Chicago’s Bonds Turn To Junk–As Could Be Expected

1. The article I wrote this week for Forbes makes the connection between post-WWII urban renewal, and today’s tax increment financing. I realize that the two redevelopment policies aren’t identical, most notably not in scale. Urban renewal was a nationwide policy during an era of extreme central planning; TIF is funded at local and state level to bring redevelopment to targeted sites. But during its four-decade rise, TIF has reflected urban renewal’s flaws, perpetuating waste, cronyism, and property confiscation.

2. Another article I liked was by City Journal contributing editor Aaron Renn, called “Libertarians of Convenience.” It is about how urban progressives resist government regulations for their preferred activities, while calling for more regulations overall. It seems that the group hasn’t connected certain dots: while advocating for government growth outright, they become shocked when said governments impose regulations upon them that are pointless and arbitrary, not grasping that this is often the natural course of bureaucracy.

What explains these contradictions? A charitable explanation is that urban progressives—typically on the younger side—are just beginning to experience how excessive regulations can suffocate life in the city…But it’s hard to avoid thinking, too, that some of the inconsistency reflects elite biases. The things that liberal-minded city residents like and want to do—eat from hip food trucks, smoke dope, and other “bourgeois bohemian” pursuits—should be left as free as possible, consequences be damned…Those that they consider déclassé—Big Gulps, Marlboro Lights, McDonalds—should be restricted or even shut down. It’s regulation for thee but not for me.

What the urban Left doesn’t recognize is that the regulatory mind-set is nearly impossible to turn on or off, depending on what you like or don’t like. Many of the bans and rules that progressives impose on cities not only make life difficult for muffler shops, hardware stores, plumbing firms, bodegas, and other unglamorous operations; they also harm the enterprises that they love.

3. But perhaps the most noteworthy urban news story was one that many have anticipated: Chicago’s bonds reached junk level. On Tuesday, Moody’s downgraded city bonds backed by property, sales and fuel tax revenue from Baa2 to Ba1, or just below investment grade.

The move came in direct response to an Illinois Supreme Court decision which found that the state constitution prevents the legislature from restructuring pension obligations for government employees. This could prevent the necessary reforms to the very debt that first caused the city’s ratings to drop so low. The state of Illinois has an estimated $167 billion in unfunded retiree pension and health care obligations. Various government entities within Chicago and Cook County, meanwhile, have an estimated debt of $87 billion, and two-thirds of this is for unfunded employee liabilities. Taxpaying Chicago households will eventually be on the hook to cover much of both. Yet, as the court decision showed, officials at multiple levels of government have proven unwilling to reform these burdens, so beholden are they to public employee unions. The problem forced Moody’s to downgrade Chicago’s bonds in 2014, and now again.

But I would argue that outside forces informed Moody’s decision also. Earlier this year, I wrote in the American Interest about the legal dubiousness of the bankruptcies in Detroit and Stockton. These cities, too, had run up massive debts because of unfunded pension liabilities, and filed for bankruptcy to shed them. But rather than following traditional bankruptcy proceedings by paying back their creditors, they made almost full guarantees to their retired employees, while giving some bondholders mere cents on the dollar (or in the case of Stockton, less than one penny). These cases represented a reversal of the normal order in which creditors are paid in bankruptcy. They were driven in both cities by a populist impulse to protect unionized government workers and give large financial firms the finger. But for the article, I interviewed a half-dozen financial and legal experts who thought the deals could set a bad precedent. If indebted cities can just file for bankruptcy and then use it to shirk payments to financial firms, the mere threat of future ones doing so could increase borrowing costs. Chicago has long seemed next in line to file for bankruptcy, and its liberal politics mirror that of Detroit and Stockton. So perhaps by lowering the city’s bond rating, Moody’s is taking necessary precautions.

 

What is wrong with “How to Make an Attractive City”

critica

How to Make an Attractive City”, a video by The School of Life, recently gained attention in social media. Well presented and pretty much aligned with today’s mainstream urbanism, the video earned plenty of shares and few critiques. This is probably the first critique you may read.

The video is divided into six parts, each with ideas the author suggests are important to make an attractive city. I will cover each one of them separately and analyze the author’s conclusion in a final section.

1 – Not too chaotic, not too ordered

The author argues that a city must establish simple rules to to give aesthetic order to a city without producing excessive uniformity. From Alain Bertaud’s and Paul Romer’s ideas, it can make sense to maintain a certain order of basic infrastructure planning in to enable more freedom to build in private lots. However, this is not the order to which the video refers, suggesting rules on the architectural form of buildings.

