Market Urbanism https://marketurbanism.com Liberalizing cities | From the bottom up Mon, 13 Sep 2021 11:53:10 +0000 en-US hourly 1 https://wordpress.org/?v=5.1.1 https://i2.wp.com/marketurbanism.com/wp-content/uploads/2017/05/cropped-Market-Urbanism-icon.png?fit=32%2C32&ssl=1 Market Urbanism https://marketurbanism.com 32 32 3505127 The banks aren’t beating first time buyers – It’s the NIMBYs. https://marketurbanism.com/2021/09/13/the-banks-arent-beating-first-time-buyers-its-the-nimbys/ https://marketurbanism.com/2021/09/13/the-banks-arent-beating-first-time-buyers-its-the-nimbys/#respond Mon, 13 Sep 2021 11:53:07 +0000 http://marketurbanism.com/?p=67736 A few weeks ago the Times reported that Lloyds Banking Group had purchased 45 new homes to let in Peterborough. This is part of a plan for Lloyds to own 50,000 homes by 2031. Given the median home in the City is now worth over 7 times the annual earnings of the typical resident, it […]

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A few weeks ago the Times reported that Lloyds Banking Group had purchased 45 new homes to let in Peterborough. This is part of a plan for Lloyds to own 50,000 homes by 2031. Given the median home in the City is now worth over 7 times the annual earnings of the typical resident, it is understandable why people would be upset.

Indeed, why should a huge corporation be able to buy up all the properties in the City, when its own residents can’t afford to buy a new home there? However, this outrage is misdirected. Lloyds buying a few thousand homes over a decade will do nothing compared to the astronomical effect that NIMBYism and our planning system has had on house prices. 

The reason for this lies in a piece of legislation called the Town and Country Planning Act. This law abolished the automatic right to develop regulatory compliant housing, and added an additional stage of planning permission. As a result, it became mandatory for one to require state permission to build on one’s own land. 

Over the years this system has morphed into an almost quasi-right to block others’ construction giving residents the ability to stop others from moving into their area. This chiefly benefits homeowners – the people who engage the most in the planning system – since new houses will slow down the speed their own home’s value increases. The effect is that almost no houses get built. For example, in London during the 2010s we built around 25,000 houses per year; in the 1930s before the Planning Act was introduced that number was 61,500. 

Sadly housing just behaves like any other scarce asset. When there’s a shortage the sellers have more bargaining power and consumers are forced to pay more to buy the goods. Given we’ve been maintaining a shortage since the Second World War, then it’s no surprise that average prices in London have risen from below £100,000 now to over £500,000 when adjusted for inflation since 1970. To put that in perspective, if the price of chicken behaved in the same way, then by 2013 a chicken would cost £51.81

If we’re ever to get out of this system, then we’re going to need to find solutions that protect democratic interests without solely empowering NIMBYs. One solution that seems to have almost universal admiration is street voting. This would allow each street – defined as an area of about 15 homes – to vote on a design code that they approve of. Any plans meeting this code will be automatically approved. 

The historian Robert Conquest once wrote that people are most conservative about what they know best, and that is the beauty of this policy. By empowering hyperlocal communities to determine what they want, certainty will be provided for developers allowing them the houses they need in a way that residents want. 

A Policy Exchange paper published earlier this year gave an excellent example of how this could work. Imagine a cul-de-sac of 26 bungalows decided to vote on, and implement a design plan to maximise the value of their collective property. In this small area alone they could dig Georgian-style basements, build three stories, plus extend onto the driveways. This is an extreme example with building costs in excess of £57 Million. However, the residents would still make £44 Million in profit after all costs are factored in. 

This could become a reality. With the Government poised to drop their zoning based planning system, there is an opportunity for street voting to return to the table. This is particularly important given the Presentation Bill that is being raised today by a group of MPs led by John Penrose and Bob Blackman. This largely mirrors street voting as it would allow the Housing Secretary to enact secondary legislation allowing street to vote on their own housing design and density rules. If the Government support this, then we may finally see more homes built and a return to sensible prices for homes. 

There are zero reasons why Lloyds buying a few thousand homes should have a substantial impact on our housing crisis, but in a shortage, it will worsen the crisis in many areas. However, the logical response isn’t to criticise the banks. They’re only doing the same as thousands of other landlords up and down the country. Instead, we should just take away the incentive for this to be done by allowing people to build more homes on their own property. Street voting is our best chance of doing that. 

