Lower interest rates = More expensive homes

The decline in interest rates in 2020 is a huge factor in explaining the recent surge in home prices.

Population growth, a key driver of housing demand, actually slowed dramatically in the past year.

The current surge in home prices may be a short-term phenomenon.

We’re constantly being told that the housing market is hot, and that the US is facing a housing shortage. There’s no denying that home prices have risen sharply in the past year.  The broad-based S&P Core-Logic Case-Shiller index records that the average home price has jumped 14.6 percent in the past year, the fastest increase in three decades (a period that includes the housing bubble of the mid-aughts.

Case Shiller Home Price Index (via Calculated Risk)


Since most buyers finance their homes with long-term mortgages (plus equity from a current home, if they own one), mortgage interest rates have a profound effect on how much people can afford to pay for housing.  When mortgage rates go down, a family can afford to borrow a larger amount of money for any given level of monthly payments they can afford.  Since the Covid-19 recession, interest rates, including mortgage interest rates have fallen sharply.

Here’s the typical rate on a 30-year fixed residential mortgage.  For the past two years, mortgage rates have been declining, and since the start of the Covid-19 recession, have plummeted to the lowest levels seen in decades.

On January 2, 2020, the average mortgage rate was about 3.7 percent.  Just a year later, on January 7 of 2021, the interest rate stood a full percentage point (100 basis points in financial speak) lower, at just about 2.7 percent.  That change makes a big difference to how much homes people can afford based on their income.

For example, if you were financing a $300,000 mortgage in 2020 at 3.7 percent, your monthly payments would be about 1,380.  Here’s a mortgage calculator.

But a year later, in 2021, if you could still afford a $1,380 monthly payment, at the new lower 2.7 percent interest rate, you would now be able to swing a $340,000 mortgage.

That $40,000 increase works out to a 13.3 percent increase in the amount you could borrow, roughly in the same ballpark as the increase in home prices over the past year.  (Our simple calculation here overlooks some important details, such as needing a larger down payment for a bigger mortgage, but between government stimulus payments and big reductions in household outlays for travel, entertainment, services caused by Covid restrictions, many households saw big gains in savings during the pandemic).

It’s not population growth

Historically, one of the biggest and most easily predictable drivers of housing markets is population growth.  But thanks to direct and indirect effects of the pandemic, national population growth has fallen dramatically.  Economist Tom Lawler estimates 2020 population growth fell to 0.22 percent from a 21st Century average of about 0.72 percent.  That decline is due both to an increased death rate and subdued international in-migration.

Housing markets are big and complex, and there are many reasons why prices have risen so sharply in the past year.  But clearly one of the big factors has been the declining cost of borrowing.  Going forward the impetus to home price inflation from the recent decline in interest rates should wane (assuming mortgage interest rates don’t continue to decline at the same pace in the next year or so).  If the decline in mortgage rates is largely over, stable or increasing mortgage interest rates should actually help dampen future home price increases.

But as we all learned in the housing bubble, home price movements can become disconnected from fundamentals, and be driven by expectations of future increases.  One of the troubles with housing is that homeowners are in many respects speculators, and most buyers are purchasing a new home based in part on the growth in value of a previous home.  The current dramatic spike in home prices seems to be propelled by some short term factors, most notably the decline in interest rates.  We’ll all want to watch closely to see what happens in the months ahead.


The Bum’s Rush

The $800 million project transitions from “nothing has been decided” to “nothing can be changed”

There’s a kind of calculated phase-shift in the way transportation department’s talk about major projects.  For a long, long time, they’ll respond to any challenges or questions by claiming that “nothing has been decided” or that a project is still being designed, that its in its infancy, and that objections will be dealt with . . . at some point in the indefinite future.

But then, a magic moment occurs, with no notice or observable event, and they’ll suddenly proclaim that it’s too late to raise and questions or consider any changes.

That’s exactly what’s happened with the Oregon Department of Transportation’s $800 million I-5 Rose Quarter project in the past few weeks.

You’ve got concerns?  Not to worry, nothing’s been decided

As recently as last fall, ODOT’s Director of Urban Mobility, Brendan Finn was telling OPB’s Think Out Loud host Dave Miller, the project is only 15 percent designed, and that there was lots of opportunity for the community to shape the project:

Well, the project is still pretty much in its infancy, it’s only being at 15 percent design.  I don’t clearly remember the exact verbiage as far as that.  The House Bill that was passed that created the Rose Quarter project, HB 2017, did have certain parameters in it that were expected from the Legislature, and that was one of them.  That said, there is almost an amazing opportunity here to connect neighborhoods and to provide not only multi-modal options, but  community connections.  And for us, making this move right now is signaling to the community . . . especially . . . those who have left the process, that we are willing to do things differently, we are ready to change, we are ready to be deliberative about our commitment to our shared values around restorative justice.

And very publicly at that time, ODOT convened an “Historic Albina Advisory Board “(after blowing up two other efforts at community engagement) and spent several million dollars hiring a team of consultants to conduct an independent highway cover assessment.  ODOT hired a multi-million dollar team of consultants to undertake an independent analysis of the freeway covers, undertaking both a technical analysis, and seeking public opinion.  This work developed a series of alternatives that vary considerably from the proposal being designed by ODOT—devoting more space to housing  and better reconnecting the urban street grid, and moving freeway on and off ramps away from the center of project.

