Low Vacancy Rates Should Demand the Same Urgency as High Unemployment

Here's the thing about unemployment: It sucks for two different but related reasons. The first and most obvious is that when people want jobs but can't get them, life is really tough. The second is more subtle but its impact is much more broadly felt: When there's a surplus of potential employees looking for work, businesses have no incentive to pay people well or give them raises over time. There's always another person desperate to do your job for less money, after all. This is basically the story of the U.S. economy since the Great Recession.

For both of the above reasons, when unemployment rises above about 5 percent we tend to collectively freak out about the need to do something. In our culture, high unemployment is just not an acceptable steady state. Though we tend to focus on the people who are actually jobless, high unemployment affects nearly everyone. It demands action.

Vacancy rates versus rent increases in Seattle. One goes up, the other goes down.

If we look at residential vacancy rates through this same lens, we can see that vacancy is actually the mirror image of unemployment. When vacancy rates are low, rents go up and some may be forced from their homes. Some of those displaced households will be unable to find new housing at an affordable rate and end up homeless, at least temporarily. As with the unemployed in a tough economy, these are the most visible and hardest-hit victims of low vacancy rates.

Just like with unemployment there is a second, broader impact associated with low vacancy rates: The demand for housing exceeds the supply of available units, and renters lose their bargaining power. Again, owners know that there's always someone else who would love your downtown loft, your inner-suburb craftsman, even your crappy 1970s dingbat (sorry LetsGoLA)—and they're willing to pay more for the privilege. Millions of renters end up shoveling a larger and larger share of their incomes toward housing, enriching a relatively small number of property owners while degrading the quality of their own lives.

Above-average unemployment may cost the average person a few percentage points in wage growth in a given year. Low vacancy rates can result in double-digit rent growth year after year after year. Both may result in homelessness. And yet, only one of these crises seems to demand our attention. Only one is considered a crisis at all, really. We demand jobs programs when unemployment is unacceptably high, but only a small chorus of individuals, organizations, and developers demands housing programs when vacancy falls too low. And even among those in support of more housing, their ambitions are often limited to providing a small number of subsidized homes for the hardest-hit, most vulnerable residents.

Multifamily vacancy in LA County has been below 5 percent—often considered the inflection point in the balance of power between landlords and renters—since 2011. And unlike unemployment, which has continued to improve, vacancy rates are only getting worse: vacancy has fallen from 6.1 percent in 2009 to 3.3 percent in 2014, and is forecasted to continue falling for at least the next two years.

Will any of our current plans be enough to turn the ship around, or are we just hoping that the next recession is enough to push more residents out to Dallas, Phoenix, and Las Vegas? As things stand today, it doesn't seem like we're on a path to a long-term solution. Where is the urgency?

Manhattanization isn't a thing; your city has plenty of room to grow comfortably

Sorry to readers that I haven't been writing over the past month or so; wrapping up my time at USC while working has proven more time-consuming than I'd like. I did manage to put together an interesting post at my work blog, however, and I wanted to share it here too.

I won't get into the details here—visit the Urban One site for the full story—but I'll tease it with this chart, showing the current population of a number of U.S. cities, in addition to the population if those cities grew to the same density as Manhattan (70,000 people per square mile), and how many times more people would need to live in each city to get there:

The full post—again, find that here—has another chart showing how many years it would take for these cities to fully Manhattanize. (Hint: for most cities its at least a few centuries, longer than the entire history of our country.) It also has a map comparing population growth to physical expansion, because not all cities are growing by increasing density. Instead, places like Phoenix and Austin are mainly growing through annexation, with density relatively unchanged.

There's a lot of interesting facts to be pulled from the data, so check it out and let me know what you think! And feel free to share the charts and map as you like (with attribution, of course)!

Housing Preference Doesn't Matter When You Can't Afford to Live Where You Prefer

Living in the suburbs vs the city isn't as simple as choosing which you prefer and moving there.

The Reason Foundation's Robert Poole has brought up the issue of housing choice in a transportation news update last week, arguing, yet again, that the media is exaggerating the Millennial preference for urban housing. His evidence includes an analysis by the notoriously biased (and regularly debunked) Wendell Cox in addition to data from a mysterious survey that I can't even track down, but since some people take these guys seriously, I'll take a little time to address the logical fallacy underlying their arguments: namely, that where people currently live is the best measure of where people actually prefer to live.

The way Mr. Poole sees things, because more Millennials live in suburban housing today than did 15 years ago, suburban housing is clearly their preferred housing type. There are a few problems with this view, and the most important is that it ignores the reality of prices and affordability — Millennials (and others) may prefer to live in urban communities, but if they can't afford to do so, their preferences are largely irrelevant.

