Monday, July 13th, 2015
My latest piece is online in City Journal and is called “Chicago’s Financial Fire.” It’s a look at the ongoing financial crisis in that city, which has all of a sudden gotten very real thanks to a downgrade of the city’s credit rating to junk by Moody’s. Here’s an excerpt:
While some sort of refinancing may be required, the proposed debt issue contains maneuvers similar to those that helped get Chicago into trouble in the first place—including more scoop and toss deferrals, $75 million for police back pay, $62 million to pay a judgment related to the city’s lakefront parking-garage lease, and $35 million to pay debt on the acquisition of the former Michael Reese Hospital site (an architecturally significant complex Daley acquired and razed for an ill-fated Olympic bid). The debt-issue proposal also includes $170 million in so-called “capitalized interest” for the first two years. That is, Chicago is actually borrowing the money to pay the first two years of interest payments on these bonds. In true Chicago style, the proposal passed the city council on a 45-3 vote. Hey, at least the city is getting out of the swaps business.
Even with no further gimmicks, Emanuel will be six years into his mayoralty before the city can stop borrowing just to pay the interest on its debt. And without accounting for pensions, it will take the full eight years of both his terms to get the city to a balanced budget, where it can pay for the regular debt it has already accumulated.
Click through to read the whole thing.
Rahm donned a sweater during his reelection campaign and told the public he recognized he needed to change his ways, saying that he knows he “can rub people the wrong way.” The title of that ad was “Chicago’s Future.”
I decided to take him up on his new approach. When I was working on this piece, I tried to get some information of the mayor’s press office. I asked them such extremely hard hitting questions as, “Is there a consolidated location where all of the mayor’s most recent financial proposals can be seen in their current form?” I emailed them and got no response. So I followed up with a phone call. I was put on hold for a while then told the person I needed to talk to was away from her desk, but I should email her at a XYZ address. So I did. No response. This is the same pattern all previous inquiries I’ve made have followed, though I believe on occasion I’ve been put through to a voice mail from which I got no callback. Now, it’s not like I try to get stuff from these guys every day, but the message is pretty clear. I gather that this experience is not at all unusual when dealing with Rahm.
Having his press office simply refuse to respond at all to even basic inquiries from (the apparently many) people on his blacklist is naught but pettiness. Rahm takes people who could be friends and does his best to turn them into enemies. No wonder the Sun-Times titled a recent about him, “Rahm’s troubles plentiful, allies scarce.”
Thus it is that Chicago, a city of grand and expansive history and ambition, a city so big it overflows the page, comes to have a mayor with a certain smallness of spirit.
Tuesday, June 9th, 2015
This post originally appeared at New Geography on June 1, 2015.
Discouraging employment data have recently dampened optimism about America’s economic recovery. These challenges are nothing new for developed regions long beset by manufacturing decline amidst globalization. Exemplars of this trend, America’s rust belt cities have battled unemployment, decaying infrastructure, and social challenges since economic decline emerged in the 1960s. In response, some now cultivate service, knowledge, and tourism industries. Explaining these new growth models, analysts often espouse the virtues of diversification. However, legacy industrial systems and native constraints (e.g. geography and culture) can hinder this strategy. Chasing diversification for its own sake diverts policy attention from a more valid determinant of growth. Post-industrial urban policy should target structural flexibility, enabling diversification or specialization – neither deserving preeminent status – to occur naturally.
In exploring rival economic development strategies, two management theories are particularly relevant: Michael Porter’s competitive advantage and Harry Markowitz’s portfolio theory. Competitive advantage describes the strategic orientation of business operations and brand image to command an inimitable market position. Portfolio theory is the logic behind investment diversification to maximize returns for given risk preferences. In management, these are not rival theories. However, when applied to urban economic development they present a direct contrast. The former can be likened to specialization, and the latter to diversification.
In attempting to revive their economies, cities often reduce strategic options to the simple dichotomy of specialization versus diversification. Some compromise by favoring a primary industry and enabling the emergence of secondary industries. Economic orthodoxy generally argues that diversification is the wiser choice in volatile economies. This portfolio-style approach assumes that stability in one industry offsets decline in another. This argument is convincing: many “single-engine” economies have underperformed amidst globalization. Besides the usual cases, overlooked examples are Oakland, California (shipbuilding and automobiles), Birmingham, Alabama (steel), and upstate South Carolina (textiles). A similar fate befell the British Midlands and German Ruhr Valley, where recovery strategies have generated mixed results. Instability in single-industry dependence is not limited to manufacturing. Las Vegas, where the pro-cyclical tourism mirrors national economic trends, remains fairly irrelevant outside its casinos and related industries.
