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Thursday, April 28th, 2011

Replay: The Return of the Native

“Boomerang migration” is a hot topic in talent circles. In places where brain drain looms large, the belief that people who’ve left will come back later in life after they have children and are ready to settle down close to family back home is a powerful hope for cities looking to boost their pool of educated workers. Often too, people who left for the big city after school find themselves looking for a more purposeful existence in life, and decide to move back to make a difference.

Yet, boomerang migration is fraught with peril as well. As someone who believes that literature can teach us something about life, this to me was illustrated best by The Return of the Native, the greatest book from that great English novelist Thomas Hardy. I won’t rehash the plot here, but let me just give this book my highest recommendation for fiction.

As you may gather from the title, it involves a case of a local boy made good in the big city, who decides to return to the rural countryside of his youth aiming to make a difference there. Alas, he not only fails to make any change, he himself is destroyed in the process.

As someone who’s made a couple of round trips between Indiana and the world, I’m very cognizant that there is a certain danger of arrogance involved in moving to a place with the idea that, beyond purely self interest, you can make a difference and a positive chance. It is easy to see how those who never left a place, many of whom never had many educational or economic opportunities, or who otherwise value rootedness and tradition over the new, might look askance at those who made different choices who now want to return and try to remake a place in another image. And there’s a lot more of them than there are boomerangers. One can create a caricature of the spoiled, over-educated youth swooping back to rescue the failing hometown out of the goodness of his own heart.

I think boomerang migrants are more likely to encounter problems reconciling themselves to a place than those who move there with no connection. I’ve mentioned the problem of “that’s little kids stuff” before. People, especially those from smaller or less hip destinations, are very cognizant of their plebian origin. You see this manifest itself when they move to bigger cities. They immediately realize their inadequacy and set about in earnestness trying to get beyond it. This frequently takes the form of contempt from where they came from. Again, I’ve noted that the place that probably has the worst brand perception of smaller Midwestern cities is Chicago. Why is that? Well, because all too many of the people who live there came from those same smaller places and are desperate to prove their big city bona fides. As someone once said, contempt for where you came from is the signature attribute of the arriviste.

Returning, all of this comes rushing back. Particularly when perceptions have legitimately changed. When I was a kid, Ponderosa was my favorite steak place. Now, after years of eating USDA Prime, I can never go back and experience Ponderosa in the same way again. I probably don’t enjoy today’s steaks any more than yesterday’s, a topic worthy of its own post, but I’ll never be able to capture that past experience. The act of moving away from home unmoors us from the limits of our origins. It’s no surprise that the college educated are more likely to migrate. It isn’t just the skills, it’s that four years away from home opens a world of possibility in our eyes. Even at 22, if you return, it’s to a difference place than you left, because you’re a different person. Because those who didn’t leave haven’t experienced this change, there’s an estrangement from your past. You no longer fit in. There’s something wrong. The cliche is true: you can never go home again.

Returning after a few years on the west coast, you come back to find a place that seems awkwardly not what you would expect or hope for. This inspires a particular desire to change or “improve” a place. There’s an almost desperation to validate the choice of return.

This is a particular danger to the boomerang migrant. Those who move to a place without a connection to it are not so burdened. Firstly, they are much more likely to have moved out of purely economic self-interest than any desire to make a difference. And, if things don’t work out, they have less emotional investment in the decision and can simply move back or move elsewhere.

There seems to me two lessons once could take from this. One is simply to leave home and never come back. The other is that in contemplating to choose to move home, for whatever reason, one should come with a sense of humilty and modest ambitions, armed mostly with personal goals and without too many ambitions to change the world. Because the only thing you’re likely to change is yourself, from an excited dreamer to a bloodied and frustrated person. Change, in any place, is a long term game.

And change is definitely needed. Outside ideas and perspectives should be welcome. In an ever more complex, rapidly changing, interconnected, globalized world, a city’s best economic interests are not going to be served by business as usual and a population made up almost entirely of people who’ve never lived anywhere else.

Outsiders are critical for change to occur. It is extremely difficult to change yourself. That’s why even Tiger Woods has a coach. People who have outside experiences are definitionally more open to things beyond the status quo. They not only have more contact with the outside world, they come to the old ways of doing business without being invested in them.

This is where the boomerang migrant plays a key role in this for the Midwest, I believe. It would be easy to say, let’s just lure people with no connection at all. Even better. And actually, I’ve advocated that cities should do just that. So many places can’t imagine that anyone who didn’t grow up there would want to live in them. They have to grow beyond that. However, the boomerang migrant can help pave the path. This is in two ways. The first is simply to be there, to provide a common frame of reference for the outside world and outside ways of thinking so that when the true outsider gets there, he’s got someone to relate to. The second is to start the early stages of the change process, to fertilize the soil, to create the conditions for those without a connection to come in, to pave the runway for them. A critical mass of boomerang migrants might be a necessary first stage to attracting others.

