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Tuesday, July 15th, 2014

The Uniqueness of Detroit’s Housing Stock by Pete Saunders

[ I've posted a number of pieces by Pete Saunders here in the past. He's not just a great analyst generally, he's particularly great on Detroit. His post laying out nine reasons why Detroit failed has more page views than any other article in Urbanophile history. (The top four posts are all about Detroit, showing the powerful hold that city has on the public consciousness). In his blog, Corner Side Yard, he's bee revisiting that post to go in depth on each of his nine points. Today I'm pleased to be able to repost his analysis of Detroit's housing stock, along with that of many other Midwest cities - Aaron. ]


A scene from the Grixdale neighborhood on Detroit’s northeast side.  Source: Google Earth.

Last week, as part of my series on planning reasons behind Detroit’s decline, part 2 of the nine-part series was about the city’s poor housing stock.  I started to play with some numbers to see if there was any validity to my opinions about the city’s housing, and I found some very intriguing things.  Detroit’s housing stock is definitely unique among its Midwestern and Rust Belt peer cities, and perhaps among cities nationwide.  Let’s examine.

Grouping the cities by population figures from the 2013 U.S. Census population estimates, and housing data from the 2008-2012 American Community Survey, I looked at housing age and single family detached housing data for 15 Midwest/Rust Belt cities with populations above 250,000.  One city I typically include in an analysis like this, Louisville, was not included due to a lack of ACS data.  Data for the Twin Cities of Minneapolis and St. Paul were aggregated into one (sorry, Minneapolis and St. Paul) because they jointly function as the core city for their region.  Here’s the big table with all the data:

That’s a lot to digest, so I’ll take the data piece by piece.  First, let’s look at the cities ranked by their percentage of housing units built in 1969 or earlier:

You’ll see here that, perhaps following the general national perception of Detroit housing, the Motor City has an older housing stock.  Only Buffalo has a higher percentage of older housing. Generally speaking, the cities at the top half of this list have older housing because they lack redevelopment activity that replaces older housing, while cities at the bottom half consists of cities with decent levels of redevelopment activity, or more recently built housing that’s been annexed into the city in recent decades.  Here, Detroit does seem to fit the pattern.

But does it really?  If you look at the Census’ earliest category for age of structure, 1939 or earlier, Detroit drops considerably on the list:

Instead of ranking second as in the earlier table, Detroit falls to tenth.  The rest generally hold the same spots they occupied from the previous table as well. The only ones ranking lower than Detroit here are smaller cities (Omaha, Ft. Wayne) and the cities that annexed large amounts of land post 1970 (Kansas City, Indianapolis, Columbus).

Next, let’s look at how the cities rank in terms of their concentrations of single family detached homes:

Detroit shows up here with the second highest percentage of single family detached homes, comprising nearly two-thirds of the city’s housing stock.  Once again, the only comparable cities are the smaller cities and the big annexers.

Clearly, most observers believe Detroit has more in common with Buffalo, Cleveland and Pittsburgh than with Ft. Wayne, Kansas City and Indianapolis.  What happened to Detroit’s housing stock that gave it such an odd profile?

To understand, let’s pull out a specific category on the age of structure table, the 1950-1959 category:

Here, we find that Detroit has, by far, the highest concentration of housing units built between 1950-59 of all its peer cities.  Nearly one in four homes in Detroit were built during this period.  In fact, Detroit, along with Milwaukee and Toledo, occupies a strange space among Midwestern/Rust Belt cities.  (Side note: the more I study Detroit against other Midwestern cities, the more I find that Detroit and Milwaukee are virtually the same city.  And it doesn’t surprise me that Toledo, just 75 miles from Detroit, would share its characteristics as well).  Detroit, Milwaukee and Toledo all added their greatest numbers of housing at the outset of the modern suburban development period, what I’ve called the Levittown Period in my so-called Big Theory of American Urban Development.  This supports my thinking that if anyone was ever interested in establishing a Levittown-style national historic district, Detroit would be a good candidate.  The Motor City has perhaps more small Cape Cod-style, three-bedroom, one-bath single family homes than any city in the nation.

How did Detroit get this way?  Housing demolition likely had some role in a city that lost so much.  Detroit likely lost older single family homes and multifamily buildings over the last few decades, leading to skewed numbers.  The same is also true of Indianapolis, Kansas City and Columbus, cities that annexed large undeveloped areas after 1970 and built new housing there.  Keep in mind, though, that Milwaukee and Toledo, Detroit’s comparables, may not have had the same level of demolition loss that Detroit had, yet they still match the Motor City well.

That leads me to believe that a concentration of housing development at a unique time is a crucial piece in understanding Detroit’s housing stock.

Here’s another way of looking at this.  I grouped the cities by age and single family home concentration and came up with interesting groupings:

Here it becomes clearer that Detroit and Toledo stand alone as locations for old or moderately old structures that are largely single family.  Also, Milwaukee’s greater mix of single family and multifamily units begins to set it apart from Detroit and Toledo, even when it has a similar concentration of Levittown-style housing.

Finally, let’s consider housing adaptability as part of the housing stock analysis.  Chicago, the region’s largest city and lone “global city” member of the group, comfortably rests in the middle of all tables except for the single family detached table, where it shows the lowest concentration of single family homes.  My guess is that Chicago’s continued desirability means more newer housing has been built, and that its lower single family housing numbers mean that other housing types (lofts, condos and the ubiquitous 2-flat and 3-flat) created a more flexible and adaptable housing development landscape.

