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The Week Observed, January 21, 2022

By Joe Cortright

What City Observatory did this week

Metro’s “Don’t look up” climate strategy.  In the new film, Leonardo DiCaprio and Jennifer Lawrence play scientists who find that the nation’s leaders simply refuse to take seriously their warnings of an impending global catastrophe. Their efforts even produce a backlash, as skeptics simply refuse to look at the sky, even as a planet-killing comet becomes visibly larger day after day.

In Portland, life imitates art.  Metro, Portland’s regional government, says it has a plan to reduce transportation greenhouse gases But in the 8 years since adopting the plan, the agency hasn’t bothered to look at data on the region’s production of greenhouse gases from transportation—which have increased 22 percent, or more than one million tons annually. In effect, Metro’s Climate Plan is “Don’t Look Up.”

Must read

How would large scale upzoning affect land prices?  At Strong Towns, Daniel Herriges argues that the belief that upzoning must always raise land prices is a classic example of the fallacy of composition.  His key point is that they price and market dynamics of upzoning a single lot (or a limited area) in a market with high demand will produce very different effects than a much broader upzoning.  In a world where multi-family development sites are rare, prices would be higher than where such sites were common.  To the extent that small, scale spot-rezonings of property increase the values of those properties, its because such properties are rare.  And the real question is not whether the value of up=zoned properties increase, so much as what happens to the values of already more densely zoned property; arguably increasing the number of properties where more density is allowed decreases the value (or lessens the increase in value) in sites that previously had that designation.

Driving inflation.  Headline CPI inflation reached roughly seven percent last month, and the biggest increases in prices in the past year have been closely linked to the increased cost of driving, as pointed out by the Eno Foundation’s Jeff Davis.  Over the past twelve months, gasoline prices have jumped up 49.5 percent (from their depressed, pre-vaccine lows, and used car prices are also sharply higher, up 37.3 percent.

There are a couple of key takeaways here:  First, our car-dependent transportation system is something that makes most US households vulnerable to inflation.  Second, those who live car-free or car-light lifestyles are actually insulated from many of the negative effects of this particular bout of inflation.  And before you get too upset with the current inflationary peak, it’s worth noting that fuel prices have long been volatile (and will continue to be), and that the current surge in used vehicle prices is most likely a very short-term reflection of recent bottlenecks in new automobile production, something that’s likely to abate in the next few months.

New Knowledge

Chain reaction:  How building new market rate housing increases supply for low and moderate income households.

When new housing gets built, it’s most common that its occupants move from somewhere else, usually in the same city.  When they do, the homes they left are then available to be rented out (or sold) to other households.  These knock-on vacancies aren’t obvious in most common housing data and are hard to track, but are a key way, that, over time, housing becomes more available to households throughout the income spectrum.

In Finland, however, which has a national housing register that tracks the occupants of every housing unit, it’s possible to see what happens when new housing gets built, and how this chain of moves plays out.  A new study from the VATT Institute for Economic Research does just that, using anonymized data to track household moves in the Helsinki Metropolitan Area for a period of 10 years.  Helsinki has a metropolitan population of about 1.2 million.

The authors identify new private market and social housing units built in Helsinki, and track the chains of vacancies created when households move into these new units.  While higher income households tend to move into newly built, market rate units, the housing that these households vacate tends to then be occupied by successively lower income households.  The key finding, quantitatively, is that the construction of 100 new market rate units in central Helsinki leads to 60 housing vacancies in the bottom half of the neighborhood income distribution, and of these, about 29 are in the bottom quintile of the neighborhood income distribution.  As the authors conclude:

. . . people moving into the new centrally located buildings . . .  have much higher incomes and are more likely to be highly-educated than both the Helsinki Metropolitan Area (HMA) population on average and the people who move to other locations in the HMA during our time window. New housing built in expensive areas of the city does indeed primarily house the better-off. However, the moving chains triggered by these new units reach middle- and low-income neighborhoods quickly, within a year or two. Our register data also allows us to show that low-income individuals are part of the moving chains. This is direct revealed-preference evidence that low-income individuals in the city area also benefit from new expensive housing, even when the new units are allocated to individuals higher up in the income distribution.

The findings of the Finnish study closely mirror research by Evan Mast for US cities.  Mast found that the construction of new market rate apartments in the US led to a chain of moves which resulted in increased housing opportunities for low and moderate income households, a process we likened to adding more chairs in a game of musical chairs.

In addition to tracking chains for market rate housing, the authors also track moving chains created by the construction of publicly subsidized social housing.  Construction of 100 new units of social housing leads to 75 housing vacancies in the bottom half of the neighborhood income distribution, of which 43 are in the bottom quintile.  This means that while social housing does provide more housing supply for lower income households, market rate production does nearly as well.  These charts compare moving chains market rate (right) and social housing (left) by income group.  While more than half of market rate units are initially occupied by housings in the top income quintile (>P80, pink), their share steadily declines in successive rounds, and below middle (<P50, blue) and lower income (<P20, gray), take most units in later rounds.  The pattern of vacancies by income group in rounds 4-6 are very similar for social and market rate housing, suggesting that both kinds of increment to supply ultimately result housing for low and moderate income households.

This finding echoes a result obtained by Chapple and Zuk in their study of the Bay Area which found that the construction of two new units of market rate housing had the same effect in reducing displacement as constructing one unit of subsidized affordable housing.

Bratu, Cristina & Harjunen, Oskari & Saarimaa, Tuukka, 2021. “City-wide effects of new housing supply: Evidence from moving chains,” Working Papers 146, VATT Institute for Economic Research.

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