The main premise behind this is that it “is what humans love”. But though the producers of the video certainly do love this kind of result, it is impossible to affirm that all humans love a certain type of urban aesthetics generated by an urbanist. It is even less convincing when this rule will impact density by restricting built area of a certain lot of land or even raising building costs, two probable consequences of this kind of policy: a specific kind of beauty does not come for free.

Jane Jacobs, one of the most celebrated and influential urbanists of the modern era, clearly argued that

“To approach a city, or even a city neighborhood, as if it were a larger architectural problem, capable of being given order by converting it into a disciplined work of art, is to make the mistake of attempting to substitute art for life. The results of such profound confusion between art and life are neither art nor life. They are taxidermy.”

The video also makes a factual mistake when it states that London skyscrapers are carefully planned. Their location, in fact, is based on preserving specific viewing corridors established almost 200 years ago. As The Economist reported last year, views of these landmarks have completely lost its relevance in contemporary London.

2 – Visible Life

The video argues that cities full of street life are more desirable. That is observably apparent, as people’s preference is observable in their chose to be drawn to these spaces. Nevertheless, the video makes a contradiction: first saying that Hong Kong is an example of a city with street life, then claiming cities full of skyscrapers aren’t conducive to street life.  Cities with “anonymous commercial towers” do not necessarily lacks street life: New York, Hong Kong, Tokyo and City of London are examples of cities full of skyscrapers that have active street life.

3 – Compact cities

Suburbanization and sprawl has been vigorously incentivized by public policy, most massively in the United States. United States policy featured an Interstate Highway System with massive investment in large road projects; education funding that favored good public schools in the suburbs; subsidies that favored owning larger-and-larger homes such as Mortgage Interest Deduction; zoning restrictions such as minimum lot areas and setbacks, as well as state support for the auto and oil industry. These programs fueled a form of urbanization we’ve come to know as suburban sprawl. Compact cities, which the videos celebrate have typically grown spontaneously without significant interventions.

The historic European and Brazilian downtowns typically have shorter commute distances, an intensive street life and a smaller dependency on the automobile.

4 – Orientation and mystery

It is true that people have diverse preferences for urban form, and that an attractive city can supply a greater variety of forms. However, it is dangerous for a city to dictate a certain kind of urban form for the city as a whole, even if it is a mix between different models. Although we can control form within a neighborhood or a large-scale development, municipal norms with these goals in mind can generate distortions exactly because of the infinitely varying  preferences of the citizens. Incapable of catering to all the subjective preferences of everyone that participates in the city environment, planners inherently lack the capability to determine ideal quantities of orientation and mystery the video suggests. In a truly organic and complex city, orientation emerges in a truly spontaneous and decentralized way that brings more “mystery” than any planner can fathom.

5 – Scale

Here the author quotes Joseph Campbell: “If you want to see what a society really believes in, look at what the biggest buildings on the horizon are dedicated to”, and deduces that we don’t actually collectively value sports shoe corporations, tax specialists, the oil industry and pharmaceuticals, as a few examples. But is that in fact true? A certain citizen may even say that he does not value these corporations and services, but he is a daily consumer of shoes, he pays his taxes, burns fuel and uses plastic products. And when he gets sick, he relies on pharmaceutical drugs. In the behaviors of each person, a preference for these goods and services is in fact revealed.  The video misunderstands how the complexity of the economy actually works and how preferences in society are be manifested.

What happens within tall commercial buildings is never as simple as their appearance. They often house the companies that produce or support the computers we use, the planes we fly in or the milk we have with our everyday breakfast. Such a city reflects the social valuation of a complex network of voluntary action that generates the products and services that make our lives better.

Soon the author argues for preserving views and limiting building heights to five stories. The rule itself is a paradox, as a four story building will have its view blocked by a five story building. Going even further with this reasoning, we can infer that a single-story house can block the view of another single-story house. Arguing for the preservation of views is, in fact, a direct contradiction with what it means to live in a city.

In any case, it is not reasonable to limit buildings within a city to five stories. The height of the old cities the video refers to was not defined by planning norms, but by practical necessity of walking up and down stairs in an era before the elevators we now take for granted. In contrast to today, top floors in pre-elevator buildings were always the cheapest as they were the hardest floors to reach. Limiting building heights to five stories suggests an artificial and arbitrary limit to real estate supply, a tangible side effect of the “sense of insignificance” the producers of the video talk about.

