Tuesday, September 2, 2014

The Downtown living era

The latest news comes from Cleveland.  Downtown development is taking off and people are flocking to the center of Cleveland, a city once derided as the "mistake on the Lake".

More people are moving downtown: Between 2000 and 2014, the city's downtown residential population increased 60% to about 13,000. Over 3,100 apartments were created over that same period, according to the Downtown Cleveland Alliance, a nonprofit that works with downtown property owners, with another 2,200 units either under construction or planned.

Detroit, despite bankruptcy and depopulation in the periphery, is seeing a replete core.

Vacant units appear to be getting snapped up quickly. As of 2012, occupancy rates for rental units in central downtown and Midtown stood at 97% and 95%, respectively.

The same old story in Milwaukee, where the downtown core is booming.

Driven by growth in neighborhoods around downtown, Milwaukee's population grew by nearly 4,000 residents in the last two years, according to figures released Thursday by the U.S. Census Bureau.

I have long covered Chicago's Loop development.

As you can see from this map the neighborhood of downtown Chicago adjacent to Grant Park increased population by over 300%. This neighborhood historically has had low population, hence the phenomenal growth. In fact much of the Loop has been sparely populated and only in the recent years has space been repurposed residential.

I hesitate to construct a single narrative, but instead will attempt to weave several.  One story is the tale of post-industrial cities repurposing the manufacturing core into residential districts.  Another story is the changing preferences for walkable environments.

This is a paradigm shift in America, where a preference for downtown living germinated and stretches its acrospire.  It happened first in New York, where Manhattan population declines reversed and eventually took hold in outer boroughs.  The Rust Belt, once the acme of withered city cores, is finding a new reservoir of growth.

Another thread to weave in the narrative is rising inequality and housing.  As inequality of income and wealth increases it does not surprise that inequality of housing concatenates.

In the Postwar era, the late 70s was a time of lower income inequality but also a time when many industrial cities experienced huge population losses.  Chicago's biggest population loss as a percentage of the whole was during the 70s when it dipped 10.7%.  The same story is true in Milwaukee, where the 1980 decennial showed a loss of 11.3%.

It is no surprise then, that demand for walkable neighborhoods has driven poverty out into the suburbs.

The number of suburban poor living in distressed neighborhoods grew by 139% since 2000, compared with a 50% jump in cities. Overall, the number of poor living in the suburbs has grown by 65% in the past 14 years—twice as much growth as in urban areas.

This is one reason why I avoid the "G" word.  I suspect that many of the economic conditions were sown decades ago when people's preferences were different.  Population and wealth moved to the suburbs.  Now population, and even greater wealth, is returning.  And so cities find themselves in a downtown development boom fueled by more money than that which built the postwar suburbs, and suburbs find themselves in a downturn as unprecedented as the mid-century decline of the American downtown.

Currently Chicago has plenty of empty real estate in and around downtown ripe for redevelopment.  The city and many of its suburbs can easily build walkable, transit oriented development that can cater to the shifting demand for more rail and less bus transit.  But eventually Chicago will exhaust its supply of this low hanging fruit of urbanism.

increasing demand for safe walkable neighborhoods is ineluctable

Friday, August 22, 2014

Infrastructure innovations

Recently Matthew Yglesias took a survey of transit construction projects around the globe and found that construction costs in the US are extremely high.

The case for doing more is in fact strong. But it would be much stronger if the United States knew how to undertake cost-effective projects.

In a way, the US has a problem with transit construction productivity.  New York City's 1900 subway system cost 35 million dollars.  In today's money that comes to 941 million dollars.  The total length was approximately 20 miles.  The cost per track mile was therefore about 47 million dollars a mile in 2014 dollars.  Compare that to today's Second Avenue line, which is planned to build 8.5 miles of subway and looking at a cost of 4.5 billion dollars.  That totals 529 million dollars a mile.  Thus the cost of construction increased 482 million dollars a mile.  More than 1,000% increase in costs.

Consider that since 1900 construction has been aided with the following innovations:  diesel engines, laser guided drills, computer automation, and GPS for starters.  Labor saving devices and productivity increases should have, in theory, reduced prices.  For all the technical advances in surveying, planning, and building; costs have skyrocketed.

It is clear that in America there is no need for innovative financing for transit projects.  Instead what is needed is innovative planning and construction that cuts costs significantly.  If cities like Chicago wish to be globally competitive, they need to adopt construction practices that brings costs down to a level comparable with European cities.

Monday, July 14, 2014

Following the housing problem

I previously covered the housing crunch facing big cities.  The problem is starting to become widespread.

