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?

LA Metro: It's Time For a More Convenient and Equitable Fare Structure

It's time to abandon the daily, weekly, and monthly pass system and adopt a fare structure built around spending caps. Transit users in Los Angeles would continue to pay $1.75 per ride, with a daily spending cap of $7, weekly cap of $25, and monthly cap of $100—but the possibility of overpaying for transit use would be completely eliminated. It's all the benefits of pay-as-you-go and none of the drawbacks of daily, weekly, and monthly passes.

LA Metro TAP cards.

Most of us have been there: We need to get around the city for the day, so we load some money onto our TAP card for our bus or train fare. We don't know how many transit trips we're going to take for the day, so we play it conservative and buy a fare or two, saving a few dollars off the all-day pass. Come the end of the day, we've taken half a dozen transit trips and spent twice as much as if we'd just bought the day pass in the first place.

Or maybe you're more familiar with the reverse: You expect to use transit quite a bit over the next week, so rather than pay a few bucks for each ride you decide to spring for a weekly pass at a cost of $25. Things come up, plans change, and suddenly you realize you've spent 25 bucks for 7 dollars worth of bus rides. It's the gym membership of transportation spending.

In most cities, LA included, we're expected to make a prediction about how we'll use transit for the next day, week, or month (or even year), and make our fare purchase based on that prediction. If we overestimate our transit usage, we overpay; if we underestimate our transit usage, we overpay. 

For infrequent transit users these situations are bearable, though inconvenient and frustrating. The worry that you might make the wrong choice is an annoyance, but little more. If you're a low income worker, a student, or an elderly resident on a fixed income, however—someone who can't afford even minor financial mistakes, or who doesn't always have the cash flow to put up $100 at the same time each month for a 30-day transit pass—this is a serious problem. 

It doesn't have to be this way, and it's time the LA Metro and other regional and municipal transit agencies adopt a more equitable, fault-tolerant payment structure. For an example of what it should look like, we can look to Christchurch, New Zealand. (Hat tip to Darren Davis for the example.)

 

Pay-per-trip, with daily, weekly, and monthly caps

In Christchurch, there are daily and weekly spending caps that eliminate the possibility of overpaying for transit service. This has allowed them to do away with daily and weekly passes entirely.

Instead of purchasing daily or weekly passes, you simply use your fare card as an e-wallet and pay for each trip directly. When you reach the spending cap for the day, any additional trips you take that day are free, exactly as if you'd purchased a day pass—but without the requirement that you pay for all your rides up front. The weekly caps work in exactly the same way.

Per the table below, Christchurch's daily cap is set at $5, and the weekly cap is $25.

Fare structure for the Metrocard in Christchurch, New Zealand.

What this means in Christchurch is that if you take transit to work and back throughout the week, you hit the cap by Friday evening and transit is effectively free for the weekend—not very different from buying a weekly pass on Monday and using it throughout the week. But if you fall ill on Thursday and miss work for a couple days, you end up paying just $15 for the week, saving yourself $10 on bus or train rides you aren't able to take that week.

LA Metro fare prices. Image source: The Travel Guru.

Daily and Weekly passes in Los Angeles are currently $7 and $25, respectively, so the weekly spending cap would be reached earlier here, but the message is the same. With this structure in place no one with a TAP card would ever pay more than $7 in a day, $25 in a week, or $100 in a month using normal service—a claim we definitely cannot make today. It could even capture the additional cost of out-of-zone and premium services such as the Metro Silver Line, without the need to purchase a special pass in advance. We've currently got a lot of people unwittingly donating their money to Metro, an organization that absolutely should not be in the business of over-charging its patrons—particularly when the median household income for those patrons is less than one-third the median income of County households overall. 

Even beyond concerns for social and economic justice, this fare structure is also just smart policy for those interested in growing the appeal of public transit. It's yet another step toward more user-friendly transit, eliminating the minor stress of forecasting one's daily and weekly travel and allowing people to just... go. There's something indescribably freeing about a transit system that doesn't require its users to be experts, and the ability to "pick up and go" without any preoccupation is one of the greatest appeals of driving. Transit will need to continually evolve in that direction to compete.

Prior innovations, especially real-time tracking, have dramatically improved the experience of trip-planning and transit use. This evolution in fare policy is by no means so great a leap forward, but it's an obvious and sensible step forward, and the technology is already in place to implement it. What are we waiting for?

If We Can Grow Our Economy With Fewer Carbon Emissions, We Can Grow it With Less Driving, Too

More people are driving—let's all celebrate!! And/or let's build even more roads to encourage more people to join us in our miserable commute!!! Photo by Kim Scarborough.

