What City Observatory Did This Week

There’s no evidence of a housing bubble.  Strong Towns Chuck Marohn has a recent blog post proclaiming that the US housing market is the midst of another bubble, similar to 2008.  But a closer look at housing market fundamentals, especially mortgage debt, shows few parallels to that earlier debacle.

1. Mortgage debt to GDP ratio is declining, unlike the surge seen before 2008.
2. Lending standards are stricter now, with most mortgages going to households with good credit.
3. The median FICO score for new mortgages is high (770), and few loans go to those with scores below 620.
4. Most homeowners have significant equity and affordable fixed-rate mortgages.
5. Adjustable-rate mortgages now require borrowers to qualify based on higher potential payments.
6. Mortgage fraud, while still present, has declined significantly since the previous bubble.

To be sure, housing prices are high and affordability is an issue. However, the underlying problem is insufficient housing supply, particularly in high-demand urban areas, rather than a bubble caused by “financialization.” Labeling the current situation a “bubble” doesn’t accurately describe the problem or help in finding solutions. Instead, the focus should be on addressing supply constraints, especially in desirable locations.

Must Read

David Zipper:  Moving past the proof of induced travel to change investment priorities.  It’s well proven that wider highways simply induced more travel, meaning that the billions spent on wider roads don’t solve congestion and make pollution and climate problems worse.  David Zipper has a comprehensive, long-form essay that strives to take us past the demonstrated science of induced travel to practical political advice on how to change spending priorities.

Zipper points to the 1980s era alliance between environmentalists and fiscal conservatives which resulted in slashing massive federal subsidies for dam-building.  It’s a tempting analogy, because there’s clearly a need to break political stranglehold the highway-industrial complex has on “infrastructure funding.”  In a way, though, there’s a more germane example from the freeway fights of the sixties and seventies.  Federal legislation then allowed state and local governments to “withdraw” federal funding for proposed freeways, and apply it for other transportation priorities.  A similar program today–with bonus funding for moving money away from highways, and towards transit, biking and walking–might encourage states to rethink their priorities.  As it is, the federal government is now doing much the opposite, giving “bonus” funding for big highway projects, like Cincinnati’s Brent Spence Bridge and the I-5 Bridge Replacement in Portland.  More flexibility, coupled with bonus funding for the kinds of “green” transportation projects that we want to see could also break the highway addiction.

The myth of corporate landlords.  One of the favorite boogeymen of the housing debate is the idea that rents are rising because Wall Street is buying up homes.  But the truth is large scale investors account for a trivial fraction of home owners.  Housing experts at the Urban Institute have labeled the idea baseless scapegoating.  An article at Bloomberg Business Week casts serious statistical doubt on the idea that corporate investors play an important role in moving housing markets.  The data show that most investors are “mom and pop” landlords who own fewer than 10 units.

Most of these investors are very small scale, not the hedge funds or Wall Street firms that are typically cast as villains:

“The opposition to investment in single-family homes is often misguided,” says Tawan Davis, CEO and founder of the Steinbridge Group, an employee-owned real estate investment firm. “Only 2 to 3% are owned by Wall Street; 95% are second homes, inherited homes, or small real estate owners.”

New Knowledge

More apartments equal lower rent inflation.  ApartmentList.com has its finger on the pulse of housing markets across the country, and their latest data shows that the markets that built the most apartments in the past year or so have had the lowest rates of rental inflation.  Over the past year, rents actually declined in about half of all major metro markets; systematically, these were the markets that had the fastest growth in multi-family permitting over the previous two years.  Simply, more supply helps hold down or drive down rents.

This is simple and important truth that is too often overlooked in housing debates.  If we want to keep housing affordable, or make it more affordable, we need to build more of it.

What City Observatory Did This Week

How Metro’s RTP illegally favors driving and violates state climate rules.  Oregon’s planning rules require Portland area transportation plans to prioritize investments that reduce vehicle miles traveled–but the region’s transportation plan illegally prioritizes spending for freeway expansions.

