Globalization and the truthiness sweatshops

A few years ago, American authors like Winnie Wong and Peter Hessler stumbled across a curious phenomenon: Chinese towns that applied the mindless logic of mass production, backed by China’s unparalleled ability to conjure up entire industrial-scale supply chains from thin air, to an improbable export — schlocky oil paintings, often stroke-for-stroke knock-offs of museum treasures. These towns aren’t the colorful and carefree artists’ colonies of our imaginations (such places have largely been gentrified or touristed into oblivion); instead, they’re still dreary factory towns, complete with migrant peasants being worked to the hilt. Wong profiled the village of Dafen, one of the chengzhongcun (urban villages) embedded within the sprawl of metro Shenzhen. There are certainly fascinating original artists working within China, and zero-talent hacks passing off “art” in the West, but frankly I’m not sure what to make of mass-produced creativity.

It’s a through-the-looking-glass version of the idea that cities can structure their growth around cool “creative class” agglomeration economies that turn out stylish, disruptive innovations. Of course, that assumes that customers want tasteful products — a point Barnum disproved.

Now comes word that painting isn’t the only labor-intensive “creative” industry that’s ripe for export, provided the aesthetic qualities get dumbed down along the way. It turns out that the clickbait that passes for social-media “news” has also been dumbed down to the point where it can also thrive inside a sweatshop, rather than a fancy newsroom. For instance, Macedonian child-labor sweatshops churn out truthy clickbait, according to a report from Craig Silverman and Lawrence Alexander in Buzzfeed. A few countries to the east in Russia, a cottage industry of basement-dwelling trolls (backed by an army of bot brethren) intentionally lobs multilingual insults around the globe to sow discord and upset democratic consensus.

Globalization didn’t just flood the world’s markets with cheap (and poorly made) toys, clothes, and electronics. Now it’s flooding the world’s markets with cheap (and poorly made) content, as well.

Idle speculation: Where could Uniqlo fit downtown?

Since the earlier edition of Idle Speculation was so popular, here’s another.

The area’s first Uniqlo will open today at Tysons Corner Center. Even though it’s throttled back its expansion plans in the USA, the Japanese apparel retailer says “it will continue to shutter unprofitable stores located in suburban malls and focus on opening more flagship stores in urban centres.” So now that they’re in this market, where could an urban flagship land?

Uniqlo Army

SF Union Square, by Todd Lappin via Flickr

First, how large would the store be? The flagship on Chestnut Street in Center City Philadelphia has 29,000 square feet, mostly on the lower level. By comparison, the Denver Pavilions store (also opening this week) is only 17,000 square feet on two levels. Finding a space that large within downtown DC is tough, especially given that many of the office buildings there were built with office tenants, not retailers, in mind.

However, two storefront museums have or soon will vacate their spaces in tourist-rich area around Gallery Place. How do these stack up?

The more prominent location is the Spy Museum site at 800 F St NW, owned by Douglas Properties. 27,231 square feet will be available, directly opposite the Portrait Gallery and with a prime F Street address (down the street from J. Crew, Anthropologie, Zara, Ann Taylor, H&M, Banana Republic, and others), once the new spy museum opens in late 2018. However, the Spy Museum space has several strikes against it. Not only is it not possible to open a store until 2019, given construction timelines, but the interior was assembled from several rowhouses and thus has many partitions and level changes. While these are easily hid with a museum buildout, they’d result in a costly and complex renovation for a larger-format retailer who wants to keep sight lines more open. The leasing flyer seems to indicate that Douglas agrees, and would rather lease the space as four spaces ranging from 1,871 to 11,401 square feet.

Slightly less prominent, but perhaps more likely, is Terrell Place, the former Hecht’s department store at 7th and F (with Rosa Mexicano at the corner). The space vacated by the Crime Museum is now available, with up to 8,762 square feet available at street level on 7th St. What’s more important is that there’s at least 11,482 square feet available in the basement — potentially expandable to 52,751 square feet by shifting other stuff around the basement.

