The Key Word In Conservative Urban Reform: “Openness”

1. I published two articles this week. The first was a Governing Magazine piece about how Miami’s pro-development policies have delayed downtown gentrification. The second was an update, published by Forbes, on Philadelphia’s mass eminent domain scheme for a blighted neighborhood. That issue first became public for this audience when reader Adam Lang posted in the Market Urbanism Facebook group that he was one of many residents whose property would be seized. Emily followed with a description of the plan on this site, and my Forbes piece provides an update following the June 18th approval by city council. Far as I can tell, my article was the first mainstream national press coverage of the issue, and we can only hope from here that the floodgates open…

2. For America’s urban conservatives, it has been frustrating to see the indifference shown towards cities by the Republican Party. Even as the nation continues urbanizing, and election results are increasingly tied to the city vote, the GOP continues to identify with suburban and rural constituencies. This causes them to take positions which offend city voters, like opposing immigration reform and gay rights, while flat ignoring other principally urban issues like public transit and homelessness. And while there have been some conservative urban reforms, like charter schools and data-driven policing, there has not been a unified agenda. So it was exciting to see a recent article—reposted, naturally, on the MU Facebook group—advocating for this.

National Affairs, a quarterly journal that is associated with “reform conservatism,” published “An Urban Agenda for the Right.” The article was written by Michael Hendrix of the Chamber of Commerce, in collaboration with NA editor Andrew Evans. While it did not list every possible reform, it mentioned many of the macro-level ones long discussed on this site. What I liked even more, though, was that it suggested a change in messaging, wherein the Democrat establishments that have long controlled cities are described as “closed,” while conservative reformers are portrayed as “open.” This, wrote the authors, would create a more accurate perception of modern U.S. cities.

As a result of decades of Democratic governance and misplaced priorities…American cities do not offer the opportunities for success and growth that they should, especially for those looking to climb the socio-economic ladder. In many cases, city governments are utterly dysfunctional. And the reason for this dysfunction is that our cities are too often closed—closed to businesses and closed to outsiders. For the middle class and those striving to make it up the ladder, the taxes, housing, and other costs leave cities simply too expensive to afford—especially with a family. Excessive regulation makes it difficult, if not downright impossible, to get the permits necessary to start a business. Cronyism and a lack of transparency make it difficult to know whether anyone is trying to fix the situation.

In response to this restrictiveness within cities, “conservatives should seek to make them open.”

What I found interesting about their wording was that it inverted how most Americans view the political parties. At the national level, Democrats are portrayed as the open and tolerant ones, and Republicans as the reactionary ones trying to uphold the status quo. These distinctions have been established largely because of the parties’ differing approach to social issues.

But this is hardly applicable to cities, where issues are rooted more in economics and quality-of-life. A large number of urbanites—whether they want to call themselves liberals, progressives, or Democrats—are in fact quite reactionary themselves, a point emphasized by the authors. Housing regulations have been used by the urban left to restrict new construction, as if city neighborhoods are gated country clubs that should never allow change or new people. The liberal business elite have fortified the business permitting process so much that, in many cities, it is nearly-impossible for competing entrepreneurs to enter basic professions like hair-styling. And to carve out a voting bloc, the left has defended unionized public monopolies that deliver services at far higher cost, and less efficiency, than is necessary.

To the authors, making cities more “open” would mean embracing economic and administrative liberalization. They call for housing deregulation, so that cities can accommodate growing populations; one-stop shops for business permitting; and civil service reform, so that bureaucracies are either held to better standards, or replaced through privatization. They also call for better online data, so that residents can easily view info on their cities’ spending and debt, and gain access to officials.

All these measures would, in fact, open up cities in the technical sense–by allowing in more people, and granting them more options once there. If such openness regarding cities was promoted more by Republicans, it might change the perception about which party best embodies this core urban value.

Havana, Cuba–Stagnation Doesn’t Preserve Cities, Nor Does Wealth Destroy Them

[My second in a two-part series on Havana, Cuba. Here’s the first article.]

Havana, Cuba

Before taking my trip to Havana, one thing that I was curious about was how a half-century of Communism had affected the built fabric. While there are obvious disadvantages to economic stagnation, I figured that it would have at least created a charming-looking city. There are, after all, a handful of U.S. cities, and numerous European ones, that have resisted growth, modernization, and the automobile, only to remain quaint and historic. But it didn’t take even a 10-minute cab ride from the airport to realize that my assumption about Havana had been naïve—even if it is still held by many of the city’s blissfully uncurious tourists.