By contrast, many successful cities boast diversified economies. New York has a path-dependent advantage in finance, with recent volatility offset by tourism, business services, and the arts. The 1986 collapse in oil prices tested the resilience of Sunbelt boomtown Houston, whose shipping industry offset energy sector declines while banking, finance, and healthcare kept the city competitive. Large cities are naturally more diversified, but smaller cities can also exhibit diversification: examples are Austin, Texas (research, education, and technology), Nashville, Tennessee (entertainment, insurance, and health care), and Tampa, Florida (military, tourism, trade, and retirement services). Austin added jobs even during the 2008 recession, and has routinely been labelled the nation’s best-performing economy in recent years. These examples show that economic resilience is dependent more on diversified industrial portfolios than on size.
Nevertheless, a larger story underlies America’s revitalization champions. While the flag of diversification flies high, at the base of the pole stands structural flexibility, arguably a more durable, achievable, and powerful mechanism for growth. Cities prepared to re-orient towards emerging opportunities maintain development potential across economic cycles. Furthermore, flexibility gives cities of any size hope for transformative growth. Not every city has the native advantages to meaningfully diversify, but flexibility can be their wild-card strategy.
Two former manufacturing cities have exhibited post-industrial flexibility: Pittsburgh and Bilbao. Once the pride of America’s post-WWII steel industry, Pittsburgh suffered a precipitous decline in the 1980s as manufacturing moved overseas. 200,000 jobs and nearly half the population were lost. However, Pittsburgh’s situational advantages provided a flexible platform for revival. Well-endowed cultural institutions and flourishing medical, education, and research sectors supported a lifestyle economy based on knowledge, services, and creative entrepreneurship. Pittsburgh’s economic performance was seventh best in the nation during the 2008 recession, an example of how flexible planning, private sector creativity, and situational advantages converged to make progress halting seemingly irreversible decline. Similarly, Bilbao, Spain, sharply declined after the withdrawal of manufacturing. Without its economic engine and facing crisis-level unemployment, it creatively turned to tourism and culture. The government’s stated commitment to collaborative policy making and quality-of-life now complements efforts to sustain post-industrial competitiveness. Like Pittsburgh, Bilbao has used flexible, opportunistic planning to pursue economic growth.
Despite their highly publicized transformations, however, these post-industrial success stories are not without challenges. The Pittsburgh metropolitan area has failed to gain population for years, and lost nearly 5,000 residents between mid-2013 and mid-2014. The city’s stagnant job growth has led some claim that Pittsburgh’s amenities, rather than employment opportunities, are a relocation magnet. Others claim that flat overall job growth conceals local economic restructuring, as manufacturing industries give way to the creative sector. Despite recent signs of a recovery, Spain’s persistent unemployment (23.8% in the first quarter of 2015) indicates that the nation, and particularly secondary cities such as Bilbao, continues to struggle in the stubborn wake of the 2010 euro crisis. Further, Bilbao’s top-down approach of museum-based revitalization has failed to generate vitality in the grassroots cultural scene, where artists have collectively mobilized but still struggle to obtain financial support.
Manchester has recently enjoyed consistent growth, and is now considered the UK’s healthiest economy outside of London. Like Pittsburgh and Bilbao, the city experienced rapid mid-century decline with the closure of its shipping port and loss of heavy manufacturing. The city’s economic revival has pivoted towards knowledge, services, and entertainment, a strategy attracting recognition for liveability and cultural vibrancy. Financial services now outsize manufacturing and engineering, with no single industry representing more than 16% of the economy. Poised to benefit further from devolutionary reforms and “northern powerhouse” status, Manchester has garnered recognition for its economic diversity and entrepreneurial spirit. The city exemplifies a flexible approach to post-industrial development, particularly for a hinterland region overshadowed by a dominant neighbour (London).
Other efforts at revitalization, however, have produced lesser results. Like Pittsburgh and Bilbao, Cleveland’s steel industry flourished in the mid-20th century before industrial decline gutted the city of jobs and population. In 1969 the emblematic Cuyahoga River fire brought national attention to Cleveland’s economic crisis. Since 1990 the city has caught fire once again – in a revival driven by services, tourism, and entertainment. Global connections in knowledge industries and education complement Cleveland’s flexible economic vision. However, the city still struggles with disinvested neighbourhoods, ageing infrastructure, and regional competition from Pittsburgh, where flexible strategies also target culture and technology.