Assuming that younger structures are more often suitable to renovation for adaptability, moderately old structures require more intense rehabs, and older types are more often subject to demolition and rebuilding, I reorganized the previous table in terms of housing adaptability:

And if I put in the cities next to this adaptability scale, it’s easy to see the magnitude of Detroit’s housing challenges:

Detroit is such a unique city in so many ways.  The Motor City needs more research and analysis that highlights its uniqueness and adds to our understanding of the what led to its downfall, and less of our ire and contempt.

The more I study Detroit, the more I see the seeds of a similar downfall in other cities nationwide.

This post originally appeared in Corner Side Yard on July 6, 2014.

Tuesday, July 8th, 2014

Detroit: A Chip Off the Old Bulb by Eric McAfee

[ As some of you may remember from my post on the streetlights of Chicago, I'm a streetlight buff. Detroit's street lights are famously old. A chunk of them date back to at least the 1920s. In this piece Eric McAfee take a closer look - Aaron. ]

Seven months after the announcement, it still seems like the largest municipal bankruptcy filing (at least up to this point) is the stuff of legend—the culminating event, after successive blunders.  The apex.  Or the nadir. No doubt those of us living here are guilty of a degree of chauvinism as we experience how it plays out firsthand, but it’s easy for anyone with even moderate media curiosity to see how much the city has hogged the headlines.  It may be for all the wrong reasons, but Detroit is prominent once again.

Yet it was only weeks—if not days—after the declaration made international news that, in order to convey to the world the magnitude of the city’s financial woes, journalists honed in on more mundane failures—failures that, by virtue of their banality, were all the more shocking.  Locals have known about them for ages.  A portfolio of abandoned public school real estate larger than many cities’ functional school systems.  An absence of snowplows, even after heavy storms.  A stonewall of silenced civil servants, hogtied from effectively carrying out duties by daily uncertainty about the security of those same jobs.  The virtual absence of any emergency response, resulting in two-hour waits for an ambulance or a police call.

But the one that crowds out the rest, no doubt at least partially due to its ubiquity and ordinariness, is the persistent non-functionality of those streetlights.  One of the editorialists for the Free Press has branded it “the city’s deepest embarrassment”.  By most estimates, up to 40% are out on any given night.  Anyone passing through can tell when crossing into the city limits for this exact reason: even huge stretches of the interstates are black, although they’re state or federal highways.  It’s hard to determine if these shadowy streets originate from a cash-strapped DPW’s inability to replace the bulbs—which obviously require periodic maintenance—or an oversight that far precedes the checkered Kilpatrick administration, when the city’s fiscal woes first garnered national attention.  All it takes is a trip down Mack Avenue on the city’s east side to postulate that the problem is a half-century in the making.

Silhouettes of streetlights punctuate the dusky penumbra, but even at a distance, the shape of these lights seems odd.  Antiquated?  Probably.  And a closer view confirms it.

To be frank, I can’t recall seeing lights like this before anywhere else in the country, and I’m well-traveled across some of the more economically deprived pockets.  From the baroque iron filigree work of the stanchion to the acorn shape of the light itself, my guess is this streetlight comes from an inventory that most cities had fully retired over three decades ago.  And there’s probably good reason for that: this one is broken.

And so is another one half a block away.

About half of the lights along this stretch of Mack use this design, and most are cracked.  A big distended bulb offers more surface area encased in glass—more space for something to wrong.  Whether hit by flying debris hit or (my suspicion) deliberately smashed by a passer-by, this streetlight is almost definitely non-operational.  And the visible hardware is only half the problem: inside that quaint, clunky bulb (your grandmother’s streetlight) is—or was—a mercury vapor lamp. Detroit is one of the few cities that still depends heavily on this less efficient, increasingly obsolete method of illumination; most other large cities have replaced their inventory with superior metal halide lamps.   USA Today also noted that Detroit and Milwaukee share the dubious distinction of being the only large cities that still deploy series circuits for much of the streetlight network, meaning that if one transformer box breaks down, the whole strip of lights goes dark, like an old string of Christmas tree lights.  While the Mack Avenue streetlight featured above remains attached to a wood, other lights in the city append to metal poles, presumably the same age as the lights themselves, characterized by rust, peeling paint, and sometimes even open cavities at the base.  The whole contraption has seen better days.

But viewing these cracked eggs through a cultural lens can help temper some of the scorn.  They might not work well as modern lamps and they’re much easier to vandalize, but they’re relics—they’re curiosity items.  And they’re particularly eye-catching along Mack Avenue because there are so many of them, yet they’re still interspersed with more contemporary designs.  This cool pic doesn’t win awards for clarity, but it still shows the juxtaposition of old and new streetlights, through their silhouettes.

Or on opposite sides of the street.

And on a depopulated residential street not so far from Mack, a different kind of lighting style emerges—perhaps not as old-fashioned but still an oddity.

Perhaps a style and technology that never caught on?

The irony of the 1950s-era (or maybe even 1940s) lighting that lingers on in Detroit is that, in a broader spatial context, it exemplifies technological advancements playfully defying shifts in taste culture for a particular design.  On Mack Avenue, ancient streetlights bespeak a broke, ineffective government.  And yet, elsewhere in the metro, they convey something else.

Forgiving the quality of the photo, it’s still easy to see a similar style of lighting to the ones on Mack Avenue, but this time they’re impeccable.

