Sprawl and tax evasion are the real forces fueling the demand for wider freeways

Highway widening advocates offer up a  a kind of manifest destiny storyline: population and traffic are ever-increasing, and unless we accommodate them we’ll be awash in cars, traffic and gridlock.  The rising tide of cars is treated as a irresistible force of nature.  But is it?  Look more closely and its apparent that rising traffic levels aren’t inevitable, they’re the product of other forces.  And far from solving traffic problems, widening roads makes these problems worse.

In the case of Portland’s proposed $5 billion 5-mile long freeway widening project—the mis-named Interstate Bridge Replacement project—the real forces behind the project aren’t pre-destined levels of car traffic, but instead, are much more prosaic, and questionable:  sprawl and tax evasion.

Sprawl:  Cause and consequence of wider roads

While Oregon has some of the tightest land use controls in the nation, Washington State is still far more accommodating to rural and exurban residential development.  As many critics of the I-5 bridge project have noted, precious few commuters from Washington State to jobs in Oregon use transit, despite the fact that their are good express bus services from Vancouver to Oregon job centers.  (Prior to the pandemic, express buses carried only about 3,000 people per weekday between Oregon and Washington, compared to more than 250,000 vehicles per day crossing the river). A key reason for this auto-dominated travel pattern is that housing growth in Clark County has been driven by exurban sprawl, and workers commuting from these locations travel overwhelmingly by car.  Here’s a map prepared by Seattle’s Sightline Institute showing the comparative patterns of population growth in the Oregon and Washington portions of the metropolitan area between 1990 and 2000.  While Oregon has had little population growth outside its urban growth boundary–a testament to the policies effectiveness–Washington has experienced a rash of exurban development.

This exurban sprawl is both the source of demands for expanded highway capacity on I-5 and elsewhere, and in turn, widening roads simply encourage more such sprawl—a pattern that is repeated in metropolitan areas across the country.  The technical analysis done for the proposed Columbia River Crossing (predecessor of the IBR) estimated that 93 percent of the growth in peak hour trips on I-5 between 2005 and 2030 would result from additional population growth in the suburban fringe of Clark County (i.e. even more purple dots).

Tax evasion fuels traffic growth

While sprawl is one contributor to traffic growth, a second is tax evasion.  Here’s the short story:  Oregon has no retail sales tax; Washington charges its residents one of the nation’s highest rates (over 8 percent).  As a result, Washington residents regularly drive across the Columbia River on one of two Interstate Bridges to shop tax-free in Oregon.  They spend over $1.5 billion per year in Oregon, and effectively evade more than $120 million in sales taxes by doing so.  The average Clark County family of four evades about $1,000 of sales tax each year.

But all these sales tax evasion produces a lot of traffic on the two bridges that cross state lines:  We estimate that between 10 and 20 percent of all the trips crossing the I-5 and I-205 Columbia River bridges are Southwest Washington households driving to shopping centers in Oregon to evade Washington sales tax.  Conveniently, there are major shopping centers at Jantzen Beach and Hayden Meadows (on I-5) and on Airport Way (I-205), both just across the Columbia River into Oregon.   The parking lots of these retail centers are chock-a-block with Washington vehicles.

Far from being inexorable and inevitable forces of nature, the factors driving the growth of traffic between Portland and Vancouver are actually symbolic of dysfunctional and environmentally destructive trends.  Rather than accommodating them, and encouraging more sprawl and tax evasion, we should be making choices that are consistent with our stated values.

California is the first in the nation to establish a Universal Basic Income . . . for cars

One of the most widely discussed alternatives for tackling poverty and inequality head-on is the idea of a “Universal Basic Income”—a payment made to every household to assure it has enough for basic living expenses.  While there have been a few experiments and a lot of political hyperbole, it hasn’t really been tried at scale.  But now, California is on the verge of enacting a Universal Basic Income, but instead of being for people, it’s for cars.

It’s a symptom of our deep car dependence thant faced with somewhat higher gas prices (still lower, in inflation-adjusted terms than a decade ago), politicians are falling all over themselves to insulate cars and driving from their real costs.  It speaks volumes that we’re so quick to allocate resources to cars and so reticent to have similar energy when it comes to tackling poverty.