The US is facing a new housing crisis. No, it has nothing to do with subprime mortgages or bloated home equity balances. This time the nation is dealing with shortages of rental housing, a problem that will become increasingly acute in years to come and may result in a material drag on economic growth.

Indeed we are already seeing it now.  Younger adults are buying homes infrequently.

Just 36% of Americans under the age of 35 own a home, according to the Census Bureau. That's down from 42% in 2007 and the lowest level since 1982, when the agency began tracking homeownership by age.

They are also living in their parents' home more frequently.

Due to high unemployment and sluggish wage growth, lots of young people who aren't in school don't have very much money in their pockets. And yet even though young people have less money today, rents are higher and mortgage lending standards are tighter. Higher costs plus lower incomes = growing need to economize, so more people are living with their parents.

We see younger adults with lower paying jobs and less savings, which is driving down demand for homes. Thus, supply is not increasing quickly; as reflected in depressed construction numbers.  New home prices won't fall below construction costs, so there is a price floor.  So the supply rises to meet a paltry demand.

If the problem were purely supply constrains we would see rapidly rising home prices.  And while that is true in some localities it isn't happening across the Midwest.  We are seeing rising home prices, but only in places truly constrained in increasing supply and facing rising demand like San Francisco and New York.  Other cities have rising demand and unconstrained supply, like Houston.  And while downtown Detroit and Chicago are seeing rising prices in some desirable neighborhoods, they aren't seeing the aggregate demand increases that Dallas is experiencing.  Indeed Dallas prices are at record highs, and Chicago is still off the peak.

For a city like Chicago, which is seeing rising rents despite low population growth, the question is would a resurgence of demand among younger Americans cause prices to skyrocket?  And if they did, would rising prices ignite a construction boom in a city with rather depressed new construction starts?

Sunday, June 1, 2014

Desirable walkability

Recently a story about Detroit made some waves because it bucked the trend of tales of decline.  Instead it focused on Detroit's rising rents:

Karen Schultz lived in a seven-room apartment in Midtown's Cass Corridor for 35 years. She was kicked out in late 2013. "It was a really nice building next to Wayne State and the landlord is moving students in and out and increasing the rent," said the 60-year-old retired police department psychologist. She now pays $926 a month for a three-bedroom, up from $815 in her old place. She thinks she may have to move in with her daughter and her three grandchildren, who were also priced out of the old building.

This concatenates with the rather contradictory story about Detroit's expensive plan to remove derelict homes:

A task force convened by the Obama administration issued the most detailed study yet of blight in Detroit on Tuesday and recommended that the city spend at least $850 million to quickly tear down about 40,000 dilapidated buildings, demolish or restore tens of thousands more, and clear thousands of trash-packed lots. It also said that the hulking remains of factories that dot Detroit, crumbling reminders of the city’s manufacturing prowess, must be salvaged or demolished, which could cost as much as $1 billion more.

This begs the question "Why are some areas of the city rising in value while some areas continue to free fall?"  But a closer examination shows a rather obvious correlation.  First, the big picture.

It is unsurprising that the areas with fewer violent crimes are doing better than the high homicide areas.  And indeed you can compare this map with the demographic map of Detroit and see something of an overlap where people are leaving.

The overlap is no surprise. But the crime map doesn't tell the whole story.  One of the neighborhoods highlighted with rising rents is Cass Corridor in Midtown.  This area has a walkscore of 91.  Compare that to some of the neighborhoods with rising vacancy rates.  Take, for example, this area of Palmer Woods, with a comparable homicide rate and an increasing vacancy rate:  walkscore 42.

Continue your tour of Detroit to the Southeast side, another region where the crime rates are comparatively low but the vacancy rates are increasing.  There you find a walk score of 45.  While it is no surprise that the regions of the city with higher homicide rates have higher vacancy increases, the walk score factor has been surprisingly absent in the recent brouhaha over Detroit's multifaceted housing market.

In fact I encourage you to take a trip around Detroit with the walk score and see the correlation between decreasing vacancy and high walk score.  This high vacancy neighborhood on the Southwest side, for example, has a walk score of 48.  And another, this in the lower crime and lower vacancy neighborhood of Elmwood Park has a walk score of 69.

The areas of the city that seem to be doing the best are areas with a higher walk score and lower homicide rate.  And the correlation between lower homicides and higher walk scores is evident as well.  This is an important point that is missing in the analysis of many urbanists.  Rather than making facile comparisons to globalization or ignoring market preferences for walkability altogether, urbanists should be connecting the dots.  I've already highlighted the low rate of driving, car ownership, and drivers licenses of the youngest cohort.  A simple conclusion is that increasing demand for safe walkable neighborhoods is ineluctable.  And indeed such observations are omnipresent, even in highly blighted Detroit.