Taken superficially, these revival cases support the concept of diversification. Cities focusing on a singular competitive advantage – geography, image, or path-dependent conditions – tend to specialize but often struggle to re-configure inflexible industrial infrastructure for new opportunities. Regardless, specialization versus diversification is a false choice. Beyond this continuum, the true survival instinct is structural flexibility. Diversification often correlates with overall growth but is more a lagging indicator of opportunistic preparedness. Flexible policy broadens structural capabilities and builds resilience into urban systems, in either a specialized or diversified economy. The outputs include infrastructure both hard (transport, technology and housing) and soft (education, culture, and institutions). In providing platforms for investment that adapt to global trends, this strategy transforms industrial determinism into flexible economic opportunism.
Kris Hartley is a visiting researcher at Seoul National University and PhD Candidate at the National University of Singapore, Lee Kuan Yew School of Public Policy. For more details about his argument, see his book Can Government Think? Flexible Economic Opportunism and the Pursuit of Global Competitiveness.
Thursday, April 23rd, 2015
My latest post is online over at The Guardian. It’s called “What’s the perfect size for a city?” It is an expanded look at the right scale of regional governance – small box cities, large regional governments, etc. This goes beyond the United States to take a more expanded global view, incorporating some recent findings from the OECD and World Bank. Here’s an excerpt:
“Often, administrative boundaries between municipalities are based on centuries-old borders that do not correspond to contemporary patterns of human settlement and economic activity,” the OECD observed in a recent report. The thinktank argued that governance structures failed to reflect modern realities of metropolitan life into account.
Behind the report’s dry prose lies a real problem. Fragmentation affects a whole range of things, including the economy. The OECD estimates that for regions of equal population, doubling the number of governments reduces productivity by 6%. It recommends reducing this effect with a regional coordinating body, which can also reduce sprawl, increase public transport satisfaction (by 14 percentage points, apparently) and improve air quality.
The World Bank, meanwhile, is worried about the way rapid growth in developing cities has created fragmentation there, too. Metropolises often sprawl well beyond government boundaries: Jakarta, for example, has spread into three separate provinces. The World Bank calls fragmentation “a significant challenge in the East Asia region”.
Click through to read the whole thing.
Thursday, April 16th, 2015
Here’s another post from the London School of Economics’ USA Politics and Policy site. Thanks to the LSE and Julie Cidell for permission to repost – Aaron. ]
Airports are a key part of our globalized world, and calls for their expansion and development are becoming increasingly common. But airports can have negative effects on their local areas– air and noise pollution, and traffic congestion. Do airports’ benefits outweigh their costs to local areas? In new research that examines the 25 largest airports in the U.S., Julie Cidell finds that while airports may drive economic activity within a region, more often than not, that activity is occurring outside the vicinity of the airport. She writes that aspects of an airport’s location, such as nearby industry and transport links often serve as job creators, rather than the airport itself.
It is rare to find an article or report about a major US airport that doesn’t describe it as the “economic engine” of its metropolitan region (see Figure 1). Indeed, there are many studies that indicate a positive connection between increasing air traffic capacity or air traffic and the number of firms in a region. Such studies are commonly used to justify airport expansion and the development of an “aerotropolis” or “airport city” through increasing the airport footprint and/or building new runways and terminals, under the logic that the region as a whole will benefit from the expansion. However, breaking down the connection between transportation and economic development across time and/or space can lead to different results. For example, in peripheral European regions, the causality arrow goes from air traffic to economic development, but in core cities, it’s the other way around.
We know that the negative effects of airports—air pollution, noise pollution, labor competition, and traffic congestion—occur at a local scale, within 5-6 miles of the airport boundary. While the argument is often made that “you knew there was an airport there when you moved,” that argument is usually wrong for two reasons: a) many airport-adjacent neighborhoods predate jet aircraft, and b) despite their vast, fixed infrastructure, airports move. For example, a study of Phoenix concluded that it was the airport and its disamenities that moved into residential neighborhoods, not the other way around. Nevertheless, very few studies of the air transportation-economic development relationship are broken down at finer scales to enable an equitable comparison to the negative effects of airports.