High gas prices are a potent political issue for car-dependent Americans, and that’s prompted elected officials to scramble to come up with ways to ease the pain.  California Governor Gavin Newsom has proposed giving California car-owners a $400 debit card for each car they own, at a total cost of an estimated $9 billion.  It’s effectively a universal basic income (UBI), but for cars.

In an ironic parallel, the City of Oakland is reporting the results of its own recent experiment with a kind of UBI for transportation.  Oakland gave $500 households $300 debit cards that they could spend on a range of transportation services, like bus travel, bikes, scooters and ride-hailed trips.  They then surveyed participants to see how their travel patterns changed.  Overall, about 40 percent of participating households reported reducing their single occupancy car trips.  The idea of a flexible transportation allowance is great way to directly address the equity concerns of our transportation system, especially as we begin using road pricing as a way to make the transportation system function more efficiently.  But it’s striking that while a universal basic mobility allowance merits only a tiny and tentative $150,000 experiment, a universal car allowance worth nearly $10 billion is likely to move forward with little, if any consideration of its social and environmental effects.

Other states have taken a different approach to reducing transport costs, with a similar car bias.  New York Governor Kathy Hochul is proposing a gas tax holiday (which may or may not save motorists money, depending on whether oil companies pass along the savings to customers).  Of course, the cost of paying for maintaining the state’s roads will just be shifted to others, so the savings mostly an illusion.

There’s a good argument that Newsom’s debit cards directly undermine the state’s climate goals, especially by handing out money based on the number of cars a household owns. Both the California and New York plans give fiscal relief to car owners.   You have to own a car to get a California debit cards, and somewhat perversely, households with two cars (who tend to have higher incomes) get twice as much relief as families with a single car.   But the incentive effects of the tax cut are even worse than California’s debit card approach:  people will save in proportion to how much gas they buy.  Those who don’t drive much, drive fuel efficient vehicles, or who don’t own or drive cars at all, will get no relief.  The big winners will be those who own fuel inefficient vehicles and drive a lot.  At least with the California debit card approach, families don’t have to buy more gasoline to get more relief.  They can spend the $400 on anything else they like, including for example, a bus pass or part of the purchase price of a new bike.

Gas tax holidays and California’s universal basic income policy for cars are emblematic of the fundamental inequity of our current transportation policy.  Measures, like a universal basic mobility allowance, which would help those most in need and incentivize more sustainable transportation are subject to protracted experimentation at trivial scale.  Meanwhile, rising gas prices prompt sweeping and ill-considered policies that will send most benefits to those who drive the most, and which will further incentivize more driving and environmental destruction.

In 2021, US residential values increased by $6.9 trillion, almost entirely due to price appreciation

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

Capital gains on housing in 2021 were ten 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.

The real estate speculators reaping literally trillions of dollars of gains from our capitalist housing system are millions of homeowners, who, whether they acknowledge it or not, are the beneficiaries of “Not in my back yard” policies that have driven up the price of housing.  And this surge of homeowner wealth is a rotten development from the standpoint of addressing yawning disparities by race, income and generation, as the beneficiares of these gains 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 $6.9 trillion.  (New residential buildings—the construction and upgrading of homes and apartments—contributed about $800 billion).  The gain home values in 2021 was nearly triple the $2 trillion or or so increase in residential values Zillow reported in 2022.  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 $6.9 trillion dollar one-year increase in home values is more than ten times the total pre-tax income of the bottom twenty percent of US households (about $600 billion in 2018, according to the Congressional Budget Office).

Here’s another picture of how much housing wealth has been created.  The Federal Reserve tracks “homeowner’s equity”—the net amount of wealth that homeowners have after subtracting outstanding mortgage debt from home values.  After the collapse of the housing bubble, owner’s equity stood at about $10 trillion, and since then has ballooned to $26 trillion.

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 $6 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.  It also hides the principal policy that’s driven the appreciation of residential real estate:  the dominance of a range of “Not in my back yard” policies, including excessive single family zoning, apartment bans, high development fees, parking requirements and a host of other policies that have made it harder to build housing, especially in the places people most want to live.

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.

A version of this commentary was originally published in 2021, and has been updated to reflect the latest data on home price appreciate estimated by Zillow.

A proposed Portland area ferry makes no economic or transportation sense.