It is strange to suggest that people priced out of a low crime high walkable area simply move to a higher crime and lower walkable area as a reasonable solution to the problem!  It is strange to make a moral judgement about market preferences.

Urbanists are not seeing the nuance in the demand and supply issues at the locus.  Failure to differentiate between quality of housing stock and neighborhood characteristics has lead many urbanists to mistake demand issues for supply issues, or simply dismiss the demand issues.  Indeed Detroit serves as a monolithic example of inelasticity in both supply and demand.  This has lead to moralistic pablum such as referring to a retired police psychologist as a young urbanist, a part of the global workforce, or an entitled grouser rather than looking at empirical evidence.  We could observe from the data provided that low crime high walkable neighborhoods in Detroit is an inelastic good, with a demand that is increasingly inelastic as well.  Again, with the demographic numbers on younger Americans the demand elasticity is unsurprising.  The pace of supply increases of low crime highly walkable neighborhoods is a subject well worn for good reason.

This issue is transferable to other cities.  Take Chicago.

In Chicago the pattern looks familiar.  This Englewood neighborhood has a walkscore of 71.  Compared to the burgeoning Wicker Park area where the score clocks in at 89.  As you can see, Wicker Park has both a lower violent crime rate and a higher walk score.  If one continues this series with some of the sententious alternatives to Wicker Park you find the following:

Woodlawn:  55
South Shore:  75
Bronzeville:  72
Austin:  74

Note that these suggest alternative neighborhoods all have significantly higher violent crime rates as well as lower walk scores.

Indeed one author even went so far as to suggest Garfield Park as a reasonable alternative to Lakeview.  Garfield Park is home to one of the most dangerous neighborhoods in America.  Shamefully, some urbanists think violent crime is an unimportant statistic!

Wednesday, April 16, 2014

The suburban partnership

Cities and their suburbs form a partnership.  An ecosystem, if you like.  For most metropolitan regions, the bulk of the population lies in the suburbs and the bulk of the industry lies in the city.  That relationship doesn't hold for every metro region, but it is often true.  Thus cities form a partnership with their suburbs.  If the partnership is healthy then they can cooperate on issues like taxes, transit, and public safety to enhance the region and increase the overall region.

For several years, some aldermen in Chicago have bloviated about imposing a commuter tax on suburbanites who work in the city.  You can see its roots in 2011 when it was proposed by city Inspector General Joseph Ferguson and praised by several aldermen and opposed by the mayor.  It was ressurected in 2013 by the Grassroots Collaborative, where alderman Emma Mitts supported it but alderman Ariel Reboyras opposed it.  It is getting legs again in 2014 with support from alderman Bob Fioretti.

While this tax may never pass due to legal reasons, I oppose these sorts of punitive deals that cities and suburbs dither about.  It is divisive and unconstructive.  And there is a clear precedent that Chicago should learn from and avoid.

I have long opined that there is not a more dysfunctional city suburb relationship than metro Detroit. There is, at times, an almost visceral hatred betwixt the two.  Recently an interview with L. Brooks Patterson, the Oakland County commissioner, has surfaced which gives a voice to that acrimonious relationship.

"Anytime I talk about Detroit, it’s not positive. Therefore, I’m a Detroit basher."

This sort of acrimony is par for the course with Detroit and its suburbs.  There is much hand-wringing over former Detroit Mayor Coleman Young's phrase "Hit eight mile".  And this acrimony has played itself out in public policy.  Look at how little cooperation exists concerning an abundant resource; the water department.

“I tell my team no deal is better than a bad deal — and right now it’s a bad deal, so we’re probably going to walk,” Patterson told a crowd of public officials at Governing magazine’s Outlook in the States & Localities conference.

The Free Press reported last month that Orr was considering forming a regional authority without Oakland and Macomb as members, if they wouldn’t agree to a deal, according to sources involved in the negotiations.