According to ZGF: Oregon DOT’s plan for the Rose Quarter produced irregular parcels that would be “challenging to develop” and create a complex, unintuitive street system.

This process is proceeding according to the timeline ODOT announced when it appointed this new board last year.  In May, consultants presented their analysis and recommendations to the Historic Albina Advisory Board and the project’s steering committee.  Their alternatives, included two that rate much higher technically, and in community support, and which would significantly re-design the project.

Sorry, time’s up: Too late to make any changes

Now, ODOT says, it’s simply too late to think about doing anything different than what the agency first planned.

The community has been pushing for buildable covers for years, and now ODOT says, that any consideration of covers will create unacceptable further delays.  Last week, in response to support by Oregon’s two Senators and local Congressman for buildable covers, ODOT said it was basically too late to think about doing that, according to the Portland Mercury:

A spokesperson for ODOT told the Mercury that while getting the cost of the caps fully funded by federal dollars would be “a dream,” there are still other obstacles to consider when building more substantial freeway caps. In order to build caps capable of supporting five-story buildings, the caps would need larger support pillars on either side of the freeway to ensure that there is enough structural strength to support the buildings.

“That could mean further acquisitions of land in the area, potentially displacing businesses,” said April deLeon, an ODOT spokesperson.

According to deLeon, changing the design of the caps now could also add time delays. The Federal Highway Administration would need to approve the new cap design, but would be under no timeline to do so. That time delay could make the project more expensive due to the cost of inflation.

It’s also worth noting that ODOT’s own consultants have said that buildable covers would be much more economical, if only ODOT would narrow the overly wide project to just the two additional lanes it says it needs, and built shoulders comparable to other urban freeway projects.  According to ODOT, it will build stronger covers only if it gets to condemn other people’s land, not if it has to give up any of the monstrously oversized roadway it intends to built (and then to re-stripe into a ten-lane freeway).

ODOT’s reflexive claim that its too late, and too costly to even consider buildable caps shows that their claims of interest in “restorative justice” are just a sham.  What the really want to do is build a wider freeway, and they’ll engage in whatever performative theatre they think is needed to convince people they care

Kudos to OPB’s Dave Miller for asking hard questions last fall:  But what the media generally fails to do is follow the thread and insist on accountability.  At what point did the project go from “infancy” to unchangeable?  Who made that decision?  Deus ex machina is a great literary device, but it’s no way to run a government.

More proof of ODOT’s Rose Quarter Freeway coverup

Newly revealed documents show its roadway is vastly wider than needed for traffic, and also makes “buildable” freeway covers prohibitively expensive

If you really want just two additional lanes, you can do so much more cheaply and with less environmental destruction

The reality is ODOT is planning a 10 lane freeway at the Rose Quarter, and is lying about the covers and the project’s real cost and environmental impact

For years, the Oregon Department of Transportation has been lying about the freeway widening project it plans for a mile long stretch of I-5 at Portland’s Rose Quarter.  While it’s advertised as just adding a couple of so-called “auxiliary” lanes, we and others have uncovered multiple documents showing that they’re actually planning a 150-foot to 160-foot roadway, wide enough for a ten lane freeway.

The latest confirmation of ODOT’s big lie comes from a report prepared by one of the agency’s own consultants, ARUP Associates  ARUP pointed out the obvious:  If you really want to just add two lanes to the existing 82 foot wide pavement, you certainly don’t need two double the size of the roadway.  In an article published by Willamette Week, ARUP says:

“The most significant driver of project cost (initial construction cost as well as ongoing maintenance and life-cycle costs), right-of-way impacts, and development potential on and adjacent to the covers is the cross-section width,” the draft report states, laying out various technical approaches used in other states.”We believe these options can be considered to reduce the tunnel width so as to minimize construction cost and impact to the adjacent properties.”

The ARUP report shows the Rose Quarter project could be much smaller, cheaper, and less environmentally destructive.  ARUP recommends interior shoulders of 3 to 8 feet (instead of 12); exterior shoulders of 10 feet (instead of 12), and lanes of 11 or 12 feet (instead of only 12).

ODOT claims that part of the reason for such a wide right of way is to accommodate “full” shoulders.  But ARUP’s report puts the lie to that claim.  It notes that nowhere in expensive urban freeway rebuilding projects does anyone build 12-foot inside shoulders.  Willamette Week reports:

. . . no comparable highway project in any other city includes the 12-foot inner shoulder lanes that ODOT has included in this project. (According the report, Presidio Parkway in San Francisco has 4 feet, the I-93 Central Artery in Boston has zero feet, and the Alaskan Way tunnel in Seattle has 2 feet.)

Not only that, even for this project, ODOT doesn’t think 12-foot shoulders are necessary.  On the project’s viaduct section, at the Southern end of the project, ODOT is proposing to add a freeway lane (including re-striping freeway lanes to 11 feet in width), and shoulders of 3 to 9 feet.  ODOT’s own analysis shows these narrower shoulders and lanes have a trivial impact on safety compared to a wider and more expensive project.

