New economic geography: fewer centers, more edges

from a plane

There’s obviously no room to build anything, anywhere.

October’s Economist Survey on the global economy by Ryan Avent included a shout-out to his Piketty-informed thoughts on housing prices. In short, the productivity gains from current technology have increased inequality between people and places. The returns on specialized skills are worth more in an era of cheap communication and transportation, great cities aggregate many people with such specialized skills –and furthermore, agglomeration effects appear to be growing even as communications costs decline. Even virtual reality won’t be able to replicate the everyday, subtle reinforcement of ambition that great cities provide; as Paul Graham writes:

The physical world is very high bandwidth, and some of the ways cities send you messages are quite subtle… A city speaks to you mostly by accident—in things you see through windows, in conversations you overhear. It’s not something you have to seek out, but something you can’t turn off.

Ideas have become so complex that those with specialized skills need to gather around others with complementary skills just to understand topics, much less to achieve the discovery or innovation stage. And, well, interesting people like one another; not for nothing has “assortative mating” taken off, spawning study of managing “the two-body problem” in fields like academia and medicine. (Hint: bigger cities, with bigger labor markets, are more likely to solve the problem. This has become a boon to universities recruiting in large metro areas, while those in small college towns struggle.)

In short, there are fewer centers and more edges. Scarcity being what it is, the centers (and only the centers) are winning more capital, and the edges are losing.

The result has been a highly uneven reallocation of wealth, whereby some places are winning in the form of skyrocketing property prices. These high prices create a substantial drag on the economy: increasingly high rents in the most productive locations steal from the most productive. This steers:

  1. Capital towards landlords, enlarging a rentier class (as Piketty notes) and starving more productive sectors.* This creates a vicious circle, as the NIMBY cartel further tightens its regulatory capture over the land use regime, and extracts ever-higher rents.
  2. Labor towards less costly, and less productive, places, creating economic losses. One recent study quantified that economic loss to the United States in 2009 at 13% of GDP — equivalent to sawing off the entire state of California.

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This might be worth unpacking further at a later date: Just reforming land-use regulations, or even entirely repealing the “shadow tax” of zoning, still won’t do enough to produce more affordable housing. Even if zoning is reformed to “make more land,” that land’s still subject to construction’s “hard costs,” which are just too high nowadays.

Construction costs have risen faster than inflation, and far faster than stagnant workforce incomes. Slides 5-6 of this presentation [PDF] by Thomas Hoffman from Enterprise points out that even with free land, even the cheapest construction now costs 50% more than the affordable rent for a low-income family.

Sure, embedded within construction costs are other perhaps-useless regulations, but housing affordability in gateway cities is a problem with many root causes, and with many solutions as well.

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* Rent or mortgage principal paid, aka “housing service expenditure,” does not have a multiplier effect on GDP because it’s not factored into GDP. However, it’s worth noting that in 2000, HSE amounted to nearly $1 trillion, which supported only some of the 1.1 million jobs in real estate (NAICS 531). Reducing rental prices would take investment income from landlords and give them back to consumers, who would probably spend in other sectors that generate more jobs per dollar.

Shorts: centripetal force, P3s, office park retrofit

Bubble map: growth in 25-34 population, 2010-2012

Growth in 25-34 population for DC-area counties, 2010-2012, with core jurisdictions aggregated for clarity. 42% of the growth is concentrated inside “the diamond,” which is home to 18% of the region’s population. A similar trend was noted in metropolitan NYC.

1a. Another recent report (by James Hughes and Joseph Seneca, reported by my colleague Stephen Miller) confirms that population growth has overwhelmingly shifted towards the core in the New York region since 2010. Third-ring suburban counties like Dutchess and Hunterdon are actually losing population, overall suburban population growth has slowed by 80% — and the core is on pace to recoup its entire 30-year postwar population loss (1950-1980) in just one decade (2010-2020).

Also echoed: a much larger proportion of young people (20-somethings) are heading downtown. “From 1970 to 1980, suburban counties captured 96 percent of the growth in this demographic. From 2010 to 2013, that figure dropped to 56 percent, with the urban core becoming increasingly competitive.” Since the report is from Rutgers, it defines “core jurisdictions” as including Hudson, Bergen, and Essex counties.