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Financialization and housing costs https://marketurbanism.com/2021/08/21/financialization-and-housing-costs/ https://marketurbanism.com/2021/08/21/financialization-and-housing-costs/#respond Sun, 22 Aug 2021 02:50:47 +0000 http://marketurbanism.com/?p=67410 One common explanation for high rents is something called “financialization.” Literally, this term of course makes no sense: any form of investment, good or bad, involves finances. But I think that the most common non-incoherent use of the term is something like this: rich people and corporations have decided that real estate is a good […]

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One common explanation for high rents is something called “financialization.” Literally, this term of course makes no sense: any form of investment, good or bad, involves finances.

But I think that the most common non-incoherent use of the term is something like this: rich people and corporations have decided that real estate is a good investment, and are buying it, thus driving up demand and making it more costly.

But if this is true, to blame financialization for high rents and sale prices is to confuse cause and effect. If real estate prices weren’t going up, it wouldn’t make sense to buy buildings as investment. Thus, high housing costs cause financialization, not vice versa.

In fact, if government did not restrict housing supply through zoning, financialization would be a force for good. Why? Because instead of buying existing buildings, people with money might be more willing to build new buildings for people to live in- which in turn might hold housing costs down.

PS I am running for Borough President of Manhattan, and am gradually creating a Youtube page that addresses anti-housing arguments in more detail.

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Reading Hayek in Holland https://marketurbanism.com/2021/08/19/reading-hayek-in-holland/ Thu, 19 Aug 2021 11:30:40 +0000 http://marketurbanism.com/?p=67349 Hayek says that planning is the road to serfdom. Holland may be the most thoroughly planned country on earth - and it's delightful. How does a market urbanist respond to excellent planning?

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Reading Hayek in Holland
Photo by Peter Furth

During a working vacation in the Netherlands, I had the dissonant experience of reading Friedrich Hayek’s The Road to Serfdom in one of the most comprehensively planned environments on earth. Hayek’s thesis is that central economic planning displaces competitive markets and, when broadly applied, paves the way for totalitarianism. The premise of Holland is that strict central planning is necessary to avoid being underwater. And the planning covers much more than water: in the Netherlands, centralized land use and transportation planning uphold a pleasant, sustainable lifestyle and growth pattern.

Although the Dutch experience is not a slam-dunk case against Serfdom, it certainly raises questions. It’s not only that the Netherlands has avoided becoming a totalitarian state, but it has largely produced an excellent built environment which the present author finds far more enjoyable than anything on offer in the U.S.

Several caveats are in order. Hayek did not predict that planning a single aspect of the national economy would lead to totalitarianism. He even offers ‘modern towns’ as an area where some planning is necessary (p. 48). One should read Serfdom with a sort of “inflation adjustment” for the apocalyptic rhetoric given that it was written during an apocalyptic era. Finally, I do not claim a unique level of expertise in either Hayek or Dutch spatial planning. This essay was informed by Barrie Needham’s book and conversations with planning officials from several Dutch cities.

Is it really central planning?

Unlike in the U.S., the Dutch built environment is centrally planned. Gemeenten (municipalities) are not free to diverge from national and provincial priorities, and any major greenfield development must win provincial and sometimes national approval. Regulation systematically imposes an integrated rational scheme totally unlike U.S. zoning.

Neptune’s bicycle
Photo by the author

Dutch spatial and transportation planning is the outcome of consensus decision-making within a fairly intimate professional class at various levels of government. This polycentricity may be part of the reason that the quality of the planning is so high and the system can execute across many domains (transport, development, water, etc.).

For example, Dutch governments at all levels have systematically prioritized cycling for decades, with strong public support. That priority is expressed not only in road building, but in all related domains. In a new Utrecht development, for instance, city planners are pushing the developers to provide five bike parking spaces per apartment, a costly proposition. With a less unified planning class, the whole system would become beset with bottlenecks.

There is no wizard behind the curtain directing the apparatus. But if this isn’t “central planning,” then we can dismiss that concept as a purely theoretical straw man.

In the U.S., by contrast, planning departments, zoning boards, water authorities, and state transportation departments frequently fail to communicate, let alone coordinate. For example, when the Metro was extended into Montgomery County, Maryland, in the 1970s, the county was under a moratorium on major new construction due to lack of sewer capacity. The county is still retrofitting its underdeveloped Metro station areas, which should have been primed for transit-oriented development from day one.

The Public Realm

The obvious tradeoff between American and Dutch cities is that the former provide generous quantities of private space while the latter offer an exceptionally attractive public realm. New subdivisions not only have thoughtfully executed walking, cycling, and driving access, they also have traditional waterways and open space. Somehow, even new subdivisions have mature trees.

The presence of cars in city centers has sharply declined since I lived in Holland in the late 1990s. One planner I spoke to said that although car ownership has risen during that period, kilometers driven has remained steady because the country has made large investments in improving transit and cycling infrastructure (it was already the best in the world, but it’s noticeably better now).

