Monthly Archives: March 2012

The rent is still too damn high

CC image from Jaybird

A few more thoughts (and links) to discussion from The Rent is Too Damn High.

On rent control:  Mike Konzcal (linking to JW Mason) notes how Yglesias’ book is more or less an endorsement of renting, yet rent control and similar sorts of tenant protections are part of what helps give renters similar levels of stability to owners.  While rent control often gets a bad name because of distortions it can cause in the rental market, the purpose was not explicitly to distort the market, but to provide stability. Mason:

I would just add that a diversity of income levels in a neighborhood is also a goal of rent regulation, as is recognizing the legitimate interest of long-time tenants in staying in their homes. (Not all rights are property rights!) So by framing the question purely in terms of the housing supply, the Booth people have already disconnected it from actual policy debates in a way favorable to orthodoxy. Anyway, no surprise, orthodoxy wins, with only a single respondent favoring rent regulation. (And I think that one might be a typo.) My favorite answer is the person who said, ” Rent control will have similar effects to any price control.” That’s the beauty of economics, isn’t it? — all markets are exactly the same.

Indeed, despite the virtues of renting, many aspire to own just because of that extra measure of stability and control – see Emily Badger in The Atlantic.

Defenses of rent control aside, I think this critique misses Matt’s broader point, which is that the kinds of entities focused on maintaining affordability via non-profit affordable housing development and via rent subsidies and so on should be on the forefront of wanting to grow the overall housing supply – but they seldom are.  There’s a blind spot and a disconnect here. Peter Frase takes Matt’s argument to the extreme:

The problem, here as elsewhere, is that in the tradeoff between social stability and aggregate material prosperity, Yglesias appears to assign stability a value of zero. If people “tend to resist change”, then this is simply an obstacle to be overcome by “state and federal officials”. The ideal type of society that’s evoked here is a perfectly frictionless world of market transactions, one that fully realizes Marx’s comment that under capitalism, “all that is solid melts into air”.

Glaeser’s Triumph of the City suffers a bit from this same problem in its policy descriptions (the ones regarding historic preservation are particularly illustrative), but just because their policy ideas might be a bit extreme doesn’t negate the substance of the analysis. Glaeser’s broad point is that cities are important, density is good, and we’ve severely restricted some of our most innovative and creative places.

On incremental change: Given the huge value current regulations place on maintaining the status quo (providing too much stability in many cases), any changes will necessarily happen at the margins.  They’ll be incremental, not transformative. Even a large change to the procedural environment around these markets will take years to adjust given the current levels of pent-up demand. Frase hints at this:

It’s not that Yglesias’s line of critique is totally wrong—I agree that NIMBYism and fear of change is often an impediment to desirable policies, and I agree that people with generally Left politics often betray a confusion about these issues. But while it’s not desirable to just freeze our current cities and neighborhoods as they are, it’s unreasonable to simply dismiss the desire for stability out of hand. To take this to itsreductio ad absurdam, I don’t think most people—or probably even Matt Yglesias—would want to live in a world where we all had to change jobs and move to new apartments every few weeks, even if such an arrangement would make us materially richer.

On confounding factors in housing markets: Mike Konzcal notes (#2) the major differences in housing price due to other variables beyond just supply and demand – namely, school districts, infrastructure, and all of the other elements of ‘location, location, location.’  The economic comparison requires an assumption of all else being equal, yet it seldom is.

 The quality of your schools, the relationship you have with the police, your ability to move freely and transport yourself, how you’ll be represented democratically, the primary means through which you’ll transfer wealth across generations (if you are a homeowner) and more are all in play even before you get to the economic efficiency, public sphere and social/health arguments about what housing brings.  Perhaps we can reform housing regulations without having to reexamine these issues, but it will be difficult.

Indeed, these kinds of intermingling of various issues is part of what makes zoning decisions so emotional and contentious.