Why the Frog Ferry is a slow boat to nowhere

A ferry between Vancouver and Portland would take 20 minutes longer than existing bus service

From flying cars to underground tunnels to ferry boats, there’s always an appetite for a seemingly clever technical fix for urban transportation problems.  But in the end, transportation is about performance, cost and geometry, and nearly all of these inventive ideas fail dramatically one one, two or all three of these criteria.  When it comes to making urban transportation better, what is needed, as Jarrett Walker told a recent YIMBYtown audience, is less charisma and more scale.

The latest of these transport fantasies is a Portland proposal for a “Frog Ferry”—the cute name is a dead giveaway that this idea is long on hype and short on substance.  The pitch for the ferry goes like this:

Wouldn’t it be cool, if instead of taking a bus or a car, you could take a boat from Vancouver Washington, or Lake Oswego Oregon, to downtown Portland.  Wouldn’t it be great if it was faster than driving or a taking a bus?

With a keen eye to PR, the proponents of the Frog Ferry have produced a glossy video implying the ferry would be faster than car or transit service.

You can imagine it, for sure.  But it is imaginary.  It’s not possible for a regular ferry service to travel faster between Vancouver and Portland than a car, or even today’s bus service. In the real world, boats are slower than both cars and buses. Water transportation, especially given the circuitous water route between Vancouver and Portland, the slow speeds of even “fast” ferries, the need to minimize damaging wakes at higher speeds, and the relative remoteness of docks from actual destinations, means that ferries in Portland are an unwise, uneconomic folly.

The devilish details

What exactly, is the Frog Ferry?  The Frog Ferry is a proposal to establish water ferry service on the Columbia and Willamette Rivers, connecting Vancouver, Washington, and downtown Portland and Lake Oswego and or Oregon City.  The Ferry plan is to operate 6 boats (four carrying up to 100 passengers and two carrying sixty).  With the help of the Oregon Department of Transportation and the City of Portland, ferry proponents have gotten hundreds of thousands in public funds to undertake a series of feasibility studies. So far, they’ve mostly figured out that the project would need at least $40 million to pay for boats and docks, as well as continuing subsidies to support operating costs.

In recent days, its seemed like the Frog Ferry proposal sinking fast.  Tri-Met, the region’s transit agency, charged with being fiscal agent for a grant from the Oregon Departmetn of Transportation, disputed and refused to pay invoices from the Frog Ferry organization.  The Portland City Council declined to bail out the organization.  The ferry advocates are trying to revive the project, but should anyone care?  Let’s take a close look at what’s proposed and see if it makes any sense.

Frog Ferry:  The slow boat to nowhere

As the marketing materials make clear, a faster trip is a big part of the promise here.  But would a ferry, particularly between Vancouver and Portland, be very fast?  Downtown Portland and downtown Vancouver, Washington are only about seven miles apart as the crow flies, but not as the salmon swims.  To get from Vancouver to Portland by water, you have to go west on the Columbia River five miles to its confluence with the Willamette, and then make a U-turn and go south-east on the Willamette River almost ten more miles to get to downtown Portland.  The trip by water is twice as long as the straight line distance, making for a lot of out-of-direction travel.

There isn’t lots of traffic on the river, but there are still real limits to how fast ferries can go. As a practical matter they’re generally limited to top speeds of 20 to 25 knots, and often much slower.  A big problem with fast ferries is that they create a big wake, which can be disruptive to other water users, and damaging to sensitive riverbanks.  Limiting damaging wakes is a key reason that ferries travel as slowly as they do.  For example, even in Vancouver, British Columbia where ferries cross the wide Burrard Inlet Seabus, travels at about 11-12 knots.  These catamarans are capable of higher speeds, but are forced to travel at lower speeds to avoid the excess wake.  The Frog Ferry’s proponents assume their vessel will be able to cruise at 24 knots, but they’ve yet to address the damage that this high speed wake will do along the confines of the Columbia and Willamette Rivers.  In addition, the ferries will have to make a 130 degree turn around Kelly Point, which would be an amusement park ride experience at 24 knots.

Today’s buses are already faster

The ferry system is actually likely to be much slower than implied by the advocate’s estimates.  The 15 mile-river trip from Vancouver with a stop in St. Johns, would take around 45 minutes according to their own very optimistic estimates, as much as 10 minutes longer than current rush hour bus service.