For the second year in a row the Federal Highway Administration is celebrating the fact that Americans are driving more. They've been using the increase in vehicle-miles traveled to make the case that we need to invest more in our nation's highways, apparently accepting as a given that more driving means more economic activity. Here's Secretary of Transportation Anthony Foxx from last year's announcement:

"More people driving means our economy is picking up speed ... It also means we need to increase our investment in transportation to meet this demand, which is why Congress needs to pass the President's four-year, $302 billion GROW AMERICA Act."

Putting aside the fallacy that more investment in roads will do anything to significantly improve the flow of traffic or reduce travel times—the last $400 billion we spent didn't seem to do us much good—the real error here is in assuming that more driving means a stronger economy, and, worse, that growth is actually dependent upon increasing VMT. We don't see that kind of thinking from the Obama administration when it comes to the connection between GDP growth and carbon emissions; I would challenge the White House and our elected leaders to apply to transportation the same vision and zeal with which they've approached climate change.

ECONOMIC GROWTH AND CARBON EMISSIONS: "DECOUPLING"

Historically it's been believed that economic growth could only occur alongside increasing carbon emissions, and the actual experience of most countries had borne that out. 

More recently, though, we've learned that the link between economic growth and emissions isn't as ironclad as it once seemed. Plenty of countries have managed to get richer at the same time they've reduced their carbon footprint, a process known as "decoupling": Sweden, for example, decoupled its growth from emissions way back in the mid-1990s, so this isn't exactly a cutting-edge concept. Economy/Emissions decoupling appears to have manifested at the global level, too, with a recent report from the International Energy Agency finding that carbon emissions held steady from 2013 to 2014 while the global economy grew by 3 percent.

None of this is news to the Obama administration. The White House noted in its 2013 Climate Action Plan that "in 2012, U.S. carbon emissions fell to the lowest level in two decades even as the economy continued to grow." The recognition that we can reduce carbon emissions and still grow the economy is a key selling point for the president, essential for generating support for regulations that seek to shut down coal-fired power plants and promote renewable energy investments.

All of which begs the question, shouldn't we be able to achieve a similar decoupling of economic growth and vehicle-miles traveled? Better yet, according to the data, haven't we already done so? 

ECONOMIC GROWTH AND VEHICLE-MILES TRAVELED: DECOUPLING?

Consider the following graph, which shows changes to real GDP and vehicle-miles traveled over the past 45 years:

Note that up until the late 1990s GDP growth and VMT tracked one another very closely. Then, all of a sudden, they didn't: Since the mid-2000s in particular, we've seen virtually no increase in vehicle-miles traveled (and a reduction in per capita VMT), while GDP climbed well above its pre-recession peak.

The next graph compares GDP to VMT, subtracting annual growth (%) of VMT from GDP for each year since 1970. (For example, in 1992 U.S. GDP grew by 3.5 percent and VMT grew by a little over 2.5 percent, so the difference is right around 1 percent—that is, GDP grew by 1 percent more than VMT in that year.) This helps illustrate the connection between the two measures, and over the past 45 years it shows a pretty clear trend toward economic growth being less and less dependent on driving.

There's significant variability from year to year, but while in the past it was common for VMT growth to exceed GDP growth (i.e., the difference between the two falls into negative territory in the above graph), it's happening with much less frequency today. Not only has GDP been growing faster than vehicle miles in recent years, the average difference between the two has also grown. The decoupling of economic growth and driving became painfully apparent immediately before and in the years since the Great Recession, but what this data shows is that this disconnect has been progressing, albeit slowly, for decades.

Looking back even further, using data from the Highway Administration and Bureau of Economic Analysis, the difference between recent years and earlier generations becomes even clearer:

COMMITTING TO A "DECOUPLED" FUTURE

If the past several decades have taught us anything, it's that just because things worked one way for a long time doesn't mean they'll work that way forever. Increasing productivity used to mean growing wages, and that's no longer the case—at least for now. On the more positive side, technological and societal changes mean that economic growth is no longer as dependent on pumping carbon into the atmosphere and spending more and more time sitting behind the wheels of our cars. 

Unfortunately, while our elected and appointed leaders are decrying the disconnect between productivity and wages, and celebrating the decoupling of economic growth and carbon emissions, most have yet to accept the fundamental shift in the role of transportation in our lives and in our economy. Organizations like the Federal Highway Administration are still married to an outmoded view that more roads mean more driving, and more driving means a stronger economy. They're right about the first part, at least.