On upzoning: Matt notes two cases where upzoning could be useful (or even just relaxation of existing rules around, say, accessory dwelling units), one about the broader need to increase the overall housing stock:

The question is not whether some fixed pool of people should give up stability in exchange for more money. The question is whether the incumbents should be asked to give up some stability for the sake of other people who are currently excluded from the opportunities the incumbents enjoy. My answer is that yes they should.

Consider the reactions against such increases in the housing stock, often exemplified by those incumbents.  Again, these decisions are incredibly emotional and contentious.  However, Chris Bradford notes how this ability to add supply is working in Houston:

The difference between Houston and a lot of other cities is that it is still easy to add housing in Houston’s nice, central city neighborhoods (unless your project has “Ashby” in the title). There are currently 15 apartment projects with 4,300 units under construction in the Montrose/River Oaks area. That’s not “announced” units; that’s 4,300 units under construction. For point of reference, only 3,089 building permits were issued for housing units of any type in the entire San Jose-Sunnyvale-Santa Clara metropolitan area in 2011.

Houston has a lot of needless land-use controls, including excessive minimum-space requirements and parking minimums,  but there really aren’t many other places in the country where there is both strong demand for infill development and a regulatory environment that freely allows it.

On the direct link to affordability: Matt’s second post takes aim at Arlington, VA:

What you see is a narrow thread of urbanism between Wilson Boulevard and Clarendon Boulevard, with a bit of a thicker blob of urbanism around the Metro station itself. I don’t really want to condemn this development paradigm because if you compare it to other suburban jurisdictions around the United States, what Arlington has done really stands out as practically best in class. But still the fact of the matter is that these single-family homes adjacent to the corridor of urbanism are sitting on some extremely expensive land. If you opened it up to redevelopment, you’d see denser building. Perhaps tall apartments in some cases, perhaps attached rowhouses in others. Opening this up would both bring the luxury market closer to saturation, and also just create some housing that’s a bit less convenient to the Metro and thus perhaps a bit more affordable.

One commenter expresses skepticism about the the ability of new luxury units to actually filter down as more affordable units.  As a counter, I always like to link to Chris Bradford’s posts on the subject of filtering: one here, another one, and a third.

On sprawl and governance: Charlie Gardner notes that growth on any given space has its limits.  Sooner or later, growth can’t just go up, it must go out.

A basic point I’d raise is that in almost all times and places, the solution for urban population growth has not been vertical densification, but outwards expansion into greenfield areas.  Historically, dramatic vertical growth was the product of exceptional circumstances, generally related to the presence of city walls paired with external military threats discouraging sub-urban construction, or the occasional imperial mega-city.  The development of skyscrapers in the late 19th century looked to have the potential alter this longstanding pattern, but for several reasons, greenfield development still remains today the overwhelming source of accommodation for urban population growth.

While I think Charlie is a little too attached to shorter cities (just as perhaps Glaeser and Yglesias are too attached to high rises), the point stands. I don’t recall the source, but I remember seeing a chart estimating the number of New Yorkers who live on the 5th floor or below.  Some very small portion (say 5-10%) lived above the 5th floor (i.e. in mandatory elevator territory).

Indeed, growing outward is natural. It need not be sprawl, since outward growth is only one key part of sprawl. Part of the problem (particularly when discussing regulatory and policy issues) is that of governance – and how our governance structures no longer match the actual economic geographies of our cities.

Some of this is inherently confusing our own terminology in discussing the issue. Mike Konzcal (#3):

There’s a good Foreign Affairs review of Glaeser’s Triumph of the City, which points out the trouble the economics-driven, supply-side housing costs arguments have with dealing with the suburbs.  As someone who read Suburban Nation early when he began to think critically about these issues, I find that a lot of these arguments just focus on city regulations while ignoring the whole existence of suburbs.  Foreign Affairs review:

Glaeser overlooks one of the central issues confronting cities for most of the last century: their competition with suburbs. Glaeser sees the competition as primarily between cities that restrict growth and those that accommodate it…

Getting any traction on this issue depends on defining suburbs.  The Joel Kotkin-esque definitions aren’t really useful, nor do they illuminate the differences between the real economic geographies of cities (that is, their regions) and instead focus on arcane and often anachronistic political boundaries.