But this is the comfy suburb of Livonia, presumably part of a streetscape improvement along a thoroughly auto-oriented corridor of strip malls and big boxes.  And they no doubt were a deliberate choice from the Public Works Department because they look good—providing a vintage, old-timey feel.  Apparently they don’t worry in Livonia about ne’er-do-well pedestrians throwing rocks at these distended bulbs.  Maybe it’s because Livonia has few ne’er-do-wells….and even fewer pedestrians.  But even some of the economically healthier neighborhoods within Detroit have caught the bug, replacing older streetlights with a newly vintage design, like these twin lamps in Midtown, near Woodward Avenue.

This inversion of taste cultures pervades streetscapes across the country, where everything old is new again, in order to exploit nostalgia among a generation that never really experienced a normative walkable environment—a landscape that was still the standard during the era when city crew first installed those acorn mercury vapor lamps.  We’re seduced by nostalgia and novelty; a hybrid of the two is doubly sweet.  Just go to the French Quarter in New Orleans, where a city equally negligent in modernizing its utilities now capitalizes on this same inertia—the flickery gas lanterns that once were a backwater embarrassment are now ambiance.  Detroit isn’t yet so lucky to take similar advantage of its obsolete lighting (and the fact that most streets like Mack are a hodgepodge of styles doesn’t help), but that doesn’t mean that an emergent cultural voice won’t someday call those lights “genuine retro”, and the preached-upon choir will be listening.

The periodic “freshening” of basic urban infrastructure is only partly due to necessity, as it may very well be in Detroit.  But a great deal simply has to do with keeping up with the joneses, resulting in often needlessly costly capital investments.  For example, the standard for pedestrian signals at intersections now typically involves a “countdown” timer, telling pedestrians exactly how many seconds they have left to cross.  While useful, are these timer boxes essential?  Regardless, public works departments are rapidly phasing out the single-box approach for these new timer-boxes, with little evidence of public advocacy one way or another (despite the fact that the public inevitably is paying for most of these replacement costs).  From decorative viaducts to Day-Glo yellow road caution signs, jurisdictions hell-bent on an infrastructural one-upmanship should look to Detroit as an inverse exemplar—what might happen when profligacy goes perpetually unchecked.  Unless, of course, these granny-and-gramps streetlights become hip and cool again, in which case the Motor City might have the last laugh.

This post originally appeared in American Dirt on February 27, 2014.

Tuesday, June 10th, 2014

On Being Priced Out of Downtown Detroit by Daniel Hertz

[ After my recent post on people saying they were priced out of downtown Detroit, Daniel Hertz followed up with some thoughts of his own over at this excellent City Notes blog on that and other topics. He graciously allowed me to share them here. Also, I'd like to clarify one thing which is that in my original post I was referring to people in Detroit wanting more construction in their preferred neighborhoods, not Daniel personally. I included that bit from Pete's post to help make Pete's point in context - Aaron. ]

Okay, on to the funner stuff. Attempting to keep this organized:

1. Jim’s post: I don’t actually really disagree with anything here. My objection to his previous post was mostly about this line:

What a superstar metro doesn’t mean is strong population growth and demand for housing outstripping supply.

Maybe I misunderstood, or maybe he changed his emphasis, but whatever the reason, the latest post makes clear that both supply restrictions and increasing demand are playing a role in exacerbating housing prices. I think that’s exactly right.

2. Aaron’s post: Responding to an article about rising home prices and displacement in downtown Detroit, Aaron basically picks out three dynamics that are important. The first is short-term:

Now, what about supply? Is the city of Detroit telling people they can’t build downtown?… What we would appear to have here instead is a lag issue. Real estate development isn’t like ramping production up or down in a factory. It takes time to do.

Right. Given that it can take a year or two for projects to be conceived, engineered, financed, and built, it’s pretty common for areas where demand increases very quickly to suffer a temporary shortage of supply as a result of this kind of lag. It makes sense that this would be the case in downtown Detroit.


Dan Gilbert imagines all the light-skinned people who will use his new toys.

The second problem is longer-term, but quite specific to places like downtown Detroit where there have been very few residential buildings at all, prior to the increase in demand:

Additionally, with higher income demand in the market, new units are going to be built to serve that market, not lower income people. If you own land and have a market that gives you the choice of either building a higher profit building or a lower profit building, which one will you choose?

I would actually make this even stronger. Given construction costs, very few new homes are built for low-income people without some sort of subsidy: it’s just not profitable to do. This is why even people like Ed Glaeser, a free market-oriented economist and champion of increasing housing supply to lower prices, say that housing subsidies will be needed no matter what we do: at the moment, the cost of building new housing requires sales prices that are too high for low-income people to afford.

In established low-income residential neighborhoods that experience gentrification, this can be less of an issue. If building new homes is difficult, then landlords of older buildings can make a lot of money by renovating their apartments and renting them at much higher prices to the wealthy newcomers, displacing the existing residents. But if building is easy, then lots of the newcomers will move to fancier, newly built homes, and the old landlords won’t face nearly the incentive to renovate and raise rents. In that case, the older, more affordable housing stock can be preserved.

But if there is no older, more affordable housing stock – as in places like downtown Detroit – then the only housing is the new, expensive stuff, and you’ll get a pretty economically homogeneous neighborhood no matter how much you build. (At least, that is, until that new housing stock becomes old enough to lose value.)

The last problem is the peculiar geography of demand.

Which brings us back to the juxtaposition of high demand in Downtown/Midtown Detroit vs. the low or no demand in most of the rest of the city. Why wouldn’t the people who can’t afford downtown rents just move into one of those areas?

The answer is obvious: they want to live downtown specifically.