And because the age group he's looking at is young and at the beginning their careers, many Millennials are especially sensitive to price beyond a relatively low threshold. In quite a few of the most thriving U.S. cities, housing in the urban core is affordable to only a very small subset of under-30 residents: those that earn much more than the average 20-something, and those that are willing to pile into small units with multiple roommates. The remainder of the Millennial cohort, many of whom might prefer a downtown loft to a suburban garden-style apartment or shared single-family home, if they could afford it, are not so much expressing their highest preference as being driven by the necessity to find a place they can afford. Price is a far better measure of the demand for urban housing, and it's price that explains why Millennials are so often unable to afford living in the city. Any assessment of preference that doesn't consider affordability is inherently flawed.

A site adjacent to Beacon Hill Station in Seattle left vacant due to poor planning following a major light rail investment.

Another important consideration is whether the housing that's built corresponds to the housing that's most desired. A big part of the problem is that, despite strong demand for more walkable, urban housing, that's not the type of housing being built: I estimate a shortage of at least 8 million walkable housing units in the U.S., a deficit that will take decades to cure at current multifamily construction rates.

This again comes back to affordability, as well as regulation: It's much easier and much cheaper to build low-density housing in areas where demand isn't quite as high, land costs are considerably lower, and regulations that limit development tend to be much more lax. Most people will settle for suburban housing when they can't afford the urban housing they prefer, so these non-ideal units still get snapped up. But that's not an expression of preference for suburban housing, that's an expression of preference for not being homeless.

I don't mean for this to be an excuse for the flawed system of development that typifies most coastal cities. Matthew Yglesias writes that housing affordability is Blue America's greatest failing, and I agree. This is simply an acknowledgement that people need a place to live, and when it's illegal or fiscally impractical to build homes for them in one place, developers will build those homes somewhere else — to the detriment of our overall quality of life, health, safety, and environment.

Poole, an unabashedly pro-oil, pro-car advocate, concludes his post lamenting the "wishful thinking" of urban planners who build extensive transit infrastructure even as people continue to choose suburban, car-dependent lifestyles. He's correct that urban planners and other city leaders have fallen prey to wishful thinking, but not in the way he implies. Their failing is in thinking that transit investments alone would create the multimodal, sustainable communities we seek — particularly when those investments continue to defer to cars at the expense of transit users.

Many cities, Los Angeles and Seattle included, have committed to massive expenditures on new bus and rail infrastructure, but few have been nearly so bold in regard to housing development. This has worked out nicely for the relatively few residents that are able to secure income-restricted housing near transit, those that can afford units in the small number of new transit-oriented developments, and especially for those that owned property near stations before they were built. For most everyone else the impact has been sadly limited, and it should be no surprise that as Millennials begin to form their own households, they're choosing to live where new homes are actually being built.

Beyond Green Belts: Connecting Rather Than Containing Our Cities

In city planning there's a popular phrase: "Stop sprawl, preserve existing neighborhoods, maintain affordability. Pick two." It's a poignant observation of the relationship between these three goals and the tension between them — how in a place like Houston, homes remain affordable and neighborhoods maintain their character as long as sprawl can continue unabated; or how London can enforce an urban growth boundary to prevent sprawl, but without significant new construction in older neighborhoods its housing prices have reached astronomical heights.

The London green belt, one of the world's most famous. Image from cobhamgreenbelt.org.uk.

For the uninitiated, green belts — sometimes known as urban growth boundaries — are undeveloped regions that surround many cities and limit sprawl while preserving green space. And as the Guardian notes, "[a]lmost anyone you talk to on the subject agrees that the green belt is one of the great successes of planning, anywhere in the world." They encourage more efficient use of developed land, keep nature close to home for city residents, and prevent the interminable sprawl of low-density development that characterizes many U.S. metro areas, especially in the Southwest.

But green belts have a dark side. London, home to perhaps the best-known green belt in the world, also has the dubious distinction of being the most expensive rental market in the world, recently overtaking Hong Kong as the city with the highest residential and commercial rents. As with any other artificial limits on the supply of new housing in an ever-growing city, green belts are at least partially to blame for London's affordability crisis. Some have also claimed that Portland's rapid increase in housing prices is partly a result of their urban growth boundary. The question is, then, how can we maintain access to green space and limit sprawl, while still allowing cities to grow naturally, in sync with demand?

One potential answer is to discard the idea of green "belts" and to replace them with "webs" — green space spread throughout the city that connects rather than contains it.