6 – A local city

The video says that buildings must not look alike everywhere in the world, as his trips get boring and because each city has a specific climate, needs and different positive and negative attributes. It argues for a strong local character and for the use of local forms and materials.

This is very true with commercial real estate in Latin America, where developers have built several glass towers which are totally inadequate for a tropical climate. These designs are intended to copy temperate climate buildings in developed countries, where the “greenhouse effect” within glass-enclosed buildings is conducive to indoor working environments. Smart builders will certainly learn from these mistakes and develop more adequate local solutions instead of imitating inefficient and inadequate forms.

The use of local forms and materials, however, is a major problem. Aesthetic and architectural form – trying to separate it from building technology – were always globalized, being influenced by different cultures and ideas. The same argument goes for materials: locally available materials will hardly be the best for every specific building.  This principle can be applied to any object. It is impossible to imagine a pencil, a single and relatively simple object, to be produced only with local materials, much less an entire city. The historical examples given in the video were built that way mainly by lack of options, not by an aesthetic or functional preference. The only contemporary example given, architect Glenn Murcutt, does not use local materials and whether he designs are distinctly “Australian architecture” is a very subjective interpretation.

Conclusion

In the last section, the author asserts that the greatest challenges to implementation of these ideas are a lack of political will and intellectual confusion about aesthetics. This was one of the most dangerous ideas the video communicates. In saying that it is possible to affirm what is inherently beautiful or ugly, is realistically impossible as these are not universal truths. I personally know people who find the glass towers the author hates beautiful. Others think the Brazilian favelas or the shantytowns in Bangkok are the most amazing and spontaneous expression of humanity. Some even think Paris is not the romantic city travel guides tell us, but instead a repetitive and boring vision of the past. The stand the video takes is worrying, as it argues for a correct and universal aesthetic enforced by increasing political power.

The tourism statistics used in this argument is simply false. Dubai, Singapore, New York and Hong Kong are part of the top ten most visited cities in the world and represent urban aesthetics and form opposite to the one argued in the video. For example, my personal experience of Frankfurt does not align with what the video says: I had the opportunity to spend a few days there on vacation and thought the city was amazing.

The final conclusion is an attack on real estate developers, who apparently greedily fight to make the city an ugly unattractive place. Unfortunately not everything is easy in this world. Some developers invest in renowned architects to serve niche clients and citizens that are willing to pay a premium for aesthetic extravagance. However, those who build for the masses cannot budget for extravagance, as real estate is usually the largest expenditure in someone’s life – and the burden of housing costs ever growing in most part because of very regulations the video is promoting. The given example of New Town, Edinburgh is actually perfect, as it is one of the most expensive neighborhoods in town.  Ironically it’s probably the neighborhood with the least amount of street life because of it’s strict residential zoning.

Another contradiction is when the video argues a city cannot be shaped by a free real estate market.  However, most of the cities the video uses as good examples were, in fact, built by within extremely deregulated real estate market compared to today’s standards. This is true for almost all medieval cities, old London neighborhoods, the Marais in Paris (what was untouched by Haussmann’s renovation) with the additional examples of Hong Kong, New York and even the historical centers of Brazilian cities.

By understanding the city as a complex, emergent environment, we should let go of the urge to impose our personal interests in urban form. The video’s final conclusions, calling for an increase in government control and a rigid regulation of the urban environment is as dangerous and has the same mindset as the failed plans of Brasilia.  And as dangerous as modern urbanism theory in general, which sees the city as built physical space that can be modeled by what planners want to achieve. Cities must be the result of spontaneous and voluntary action by all its citizens, not of a committee that decides what is right, wrong, beautiful or ugly.  Restraint from imposition by those who arrogantly proclaim they know what’s best for the extremely complex organisms we call cities will eventually lead to what I like to call planned chaos.

The Many Shades Of Public Pension Mismanagement

1. My two Forbes articles this week were about how Miami’s liberalized culture and economy have made it an international banking center; and how reducing medallion requirements for taxis would level their playing field with Uber.

2. About a month ago, I asked readers whether they thought cities would be smarter to invest their pension funds using “in-house,” government-hired money managers, or outside private ones. I haven’t been able to address the issue, but last night rediscovered in my notes the story that sparked the question.