Which raises another possibility: there might be other office buildings in the area where vacant or underutilized basements or second floors could be added to small ground-floor spaces to yield 20,000 square feet. It used to be that landlords made all the money on offices, and only retailers selling steaks, sandwiches, sundries, or savings accounts were brought in to serve the worker bees. Now, downtown finally has the foot traffic to support real retail, and the supply is beginning to catch up.

Friday photo: The old new towns


Excerpted from Letitia Langord and Gwen Bell, “Federally Sponsored New Towns of the Seventies,” Growth and Change 10/1975.

Earlier this week, startup incubator Y Combinator made a bit of a splash by hiring a lolcat entrepreneur to work on its “New Cities” program. The entire endeavor appears to be completely ahistorical. So, in an effort to help them out, here’s a reminder of the last time someone (the federal government) splashed out a lot of money to build cities from the ground up in America.

It’s worth noting that, 40-some years later, only The Woodlands has evolved into something resembling a city, with its own economic base — but probably due to its location in metro Houston, which sustained population growth of 20%+ per decade from 1970 through 2010. Several of the others remain half-built, pleasant-enough bedroom communities, and a few of them hardly ever got off the ground.

It turns out that city-building, and especially economic development, is an iterative, incremental process that’s highly resistant to shortcuts. Yes, economic booms do happen in unexpected places, but almost all of those are associated with large institutions and relatively unskilled labor. Re-creating the intricate economic interdependence of a 21st century metropolis will prove a monumental challenge, especially in an era of subdued labor mobility.

WMATA night service testimony

Sent to the WMATA board via CSG’s template:

I am Payton Chung, a regular Metrorail rider and chair of the DC Sierra Club’s smart growth committee (although I speak for myself). I use Metro both late at night as well as on weekend mornings (when the Sierra Club begins day hikes), and I oppose a permanent cut in Metrorail’s hours.

If the service-hour cuts become permanent, Metro will have more limited operating hours than any large US rail transit system, and at lower evening frequencies. Metro should learn from how other major US rail systems perform inspections and maintenance without shutting down the entire system. I lived along the Blue Line in Chicago, which is a two-track line (parts of which were built 100 years ago) that operates 24/7. When track maintenance is done (and a major renewal is underway presently), it is done by suspending service on part of the line and providing shuttle buses.

In that spirit, I understand that temporary service suspensions may be necessary from time to time. However, these suspensions must be of limited duration, must be outlined clearly in advance, must achieve specific maintenance and repair goals, and absolutely MUST be paired with adequate alternative service. The Coalition for Smarter Growth has outlined several principles along these lines.

Metro already suspended late-night service months ago without providing replacement bus service. As a result, Metro has been wasting money running nighttime buses that begin/end their routes at shuttered Metro stations like Pentagon, King Street, and Rhode Island Avenue. Regardless of WMATA’s ultimate decision regarding service hours, this farcical and inexcusable situation must end.

Thank you for the opportunity to address the region’s critical mobility needs.

Idle speculation: downtown Brunswick, Pierce School

Some people watch “House Hunters” for hours on end, and others peruse Curbed to imagine themselves inside huge mansions. Personally, I’m partial to idly imagining what could happen with those quirky old buildings that show up on the commercial listings.

brunswick

Rough outline of the two Brunswick properties. (Pictometry, via Bing Maps)

1. The property: Two business-zoned buildings on the main street of Brunswick, Maryland, a commuter-rail town that’s 15 miles to Frederick or 18 miles to Leesburg. The train trip to Washington Union Station is about 90 minutes, or it’s a a good bike trip — 55 miles up the C&O towpath from Georgetown, or via the W&OD and pretty country roads from Arlington. Brunswick has an almost-intact core of historic houses and shops, perched above the Potomac River, with great views of hills and woods and a railyard (yay). It’s a railroad town that was incorporated only in 1890, so its detached frame houses have an unusually Midwestern feel. There’s free weekend parking at the MARC station, at lower left in the photo.