We need them to understand that the world they knew is gone. That it's entirely possible to build a more robust economy without doubling down on additional road investments—road investments that so often fail to recognize the moral, social, environmental, and economic value of less car-dependent, human-scale cities and towns. The economic justification that "more roads equals more growth" is no longer tenable because it's no longer true, and transportation departments at every level of government need to come to terms with that new reality and adjust their priorities accordingly.

The Irony of Selling Oil Reserves to Pay for Highway Expansion

The Bryan Mound Strategic Petroleum Reserve site, one of several in the U.S., is capable of holding 226 million barrels of oil. Source: The Center for Land Use Interpretation.

Unsurprising news from Politico and Streetsblog says that the U.S. Senate has put together a whole grab bag of one-off gimmicks to fund federal transportation programs for another few years, but one idea stood out to me as particularly ludicrous: selling off $9 billion worth of the nation's Strategic Petroleum Reserves (SPR) to help pay for more highway construction.

Tanya Snyder at Streetsblog emphasized how this is just the latest in a series of "gimmicky pay-fors" that have resulted from Congress's unwillingness to embrace higher gas taxes, despite the fact that the federal gas tax has just over half as much impact on consumers today as when it was last raised in 1993. Politico's article focused on how this idea runs counter to the whole "strategic" aspect of the SPR, which is intended to serve as a buffer against supply disruptions if disaster or war threatens the global flow of oil—not a piggy bank to be tapped any time legislators can't find the courage to make more economically sustainable decisions. 

Putting aside the cowardly and economically unsustainable nature of these recommendations, however, I'd just like to draw attention to the incredible irony of the sale of strategic oil reserves to fund highway expansion. These senators are proposing that we invest even more in our already-overbuilt highway network and that we pay for it by chipping away at the protections that keep an oil-dependent economy stable. They're looking to bolster our long-term dependence on the global supply of oil while at the same time increasing our vulnerability to disruptions of that supply. How can you write this into federal law with a straight face? Did we just get trolled by a U.S. Senator?

So much of our state and federal transportation programs seem built around a penny-wise, pound-foolish approach to infrastructure investment, but I've yet to see that mindset more perfectly encapsulated into an explicit policy proposal. Fortunately there are senators on both sides of the aisle in opposition, but this isn't the first time an SPR sell-off has been used to fund non-critical programs, and I don't think it's the last we'll hear of it.

Route Performance Index Results For Every LA Metro Bus Line

Los Angeles Metro has developed a new metric to help it objectively evaluate how its bus lines are doing on a few key measures: subsidy per passenger, riders per hour of service, and share of seats filled throughout the day. It's called the Route Performance Index, and the results are helping Metro design a new, expanded frequent transit network. The RPI allows them to identify laggards in the bus network, eliminate or alter those services, and repurpose the saved hours into better-performing lines, ultimately covering a larger share of the county in high-quality transit service that runs every 15 minutes or less. If you're interested in learning more about it, I suggest reading Jarrett Walker's post at his blog, Human Transit.

I wasn't able to find the results of the evaluation, except for this presentation that identifies the worst-performing lines in the network, so I asked Metro to send it to me. (Thanks Public Records Act!)

I got it yesterday and don't have time to do any real analysis of the numbers, but I wanted to share it as a public resource for anyone interested in diving into the details. In addition to subsidy per boarding, passengers per revenue service hour, and passenger miles per seat mile for each line, it also has information on total daily weekday boardings, daily revenue service hours (not sure if these are scheduled or actual), the RPI value (the highest is 1.69, the lowest is 0.27), and the ranking according to RPI score. You can find all the data in the Tableau table below, or you can download the original Excel file from this Dropbox link. Have fun!

How to Get More Bang for the Affordable Housing Buck

I spend a lot of time on this blog talking about affordability, but in a very broad sense: Mainly, how to keep costs down by providing enough housing to meet demand, and how to reduce household costs by eliminating the need for car ownership (or car dependence, at least). This is in contrast to the work done by most affordable housing advocates, who tend to focus on funding and policies that promote the construction of new, subsidized affordable housing for those with limited incomes. Unfortunately, this often seems like a battle in which you need to pick a side, and the pro-market and pro-subsidy folks don't always see eye to eye. This tension was at the heart of my recent post about San Francisco's bleak future.

So with that in mind, I've been making an effort over the last few months to "cross the aisle" and deal more directly with affordability in the narrower, subsidy-oriented sense of the word. That resulted in a five-part series at Urban One's blog on how to increase the supply of income-restricted affordable housing. It's just a beginning, but I'm hoping that it can bridge some of the gap between the role of the market and the role of government regulation and get a real conversation started.