As we’ve maintained for several years, the real reason ODOT is planning a massive roadway with oversized shoulders is because it plans to simply re-stripe the road for additional lanes as soon as the project is built, something that could be accomplished in an afternoon with a few gallons of highway paint.  It’s a blatant attempt to evade any environmental analysis of the traffic, noise, air pollution, and greenhouse gas emissions that would be associated with building a 10 lane freeway, and is violation of the National Environmental Policy Act.

Blowing up the covers

ODOT has attempted to woke-wash this project by claiming that the construction of a highway cover (really slightly enlarged overpasses) will help repair the damage the original construction of Interstate 5 did to the Albina neighborhood in the 1960s and 1970s.  While they’ve claimed that the covers might be used for a variety of purposes, their own consultants have concluded that the current project design creates a human- and pedestrian hostile environment that’s inimical to neighborhood restoration.

The new ARUP documents make it clear that the vastly oversized roadway also makes covers much more expensive, and and in particular, makes constructing covers that could support multi-story buildings prohibitively expensive.  According to Willamette Week, project documents now show the covers construction could cost $500 million, and would cost an additional $200 million if build strong enough to support an 5-story building.

The draft Constructability and Cost Analysis Report for the Rose Quarter Independent Cover Assessment, dated June 2, estimates covering the highway would cost more than $500 million. Covers that could support five-story buildings would cost roughly $200 million more, depending on which design ODOT proceeds with.

The freeway covers have always been a transparent and disingenuous ploy to cloak this project as a vehicle of neighborhood restoration.  ODOT has not committed any funds to real reparations, in particular rebuilding any of the hundreds of houses iti demolished for highway construction in the 1950s, 1960s and 1970s  Other state highway departments have used highway funds to build housing to undo the damage of past freeway building projects, but not Oregon DOT.  If it actually cared about restoring the neighborhood, ODOT would be talking about the narrowest possible freeway, and providing more money for housing and restoring the neighborhood.  Or it could study removing the freeway entirely.  All of the glib talk about covering a vastly wider freeway, is really just a fig leaf for a deeply flawed project.

How highways finally crushed Black Tulsa

Tulsa’s Greenwood neighborhood survived the 1921 race massacre, only to be ultimately destroyed by a more unrelenting foe: Interstate highways

Black Tulsans quickly rebuilt Greenwood in the 1920s, and it flourished for decades, but was ultimately done in by freeway construction and urban renewal

Even now, Tulsa has money for more road widening, but apparently nothing for reparations.

The past week has marked the Centennial of the Tulsa Race Massacre, when hundreds of Black residents of Tulsa’s Greenwood neighborhood were brutally killed and the neighborhood, Greenwood, was leveled.  Recent news stories have made more Americans aware of this tragic chapter of our history than unfolded in May 1921:  Greenwood’s residents were shot and beaten, their homes and businesses burned and their neighborhood bombed.

What’s less known is that despite the best efforts of the violent racists, they didn’t kill Greenwood.  In fact, the neighborhood’s Black residents returned and rebuilt, in less than five years.  The rapid rebuilding, in spite of the obstacles put in its place by the City of Tulsa, and continued racial discrimination grew praise for the neighborhood’s  resilience.  In 1926, W.E.B. Dubois wrote “Black Tulsa is a happy city,“ saying:

Five little years ago, fire and blood and robbery leveled it to the ground. Scars are there, but the city is impudent and noisy. It believes in itself. Thank God for the grit of Black Tulsa.”

Rebuilt and thriving Greenwood in North Tulsa, 1930s.

Greenwood’s heyday stretched into the 1950s, and even its moniker–The Black Wall Street–dates from this period, and not before the massacre.

What finally killed Greenwood wasn’t an angry racist mob:  it was the federally funded Interstate highway system.  Coupled with urban renewal, highways built through North Tulsa’s Greenwood neighborhood in the late 1960’s did what the Klan and white racists couldn’t do:  demolish the and depopulate the place.  That’s the key conclusion of a newly published book by Carlos Moreno, which chronicles the neighborhood’s destruction, re-birth and ultimate demise at the hands of the highway builders.  NBC News interviewed Moreno, and reported:

In his new book set to be released next week, “The Victory of Greenwood,” Moreno explores how the neighborhood had a second renaissance led by Black Tulsans after the massacre, rebuilding even bigger than before. It was not the bloodshed that eventually destroyed most of Greenwood, however; rather, it was this, he said, pointing to the spaghetti of interchanges to the south and the expressway that stretches north.

Carlos Moreno & the freeway that finally crushed Greenwood (NBC News)

In an essay at Next City, Moreno explains:

What often gets erased from Greenwood’s history is its 45 years of prosperity after the massacre and the events that led to Greenwood’s second destruction: The Federal-Aid Highway Acts of 1965 and 1968. As early as 1957, Tulsa’s Comprehensive Plan included creating a ring road (locally dubbed the Inner-Dispersal Loop, or IDL); a tangle of four highways encircling the downtown area. The north (I-244) and east (U.S. 75) sections of the IDL were designed to replace the dense, diverse, mixed-use, mixed-income, pedestrian, and transit-oriented Greenwood and Kendall-Whittier neighborhoods.

As in so many other US cities, the construction of freeways was used to demolish, divide and isolate communities of color.  President Biden acknowledged the federal government’s role in Greenwood’s decline in his proclamation of a Day of Remembrance:

And in later decades, Federal investment, including Federal highway construction, tore down and cut off parts of the community. The attack on Black families and Black wealth in Greenwood persisted across generations.