In fact, very little about Havana has been “preserved.”  Instead, everything in the city is merely old, and because little gets produced, nothing is replaced. This applies to the automobiles, furniture, hand tools, manufacturing equipment—and most certainly the buildings. Collectively, this stagnation has destroyed the look of the city, with a physical blight that stretches nearly every block from downtown to the outer slums.

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If I could define in one statement what Havana looks like, after four days of extensively biking and walking through, I’d call it the Latin American Detroit. It was a once-great city that declined because of bad policies, and its pervasive ruination serves as a constant reminder of this. The houses themselves, while large and ornate, are almost uniformly inadequate by U.S. standards. If they have not crumbled to the ground altogether, many are caving in. The foundations are crooked, full of holes, and marred by broken windows and doors. Because of Havana’s European roots, stucco is a common material, but on most buildings is falling off, or in some cases has disappeared. Almost every building has dirt and grime, while some are covered in it.

And this is for Havana’s nice parts. Once I began biking out of the central neighborhoods and into the slums, I found that symbols of past wealth disappeared altogether, and were replaced with what in the U.S. would be considered shacks. These structures were usually patched up with knotted wood, metal scraps, and thatching. One gentlemen who lived in the poor neighborhood of Cerro, and who I spoke with at length, described his area as akin to a Brazilian favela—which I found believable. The two pictures I took below were from his front porch, and mirrored the aesthetic of such areas.

So what is it like to live and work in these buildings? As one might expect, the outside decay permeates to the inside. The best access I got was through a 24-year-old working-class woman named Indira. I met Indira on my first night in Havana when stopping to ask directions, and after noticing that she spoke good English, took her to dinner. We became friends, and she invited me into her downtown apartment, where she lived with her mother and father-in-law. The apartment was roughly 150 square feet—far smaller than a typical New York City micro-unit. Because it had a high ceiling, the family had built a horizontal wooden floorboard halfway up the wall that served as the second floor, and built a makeshift staircase leading up. This upstairs “room” was for the mother and father-in-law, while Indira lived in the main room below, sleeping crammed against the kitchen.

Even in such a small space, there were numerous malfunctions. There was no hot water, either for cooking or showering. In fact, the shower did not even work, meaning that the family instead took scrub baths. Because the toilet didn’t flush, they had to pour water into it each time after use to accelerate the draining. The built-in wooden floorboard was clearly sagging under the weight of the upstairs furniture, raising concerns that it would one day collapse. As for the actual roof—it had been crumbling for years, and was fixed recently by a neighborhood handyman. To pay for the work, the family had to spend over a year saving up $150.

 

The main story of Indira's apartment.

The main story of Indira’s apartment.

 

The second story, upheld by a wood board

The second story, upheld by a wooden board

 

Public Infrastructure

Just as peoples’ private houses were crumbling, so too was the public infrastructure—again, much like Detroit. The public spaces, while well-used, were typically full of trash, overgrown weeds, and broken objects. Many parks, for example, were defined more by concrete than grassland. Streets, if they were even completely paved, were filled with potholes and had such poor drainage that, after it rained, they would gather huge puddles.

A water-less pool

A water-less pool

 

I wasn’t able in my short time there to analyze the underground infrastructure. But if it is like everything else in Havana, I would assume that it, too, is crumbling. For example, contrary to what tourist brochures say, Havana’s tap water is considered undrinkable by locals, and I was routinely offered bottled water to avoid catching chlorida.

Indeed, the substandard nature of Havana’s built entities were so common that after awhile I stopped noticing. For example, when I attended a rainy futbol match at a renowned Havana stadium, I sat underneath a roof that leaked constantly, getting soaked alongside other fans. Can anyone imagine this being tolerated at a U.S. arena? When I used bathrooms even in nice establishments, I would find that there often weren’t toilet seats, door locks, or (you guessed it) toilet paper. Schoolyards had swimming pools without water and basketball hoops without rims. And on it went.