  • 3-story (plus walk-out basement) main street commercial building at 102 W. Potomac St., $875,000. 14,000 square feet in a 1908 Romanesque Revival building. Includes mid-block gravel parking lot, which is beside this building and behind church.
  • Former New Hope United Methodist Church, 7 S. Maryland Ave., $450,000. 15,000 square feet in a 1851 building facing a side street, including a 200-seat chapel (on left, gabled roof) and a 1,300 sq ft fellowship hall (I’m guessing that’s on the right, under the flat roof).

The problem: Brunswick is cheap, but it’s just a bit too far from the metro area to draw commuters (45 minute drive to either Dulles or Rock Spring), and it’s not exciting enough to be a day-trip destination. Old churches are expensive to reconfigure and maintain, and churches can be picky sellers. The commercial building is priced well above its assessed value of $571,800. The buildings’ configuration puts 3/4 of the space at ground or basement level, which is problematic given the limited market for retail.

Suggested buyer: An inn-restaurant catering to food/wine tourism, using the McMenamin’s model. Brunswick is accessible by commuter rail and highway, and sits between the renowned and thriving wine/beer/cider industries of Frederick County and Loudoun County — which have surprisingly few non-auto-oriented lodging options for weekend tourists. (Besides some B&Bs, Leesburg has one inn.) Downtown Brunswick is sleepy, but has signs of life: there’s already a brewery a block over, a coffeeshop in an adjacent old church, a B&B two doors down the side street, and a railroad museum. The building has event spaces, a catering kitchen, enough space for about 15 rooms upstairs, and on-site space for deliveries, tour buses, etc.

An alternate plan: the Potomac Street building might pencil out as loft apartments upstairs and a production-on-premises retailer (e.g., these neighbors) in the lower floors.

2. The property: Former Pierce School, 1375 Maryland Ave NE, Washington, D.C., $7,250,000. This decommissioned public school, just a block from the Atlas Theater and H Street, achieved some notoriety when it was last on the market in 2014 [WSJ, UrbanTurf]. A multifamily developer bought the old school and converted it to 10 units — seven normal-sized loft apartments, two flats in an adjacent house, and one absurdly tricked-out, 9,500-square-foot penthouse with ceilings up to 32′ high, five bedrooms, an office, a screening room, and a roof deck.

The problem: The (correct) thinking in 2014 was that the property fell through the gap between two kinds of buyers: landlords and upper-bracket homebuyers. As the seller told UrbanTurf, “the penthouse unit, being so large, does not appeal to a traditional multi-family buyer, and the many folks that wanted the penthouse did not want to be bothered by rental units.” (As the real estate saying goes, “fall in love with your pro forma [spreadsheet], not your project.” Oops.) The asking price has gone back up, after having fallen to $6.5M, and even at the lower price DC’s rent control limits the upside.

Suggested buyer: A boarding-house, perhaps run by a national cultural institute that wants to foster international artistic ties, or a particularly wealthy commune (er, co-living arrangement). As hinted above, the RF-1 zoning doesn’t permit subdividing the penthouse into smaller units by-right; it would have to be rezoned (a contentious process) and then major construction would ensue. But since the building was a school, there are unusual uses permitted under its zoning (PDF):

  • Art center, incubator, or school; local serving community service use (sec 252)
  • Boarding house, maximum 8 residents, minimum 3 month stay (sec 301)
  • Nonprofit or government uses (by special exception)

The penthouse could be reconfigured as an arts incubator with six resident artists (on 3+ month rotations), with its ample entertaining rooms reconfigured as shared studio/teaching/event spaces. If the penthouse truly requires $12,500 a month (the asking rate when it was put on the market in 2015) to pencil out, it’s a much easier sell as creative office space for $16/sq ft.