This, I think, is the thorniest and most interesting issue: it’s obviously the case that in a place like Detroit – to a much greater extent even than Chicago – there is a “supply problem” only in very geographically limited areas. And that geography, as Aaron, Jim, and Pete Saunders have pointed out, is defined by where the people driving demand actually want to live: in this case, downtown, Midtown, and almost nowhere else.

Where I think Aaron and Pete are wrong, though, is in glossing over the reasons that demand is shaped this way. Their focus, as I understand it, is on status and yuppie comfort: where the hip neighborhoods, the hip bars, and so on, are. And, correctly, they argue that no one is entitled to live in the hippest part of a city.

But although status certainly plays a large role in determining where people want to live, you’re missing a lot if that’s all you’re thinking about. I would divide the reasons that people limit their housing searches to downtown and Midtown Detroit – or the North Side in Chicago, or (fill in the blank) in your city – into basically two categories:

1. Economic factors. This is economics broadly construed, and basically covers all of the concrete advantages or disadvantages to a particular place: not just access to jobs, but the quality of the local schools; access to amenities, from essentials like grocery stores to luxuries like cafes; the likelihood that you will be a victim of serious crime; and so on.

2. Social factors. This includes both conscious and semi-conscious concerns about status – I want to live in Lincoln Park, because the kind of person I want to be would live in Lincoln Park – but also the more invisible issues of social networks, or the extent to which you are aware of different neighborhoods. What my professors would call a “choice set” – what is the menu of options you’re consciously choosing from?

I guess my argument is that Aaron and Pete are focused on a subset of Category 2, but that in fact there’s a lot more going on.

More than that, I would suggest that, to a large extent, social factors are mostly secondary: that is, when you consider where to live, you first narrow down the options with economic factors – where can I get to my job, send my kid to okay schools, and not be afraid to walk home at night – and then you make your final choice using social factors.

In other words, you don’t need to use some status argument to explain why middle-class gentrifiers in Detroit refuse to move to most neighborhoods in that city: you just need to know that most of Detroit has terrible public transit (and therefore terrible access to jobs for people who don’t want to drive every day), high crime, and few essential amenities like grocery stores. Avoiding those sorts of disadvantages is a pretty obvious move.

Now, that said, I think Pete’s important insight is that sometimes, social factors are so powerful that they override economic factors, and neighborhoods that meet the basic economic qualifications are eliminated from consideration anyway. One of the main ways that happens is racist heuristics: black neighborhoods, no matter what their attractions, are just not in the “choice set” for white people (and, depending on the city, for Asian-American or Hispanic people, too). Thus Pete’s (and my) frustration that the middle-class black neighborhoods in Detroit, or places like Chatham or South Shore in Chicago, get no attention from the non-black middle class, while it flocks to working-class white or Latino neighborhoods.


Chatham: It’s pretty.

There’s some evidence that that’s partly because of ignorance – white folks in Chicago literally are not aware that Chatham or South Shore exist as relatively pleasant, attractive neighborhoods. There’s also a good amount of evidence that white people, and other non-blacks, just aren’t very comfortable with the idea of living in a majority-black neighborhood. My suspicion is that the latter factor is pretty powerful, which makes me pretty pessimistic about the prospects for large-scale integration in the next decade or two. But I could be wrong.


Evanston, IL, used to allow apartment buildings like this, which allowed people of moderate incomes to live in an affluent suburb with great access to jobs, other amenities, and good schools. But since the 1970s, that hasn’t been the case, and Evanston’s population hasn’t grown since.

But I also think that this whole conversation, by focusing on the choices of financially comfortable people choosing whether to live in downtown Detroit or some other comfortable neighborhood, is missing what the housing supply argument is really about: people who are currently stuck in neighborhoods that would fail any middle-class household’s economic test, and who can’t afford to move to one that would pass. Those are the people who suffer the most under our current housing system, and who would stand to gain the most if supply restrictions were lifted.

There’s a lot more to say about this; it’ll come next week.

This post originally appeared in City Notes on May 31, 2014.

Friday, May 30th, 2014

Priced Out of Downtown Detroit

A recent article called “I’ve Been Priced Out of Downtown Detroit” shows us an interesting microcosm of the urban housing problem. Per the piece:

Five-year resident Andrew Kopietz moved out of his one-bedroom in the downtown Lafayette Park neighborhood late last year after his rent was hiked to $1,100 from $840 a month.

“I work downtown and have never loved living somewhere as much as I do here,” said Kopietz, a design director for D:Hive, which provides information about living in Detroit. But, “it seemed unfair to be forced to pay more.”

For those who haven’t been following it, there’s been a bit of a debate between Jim Russell and Daniel Hertz about the cause of rising urban housing prices the resulting unaffordability.

Hertz, like Matt Yglesias, Ryan Avent, and most other urbanists these days, puts the blame squarely on inelastic supply. Demand has gone up, but building restrictions make it difficult if not impossible to build more units, ergo housing prices go up.

Russell doesn’t discount that supply constraints affect price, but he zeros in on demand. He notes that many places have restricted supply but only some of them feature skyrocketing prices because demand is uneven and heavily concentrated in places with a large global workforce. He believes more attention should be paid to the demand side of the equation in explaining housing prices.

Detroit is an interesting lab to show this at work. This is a city that simultaneously has a tight housing market with rising prices in Downtown at Midtown at the same time the city is proposing to spend almost $2 billion dollars to demolish about a quarter of its housing stock. There would appear to be ample housing and land available for almost free in Detroit, even in urban Detroit, but the differences in the markets are stark. Why is this?