New subdivision in Brasserhout, the Hague
Photo by the author

Today, Dutch cities are designed to draw cars toward highways, which are often quite narrow. Car-oriented businesses and manufacturing zones cluster in business districts along the highways; no suburban residential district is car-oriented. Instead, suburban streets are narrow, low-speed spaces with limited sightlines and brick paving. Some streets feel more like shared driveways than streets in the American sense.

It is a commonplace among New Urbanists and other American city-lovers to point to medieval European towns as exemplars of mixed uses, walkability, and other virtues that American cities lack. This is fine, but contemporary Dutch urban design is much more relevant and almost as attractive as the medieval cities – which, in any case, have a larger share of 20th– and 21st-century buildings than you might expect.

How does a Dutch planner integrate modern dwellings into a medieval center? Among other things, by requiring the builder to vary the heights of floors and windows in neighboring townhouses. Nothing is built in the Netherlands today that does not meet – and exceed – the design goals of American New Urbanists.

Graaf Floriskade, a new development intended to extend the character of medieval Delft.
Photo by the author

Competence and Trust

In Amsterdam, the Houthavens redevelopment features multi-million euro condos in buildings that rise like piers from the city’s main waterway, the IJ. A friend from Delaware, James Wilson, pointed out the ground floor windows about six inches above the waterline. Americans could never do this, he said. We would not trust the builder to make a building so watertight. We would not trust the window manufacturer. We would not trust the water authority to keep the water level perfectly constant. Our insurers would not insure this. Our families would not buy it. Our regulators would not permit it. Our builders would not attempt it.

Houthavens, Amsterdam
Photo by Eriksw, CC BY-SA 4.0, via Wikimedia Commons

The Dutch expect an equal level of competence in spatial planning. For example, the Hague’s major Ypenburg expansion brought it into conflict with the existing semi-rural settlement pattern. One old road posed a traffic conundrum: it would be a natural cut-through for the new traffic. In the U.S., this situation would either result in the whole development being blocked – the NIMBY solution – or the road becoming congested and [trigger warning] its rural character forever destroyed. The Dutch found a technical solution: a grade-level intersection where turns are impossible. As the picture below shows, the intersection’s curbs are built right up to the lane lines so that the only choice is to drive straight.

In the U.S., civil engineers are not intellectually equipped to innovate. The professional culture is driven by compliance to universal standards, not situational problem-solving.

Grade crossing with no turns, Biesland, the Hague
Photo by Google Streetview

The Dutch expectation of competence extends to public life. One afternoon, I was enjoying a beer and sandwich at a sidewalk café. An SUV was parallel parking, at the same grade, a few inches from the back of my chair. It did not occur to me until afterwards that this would have made me very uncomfortable in America. Whereas Americans, blessed with abundant land, use physical distance to create safety in many contexts, the Dutch rely on universal competence.

[Edit: James Wilson points out a paradox here. Dutch road design does not assume competence, or attentiveness from users; instead, it uses physical design to minimize the consequences of driver carelessness. Most importantly, city streets are narrow and turn frequently so that speeding is near-impossible.]

The Housing Crisis

Despite radically different spatial regulatory and planning systems, the U.S. and the Netherlands (and many other countries) have arrived at the same system failure: high housing costs in major coastal cities. Just as in the U.S., already-high home prices were exacerbated by a pandemic-era spike.

The Netherlands’ primary tool for providing social housing is along the same lines as inclusionary zoning, claiming 10 to 40 percent of units in new developments. Large non-profits manage much of the country’s social housing. As in the U.S., requiring below-market units in any development lowers profitability. But the cost effect in the Netherlands is likely dwarfed by the basic scarcity of developable land. Because the central planners fully control the levers of housing supply , they can extract deep concessions in terms of design, social housing, and infrastructure – so long as prices remain far above construction costs.

Dutch regulation is in some ways the reverse of ours; they have minimum densities, not maximums. Since American regulations have no density minimums, deregulation can only increase density. But Dutch planners firmly believe that deregulation in their context would result in larger lots and bigger houses. That leaves a market urbanist a little lost in the Netherlands: I like what the planners are producing, but not the way they produce it.

The Bike Path to Serfdom

Remember Hayek? This is an essay about Hayek.

I don’t expect totalitarianism from clever intersection design or bicycle parking mandates. But Hayek argues that planning should lead to significantly different outcomes than mere regulation. And he lays out some of those consequences in Serfdom.

Decline in the Rule of Law. That is, different rules apply to different people. This is clearly endemic to the Netherlands’ spatial planning, although it may be that no system is immune to the favoritism or speculation that attend spatial decisions.