None of this even gets at the key points about the regulations and governance structures that lead to sprawl – from Payton Chung:

Here’s the main problem I have with anti-government status-quo boosters: they’re somehow completely blind to how government created the existing situation, but then loudly whine about how government shouldn’t change anything! Not even removing its distortionary supports for the status quo!

On prospects for reform: Ryan Avent circles back to the same issues, albeit by approaching them from a different direction:

At some point, however, we need to stop and ask why the most sensible of ideas aren’t adopted by the American government. It’s not that congressmen are corrupt dolts—they may be, but that’s beside the point. It’s that America’s legislative institutions are not set up to encourage the adoption of the policies opinion editors want to see. Every once in a while an op-ed writer stumbles toward the truth with a “Washington is broken” sort of piece. It is incredibly rare to see a systematic analysis of the incentives facing legislators, which follows its logic through to the end: if Americans want Congress to behave differently, then it may make sense to devote more energy (or, really, energy) to assessing areas of institutional weakness and figuring out whether reform is needed.

 

Links: Metro’s disco inferno; the power of ports

Two items worth sharing:

7000 Series Metro Cars: 

Over the weekend, WMATA released a few pictures and some videos (complete with a soundtrack that would make Michael Bay jealous) of the prototype of the 7000 series, currently under assembly in Japan.

The front end of the cars looks sharp – the black background with the white Metro logo is clean and easily read and identified at a distance.  Compare against a rendering here.

It’s unfortunate that the side doesn’t share the same clean look.  The industrial design of the car body is fine – echoing other transit vehicles (both old and new) with the corrugated steel.  The contrast against the smooth finish at the window levels provides a similar effect to the current fleet’s brown stripe.

The car interiors will feature real-time strip maps showing the next stations on the line – early commentary has focused on misspellings.

While the old paint scheme (essentially just the brown stripe) might seem a little dated, the future cars feature this “disco ball” motif around the Metro logo, both inside and out.  It’s an upgrade from the hideous “America’s Metro” debacle, but still feels like it will be dated quickly.  The large penumbra around the M means that the disco ball on the exterior is centered on the entire carbody, rather than having the M aligned with the windows, as it is now with the brown stripe.  The front end of the 7000 car shows the crisp M logo well – I’m not sure why they didn’t keep the same approach with the sides and resorted to this disco gimmick.

The importance of ports: 

As each of those new Metro cars is manufactured, they’ll be shipped to the US for final assembly – likely arriving in some large port complex. Will Doig has an interesting article on the battles over waterfront land between maritime uses and real estate interests:

The problem (if you can call it that) is that this is happening just as the maritime industry is booming, thanks to an explosion of cheapo imports from Asia. It’s conventional wisdom that urban industries are dying, but shipping isn’t one of them. Even with the recession, the container trade has doubled since 2000, and 2012 is expected to be another record-breaking year. “I think it’s great to have a park, but you can put a park anywhere,” says Hughes. “There has to be someplace to do this.”

Are cities that place? After centuries of ports fueling urban growth, some people are starting to think: Maybe not anymore. “The scale of port activity requires much more space than it used to,” says Doucet, referring to the massive container ships that require not just deep-water ports, but dry-land acreage and fleets of trucks to unload their cargo. “It’s actually much more practical for ports to be located outside the city center.”

Doig’s article only touches on the changes to the landscapes that the current state of the art of shipping has brought upon our landscapes.  The article reminded me of some excellent Mammoth posts on the subject (shipping and border control, the landscape of globalization, and the physical distribution network as a sampling), noting how the economic logic and physical requirements of this type of trade, combined with legal structures and other constraints has created entirely new landscapes.