We’ve seen these trends reported in a national (PDF) and even DC context, but it’s worth noting since the NYC area is so huge and its economy has done well since 2010.

2. This week fall, Streetsblog USA will be publishing a three-part article I co-wrote with Angie Schmitt about what befell the Indiana Toll Road P3. Bad timing and bad traffic projections were just the tip of that iceberg.

3. Jonathan O’Connell from the Post reported last week that a new Fairfax County school was repurposed from an abandoned office building.

It’s a clever response to the changing Skyline/Bailey’s Crossroads neighborhood, where an aging housing stock and distance from transit have created a Toronto-esque high-density suburban immigrant enclave. Larger immigrant families have pushed up population density and school enrollment; retail is thriving, judging from the continued traffic jams and low vacancy rates. At the same time, office users have engaged in a “flight to quality,” towards newer and more efficient buildings closer to transit.

What’s more, the cost was very competitive. Fairfax spent $19 million in 2014 to buy and refit the building for 800 students (granted, a few amenities are still forthcoming) — which is right around the national median cost for a greenfield grade school in 2010.

LocationAffordability’s denominator problem

Location Affordability: numerator problem

HUD’s LocationAffordability.info, which maps CNT’s H+T Index ([housing + transportation costs]/income), shows a sharp affordability divide slicing across Maryland’s suburban heartland, from the northwest to the southeast. This particular example emerged while I was researching yesterday’s Streetsblog USA post about the Citizens Budget Commission’s report citing DC, SF, and NYC as being rather affordable from an H+T perspective — but using some slightly odd figures.

Here, I’ve highlighted Crofton, Maryland, just inside Anne Arundel County, with apparently more affordable Bowie just inside Prince George’s County next door. Curiously, though, costs are $700 higher in Bowie, but it’s still deemed “more affordable.” How? Prince George’s is within metropolitan Washington, where median households have incomes $10,000 higher than in metropolitan Baltimore, which includes Anne Arundel.

The added irony: median household incomes in Anne Arundel (again, metro Baltimore) are quite high: $14,000 higher than in Prince George’s. Similarly, Howard County (Clarksville, Columbia) is Maryland’s wealthiest, with median household incomes $12,000 higher than in neighboring Montgomery (Olney, Gaithersburg). Although Anne Arundel and Howard derive much of their income from their legions of Washington commuters, they do border Baltimore County and the Maryland state legislature has designated them as part of metro Baltimore. Thus, for the H+T Index’s purpose, they’re comparatively deprived.

The H+T Index is a useful tool, but it does rely on a lot of moving data points. In this case, it’s a bit strange that the numerator (H+T costs) are defined by a very small geography (census tracts in the map, cities in the CBC report), but the denominator (income) is related to entire metro areas. While it’s true that labor markets are metropolitan in scale, it’s also true that incomes vary locally just as much as housing and transportation costs do.

Why inclusionary zoning has a cash-out provision

Daniel Kay Hertz has a recent post about how Chicago’s inclusionary zoning (IZ) policy is insufficient at creating enough units to meet Chicago’s affordable housing needs.

Montgomery Ward Complex

Some of the loft condominiums within the former Montgomery Ward Catalog House, where one penthouse unit sold last October for $2.95 million, were set aside as public housing replacement units.

When I was working for the Chicago Rehab Network 11 years ago, I wrote up the broad outlines of what was eventually adopted as Chicago’s IZ policy. I certainly concur that it is not going to solve the affordability crisis in Chicago anytime soon, but I still think it’s a reasonable approach to providing workforce-level affordable housing within the context of how Chicago builds housing — and once it was implemented, IZ multiplied the number of affordable units that Chicago’s Department of Housing could take credit for (primarily through LIHTC).

During the process of drafting this policy, we anticipated and understood that IZ would absolutely not be a cure-all, regardless of how future politicians would try and take credit for it. Furthermore, as Alex Block points out in a comment to the post, IZ absolutely does attempt to do two, contradictory things: (1) integrate gentrifying neighborhoods by creating new, permanently affordable units and (2) creating as many units as possible.