The presence of boomerangers creates tension and a bit of unpleasantness, both for them and for the city. Yet, I think that’s healthy. A little conflict is good for us, however bad it might seem at the time. Iron sharpens iron. The key is to strike the right balance, so that the boomerangers don’t end up destroyed in the process, while not letting them throw away all the old home values that clearly have something good to them after all.

Postscript: Lest you think Hardy only teaches the lesson of the folly of the boomerang, his work also suggests you can’t stay away and you can’t stay home either. The misfit is doomed. As you might gather, Hardy’s tragedies are among the most bleak out there. Perhaps that’s why they appeal so much to me….

This post originally ran on February 3, 2009.

Tuesday, April 26th, 2011

Amtrak Should Innovate with Hiawatha Service Pricing by Jeramey Jannene

[ I'm delighted to provide a sample of what you'll find over at Milwaukee's premier urbanist site: Urban Milwaukee. It is of course very Milwaukee-centric, but this piece has a lot of interesting ideas with potentially broader applicability - Aaron. ]

If you want to ride Amtrak’s Hiwatha Service line between Milwaukee and Chicago, the cost is $22 per ticket. If you buy your ticket in advance, the cost is $22 per ticket. If you ride on the weekend, the cost is $22 per ticket. If you want to ride in the middle of the day, you guessed it, $22 per ticket. With Interstate 94 under construction between the state line and Milwaukee for the next few years, new equipment on the way from Talgo, a new Milwaukee Intermodal Station train shed coming, and a route extension to Madison under construction, it’s time for Amtrak, iDot, and WisDOT to explore new pricing models for the state-sponsored rail service to encourage more riders and raise more revenue.

Amtrak, to their credit, does offer discounts for children (ages 2-15) who ride for $11 each with the purchase of an adult ticket (up to two discounted tickets per adult ticket). They also frequent rider discounts, in the form of a ten-ride ticket for $165 (that expires in 60 days) and an unlimited route ridership pass for a calendar month for $358. Those options leave a lot to be desired though.

Before I propose my list of pricing suggestions, it’s worth noting that the 2010 Amtrak Fiscal Year (October 1st, 2009 – September 30th, 2010) resulted in record ridership and record ticket revenue for the Hiawatha Service (and Amtrak as a whole). The Milwaukee to Chicago route had 783,060 trips and generated $14,092,802 in ticket revenue, for an average of $18.00 per ride. More valuable than the average revenue per ride would be to know both how many riders paid full price (and at what time of the day and day of the week), but unfortunately Amtrak doesn’t release that data. For the sake of this article, we’ll use my informal observations from riding and the data we have available to assume that a very high percentage of unique, adult riders pay full fare.

The pricing suggestions I propose are aimed at increasing ridership and marginal revenue simultaneously, while not requiring any service changes. They might have the added positive externalities of reducing congestion, reducing pollution from automobiles, improving the reputation of Amtrak, and encouraging travel and business between Milwaukee and Chicago, but if any of those things happen it’s merely a bonus.

Pricing Suggestions

Megabus Model - Megabus is famous for their $1 tickets, despite the fact that rarely anyone actually gets to buy one. The service is sold on a yield management pricing model, where the first one or two tickets are $1 with prices increasing incrementally from there. Amtrak could offer the Megabus pricing model not on all trips, but on the lowest ridership ones. This is likely to be especially valuable given that Megabus has drastically scaled back service out of Milwaukee.

Badger Bus Model – Badger Bus, the bus company that currently offers inter-city bus service between Madison and Milwaukee, has a pricing model for frequent riders that allows the company to collect interest off future ticket purchases. Amtrak currently offers a 10-ride ticket for $165, but it expires within 60 days. Using the Badger Bus model, Amtrak would allow customers to give the customers a large sum of money up-front in exchange for a discount whenever those funds are used to buy a ticket. In the case of Badger Bus, a $125 deposit gets you $175 in purchasing power (29% discount). The benefit maxes out at a $325 deposit ($485 purchasing power, 33% discount). If Amtrak were to offer something similar, they could be collecting interest on my money just like Badger Bus is (the last time I put $125 with Badger Bus it took me two years to use it all). An added revenue bonus is available with the model in the form of permanently unused funds, similar to gift cards that go unused. Amtrak would need to analyze exactly what deposit amount to collect, and how big of a discount to give.

Hessenticket Model – Germany has an innovative weekend pricing model available with their national rail system. The state of Hesse (home to Frankfurt) offers a weekend pass for 29 euros, where you and up to four others can ride the system’s non-high-speed all day on either Saturday or Sunday, anywhere you wish to go, getting on and off as you please. Their is a national pass with similar rules available for 33 euros as well. Implementing the idea between Milwaukee and Chicago might not work quite as well, but with future service extending to Madison it might make more sense. It seems reasonable to assume Amtrak could offer up a four-rider, $50 weekend day-pass with the requirement that the riders sit together (to prevent abuse).