Frederik Hendriklaan, Statenkwartier, the Hague
Photo by the author

One of the Hague’s planning priorities is to improve its neighborhood shopping streets by (further) demoting cars. A planner showed me one street that had gotten fantastic treatment: traffic calming, stone sidewalks, art, parking spaces above street grade, and room for sidewalk cafes – all without disturbing the mature plane trees. Not surprisingly, this was the main shopping street of the Statenkwartier, one of the richest neighborhoods in the city.

A similar street in a nearby middle-class neighborhood received decidedly simpler treatment. And the shopping streets I saw in immigrant districts were unimproved. As my host admitted, every business district wanted the slow-street treatment, but those with political connections got the first places in line.

More consequentially, permitted greenfield development is so lucrative that speculators buy up likely parcels outside cities, and municipalities lobby hard for provincial permission to expand. This tug of war takes place out of public view and yields no vacation photos but it determines urban growth and form and makes fortunes and careers.

Departures from representative government. Development can also involve hardball politics, to the point of sweeping aside rival political institutions in order to execute a plan. The Province of South Holland wanted to address its housing shortage by building a dense urban center in a former airfield and farmland across several suburban municipalities. The suburbs would have happily developed the land, but not as densely and with less social housing than the province wanted.

Greenfield development, Ypenburg, the Hague
Photo by the author

So the province redrew the municipal boundaries, giving the site to the Hague. Four suburban municipalities consolidated into two in an attempt to stop the annexation, but to no avail. The province wanted dense, urban development, and the Hague was willing and able to execute the plan.

Mission creep. Hayek contends that once planning begins, it will inevitably creep into other spheres in order to keep the plan from failing. This has not largely occurred in the Netherlands. The Dutch plan space and transport in morbid detail but are open to trade, sectoral shifts, and – significantly, given the housing pressures – migration. There are conflicts between industry and spatial planners which are not always resolved in the latter’s favor. For instance, industrial interests at the provincial level want higher-clearance drawbridges over major canals. Raising the clearance of a bike bridge from 1.5 to 3 meters doubles its cost – but the city of Delft might have to build the high bridges anyway.

“The worst get on top.” Hayek argues that totalitarian systems favor the unscrupulous. It’s not clear from Serfdom whether he thinks that central planning institutions in more liberal contexts also attract bad actors. The more obvious, quotidian risk is that politically connected incompetents get positions of power. That’s clearly not happening in the Netherlands. The planners could fairly be called bureaucrats or even ideologues, but they are very good at their jobs.

Regulation or planning?

The failures of planning in the Netherlands – high housing costs, occasional favoritism, and political hardball – are all failures common to just about every other government system. The greatest weakness may be that the Dutch system relies on a level of technical competence and professional harmony from its planners that exceeds the standard practice in the U.S. and, I think, most developed countries.

A more interesting question, I think, is whether regulation is as preferable to central planning as Hayek suggests. As a consumer, I vastly prefer the carefully, competently planned Dutch cities to the regulated but uncoordinated American ones. I suspect builders feel the opposite way. But is there any way to separate the institutional choices from the culture of competence and land scarcity? What would it look like for a U.S. state – or even a county – to replace regulation with central planning? I suspect it would be a sloppy mess, since no entity has the power, experience, or persuasiveness to bring together every aspect of good city-building.

And how much would the Netherlands change if it replaced planning with regulation? There are simply too many variables.

You didn’t think I was going to leave out the windmills, did you?
Photo by the author

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Book review: Last Harvest https://marketurbanism.com/2021/07/12/book-review-last-harvest/ Mon, 12 Jul 2021 04:00:11 +0000 http://marketurbanism.com/?p=66897 In the standard urban growth model, a circular city lies in a featureless agricultural plain. When the price of land at the edge of the city rises above the value of agricultural land, “land conversion” occurs. In the real world, we’re more likely to call it “development” and it is, of course, a lot more […]

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In the standard urban growth model, a circular city lies in a featureless agricultural plain. When the price of land at the edge of the city rises above the value of agricultural land, “land conversion” occurs. In the real world, we’re more likely to call it “development” and it is, of course, a lot more complicated. Simplification is valuable and gives us more general insights. But is greenfield development complicated in ways that are interesting and might change the results of urban economic models? Or that might change the ways we think or talk about development policy?

Witold Rybczynski’s 2007 book Last Harvest helps answer these questions. It tracks a specific cornfield in Londonderry, Pennsylvania, from the retirement of the last farmer to the moving boxes of the first resident.

With its zoomed-in lens, Last Harvest answers (or at least raises) lots of questions that are interesting but not especially important in the grand scheme: Why do expensive homes mix some top-line finishes with cheap, plasticky ones? Why do anti-development communities permit any subdivisions at all? What is ‘community sewerage,’ and how does it work? Exactly who thinks it’s attractive to have brick and vinyl cladding on the same house? What’s it like to buy a house from a national homebuilder? Does Chester County really produce forty percent of America’s mushrooms?