Since CRN is a coalition of CDCs, almost all of whom work exclusively in poor neighborhoods, the CDCs stood to benefit more from approach #2, and so the law probably errs in that favor. Even CRN’s members who worked in fast-gentrifying neighborhoods, though, would rather have served two families in Oakland than one in the South Loop, and the cash-out provision allows them to do so. I certainly don’t blame them, even if the net result does to a small extent perpetuate socioeconomic segregation.

As part of the process of creating this legislation, we conferred with developers of both low-rise and high-rise units, who shared their pro formas with us, and with very extensive research done by groups like MPC and BPI, mostly relying on established policies in primarily low-rise places like Montgomery County, Md. and Burlington, Vt. We saw very few examples of successful policies that worked in a high-rise context. And since a large share of the development in Chicago, then as now, was in downtown high-rises, we needed to find some way to get buy-in from high-rises.

In short, affordable units within high-rises turn out to be very difficult to create and administer. High-rises are costly to build per square foot, and there isn’t much latitude to trim the costs through things like unit sizes and finishes. Most crucially, high-rises are subject to numerous cost thresholds, beyond which the primary incentive of IZ (“free land” in the form of higher density) can become worthless — e.g., a 7-story building is actually far less profitable than a 6-story building. And once a high-rise is completed, it’s difficult to balance the operating costs of luxury amenities (concierge, pool, etc.) across market and affordable units, which has recently been in the news with the “poor door” controversy. (This is somewhat less of a problem in MoCo, since the Washington area’s very high AMI allows for luxury studio apartments to be counted as “moderately priced dwelling units.”)

So, given these difficulties — and given the CDCs’ thirst to capitalize a housing trust fund that could significantly expand their efforts at helping low-income families in neighborhoods (rather than moderate-income singles downtown), we went with the “cash-out” provision that pretty much exempts downtown high-rises.

As for exempting small developments, that’s solely related to the fact that the requirement kicks in based on the number of units, and it’s impossible to deliver a fraction of a housing unit.

It’s not just a phase: urban population dynamics have changed

National Park Seminary new EYA townhouses

EYA townhouses in Forest Glen, Md.

Ben Adler from Grist wrote about a recent NYT trend piece about how suburbia is hollowing out, with few young families to replace the empty nesters. He puts too much emphasis on gross migration and population change, without drilling into how those components have been changing:

A handful of coastal and upper Midwestern cities are attracting more young professionals than before and are retaining them for longer… Even where gentrifiers are moving in at a pace sufficient to reverse outmigration, they’re barely making in a dent in reversing the tide.

Migration population losses from cities paint an unnecessarily dire view of urban prospects. There is a good reason why large metros would tend to lose people to domestic migration — and, for the 20th century, pretty much always did. A statistically significant group of young people move to large cities, get married there, have kids, and then move away in search of more appropriate housing. Two people move in, three move out: presto, population “loss,” even though the same number of people moved in and out. Similarly, for decades a steady flow of retirees southward, away from large cities, was a good thing for society — an indicator that healthier seniors were physically able to move, rather than remaining house-bound.

Yet long-established movements like these (plus shrinking household sizes, plunging overcrowding, the twin crises of deindustrialization and crime, and employment displacing relatively dense central-city residential), may have largely run their course.

Yes, this does indicate that “the school problem” remains,* but indications are that cities are attracting more young people, and retaining them for more years. This is occurring both before and after the critical life milestone of marriage: new households are overwhelmingly singles, couples, and unrelated persons. Whereas many of the 1950s pioneers who settled what are now inner-ring suburbs were young families headed by 20-somethings, or maybe 30-somethings, today many married couples (without kids, or with young children) stay in the city for longer.

Here in DC (where the city’s small size and overwhelmingly post-industrial nature makes the demographic transition especially sharp), Carol Morello from the Post observes:

the number of children younger than 5 has grown by almost 20 percent, from 33,000 to 39,000, according to census figures. In the same time span, the number of children ages 5 to 13 rose 7 percent. But there were fewer children 14 and older, suggesting that many parents still choose to leave the city when their children reach high school.

This also shows up anecdotally, as in the NYT’s quote of a Westchester County official (“Parents used to be 35ish, now they’re 45ish. What we’re seeing is not so much an exodus as a later arrival”) and this observation (at a recent ULI conference) by the biggest developer of townhouses inside the Beltway:

Within the DC region, the geographically compact core (about 3% of the region’s area) accounts for a huge share of net growth of 25-34s. (Drawn from 2010-2012 ACS.)