Off-Hours Pricing – The current system prices every single-ride ticket equally, regardless of the time of day or day of the week. It’s worth exploring the idea of pricing lower ridership trips at a cheaper fare.

Wisconsin Vouchers – Scott Walker has managed to make an Amtrak service extension as political as possible (see: NoTrain.com). The victor on November 2nd would be wise to explore sending a non-transferable voucher to every taxpayer when the new Talgo equipment is put into service, giving them one free one-way ticket on the Hiawatha. It would be great for Illinois to do the same (tourism dollars on top of increased revenue). It’s hard to find someone who has ridden the service, but dislikes the quality of the ride. It is, however, easy to find someone who thinks the service is a “boondoggle” and has never ridden. The vouchers would serve as a new-customer acquisition strategy, generating a lot of new customers who would effectively be getting a half-off first trip. The long-term value of those new customers could be enormous. As an added bonus, angry Journal Sentinel commenters no longer can argue they get nothing in return for the state sponsorship of the rail line.

Corporate Pass – What if businesses got a discount when they purchased tickets? Could the company car be replaced (or the least supported) by the company rail pass? A program where the more tickets a business buys annually results in a greater and greater discount could increase revenue.

Advance Purchase Discount – Hotels often offer a price discount for booking your room early, Amtrak should do the same. Even if it’s only a 5% discount, or the ticket has to be bought at least 6 months in advance, Hiawatha ridership might increase (and Amtrak might collect interest) if customers book their tickets early.

Buy-One, Get-One – As one boards the Hiawatha they notice that the greatest unused inventory isn’t two empty seats together, but the empty seat next to a rider. To make better use of the marginal inventory, Amtrak should offer some form of buy-one, get-one free (or half off) for riders that sit together.

What are your ideas for Hiawatha Service pricing?

This post originally appeared in Urban Milwaukee on October 25, 2010. Reprinted with Permission.

Friday, April 22nd, 2011

A Ruralophillic Detour

Today is Good Friday, when Western Christians begin celebrating the central narrative of our faith around the death and resurrection of Jesus. It’s a time people often spend with family, and I’ll be heading down to visit mine.

Which brings up something that, while I guess it isn’t a big secret, many people don’t know about me, which is that I actually grew up in a rural area. Although I am the Urbanophile, I spent over half my life in the country and small towns. So in honor of that, and a recent delightful visit to the small college town of Alma, Michigan, I wanted to highlight some resources for those of you who are interested in rural development.

The first is Mike Knutson’s most excellent blog Re-Imagine Rural. This is probably the best site I know containing serious thinking focused on rural issues. It’s a must read and I have it in my reader.

Richard Longworth is another great resource. Another Midwestern small town product who lives in Chicago, he literally wrote the book on the Midwest economy in the modern age, Caught in the Middle, which contains some great material on rural areas and agriculture. He also blogs over at Global Midwest and tags his posts about rural areas so that you can easily find them. One particular great starting point is A Region on the Mississippi.

Longworth’s organization, the Chicago Council on Global Affairs, also publishes a series of research papers called the Heartland Papers. One of them is called Past Silos and Smokestacks: Transforming the Rural Economy of the Midwest by Mark Drabenstott at the Rural Policy Research Institute in Missouri. It’s very focused on regionalism in rural economic development and definitely worth a read.

The US Department of Agriculture has also done some interesting work. One of their research papers I’d particularly like to highlight is Nonmetropolitan Outmigration Counties: Some Are Poor, Many Are Prosperous (h/t Jim Russell).

This is a short starter list. Please feel free to add your own pointers and treat this an Easter weekend open thread. See everyone next week.

Wednesday, April 20th, 2011

Brutalism: Worth Saving? by Brendan Crain

Metropolis currently features an article on the impending demolition of Marcel Breuer’s Ameritrust Tower in Cleveland. The article reads like a sort of half-hearted defense of the tower and Breuer’s body of work, but the sentiment here seems to be pro-preservation, not so much pro-Breuer. It’s sort of like the ACLU defending a KKK member’s free speech for the sake of protecting free speech itself.

It is a commonly-held belief, understandably so after the devastating social and artistic destruction wrought by the so-called Urban Renewal movement, that the destruction of a building purely on the basis of its being “ugly” or out of fashion is a very dangerous thing. I don’t disagree. But I do wonder what can be said for Brutalism, a style of architecture frequently criticized for its indifference to context and its tendancy to be overly conceptual — to the point of being dehumanizing — in terms of its value in contemporary society.

It seems futile to debate the merits of one architectural style over another, but there are functional components to style that do, I think, make buildings from some architectural movements of lesser worth to society based on the fact that they do not produce an environment that is conducive to human activity. Brutalism is a style of design that focused on materials and structural honesty (what Wikipedia cutely refers to as “the celebration of concrete.”) It is part of a failed utopian vision centered on a kind of rigid equality. It is a style that, as a movement on the whole, failed to acknowledge the messy, blurry lines of human nature. It’s no wonder that people can’t relate to Brutalist buildings, then, because they are based on a stark idealism that most human beings either don’t understand, or flat out reject.