Also consider some of the fits and starts that have plagued regional transit in the Detroit area:

  • 1988 – On December 7, 1988 Public Act 204 was amended and SEMTA was restructured from its seven-county operation into a three-county agency, which excluded the City of Detroit (emphasis added) and renamed the Suburban Mobility Authority for Regional Transportation (SMART).  SMART began operations on January 17, 1989.
  • 1996 – SMART and DDOT establish a common regional bus pass but further attempts to merge services fail.
  • 2001 – The Detroit Regional Chamber spearheads legislation to create a Detroit Area Regional Transportation Authority (DARTA).
  • 2002 – Legislation to form DARTA is vetoed by Governor John Engler
  • 2003 – In May of 2003 DARTA is formed through an interlocal inter-government agreement (IGA) that includes the City of Detroit, Wayne County, Macomb County, Oakland County, Monroe County and SMART. The agreement proposed that the parties utilize existing constitutional and statutory law to establish more effective and efficient public transportation services. Under this agreement the parties agreed to transfer to DARTA powers, duties, functions, responsibilities and authority essential to providing quality public transportation. However, under this agreement DARTA could not levy taxes nor could DARTA bind any Michigan municipality to any obligation without the consent of that municipality.
  • 2006 – In May of 2006 the Michigan State Supreme Court decision dissolved DARTA and the IGA.
  • 2009 – During 2009 the legislature failed to approve legislation to develop a regional transit authority.
  • 2011 – The City of Detroit cuts DDOT bus operating subsidy and approves a bond issue to help fund Woodward Light Rail required match. No operating funds have been identified for the Woodward Light Rail. 

It is to Detroit's detriment that the region failed to cooperate on regional transit issues.  These sorts of disagreements have spilled over into other areas of civic life, such as the Detroit Zoo.  The region has wasted taxpayer funds trying to poach industries from the suburb to the city.  Quicken Loans relocated to Detroit from the nearby suburb of Livonia .  Thus the net job growth for the region was essentially nothing.  Quicken Loans moved into the Compuware building, itself a transplant from the neighboring suburb of Farmington Hills.

Detroit and her suburbs tell a cautionary tale.  Chicago has, in comparison, a robust relationship with its suburbs.  The RTA, despite its faults, manages transit agencies that provide a comparatively well integrated network of trains and buses.  I have personally used all three of them for commuting:  Metra, PACE, and the CTA.  I have taken the traditional perimeter/suburb to downtown commute as well as the reverse commute to the suburbs.  And I can say that, while not always a joy ride, they exist.  And this allows households with fewer than one car per working adult to commute to work, a trend increasing over time.  It also allows downtown Chicago to enjoy greater density, which leads to more diversity and specialization.

Chicago needs to resist the call to arms against its suburbs, just as its suburbs need to resist a call to arms against the city.  Plans for a punitive suburban tax increase are the sorts of petty squabbles that made Detroit so dysfunctional.  Instead of looking to punish the suburbs, grassroots organizations and alderman should look at ways to work better with the suburbs to ensure the continued prosperity of both city and suburbs.

Chicago aldermen warmed to the concept of a one percent commuter tax on suburbanites who work in Chicago.

“People who live outside the city and work in the city utilize our streets, our transportation systems. They’re in Chicago. They’re out of Chicago. Perhaps, there’s a price to be put on that,” Ald. Pat Dowell (3rd) said at the time.

Ald. Leslie Hairston (5th) added, “A lot of people come in the city. A lot of people outside do business with the city and we don’t recoup those dollars.”

Resist the call to arms.  Remember that these aren't free riders.  Suburban commuters pay tolls and transit fares.  They dine and shop downtown.  They are a valuable commodity to the city businesses that need a skilled and diverse workforce.  Remember that the suburbs can levy a price on city dwellers that use suburban streets and transportation systems.  And look at where that road leads.

Monday, March 10, 2014

The big housing crunch

The story of housing costs increasing rapidly in many cities across America is becoming a popular tale. But this was all too predictable. Back in 2011 Brad DeLong observed that the housing boom was followed by an even larger housing bust:

As you can see new housing construction fell an estimated 5 times the size of the construction boom.  Thus we reach the situation where home prices increased an average of  12% nationwide last year.  Combining the low pace of inflation and wage increases, housing costs are putting a squeeze on households.

Consider Chicago, where the price of rentals has increased 17% over the last decade.  An increasing number of renters pay over 30% of their income on rents.  But as they say, all real estate is local.  And while Chicago did very well last year, with home prices showing their biggest advance in 25 years, the south suburbs have done very poorly.  Prices in many south suburbs have declined to 1990s levels.

I think what we are seeing is the hyper localization of real estate.  Neighborhoods with low crime and good access to transportation are increasing in value, while those without those two factors struggle.

Monday, March 3, 2014

The geographical problem reconsidered

Previously I suggested that JC Penny's problems were more than just the death of retail problems that have plagued many brick and mortar stores.  Rather I suggested that not having a location in cities was a problem. Since then Sears announced they are closing their flagship Loop location in downtown Chicago. So perhaps my assessments were wrong. If the downtown location didn't help Sears it probably wouldn't help JC Penny.