On April 8, the New York Times ran a report about how, in the last 10 years, New York City’s five pension funds—for police, fire, teachers, board of education, and general employees—missed out on an estimated $2.5 billion in returns because of high fees and poor investments by their Wall Street advisors. The Times cited a press release by city comptroller Scott Stringer, who had ordered an analysis of the $160 billion fund. Here’s a quote from Stringer’s release:

Wall Street managers of private asset classes such as private equity, hedge funds and real estate fell $2.6 billion short of target benchmarks after fees. Over the same period, managers of public asset classes exceeded the benchmark slightly. However, those managers gobbled up more than 95 percent of the value added—over $2 billion—leaving almost no extra return for the Funds…The poor performance of private asset classes ($2.6 billion below benchmark), combined with the marginally better performance in public markets, has cost the City pension funds nearly $2.5 billion in lost value over the past ten years.

The story didn’t get much press, because of its complicated nature, but there was some commentary from Bloomberg media. This is fitting given that during his NYC mayoralty, Michael Bloomberg tried to bring the city’s pension fund investing more in-house, to no avail.

A. Bloomberg View’s Matt Levine estimated that the expense ratio the city spent for firms to manage its public assets was .2%, which doesn’t much exceed the .17% expense ratio of the Vanguard 500 Index Fund’s small-investor shares. That said, he still thought the city had gotten a (somewhat) raw deal, since large investors can usually hire managers at discount.

B. Bloomberg View’s Barry Ritholtz gave a cautioned endorsement for in-house management of the city’s fund, as an antidote to the $2.5 billion loss.

C. He linked to a 2013 Bloomberg Business report that described how this would work. The report noted that New York City is “the only one of the 11 biggest U.S. public-worker pensions that refuses to manage any assets internally.” Doing so would be cheaper, since publicly-hired money managers usually earn 6-figure salaries, not the exorbitant 8-figure salaries common on Wall Street. But this cheaper route can also mean lower returns:

The California Public Employees’ Retirement System, the largest U.S. pension, manages almost two-thirds of its assets, including 83 percent of stocks and 91 percent of bonds. Chief Investment Officer Joseph Dear received $522,540 in compensation in 2011. Yet its 6.1 percent average annual return for the 10 years ending June 30, 2012 is 1.1 percentage point less than that of the Pennsylvania Public School Employees’ Retirement System. The Pennsylvania fund manages only 26 percent of assets internally and paid Chief Investment Officer Alan Van Noord $269,302 in 2011. New Jersey’s $75.3 billion pension manages 73 percent of its assets in-house, the most among the 11 biggest U.S. public funds. The system returned 6.4 percent for the 10-year period ending June 30, 2012.

These low returns don’t surprise me. In fact, I have a hard time believing that public management of pensions is desirable, for the reasons I described last month. In-house managers earn salaries that are abnormally low for their profession, and that are fixed. They also work for debt-prone corporations (aka cities and states) who have no need to profit immediately, or even in the long term. This sounds like a poor set of incentives for producing high returns. Public managers may also be overruled by a broader political climate of “social divestment,” in which governments steer their funds away from politically-incorrect companies, even if that means lower returns.

Of course, what goes unstated is that respective tales of public and private mismanagement of government pensions make an even stronger case for converting employees to 401(k)s. The main argument for doing so is that it would shift pensions from defined-benefit to defined-contribution, thus absolving taxpayers from the need to fully fund them. But it would also finally allow workers more investment autonomy. Rather than having all their savings tied up in one large fund, to be managed at their government’s discretion, employees can decide for themselves what to do with their money.

 

 

 

Seamless Transit: Thoughts on the new report from SPUR

SPUR_Seamless_Transit

Seamless Transit is the new transportation policy report from SPUR. Main author Ratna Amin proposes integrating the Bay Area’s balkanized transit systems to improve lackluster ridership. Given that the region has 23 separate transit providers–more than any other metropolitan area in the country–she may have a point.

The report proposes standardizing service maps, fare structures, and payment systems; eliminating inter-system coverage gaps as well as redundant coverage; and reforming transit governance so that the different agencies actually make plans together instead of working at cross-purposes or not at all.

The recommendations are sound and the report includes historical footnotes for context. These are helpful for understanding region’s complicated institutional arrangements. Seamless Transit is a fine piece of work and well worth the read for anyone interested in Bay Area transportation.