Or, with modest reconfiguration, the building could make a luxe university branch campus with offices and classrooms upstairs, and dorm rooms carved from the apartments.

How housing supply/demand imbalance remained for an entire generation

Chuck Marohn puzzled a bit over housing costs over at Strong Towns last week, writing that “You can’t sustain increasing demand while also sustaining increasing prices and increasing supply.”

Wiltberger St NW

Would you pay $700/sq. ft. for this 2-bedroom alley house? Somebody did, paying 170% above its 2006 tax value. Sure, valuation growth like that isn’t sustainable, but what about our cities is?

You can if (1) demand grows just a bit faster than supply, or if (2) incomes are growing, or if (3) slightly more income can go towards housing — and certainly so if all three occur. Indeed, all three of these dynamics have sustained housing price inflation in gateway cities over the past generation.

This inflation has been politically possible because many existing residents (and thus voters) are sheltered from the resulting affordability crisis. Only a minority of people are exposed to housing affordability; most current residents are sheltered from price increases, having purchased or rented their housing at yesterday’s market prices. It’s pretty much only in-migrants who have to pay today’s housing prices, and since they’re migrants, they don’t vote. In-migrants are also a surprisingly small share of Americans: in any given year, fewer than 3% of Americans move across state or national borders.

1. Between job growth, smaller households, and natural growth, housing demand is increasing faster than population (and construction) in many metro areas. This has been the case in California for decades; the LAO’s 2015 paper estimates that since 1980 (my entire lifetime!), California has built 100,000 fewer units every year than it should, and yet (a) demand to live in California continues, although definitely abated; (b) prices have skyrocketed; (c) construction has added some new supply.

2. Median incomes nationally have been flat for the past generation, but incomes in the richest gateway cities have been soaring — especially at the top of the distribution, due to rising inequality. The minority of households that are exposed to high prices may very well be able to afford those prices in these cities, explain Gyourko, Mayer, and Sinai in their paper on ‘superstar cities’: “Recent movers into superstar cities are more likely to have high incomes and less likely to be poor, than recent movers into other cities… In short, residence in superstar cities and towns has become a luxury good. The cities’ increases in housing price appear to outstrip known productivity increases and the value of any additional amenities.”

Since only a small proportion of housing units trade hands each year, cities with rising incomes at the top and relatively few houses available (e.g., the “superstar cities”) see “new money” outbidding others for those few units, pulling prices up. Because house prices are based on comps, prices for other houses also rise. As Matlack and Vigdor write, “In tight housing markets, the poor do worse when the rich get richer.”

I know this seems insane, but income inequality has gotten so far out of hand that in many cities super-luxury housing is under-supplied, with tremendous consequences all the way down the housing ladder. There are over a thousand Bay Area households with million-dollar bank accounts for every single house that came on the market last year in Atherton, the choicest of Bay Area towns. Hence, house prices in Atherton have doubled in four years.*

3. Metro economies have evolved in lots of small ways to cope with higher housing prices at the margin. At first glance, “the poor will always be with us,” but in reality metro areas differ very substantially in terms of their economic makeup. Having moved from low-cost Chicago to high-cost DC, I’ve noticed that this slowly-accumulating, giant gift to high-cost-regions’ landlords has been cobbled together by squeezing a few dollars here and there from other sectors:
– Higher labor costs: the minimum wage here is about 15% higher, and high-labor-input services (like haircuts) cost substantially more here, because the staff earn more.
– A shift towards higher-wage work and reduced labor inputs (see #2 above). There are, of course, lots of well-paid jobs in DC; nearly half of households here earn over $100K. Many dual-income “power couples” who have no problem with the local cost of living. But there are surprisingly few on-site support staff for them, and instead there’s often off-site help. Even in labor-intensive industries like restaurants, on-site prep work can be minimized by relying on commissaries and distributors based in cheaper cities. (You can forget about Jacobsean “import substitution.”) Anecdotally, I’ve heard that employers are willing to make do with thinner staffing here than elsewhere.
– People work more; DC’s female labor force participation rate is 15% higher than Chicago’s.
– Housing itself can’t be substituted (everyone needs somewhere to live), but houses can be. People downgrade their locations or living standards, living in smaller or lower-quality housing units in less desirable neighborhoods than they otherwise would. They also “pay” for housing with long commutes, often from what are technically other metro areas.
– People borrow more. DC has more mortgages and higher student-loan bills than any other metro.
– People spend more on housing, and less on other goods and services. Brookings’ Natalie Holmes notes that the 20th-percentile unit in DC costs 48% of a 20th-percentile income, vs. 38% for a 20th-percentile individual in Denver.

