The Week Observed, November 19, 2021

What City Observatory did this week

Why we shouldn’t be whining about higher gas prices. Gas prices are going up, and it’s annoying to have to pay more, but let’s take a closer look at how much we’re paying for gas. Even with a recent uptick, gas prices are still lower than they were a decade ago. Cheap gas is burning the planet, and undercuts all of our efforts to lower greenhouse gas emissions. In real, inflation-adjusted terms gas prices are still more than $1 per gallon less than they were from 2011 through 2014.

Cheap gas prices depress transit ridership, encourage more driving, lead consumers to buy less efficient vehicles and more SUVs, and undercut efforts to encourage transport electrification. US gas prices are still only about half of what they are in most European countries.

Must read

1. Housing policy advice for states. Around the country, states are rethinking the policy framework they put in place that governs local land use decisions, with an eye to easing housing affordability. Housing policy is complex, and some simple prescriptions turn out to be bad medicine. Brookings Institution economist Jenny Schuetz has some succinct advice for state policy makers. Here are four things to keep in mind:

Base policy on a clear analysis of housing market conditions
Look to increase supply in high demand locations
Provide financial support for low income households
Use housing policy to reduce climate risk

States have generally delegated so much discretion to local governments that they’ve used it to block development in high demand locations, which has worsened housing affordability, sprawl, and transportation problems and contributes to climate change. As Schuetz observes: “building too few homes in places with high demand has serious economic, social, and environmental consequences for metro areas, states, and the country.” In addition to this short non-technical article, Schuetz has published a longer companion paper that reviews policies in four states, and distills lessons for policymakers.

2. This is what “transit oriented development” looks like. Many US cities are dabbling in increasing urban densities in neighborhoods well-served by transit, but for the most part, the scale of such development is modest, and frequently provokes NIMBY reactions. Vancouver British Columbia, which is building a major extension of the region’s automated SkyTrain system is planning for a much more ambitious redevelopment of its Broadway neighborhood. The plan envisions 30 and 40 story buildings, both residential and commercial. The development would create a kind of second city skyline South of False Creek.

This is more than just about tall buildings: it’s about accommodating tens of thousands of new residents and workers in a dense, walkable urban environment.

The emerging direction of the densification strategy calls for increasing Central Broadway’s population by up to 50,000 to about 128,000 residents — an increase of 64% compared to 78,000 residents today. This would be achieved by growing the number of homes in the area from over 60,000 today to up to 90,000 units, with much of this is intended to be more affordable forms of housing. Added office, retail, restaurant, institutional, and creative industrial spaces would grow the number of jobs from 84,400 today to up to about 126,000 jobs. These residential and employment targets through redevelopment are for the next 30 years through 2050.

If you’re going to make a public investment in transit, it makes sense to allow and encourage this scale of development to maximize the effectiveness of the investment. Vancouver’s example should show US cities how to think at scale.

3. Yet another induced demand explainer. This shouldn’t even be necessary at this point; the concept of induced demand is now so well-established in the scientific literature that its called the “fundamental law of road congestion.” In dense urban environments, adding more road capacity simply encourages more driving, and quickly results in more vehicle miles traveled and no improvement in traffic congestion. But our highway departments still aren’t learning, and many political leaders have yet to grasp the seemingly counter-intuitive idea that more capacity makes traffic problems worse. Our friends at Transportation for America have a clear and simple explanation of induced demand, and link it to the recently released SHIFT induced demand calculator. They also point out that we can see induced demand, simply by looking in the rearview mirror. Over the past two decades, we’ve added more than 5,000 lane miles of interstate highway.

All the lanes we’ve built have led to a predictable increase in driving. From 1980-2017, per capita vehicle miles traveled (VMT) increased by 46 percent. In 1993, on average, each person accounted for 21 miles of driving per day in those 100 urbanized areas. By 2017, that number had jumped to 25 miles per day. Every year, Americans are having to drive farther just to accomplish the same things we did back in 1993 every day.

Building more roads doesn’t solve congestion, it just generates more driving, more pollution and more greenhouse gases.

New Knowledge

How does Air BNB affect housing markets? Several studies have supported the notion that on-line short term rental services, like AirBNB, tend to push up local rents and may displace existing residents. But that’s just a first-order effect. Higher rents and greater demand in some neighborhoods then prompts property owners to build more housing. A new study published in the Harvard Business Review says that the economic impacts of this induced investment can be substantial.

Concerns about the effects of short term rentals on affordability and displacement have led many local governments to restrict or prohibit such rentals. The variation in these policies over time and across communities provides a kind of natural experiment to see how these restrictions affect development. The study focuses in on variations in building permit activity in Los Angeles County (which has dozens of different municipalities with widely varying policies). The authors compared the changes in building permit activity in jurisdictions that restricted short-term rentals (STR) with the changes in activity in nearby or adjacent municipalities without such regulations. They found that building permit activity was higher in jurisdictions that didn’t restrict short-term rentals.

On the sides of these borders without STR regulations, there were 9% more non-ADU permit applications and 17% more ADU permit applications than on the sides with restrictions. Clearly, demand for STRs has been driving the creation of extra housing capacity in LA, and it’s been especially driving growth for housing that is suitable for home-sharing (i.e., ADUs).

The study suggests that the demand created by AirBNB prompts investors to build more housing in neighborhoods that allow short term rentals. Increased development increases market for local retail businesses and adds to the property tax base and local revenues, effects that can benefit local neighborhoods. The research suggests that we need to take a more nuanced view of short-term rentals. Also: if we’re concerned about affordability and displacement, we might want to look at the whole range of supply constraints, including zoning restrictions, which make it difficult to expand housing availability in the face of increasing demand.

Ron Bekkerman, Maxime C. Cohen, Edward Kung, John Maiden, and Davide Proserpio, “Research: Restricting Airbnb Rentals Reduces Development,” Harvard Business Review, November 17, 2021

In the news

In an interview at New City, Infrastructure Fellow Mike Bloomberg highlights City Observatory’s analysis of the problems with the latest federal legislation, which we’ve labeled the “Bad Infrastructure Bill.”

Next City‘s Sandy Smith provides a nice summary of our analysis of the power of pricing to eliminate traffic congestion in Louisville, Kentucky.

StreetsblogUSA also re-published our analysis of the Louisville highway widening debacle.

What City Observatory did this week

Must read

New Knowledge

In the news

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