But while organizational efficiency is important, it’s not the only thing to discuss. If we want to improve the region’s mass transit systems, we have to consider the physical environment in which those systems are embedded. To get transit right, the region needs to embrace density.

Denser development around transit nodes would increase ridership substantially. When people live, work, and play in smaller geographic areas, more people travel between a fewer number of points. Mass transit, especially fixed rail transit, becomes more effective the denser development becomes.

Hong Kong’s Metro Transit Railway (MTR) might be the quintessential example of urban density begetting mass transit success. The city is home to over 7 million inhabitants. It has a population density of over 18,000 residents per square mile. And of this population, 41% live within a half mile of an MTR station. The result? The MTR has a farebox recovery ratio of 186%–the highest in the world.

Because of legal as well as political differences between Hong Kong and the Bay Area, copy/pasting the MTR’s Integrated Rail-Property Development approach probably isn’t  feasible. But the general lesson remains the same. Increasing ridership means accepting density. And accepting density means reforming the region’s anti-growth, anti-urban land use policies.

None of this is a critique of Ms. Amin or her co-authors. They set out to address a specific set of issues and they did it well. But in the wider conversation about regional transportation, we’d do well to remember the importance of land use. And we’d do well to recognize the necessity of reform. Ultimately, getting mass transit right may have as much to do with embracing urban levels of density as it does with making sure the trains show up on time.

 

 

 

Why Money for Schools Means No Permits For Housing

Housing has a lot going against it in the California. But amidst all the legal, political, and regulatory roadblocks, there’s one law that sneaks by largely unnoticed: Prop 98.

Prop 98 guarantees a minimum level of state spending on education each year. Sacramento pools most city, county, and special district property taxes into special education funds to meet this commitment. The localities only get to keep a small part of the property tax revenues for their own general budgets.

This system creates a disincentive for cities to permit housing. New housing brings in new residents who need city services. But it doesn’t bring in a commensurate increase in property taxes since most of that revenue gets scooped up by Sacramento.

Commercial development, though, brings in taxes a city gets to keep. Sales and hotel taxes are significant revenue streams. And they don’t cause the kinds of strain on city services that new residential does.

Reforming Prop 98 might be low hanging fruit. Changing the formula to appropriate a broader stream of city revenues might help ease the bias against housing. And it might even be possible to amend the law without having to fight the California Teachers Association. As long as there’s no net decrease in education funding, of course.

stack_of_books

For those not acquainted with California politics, the California Teacher’s Association (CTA) is the most potent lobby in Sacramento. If the CTA doesn’t like a bill, it doesn’t become a law.

 

It’s tough to say exactly how much new housing Prop 98 actually prevents. Different cities get to keep different amounts of their property taxes, so the disincentive differs case to case. And there are plenty of other things like CEQA and Prop 13 which put a drag on new construction as well. But where CEQA and Prop 13 make it easier for residents who are already NIMBYs to gum up the works, Prop 98 is a reason in itself for a city to avoid residential development. So while we can’t do much to change the aesthetic preferences of our neighbors, we can do something to change the law. And if tweaking one law makes cities see new housing as a financial boon instead of a burden, it might be worth the effort.

 

Travel Update: Recent Articles On Housing

I wrote a housing-related article this week for Forbes, and in the process of research, came across several other interesting recent ones. Here’s the roundup:

1. My article discussed the connection between rent control and high housing prices. To my surprise, only 6 of America’s 50 largest cities still have rent control, as numerous others ended what they saw as a counterproductive policy. But those six remain among the nation’s most expensive, and I argue that rent control is a big reason why.

2. This didn’t prevent Seattle from trying to revive the policy this week, led by Socialist Party councilor Kshama Sawant.

3. While rent control is seen today as antiquated, this hasn’t stopped the rise of its close cousin, “inclusionary zoning.” Steven Greenhut writes for Reason about a California state court case that could determine the policy’s constitutionality. The case, he says, is “about whether cities have unlimited power to extract concessions from homebuilders for things that are not ‘impacts’ from the project. In other words, it’s legitimate for government to require new developments to pay to mitigate the effect of the new residents on local infrastructure (roads, sewers, fire service), but is it OK for cities to require affordable housing just because officials want to see more of it built?”

