On Gentrification, Inequality and Zoning

On the CityLab blog, Richard Florida posted a piece pointing out that gentrification has virtually no effects on homeowners. I can buy that result, especially since I wrote a policy piece for a think tank back in the summer of 2016 on the issue. The important point that Florida underlines (by citing a paper by Martin and Beck in Urban Affairs Review) is that homeowners are not being displaced, but renters are more likely to be. This will probably fuel some people who are concerned about inequality. I disagree.

I want to point out that my interest in the issue is entirely related to the issue of inequality which some individuals have tried to tie to gentrification (sometimes without understanding that causality can run both ways). If you want to tie the two issues together, then you must realize that there are four “types” of gentrification. First of all, gentrification always appear in an area that is poor and it is always a result of a shift in demand for land in that area. However, that area can be largely unoccupied or heavily inhabited. It can also be in a district where zoning is lax or burdensome. In each of these situations, you will different effects with different interpretations for inequality.

  • Scenario 1 (largely vacant, lax zoning laws): in this situation, demand shifts right but there is slack in the local housing market and in any case, supply can adjust easily. In that case, the effects on rents will be minimal and will probably be smaller than the economic gains in terms of local economic activity. In this situation, there is little displacement and there is in fact a reduction in inequality.
  • Scenario 2 (largely vacant, heavy zoning laws): same happens, except that the restrictions on construction and building conversions put a ceiling on the capacity of a local area to adapt. The effect on rents is ambiguous and depends largely on the relative quantity changes (how many people relative to empty units). There are probably small to moderate gains in the area. There are ambiguous effects on inequality.
  • Scenario 3 (heavily occupied, lax zoning laws): in this situation, the influx of individuals creates a temporary surge in rents. This is because, in the short-term, housing supply is inelastic. In the long-run, the supply is more elastic and new units can be added to counterbalance the price effects. So, there is a long-term benefit that comes after a small bump. More individuals will be displaced than in scenario 1. Overall, a reduction in inequality might occur.
  • Scenario 4 (heavily occupied, heavy zoning laws): in this situation, the influx happens in a market where the supply is highly inelastic (short and long-run). In that case, the shift in demand creates a substantial increase in rents. This is where gentrification can hurt and be tied to inequality.

These four scenarios are important because they show something important that some people have to understand. Gentrification can increase inequality. However, that depends on the context and the institutions (zoning) surrounding the area in which it happens. In all cases, gentrification is a normal process that can’t really be stopped but turns sour because of zoning laws. Thus, if you really want to tie gentrification to inequality, it should twice removed since the first parents are zoning laws and construction limits.

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Public Support for OReGO: Preliminary Results

tldr version;

Road pricing can be a useful means of addressing infrastructure fiscal issues, reducing congestion, and improving environmental quality and it has a chance of being implemented if advocates focus on mobilizing urban voters.

Thanks to all respondents.


This post is a quick detour from the NoL Foreign Policy Survey posts.

Among other projects I am working on, I am tinkering with a public opinion project aimed at the OReGO project. The OReGO is a pilot program operated by the State of Oregon to experiment with an alternative to the existing gasoline tax. Currently Oregonians pay 30 cents per gallon of gasoline, on top of the federal 18.4 cent per gallon tax. Volunteer participants of OReGO instead pay a charge of 1.5 cents per mile driven on state roads.

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The primary goal of the program is to find a better way to fund the state’s infrastructure. The current system is inadequate because automobiles are becoming increasingly more fuel efficient and so, on a per mile basis, pay less for road use. Despite paying less these automobiles still rack up costs in road damage.

Advocates of OReGO, and other road pricing schemes, also hope that the program will serve as a means of combating congestion by making drivers more conscious of the marginal cost of their driving and encouraging them to avoid excess driving. The gasoline tax does this already, but very crudely in comparison.

Some advocates also hope to use road pricing as a means of improving local environmental quality and addressing climate change. Automobiles are a significant source of pollution and so reducing their use would yield environmental benefits. Even if the program kept the same number of cars on the road it could reap benefits if it reduced stop and go traffic; automobiles pollute more in stop and go traffic than free flow.