This is how life is in Havana. And I soon realized, given this, how buffoonish it would have been to go around looking for examples of “historic preservation.” Such preservation is an aesthetic notion from the First World, driven by those who are willing to pay more to retrofit attractive old housing. But in a city of extreme poverty, preservation is the pragmatic steps people take to prevent their roofs from caving in.

a public park...

and a public waterfront

So How Does Havana Compare To…San Francisco?

Have you ever read an article that was so hilariously wrong that you wanted to pick your laptop up and chuck it across the room? This was my reaction to one article I read several days after returning from Havana, with the city’s horrific conditions still on my mind. On June 8, MarketWatch.com published an article by columnist Therese Poletti called “New Tech Money Is Destroying The Streets Of San Francisco.” Poletti explained that a flood of wealthy executives were moving into San Francisco, buying old homes, and altering the interiors.

It is now hard to find a Victorian home for sale that has not been gutted, its architectural details stripped and tossed. And owners or developers — looking to sell at a premium in the frenzied real estate market to “techies with cash” — hope to appeal to the tastes (or lack thereof) of current buyers, by turning once-charming homes with detailed woodwork, built-ins and art glass, into clones of Apple’s minimalist retail stores.

This trend has been developing for several years, but it seems far more prevalent today, with construction sites sprouting across the Bay Area and especially in San Francisco. And in addition to the remodeling frenzy, older buildings appear to be disappearing at a scary pace.

Before even addressing Poletti’s point, let me just set the record straight: San Francisco is not being “destroyed.” I can testify from having lived there in 2012, and visiting several times more, that the city is an architectural gem that has largely stayed in character since being rebuilt after the 1906 earthquake. Much of the city—including almost the entire northeast portion—is an oasis of historic Italianate, Queen Anne, Craftsman, and Art Deco construction. These buildings roll along the hills flanked by clean, well-paved streets, and small, impeccably-landscaped yards. From a purely aesthetic standpoint, San Francisco surpasses any other major U.S. city, and perhaps any European one.

The reason for this is two-fold. San Francisco has expansive historic preservation laws that make it difficult or illegal to alter thousands of structures. Compelling arguments have been made that the city takes this preservationist impulse too far, to the detriment of adding new housing supply–although such laws help maintain its unique character. But the other factor—to which Poletti seems oblivious—is that the city has a large professional class with the financial wherewithal to maintain these homes.

I would argue that this second factor, more than the first, has preserved San Francisco. You could put a historic overlay designation across Detroit, and it wouldn’t change much. The Motor City suffers from decay because it has undergone six decades of depopulation, and this has left no one around to preserve its own large historic stock. But the Bay Area has been flooded with capital during this period, and this has strengthened its culture of preservation. Maintaining a historic home, after all, can be an expensive endeavor that requires ripping out floorboards, replacing pipes, and other structural changes. It is usually done by educated, well-off households who have either the money to fund repairs, or the time to dedicate sweat equity. Perhaps not every family preserves their homes precisely to Poletti’s specifications, and I don’t blame them, since it is difficult to live in a floor plan that was laid out a century ago. But she should not miss the broader point, which is that San Francisco has remained as it is because of the demographics it attracts.

Instead, she claims that these groups are “destroying” the city. She is thus spouting the same myth that is advanced about historic preservation by urban progressives, who seem to think that wealth and gentrification works against preservation. But a fair-minded look at U.S. cities demonstrates the opposite. If one looks at America’s most notable historic neighborhoods–the Back Bay in Boston; Capitol Hill in DC; the French Quarter in New Orleans; much of northern San Francisco; much of Manhattan and northern Brooklyn; downtown Savannah; and downtown Charleston–a unifying feature is that they have great residential wealth. Meanwhile, there are numerous cities—Baltimore, Philadelphia, Detroit, St. Louis, Cleveland—that have a similar number of historic structures. But many of them sit hollowed-out because of decline.

The same could be said when comparing Havana with Poletti’s San Francisco. Both cities have similar architecture and planning, but their differing economic histories have led to opposite preservationist destinies. Wealthy and growing San Francisco is a city where thousands of structures remain in superb shape, and where people grieve over minor alterations. Havana’s system has produced a crumbling city where the desire for preservation gets lost in a sea of basic needs. If Poletti really wants to see a “destroyed” city, she should visit the latter.

a public housing complex from the outside...

a public housing complex from the outside…

 

and from the inside.

and from the inside.