4. Michael Lewyn challenges the notion that Airbnb hurts housing affordability by taking units off the market.

5. Recently the New York Times published a short time-lapse video of lower Manhattan’s various developmental stages over 500 years. Daniel Bier at Newsweek points out something strange about the video’s last few decades: “The pace of change slows dramatically toward the end…because the city government has deliberately calcified New York City, encasing the city’s structures in a legal state of suspended animation.”

6. Emily Badger writes on Wonkblog about the rise of urban adult singles, and the way that cities’ housing stocks have failed to adapt–thanks to government regulation. Her piece is worth quoting at length.

Our housing stock wasn’t built for a society full of singles. Our communities instead are full of homes meant for the traditional nuclear family — two-bedroom starter homes, three-bedroom houses, apartments with more bathrooms than a singleton needs, full-service kitchens when 25-year-old bachelors now primarily dine by microwave….In New York, Austin and Denver, nearly 57 percent of adults were single in 2010 (although not necessarily living alone). In Washington, D.C., that figure is a whopping 71 percent. But none of these cities have anywhere near enough small-sized housing to accommodate them. That means that a lot of people are probably living with unrelated adult roommates who’d prefer to live alone (half you people in D.C. group homes?). And it means that some people who do live alone are likely paying more for space they don’t want in a large one-bedroom because there aren’t enough alternatives in studios and efficiencies.

Changes in demographics and social norms invariably occur faster than changes in the built world around us…[But] a lot of cities are also actively making it hard for the housing supply to adjust. The rise of singles calls in particular for more micro housing: apartments the size of studios or even smaller, and “accessory dwelling units” (think in-law cottages or garage apartments) that might be built in the back yard of existing homes. It also calls for a different model of housing where, for instance, four singles might share a communal living space adjacent to their separate units instead of each having their own living room. Neighborhood opposition and existing regulation make this kind of housing hard to build in most cities, though. Parking requirements, for example, often mandate that new housing come with new off-street parking spots, too. But that rule is impractical for someone who wants to rent a cottage in her backyard. And it makes projects financially unworkable for a developer who wants to build an apartment full of micro units next to a train stop for residents who don’t own cars. Other laws set minimum standards for how small a housing unit can be — in much of New York, it’s 400 square feet — making micro units effectively illegal.

 

I’m Traveling Cross-Country to Write a Book on Market Urbanism

batman-hitchhiker-gotham-city
Ever since Adam founded this blog, it has become a great forum for describing how free-market economics intersect with urban issues. But the term Market Urbanism itself has remained under the radar, especially compared to ones that encourage more government intervention for cities, like “Smart Growth.” I’ve always thought that Adam’s term deserved more mainstream cache. So I’m traveling cross-country to write a book about it.

My name is Scott Beyer, and I’m a 29-year-old urban affairs journalist from Charlottesville, VA. This week, I began a 3-year trip that will include month-long stays in 26 major cities, and visits to hundreds of smaller ones. Part of this is to continue work as a columnist for Forbes and Governing Magazine. But mainly it is to write a book that I’ve tentatively titled The Sparks From Within—How Market Urbanism Can Revive U.S. Cities.

My inspiration for this trip dates to my late teens, when I moved to New York City. I quickly become so enthralled with the fast-paced culture and diversity of urban life that I saved up some money to backpack the nation’s other cities. This continued on and off through my twenties, as I visited the nation’s 100 largest, burning through several Greyhound “Discovery Passes,” hitchhiking dozens of rides, and even once hopping a freight train from Jacksonville to New Orleans.

I had first expected that these cities would be as dynamic as New York, but was surprised to find otherwise. On one hand, numerous ones had declined despite decades of U.S. population growth, and now had neighborhoods that would embarrass a Third World country. And even many successful ones lacked a certain gravitas, with downtowns that hollowed out after 5pm.

Why were so many cities like this? That question inspired a research period after I returned home that extended for several years. My main conclusion was that U.S. urban failure did not result only from global forces like deindustrialization, but because of counterproductive government policies. This began with post-WWII federal policies that encouraged suburban flight, such as slum clearance, highway subsidies, and loan programs favoring single-family homes. When this caused industry to leave, many cities, feeling desperate, adopted their own aggressive policies, and have maintained this heavily-centralized model ever since. In most large cities today, powerful bureaucracies—bolstered by regulatory authority and gobs of federal money—dictate where and how growth happens. Rather than enlightened decision-making, this administrative model has produced a comedy of errors, as America’s cities are dominated by high taxes and regulations, political machines, rent-seeking, cronyism, property confiscation, and sometimes plain corruption.