In 2009 I wrote a piece called “Migration: Geographies in Conflict” in which I explore this issue. In the age of globalization there are really two types of labor markets, global and local. People who work in global labor markets can command significant wage premiums over those in local ones. The modern globalized economy is been very good to those with top level global skills, while more traditionally local markets have been exposed to new, low-wage from offshore and crushed.

The problem is that those two economic and labor market geographies can exist in the same physical geography. In those cases, the global market workers are able to outbid local market workers for housing and other goods and services, leading to rising prices and displacement. Read the whole piece as I talk about this in much more depth, especially with regards to California.

Now Detroit doesn’t really have a large workforce in global labor markets. But what we see is several thousand people who work for Dan Gilbert’s business empire and other downtown businesses who are being handed a $20,000 check if they move downtown. This, along with their general status as corporate white collar employees, simulates a global worker wage premium. Per the article:

One program, called Live Downtown, has attracted as many as 15,000 new residents to the downtown area, according to the mayor’s office.

Under the program, local companies, including Quicken Loans and Blue Cross Blue Shield, give employees $20,000 loans that will be completely forgiven if they buy and stay in a home downtown for five years. Renters there receive $2,500 their first year and $1,000 the second.

I strongly doubt there are 15,000 new residents in downtown Detroit. Nevertheless, this shows that putting two separate groups with a structural wage differential in a small physical geography can result in rising prices and displacement.

Now, what about supply? Is the city of Detroit telling people they can’t build downtown? Is there a governmentally imposed supply constraint in any meaningful sense? Not that I’m aware of. I’m sure Detroit has planning and zoning laws and that they are baroque, but that’s true everywhere, including places that are building a lot of new supply.

What we would appear to have here instead is a lag issue. Real estate development isn’t like ramping production up or down in a factory. It takes time to do. This creates inevitable lags, and given the history of various overbuilding scenarios, developers will clearly want to make sure downtown Detroit demand is sustainable before committing capital to a project.

Additionally, with higher income demand in the market, new units are going to be built to serve that market, not lower income people. If you own land and have a market that gives you the choice of either building a higher profit building or a lower profit building, which one will you choose? It’s obvious what developers are choosing in Detroit:

In February, a couple dozen artists were evicted from their loft spaces in a building on Griswold Street after it had been bought by Bedrock Real Estate Services. The original plan was to keep the tenants in the building, according to Aaron Emerson, a spokesman for Quicken Loans, Bedrock’s parent company. But, he said, the building was deemed unsafe by the fire inspector and needed major renovations, necessitating the evictions.

A couple of months ago, another building on Griswold was emptied of its mostly low-income senior residents. The residents had received notices a year earlier notifying them that their Section 8 subsidized housing vouchers were going to expire and the building was going to be renovated. Donna Fontana, a spokeswoman for developer Broder & Sachse, said residents were found new places to live, with their relocation costs covered.

Keep in mind that if the existing tenants are retained, either the investments to upgrade the units won’t get made, or those tenants will receive a windfall benefit of higher end units they are paying below market prices for. They will have won the lottery, in effect.

But what’s more, even if every existing resident got a new, upgraded unit with no rent increase and zero displacement, improvements to downtown Detroit resulting from the newer, higher income residents (for example, nicer retail) will create intrinsic attractiveness that will make it desirable to people who don’t currently live there today but who can’t afford the rents for new development. Perhaps a recent Millennial college grad who is underemployed and burdened with student loan debt, let’s say.

Which brings us back to the juxtaposition of high demand in Downtown/Midtown Detroit vs. the low or no demand in most of the rest of the city. Why wouldn’t the people who can’t afford downtown rents just move into one of those areas?

The answer is obvious: they want to live downtown specifically. They may in fact choose another location, but they will grouse about it.

Pete Saunders nailed the mentality in his post “The Millennial Housing Shortage Fallacy“:

Blogger Daniel Kay Hertz sheds some light on the thought process behind the growing meme: “Why are there no apartment buildings in your standard affluent single-family-home neighborhood, common in metro areas from Chicago to Kansas City to New York to Memphis? Not because people don’t want to live in them. Not because you couldn’t make money by building them. They don’t exist because they’re illegal.”

The emphasis is added because it highlights the salient point, which can be reduced to this: “why isn’t there more housing where I want it?” Because there are plenty of apartment buildings with plenty of vacancies in other parts of the city. Let’s fill those up, and then talk.

If young urbanists are serious about moving back to the city, maybe they ought to consider more of the city to live in. For every highly desirable attractive urban neighborhood, even in the most in-demand metro areas, there are just as many languishing neighborhoods that aren’t even part of the conversation. For every Lincoln Park or Lakeview in Chicago that lacks affordable housing, there is a Garfield Park or Woodlawn with tons of it.

In other words, the real complaint is that the market isn’t producing the type of housing I want, in the place I want it, at the price I can afford to pay. It’s special pleading.

I’m all in favor of Daniel Hertz’s plan to make it easier to build. Supply restrictions are a serious problem in cities like San Francisco and New York. But this isn’t the whole story. My takeaway points:

1. The two tier labor market needs to be examined as a piece of the puzzle. This is not straightahead inequality as generally talked about. The word inequality suggests unfairness because people within the same labor market get vastly different outcomes. Or it makes us think of the uber-rich. But in effect what we have is two separate labor markets. There’s a structural problem here that’s separate from the insane money accumulated by the 0.01% that is usually the focus.

2. Political and regulatory supply constraints do affect the market and need to be addressed, but there are other supply factors affecting affordability.