 

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Havana, Cuba–The City Of Scarcity

[My first in a two-part series on Havana, Cuba. Here’s the second article.]

Havana, Cuba

1. I’m now a week removed from my Cuba trip, where I spent 4 days in Havana biking through the city’s near-hourly mix of high heat and torrential rainfall, returning to my bed & breakfast each night covered in soot. My first few days back in Miami I spent sick and exhausted in a hotel, but managed in the latter half to pump out a Forbes article on Miami’s inequality. The piece was slammed the next morning by the Miami New Times–a local alternative rag–for making arguments that staff writer Kyle Munzenrieder found “structurally racist.” I sent an email asking him to elaborate on the racism charge (since he didn’t in the article), but haven’t heard back.

2. That said, my mind mostly remained in Cuba. It would be hard to summarize on this page everything that I learned there, since the nation has a complex history, and enforces a dizzying array of Communist-inspired regulations that would mystify Americans, and that has impoverished average Cubans. In coming weeks, I’ll explore these economic policies–and the effects of the U.S. embargo–in depth for other publications. But I’ll say a quick word here about Havana’s living conditions, peppered with a few of the more than 300 photographs I took.

While exploring Havana’s neighborhoods, the thing that jumped out was not the city’s poverty (although there was plenty of that), but its scarcity. Because Cuba’s government does not value or comprehend mass production–namely not for agriculture–there are shortages of everything. In America, we take for granted that any basic convenience is but a short drive away. But in Havana, running errands isn’t that simple. City residents have limited mobility: the bus system is cheap but unreliable, the newly-private taxi system is efficient but costly, and for most Cubans, owning a bicycle–much less an automobile–requires years of savings. So they must stick to neighborhood stores with minimal inventory, and even if they did all have cars, there would still be few outside options.

To understand why, just imagine a city where every store is literally 1% of what it would be in America.

A typical bakery in Havana.

A typical bakery in Havana.

 

While a U.S. pharmacy like Walgreens or CVS sells not only drugs, but numerous foods, beverages, household goods, etc., the average Havana farmacia has a few shelves with maybe 100 drugs–and that’s it. Modern U.S. grocery stores often exceed 50,000 square feet, and sell thousands of products. In Havana, different food types are sold separately in small, rickety stores that often contain one or two items. Mercados sell fruit and veggies; carnicerias sell meat; and many panaderias (pictured above) sell a low-nutrition roll that would be served as a side at a crappy American road diner. The typical gas station had not even one-tenth of what you would find in a 7-Eleven.

A mercado that sold only mangos and potatoes.

A mercado that sold only mangoes, plantains and potatoes.

 

Half of the available meat supply at a downtown carniceria

Half of the available meat supply at a downtown carniceria

 

This isn’t surprising, since most Cubans earn about $20/month, and thus have minimal spending power. But the scarcity effects all income groups. For example, as an American tourist, I was considered massively wealthy by Cuban standards. That said, my expenditures were mostly limited to my B&B, my bike rental, bottled water, cheap cafes, and cab fares. My one splurge was taking a local couple who I had befriended out to a restaurant that, by Cuban standards, was exquisite, but that didn’t exceed the quality or cost of an Applebee’s. Over 4 days, all this cost $360. Compared to the few other U.S. tourists I met, this was an extremely economical budget–but was still more than what many Cubans spend annually.

Yet despite this, I found myself unable to buy basic things. For example, during my first night in Havana, I didn’t realize–until it was too late–that the B&B landlord had not provided toilet paper. In America, this would be a glaring oversight, but in Havana, I would discover, is normal. This forced me to navigate my neighborhood at 3am, offering pesos to the many teenage boys still standing outside, to bring out “papel higienico” from their houses. Every time I tried this, they would each explain, in rather comical fashion, that none was available. Finally I found a teenager who spoke passable English, and asked him how this could be. After sending his little brother in to find something, he explained that “in Havana, toilet paper is a delicacy–like chocolate,” and that most residents don’t just have any sitting around. So how did people cope?

“Here in Havana, we have a saying,” he quipped. “We say, ‘Cubans have a good ass. Our asses work for all kinds of paper. Toilet paper, newspaper, book paper–any kind of paper’.”