That these coping mechanisms exist by no means implies that high prices are benign. From a local economic development standpoint, high housing prices don’t just deter potential employers, but also vacuum up dollars that could be more useful elsewhere in the local economy. Rent checks, unlike haircuts or restaurant meals, don’t have big job multipliers. As a Global Cities Business Alliance report puts it:

Citizens are spending money on accommodation that they would readily divert to goods and services if their housing costs were lower… the money ‘trapped’ in the housing market runs to billions… Unleashing this spending would in turn boost business revenues and create more jobs. Assuming that businesses were to channel all additional revenue into employment, we estimate that Beijing could generate more than 400,000 new jobs, Mexico City more than 200,000, São Paulo more than 143,000, and Hong Kong nearly 148,000.

* Chuck’s follow-up post posits that property owners are speculating on upzoning. This line of reasoning is beloved by so-called “SF progressives,” who relish pinning the blame for everything upon evil, greedy developers and the obnoxious “kids these days” who inevitably fill their apartments. Yet this densification/speculation theory cannot explain the skyrocketing housing prices that are at the very epicenter of America’s metro affordable housing crisis — in places that have zero multifamily growth and zero transit investment, but LOTS of high-wage jobs, like Atherton, Menlo Park, and Palo Alto in Silicon Valley, or Chevy Chase in Maryland, or the Hamptons. Atherton is the most extreme example: the town banned all multifamily housing and sued to stop transit, and yet house prices have doubled in four years.

Perhaps, instead of transit-oriented speculation, exclusionary, single-family-only snob zoning has left supply and demand imbalanced. Believe it or not, the demand for $3M houses in Atherton vastly exceeds the supply of $3M houses, so the $3M houses have been bid up to become $6M houses. I know this seems insane, but there are over a thousand Bay Area households with million-dollar bank accounts for every single Atherton house that came on the market last year.

There are also many fashionable urban neighborhoods where housing prices have spiraled even while housing unit density is declining: the demand for mansions is so high that humble apartment buildings get demolished for glamorous single-family houses. (Once again, life imitates the Onion.) This was even the case in my onetime home of Bucktown in Chicago, where the ward boss infamously handed out spot rezonings upon “request”; in theory, these could have been used to add units, but in practice the McMansions just got fatter.

Some guesses as to implications of autonomous vehicles

Autonomous vehicles, driverless cars: ask two people what they think, and it seems like you’ll get three opinions. Here are my reactions to four recent publications on the topic — keeping in mind that previous reports of distance’s death were an exaggeration. (As CBRE’s Revathi Greenwood notes, vehicle speeds won’t change, and so Marchetti’s Wall still remains. Even if the drudgework of driving is taken away, travel time still has a cost, and we’d rather be at our destinations already — e.g., “are we there yet?”)