There is quite a bit of research from economists and urban planners on the issue, but public opinion research on it is relatively rare. What research exists tends to focus on either toll roads or in foreign regions. The reason for the gap in the literature is simple enough to explain – no jurisdiction in the United States has adopted road pricing. There have been a few small scale experiments, but they were largely engineering tests and surveyed only the opinion of participants. I hope to fill this gap in the literature by (eventually) conducting a large scale public opinion study of Oregonians.

The below pilot study had 220 respondents recruited through various Oregon sub-reddits (e.g. Portland, Eugene, and Salem). Respondents were obviously not representative of Oregon at large. The sample size was also small for an academic study of Oregon and there is a lot of noise. Most of the results presented are statistically insignificant. As a convenience sample though this survey was nonetheless useful. My goal in this survey was more about testing the survey before fielding it more broadly.

I thank all respondents to the survey – you’ve all helped the progress of science.

Survey Experiment Results:

The survey had a survey experiment. The purpose of survey experiments is to see how changes in phrasing, or other survey elements, influences response.

The experiment was in how OReGO was presented. Respondents were split into three sub-groups and received slightly different explanations of the program. In the base scenario they were told the program was simply a funding mechanism. In the congestion scenario they were also told about its possible congestion benefits. In the final they were additionally told about its possible environmental benefits.

OReGo is a pilot program currently being operated by the Oregon Department of Transportation. Participating drivers are being given the opportunity to pay 1.5 cents per mile they drive on public roads instead of the current 30 cent per gallon tax that the state of Oregon currently charges.

Advocates of OReGO, and similar road pricing schemes, argue that the program serves as a more dependable means of funding infrastructure than the current gasoline tax. They point out that as vehicles become more fuel efficient the amount that drivers pay per mile is decreasing, but costs associated due to road damage are not similarly decreasing. This means that in the long term the current gasoline tax will be unable to cover infrastructure costs. (/End of Base Scenario)

Advocates of OReGO also point out that the program can help reduce congestion by discouraging excessive driving and encourage the use of alternative means of transportation such as bicycling, walking, or transit. Although drivers currently pay for their automobile use in the form of the gasoline tax, many view it as a fixed payment. OReGO, which is charged on a per mile basis, may serve to make drivers more conscious of the marginal cost of their driving. (/End of Congestion Scenario)

OReGO could lead not only to reduced congestion, but could also serve to improve local air quality. One of the major sources of air pollution is automobiles, especially in stop and go traffic. (/End of Environmental Scenario)

Looking at support for adopting OReGO within five years the different treatments are little different from one another. The congestion treatment received a decline in support, but it is pushed back up in the environmental treatment.

I regret not adding a fourth group where respondents are told about the base option and the environmental benefits, but congestion is not added. As it is, it is hard to tell if the decline in support for OReGO in the congestion treatment is because people don’t care about ways to address congestion, or they dislike attempts at social engineering.

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When we look at treatment effects among only those who identified living in an urban area the effects get more interesting. Urban voters were very responsive to the idea of environmental benefits and increased support for OReGO by over 10 percentage points.

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What seems to be driving the difference in support for OReGO is inter-regional differences in perceived local air quality. Those who perceive local air quality to be ‘very good’ are least likely to support OReGO. This finding is exaggerated when looking at only urban respondents.

I played around to see if this was a statistical artifact from the above treatment; i.e. it is possible those who lived in ‘very good’ air quality regions received the ‘environmental treatment’  and I am picking up the latter effect. This was not the case.

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Is this a simple case of those living in high quality areas having no interest in improving the region? A “I have mines” attitude. No. When I look at support for OReGO by how respondents judged local air quality had changed in the past five years, those who thought their local air quality was improving also had the highest support for OReGO.

There is a definite relationship here between support for OReGO and perception of one’s local air quality. I can’t put my finger on it just yet.

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Bonus result: daily bicyclists are those most supportive of OReGO.