Site map, from Arcadia Land Company

The Stack

Rybczynski does not use this term, but what he describes is part of what I call the “stack” of housing supply. One of the central facts of development is that it relies on a very long chain of industries and professions, each of which relies on every other part of the stack doing its job. If one part is left undone, nobody gets paid:

‘Without a water contract, we can’t get a permit for the water mains, and without a permit, the builders won’t buy any lots and start building their model homes,’ says Jason. ‘Everything is held up.’ (p. 223)

 This is an institutional outcome – I won’t say a ‘choice’ – and is not, strictly, necessary:

Americans take this for granted, but there are other ways to build communities. Some countries depend on centralized planning, in which the public authorities decide where people should live, and what kind of housing they should live in… The cities of the developing world, by contrast, depend on the unplanned and unregulated efforts of millions of individuals who build their own homes in so-called squatter or informal settlements, which eventually turn into urban neighborhoods. (p. 273)

Rybczynski calls this a “business” or “market” approach. The first term is clearly more accurate. The developing world is more of an open spot market, with many isolated, uninsured transactions and a very large number of decision makers. The American approach relies on predictable, tessellating business models.

Unlike in a simplified model, each stage of the work is done by a specialist who has to worry about reputation and liability. Joe Duckworth is the lead developer in Last Harvest, but the subdivision is planned by Bob Heuser and the architectural choices are the subject of an endless series of negotiations between the Londonderry Planning Commission, Duckworth, a loftily-titled ‘town architect’ (basically, a consultant), and the formula-driven homebuilders.  

The key source of tension in the book is that the township sought a neo-traditional development for the site, but would have preferred no development at all:

‘We’ve been doing conventional development and we hate it,’ [one public meeting attendee] says. ‘Why don’t we try something new, and if we don’t like it, we won’t do it anymore.’

‘Doing something new’ implies departures from the usual practice, and that creates problems throughout the stack. The drip irrigation sewage system is new to Chester County and takes longer to permit. The homebuilders stick to their standard marketing practices – advertising the interiors of homes – when the developer and township intended the exterior neighborhood to be the main draw.

Exurban new urbanism isn’t very urban and isn’t especially novel. But even its minor deviations put stress on several of the stack’s business models. So imagine the difficulty of trying to push through something really revolutionary!

The developer as a risk agglomerator

The business models in the stack are principally structured around the avoidance of risk. Even the largest, most liquid companies – the publicly traded “national” homebuilders – rarely buy a land parcel until they have a contract with a homebuyer. Their work is not riskless: they contract for parcel prices ahead of time, and a market decline can cut into their expected profits. But they can always walk away rather than take a substantial loss.

For most industries in the stack, participation is a simple fee-for-service. The businesses that provide site plans, utility connections, and lumber, for example, are all paid on delivery and expose themselves to very little risk.

The stack does as much as it can to offload risks to the farmer, the homebuyer, and various insurers. When the developer and farmer first strike a deal, it’s an option: the upside belongs to the developer, the downside to the farmer. The farmer is compensated, of course. But he cannot quickly receive the value of the site’s full potential. Rybczynski notes that conservation easements are attractive to farmers because they pay out immediately.

Years later, early homebuyers not only accept long-term market risk but also the risk that the site is not completed as (or when) planned.

In Last Harvest, the developer finally buys the land when the farmer refuses to renew the expiring option contract. The land has appreciated; both sides would like to capture those gains. Some of the increased site value comes from the general state of the market, but much is due to the developer’s work in shepherding a rezoning and development agreement through the township’s slow-moving approval processes. The final value depends primarily on how many homes can be built on the site, and township politics are mostly geared toward trying to reduce density.

For a few agonizing years, the developer owns the land. He pays for site improvements, strikes contracts with builders, and tries to time the market. The source of the risk, of course, is that an enormous amount of labor and capital must be sunk into the site before it becomes a habitable, valuable good. Until very late in the process, it’s possible for much of the investment to be lost to the vagaries of the market or the local government.

In a downturn, Rybczynski notes, about one in four developers go out of business. Even Robert Morris, the financier of the American Revolution, spent three and a half years in debtors prison (p. 47). Despite hitting the market at almost the worst possible moment (2007), the New Daleville subdivision survived.

Conclusion

So should all this detail – and I’ve only unpacked one aspect of the book – change the way we theorize housing construction? The importance of regulatory risk and the obvious risk aversion of all involved are clearly central to the internal mechanics of development. Slow permitting implies a disconnect between the price of land at the time a contract is written and the spot price that would prevail when the option is executed.