The series focuses specifically on the density bonus, which is a program written into California law, but readers will find many of the lessons applicable across the country. Basically, the density bonus law says that if you set aside a share of your new building for affordable housing, you can build a bit bigger than zoning currently allows—this is different from inclusionary zoning, which requires that you set aside a share of your units as affordable but does not guarantee any additional density, height, incentives, etc. Looking through the lens of the density bonus, I explored several ways to increase the supply of affordable housing at minimal public cost, and broke the series down into four separate proposals. I summarize each idea briefly below, but I recommend following the links below to read the whole article associated with each proposal.

PROPOSAL 1: Reduce thresholds to improve program participation

There are two key concepts behind this proposal. First, affordable units built through the density bonus program come at no cost to the city, so every developer that doesn't participate in the program is a pure loss from the city's perspective. Second, data shows that many developers are either not participating at all, or aren't taking full advantage of the program. I look at how lowering the threshold for participation—while it would reduce the number of affordable units provided in each new project—could actually increase the number of affordable and  market-rate units built each year by increasing the number of developers that take advantage of the program. It's the old idea of "50 percent of something is better than 100 percent of nothing."

Table illustrating how reducing the amount of units provided per project can actually increase the amount of market-rate and affordable units provided each year, all at no cost to the city.

PROPOSAL 2: Fill funding gaps in density bonus project budgets with public sector funds, when necessary, to maximize private investment

Many cities, Los Angeles included, have less money for affordable housing than they did in the past. As a result, they need to make the most of what little they dospend on subsidized housing, and filling gaps in density bonus projects may be one of the most efficient ways to spend those dollars. Rather than spending $100K or more per unit to directly subsidize affordable housing construction, cities can help developers fill relatively modest gaps in project funding to push them over the edge for their "go/no-go" decision on participating in the density bonus. As with proposal 1 this funding assistance can be tied to clawback mechanisms for highly successful developments, and may be able to create affordable homes at a cost of $50,000 or less. Increased density bonus participation also means more market-rate units, which helps mitigate the growth of affordable housing costs in the future.

Public funding for affordable housing has been on the decline in Los Angeles and in cities throughout the country. New ideas are needed for how to create new affordable homes with limited public resources.

PROPOSAL 3: Capture value of increased development potential in upzoned neighborhoods

This proposal takes a look at two case studies in Los Angeles where newly transit-accessible neighborhoods—Cornfield Arroyo Seco and the Exposition Corridor—have been upzoned to allow for new development, and how those neighborhoods are using zoning tools to capture the value created by the increase in development potential. While not strictly related to the density bonus, this policy falls in the same class of "private investment for public benefit," and the specific plans for each of these communities focus heavily on the provision of affordable housing.

The new zoning dramatically increases the value of many parcels in these neighborhoods, but claws back that value for reinvestment in the local community by requiring a suite of "public benefits" for any developers that hope to take full advantage of the new development potential. This kind of plan is dependent on upzoning and so it can't be applied universally, but where rail and other infrastructure investments encourage rezoning of specific neighborhoods, it's an effective tool for retaining that value within the community.

PROPOSAL 4: Create an alternate fee-based density bonus program; use these funds to subsidize units in less expensive market-rate buildings

This idea is the most exciting to me, as it involves thinking about affordable housing in a completely different way. Right now all of our affordable housing comes from new construction, which is extremely expensive on a per-unit basis (especially when so much of the market is oriented toward more affluent tenants), and it's virtually all privately-owned, so that after 55 years the covenant runs out and the units go back to being market rate. At the same time, we have hundreds of thousands of existing rental units in Los Angeles, many of which are in great shape and can be acquired at much less cost than new construction.

The median asking price for multifamily units in Los Angeles is about $220,000, while new units typically cost upwards of $300K-$350K each.

Enabling an in-lieu fee system—rather than requiring on-site affordable housing in new density bonus projects—could help fund acquisition of these existing buildings while simultaneously increasing the supply of market-rate rental units. Development of new units is absolutely essential to long-term, broad-based affordability, but once those units are built there's no particular reason they need to be owned and operated for a profit. Acquiring them for management by a non-profit removes this profit motive from the equation, funneling revenues into a fund that allows a share of each building to be set aside as affordable. It also means that the buildings become permanent assets for the city and its residents, with a sustainable source of revenue that can be consistently used to fund future acquisitions—in other words, it's self-propagating.

An acquisition-based affordable housing strategy opens up a lot of opportunities that I haven't heard discussed in the past, so I'm excited to do more work in this realm and explore the possibilities. So again, read the whole article and let me know what you think!

Links for each article in the five-part series can be found below.

Part 1 |  Part 2 | Part 3 | Part 4 | Part 5