At a community conversation sponsored by Tulsa Urbanists, Moreno summarized his research on the role of the 1921 race massacre and later highway building and urban renewal efforts in destroying Greenwood:

Greenwood looks the way it does today, not because of the massacre.  It came back. And there’s a video footage of that. But North Tulsa/Greenwood look the way it does today because of the federal highway project, and because of urban renewal . . .

And Tulsa continues to widen highways even as it refuses to discuss reparations for the destruction of Greenwood.  Again, Moreno:

Somehow it’s okay for Tulsa to pay $36 million to repair one mile of road between 81st and 91st on Yale in South Tulsa, like that’s okay. We have no problems doing that. We just passed a road widening bill and every single citizen of Tulsa is paying a part of that $36 million. But somehow reparations for Greenwood is a non starter . . .

A hat tip to Next City for publishing Carlos Moreno’s synopsis of his book and Graham Lee Brewer of NBC News his reporting of how the highway’s wounds still trouble Greenwood to this day.

It’s hard to imagine anything more hateful and horrific than the bloody attack on Greenwood in May, 1921.  In the past century, that kind of violent overt racism has given way to a more subtle, more pernicious and more devastating  kind of systemic or institutional racism, in the form of highway construction.

The Week Observed, June 25, 2021

What City Observatory did this week

1. Cars kill city neighborhoods.  Across the nation, America’s cities have been remade to accomodate the automobile.  Freeways have been widened through city neighborhoods, demolishing homes and businesses, but more than that, the sprawling, car-dependent transportation system which is now firmly rooted across the nation is simply toxic to urban neighborhoods.  A recent study from the Federal Reserve Bank of Philadelphia shows that across metropolitan areas, population growth and decline is directly related to proximity to urban freeways:  urban neighborhoods close to freeways decline; suburban neighborhoods near freeways thrive.

In short, freeways are toxic to urban neighborhoods but a tonic to suburban sprawl.  In close-in urban neighborhoods, freeway construction was associated with an 80 to 100% decline in population within one mile of a freeway.  In and near city centers, the closer your neighborhood was to a freeway, the larger its population decline.  The reverse is true in the suburbs, where population growth was concentrated in those areas closest to freeways.  The evidence across six decades of freeway building shows us that freeways kill cities.

2.  The Bum’s Rush. The Oregon Department of Transportation’s $800 million I-5 Rose Quarter project has recently had a major shift in its plans. Just last fall, ODOT’s Director of Urban Mobility Brendan Finn stated that the project is only 15 percent designed and that there is “almost an amazing opportunity here to connect neighborhoods.” However, after this magical moment, ODOT claims that it is simply too late to think about doing anything differently than the original plan. This sudden change is completely different from the outlook expressed last fall. It disregards the community and their own consultants support for buildable covers. ODOT argues that it is too costly to consider buildable caps. Acquiring more land would be “necessary” to implement them, rather than narrowing the excessively oversized roadway it intends to build. The change from a work in progress plan to an unchangeable design showcases ODOT’s true desires once again. There is not a fight for “restorative justice” for the Albina neighborhood nor a push for the economically best model. ODOT is only interested in building a wider freeway.

Must read

1.  The case against freeway widening:  Milwaukee edition.  Around the country, urbanists, social justice activists and climate warriors are all challenging plans to squander billions of dollars widening urban freeways.  We’ve known for decades that wider freeways do not reduce traffic congestion, rather they simply increase traffic, air pollution and sprawl.  A battle rages in Milwaukee, where this coalition of local groups is fighting against state plans to spend upwards of billion dollars widening I-94. 

Writing at the local blog, The Recombobulation Area, Dan Shafer describes the multi-faceted community alliance that’s pushing back.  Their efforts are a template for freeway fighters across the nation.

2.   If it’s really a climate emergency, maybe we should start charging for parking.  Vancouver city planners are showing that they’re willing to take some serious steps toward fighting climate change.  They are proposing a $1,000 annual fee for residents parking high polluting vehicles on city streets.  The fee would be zero for non-polluting vehicles, like electric cars, and graduated based on vehicle emissions.  While this is definitely a second-best approach compared to a strong carbon tax or a congestion fee, such a measure sends a tangible economic signal to the region’s residents about the environmental consequences of high polluting vehicles. 

While the headline number of $1,000 sounds like a lot, it actually works out to about $2.75 a day (about $2.20 in US$), which is less than a single, one-way bus ticket in most US cities.  However, this measure is far from perfect, the fee only applies to newly purchased vehicles (model year 2022 or later). Grandfathering older vehicles may seem politically wise, but it would incentivize people to keep their old dirty cars for longer.  If the climate is really a crisis, maybe we should charge people more for polluting than for taking transit.