WSJ (columnist Christopher Mims):

  • AVs will be limited to small areas for the foreseeable future. “We’re likely to see vehicles that don’t require drivers but can only operate on a fixed, well-mapped route in cities with fair weather… the consensus of those I interviewed is that it will be many years before we get cars that can truly go anywhere.”
  • Existing trials (Singapore, Pittsburgh, Babcock Ranch), which are limited to relatively small, intensively researched areas that are frequently remapped. Level 2/3 autonomy will remain limited to expressways, which have a protected ROW.
  • Echoes some of Recode’s timeline (perhaps similar sources were interviewed).
  • Takeaway: Autonomous shuttles will appear within campuses, urban districts, and planned communities, initially as “walk extenders.” “Robot valets” will enable more remote parking and reduced parking footprints. Freeway driving may shift to autonomy, but uptake is limited by consumer acceptance (see next).

Kelley Blue Book consumer survey:

  • Americans are still broadly uncomfortable with the idea of Level 5 autonomy.
  • Level 4 autonomy is most popular with current US consumers, who still want to be able to take the wheel. Level 3 seems less comfortable than Level 2.
  • However, key early-adopter groups feel more comfortable with complete autonomy: luxury car buyers, consumers with experience with Level 2 AVs, and people used to the backseat: ride-hailing customers and teenagers.
  • Takeaway: The transition to AVs is dependent upon social acceptance, and currently many Americans want to maintain the status quo. The transition might take a while (more Americans will have to try AVs), but may be steep once it happens.

Rocky Mountain Institute forecast:

  • Mobility services in major US metros are a potential $120 billion annual market by 2025, including $60 billion just in large Sunbelt metros.
  • Because AV and EV technologies reduce operating costs and increase capital costs, they will find broad acceptance in high-utilization fleets first, where their low costs will subvert the individual-car-ownership paradigm. (2017’s EVs will be cheaper for fleets than gas cars.)
  • AVs will cut the cost of rides by 60% to be cost-competitive with car ownership by 2018, with another 60% decline in costs as economies of scale are realized. The switch from personal cars to AV fleets will occur between 2020-2025, with long-term demand for cars falling to ~6 million.
  • Lower mobility costs will result in a $1 trillion annual consumer surplus to be spent on other sectors. (Keep in mind that spending on autos has a low multiplier effect.)
  • Even if VMT doubles and more power plants are built, these two technologies will result in sharply lower CO2 emissions (nearly -1 GT CO2E by 2040 = ~13% cut in today’s emissions).
  • Takeaway: Parking demand may sharply decline, but what parking is left will need significant EV infrastructure. Loading/valet zones will quickly need to be implemented. Consumer spending on cars could be pivoted to other spending, like higher-quality real estate.

City Observatory (Joe Cortright) [part 1] [part 2]:

  • RMI’s cost estimates of <$0.50/mile are roughly in line with other published estimates, with lower costs associated with smaller/lighter vehicles. This is lower than the per-mile cost of not just driving, but even short transit trips.
  • However, $0.50/mile is much higher than the perceived $0.15-$0.20/mile marginal cost that most Americans assume for private-auto trips. (Most Americans only consider the cost of gas when driving; costs such as depreciation/wear, insurance, repairs, monthly parking, and wasted time are all considered sunk.)
  • “Pay by the slice” mobility, like car-sharing, tends to encourage shorter trips. Pricing will probably be more, not less complex, with various “surge” surcharges that use information to optimize the balance between travel demand and supply.
  • Rush-hour capacity will still be an issue, especially in high-density downtowns. Rail transit, walking, and cycling will still move more people in less space.
  • Takeaway: Mobility won’t be “too cheap to meter,” as optimists once said of nuclear electricity. As such, central locations will still matter, even if price differentials flatten somewhat. (TNCs are already “filling in the lines” between transit corridors and increasing the value of secondary urban locations.) Whether dense downtowns built around rail/walking remain useful is an open question.

What everyone agrees upon is that this is the first huge shift in metropolitan mobility since the 1940s-1980s shift towards mass car ownership. It’s important to remember that American suburbia is a political and social construct, not a fact of life, and that policies put into place immense structural supports for American suburbs.