So what can be said for buildings that were designed without people — the real, unidealized kind — in mind. Are these buildings worth saving for some sort of artistic merit? Are they worth saving in order to make a point? And if the cost of preserving them is a less human environment, does what we gain by preserving Brutalist structures, in terms of ideals and ideas, offset that cost?

Links:
Farewell, Marcel (Metropolis)

Ameritrust Tower

This article originally appeared in Where on April 6, 2007. Reprinted with permission.

Monday, April 18th, 2011

This Is Why We’re Broke

I part ways with many urbanists in that I don’t hate suburbs. In fact, I think we need to start with a basic acknowledgment of the fact that most people like owning single family homes and like living in the suburbs. I might live in the city and not own a car, but that doesn’t mean other people necessarily do. Did subsidies and public policy contribute to sprawl? Of course, as we’ve recently been examining here. But I do believe there’s a legitimate consumer preference for the suburbs.

I do think we should invest in cities and can build urban environments that attract a lot more people. But equally if not more important is to build better suburbs. What we see in America today is a suburban form that is unsustainable. I don’t mean that in the traditional sense of the word when it comes to the environment. I mean that it is simply financially unsustainable. Unlike urban environments, all too many suburbs have proven tragically unable to reinvent themselves. Thus as soon as they get old and lose the advantages of greenfield economics, they are abandoned in favor of new edge development. Plenty of these places are going to be in big trouble when their aging in place residents pass on with no next generation in the wings. The vast tracts of decaying inner ring suburbs across America may prove to be our most vexing “urban” problem of the next few decades.

The current development poses less of a problem in places that are growing strongly like Houston. There we really do need to built a lot of stuff to accommodate the million+ new residents that move there every decade. They are seeing new blood fill in the gaps even as other folks move to the edge. Even in a place like Indianapolis, the region added 230,000 people. Their core is still too weak, but only lost 25,000 people. Thus their suburban “sprawl” cannot be driven primarily by outmigration.

But this is a huge problem in places that are growing slowly or shrinking. Think Chicago (where the region only gained 362,000 people and the city lost 200,000), or Detroit or Cleveland. In these places sprawl is simply sucking the life out of the heart of the region. This was perhaps best shown in Buffalo, which Chuck Banas described as an example of “sprawl in its purest form.” Between 1950 and 2000, the Buffalo region tripled its urban footprint, but added effectively no population.

Plain and simple, this is why we’re broke. As Banas put it, “same number of people, three times as much stuff” (to pay for).

Wonder why Illinois and Chicago are in such a horrible fiscal crisis? Yes, Springfield is dysfunctional. Yes, there are sweetheart union deals. This is all true. But the massive exurbanization of the region while the core (excepting the “core of the core”) declines is a massive drain on the treasury. Huge sums of money are being pumped into serving these areas, whether that be a Metra line extension to Elburn or brand new Ogden Ave. in Oswego. This investment is being made at a time when the existing infrastructure cannot be maintained. And that new urbanized footprint has to be maintained itself and operated in perpetuity. Plus, the rump suburbs and neighborhoods being left behind get turned into de facto wards of the state or federal government, a costly enterprise in its own right. It should be totally unsurprising that we’re in a fiscal mess here.

Michigan and Ohio are even worse. Michigan as a whole lost population. The Detroit region did as well, yet there are still all sorts of highway expansion projects on the books there. In Ohio, the state is widening roads in Cleveland while the population on a regional basis dropped. As Ed Glaeser noted, the problem with shrinking cities is that they have too much infrastructure relative to population, so why build even more infrastructure you have to maintain? During the stimulus, Ohio’s #1 highway project was a $150 million bypass around a town of 5,000. With decisions like these, it is any wonder these states are in trouble?

I guess if we want to pay people to just move around in an area, we can keep doing that. It doesn’t seem very wise to me though. I’m not saying we should ban people from moving to the exurbs in stagnant or declining regions, but at a minimum it should be made very clear to those who do that they have to pay 100% of the freight on their own, and that no state or federal funds are going to be expended in support of that.

This might seem like a political pipe dream, and maybe that’s right. But the fiscal inevitable end result of the current ways of doing business will ultimately force some change. I just hope some things happen before a lot places end up going bust.

Friday, April 15th, 2011

Replay: The Power of Greenfield Economics

I’ve touched on this before in other posts, but it is worth highlighting again. The great move from the city to the suburbs has been attributed to various factors: changing lifestyle preferences, the automobile, subsidies to sprawl, urban industrial pollution, etc. While there is probably truth in all of these, possibly the most powerful of them all is greenfield economics.