Metro’s adopted Regional Transportation Plan devotes most of its resources to providing additional capacity for car travel. Metro’s own climate analysis shows investments in roads are the least effective way to reduce greenhouse gas emissions.  Transit, biking, walking and compact development are all more effective and less costly–but get only a small fraction of regional investment.

Instead of prioritizing these greener investments, Metro’s plan actually increased the amount of money being spent on the dirtiest forms of transportation.  The share of RTP funding going to support cars and driving increased from 56 percent in the 2014 Climate Smart Strategy to 68 percent in the 2023 RTP. By devoting more funds to cars and driving, Metro’s RTP is short-changing transit, biking and walking, all of which lower carbon emissions.

Metro’s RTP is subject to review by the state Land Conservation and Development Commission, which should reject the RTP.

Must Read

Measuring the Civic Commons. Our friends at Reinventing the Civic Commons (RCC) have been leading a national effort to show how revitalized public spaces, including parks, libraries and neighborhood streetscapes can play a key role in building social capital. As we and others have noted, we have less in common—the social fabric of the United States has frayed over the past several decades as we’ve become more distant from one another in our daily lives.

To their credit, the RCC partners have put great emphasis on measurement to evaluate the effectiveness and impacts of their intervention.  They’ve got an interesting set of metrics, and some hopeful initial findings.  This article describes their work in a number of areas, including Detroit’s Fitzgerald neighborhood.  They’ve found that where they’ve invested in civic spaces, attitudes are changing:

At a time when just 37% of people believe most people can be trusted and the public’s trust in the federal government is dipping toward an all-time low, it is notable when, on a local scale, trust in both people and government increases substantially.

That’s what’s happening in Fitzgerald. Between 2017 and 2023, the percentage of residents who say most people can be trusted nearly tripled from just 13% to 34%. A similar increase was seen in trust of local government, with the percentage of residents who say they can trust their city government to do what is right most of the time growing from 12% to 30%.

How we build our communities to promote social interaction is a vital foundation in building thriving, opportunity rich communities.  The RCC measurement tools illustrate how we can move forward.

More and cheaper urban housing should be the Kamala Harris climate policy.  Writing at Heatmap, Robinson Meyer makes a compelling argument that Democratic Presidential candidate Kamala Harris should make an expanded housing supply, particularly in greener urban locations, a centerpiece of her climate strategy.  A focus on housing directly addresses concerns about living costs and housing availability, and is central to an effective strategy to reduce greenhouse gas emissions.  As Meyer explains:

In America, where you live determines how much carbon dioxide you emit. . . .  half a century of sprawling suburban development has made a high-emissions-lifestyle all but compulsory. If you live in New York, Washington, D.C., or another walkable city, then your carbon emissions are substantially lower than if you live in the suburbs or exurbs. In the country’s sprawling suburbs — not only in the Sunbelt, but also in New Jersey, Maryland, and California — carbon emissions are much higher.  That’s because where you live basically determines how much you drive — and driving is America’s biggest climate problem.

Building more housing in denser, opportunity-rich urban areas that are walkable, bikeable and well served by transit can be a foundation of a great national policy that addresses both housing and the environment.

New Knowledge

Roads consume vast amounts of land and tie up trillions of dollars that could be better used for other purposes.  Wharton economists Erick Guerra, Gilles Duranton and Xinyu   Ma have created a comprehensive estimate of the land area of the United States devoted to roads–a measurement that has never existed.  They show that the paved area in the US covers land larger than the state of West Virginia, and represents the consumption of $4.1 trillion in value.

In terms of value, the cost land devoted to roads is overwhelmingly concentrated in the largest (and most valuable) urban areas.  This map shows the aggregate value of land in roads in the nation’s metro areas.  The land in roads in Manhattan is worth $225 billion, in Los Angeles County $313 billion and in Seattle’s King County $76 billion.

These estimates prove what we have long known, at least intuitively–much of our landscape, particularly our urban landscape is given over to cars.  The magnitudes are overwhelming, but the real story from this study is that from an economic perspective we’ve devoted far too much land to roads, and that we would be richer–better off economically–if less of our urban land were tied up in roads, and more were shifted to other valuable uses:  housing, parks, public spaces, and valuable commercial and industrial buildings.

