a mobilization of public resources unlike what we have seen before. Relatively few place-based efforts have thought carefully about which factors can and cannot be addressed locally. Even a robust place-based development strategy may fail in the face of a weakening regional economy or shrinking population. Neighborhoods are not islands. That said, neighborhood redevelopment is possible in declining regions, but doing so requires considerable resources.

In the news

Willamette Week highlighted former Metro President David Bragdon’s critique of the Oregon Department of Transportation’s deceptive sales tactics for its proposed big freeway expansion projects.

The Portland Mercury cited City Observatory’s analysis of the greenhouse gas pollution that would be created by the Oregon Department of Transportation’s $800 million I-5 Rose Quarter freeway widening project.

What City Observatory this week

1. Why highway departments can and should build housing to mitigate road damage.  For decades, American cities have been scarred and neighborhoods destroyed by highway construction projects.  Many places are contemplating measures to fix these problems, from freeway removals to pledges of “restorative justice.”  Given that highways directly and indirectly triggered the demolition of tens of thousands of homes in the nation’s cities, the most tangible way a highway department can repair the damage it did is not with vague pledges, but by paying to build more housing.  That’s exactly what some state DOTs, including Texas, Kentucky, and Nevada are doing.  The Federal Highway Administration has recognized as an award-winning best practice a project in Lexington Kentucky which is using highway funds to buy 25 acres of land and capitalize a community land trust to build 100 new homes to offset the damage done to an historically Black neighborhood that was decimated by the threat of highway construction.  For decades, highway departments demolished homes; a step toward restorative justice would be putting some of them back.

2.  The toll of Single Family Zoning:  Part 1: We are pleased to publish a guest commentary from Anthony Dedousis of Abundant Housing LA, exploring the relationship between single-family zoning and socioeconomic indicators across the 88 cities in L.A. County. This policy bans the construction of apartments, which reduces the amount of housing and raises the cost of living. Apartment bans are rampant in L.A. County, with the median city zoning over 80% of the land for single-family housing. Using data from the South California Association of Governments and the America Community Survey, Dedousis finds that median household incomes, median housing costs, and homeownership rates tend to be higher in cities with a greater prevalence of single-family zoning.

It is clear that there is a positive association between the city’s socioeconomic makeup and apartment bans. Nearly every city with high median incomes similarly has high rates of single-family zoning. Limiting the stock of housing in a city presents a barrier to renter households and low- to moderate-income individuals from accessing affordable housing in these high-opportunity cities. This analysis provides clear evidence that apartment bans by suburban cities are a principal mechanism for creating and maintaining economic segregation in US metro areas.

3.  The toll of Single Family Zoning:  Part 2:  Single family zoning doesn’t just segregate the population by income, it’s a key ingredient in the persistennce of racial and ethnic segregation in US Metro areas.  In part 2 of his analysis of variations in zoning and demographics among Los Angeles County cities, Anthony Deodousis examines the correlations between the amount of land a city zones for single family housing and its racial and ethnic composition.  Not surprisingly, he finds that cities that zone more land for single family housing are more highly segregated than those with more land for multi-family housing.

Perhaps the most striking finding is illustrated in this chart with shows the segregation index (a measure of how racially and ethnically segregated a city is, higher values correspond to higher levels of segregation) and the percent of residential land designated for single family use.  Cities that designate 90 percent or more of their residential land area to single family homes have a segregation index ten times higher than those than designate half or less of their land for single family homes.  It’s a compelling illustration of the connection between single family zoning and segregation.

Must read

1. Business as usual:  The Senate Highway Reauthorization bill:  Just ignore the high minded rhetoric about dealing with climate change and “fix it first” policies for roads, the US Senate is all in on simply pumping even more money into a failed highway-industrial complex.  The latest evidence of this comes from the newly passed highway reauthorization bill emerging from a key Senate Committee this week.  Transportation for AMerica’s Beth Osborne bluntly catalogs the implications:

“The status quo is sending us backwards: This bill attempts to solve the problems of the transportation system with small, underfunded new programs while spending way more to continue to churn out those same problems. It allows states to opt out of lowering carbon emissions and continues to support strategies that are well known to raise them.  We don’t have time for another five years of creating more problems that will take 20 to 50 years to solve.

While President Biden’s American Jobs Plan, which would at least attempt to tackle climate issues flounders in a desperate attempt to be bipartisan, this deeply flawed reauthorization measure passed with a unanimous vote.  It’s symbolic of how deeply this malignant highway building pathology is lodged in the body politic.