What is greenfield economics? This is simply the set of conditions that flow from building on new territory or exploiting new markets vs. redevelopment of old places, organizations, etc. Being able to start with the proverbial blank slate enables a huge number of benefits. Consider:

1. Everything is new and state of the art. A brand new home in the suburbs is new, comes with a warranty, and probably needs limited maintenance for the first few years. Also, it is built to the current fashion, with the layout, square footage, and room sizes people prefer today. The kitchen has stainless steel, not harvest gold. Everything about it is what the market is demanding today. As fashions and tastes constantly change and evolve, it seems unlikely older homes are hitting the market sweet spot, often requiring renovations, plus they require significant maintenance just to keep them up




2. No legacy costs. More broadly, the area has no legacy costs. There are no brownfields to clean up, no dead malls, etc. There are no unfunded pensions because nobody has accrued a pension yet. There are no bond repayments from yesterday’s boondoggles. And so on.




3. No legacy institutions and culture. A greenfield isn’t saddled with bunch of deals, and accommodations made years ago. It’s isn’t saddled with a mayor who is the grandson of the city council president from 40 years ago. There are a limited number of powerful special interest groups. As anyone who has tried to change an organizational culture that no longer meets institutional needs can tell you, this is a daunting task.




4. Ability to defer infrastructure costs. In particular, arterial street capacity and freeway capacity are built with a lag. This lets new towns avoid costs in the short term.




5. Scale economics are in your favor. Costs consist of fixed components and variable components. In a growth scenario, the fixed portion gets amortized across more units, meaning your cost per unit drops. Also, this allows substitution of additional fixed costs for variable costs to gain further unit cost efficiency. As long as growth holds, that alone can drive down cost per resident and business. This helps keep taxes low.




6. Efficiency of large lot development. New suburbs are usually developing relatively large parcels, which is efficient in that environment. For example, the land was probably acquired from a small number of original owners. The planning and zoning process is pretty much the same whether you are building five houses or five hundred. Again, there are unit costs efficiencies from building many units, etc.




7. Few low income residents. Because new towns tends to feature owner-occupied housing and new apartments, a job and credit history is generally needed to get in. Thus the nature of new places is avoid low-income people, and the associated social service costs. Part of the reason that the outer suburbs experienced particular stress in the housing collapse was because the weakened lending standards allowed people with marginal finances to buy in. A return to the status quo ante means those types of buyers will likely be excluded in the future. That doesn’t do anything to help lower income and working class people – they still have to live somewhere – but it will keep them from newer suburbs, as will restrictions like large lot size zoning and building codes that mandate upscale materials.

It isn’t hard to see why building new and moving to new places, particularly when staying within the same economic and amenity region, is very attractive.

You might say that this is a transitory state and the problems of the city will eventually hit the suburbs as well. Very true. And indeed, that’s what we see. Inner ring suburbs across America are struggling. Some of them are failed towns worse than any inner city. Many of today’s boomburgs will no doubt share the same fate 30 years from now. As a general rule, it seems that only the most affluent suburbs have staying power. But that doesn’t help you if you are a central city or inner ring suburb today.

Eventually all of the items above go into reverse. The town becomes “full”, it gets old, and its own deferred costs catch up with it. Then all of the logic that made the greenfield so powerful works to equally devastating effect in reverse. As the population and tax base shrinks, fixed costs loom large, for example.

The kicker in all this is that the liabilities and costs almost all attach to the territory, not the people. Thus they can be escaped simply by moving to a new greenfield. It’s like prospectors skipping from one clapped out mining town to the next. Or being able to run up a huge credit card in someone else’s name and skip town.

This is a huge structural challenge for old places. There is certainly a lot of work to be done on understanding how to deal with it. But the first step is recognize that simple greenfield economics can account for Hazel Morrow-Jones finding that “people like new and big homes far from the central city.” That’s where the greenfields are and people implicitly get that.

This post originally ran on February 4, 2010.

Wednesday, April 13th, 2011

The Sprawl Bubble by Chuck Banas

[ Buffalo's Chuck Banas is a great thinker, doer, and writer on urban matters. He graciously allowed me to repost some of his articles, and this is sadly the last one I have on file. It was written in 2009 and so some of it addresses what was going on at that time, but the perspective remains relevant, even if sprawl is not your issue. - Aaron. ]

I’m certainly not the first pundit to comment on the recent economic meltdown, and I sure won’t be the last. But there is a side to this crisis that almost no one is talking about, perhaps because it hits a little too close to home—literally.

The two primary assumptions embedded in our national dialog seem to be that (1) like the dot-com bust of 2000, the problem is a fairly recent phenomenon caused by the latest round of irrational exuberance on Wall Street, and that (2) worst-case, we’ll all be able to go back to the old borrow-and-spend way of life in a couple years. Both are symptoms of denial that make it impossible to address the larger problem.

This crisis is not simply about bad suburban housing debt. By some estimates, more than one-eighth of the retail space in the U.S. will be sitting vacant within a few months. The graph at right illustrates that situation very clearly. I’m thinking you’ll be shocked by it. Whether or not that’s the case, kindly indulge me and read on.