That was the purpose of my recent study. I focused on the largest 25 airports in the US and carried out two different kinds of spatial analyses as described below. For both, I found that more often than not, the economic development an airport brings to its region is not only equally spatially clustered as the negative environmental effects, but that development is occurring somewhere other than the vicinity of the airport. In other words, airport neighbors are not sacrificing for the good of the region as a whole, but for other neighborhoods equivalent in size to their own, raising questions of spatial equity regarding facilities that draw on a great deal of government money and yet are not producing benefits region-wide.
Airports As Urban Infrastructure
Previous studies have argued that airports are significant job generators using a simple methodology: drawing circles of 2.5, 5, and 10 mile radii around the airport, counting the number of jobs within, and comparing that number to the central business district (CBD). I used the same methodology to draw rings around two major pieces of infrastructure found in every US metropolitan area: the largest shopping mall and the largest wastewater treatment plant. I also chose the point in the metropolitan area directly opposite from the airport across the CBD to act as a control. I then compared those numbers to the jobs in the CBD (all data were taken from the 2007 US Economic Census), with the results in Figure 2, below.
Surprisingly, at all distances studied, a wastewater treatment plant is a more important “job generator” than the airport. Is a wastewater treatment plant therefore the “economic engine” of its region? Such a facility generates relatively few jobs, either directly or indirectly. Presumably, this finding does not have to do with the characteristics of the plant itself as a job generator, but with its surroundings. Such plants are often located on major waterways and can be considered a locally unwanted land use much as the airport. For both these reasons, they are likely to be surrounded by industrial land rather than residential. Similarly, of course, one could argue that it is not the airport qua airport that is generating jobs, but rather other features of its immediate location such as ground transportation access—features which potentially could be reproduced in other locations without the hazards of noise and air pollution.
Regional Spatial Analyses
The second part of this study focused on the specific categories of firms that have been shown to be attracted to metropolitan areas by air service—professional and administrative services—and determined their spatial distribution in comparison to the airport. Figure 3 is an example of how the four different spatial analyses look in one metro region, plus the major pieces of infrastructure I discussed earlier.
The weighted mean center analyses of key infrastructure and professional services, indicated that for only 8 of the 25 airports studied (including Phoenix as pictured), that the center is within 5-6 miles of the airport. In other words, for two-thirds of the airports studied, the economic benefits are occurring at a greater distance from the airport than the negative effects. The standard deviational ellipses showed that this distance might not be too far: 76 percent of the airports were within the ellipse, suggesting that even if airports are not in close proximity to the center of airport-related development, they are within one standard deviation of it. However, that distribution might not be even across space. Local and global Moran’s I analyses showed that professional service firms and their associated jobs are clustered in space—but of the 25 airports studied, only 8 were in or adjacent to a “hot spot” of these firms. Six were in a “cold spot.” The airport may be driving economic activity within the region—but more often than not, that activity is occurring outside the vicinity of the airport.
The goal of my research was to empirically explore the frequently-made statement that airports are the “economic engines” of their regions. There are two parts to this: to what extent are airports drivers of local employment as compared to other large pieces of infrastructure, and what is the spatial distribution of the firms brought to a region by its air service? In both cases, I found that the “economic engine” claims are probably overstated, at least when we compare their spatial distribution to the distribution of the airport’s negative effects. Other major pieces of infrastructure such as shopping malls and wastewater treatment plants have as many or more jobs in their vicinity as airports do. The professional services firms that have been shown to be attracted to metropolitan regions are clustered in space rather than being evenly spread throughout the region, and those clusters are more often than not outside the range of where negative environmental and economic effects occur.
Any large piece of infrastructure, whether an airport, a shopping mall, or a wastewater treatment plant, will have positive and negative effects both within the immediate vicinity and across the entire region. Nevertheless, such infrastructure has to be sited somewhere. Taking into account the spatial distribution of that infrastructure’s effects, both positive and negative, can make clearer the questions of who benefits and who pays—as well as what might be done to offset the costs for those who suffer the negative effects of such infrastructure without reaping the economic benefits.
This article is based on the paper ‘The role of major infrastructure in subregional economic development: an empirical study of airports and cities’, in the Journal of Economic Geography.
Note: This article gives the views of the author, and not the position of USApp– American Politics and Policy, nor of the London School of Economics.