The key point that Mr. Doucet makes in Doig’s article is that the geography of shipping today is very different from the old landscape of longshoremen working on Manhattan’s docks.  Framing the battle over this real estate has something to do with the longevity and ‘stickiness’ of land uses – but often isn’t looking forward to the changing environment such infrastructure is operating in.

The difficulty of unintended consequences – airlines, HSR, and deregulation

Pittsburgh International Airport - CC image from Fred

Philip Longman and Lina Khan make the case for re-regulating America’s airlines, claiming that deregulation is killing air travel and taking de-hubbed cities like St. Louis with it (hat tip to Matt Yglesias).  The authors do indeed present compelling evidence that airline deregulation has indeed shifted the economic geography of many cities in the US – but as Matt Yglesias notes (channeling the aerotropolis thesis), in many cases this is merely an example of the air travel network’s ability to emphasize agglomeration economies:

They observe that… once the imposition of market competition caused some medium-sized midwestern cities to lose flights, the per flight cost of the remaining ones went up. That tends to produce a death spiral. Eventually the market reaches a new equilibrium with fewer, but more expensive flights. Except that equilibrium tends to drive businesses out of town. And once Chiquita leaves town, Cincinnati will have even fewer aviation opportunities which will further impair the business climate for the remaining large companies in the city.

This is a great concrete and usefully non-mystical illustration of agglomeration externalities.

Yglesias argues that fighting these agglomeration economies is counter-productive, but that’s not the only flaw in Longman and Khan’s thinking. Using the example of Pittsburgh, where the America West-US Air merger meant PIT losing hub status, they cite examples of the problems this represents for business travel:

K&L Gates, one of the country’s largest law firms, used to hold its firm-wide management meeting near its Pittsburgh headquarters, but after flying in and out of the city became too much trouble, the firm began hosting its meetings outside of New York City and Washington, D.C. The University of Pittsburgh Medical Center, the biggest employer in the region, reports that its researchers and physicians are increasingly choosing to drive to professional conferences whenever they can. Flying between Pittsburgh and New York or Washington can now easily take a whole day, since most flights have to route through Philadelphia or Charlotte. A recent check on Travelocity showed just two direct flights from Pittsburgh to D.C., each leaving shortly before six in the morning and costing (one week in advance) $498 each way, or approximately $2.62 per mile.

The problem is that Pittsburgh to New York and Pittsburgh to DC aren’t all that long as the crow flies.  Longman and Khan explain why that’s problematic, thanks to those pesky laws of physics:

One reason this business model doesn’t work is that it’s at odds with the basic physics of flying. It requires a tremendous amount of energy just to get a plane in the air. If the plane lands just a short time later, it’s hard to earn the fares necessary to cover the cost. This means the per-mile cost to the airlines of short-haul service is always going to be much higher than that of long-haul service, regardless of how the industry is organized.

Indeed, part of the economic logic of the airline hub was to ferry passengers to the hub via loss leader (or, hopefully, less profitable) short-haul routes so that they can then use the more profitable long-haul services – transcontinental and international flights, and the like.  The problem is that Longman and Khan can’t see beyond the end of the runway.  We have a transportation technology that has a different economic calculus, one that works well for those shorter trips up to about 500 miles – high speed rail.

This isn’t to counteract Matt’s first point – just because HSR can make travel time competitive with air travel over such distances does not mean building it will be cost-effective, but the broader point is about the need to think beyond the modal silos.  Current rail service from Pittsburgh to DC and New York isn’t time-competitive with flying, even with those connecting flights.  But HSR could be. Indeed, given the current economics of the aviation industry, HSR ought to have a larger role in key corridors.