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Fight for your economic right to party

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Two months ago, London’s iconic Fabric nightclub was shut-down by Islington Council on the dubious grounds that it had failed to adequately search club-goers for drugs. Fabric, a sprawling multi-level concrete venue, is dear to the heart of many Londoners. Its dramatic closure came as a shock. David Nutt blamed our hypocritical drug laws, while others spied conspiracies to turn the venue over to housing developers. In response to the public outcry, this month, London Mayor Sadiq Khan has appointed Amy Lamé as ‘night tzar’ (some use the even grander title Night Mayor) with the task of reviving London’s nightlife and especially trying to save venues like Fabric.

Tzars sound great in theory but tend to fail in practice. They are meant to break-up bureaucratic silos and join-up policymaking so that it conforms to a grand plan in a particular policy area. Rather than following rules regardless of outcomes, they have an outcome that the executive asks them to pursue remorselessly. However, I argue that this is precisely the opposite of what you want if your goal is a sustainable, thriving night-life culture. London night-life has suffered because of its politicization, not from a lack of it. The answer is strong rights for entrepreneurs to provide entertainment to willing consumers. This means reforming of government powers to license venues and prohibit development on arbitrary grounds. While ending drug prohibition is of deep importance, here the drug-use excuse was the face of a more pernicious power that local governments have to shut down successful businesses on arbitrary grounds.

In the United Kingdom, land development and property-use decisions have essentially been nationalized since 1947. While building still takes place, it only happens following detailed, expensive consultation with local planning authorities with significant input from local residents. As a result, the supply of building amenities has become unmoored from demand. The most noticeable impact has been rising house prices and rents in areas where the economy is growing. This is a boon to landlords lucky enough to own property in areas of high demand. But it causes those without property to suffer significantly higher living costs. It has led to bizarre developments such as it being easier to open a new golf course in the South-East than to start a new housing development.

While the majority of people feel the strain primarily through higher rents, less visible is the impact on businesses who are equally constrained by planning laws. They struggle to find suitable buildings for their commercial activities. Competitors and local residents can use the planning process to block new construction or changes to lawful uses for particular venues. Businesses lack legitimate expectations about where they will be allowed to expand. Those that do succeed need to invest heavily in lobbying and legal support. The result is that people end up travelling further to get to shops and to their places of work.

Club venues face a number of additional biases in this process. Local officials are more likely to be blamed for noise and crime associated with clubs but not praised for their fun and economic benefits. This fosters risk-aversion amongst local policymakers. At the same time, club-goers may outnumber local residents but most are not able to vote in local council elections. Residents might well have originally moved into a central London location precisely to experience fun, exciting nightlife. But once there, perhaps especially as they get a little older, their priorities change. They realize that they may want to live in an exciting city, but just so long as their particular neighborhood is a little less exciting. Rather than move to a quieter area, they express their preferences through the political process and demand that venues that have been around a lot longer than they have be closed.

Unfortunately, if too many residents in the city come to the same conclusion, you end up shutting down historic clubs on the slightest pretext. When it comes to hosting unlawful activities, businesses can be presumed guilty, with no secure way of ever proving their innocence.

In this context, having a tzar is an understandable response as a counter-balance to the call of the NIMBYs. But it doesn’t solve the core problem which is a system that cannot adequately represent revelers but augments complaints. The tzar can champion venues but will be silenced once these entrenched interests turn up the noise. Instead, we need a system that recognizes the presumptive right of businesses to market entertainment to willing consumers. Only provable nuisance should be cause to fine or eventually close venues. Once established, entertainment venues should not have to regularly prove their social worth to a licensing committee (the fact that they have willing customers is sufficient warrant for that).

Most importantly, complaints from recent arrivals against historic venues that have always hosted loud parties should be discounted. This works in a fashion in Tokyo, where mixed development is widely permitted (no one stops people from taking up residence in an otherwise commercial district) but without any assumption that those residents can then alter the make-up of their community through the political process.