About the Author
Julie Cidell – University of Illinois at Urbana-Champaign
Julie Cidell is an associate professor at the University of Illinois at Urbana-Champaign, where her work focuses on two main areas: the political economy of transportation, and green buildings and public policy. She has also worked as a transportation engineer in Boston and taught physical geography in northern and southern California
This post originally appeared at the London School of Economics USA Politics and Policy site on November 4, 2014.
Thursday, February 19th, 2015
Interior of the Palladium concert hall in Carmel, Indiana. Photo by Zach Dobson
My latest post is online at New Geography and is called “The Emerging New Aspirational Suburb” and is about how upscale business suburbs are reinventing themselves as sub-regional centers in their own right, including more urban nodes and amenities like arts facilities and events. In part this is exploiting their strong market position, but it’s also a response to the now evident challenges that face many suburbs as they reach maturity. The piece focuses on Carmel, Indiana, which as more of the pieces put together than anyplace else I know of currently, but the same approach is being pursued elsewhere.
It’s a longform piece, but here are some excerpts:
Beyond the historic downtown, Carmel has also implemented multiple New Urbanist style zoning overlays, including on Old Meridian St. and Range Line Rd. (the city’s original suburban commercial strip). These promote mixed use development, buildings that front the street, and multi-story structures. Infrastructure improvements and TIF have been used in these areas as well. There’s also a major New Urbanist type subdivision in western Carmel called the Village of West Clay.
[Mayor Jim Brainard] also keenly aware of global economic competition and the fact that Indiana lacks the type of geographic and weather amenities of other places. He frequently uses slides to illustrate this point. In one talk he said, “Now this picture, guess what, that’s not Carmel; but this picture is the picture of some of our competition. Mountains – that’s San Diego of course, mountains, beautiful weather, you know I think they have sunshine what, 362 days out of the 365…. What we’ve tried to do is to design a city that can compete with the most beautiful places on earth. We’ve tried to do it through the built environment because we don’t have the natural amenities.” While the claims to want to equal the most beautiful places in the world may be grandiose, the key is that mayor believes Carmel’s undistinguished natural setting and climate requires a focus on creating aesthetics through the built environment.
The city’s demographics have also expanded to become much more diverse. The minority population grew 295% between 2000 and 2010, adding 9,630 people and growing minority population share from 8.7% to 16.3%. 12% of the city’s households speak a language other than English at home. Many of these are highly skilled Chinese and Indian immigrants working for companies like pharmaceutical giant Lilly. Even black professionals are increasingly moving to Carmel, with the black population growing 324% in the 2000s and black population share doubling to 3%. Carmel is not a polyglot city today, but it’s far more diverse than in the past.
Critics also pointed to state figures showing Carmel with nearly $900 million in total debt. While it is a wealthy community that can afford the payments, in a conservative state like Indiana, a suburb accumulating nearly a billion dollars in debt raises eyebrows.
Click through to read the whole thing.
I should note that the mayor of Carmel disputes media accounts about cost overruns on various projects that I cite in the piece. He attributes these to other explanations, such as deliberate decisions to increase scope.
Sunday, December 21st, 2014
I’m going to be away until after the New Year. If you haven’t finished your shopping yet, a great way to support the Urbanophile without it costing you an extra dime is to do your last minute shopping through this affiliate link to Amazon.com.
This is a concept in development, so I’m going to open this post up to comments.
Global cities are like that famous quip on obscenity: we know one when we see it. But the definitions of global cities are incredibly varied and there doesn’t seem to be a consensus or well-defined way to think about. I looked at the criteria used in various prominent studies back in 2012 and found them highly divergent. Only the Sassen based one appeared to have a robust definition and theoretical basis, but it’s a pretty narrow definition. While it’s very important and useful, I don’t think it fully captures what the average person or urbanist thinks of on the topic.
In wrestling with the global city idea while working on the global city study I did some research for, I put together this framework to help organize our thinking.
This framework seeks to capture in a structured manner all the ways people talk about global cities that I’m aware of.
There are three basic categories of criteria people use in defining global cities: economic function, non-economic function, and size.
Some, like Sassen, define global cities by economic function. In her case, just being a financial center isn’t enough. You need to be producing financial services products specifically related to the global economy, not just making mortgages domestically. I list “Financial and Producer Services Center” as a shorthand for this. In all of these definitions, when I say a “center” I’m referring to a center of global or regional (e.g., European or Latin American) significance, not simply a domestic center.
If I have a contribution to the global city definition genre, it’s my contention that places like the Bay Area (tech) or Paris (fashion and luxury) that are important global or regional epicenters of an important 21st century macroindustry are also global cities in a powerful sense by virtue of that.