The problem with green belts, aside from the supply restrictions they impose on new housing, is that they're not particularly accessible to a large number of residents. Using London as an example once more, it's clear that residents of Central London are too distant from the green belt to consider it valuable as an open space resource, and ideally they would have other parkland at a more accessible distance. Green belts are undoubtedly wonderful resources for those that live within a mile or two of them — those that can afford to, that is — but inner city residents don't typically get to enjoy them, and for those that live beyond the green belt they simply add more time to each day's commute. It may be prettier than the average commute, but there's very little "green" about it. It would be much better to have them living nearer their work, in denser, more energy-efficient housing.

For a great example of what a green web could look like, Amigos de los Rios have a proposal for us in, of all places, Los Angeles County. The project is called the Emerald Necklace Vision Plan, named in honor of Frederick Law Olmsted, Sr., who designed New York's Central Park and Boston's Emerald Necklace park system, and his son Frederick Jr., who helped create a vision for LA parks in 1930 that was, unfortunately, never realized. The Emerald Necklace Vision Plan is pictured in part below:

In the Emerald Necklace Vision Plan, green space connects residents throughout Los Angeles. Image from Amigos de los Rios.

Taking advantage of several existing LA initiatives, including the Army Corps of Engineers' billion-dollar LA River revitalization program, the Greenway 2020 Plan, and plans for a 38-acre park on top of the 101 freeway, the project would create a network of green space throughout the region and put parks within easy reach of millions of LA County residents. Just as importantly, it would provide safe, convenient routes for walking and bicycling throughout the city, and create value to promote the development of more homes and businesses near the trails, rather than in the suburban/exurban Orange, San Bernardino, and Riverside Counties.

LA is surrounded by water, mountains, and other cities, so it lacks a green belt, but the appeal of a "green web" is that it could have value in nearly any context. For Los Angeles, the number of properties that would need to be destroyed could be replaced 20 times over with new (re)development near green space — including affordable housing, which could be funded by (e.g.) a partial tax-increment on park-adjacent land. We'd have thousands of new, energy-efficient units near world-class active transportation corridors, and if there's one thing LA needs right now, it's more housing.

Rough example of a London green web, in which much of the outside green space could be opened up for development.

Cities like London and Portland have it easier, because they can build out their network by expanding development beyond their growth boundaries and leaving stretches of undeveloped space to create "strands" within the green web. The growth of the web into the existing urban fabric could then be funded by proceeds from selling off land and development rights in the green belt. The large majority of the green belt could be maintained while bringing much more accessible green space to residents nearer the core of their cities.

In cities with or without green belts, there are opportunities to use green webs to create value throughout a region, and unlike isolated park and infrastructure projects, they can cast a wide enough net to limit the impact of gentrification in individual neighborhoods. They can add desperately-needed housing in some of the least affordable regions, increasing density in some locations and spurring new investment in historically disinvested neighborhoods. They can provide residents with a wealth of green space that doubles as a transportation resource, and is, most importantly, actually accessible. Best of all, they can build off of existing plans, the Hollywood cap park being an excellent example.

[Feel free to comment if you can spot any weaknesses or opportunities for improvement, because this is very much an idea in progress. For example, how would this be funded in lieu of a tax-increment type funding source? Since full expansion would require condemnation of many homes and businesses, how do you go through that process in a fair, equitable manner (or is contrary to the whole idea of eminent domain)? If this sounds totally politically or physically impossible, can you suggest what might make it more plausible? Any ideas for names that are better than "green web"? Thanks!]

Why Nature Lovers Should Live Apart From Nature

I saw this quote recently and was struck by how poignantly it describes the importance of urbanism to the environmental movement, even if it wasn't the person's original intent:

Much like the flower, for many of us, to love nature is to destroy it. We move from the city to the suburb or the rural town to be closer to nature, and to make it habitable (for us) we clear-cut it for new development, pave it over and turn woods and grasslands into manicured lawns, pollute it with our vehicles, etc. In our efforts to possess a small slice of "nature," we change the meaning of the word, leaving us with something beautiful, perhaps, but far from natural. This strain of thinking is very popular in places like the Bay Area, where there's a belief that we have to sharply limit development in cities in order to preserve some semblance of nature—"how can a place so gray possibly be green?"

But environmentalism is about much more than surrounding ourselves with greenery; in fact, its true meaning is exactly the opposite. Real environmentalism means surrounding ourselves with steel, concrete, and other human beings, leaving nature to itself instead of attempting to own it and shape it to our own selfish needs. What makes cities so important is that they allow us to express our love and appreciation for nature in a healthy way: from a distance, as a societal and environmental resource that can be preserved far into the future.