The proverbial elephant in the room is the amount of sprawling, redundant public and private infrastructure we’ve built since the end of World War II. This exodus to the suburbs quickly resulted in the hollowing-out of major parts of older cities and towns. Furthermore, the overwhelming majority of this development is automobile-based. Places to live, work, shop, and play are intentionally separated by vast distances. Low-density, separated-use zoning has ensured that there is far more infrastructure to maintain per-person than in older village, town, or city neighborhoods.

For this suburban system to function, residents are required to own, operate, and maintain a car. Or two. Or three. Nobody knows this better than the typical suburban family. While car ownership is expensive enough, it is not simply a matter of gasoline and monthly payments. The automobile incurs another immense cost: cars can’t operate without lots of flat, smooth, publicly-funded road infrastructure (read: roads, highways, and the accompanying electric, gas, water, and sewer utilities).

All of this is stupefyingly expensive. These indirect costs constitute the majority of the expense, yet remain invisible to most people—spread-out in the form of local, state, and federal taxes, or camouflaged as municipal bond debt or various other forms of government debt. So in addition to being redundant, this means that suburbia is a doubly expensive living arrangement.

The other point that I’m trying to make is that the migration of wealth to the suburbs has not been a free-market phenomenon. Customer choice is only a small part of the equation, or this wouldn’t have happened in virtually every American city at the exact same time in the exact same way. Which, of course, is exactly how it did happen.

I assert that much of the economic crisis we’re seeing today is simply the end result of decades of bad decisions driven by bad economic, transportation, housing, and land-use policy.

A mercifully short history of sprawl

To understand the sudden suburban migration of the post-WWII period, and what it means for us today, some historical perspective is required. Happily, I’ve done my best to keep it short.

Powerful enablers are required for such a sweeping thing to happen. Post-WWII suburbanization was caused not simply by the availability of the automobile, or postwar housing demand, but by a converging set of public policies that resulted in blighted cities, towns, and villages, as well as an uglified, overdeveloped countryside. Without getting into gory detail, the major enablers included the national highway system, subsidized government loans for new suburban housing, the often intentional withholding of needed capital to renew older neighborhoods, and notoriously destructive urban renewal projects. These policies, and others too, amounted to the most massive outlay of taxpayer subsidies and incentives the world has ever seen. The ’burbs were not built by chance. Or merely by customer choice.

This is not to say that these policies weren’t well intentioned. For the most part they were. But they were also largely naive and shortsighted. However, at the time, they were seen as necessary to address some of the largest concerns of the day. Foremost, this involved the very real possibility of lapsing back into a depression as American industry demobilized. These fears were inflated by the vast problem of re-employing the nine-million-or-so men and women formerly in uniform who suddenly found themselves out of a job.

Keep in mind also that after an almost 15-year period of depression and/or war, American cities were not in great shape. During that time, there had been little public or private investment, and cities still contained all of the noxious, unpleasant activities of the industrial age, accompanied by virtually none of the environmental protections we take for granted today. Also, during the war, hundreds of thousands of southern blacks had migrated to northern cities hungry for defense labor, adding a racial component to the issue. Finally, the steadily increasing population of cities had created a housing demand, especially among the middle class and the millions of young war veterans newly empowered by the GI Bill.

To avoid the obvious potential mess, the federal government decided to create a large set of subsidies and incentives for new construction and new land development. All at once, this would help alleviate housing demand and instantly create thousands of jobs in the construction trades.

At the same time, cities, perceived as overcrowded, dirty, and dangerous, became the victims of the so-called ‘urban renewal’ programs of the 1950s and 60s, a process by which many otherwise viable neighborhoods (most often minority) were demolished entirely and replaced with a smattering of low-quality publicly-subsidized housing projects. Families, businesses, and other community institutions were uprooted, neighborhood relationships were destroyed, and most residents were forced to relocate to other neighborhoods—many of which were, shall we say, less than welcoming. It is dfficult to overstate the amount of social stress and psychological trauma caused by this. Ever wonder about some of the reasons behind the urban race riots of the 1960s?

Also under these programs, downtowns, waterfronts, and other older neighborhoods were mangled or obliterated by expressways and automobile-related transportation projects. It’s no surprise that urban renewal soon became sarcastically (and perhaps more accurately) known as ‘urban removal.’ All of this lowered the value of older cities, towns, and villages, and intensified the suburbanization subsidies already in place.

Primed and sustained by these subsidies, the suburban build-out has continued generally unimpeded in the decades since. It actually accelerated through the 1990s, driven by both cheap oil and a frenzied, anything-goes lending market. The map above remarkably demonstrates this. The red/yellow areas, amounting to at least half of the total colored area, represent the land developed from 1993–2001. The purple/blue is the land developed prior to 1993.

Think about that. At least as much land has been developed in this country in the last 15 years as in the previous 400 years of our history.