3. People are not entitled to a cheap apartment in the exact neighborhood they want with the exact amenities they want.

Friday, March 21st, 2014

Detroit Emergency Manager Seeks to Unleash an Infero of Moral Hazard

One of lesser followed aspects of Detroit’s bankruptcy is a lawsuit filed by emergency manager Kevyn Orr to repudiate $1.4 billion in debt by claiming it was illegally issued. This appears to be mostly a negotiating tactic, but if the judge ends up agreeing with this, it will unleash an inferno of municipal moral hazard that will no doubt be exploited by politicians around the country.

Michigan, like many states, limits the amount of indebtedness cities can incur. To top off pensions, former mayor Kwame Kilpatrick borrowed $1.4 billion. To circumvent debt limits, he created special purpose entities to do the borrowing. Orr now claims these were sham entities, and so the debt issue was illegal, so the city is entitled to pocket the $1.4 billion and not pay it back.

Keep in mind that creating special purpose corporations of various types for this sort of purpose is widespread municipally and in the corporate world. Also keep in mind that Kwame Kilpatrick was a crook who’s going to spend the next 28 years in prison for corruption. It’s an interesting claim that an outright criminal who borrows money can claim that because his scheme is crooked he doesn’t have to pay the money back (Both Kilpatrick and Orr were both speaking ex-cathedra as municipal CEO). What kind of logic is this?

If Detroit successfully repudiates this debt, municipal leaders elsewhere would almost have to be idiots not to take advantage of the same trick. Elect a crooked mayor or merely one with few scruples. Borrow an insane amount of money by skating on the edge of the law. Then sue yourself claiming you couldn’t possibly have legally done the deal, so don’t have to pay the money back. Rinse, repeat.

The feds should drop the hammer on this hard on this. I don’t have a lot of sympathy for big banks. On the other hand, when someone takes out the municipal equivalent of a “lair’s loan”, they shouldn’t be allowed to profit from being a crook.

In large municipal bankruptcies, it’s pretty common to claim that the indebtedness is all the fault of those greedy bankers who deceived the poor servants of the public. I believe similar claims were made and generated quite a bit of municipal recovery in Orange County and Jefferson County, Alabama. But look closely and I think where you find a shady banker operating, you’ll often find a shady client as well.

Why do people keep electing crooks like Kilpatrick to office? Well, if it turns out those guys are able to fleece out of town bankers to the tune of $1.4 billion, why wouldn’t you? Looks like he might have cut a pretty savvy deal after all. This sort of behavior shouldn’t be rewarded. You can be sure shady municipal borrowing will only be on the increase if the courts allow the Detroit to play a heads we win, tails you lose game with the banks. Think about that the next time your city engages in legal contortions to dig itself even deeper into debt.

Speaking of Detroit, the free market Manhattan Institute will be doing a one hour live streamed event this Monday the 24th with Michigan Gov. Rick Snyder and Detroit emergency manager Kevyn Orr. It’s at 1pm ET and is called “Detroit: The Next American City of Opportunity.” You can access the event at: http://www.publicsectorinc.org/2014/02/detroit/. If you want to submit questions, tweet them to @ManhattanInst with the hash tag #SaveOurCities.

Thursday, January 30th, 2014

City-Specific Immigration Visas Would Be a Modern Day Indentured Servitude

An idea that’s been kicked around by many is to help turn around struggling cities like Detroit by offering geographically limited immigrations visas. That is, to allow foreigners get their green card if they agree to live in a particular city for a certain number of years.

Michigan Gov. Rick Snyder has now officially endorsed the concept, calling for Detroit to be awarded 50,000 city-specific immigration visas for skilled workers over five years. As the NYT put it:

Under the plan, which is expected to be formally submitted to federal authorities soon, immigrants would be required to live and work in Detroit, a city that has fallen to 700,000 residents from 1.8 million in the 1950s.

“Isn’t that how we made our country great, through immigrants?” said Mr. Snyder, a Republican, who last year authorized the state’s largest city to seek bankruptcy protection and recently announced plans to open a state office focused on new Americans.

Later, he added, “Think about the power and the size of this program, what it could do to bring back Detroit, even faster and better.”

The appeal of the idea is obvious. I’ve probably said positive things about it myself in the past. But examine it more closely and it’s clear this is an idea that’s fatally flawed. By requiring immigrants to live and work in the city of Detroit for a period of time, this program would effectively bring back indentured servitude, only instead of having to work for the people who paid for their trip to America, these immigrants would have to work for Detroit.

I’ve got to believe that the courts would look skeptically at such a scheme that so radically restricts geographic mobility and opportunity. What’s more, I think it’s plain wrong to invite people into our country with the idea that they are de facto restricted to one municipality.

L. Brooks Patterson, county executive of wealthy Oakland County in suburban Detroit, took huge heat again this week when he was quoted in the New Yorker saying “I made a prediction a long time ago, and it’s come to pass. I said, ‘What we’re gonna do is turn Detroit into an Indian reservation, where we herd all the Indians into the city, build a fence around it, and then throw in the blankets and the corn.’” Yet isn’t this idea of city specific visas almost literally treating Detroit like a reservation, only for immigrants instead of Indians?

Some have likened this to programs to entice doctors to rural areas by paying for medical school. I’m not sure how all of those are structured, but they may have questionable elements as well. But more importantly, my understanding is that they are purely financial, where medical school loans are paid off in return for a certain number of years of service. If a doctor elects to leave the program, they are in no worse shape than someone who didn’t sign up would be. They are still licensed to practice medicine and have to repay their loans just like every other doctor.