A History of Regional Governments (Part 1)

Cities have historically been compact hyper-dense communities. This is because cities have been constrained in size by the average resident’s capacity to reasonably travel throughout the city within a day. Cities built before the dawn of the automobile are often noted for being walkable. It is doubtful that the walkability of these cities is due to any planned attempt to make them so as the urban planning profession is a relatively new discipline. Rather older cities are walkable because they had to be. For most of history the average man could only travel as far as his own legs could take him. Horses and other beasts of burden substantially increased one’s travel range, but even up to the 19th century ownership of such beasts was beyond the reach of the every man. Any real estate developer who attempted to build outside a city’s natural growth boundary would as such find it difficult to attract the necessary foot traffic to make his endeavor economically feasible.

This constraint in outward growth also led to older cities being easily dominated by a single local authority. This changed with the creation of the automobile. As noted above, a beast of burden was already capable of extending the effective range of their owner. The automobile similarly would have done little to influence the growth of cities if it were inaccessible to the average man. What made the automobile such a game changer to the future of cities was that it was within the reach of the average man’s finances.  In their early days, as in our own, automobiles presented a serious financial investment but were nonetheless cheap enough to afford.

With the advent of the economic automobile the general public was no longer constrained to the urban core. Attracted by cheap land prices in the periphery an increasing portion of the city settled in the periphery region – the so called suburbs. The development of suburbs had several immediate effects, but of interest to us is its effect on local government. At first cities attempted to annex the suburb regions but it was not before long that some suburbs rejected annexation. One of the first such cases was in when Brookline, a wealthy suburb of Boston, rejected annexation in the late 19th century. Even some suburbs which originally agreed to annexation changed their minds and fought to regain their independence.

Suburb residents had been driven to migrate from the cities in search for cheap housing, but they also valued their new found independence from urban politics.  Many suburbs elected to instead incorporate as cities by their own right. Despite their political independence the suburbs remained economically tied to the mother cities. It did not take long for the limits of this style of organization to be realized. In the greater New York metropolitan area New York and New Jersey local governments found themselves unable to settle basic questions regarding their common port. Meanwhile in Los Angeles the various local governments were unable to efficiently synchronize their electric current systems. Los Angeles proper synchronized its electrical system with the rest of the nation in 1936 but the rest of the metro didn’t make the switch for another twelve years. In greater Boston the suburbs found themselves unable to provide for quality running water and other basic utilities. These problems only increased as population growth increasingly favored suburbs and urban sprawl intensified.

Early reformers suggested the creation of a new layer of government, between state and local government, which would preserve the independence of the suburbs whilst creating a central authority capable of providing for regional needs.  Attempts to create regional governments were retarded by the actions of local governments who jealously guarded their own powers. It is unclear what would have happened if things would have been allowed to play out without federal intervention.

It was at the height of the New Deal era that the modern regional government was born. The Roosevelt administration began to encourage regions to form councils of government and other regional government associations if they wished preferential federal aid. The Truman and Eisenhower administrations codified this policy with the Housing Act of 1949 and 1954 respectively. Section 701 of the 1954 Housing Act in particular would serve as the benchmark for years to come in promoting the creation of regional governments. As a result of these actions almost one hundred regional governments were formed. The regional governments formed tended to be in name only. Local governments agreed to their formation in order to secure federal funding but granted their regional counterparts little actual control in day to day affairs. Regional governments were relegated to providing technical advice to local government and to aiding state government with paperwork, but were unable to pursue their own objectives. Meanwhile the growth of the suburbs continued strong, aided in part due to the return of WW2 veterans and the preferential mortgage packages offered to them.

The federal government attempted to bolster the strength of regional governments with the passage of the Highway Act of 1962. Thus far federal legislation had merely given preferential treatment in aid allocations towards regional governments. The Highway Act of 1962 made federal aid contingent on having areas with a population greater than 50,000 create a regional development plan. In practice the act gave regional governments little power as the language was broad enough to allow state and local governments to circumvent them. Once more regional governments found themselves with little teeth and better termed advisory bodies.

A Better Way to San Jose

Today I’m going to pick on the California High Speed Rail (HSR) project.  But that’s almost too easy, like shooting fish in a barrel.  So I’ll be brief and then propose a better alternative.