2.  Weighing in on Infrastructure Policy.  The Washington Post weighs in on the debate over the nation’s infrastructure policy with a helpful, fact-based article looking at the highway maintenance backlog in contrast to state spending priorities.  They report that the nation faces a $435 billion rehabilitation backlog, and that a fifth of the nation’s major road are in poor condition, and that little progress has been made in reducing the maintenance backlog.  At the same time, state’s have spent nearly a third of their roadway capital on expanding roads rather than maintaining the one’s they’ve already built.

State’s rationalize system expansion on the theory that it will reduce traffic congestion, but as long-time City Observatory readers will know, that’s a false hope.  More capacity begets more traffic, quickly erasing any performance gains.  The Post cites UC Davis transport expert Susan Handy on the implications of induced demand:

For decades, researchers have found that when roads get wider, people tend to drive more, ultimately canceling out any gains in speed. Susan Handy, a professor of environmental science and policy at the University of California at Davis, said traditional tools for forecasting traffic demand to assess the benefits of new construction don’t effectively take that into account.  Researchers noted that traffic eventually increases by about the same percentage a road is widened, so boosting the size of a road by 10 percent will lead to about 10 percent more travel.

3. Don’t use parking requirements as a bargaining chip for affordable housing.  It is widely recognized that parking requirements tend to drive up the cost of housing, but many housing advocates will often fight to retain parking requirements in order to barter them away to persuade developer to build affordable housing units.  The results of a quasi-experiment in San Diego show that this approach is a bad bargain for promoting affordability.  It turns out that simply eliminating or greatly reducing parking requirements has a more positive effect on housing supply and therefore rental affordability than a complex system of negotiated land use approvals using parking space waivers as bargaining chips.

 in 2020, one year after comprehensive parking reform was implemented, there was a fivefold increase in the total number of homes permitted through San Diego’s density bonus program. A record-high 3,283 homes were built using the density bonus in 2020 — nearly half of all new housing permitted in the city that year. Total housing production citywide also rose, by 24 percent. More use of the density bonus program also translated into more affordable units. The program produced over 1,500 affordable homes in 2020 – six times more than in 2019.  Between 2016 and 2019, the program had never produced more than 300 affordable homes in one year.

New Knowledge

Synthetic microdata:  A threat to knowledge.  Each week at City Observatory, we usually profile an interesting or provocative research study.  This week, we’re spending a minute to highlight a potential threat to a key source of data that helps us better understand our world, and especially the nation’s cities: the public use microsample of the American Community Survey (ACS).  The ACS is the nation’s largest and most valuable source of data on population, housing, social and economic characteristics.  While the Census Bureau produces many tabulations of these data, its impossible to slice and dice data in a way that bears on every question.  So Census Bureau makes available what is called a “public use microsample” which allows researchers to craft their own customized tabulations of these data to answer specific questions.  At City Observatory, for example, we’ve used these data to estimate the income, race and ethnicity of peak hour drive alone suburban commuters traveling from suburban Washington State to jobs in Oregon–a question that would be essentially impossible to answer from either published Census tabulations or other publicly available data.

Microdata are valuable because they link answers to different ACS questions–linking a persons age, gender or race to their income, occupation or housing type, and on.  But because the microdata are individual survey responses, some are concerned that there’s a potential violation of privacy:  that someone could use answers to a series of questions to deduce the identity of an individual survey respondent.  While that may technically be a possibility, there’s no evidence it occurs in practice.  Still, Census Bureau is hypersensitive about privacy concerns, and has proposed replacing actual microdata with “synthetic” microdata, in order to make it even more difficult to identify an individual.  Essentially, synthetic data would replace actual patterns of responses with statistically modeled responses.  The trouble is, this modeled, synthetic data actually subtracts information, and makes it impossible for researchers to know whether the answers to any particular question are a product of actual variation, or just a quirk of Census Bureau’s model.  As University of Minnesota data expert Stephen Ruggles puts it, “synthetic data will be useless for research.”

The privacy threat from ACS microdata is a phantom menace.  Ruggles and a colleague at the University of Minnesota have just published a paper showing that attempting to use Census microdata to create individually identifiable records via database reconstruction would produce vastly more random (i.e. false) matches that real ones.   This undercuts the idea that microdata is an actual threat to privacy.

But a proposal to replace PUMS data with synthetic data is a real threat to our ability to better understand our world.  It is like requiring piano players to wear mittens when playing Beethoven sonatas:  the piano will still produce sound, but the result will be noise, not music.

In the News

Bloomberg Business Week quoted City Observatory’s Joe Cortright in its article examining the Biden Administration’s housing policy.

Oregon Public Broadcasting cited Joe Cortright’s analysis of road pricing in its story on highway expansion and tolling legislation currently being considered by the Oregon Legislature.