The idea of being a transport hub for goods or services is self-explanatory, though I’ll note that simply being a goods distribution hub (such as a global air freight hub like Memphis) doesn’t necessarily imply a high value, high wage economy.
Lastly, and perhaps this is one I made some contributions to as well, is the idea of a “safe zone” for investing or parking capital. Much of the world is volatile economically and only has a dubious attachment to the rule of law and property rights. Hence wealthy people in those countries like to stash their cash in places where they consider it safe. Where I would distinguish this from a simple offshore account as in the Caymans is that this investment often includes real estate, and the rich folks in question often establish a personal base there. New York and London as the paradigmatic global cities obviously fall into this category, but I’m more thinking of regional hubs like Dubai, Miami, and Singapore. These places have established themselves as premier business (and in some cases cultural) hubs for their regions.
These are other aspects of a city’s function that I see as not directly economic, though obviously there are economic impacts. Most of these perhaps could be subsumed under being in an industry epicenter, but since global city surveys often call them out separately, I will as well.
The first item is being an important global political capital like Washington, Moscow or Beijing. Enough said.
Another important dimension is being a cultural and media center. Los Angeles profoundly affects the world because of its entertainment machine and the media that goes along with it. (By contrast, Mumbai may be a huge film center, but serves largely a domestic and Indian ethnic audience). Obviously the English language cities have a big advantage here in terms of media, though cities like Paris have a powerful cultural role.
Lastly, being a global tourism center is another dimension. Which places draw foreign visitors? You might want to read Nicole Gelinas’ recent taken on international tourism’s affect on New York. NYC attracts a third of all foreign visitors to the United States.
Lastly, many surveys include measures that are purely about size, such as total GDP. The rhetoric about megacities (those with more than 10 million people) shows a fascination with size as well.
Success and Performance Indicators
Beyond the categories that define what global cities are, I include a horizontal layer talking about how to think about whether they are successful. I think there’s a big debate that can be had about whether these are performance indicators or selection criteria. Obviously more global city surveys want to pick highly performing cities, so these are part of their evaluation matrix. I myself originally included diversity and educational attainment (talent hub) on the non-economic function list.
I won’t go through these as they are pretty self-explanatory. I’d be interested to see where you all would put these, and what you’d add to or drop from the list.
By the way, in that global city survey I worked on, we decided to look purely at economic function, though pulling across media hub and treating that as an industry. We felt that taking this sort of view was a gap in the existing inventory of ratings, and also perhaps the most important way to think about global cities.
Again, comments are open on this one, so please share your thoughts.
Friday, December 19th, 2014
It’s no secret housing costs are high and going higher in major US cities like NYC, San Francisco, etc. I was just tweeting with someone this week who moved back from Park Slope, Brooklyn to Indianapolis because her rent was being raised by over 50% (possibly that’s a cumulative increase over time – not sure).
Most of the urbanist discussion tends to focus around zoning as the reason prices are high. That’s certainly an important factor. But there are also other things driving up costs and rents. The NYT highlighted one of them last Sunday, namely the permit expediter tax:
When Mark Brotter dies, the inscription on his tombstone will read simply: “Thank God — no more plumbing Schedule B.”
Mr. Brotter, 55, is an expediter, an imprecise term that is used to describe the men and women whose workdays are spent queuing up at the Manhattan branch of the New York City Department of Buildings to file the documents and pull the permits that allow construction projects — your kitchen renovation and the high-rise next door — to go forward. “I’m basically a middleman,” he said. For its part, the Buildings Department insists on the title “filing representative.”
Others are employed by large firms that do nothing but expediting, or are on the staffs of architectural or engineering firms. In the early 1990s, expediters numbered 300 to 400; today there are more than 8,300. (Filing representatives must register with the Buildings Department and pay a $50 annual fee for the right to stand on lines at department offices.)
The expediter’s fee varies depending on the outlay of time and the complexity of a job. The charge for securing a permit for a contractor ranges from $200 to $400; for filing a project, $1,500 to $3,500. Plans that must go before the Landmarks Commission are a more costly proposition, as are projects that involve the conversion of a commercial space to a residence.
Now these prices aren’t ridiculous in the grand scheme of things for New York City real estate. But the idea that there are 8,300 people making a living standing in line to file permits for people points to the entire structure of how development gets done in big cities (NYC is hardly alone in this particular industry) in ways that continually raise costs. This is beyond the cost of delays that a baroque permitting process introduces.