3.  Gentrification is not the real problem. Writing at Shelterforce, Brett McMillan argues that “we have a major problem with how we talk about gentrification in this country.” In this piece, he explains gentrification’s flawed theory and the greater problems that the term fails to cover. Neil Smith’s theory of gentrification was a hypothesis introduced in the 1970s to explain the demographic pattern of people moving from the suburbs back into the city. Numerous studies have found this theory to be insufficient. For example, scholars Lance Freeman and Tiacheng Cai found that the white “invasion” into areas with predominantly Black populations (50% or more of the population) has been a relatively infrequent phenomenon since 1980, despite a slight recent uptick.  McMillan is particularly critical of the failure of the gentrification literature to clearly define or document gentrification-driven displacement:

In 2020, a paper in the high-ranking academic journal Urban Studies criticized statistical analyses that showed limited displacement because their “progress in identifying [displacement’s] extent has been remarkably slow,” meaning, as I take it, that we ought to reverse the scientific method. Which is to say, rather than forming a hypothesis, rigorously testing it, and adjusting it in light of studies’ results in order to better understand problems motivating the analysis, such claims suggest we ought to make results conform to a pre-determined outcome.

McMillan supports his argument with links to a number of critical studies. He pushes to change the framework for discussion to address broader, structural issues. Neighborhood-level inequalities and housing shortages and the growth of concentrated poverty, it turns out are more serious issues masked by a too frequent focus on gentrification. McMillan states that wealthier people moving into and driving up costs in particular urban neighborhoods is merely a “symptom” of urban equality issues, not its cause. Solutions that address systemic roots like increasing housing supply and eliminating exclusionary zoning are necessary for greater housing equality. Controlling the conversation around the term “gentrification” fails to take into consideration the structural problems and the solutions which could alleviate the adverse effects of inequality.

New Knowledge

Inclusionary Zoning: Not a Cure for Exclusionary Zoning. A new research review from Bryan Graveline examines inclusionary zoning’s effect on housing affordability and residential segregation. It finds that inclusionary zoning is a poor tool to make progress on either of these issues. 

Both housing unaffordability and residential segregation are caused largely by exclusionary zoning, like single-family zoning and minimum lot sizes. However, despite its name, inclusionary zoning does not undo exclusionary zoning. Rather, it asks developers to set aside a percentage of units in each new development to be affordable to low-income renters.

While this policy may sound agreeable on first blush, the report finds that inclusionary zoning does not meaningfully address either of the problems it tries to solve and can actually worsen the housing affordability crisis. Graveline recommends that jurisdictions hoping to confront issues of housing affordability and residential segregation forgo inclusionary zoning and instead focus on repealing exclusionary zoning.

The report evaluates inclusionary zoning policies across four criteria:

  1. Effect on the housing market. Inclusionary zoning increases the price of new market-rate housing and decreases its supply. And because would-be tenants of new buildings live in older buildings when new construction is constrained, inclusionary zoning affects all segments of the housing market.
  2. Production of below-market rate housing. Most inclusionary zoning programs create less than 100 affordable units per year. This is a drop in the bucket compared to the need for affordable housing in most cities.
  3. Effect on residential segregation. This topic is understudied in the current literature, so it’s difficult to draw definitive conclusions. However, inclusionary zoning is only as effective at fighting segregation as the number of units it produces. Because it produces so few units, it likely does not have a meaningful effect on segregation.
  4. Effect on exclusionary zoning. Inclusionary zoning does not undo exclusionary zoning. In fact, it can entrench current exclusionary policies. Many inclusionary programs try to coax developers into creating affordable units by offering to reduce costly exclusionary policies (such as density limits). Some jurisdictions thus enact strict exclusionary policies just to give themselves leverage over developers. 

Graveline ultimately finds that inclusionary zoning does not accomplish its intended goals and can lead to perverse side effects. He recommends that rather than pursuing inclusionary zoning, jurisdictions address a more relevant cause of both housing unaffordability and residential segregation: exclusionary zoning.

In the News

In his Planetizen article explaining why many times “slower is better” for transportation systems (and for livable places) Todd Litman cites City Observatory’s analysis showing that residents of metro areas with higher average travel speeds are less happy with their transport experience.

The Week Observed, June 18, 2021

What City Observatory this week

1.  Race and economic polarization.  In the past several decades, racial segregation in the US has attenuated, but economic segregation has increased.  This is nowhere more apparent than in the residential patterns of Black Americans.  A recent analysis by David Rusk looks at the growing economic polarization of urban neighborhoods and its effects on the Black community.  In the heyday of segregation 50 years ago, Black Americans were effectively restricted to Black neighborhoods, regardless of their income.  Consequently, Black Americans were considerably less segregated by income than other Americans (high income and low income Black households tended to live in the same neighborhoods).  As the following chart shows, economic polarization for whites has moved upward only slightly since 1970.  In contrast, Black Americans, who were less polarized that whites in 1970, and now vastly more polarized by income.

In recent decades, however, upper and middle income Black families have been the ones moving to suburbs and integrated neighborhoods, with the result being that low income Black families are now more segregated both by race and income.  This growing economic polarization is a huge challenge for the nation’s cities and for achieving social justice.

2.  More evidence the Oregon Department of Transportation is lying about its Rose Quarter freeway widening project.  For several years, ODOT has been trying to “woke-wash” its $800 million plan to widen the I-5 freeway to as much as 10 lanes by asserting that the “covers” it will build over the freeway (really just extra-wide overpasses), will somehow repair the damage done to this traditionally African-American neighborhood when the freeway was first built in the 1960s.  A report prepared by an ODOT contractor obtained by alt-weekly Willamette Week, shows that if the agency is serious about constructing “buildable” caps that could support a building, it should be planning a much narrower freeway project, instead of constructing over-sized shoulders (that would ultimately be converted to traffic lanes).