Not surprisingly, as people continue to move even further out, older suburbs have been experiencing the same problems of poverty, crime, and blight that city neighborhoods have seen. And so it goes.

The sprawl bubble

Today, the resulting problems are vast, intimidating, and painfully obvious. Yet it’s hard for most Americans to discern the problem, let alone see a way out of the woods. This is not only because we’ve got so much of our collective wealth tied-up in this system, but because suburban sprawl has become so culturally identified with the postwar “American Dream.” Indicting the system that produces sprawl is often seen an indictment of our very way of life.

And dissing the American Way is blasphemy, brother.

It’s therefore no wonder, though no less maddening, that we can’t seem to have an intelligent public discussion about this. It’s hard to broach the topic in public without really pissing someone off—often to the point of violent irrationality. Believe me, this is not a subject you want to bring up with strangers. Or in-laws. I know.

In any case, we’ve now got this glut of public infrastructure, most of which is obscenely expensive and redundant. Much of the older stuff has been in deferred maintenance for decades because we’ve been too busy trying to pay for all the new stuff. Accordingly, public debt is astronomical. In addition, the amount of private debt has never been higher, with average personal savings essentially zero. This is due in part because so many people have taken advantage of exisiting housing subsidies to buy homes they can’t afford and live lifestyles beyond their means. (Of course, there are other things that have contributed to this situation, but I won’t delve into all of them here.) The bottom line is that there’s no financial slack left in the system. State and federal governments, municipalities, banks, businesses, and individuals are all strung out on various forms of credit, because we’ve been collectively attempting to finance a way of life that is unaffordable and ultimately unsustainable.

This brings us back to the chart at the beginning of the article. If you didn’t see the significance the first time, you may want to look at it again. A simple measure of the current financial crisis is evident here: In 1960 the United States had about four square feet of retail per person. As of 2005, that number had risen to 38 square feet.

Yep, that’s right. This number includes not only the underutilized retail square-footage in older neighborhoods, but also the speculative, overvalued glut of strip malls and big-box stores of suburbia. The ‘dead mall’ has been a familiar sight across the country for a while now. Dead subdivisions are now common in suburban areas hardest hit by the housing crisis.

For a current comparison to other industrialized nations, see the second chart at right. While the U.S. number reported by this research is lower than the first chart (20.2 square feet vs. 38), it’s the relative difference between the U.S. and other nations that’s pertinent here. Note that other countries are still down where we were 50 years ago. You must then ask yourself these rhetorical questions: Do the Germans, French, or English live in some third-world consumer backwater? Are there overseas shortages of bread or iPods?

In any case, back to U.S. retail: As retail development follows residential, and both follow public infrastructure investment, one can infer that we’ve been sitting on a massive real-estate bubble for decades, propped-up by massive public subsidies. This is what I call the ‘sprawl bubble.’ In large part, this is the bubble that is currently bursting. This has implications for all Americans, not simply those of us living in far-flung suburbia.

Overdeveloped suburbs aren’t the only areas in bad shape. As we’ve seen, American cities, depopulated, disinvested, and impoverished, are not the mighty manufacturing centers they used to be. We’ve exported most of that activity to places like China, Mexico, Korea, and India. We’ve essentially become a country that doesn’t make things, simply existing as a market for other countries’ products. That’s why China holds a staggering—and ever increasing—amount of our debt. The Chinese must guarantee a market for all of their manufactured goods by propping up the value of our currency. Setting aside for a moment the irony that we’re now economically beholden to the world’s largest communist country, at least for now the relationship is a sort-of mutually-assured economic destruction.

Internally, much of our domestic economy is now tied to the construction and real estate finance industry which, using the capital provided by a runaway lending market, has been going gangbusters producing new suburban McMansions and strip malls—until quite recently, that is. It’s all come to a screeching halt, with the financial hucksters no longer able to hide the fact that much of this stuff has little or no value.

I’ve often wondered how long we’d be able to keep up this shell game. More and more, it’s obvious that this is a pattern of living guaranteed to bankrupt our country.

I may be wrong, but I’m thinking the piper finally needs to be paid. The scary thing is, for the most part, Americans won’t even admit the problem. I’m not an alarmist, but my fear is that we’re so pathologically attached to our system and its hallowed cultural myths that we’ll fight to the bitter end to sustain the unsustainable.

This post originally appeared in Joe the Planner on February 10, 2009.

Monday, April 11th, 2011

Does Privatization Actually Transfer Risk Away from Government?

One of the reasons I’ve always liked privatization is that done right it can transfer a lot of risk from the government to the private sector. When I consider the Chicago Skyway or Indiana Toll Road leases, one of the things I liked about them is that there seemed to be an embedded hedge that more or less provided certainty over future financial performance. Travel volumes fall because gas goes through the roof? Not the government’s problem. Construction costs increase faster than inflation? Not the government’s problem. We really do stop driving so much as a society? Not the government’s problem.