One paper (Mayer and Somerville 2000, JUE) incorporated this disconnect by modeling development as a two-stage process of land development and, subsequently, construction. They found that incorporating this complexity did not change the results appreciably.

The fragmented, interdependent ‘stack’ is likely more important to suburban reformers interested in changing what gets built. Incorporating accessory dwelling units, triplexes, or cottage courts into suburban development requires more than just regulatory reform. It also requires demonstrating to developers that no layer in the stack is going to fail them – and that everybody will ultimately get paid.

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Is Diversity “Segregation”? https://marketurbanism.com/2021/07/05/is-diversity-segregation/ Mon, 05 Jul 2021 10:47:52 +0000 http://marketurbanism.com/?p=66865 Headlines last month proclaimed that “Cities Have Grown More Diverse, And More Segregated, Since the 90s.” The headlines originate in the key findings of a new, detailed study from the Othering and Belonging Institute (OBI) at UC Berkeley. The study leans heavily on a relatively new metric – the Divergence Index – which has impressed […]

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Headlines last month proclaimed that “Cities Have Grown More Diverse, And More Segregated, Since the 90s.” The headlines originate in the key findings of a new, detailed study from the Othering and Belonging Institute (OBI) at UC Berkeley. The study leans heavily on a relatively new metric – the Divergence Index – which has impressed many researchers (myself included) with its versatility. But now that we have seen the Divergence Index in action, its versatility clearly comes at a cost: the Divergence Index conflates what we would intuitively call diversity with “segregation.”

As a result, more-diverse metro areas are usually ranked as more segregated by the Divergence Index. And as America became far more diverse over the past 30 years, it is logical that the Divergence Index would rise in most metro areas.

Why is it so hard to measure segregation?

Racial segregation is easy to see. You walk down the street and almost everybody in one neighborhood looks different than you and almost everybody in another neighborhood looks the same as you. The human eye and ear can also distinguish categories that are meaningful in some contexts but not others. Everybody but me in the café where I watched European soccer last week appeared to be not only Black but specifically Ethiopian. Was that café integrated or segregated? I certainly felt welcome as I bantered at the bar with an Ethiopian-American tennis instructor. But statistically, the café was far more Black and vastly more Ethiopian than the D.C. region as a whole.

In this context, “segregation” refers to places where one group is overrepresented – like the café – not to the legal regime that imposed second-class citizenship and pervaded every aspect of life for black Americans. Given the word’s loaded history, it would have been wiser for social scientists to choose another term.

The forms of segregation social scientists worry about are, of course, in areas of life more consequential than café preference. Residential and school attendance demographics are probably the most important and commonly studied areas of segregation.

But even where it matters, the statistics of segregation seem to tell us less than meets the eye.

Measurement is difficult because segregation is the characteristic of a region, not of a person or household. We cannot measure the segregation of a neighborhood in isolation; it depends on its context. A Madison, Wis., neighborhood that is equal parts white, black, Hispanic and Asian would earn a high Divergence Index – indicating high segregation – since it would sharply overrepresent all three non-white groups relative to the metro. An identical neighborhood in Miami, Florida, would score much lower, with only Asians significantly overrepresented.

This relativity exposes a gap between the conversational and statistical meanings of “segregation.” If Madison really did have a neighborhood like the one I described, nobody would call it segregated. We really should have a different word for this.

Rachial diversity in the Reading, Pa., area, as measured by “entropy”.
Screenshot of map by the Othering & Belonging Institute and OpenStreetMap.

The Divergence Index

The Divergence Index arrived in a sharp 2016 paper by Elizabeth Roberto, then a Princeton University post-doctoral researcher. Roberto skewered the field, which had fallen in love with using “entropy” – a concept from information theory – to measure segregation. Entropy, Roberto argued, does not even measure segregation – it measures neighborhood diversity.

Roberto proposed to fix entropy by introducing a contextual element. Her new relative entropy metric – the Divergence Index – would not mistake a lack of regional diversity for segregation. The result is conceptually simple:

  1. Measure the shares of each racial group in a metro
  2. Measure the shares of each racial group in each neighborhood
  3. Use a statistical formula to determine how much the neighborhoods differ from the metro

However, she may have gone too far in the opposite direction. The Divergence Index penalizes additions in regional diversity unless those additions are spread very evenly across neighborhoods. Understanding why this occurs requires two insights.

  • First, the most helpful way to think of the Divergence Index is as a weighted average of concentration scores of the various groups in the model.
  • Second, when one race is the overwhelming regional majority, its members will (by necessity) almost all live in neighborhoods that do not diverge much from the regional average.

Per the first insight, a newly sizable group – such as Hispanics and Asians in many cities – must be less concentrated than the weighted average of the existing population in order to decrease the Divergence Index.