What I also learned through research, though, was that this model had inspired numerous pro-market, small-government reforms for cities. These have included charter schools, defined contribution pensions, one-stop shops for business permits, zoning deregulation, and whatever else liberalizes economies and reduces the dead weight of government. These reforms have been explained in depth by various commentators—mostly on the right—but have always floated around separately. I would like to combine them into a single policy blueprint that would make U.S. cities more competitive in the 21st century. I thought the term “Market Urbanism” was catchy, and because Adam’s blog advocates for these policies, I asked him about expanding the concept into a book.  He told me to go for it.

During the trip, I plan to write about 26 different reforms, using each as a chapter for a given city. These chapters will be divided into 5 sections, dealing with housing, transportation, business climate, public services, and finance. This localized, case-study format will help me explore the details of how each reform would help a specific city—and who now opposes it.

What do I hope to accomplish from this project? I would like to bring the term Market Urbanism into public consciousness, and into direct competition with the moldy prevailing wisdom of America’s cities. For decades, this wisdom—moving from academia on through city hall—is that urban problems must be solved through more government. The point of my book is to explain why market alternatives would solve them better—while making cities denser, faster-growing, more affordable, and more livable.

I would encourage the readers of this blog to follow my project, either through my website, BigCitySparkplug.com, or my Forbes profile. I should also note that every Friday, I’ll be providing updates on MarketUrbanism.com from the road, including links to articles I’ve written that week, research I’ve encountered, or whatever else may be on my mind. I hope over these three years that I can connect with my fellow Market Urbanists, and if I happen to be in your city, please don’t be shy about reaching out, as I prefer learning about places through the locals. But at very least, I hope to bring America’s cities alive for you via the web, as I report on them directly from the streets.

Reach out to Scott about his travels:

Gentrification in Reverse

Co-authored with Anthony Ling, editor at Caos Planejado

Gentrification is the process through which real estate becomes more valuable and, therefore, more expensive. Rising prices displace older residents in favor of transplants with higher incomes. This shouldn’t be confused with the forced removal of citizens via eminent domain. Ejecting residents by official fiat is a different problem entirely.

Greenwich_Village,_1900

Greenwich Village circa ~1900

 

A classic example of gentrification is that of Greenwich Village, New York. Affluent residents initially occupied the neighborhood. It later became the city’s center for prostitution, prompting an upper-middle class exodus. Low prices and good location would later attract the textile industry. This was the neighborhood’s first wave of gentrification. But after a large factory fire, the neighborhood was once again abandoned.

Failure, however, would give way to unexpected success: artists and galleries began to occupy the vacant factories. These old industrial spaces soon became home to one of the most important movements in modern art. In Greenwich Village, different populations came and went. And in the process they each made lasting contributions to New York’s economic and cultural heritage. This was only possible because change was allowed to take place.

Greenwhich Village circa 2014

Greenwich Village circa 2014

But change isn’t always easy.

As a neighborhood becomes more popular, it also becomes more expensive. Tensions run high when long-time residents can’t afford rising rents. Some begin to call for rent controls or other measures to prevent demographic churn.

But rent control is a temporary fix at best; in the longer term, its effects are negative. By reducing supply, it tends to actually drive up the cost of housing. And in the face of price controls, landlords may seek to exit the rental market entirely, further exacerbating any housing shortage.
What, then, does this mean for urban development? How can cities evolve without completely displacing their middle and working class residents? By embracing gentrification’s opposite: filtering.

Buildings, like anything else, are expensive when they’re new but depreciate over time. Architectural styles change. Wear and tear accumulate. Buildings become harder to update with the newest amenities. Here is where we find filtering; aging units, originally built for the wealthy, become more affordable over time. What’s difficult to see is that filtering occurs simultaneously with gentrification. Every “gentrifier” frees up their former unit for someone slightly less well-off. That person, in turn, also frees up a unit and so on down the line. The process is akin to a game of musical chairs.

But for the game to work for everyone, chairs must be added, not taken away. Cities must allow additional units to be built so that the housing stock expands over time. Research suggests that this is a necessary condition for filtering to take place.

While filtering is not some panacea that cures all housing ills, it’s an important part of how housing markets work. Allowed to take place, it contributes to providing housing at all levels of income. The more a city impedes the process by restricting growth, the more its poorest areas will gentrify without the offsetting creation of less expensive housing over time.