When his younger brother reemerged from the house, he was holding for me a single sheet torn from his school journal. I would later learn while interviewing impoverished Cubans that other “delicacies” included soap, meat, milk, cheese, and ice cream, not to mention the hundreds of gadgets and appliances found in a typical American home.

3. One thing I mentioned before leaving for Havana was that I wanted to see how urban street life functioned in a city suffering from 50 years of stagnation. I found much that was good and bad, but for the sake of brevity, will describe this week what was good.

Havana, both in downtown and the neighborhoods, offers a scintillating street culture dominated by people, music, and commerce (spartan as it may be). In many ways, it is an urban flaneur’s dream, as one can spend hours weaving through crowded streets full of friendly people who will spill their life details to a stranger. There are, in fact, few places one can go without finding numerous people on each block, and rather than ignoring one another, many are in perpetual communication, often yelling to each other from adjacent buildings.

Just blocks from the Capitol building.

 

A busy street in the southwestern Havana slum where I stayed.

A busy street in the southwestern slum where I stayed.

 

This atmosphere continues well into the early morning, as mostly teenagers stand on corners to laugh, drink and sing. For them, a rich gringo passerby is not a target, but a source for amusing dialogue, especially since they will bend over backwards to try overcoming the language barrier.

But this street life seems less rosy when you consider that it is rooted in hardship. Many Cubans are forced by poverty to live cramped together–sometimes 10 to a house, according to one person I spoke with–so naturally they would escape to the street. Because some cannot afford front doors and windows, much less advanced security, there is little privacy, and people treat sidewalks like their extended living rooms. Because so few people own cars–and because those cars run slower than in America–traffic is less menacing, allowing pedestrians to linger in roadways. Because parks are in such disrepair, sporting children instead compete in the streets. And the built fabric itself is so narrow because modern buildings are seldom constructed.

An equally fascinating aspect of Havana’s street culture, to be covered next week, was the physical decline. It was not difficult to tell that Havana was once a very advanced society indeed, defined by a merchant and governing class who had sophisticated urbanist sensibilities. At times while biking through Havana’s mild hills, I would get these weird flashbacks of San Francisco, when observing large, elaborate Spanish architecture that interspersed gracefully alongside pocket parks, public stairways and boulevards. But imagine if San Francisco had undergone 50 years of Detroit-style decline and neglect, and you’ll get an idea of the blight that pervades Havana. Many of the photos I provide next week will alarm you.

4. I could go on and on about other aspects of Havana’s street life, but here are a few tidbits that readers will find interesting.

– As might be expected from a Communist dictatorship, there were few religious symbols, but numerous political insignia celebrating the Revolution’s enduring strength. Ironically, many of these signs were in disrepair.

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Translation: "study, work, rifle."

Translation: “study, work, rifle.”

 

A celebration of CDRs, the network of neighborhood watchdogs tasked with upholding the Communist order

A celebration of CDR, the network of neighborhood watchdogs tasked with upholding the Communist order

 

– Cuba’s many old automobiles might be charming, but are terrible for the environment. Old age and poor maintenance mean that many spew out toxic exhaust that blows into pedestrians’ faces. In the central parts of Havana, where streets were narrow and buildings taller, the stench lingers, making life unbreathable.

They also frequently break down; it’s hard to bike 10 blocks without finding some car on the side of the road, hood popped.

– In America, farmer’s markets have become boutique destinations that sell products of greater quality and expense than what is found in a supermarket. Tables are often run by “gentlemen farmers” who view their activity as a hobby. In Havana, by contrast, such markets expose the desperation of the Cuban people, as many tables offer screws, dishes, spare auto parts, and whatever else a family may have scavenged.

– Street drainage is terrible after it rains.

– And more:

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Here I am with my host family

Here I am with my host family

 

 

Market Fundamentalism in the Mission?

There’s a proposal to place a moratorium on all market rate construction in the Mission District, one of San Francisco’s most rapidly gentrifying neighborhoods. Needless to say the proposal has sparked a debate. And Dan Ancona’s Putting Market Fundamentalism On Hold is another rock hurled into that particular fray. But in trying to take the anti-moratorium/pro-supply camp to task, it falls into the same unproductive bomb hurling we’ve been watching now for years. The following are a few thoughts on some of the points Mr. Ancona makes in his recent piece.