I don’t think Gov. Snyder is motivated by any ill will in this. I think he’s genuinely looking for creative solutions to the formidable problems Detroit faces. He’s taken huge heat for finally facing up to the legacy of problems there, and hasn’t shied way from making tough calls. He’s even willing to call for some bailout money, which many in his own party don’t like. But this idea is a bad one. He should withdraw it, and the federal government should by no means open to the door to these types of arrangements.

Immigrants remain a great way to pursue a civic turnaround, however. Detroit just needs to lure them on the open market the same way Dayton, Ohio and others are trying to do.

Wednesday, December 18th, 2013

Urban Skiing in Detroit

This week a video of some urban adventure types in Detroit that’s been making the rounds. But instead of scrapping or whatever it is people do in Detroit’s abandoned skiing, they decided on an urban ski adventure. There’s some pretty cool tricks in there. If the video doesn’t display for you, click here.

h/t Barrel~dEM

6 Comments
Topics: Urban Culture
Cities: Detroit

Friday, December 6th, 2013

Some Implications of Detroit’s Bankruptcy

There’s been so much ink spilled over Detroit’s bankruptcy that I haven’t felt the need to add much to it. But this week the judge overseeing the case ruled that the city of Detroit is eligible for bankruptcy. He also went ahead and ruled that pensions can be cut for the city’s retirees. Meanwhile, the city has received an appraisal of less than $2 billion for the most famous paintings in the Detroit Institute of the Arts.

A couple of thoughts on this:

First, every city in America should be doing a strategic review of its assets, and moving everything it doesn’t want turned into de facto debt collateral into entities that can’t be touched by the courts. In the case of the DIA, the city owns the museum and the collection. Hence the question of whether or not art should be sold to satisfy debts. If it were typical separately chartered non-profit institution, this wouldn’t even be a question.

At this point, I’d suggest cities ought to be taking a hard look at whether they own assets like museums, zoos, etc. that should be spun off into a separate non-profit entity. Keep in mind, the tax dollars that support the institutions can continue flowing to it. But this does protect the assets in the event of a bankruptcy.

In the case of Detroit, it seems inevitable that at least some art work will be sold. Given that worker pensions are going to be cut, it would be pretty tough to say no to selling art. Assuming this is the case, post-sale the museum should be spun off as a separate entity to hopefully reboot its standing the museum world. As the trustees of the group that operates it have been adamantly opposed to any sale, one would hope other museums would not hold any violations of industry standards against them for, particularly if they acquire ownership of the building and artwork away from the city afterward. The city of Detroit doesn’t need to be in the museum business anyway. It has bigger fish to fry.

Secondly, public sector employees will have to start rethinking their approach to retirement benefits. The current mindset has been to grab as much as you can anytime you can because the taxpayer will always be forced to cover the promises no matter what. As the actual results in Central Falls, RI and now this show, that’s no longer a good assumption.

Detroit’s workers don’t have lavish pensions as these things go. But they weren’t shy about abusing the system either. They in effect looted their own pensions by taking out extra, unearned “13th checks”. They also used pensions funds to give a guaranteed 7.9% annual rate of return on supplemental savings accounts workers were allowed to establish. All told these “extra” payments drained about $2 billion out of the pension system.

This was not something the city did through an arm’s length transaction. As the Detroit Free Press reported, Mayor Dennis Archer was alarmed by the practice and wanted to stop it. But “the city doesn’t control its pension funds, which have been largely administered by union officials serving on two independent pension boards.” So he tried to amend the city’s charter to stop the practice. According the Free Press, “Archer backed an effort to block the payments through a proposed new city charter, which actually passed in August 1996. Enraged, several city unions and a retiree group sued and won. Archer tried again to block payments through a ballot initiative, called Proposal T, but it failed.”

The unions could brazenly loot their own pension plan because they felt rock-solid assurance that the taxpayers would ultimately be required to make them whole. This bankruptcy is showing that may not be the case after all. It should serve as a warning to unions everywhere not to get too aggressive with their shenanigans.

They’ll of course appeal the judge’s ruling and may win. But the Michigan constitution says pensions are a contract right. The very definition of bankruptcy is that you can’t pay what you’re contractually obligated to. Bankruptcy is all about breaking contracts. The bondholders have contracts that are not supposed to be impaired too, after all. I’m a fan of local government autonomy as you know, but as Steve Eide rightly points out, any freedom worth its name is freedom to fail. If cities and their various constituencies don’t suffer the consequences of their mistakes, they should be heavily micromanaged from on high.

When individuals fail, we have a safety net (unemployment insurance, for example). Plus we have personal bankruptcy to give people a fresh start. We don’t even worry about whether the person is at fault for their own position or not. We provide that backstop regardless. But that backstop doesn’t allow people to go on living like they did before as if nothing happened. Similarly, cities in trouble shouldn’t be abandoned, but they need to realize that there are genuine consequences for failure. A realization that failure has consequences for pension holders as well as the taxpayer should hopefully promote healthier decisions about how retirement benefits should be offered, funded, and administered.

Thursday, August 22nd, 2013

Parking Madness, Detroit Edition

RustWire pointed me at this map from Data Driven Detroit that shows the simply staggering amount of parking downtown. I never cease to be mind-blown when I see one of these:

Sunday, July 28th, 2013

Humiliating Detroit

As I’ve noted before, Detroit is all too frequently just a blank screen onto which people project their own personal bogeymen. So liberals see in Detroit racism gone wild, America’s comeuppance for its love affair with the automobile, and corporate greed. Conservatives see the ultimate end result of unions and where liberalism will take the US as a whole if it isn’t stopped.