As the second insight suggests, the typical biracial U.S. metro during the 20th century had a white majority with low divergence scores and a black minority with a high divergence scores. And where whites were seventy, eighty, or ninety percent of the population, the weighted average – the Divergence Index – ended up much closer to whites’ mechanically low concentration score than to blacks’ high score.

Thus, for an influx of Asians or Hispanics to decrease the Divergence Index, the new group has to hit a concentration score almost as low as whites – but without the advantage of achieving low divergence scores in any highly concentrated enclaves.

A new Asian or Hispanic minority can thus contribute to statistical segregation despite being much less segregated than the 20th-century black population.

New metric, old problems

The Divergence Index is not immune from data problems that plague most statistical measures of segregation. As Douglas Krupka has documented, bigger cities usually fare worse on segregation measures in part because of the artificial ways that lines are drawn. This seems to be the case in OBI’s study, where the nine largest U.S. metros are all among the 20 most segregated

Implicit in Krupka’s argument is that cities with larger minorities will fare worse as well. An insular immigrant enclave that covers only a few blocks will be averaged together with the rest of its Census Tract. A much larger, but equally insular, enclave that fills out a Census Tract is caught in the statistical spotlight.

Viewing segregation holistically

This essay has been perhaps unnecessarily harsh toward the Divergence Index. The Index has problems. But so does every other measure of segregation. Still, OBI’s headlining of the Divergence Index shows that its status in the field has risen rapidly and it is ripe for critical review.

Returning to the newspaper headline that sparked this essay, is it fair to say that cities have grown more segregated since 1990? Behind the reliance on Divergence Index for headlines, OBI’s research carefully documents a half dozen segregation metrics. Drawing on the excellent interactive map, I revisited three metro areas that OBI reports as having among the greatest increases in segregation over the past 30 years: Fayetteville, Ark., Reading, Pa., and Boston.

What if we looked at these in a more holistic manner, putting Divergence Index into the context of metrics that might be less influenced by those metros’ rapidly diversifying populations? I recorded four measures of segregation for each city: Black-White Dissimilarity, Hispanic-White Dissimilarity, Black-White Exposure, and Black Isolation. As OBI notes, each “provides some insight into the phenomenon of segregation, while also concealing other facets.”

If these metros were becoming more segregated, in a holistic sense, we would expect to see most or all of the various measures pointing in the same direction. Instead, most of them point toward falling segregation, and it is likely that the rising Divergence Index indicates rising diversity in these metros.

In Fayetteville, two measures showed rising segregation, two falling. In Reading and Boston, all four measures declined. In all three cities the white population share fell and the entropy index, which measures neighborhood diversity, rose sharply.

If we take the Divergence Index as a single facet of statistical segregation in a more complete context, we should conclude that Reading and Boston exhibit clear evidence of rising diversity and falling segregation. Fayetteville is also becoming more diverse and its segregation indicators give mixed evidence.

Segregation is a loaded term, with serious moral connotations. Before warning the public that segregation is increasing, researchers and journalists ought to check that a multifaceted, careful look at the data confirms this summary of the data. 

Salim Furth, Ph.D., is a DC-area housing policy researcher and lifelong urbanist. The views expressed here are not necessarily those of his employer.

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contradictory anti-housing arguments https://marketurbanism.com/2021/07/02/contradictory-anti-housing-arguments/ Fri, 02 Jul 2021 20:43:38 +0000 http://marketurbanism.com/?p=66842 Over the years, I’ve heard a wide variety of arguments against new housing. One of them is the “mysterious foreign investor” argument. According to this theory, new urban housing will all be bought up by billionaire foreign investors, who will purchase the property and never rent it out, thus preventing the new housing from increasing […]

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Over the years, I’ve heard a wide variety of arguments against new housing. One of them is the “mysterious foreign investor” argument. According to this theory, new urban housing will all be bought up by billionaire foreign investors, who will purchase the property and never rent it out, thus preventing the new housing from increasing supply. (I have rebutted the argument here).* A variation of the argument is that because some high-end housing is vacant, supply is therefore adequate to meet demand. (I have addressed this idea here).

Another argument is that housing markets are segmented: that if you increase the supply at the top of the market, it will not help anyone who is not already at the top of the market.

It seems to me that these arguments contradict each other: the first argument is based on the idea that high-end housing does affect the market as a whole (or would if rich people stopped using apartments as second homes); the second is based on the idea that high-end housing doesn’t affect the rest of the market at all.

*In addition, I have recently published a much longer article in the New Mexico Law Review, discussing the pros and cons of high-end condos.