That’s not surprising:  by road, the distance traveled is a more than a third shorter (9.3 miles) and an off-peak car trip takes about 15 minutes according to Google.

The Frog Ferry marketing claims that the ferry would be faster, but it wouldn’t.  It’s not only not faster than driving, it’s actually slower than today’s transit.  How long does it take to get by bus from Vancouver or Lake Oswego to Salmon Street Springs, the proposed downtown Portland terminus?  Let me Google that for you.

For bus service from Vancouver to Portland its, 34 to 38 minutes:

And the ferry is just the line-haul portion of the trip:  Since almost no one lives or works right at these stops, they’ll have to walk (or drive or take a bus) onward from the place the ferry docks to their destination.  The Vancouver, St. Johns and Lake Oswego sites are remote from housing, and aren’t currently served by transit.  Downtown Portland’s Salmon Street Springs is a four minute walk from the nearest light rail stop, and about seven minutes to Portland’s transit mall.  And these are for travel to Salmon Street Springs, not to someone’s work or shopping destination. It’s a half mile, 10 minute walk up or down a steep hillside from downtown St. Johns to the river side in Cathedral Park.The C-Tran and Tri-Met buses that ply these routes actually stop at multiple locations, like downtown Portland’s transit mall, which are much closer to offices, stores and other destinations.  So if anything, these estimates understate the travel time advantage of today’s buses.

It’s almost certain that Frog Ferry advocates have overestimated how fast their ferry will be.  They told Metro to assume that the ferry had an average speed of 24 knots (27.6 miles per hour).  While high speed ferries can cruise that fast (or few knots faster), during much of their travel cycle they’re either going much slower (maneuvering into and away from docks, accelerating or slowing, or are restricted by traffic or low wake zones).  As a result average speeds are far less than cruising speeds.  Moreover, the 24 knot average speed is higher than the 22 knot “cruising speed” assumed in the Frog Ferry’s own operational feasibility plan.

Those with real world experience report much slower service speeds.  New York—which has broad experience with ferries—estimates much different speeds that the Frog Ferry’s advocates.  Its Citywide Ferry Study concluded that an eight-mile leg with a medium-sized catamaran ferry would take a total of close to half an hour, with time for dwell, maneuvering and cruising—the Frog Ferry’s estimates don’t seem to allow for maneuvering to and from the dock.  Seattle’s proposed 10.5 mile Kenmore Ferry Route, operated with a 28-knot cruising speed ferry similarly requires close to 40 minutes one-way when allowance is made for loading, unloading and maneuvering.

Between Portland and Vancouver, the Frog Ferry would travel more than 15 miles in two nearly equal segments stopping at St. Johns.  That would put its travel time close to two-legs eight mile legs by the medium catamaran (Type E), in the table above, or one full hour.

The real world performance of ferries shows that the proposed Frog Ferry simply would not  be time competitive with existing transit service in Portland.  A ferry ride between Vancouver and Portland is going to take nearly an hour—twenty minutes or more longer than a current-day bus ride.  And the ferry will pick up and deposit its customers and the river’s edge, not their final destinations, unlike transit buses which actually traverse widely patronized destinations.  As a practical matter, a boat that takes considerable longer than a bus moving in mixed traffic just isn’t going to attract very many riders.

The romance of water travel and the apparent illusion of escaping traffic has certainly charmed some into pursuing the Frog Ferry idea, but as a practical form of transportation it is far less efficient and direct that the far more humble and prosaic transit bus, which despite its boring character is still faster than the fastest feasible water transport.

The fact that ferry service would dramatically under-perform existing bus service ought to be enough to reject the Frog Ferry idea out of hand, but that’s just the most obvious problem with ferry service.  It also turns out that ferries are enormously expensive, highly polluting, and tend to principally serve higher income commuters, points we’ll explore in future commentaries.  If a community is interested in efficient, equitable and sustainable mass transportation, the Frog Ferry shouldn’t be part of its plans.