Indeed, Longman and Khan do consider rail in their article, but they pick out the history of railroad regulation instead:

 By the 1880s, the fortunes of such major cities as Philadelphia, Baltimore, St. Louis, and Cincinnati rose and fell according to how various railroad financiers or “robber barons” combined and conspired to fix rates. Just as Americans scream today about the high cost of flying to a city like Cincinnati, where service is dominated by a single carrier, Americans of yesteryear faced impossible price discrimination when traveling or shipping to places dominated by a single railroad “trust” or “pool.”

This, more than any other factor, is what led previous generations of Americans to let go of the idea that government should have no role in regulating railroads and other emerging networked industries that were essential to the working of the economy as whole.

The problem with applying this logic to the current airline situation is that the railroads of the turn of the century didn’t just have a monopoly over a given town as the sole operator of service along the line, but they had a monopoly on the very technology that could offer such increases in mobility.

That technological mobility is no longer the case.  The excellent Mark Reutter article The Lost Promise of the American Railroad (now behind a paywall) documents the many reasons for the decline of American rail, including new competing technologies (both air travel and cars taking away long distance travelers as well as commuters), outdated regulations (such as WWII era taxes meant to reduce unnecessary travel during the war – and were quite successful at doing so – that remained in place until the mid 1960s), direct subsidization of competitors by the government (see taxpayer funded highways and airports, in the face of largely privately financed and taxed rail assets), and differing regulatory regimes.

The regulations present a compelling story.  The original regulations, as noted by Longman and Khan, were devised in an era before heavier-than-air human flight had even occurred – yet alone before the rise of commercial aviation.  Yet, the regulations devised by the Interstate Commerce Commission (formed in 1887) were the basis for a portion of the blame for the decline of American rail less than a century later.  Longman and Khan defend the need to regulate, despite these shortcomings:

To be sure, any regulatory regime can degenerate and wind up stifling competition, and the CAB of the late 1970s did become too procedure bound, ruled, as it came to be, by contending private lawyers rather than technocrats. It would have helped, too, if the country had not largely abandoned antitrust action after the Reagan administration. But even strong antitrust enforcement wouldn’t have helped that much, because airlines— just like railroads, waterworks, electrical utilities, and most other networked systems—require concentration both to achieve economies of scale and to enable the cross-subsidization between low- and high-cost service necessary to preserve their value as networks. And when it comes to such natural monopolies that are essential to the public, there is no equitable or efficient alternative to having the government regulate or coordinate entry, prices, and service levels—no matter how messy the process may be.

While this can be a compelling case for the need for regulation in the abstract, it doesn’t present a compelling case for the content of those regulations.  How can these regulations possibly change to reflect changing economic realities, such as the rise of new technology?

Chris Bradford put forth an interesting idea regarding land use regulation: give all zoning codes an expiration date (a similar idea to the zoning budget).  If the anti-trust and equity concerns are so great as to require this kind of regulation, requiring some sort of periodic review is an interesting idea for simulating some of the innovation and competition that a freer market might provide.

The extreme positions aren’t that illuminating.  Likewise, merely promoting the idea of regulation in the abstract (without speaking to the content and effects of those regulations) isn’t helpful, either.  The specifics matter. Regulation for the sake of regulation is pointless, and we must have mechanisms for continual re-evaluation of the regulations we do have to ensure they actually work towards our stated policy goals.  All too often, this re-evaluation falls short.

This isn’t meant to be a broadside against regulation – far from it.  There’s clearly a role for it.  Instead, I ask for periodic review to ensure the regulations are helping achieve our objectives rather than hindering them. Likewise, the inevitable reality is that whatever regulations we impose now will have unforseen, unintended consequences.

The rent is too damn high

I just finished a nice, quick read of Matt Yglesias’ new e-book The Rent is too Damn High.  Following in the same vein as Ryan Avent’s The Gated City, Yglesias documents the perverse economic impacts of development regulations and restrictions on urban areas. Though not as well sourced and without the in-depth discussion of Avent’s e-book, Yglesias nonetheless offers an accessible and understandable narrative to understanding the same array of urban economic issues.