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Local iniquity https://marketurbanism.com/2021/05/21/local-iniquity/ Fri, 21 May 2021 14:45:29 +0000 http://marketurbanism.com/?p=66140 There was an interesting article in the New York Times magazine this week on the rise of extended stay hotels, which specialize in renting to a group within the working poor- people who have the cash for weekly rent, but cannot easily rent traditional apartments due to their poor credit ratings. This seems like a […]

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There was an interesting article in the New York Times magazine this week on the rise of extended stay hotels, which specialize in renting to a group within the working poor- people who have the cash for weekly rent, but cannot easily rent traditional apartments due to their poor credit ratings.

This seems like a public necessity – but even here the long arm of big government seeks to smash affordability. The article notes that Columbus, Ohio “passed an ordinance that subjects them to many of the same regulations as apartments” because “The hotels had an unfair competitive advantage.” In other words, the city is basically rewarding landlords for turning out bad-credit tenants, and punishing the hotels who seek to house them.

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Book Review: The Housing Bias https://marketurbanism.com/2021/03/09/book-review-the-housing-bias/ Tue, 09 Mar 2021 10:45:48 +0000 http://marketurbanism.com/?p=65208 The best book on zoning and NIMBYism you’ve never read might well be The Housing Bias by Paul Boudreaux. The author is a law professor, but you’d be forgiven for thinking he’s a journalist. His writing is engaging – and occasionally funny – and he does what is unthinkable for many scholars: drives to various […]

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The best book on zoning and NIMBYism you’ve never read might well be The Housing Bias by Paul Boudreaux. The author is a law professor, but you’d be forgiven for thinking he’s a journalist. His writing is engaging – and occasionally funny – and he does what is unthinkable for many scholars: drives to various places to interview people who are engaged in the (legal) drama of what we now call “the housing crisis.”

Boudreaux had the misfortune of being ahead of his time. The housing market was so soft in 2011 that his book landed with nary a sound. A quick web search turned up no book reviews besides the publisher’s blurbs. The book (and you’ll be forgiven if you stop reading right here) will set you back.

That’s unfortunate. Just a few years later, the book would have connected with passions shared by the rapidly growing YIMBY movement and a publisher would have marketed it to the masses.

Boudreaux’s thesis is that “the laws that govern our use of land are biased in favor of one specific group of Americans—affluent, home-owning families—who least need the government’s help.” He keeps his ideological cards close to the vest. But that’s the point: one need not lean left or right to want to stop using the power of the state to comfort the comfortable and afflict the afflicted.

The first chapter is the most important, because it lays out the foundation for all that local governments do, good and bad, in land use: the police power. He’s writing from Manassas, Virginia, where “restaurants with Aztec pyramids on them” telegraph the large Hispanic immigrant community. A vocal minority opposed this local immigration, and pressured local governments to stop it. Of course, the city doesn’t issue passports, but the police power allows local governments to make life uncomfortable for an unwelcome minority in many ways.

In the second chapter, Boudreaux meets the last holdout in a Brooklyn condominium condemned for the megaproject anchored by the Brooklyn Nets arena. Eminent domain is a unique city power – and one that fits uneasily with the rest of book. Daniel Goldstein (the condo holdout) is the sort of affluent homeowner in whose favor the system is biased. The appearance of Robert Moses’ successors is a good reminder that “not in my backyard” was once a heroic rallying cry of Davids fighting Goliaths.

The book moves along with a history of the Mount Laurel decisions (Chapter 3) and a retired farmer in Michigan fighting large lot zoning. For housing scholars and advocates, most of the material is not new, but it’s refreshed and worth reading from a muckraking law professor’s point of view. And (if you’ve got a spare Benjamin) it’s the perfect book to buy for the friend who promises to read just one book on housing if it will only shut you up.

Back to the story: the final chapter, set in Los Angeles and narrating the political difficulty of infill development, ends on a dour note like the four before it. A modest attempt to ease permitting for accessory dwelling units (ADUs) in LA was politically annihilated. This echoes the setbacks in Manassas, where Hispanics quietly moved away; Brooklyn, where Daniel Goldstein took a buyout; New Jersey, where Governor Chris Christie announced a “funeral” for a Mount Laurel program; and Michigan, where the farmer lost his court case.

A decade later, we know that’s not where LA’s story ends. California State Senator Bob Wieckowski led an ADU enfilade in Sacramento that succeeded while his colleague Scott Wiener’s frontal assaults on single family zoning occupied the opposition. A series of bills hammered away at the limits California cities could place on ADUs.

As a result, the City of Los Angeles issued 6,747 ADU permits in 2019, up from 80 in 2016.

The story of America’s housing bias is still being written. And if the 2020s really do bring a revolution in housing policy and the urban environment, I hope Paul Boudreaux writes a book about it.

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