In case you don’t know, California voters passed an initiative in 2008 authorizing sales of bonds to finance a high-speed rail line from San Francisco to Los Angeles with branches to Sacramento on the north end and Anaheim on the south end.  Ten billion in state bond funds were to be matched by Federal and private funds.  The initiative also specified the running time and the fare to be charged.  (How many voters, who might balk at tax increases, understand that bonds have to be paid back with interest using tax revenue?)

Sure as God made green apples, the budget estimates have skyrocketed, the project scope has shrunk, and completion dates have stretched far out over the horizon.  In addition, citizens and local politicians along the route through the San Francisco Peninsula have risen up as one in response to the destruction and disruption that would accompany the construction and operation of the line through their back yards.  These are people in places like Palo Alto, many of them wealthy, articulate, and well-connected.  They appear to have succeeded in getting the Peninsula segment scaled down to a “blended system” where Caltrain and HSR trains share two tracks through most of the Peninsula rather than expanding to four tracks and wiping out hundreds of homes and businesses in the process.  There will likely be an initiative on the November ballot to kill the whole project and polls favor its passage.

For the record, I’m a rail fan.  I enjoy riding Caltrain to work, volunteering at the Western Railway Museum, and studying railroad history.  I’m fascinated by construction projects and still hold a license to practice civil engineering.  So if anything I should be biased in favor of the project but I hate it.

My alternative involves electric cars.  I know, they’ve been a flop so far (Obamacars?), mainly because the usable energy per kilogram of gasoline is about 35 times that of a lithium-ion battery!  A lot of smart people have been working on better energy storage devices and techniques with scant progress to date.

I propose that inductive pickup devices be added to electric cars and perhaps hybrids.  Induction coils would be buried in roadways like Interstate 5, the main SF-LA freeway.  This should make it easy to complete a long distance journey without stopping for a charge-up.  You would leave the freeway fully charged, probably with enough energy to complete your trip on conventional roads.

The payment for energy could be combined with a toll charge.  Tolls are a long overdue idea for roads like I-5 because they not only impose costs directly on beneficiaries but also because they enable congestion pricing – a toll that rises in times of heavy traffic and falls at other times.  This idea has already been implemented on a few California roads but on a very limited scale.  It has the potential to reduce congestion drastically, something carpool lanes have not accomplished.

A major advantage of this system over HSR is that it could be rolled out incrementally.  As soon as a few thousand cars were equipped with pickup devices and a few hundred miles of roadway fitted with induction coils, the benefits would begin.  In contrast, HSR won’t be much good until it’s completed all the way from downtown San Francisco to Los Angeles.  A good estimate for that time is: never.  There’s a real chance that HSR will be abandoned after a lonely segment has been built through Central Valley farmland.

Another advantage of the roadway proposal is that cabling could be included with the induction coils for future automated operation.  Under this longer-range scenario control of your car would be taken by an automated system soon after you entered I-5.  You would be accelerated to 120 or 150 MPH and safely guided to your exit.  This is not so far-fetched given that Google has been running driverless cars around city streets with great success, though perhaps not on freeways as yet.

Now let’s compare two ways of getting a family from San Jose to Disneyland as an example.  First is high speed rail.  You pack the family into the car and head for the downtown station, where you pay a hefty fee for five days’ parking.  You buy tickets for all, get on your train, and arrive in Anaheim, or downtown LA if the Anaheim branch hasn’t been built.  You rent a car and away you go.  Cost?  You figure it out, surely several hundred.  Elapsed time, several hours in all.

I’ve already laid out the induction-drive car scenario.  You come and go when and where you want at a much lower cost and close to the same elapsed time with automated operation.

So there you have it.  Sure, the devil is in the details.  I’ve given only the barest outline, and yet I guarantee you that no matter how solid a case might be built up for a proposal like mine and no matter how preposterous HSR is shown to be, some will not be swayed.  I’m not thinking of those who are merely dazzled by renderings of sleek trains.  I’m thinking of people ranging from busybodies to downright sociopaths who, to one degree or another, hate the freedom that comes with car ownership and want to herd people into public transportation.  In such people we find the root of the HSR boondoggle and so many other social problems.