What City Observatory did this week

The Cappuccino Congestion Index.  Media reports regularly regurgitate the largely phony claims about how traffic congestion costs travelers untold billions of dollars in wasted time. To illustrate how misleading these fictitious numbers are, we’ve used the same methodology and actual data to compute the value of time lost standing in line waiting to get coffee from your local barista. Just like roadways, your coffee shop is subject to peak demand, and when everyone else wants their caffeine fix at the same time, you can expect to queue up for yours.

Just as Starbucks and its local competitors don’t find it economical to expand their retail footprint and hire enough staff so that wait times go to zero (your coffee would be too expensive or their business would be unprofitable) it makes no sense to try to build enough roads so that there’s no delay. Ponder that the next time you’re waiting for your doppio macchiato.

Must read

San Francisco struggles with rezoning.  UC Davis Law Professor Chris Elmendorf has a thoughtful–and blistering–critique of San Francisco’s proposed up-zoning plan.  Here’s the background:  State law requires cities to zone for a share of their region’s future housing needs as part of a process called RHNA (regional housing needs analysis).  San Francisco’s share for the next decade is about 80,000 new homes.  In the past RHNA requirements were toothless, and cities could (and did) make plainly unrealistic assumptions about what could be developed based on zoning.  Amendments to state law give the state housing agency the ability to make tougher demands, including forcing cities to use much more realistic assumptions about how much land that is zoned for development will actually be developed in the next several years. Essentially, cities must evaluate the probability that up-zoned parcels actually get built on, and then assure there’s enough zoned capacity that the goal will be met.  But in the process of doing its analysis, Elmendorf argues, the city has dramatically exaggerated how many units will get built, and its policies counting on new housing getting built in locations that are simply uneconomic:

Finally, after all the massaging of numbers, San Francisco concludes that it ought to rezone for roughly 22,000 more homes, and that for fair-housing reasons, they should be located on west side of city. Some housing advocates are rejoicing.  But: in connection with its analysis of constraints, San Francisco hired a consultant for pro-forma analysis of different types of housing projects in different areas…and the consultant concluded that *nothing pencils out on the west side*.   On the basis of that study, the city planning department says that with current permitting process, impacts fees, exactions, and construction costs, the *only* kind of project that’s economically feasible is a 24+ story high-rise in city’s highest-demand neighborhoods. Yet San Francisco “plans” to meet its 22,000 unit shortfall (after hand-waving) by rezoning west-side corridors for 55′-85′ projects that per city’s own analysis would have *negative* rate of return. This is a cruel joke. Except it’s no joke.

New York’s Hotels-to-Affordable Housing Stumbles Over Zoning Requirements.  The Covid pandemic caused hotel occupancy to plummet, and created an opportunity to transform under-used hotel rooms into affordable housing.  New York City set aside $100 million to buy and renovate hotels, but so far, precious little has happened, according to Bloomberg.  The key problem:  zoning and building code requirements create delay, uncertainty and higher costs for potential conversions.  One organization looking to convert hotels reports:

Changing a property’s certificate of occupancy to residential use is time-consuming and triggers building code requirements that are costly or impossible to comply with, said Breaking Ground’s Rosen. . . . The HONDA Act also required that every room have a bathroom and kitchen or kitchenette, even though about 80% of the city’s 120,550 hotel rooms are in Manhattan and most are too small to accommodate even a small cooking area. Adding kitchens and complying with other building code requirements for residential buildings would require expensive renovations.

It’s a reminder that even where this is money for affordable housing, zoning and building regulations are still a huge barrier.  

New Knowledge?

Editor’s note:  Our “New Knowledge” feature generally highlights recent research that we think our readers will find informative.  This week, as we do occasionally, we highlight some recent research about which we have questions.

School Closures and the Gentrification of the Black Metropolis. This paper looks at the correlation between school closures and neighborhood gentrification.  It purports to have found that the closing of schools in predominantly Black neighborhoods is associated with a higher probability of gentrification.

To start out with, it’s important to focus on the paper’s definition of gentrification:  if a low income census tract experienced any real increase in housing prices or an increase in its educational attainment in excess of the citywide average, it was considered to have gentrified.  The study reports that 29 percent of all eligible tracts gentrified.   That’s a high number, because its a low threshold:   this definition doesn’t necessarily signal a wholesale change in a neighborhood’s demographic composition.