The oversized overpasses that ODOT is proposing are so weak and expensive that they can’t support buildings without adding hundreds of millions of dollars to the cost of the project–something Oregon DOT almost certainly won’t do.  The revelations here confirm that ODOT is really only interested in a wider freeway, not restorative justice for the Albina neighborhood.

Must read

1.  A Little More Remote Work Could Change Rush Hour a Lot.  Coping with peak hour congestion is one of the key challenges of transportation policy. Transportation systems have long been structured to meet the needs of peak travelers, but when the pandemic shifted many jobs from the office to the home, rush hour traffic appeared to dissipate. The increase in telecommuting throughout the COVID-19 pandemic has diminished the  rush hour congestion across U.S. cities. Morning rush hour traffic in Washington DC has seen a profound reduction from before the pandemic.

In this New York Times article, Emily Badger explores the implications of remote work, and whether pandemic induced commuting changes will persist. Due to improving technology and major investments, the increased rate of remote workers will likely be maintained as we enter a post-pandemic world. Badger examines the positive impacts on those free from rush hour hell, as well as the essential workers most reliant on the transportation system. This increase in telecommuting presents a groundbreaking opportunity to rethink the structure and investments of transportation systems.

2.  Wall Street isn’t to blame for the chaotic housing market.  Investors bought a record $77 billion worth of homes in markets around the United States in the final half of 2020. Accusations have been thrown towards these “yield-chasing” institutional investors for purchasing up the single-family houses from consumers as demand increases and prices soar. However, Vox’s Jerusalem Demsas shows that these investors play only a small role in the real estate market. Poor data collection and argument framing have created questionable narratives that highlight the impact of large firms. Demsas argues that this discussion results from a continued failure to address the core reason for these market trends: the undersupply of housing. Local governments and homeowners blocking new homes from being built.  This contributed to the creation of this housing shortage, boosting the profitability and attractiveness of the market to large investors. At the same time, low mortgage rates and the increasing entrance of millennials into the housing market combine with this low supply to push the prices up. Scapegoating institutional investors fails to address the central problem — a housing abundance is needed.

3.  NIMBYism and the Externalities of Non-Development.We usually consider zoning as a local issue, but that is a flawed point of view. The combined impact of hundreds of local zoning decisions have notable effects on regional housing markets. Local restrictive land use decisions lead to raise housing costs, which spills into labor markets because workers are pushed  to less productive cities. In this piece, Will Wilkinson considers these detrimental aggregate impacts of local restrictive zoning regulations, particularly with the problem of “homevoters.” Economist William Fischel defines homevoters as risk-averse individuals who participate in public meetings and the local government to protect and enhance their local property values. These homevoters create reluctance among developers with their difficult negotiations and time-wasting processes. Wilkinson writes that homevoters cause inefficient allocations of development and a reduction in housing options. Homevoter NIMBY-ism with strong local controls creates external costs that impact the entire United States economy and exacerbates the affordability crisis. Wilkinson argues towards a “rebalancing of authority over land use regulation in the direction of state and even federal government.” State governments have the authority to adjust the jurisdiction delegated to cities. An adjustment away from local control might be necessary to ameliorate the adverse effects of homevoters and NIMBYism locally and nationally.

New Knowledge

Economic benefits of road widening: Discrepancy between outturn and forecast.  In 2014, a 16 mile stretch of the London orbital motorway, M25, was reopened after an expansion project. British road-building authorities used a travel demand model called Saturn to predict what would happen to traffic; their estimates forecasted that travel speeds would increase and traffic volumes would increase modestly. Their predictions stated that widening the motorway (orange) would increase the speed of travel at morning peaks by 6-10 kilometers per hour (roughly 4-6 mph) over time. The model’s results were used to calculate a favorable benefit-cost ratio to justify the project.  But was the model right? 

David Metz from University College London compared the outcome of the road widening to the forecasted model in this paper. Metz found that three years after the opening of the motorway, there was a substantial increase in traffic but no reduction in travel time. Looking at the investment appraisal, the investment was based largely on forecasted journey time savings. It was clear that the increase in travel speed failed to occur. The model’s inability to take induced demand into account resulted in this investment’s approval. M25’s added lane increased traffic but didn’t reduce travel time.


David Metz, “Economic benefits of road widening: Discrepancy between outturn and forecast,” Transportation Research Part A: Policy and Practice, Volume 147, May 2021, Pages 312-319

The Week Observed, June 4, 2021

What City Observatory this week

What ultimately destroyed Tulsa’s Greenwood neighborhood:  Highways.  This past week marked the centennial of the Tulsa Race Massacre.  In 1921, a racist mob attacked and destroyed the Black Greenwood neighborhood, killing hundreds. The Greenwood’s residents were resilient, rebuilding a neighborhood that thrived for almost 50 years.

According to a new book on the neighborhood’s history, the death of “Black Wall Street” ultimately came by the construction of the Interstate freeway system, slicing through the traditionally Black neighborhood.