Now, this hedge obviously has a value, so there was some price put on it. That’s one reason I don’t think it’s fair to compare some theoretically ideal value the government could have realized internally if a bunch of assumptions were met to an actual market price that reflects risk adjustment. Of course, that’s not to say it is worth paying for that protection, but I always thought there was real value there.

Then I actually started reading some of these contracts.

I paid more attention to the actual contract language in these deals when I dug into the Indianapolis parking meter lease. Upon further review, it is very clear that these asset leases really transfer few risks to the private sector. Basically the vendor is taking on two key risks: cost risk and demand risk. Pretty much everything else is retained by the public.

On the cost front, the privatized systems could cost more than anticipated to run. But that seems unlikely. Most of these vendor teams include operators with years of experience in running these types assets. I would suspect they are probably pretty good at projecting costs.

Demand risk is basically the big one. This is the risk that the public doesn’t dump their quarters in the toll booth or the parking meter. Now, that’s a very real risk. There’s no doubt that the toll roads that were privatized at the peak of the bubble have under performed, as VMT actually dropped during the Great Recession. With the time value of money, this is particularly painful in the early years of the deal.

(One might also include financing risk, as many of these deals assume a future refinancing).

The problem is that there are a ton of other risks out there. The contracts are worded in such a way that basically the government is boxed in such that if any of the deal assumptions ever need to change, the public is going to have to be the one to pay. For example, with parking meters, if the meters have to be taken out of service greater than a specified closure allowance – for any reason at all, including emergencies – the government has to provide compensation for this. Another example: on the Indiana Toll Road when the Borman Expressway flooded, the state implemented a temporary toll holiday, but this required vendor compensation as well.

As I have noted previously, it is extremely difficult to predict future conditions, so when you create a rigid deal structure that lasts decades, it is almost inevitable that the public is going to have to pay up to make changes, or else just suffer from not being able to respond to conditions.

I don’t necessarily fault privatization itself for this. All of these deals were set up by the government in this way in order to maximize the near term payout. By retaining so much risk, this frees bidders to put more cash on the table, since they don’t have to price in that risk. But it’s a real cost nevertheless. It’s just hidden until the future reveals it.

Many of these aren’t horrible, awful things in the grand scheme of things, but they do generate a large amount of headline risk among other problems. I would suggest that a more robust discussion needs to take place about retained vs. outsourced risk, and what levels of flexibility need to be built into the contracts to allow the public to respond to future needs, and to properly set expectations about the real cost of risk. Perhaps different types of deal structures should be considered such as a gain sharing model where the vendor and government can collaborate on the best responses to changing market conditions and public needs over time instead of a one and done shot. I can’t say for sure, but clearly the public has gotten skeptical of the current approach, and significant thinking needs to be applied to this area.

Wednesday, April 6th, 2011

Le Flâneur

Here’s another super-cool city video. This one is a series of photos combined into a time lapse video with nice music. It’s about Paris and is only two minutes so definitely worth a watch. (If the video doesn’t display, click here).

Of course, it is very much like the similarly awesome You’ve Got to Love London.

Wednesday, April 6th, 2011

Ohio’s Geographic Advantages

Ohio is a state that has been, let’s be honest here, walloped pretty hard. It’s a poster child for Rust Belt industrial decline, and frequently shows up near the bottom of the league tables along with Michigan on many measures.

But I think that Ohio is fortunate to have some structural factors from its geography that work in its favor. While clearly there are still issues to work through, longer term these might benefit an Ohio comeback.

One of them is that Ohio is on the trade routes. Many major transcontinental interstates pass through the place, along with tons of rails lines. This is a big contrast to Michigan, which is a peninsula. Other than Detroit and the trade links through Canada and its air hub, Michigan is almost always going to require a special trip. I noticed this when I drove to Grand Rapids for the first time. It’s a detour. You’re not going to pass through it unless you’re going somewhere else in Michigan. Whereas in Ohio, massive amounts of people and freight are simply passing through. All it has to do is convince some of it to stop.

Furthermore, Ohio is a state of many large cities. In addition to the “3C”s of Cleveland, Columbus, and Cincinnati, there’s also Dayton, Toledo, Akron, Youngstown, etc. Since metro areas are the driver of the new economy, it’s good to have lots of larger metros. This also gives Ohio a much more urban feel than other Midwest states. For example, contrast with Indiana. Indiana is mostly urban in population too, but because most of its metros are fairly small, it has a more rural and small town mindest. The Gary region of Indiana, the second largest urban area in the state, is about the same size as Akron, and it falls off quickly after that.

Finally, the metro areas of Ohio are diverse. Cincinnati, Columbus, and Cleveland are radically different cities. This is a good thing. As research from CEOs for Cities and others has shown, distinctiveness is one of the keys to urban success, and Ohio has some very unique metros. Cincy is certainly one of the most unique in the country.

So while Ohio will continue to face challenges, there are actually a number of positive structural factors. It will be interesting to see how these play out over time.

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