A larger share of households spending more years living in the city is a marginal boon to cities’ residential market share. Few Americans live in one place for life, anyways, but imagine the implication for apartment owners as their tenant pool both grows in size and stays longer.

Meanwhile, population decline hasn’t hurt some urban areas (like my old neighborhood of Bucktown, where densities on some blocks have fallen 90% since their WW1 peaks, and continued falling in recent years). These can feel more lively and active than ever, even with much-reduced populations, because incomes are way up. More disposable income can substitute for a smaller population; retailers look for underserved pockets of spending power, not necessarily people.

Yes, at the end of the day, cities need to provide homes for a growing global population and so should welcome growing populations. However, gross population shifts need to be disaggregated and viewed cautiously.

On another note entirely, I’d like to honor the recent passing of Donald Bogue, 1918-2014, who taught me much of what I know about demographic processes. (My “Relocated Yankees” paper was done as a final project for his class.) Even though he was well into his eighties when I took his class, his approach was the best of UChicago: thoughtful, broadly read, engaging, and kindly critical, and he helped to tie together a lot of loose ends that I’d thought about for many years. He leaves behind a tremendous published legacy — scores of publications in the Library of Congress, for instance — and his work on topics like Skid Row still has strong resonance in planning today, for example in understanding the historical intersections between homelessness and place.

* Don’t look at me for any answers; this isn’t a school policy blog.

Shorts: parking craters, carbon tax, Census tools

toys

Urban renewal in New Haven created a “towers in a parking lot” environment, replacing its lower-scale past.

Several springtime shorts:

1. My Streetsblog post about Chris McCahill’s parking research got a strong reception last week:

Streetsblog recently spoke with Chris McCahill of the State Smart Transportation Initiative in Madison, Wisconsin, to learn about his research into how parking affects small cities’ downtowns. Most recently, McCahill and his co-authors have shown how policy makers’ preoccupation with parking not only hollows out city centers, it also decimates the downtown tax base.

2. In carbon tax news, DC residents Christine Lagarde and Jim Yong Kim (who might know a bit about economics and taxation) both endorsed a carbon tax shift at last week’s IMF/World Bank Spring Meetings, per a report from the Sydney Morning Herald. Meanwhile, revenue-positive carbon tax legislation was introduced in California.

3. Three neat online Census tools for future reference:
Demographics around a point, from Census 2010 (so, alas, limited to the short form, but useful for gross population)
Shift-share analysis, to see how your area’s job creation in various sectors leads/lags its peers
Economic development cluster mapping, identifying geographic concentrations of firms by NAICS code and county

Modernist town founder urges evolution, not stasis, for his jewel

Reston: Lake Anne Village
[Nobody’s around to sit with Bob by the shores of Reston’s Lake Anne.]

One new fad insists that Modernist urban plans were designed as totalizing works of art, and thus should be frozen in their as-built, “apex” condition. That’s even though such places often were never built to their originally planned capacity, and almost always fail to draw the crowds that were promised. However, most of the auteurs who dreamt up and built these places have passed on, and we thus have no way to ask them whether their plans were truly end-state designs, or whether they were starting points for natural urban evolution — whether the founders hold more sacred either the intent, or the letter, of their plans.

Tom Jackman from the Post gets a word in with Robert E. Simon, one of the few long-lived Modernist visionaries who still plays an active role in his built creation:

Redevelopment is also in the works for Reston’s original centerpiece [link], the Lake Anne Village Center, including the addition of 800 residential units nearby. That, Simon said, ‘is an answer to a prayer’ because more than anything else, he still wants Reston to one day be a true walkable community… Of the seven village centers that Simon envisioned as creating a sense of community, only Lake Anne resembled that vision of shops, businesses and housing in one place. His hopes for multiple high-rises never materialized, so Lake Anne’s retail shops gradually fell into decline or closed… Simon remains convinced that village centers can create the community that makes Reston distinctive and is thrilled that a developer plans to remake Lake Anne Village Center, where Simon lives. The plan will replace an 180-unit apartment complex with 1,000 townhouse and apartment units, a concept on which Simon was consulted.