Must read

1. Can “Opt-out” zoning reform break the political log-jam?  As we’ve argued at City Observatory, allowing more affordable housing is caught in a kind of prisoner’s dilemma: no local government wants to be the first to liberalize because they fear that no one else will follow.  It takes state legislation to produce change, but state legislature’s are usually deferential to local control, at least when it comes to land use. Writing at the Sightline Institute, Michael Andersen reviews newly passed legislation in Connecticut that would legalize accessory dwelling units throughout the state.  The new law comes with a catch:  if a two-thirds majority of both a city’s zoning board and city council votes to opt out of the law, they can do so.  There’s an element of “try-before-you-buy” to the law as well. The legalization of ADUs takes effect some months before cities are allowed to opt-out, so there will likely be some experience of what ADU legalization looks like before they have to make the decision.  While there’s a risk that truly exclusionary cities will easily get the two-thirds votes needed to opt-out, this approach seems like a worthwhile experiment to prod more cities into allowing this form of affordable housing.

2. The limits of the Fair Housing Act.  Residential segregation and its negative effects continue to persist more than a half century after the passage of the federal Fair Housing Act.  What will it take to achieve fair access to housing for all?  Richard Kahlenberg reviews a new book for the Washington Monthly looking at the past and future of the Fair Housing Act, with an eye to making policy changes.  While the federal law has limited some forms of overt discrimination, the more subtle and pervasive forms of exclusion, like restrictive local zoning, are producing many of the same effects.  The challenge is to craft measures that “affirmatively further” fair housing.  The big challenge is that segregation by class is accomplishing what used to be done by racial discrimination:

While racial segregation is slowly declining, income segregation has doubled since 1970. The Fair Housing Act outlaws discrimination on the basis of “race, color, religion, sex, familial status, national origin, or disability”—but it remains perfectly legal for municipalities to discriminate based on income, per se, by banning the construction of more affordable types of housing, such as duplexes, triplexes and apartments.

Since people of color have disproportionately lower incomes –a product of past discrimination–income segregation perpetuates these fundamentally unfair patterns, which is today’s biggest challenge to equitable housing.

New Knowledge

The Donut effect of Covid. How has the Coronavirus Pandemic affected urban economies?  A new study from Arjun Ramani and Nicolas Bloom looks at the changes in home values and population levels within and across the nation’s metropolitan areas.

It finds that there’s been relatively little population re-distribution (or value shift) across metropolitan areas.  People aren’t relocating wholesale from some metropolitan areas to others, nor are the contours of real estate values shifting.

The study does find that in the past year there has been a city-to-suburb shift in population movement and home price appreciation, chiefly in the dozen or so largest metro areas.  US Postal Service change of address forms display a relative surge of core-to-periphery moves since the start of the pandemic, while Zillow data show home prices and rents have performed relatively better in suburbs than central cities.  Strikingly, these effects only seem to hold for larger cities like New York, San Francisco, Seattle and others.  This may be explained by the very high proportion of workers in tech and professional service occupations who are more able to work from home in these cities.

Central business districts in very large metro areas showed an absolute decline in home values (with the CBD defined very narrowly as areas within 2 kilometers, or about 1.2 miles, of the center of a city). These trends are far more muted outside of these large metro areas, with modestly weaker performance in CBD’s in the 13th through 50th largest metros; and essentially no difference in smaller metros (those with populations of less than 1 million).

It should be little surprise that in the midst of a pandemic, when large scale gatherings of people for business, cultural, social or recreational activities are mostly banned, that the impact should be most felt in central cities.  Providing opportunities for lots of people to get together in close proximity is the raison d’etre and competitive advantage of large urban centers.  The really interesting question going forward is whether the pattern seen in the pandemic persists, or reverses as we are once again able to be in close proximity to one another.  One early sign:  rents in urban centers have ticked upward in the past few months.  These trends bear watching.

Arjun Ramani & Nicholas Bloom, “The donut effect of Covid-19 on cities,” National Bureau of Economic Research, Working Paper 28876, DOI 10.3386/w28876,  


Race and economic polarization

The growth of concentrated poverty has been fueled by the secession of successful African Americans

David Rusk has summarized his research on race and economic polarization in a series of three commentaries on “The Great Sort,” for the DC Policy Center. The essence of the sorting in question is the sorting of the nation’s African American population by income. In the heyday of segregation, black Americans had little choice about where to live, and so, regardless of income or profession, rich and poor black Americans tended to live in the few neighborhoods in which they were allowed. But as segregation has eased, some, but not all, black Americans have moved out. And that’s where the sorting comes in: disproportionately better educated and higher income households have moved to more integrated neighborhoods, while less educated and lower income households have tended to remain in traditionally African American neighborhoods. This Great Sort has had the effect of increasing income polarization within the black community and producing higher levels of concentrated poverty.

Rusk has a long and distinguished pedigree in urban policy; he served as the Mayor of Albuquerque and was a researcher for the Washington Urban League and is author of the book “Cities without Suburbs.”

Rusk’s analysis is based on the comprehensive tabulations of Census data by Dr. John Logan and his colleagues at Brown University.  You can look up data and profiles for individual metropolitan areas at their website.

Rusk’s key measure is what he calls the “economic polarization index.”  This index is the sum of two other segregation indices computed by Logan:  the 10th percentile economic dissimilarity index and the 90th percentile dissimilarity index.  These two dissimilarity indexes measure how segregated the poorest (10th percentile) and the richest (90th percentile) members of any racial ethnic group are from all the other members of that racial ethnic group.  Each dissimilarity index runs from 0 (perfect integration) to 100 (perfect segregation), and corresponds to the fraction of the population in each group that would have to move to a different neighborhood in order to produce an identical distribution of income groups in each neighborhood. Importantly, these indexes are computed separately for each racial/ethnic category: high income African Americans are compared to all other African Americans, for example.