Yglesias’ self summary is available at his blog:

 It’s about the high cost of housing in America’s coastal metropolises and downtowns everywhere, but more broadly it’s about the crucial role that dense urban development and barriers to its creation matter in a service economy. If you’ve ever read me on housing and wondered “why does this guy think this is so important” or read me on manufacturing and thought “yeah, but what’s his answer” then you will find the answers herein. Andrew Chesley has been reading his copy and liked this line:

Lots of people buy RVs, but nobody “invests” in them. And what’s a house but a giant RV with no wheels?

As I said before, one of my key goals with this book was to write something that would not only be cheap to buy (just $3.99!) but also short. That means I didn’t pad it out with a lot of to-be-sures and efforts to guess what objections people will have. Better, I thought, to release a detailed-but-not-tedious version of my ideas into the world and then see what people see. So if anyone reads it and has questions, objections, thoughts, ideas, etc. please do email me about them or send links to your own blog where you’ve written about it. I’d love to continue the discussion and follow whatever points people think are interesting or flat-out wrong or in need of elaboration.

In the spirit of that discussion, I have a few thoughts.

First, a video interlude for the book’s namesake.

Perhaps the most interesting part to me is Matt’s claim in the book that the final chapter of any public policy book (the chapter that actually gets at potential solutions) is often the most disappointing.  I won’t hold that against this e-book, since the educational component about the issue (as opposed to, say, healthcare or climate change) often isn’t even regarded as a problem.

That said, who is the audience for this kind of material? Convincing the general public, one development project and one upzoning at a time isn’t a sustainable solution. Likewise, too much of the NIMBY opposition discourse is of the shotgun, everything including the kitchen sink approach: throw out all possible objections and see what works.  That kind of approach isn’t likely to buy into a reasoned argument.

Tyler Cowen assumes most of America won’t pay attention to Matt’s point – but maybe they don’t have to. Perhaps with some procedural modifications (see thoughts here and here) you could make progress, and in that case the audience in need of convincing would be elected officials – either by convincing current officials or by electing new ones who understand the issue.  Good news: as Matt points out, Mitt Romney was all over this back in 2006.

Josh Barro at Forbes looks at Chicago and wonders how that city manages to keep prices in line with construction costs:

Yet Chicago has a planning process that looks, at first, like it ought to be a nightmare. The city is divided into 50 wards, each of which elects an Alderman to the City Council. In practice, the Alderman has enormous control over what developments get approved within his ward. Yet, despite these fiefdoms, projects tend to get approved.

This is partly because Chicago also liberally uses Tax Increment Financing districts, which now cover huge swathes of the city. When a TIF district is created, the amount of property tax revenue that the district sends to the city is frozen for 23 years. Increases in property tax receipts are instead directed into a special fund that can only be used for projects within the TIF district boundaries—and new developments tend to mean significant increases in property tax collections. When you create a TIF, you create an incentive for residents and their Aldermen to approve new development, as that means more money for local goodies.

I’d expect nothing less from the City that Works. However, it’s not as if Chicago’s system (or that of Houston) produces quality results all the time. Chicago still has plenty of those subtle barriers to development that often produce unintended consequences, even if the overall price levels are reasonable. Also, Chicago isn’t seeing the same kind of intense demand as other coastal cities are, perhaps confounding the city’s apparent success in keeping costs reasonable.

David Schleicher, in an interview with Mark Bergen at Forbes (Part 1, Part 2) discusses some potential legislative solutions.

It’s great to see these issues front and center in the discourse, even if only in this small corner of the internet. I’d highly recommend Matt’s e-book for a quick, concise summary of the basic issues of over-regulation and the benefits of density and cities with a little more freedom to operate.

[EDIT: 3/9, 7:52 am – Yglesias responds here]