Reduce Speculation and Limit Gentrification: Penalize Absentee/Pied-à-Terre Owners

The cities where housing prices are highest and the gentrification debate is the most forceful—places like San Francisco, New York, Vancouver BC, and London—all share one quality: they're world cities. There are a number of ways to define what makes a city "world class," but the salient attribute here is that each of these cities is the target of significant foreign investment, particularly in the housing sector. Wealthy investors, foreign and American alike, park their money in these cities and crowd out less affluent families that would otherwise choose to live in these cities, if only they could afford to.

The 1004-foot, 90-story One57 Tower in Midtown Manhattan is home to just 155 residential units. Photo from New York YIMBY.

While cities like Chicago, Austin, and Seattle can typically stave off drastic price increases by just building enough housing to meet demand, that's not always possible for world cities because demand isn't just local, or even national—it's global, and in an era of growing inequality the demand for luxury investment properties and pieds-à-terre is vast. That demand is an obstacle to providing an adequate supply of affordable, middle-class housing, but it needn't be. If harnessed appropriately, it could even be a strength.

By charging the wealthy owners of these seldom-inhabited homes a more aggressive property tax, we can discourage this kind of investment on the margins and collect more revenue for cities to support their essential services and affordable housing goals. Besides discouraging speculative investment on the part of potential owners, it would limit the incentive for developers to produce massive-yet-low-density towers that provide little additional housing in the most desirable neighborhoods.

Background

Right now there are two problems in world city housing markets. The first is that there's just not enough housing to meet demand, usually even just the demand of local and regional residents. That results in consistently low vacancy rates, which in turn leads inexorably to higher prices as a large supply of would-be residents compete over a small supply of available housing.

The second problem is that not all of the homes in these cities are even occupied. Wealthy foreign investors view these markets as safe, and often even lucrative, places to park their cash, and they have the added advantage of making great vacation spots for a few weeks out of the year; plenty of rich Americans do the same thing, owning homes in cities across the country that are generally only inhabited for a small portion of each year. This quote from a 2011 New York Times article sums up the problem:

In a large swath of the East Side bounded by Fifth and Park Avenues and East 49th and 70th Streets, about 30 percent of the more than 5,000 apartments are routinely vacant more than 10 months a year because their owners or renters have permanent homes elsewhere, according to the Census Bureau’s latest American Community Survey. 
In one part of that stretch, between East 53rd and 59th Streets, more than half of the 500 apartments are occupied for two months or less. That is a higher proportion than in resort and second-home communities like Aspen, Colo.; Palm Beach, Fla.; Virginia Beach; and Litchfield, Conn.

Not only does this leave many neighborhoods barren of any night-time and weekend activity, it takes housing off of the market for actual potential residents. Every unit that goes unoccupied is taking up space that could go to a family that would jump at the chance to live in a place of such opportunity and vitality. Those 5,000 vacant apartments in New York's east side could house 5,000 somewhat less affluent (though still undoubtedly wealthy) families, those families' current units could then be occupied by a slightly lower-income demographic, and so on all the way down the line.

The problem is that in many of these cities, the property taxes paid by the wealthy owners of these homes aren't nearly punitive enough to discourage absenteeism. If you pay 2 percent of your home's value on property taxes but your home's value grows by 5-10 percent or more each year, you're still coming out ahead. With the added status and convenience that comes with an extra home in London, New York, Los Angeles, or wherever else, the appeal of buying is obvious, even if you almost never use it. When people choose to invest more of their money in stocks, stocks go up and everyone wins. When people choose to invest more of their money in homes, prices go up and everyone that doesn't already own property loses.

The Fix

The way to fix this is to change the calculus so that owning a second home in these cities is no longer a profitable investment, or at least considerably less profitable than alternative investments. That can be done in a number of ways. It doesn't really matter how you choose to do it, as long as it works. An important side effect will be that as demand among the super-wealthy decreases, the upward pressure on housing prices will subside to some degree. And, bonus!, your city gets more tax revenue.

The simplest way to discourage speculative investment is to raise the tax rate on uninhabited properties. That might mean increasing property taxes to 3, 5, or 10 percent (or more)—that's best determined by the guys in finance. It'll depend on whether your city wants to discourage all speculative/vacation property investment, or if it's content with leaving these properties vacant if it means raising a lot of extra revenue for the city. There's also some wiggle room in determining what the threshold is for being subject to these rates. Should you be exempt if you live in the home at least three months out of the year? Five? Six? Again, the specifics will depend on the exact goals that the locality is trying to achieve.

If tax rates are capped as they are in many states this might require a bigger push, advocacy-wise, to create legislation that can make this happen. That said, it's hard to see a populist policy like this, one that punishes wealthy investors for wasting space in our most productive and desirable cities, as anything but a winner. Alternatives in lieu of a property tax might include explicit fines/fees. Another option would be to charge these owners for the income tax they earn outside the state, but at least in the case of New York state, that was just ruled unconstitutional.