Rusk has a crisp synthesis of the import of his statistical analysis:

Black economic polarization increased in all 58 of 58 metro areas for which indices were calculated. Most telling are the 48 metro areas that had significant Black populations in 1970; economic polarization was somewhat lower among Black household (22.5) than among White households (27.7) as the Black population – regardless of economic status – was still packed into racial ghettos. (The federal Fair Housing Act had just been enacted in 1968.)

Thereafter, the Black middle class and, especially, affluent Black households exploded into suburban communities (often into more newly constructed subdivisions as in Metro Washington’s Charles and Prince William counties). Many poor Black households remained trapped in “legacy housing” (e.g. public housing projects).   Even programs hypothetically designed to disperse poor Black households, such as federal Housing Choice Vouchers, have, in practice, concentrated most voucher holders in high minority, high poverty neighborhoods.

Thus, Jim Crow by income is steadily replacing Jim Crow by race.

Logan’s data starts in 1970 and runs through 2014.  The 1970 starting point corresponds to the very early years of the civil rights era; the Fair Housing Act had just passed in 1968, and overall levels of racial segregation in the US were near their peak.

A closer look at the 50 largest metro areas

David Rusk graciously shared his metro level tabulations with City Observatory, enabling us to look more closely at just the group of the 50 largest metro areas we follow here on a regular basis.  What follows is a summary of the data for these large metropolitan areas, with detailed metro level figures on black and white economic polarization in 1970 and 2010-14.

Rusk’s economic polarization index shows that in 1970, in large metropolitan areas, black Americans were far less segregated by income than were white Americans.  The median large metropolitan area in the US had a polarization index of .22 for blacks compared to a polarization index of .28 for whites.

Since 1970, economic polarization has increased dramatically for Black Americans but has increased only slightly for whites.  The economic polarization index for blacks more than doubled from 1970 to 2010-14, from .22 to .57.  The economic polarization index for whites rose from .28 to .33. The increase for blacks was seven times greater than for whites:  up .35 for blacks versus just .05 for whites.  On average, high income black households live much more segregated from low income black households than high income white households live from low income white households.


Detail on the changes by metropolitan area show just how widespread and pervasive this pattern has become.  In 1970, just six of 38 large metropolitan areas had higher economic polarization rates for whites than for blacks.  By 2010-14 all large metropolitan areas had greater economic polarization among their black population than amount their white population.


Metropolitan Data


The story behind this trend is straightforward: in the wake of the civil rights movement, higher income black households have been able to choose to move to different neighborhoods; while lower income black households have not.

As William Julius Wilson explained in 1978, up until the 1960s and early 1970s, the most well-educated and higher-income African Americans had little choice but to live in racially segregated neighborhoods, where they provided community leadership and role models. More recently, the lessening of de-facto and de jure racial segregation gave them more choices of where to live. In the process, their migration undermined the cohesiveness and economic diversity of their neighborhoods—actually intensifying the effects of economic segregation for the population who stayed (Wilson, 1978).

This telling squares with the frequently nostalgic accounts of life in formerly vibrant, if highly segregated neighborhoods. There were thriving African American business centers and cultural institutions, communities were stable, and as the Rusk data show, though African-Americans had lower incomes on average, higher income families in the black community were less segregated from low income black families than was the case for whites.

The decline of African American neighborhoods was driven as much by the pull of opportunity in the wake of civil rights legislation as by the “push” of displacement from urban renewal and highway building. Population of many historically African American neighborhoods declined, especially after 1968, but those who left tended to be the ones with the most income, and the most education, while those who remained behind tended to be less educated and more likely to be living in poverty. The higher income households that left traditionally black neighborhoods as desegregation progressed “disinvested” in these places just as surely as any bank, business or public institution. As they left, the community was deprived not just of their financial capital and spending power, but their social and cultural leadership.

Rusk’s economic polarization index is just one way to measure the sorting of households by income. But his findings are consistent with a range of other academic research.  Patrick Sharkey found that the proportion of middle- and upper-income black households grew from 33% in 1970 to 58% in the late 2000s, and the proportion in suburban neighborhoods grew from 19% in 1970 to 48% in the late 2000s. Similarly, The Brookings Institution’s Jenny Schuetz examined the relationship between income, by race and ethnicity and distance from the city center in 24 large metropolitan areas. She found that for blacks and Latinos, income was positively associated with distance from the center-i.e. that higher income households tended to live in more suburban locations, consistent with the observation that since the legal desegregation of housing markets, black and Hispanic middle class families have moved to the suburbs, leaving their poorer neighbors in central cities.

While some black households with higher incomes have managed to move to richer, more ethnically diverse neighborhoods (often with better schools, and often in the suburbs), lower income black households have become increasingly concentrated in neighborhoods that are poorer, and have lower public services. The net effect of the sorting that Rusk describes has been to aggravate the problem of concentrated poverty which disproportionately affects people of color. Our Lost in Place report calculates that 75 percent of the persons living in urban neighborhoods of concentrated poverty (with poverty rates of 30 percent or higher), are African American or Latino.