Moreover, the study actually buries the lede about gentrification in Black communities:  consistent with other research, this study shows that predominantly Black and Hispanic neighborhoods are dramatically less likely to gentrify than otherwise similar white  neighborhoods.  Hispanic neighborhoods are 83 percent less likely that white neighborhoods to gentrify; Black neighborhoods are 54 percent less likely to gentrify.  The author’s finding is that Black neighborhoods with school closures are more likely to have experienced gentrification  than Black neighborhoods without school closures.  The effect, though statistically significant, is not large:  about 27 percent Black neighborhoods with school closures gentrify, compared to 19 percent of Black neighborhoods where schools don’t close.  Its still the case that White neighborhoods with (or without) school closures are more likely to gentrify than Black neighborhoods with school closures.

Francis A. Pearman, II & Danielle Marie Greene, School Closures and the Gentrification of the Black Metropolis, Stanford Center for Education Policy Analysis, CEPA Working Paper No. 21-02.  February 2022.

What City Observatory did this week

A universal basic income . . . for cars.  One of the most widely discussed alternatives for tackling poverty and inequality head on is the idea of a “Universal Basic Income”–a payment made to every household to assure it had enough for basic living expenses.  While there have been a few experiments and a lot of political hyperbole, it hasn’t really been tried at scale.  But now, California is on the verge of enacting a Universal Basic Income, but instead of being for people, its for cars.  California Governor Gavin Newsom has proposed giving a $400 debit cards to every California households based on whether they own one or two cars.  It’s a symptom of our deep car dependence thant faced with somewhat higher gas prices (still lower, in inflation-adjusted terms than a decade ago), politicians are falling all over themselves to insulate cars and driving from their real costs.

It speaks volumes that we’re so quick to allocate resources to cars and so reticent to have similar energy when it comes to tackling poverty.

Darrell Owens on exclusionary zoning for poor neighborhoods.  California is wrestling with statewide efforts to end apartment bans and allow more housing to be built where people want to live.  One subtext of this debate is an argument that upzoning ought to be restricted to higher income and predominantly white neighborhoods, and that lower income neighborhoods, especially those with a substantial population of color, ought to be exempted.  There’s a kind of historical symmetry to this argument:  it’s typically been the case the higher income white neighborhoods have used density restrictions to bar development, with the result that housing demand pressures get displaced to lower income neighborhoods.  But as Darrell Owens points out claims that we’re doing these “sensitive” neighborhoods any favors by limiting upzoning is a fundamental mistake.  Precluding upzoning in lower income neighborhoods would just tend to intensify gentrification pressures in those areas:

. . .  the only thing single-family zoning does anyhow is preserve a lot of old houses for buyers who want single-family dwellings. Rich people consume a lot of space and energy, a lot more than working class people, so single-family houses will always be the most appealing to them. Keeping only inefficient, single-family homes in poor areas while densifying affluent ones would just focus wealthy demand for that housing in those poorer communities anyhow—likely exacerbating gentrification.

As we’ve pointed out before, there’s an assumption that if a neighborhood doesn’t allow change in its housing stock, that it will somehow remain affordable, when in fact, limiting supply has exactly the opposite effect.

More climate denial on I-5.  As regular City Observatory readers will know, we’ve closely followed the devastating climate impacts that will arise from planned widenings of I-5 in the Portland Metro area.  Between Tacoma and Olympia, the Washington Department of Transportation is pursuing another freeway widening project, one which will widen the roadway across the Nisqually Delta at the South end of Puget Sound.  Ryan Packer, writing at The Urbanist shows that despite studies showing that  alternative land use policies that would reduce vehicle travel are a more environmentally sound option. Widening I-5 would raise greenhouse gas emissions by more that 2 percent, while better land use would reduce them by more than 1 percent.  WSDOT is pushing forward with a widening project that would cost billions, and increase greenhouse gases, in large part because it a strategy focused on land use changes wouldn’t allow it to be the lead agency in the NEPA review

Another Exploding Whale for the Oregon Department of Transportation.  Highway megaprojects routinely blow through their announced budgets.  A proposal to rebuild and widen the I-205 Abernethy Bridge south of Portland has just seen its budget increased by nearly 40 percent.  This is nothing new for the Oregon Department of Transportation, which has ultimately ended up recording 100 percent cost-overruns for virtually all of the megaprojects it has undertaken in the past two decades.  Just last year, ODOT said the project would cost $375 million.  Bids for construction came in higher than expected, and have ballooned the project’s cost to $500 million.