Talking Past Each Other

The first point is about a fundamental misunderstanding of the motivations behind the moratorium. Mr. Ancona makes this mistake, but so do the exasperated anti-moratorium/pro-supply advocates he quotes at the beginning of his piece.

Hint: The moratorium is not about lowering housing prices.

To be sure, the anti-moratorium camp wants lower aggregate housing prices throughout San Francisco and the entire region. The indisputable way to accomplish this goal is by building more housing. And as far as the anti-moratorium camp is concerned, this includes plenty of  below market rate (BMR) construction to mitigate some of the distributional effects of development.

For the pro-moratorium camp, however, this doesn’t cut it. Lower aggregate prices are not their goal. Their goal is keeping the existing population of the Mission intact and in place. Even a 70/30 ratio of market rate development to BMR construction wouldn’t do that. There would still be demographic churn and this is specifically what they want to avoid. For the pro-moratorium camp, lower housing prices are all well and good, but not if that means the dispersal of the existing community in the process.

The Mission District

Searching for the Endgame

The second issue is that there’s no endgame for the pro-moratorium camp. Mr. Ancona seems to think there is, but doesn’t go into detail. Here’s what I see.

Pressuring developers for a larger percentage of BMR housing is a no-go. 35% BMR is about where a project’s commercial viability dies and it’ll take way more than that to prevent demographic churn. And without the market rate development that the moratorium would stop, it’s not clear where funds to buy up the available properties and develop exclusively BMR housing would come from.

Now, if you were to put the moratorium into effect…and massively urbanize San Francisco’s western neighborhoods as well as all the peninsula cities…and skimmed the cream off of all that construction to massively develop the Mission with BMR infill…then maybe you have a shot.

But herein lies the problem. Not only do those two areas have no reason to go along with such a plan, they have every reason not to. The higher housing prices climb, the wealthier homeowners in either area become. And because of Prop 13, property owners don’t pay more in taxes even when their holdings appreciate. Why would homeowners accept unwanted change in their neighborhoods when they not only don’t have to but get wealthier by fighting for what they prefer anyway? If demand stays high and wealthier areas aren’t forced to build, relatively poorer areas get gentrified. And with the state’s peculiar tax laws and the region’s insane land use policies, we see this dynamic on steroids.

Addressing Inequality

There’s a third argument that Mr. Ancona makes which I thought warranted a response. Regarding inequality, he writes:

If California was some godforsaken European socialist hellscape (you know, where lots of people make roughly $70k a year and people take month long vacations and have time off to take care of their kids and are basically just happy), we wouldn’t be having this problem at the scale we are. Landlords are able to jack rents and developers are building luxury-everything because there’s a large-ish group of people who are willing to pay for it. If we were taxing marginal income above, say, $200k at 80% or something, there’d be a lot fewer people willing to throw this kind of rent around.

This, I must say, is a fascinating policy prescription. It’s essentially a call for active demand management via marginal income tax. It’s a terrible idea. But it’s still genuinely fascinating that someone would see a particular industry being too productive as the problem.

The issue here isn’t that tech people make too much money. It’s that as they create more wealth, real estate becomes infinitely more expensive because the supply of built space is so inelastic. The more wealth that the industry creates, the more it has to pay in rents for the privilege of being in the Bay Area. This puts everyone else in the unenviable position of being in a bidding war for housing with the most dynamic sector in the economy.

If we were serious about addressing material inequality–and we’re not–we would allow the housing supply to become more flexible. We’d focus taxation on land rents and away from productive labor and capital. And we’d directly subsidize individuals in need instead of trying to price fix away all of society’s ills.

The Likely Future

Last night, the San Francisco board of Supervisors voted down the moratorium. That means the pro-moratorium camp will try to put it on a city wide ballot for an up or down vote in November. If they succeed, it’ll be that much less development in San Francisco, but more significantly, other neighborhoods may follow suit in establishing similar bans.

To the extent that these measures slow down construction, prices will continue to climb. The only hope for a real reprieve would be a general slowdown in the tech industry. And with the Fed talking about hiking interest rates, that’s a possibility. But if that happens, it’ll be like giving a drug addict one more hit. Insane prices are the only thing that’s changing land use policy. If that impetus goes away, we’ll slide right back into blissful complacency. And it’ll just be a matter of time till the economy heats up again and we’re right back where we started.

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.