There’s a bit of truth in all of these. The left would have us believe that having Democrats in charge of the city for so long had nothing to do with where it is today. But they reality is, they’ve got to own their piece of blame. Detroit certainly hasn’t been a bastion of conservative policy, that’s for sure.

On the other hand, Republicans should be aware that Detroit’s decline has been ongoing for quite a while, and there were definitely some mayors with R’s by their name who were in on the game. And economic forces shaped Detroit far more than they’d like to admit.

But ultimately what we see today is the left furiously spinning about Detroit (for example, see the book “Detroit: A Biography”) and the right trying to use it as a poster child for everything they hate. Yet on the right I can’t help but observe a particularly mean streak in the commentary, one that’s positively gleeful about Detroit’s demise. It’s as if, not content with letting the results speak for themselves about what happened under Democratic rule, the right seems determined to humiliate Detroit, reveling in its pain. It’s schadenfreude on steroids.

Let me highlight this. First Kurt Schlichter says that “Conservatives Should Point and Laugh As Detroit Dies.”

The agonizing death of Detroit is cause for celebration. It’s the first of the liberal-run big cities and states to fall, and we should welcome its collapse with glee.

Yeah, liberals, eventually you do run out of other people’s money.

The blue state model is a terminal disease, and Detroit is its poster child. Only this is one telethon where we should pledge that we won’t pay a single dime to keep the progressive party going a single minute longer.

Detroit represents the epitome of the blue state, Democrat machine liberalism that Barack Obama represents. Well, not one damn cent for Barry’s Kids.

Don’t hold back, tell us how you really feel. John Fund at the National Review is nowhere near vicious, but he does paint a target on Detroit’s art, basically arguing that the city should be forced to sell off its assets to satisfy creditors:

What no one wants to do, apparently, is sell the city’s assets. The city has largely unused parks and waterfront property that could be opened to economic development. The Detroit Historical Museum has a collection of 62 vehicles, including an 1870 Phaeton carriage and John Dodge’s 1919 coupe, that is worth millions. But the biggest sacred cow is the Detroit Institute of Art (DIA), one of the nation’s oldest and most valuable art museums. It has pieces by Vincent van Gogh, Henri Matisse, Andy Warhol, and Rembrandt. The Institute also owns William Randolph Hearst’s armor collection and the original puppet from the children’s TV show Howdy Doody.

The Detroit Free Press asked New York and Michigan art dealers to evaluate just a few of the 60,000 items in the Institute’s collection. The experts said the 38 pieces they looked over would fetch a minimum of $2.5 billion on the market, with each of several pieces worth $100 million or more. That would go a long way toward relieving the city’s long-term debt burden of $17 billion.

Let me get this straight. Instead of Detroit being $17 billion in debt, let’s sell off everything left that makes Detroit viable and end up still $14.5 billion in debt and still bankrupt. (Though only a few items were evaluated, they were clearly the handful of most valuable ones. Howdy Doody ain’t Van Gogh). Oh, yeah, that will help – if your definition of help is bailing out banks who loaned money to a city everyone has known is a basket case for many, many years. If those banks expected the art to be sold, they should have made the city pledge it as collateral.

Fund is right that Detroit does need to make tough choices about assets. I’ve made that argument myself. But the goal should be to create at a minimum a sustainably functional government and ensure the bankruptcy of the city of Detroit doesn’t undermine the broader region and state. Selling off secondary assets (and yes, Howdy Doody may be a good candidate) is worth pursuing if there’s cost/benefit. But saying that Detroit should sell off its regional cultural crown jewels is little more than an attempt to inflict counter-productive penance, to force humiliation upon the city. And it would also be completely unlike say a corporate Chapter 11 restructuring, which is designed to produce a viable firm on the other end and thus the most valuable assets are often retained.

Of course, Detroit’s own residents make it easy to act this way. A group of protestors referred to the bankruptcy filing as a “declaration of war,” saying that outsiders aren’t entitled to any say or even get the money back they loaned the the city, saying instead “the banks owe us.”

Still, have some compassion. It’s understandable Detroit’s residents are in pain and lashing out. Clearly they have tough medicine they haven’t reconciled themselves to taking. But there are better ways to respond to it. Andrew Biggs at the American Enterprise Institute took a more moderate path, suggesting that while a plain reading of Michigan’s constitution suggests it wouldn’t protect pensions in bankruptcy, there’s still reason to give pensioners some preferential treatment (thought not being made 100% whole, saying:

Does this mean that retired city workers should take the same haircut as municipal bond holders? I really don’t think so. Anyone loaning money to the city of Detroit was knowingly taking the risk that the city might not repay; that’s why bonds issued by Detroit paid a higher yield than Treasury securities, which are assumed to be riskless. As with any risk investment, sometimes it pays off, sometimes it doesn’t.

City employees, on the other hand, exchanged services today — along with employee contributions to their pension plan — for benefits to be delivered in the future. Sure, employees should consider the financial stability of their employer in its ability to deliver what is promised, but city employees seem to be a qualitatively different group than municipal bond holders.

This seems more rational type analysis and isn’t rooted in mean-spiritedness.

Though eager to point out how Democratic policies and corrupt Democratic politicians helped propel Detroit headlong in bankruptcy (which is certainly a valid political claim to make), having a vengeful streak only shows Republicans behaving in a ways that’s as hard hearted as Democrats say they are.

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