Guerra, Duranton and Ma estimate the economic effects from a 10 percent increase or decrease in the amount of land devoted to roads.  Their work highlights the fact that road expansion has a strongly negative benefit/cost ratio:  widening roads destroys more value than it creates through time savings.  They conclude:

. . . we found that the estimated costs of increased road investments substantially outweighed the estimated benefits on average, especially when accounting for land values.. Ignoring externalities and land values entirely, the costs of expanding urban roadways exceeded the benefits by a somewhat modest 17%. The external costs of new traffic and especially the opportunity costs of lost urban land, however, were the largest costs of adding road supply. Including the land value, costs outweighed benefits by a factor of nearly three. Including externalities resulted in costs that were four to five times higher than benefits. (emphasis added)

The benefit-cost studies done by highway agencies over-estimate time savings, ignore induced travel effects, discount externalities, and completely omit the land value effects documented in this study.  From an economic perspective, in the 21st Century, we’ve gone well past the point of diminishing returns to road investment, and are now in a realm of negative returns.  Widening highways destroys economic value.

Guerra, E., Duranton, G., & Ma, X. (2024). Urban Roadway in America: The Amount, Extent, and Value. Journal of the American Planning Association, 1–15. https://doi.org/10.1080/01944363.2024.2368260

 

Must Read

Portland advocates sue to block Rose Quarter Freeway widening.  There’s a new chapter in the long-running battle to block the Oregon Department of Transportation’s I-5 Rose Quarter Freeway widening project, a 10-lane mile and a half expansion that has quadrupled in cost to $1.9 billion.  Local advocates, led by No More Freeways, have filed a federal lawsuit challenging that the project’s Environmental Assessment violates the National Environmental Policy Act.

Specifically, the project has failed to accurately disclose its true size and environmental impacts, and also failed to look at reasonable alternatives, including congestion pricing.  The suit is the latest in a series of legal challenges to this problematic project.  The lawsuit has received media coverage from Oregon Public Broadcasting, the Oregon Capital Chronicle, Willamette Week, and the Portland Mercury, and national coverage from Streetsblog.

Self Driving Cars would be a climate disaster.  David Zipper challenges the notion that self-driving cars are a transportation panacea.  In fact, the advent of self-driving cars is likely to trigger an entirely new and overwhelming wave of induced travel, further overburdening city streets, worsening pollution and congestion.

By freeing drivers from the tedium of watching the road, autonomous vehicles will make car travel easier—not unlike the experience of whizzing along a recently expanded roadway. People will respond by traveling farther and taking more trips than they would have otherwise. Emissions from transportation, already the largest source of greenhouse gases in the U.S., will inevitably rise.

Already researchers have shown that advanced driver-assistance systems, which handle aspects of driving but still require a person to be engaged behind the wheel, are leading people to drive more. (ADAS is often seen as a stepping stone toward fully autonomous vehicles.) One study found that Tesla owners with Autopilot, the company’s ADAS product, drove around 5,000 more miles per year than those without it.

Debunking the lies our DOTs tell to sell wider highways.  Kea Wilson, writing at Streetsblog has a revealing commentary cataloging all the different rhetorical gimmicks and outright lies that highway  departments use to sell more and bigger roads.  They’ll always label a highway project an “improvement”–regardless of its social or environmental effects.  Slap a bike path or a sidewalk on a freeway, no matter how useless or unpleasant, and suddenly your multi-lane freeway is a “multimodal” project.  Justify building an extra wide project for some unspecified future transit service–then convert that space into added highway lanes.

Helpfully, Wilson both documents these DOT falsehoods and shows how to counteract these misleading messages:

Inspired by the incredible advocates at the Freeway Fighters Network, here’s a cheatsheet of eight common arguments, distortions, and outright lies that transportation officials use to sell the public on widening streets and roads — and how to debunk them.

In the News

City Observatory’s Joe Cortright is quoted in Bloomberg‘s article, “When Climate Funds Pay for Highway Expansion”

Other transportation experts, like the urban economist Joe Cortright of the City Observatory think tank, have critiqued the notion that adding lanes to reduce stop-and-go driving can end up trimming pollution.