The miscalculation is ominous for two reasons:  It suggests that either ODOT low-balled the cost estimate just nine months ago, or that the inflation of construction costs is soaring out of control.  Either way, that should give leaders reasons to doubt claims that ODOT is making about its estimates for other billion dollar plus projects.  And how will these cost overruns be paid for: Either other projects and priorities will be short-changed, or I-205 users will have to pay even higher tolls, or both.

What City Observatory did this week

How sprawl and tax evasion are driving demands for wider freeways.  The Oregon and Washington Departments of Transportation are proposing to spend roughly $5 billion to widen a 5 mile stretch of I-5 between Portland and Vancouver.  The case for the widening is based on the need to accomodate a supposedly inexorable increase in traffic.  But a closer look at traffic demand shows that car travel between Vancouver and Portland has been fueled by exurban sprawl in Southwest Washington, as well as massive sales tax evasion by Washington residents. Some 93 percent of expected growth in peak hour traffic to Oregon is expected to come from new development at Vancouver’s urban fringe.

And roughly 10 to 20 percent of all car trips across the Columbia River are Washington residents shopping in Oregon, who save roughly $120 million annually by avoiding Washington’s 8 percent sales tax in tax-free Oregon.

Still NIMBY in Minneapolis.  Minneapolis famously gained national notoriety for its path-breaking rules to allow duplex and triplex houses in most of the city’s single family zones.  That’s real progress, but much of the zoning deck is still stacked in favor of NIMBY interests.  A good example is related by MinnPost’s Bill Lindeke, who tells of local resident Cody Fischer’s plans to build an four story, 26 unit apartment building on an inner city lot.  The developer is keenly attuned to urban interests, with plans to for passive, low-energy construction, deluxe bike storage on a site adjacent to good transit service.  It’s exactly the kind of urban density called for in the city’s 2040 plan which passed the City Council on a 12-1 vote three years ago.  But construction of xxxx’s building is still subject to approval by the planning commission, which after hearing local objections about parking, shadows and a lack of neighborhood character, voted against approving the project 6-3.   The local city councilor made the motion to decline the project, saying it was “just not a good project” and that Fischer hadn’t been “neighborly.”  The case is a reminder that city plans are of little value if they don’t guide the decisions to actually build things.  And in cities with ward or district systems for electing city councilors, it may be easy to get agreement on sweeping generalities at a municipal level, and practically impossible to get permission to move ahead with a specific development when irate neighbors show up at city hall and button-hole “their” council member.

The high cost of parking requirements in Los Angeles. Writing in the Los Angeles Daily News, Shane Phillips lays out the case against parking requirements.   Los Angeles, he says, allocates ten times the area of Manhattan to car storage, with profound effects on urban form, transportation costs and equity.  Much of this is a product of the city’s zoning code, which requires new commercial and residential development to set aside vast amounts of otherwise productive land for car storage.   As Philip explains, the overallocation of land to parking comes with a range of detrimental effects:

This massive parking supply feeds our car dependency, and it contributes to the same destructive consequences: environmental degradation and greenhouse gas emissions; long commutes; poor health; dangerous streets; car-oriented architecture; financial burdens for those who own a car; and limited mobility for those who don’t, or can’t.

The hopeful message here is that simply repealing parking mandates can go a long way to addressing this problem. San Diego repealed many of its parking requirements, with the result that developers stepped up and built more housing, which helps ease supply shortages.

Climate Kids v. Biden.  President Joe Biden visited Portland to tout his infrastructure plans, and local youth climate activists had a message for him: Climate leaders don’t widen freeways.  Taylor Griggs writing at Bike Portland described the activists preparations for the presidential visit.  Their position:

“Youth activists will make our message clear yet again: Climate leaders don’t widen freeways. Biden must choose which side he’s on – futures, or freeways. Because he cannot be on both.”

There’s little question that the nation’s infrastructure can use repair and refurbishment.  But as these climate advocates argue, this shouldn’t be an excuse for building vast new roadways that simply encourage more sprawl, car dependence and carbon emissions.