Particularly when you are trying to build lower rent buildings, all of the fixed costs you have to incur to built anything (land, permits, expediters, etc.) have to be recovered and amortized across the units. When you have a hyper-complex development environment, these fixed costs raise the minimum viable rent threshold and thus push the cost of construction towards the higher end of the market that is already being served.
To bring the cost of housing down, cities should be working on all fronts, not just zoning to make it happen.
This particular case is instructive regarding barriers to reform, however. If the city made it easy enough to file plans and get permits in ways that didn’t require an expediter industry, 8,300 people would be out of work. Presumably they would squawk about it. I’m sure I would if I were in their shoes As with many regulatory reforms, the benefits are diffuse and hard to see, whereas the costs are concentrated and obvious.
Also, just one reform in and of itself is unlikely to produce immediate substantive change. Broad based reform in many areas is needed, then there will be a lag as investors adjust to and take advantage of the new environment. This may involve shorter term pain for longer term gain, much like disruptive technical innovation.
That’s not a formula politicians like. It’s one reason Japanese Prime Minister Abe’s “third arrow” of structural reform remains mostly in its quiver. Too many interest groups face immediate pain from reform, but the payoff is raising the economic potential of Japan and creating conditions in which future growth can occur, the exact nature of which can’t be predicted. That’s a hard sell to make, which is one reason politicians tend to focus on things that have immediate benefits to at least some people, such as tax cuts or spending programs.
Regardless, beyond just changes in zoning or this or that process or regulation, there needs to be a mindset shift in how these cities approach development to bring about a broad based change in housing affordability.
Sunday, November 30th, 2014
60 Minutes ran a segment last week called “Falling Apart” that was another alarmist take on the state of American infrastructure. I’ll embed here but if it doesn’t display for you, click to CBS News to watch (autoplay link).
We’ve seen this story before. America’s infrastructure is falling apart and we need to spend many billions on upgrades, but politicians won’t agree because they are too craven.
There’s some truth to this point of view. The problem is that it’s oversold using the worst examples. It also gives short shrift to the many infrastructure upgrades that we have been making. And it ignores how people and businesses make capital purchase decisions in the real world.
First, I’m not surprised to see that 60 Minutes spent a lot of time in Pennsylvania. In my experience, Pennsylvania is in a class by itself when it comes to infrastructure. Drive something like I-70 from Washington to the Ohio state line and prepare to be appalled. Pittsburgh legitimately has a massive infrastructure maintenance overhang. Philly too. And much of the infrastructure there was under built to begin with. The Schuylkill Expressway goes down to two lanes each way, for example. Similarly, 60 Minutes is right about some of the obsolete bridges on Amtrak’s Northeast Corridor. They may have easily included other high profile embarrassments like LaGuardia Airport or Penn Station. Or they might have taken a look at state of decay of Rhode Island’s bridges.
There are clearly some high profile legacy items that need to be addressed. But that neglects the other side of the coin, namely that there’s a ton of major infrastructure that has been upgraded.
60 Minutes includes some footage of Chicago. Clearly there’s a need for bigtime investment there. But in the last 20 years or so IDOT reconstructed completely many of the major freeways in the area like the Kennedy and Dan Ryan. The Tollway Authority widened virtually the entire system and implemented open road tolling, vastly reducing congestion. Similarly the CTA opened the brand new Orange Line, did major work to renovate the Green and Pink Lines, just did major infrastructure upgrades on the south branch of the Red Line, and expanded capacity on the Ravenswood. They’ve also gone from tokens and cash to electronic fare collection. At least one new commuter rail line was opened (the North Central line). The O’Hare Modernization program is underway with new runways already online and a significant reduction in congestion there. A new terminal was also built and the existing terminals given some refreshes.
Is there a lot to do in Chicago? Undoubtedly. But let’s give credit for what has already been done.
It’s the same elsewhere. Nicole Gelinas notes that New York has invested $123 billion in the transit system in the last 30 years. That’s not chump change. The third water tunnel is now online there as well. Indianapolis built an ultra-modern airport terminal complex that’s up to international standards. Many other airports like DTW, SJC, SFO, etc. have built major new terminals or seriously upgraded their acts. There have actually been a lot of investments in port infrastructure to get ready for post-Panamax ships.
I’m told even Pennsylvania has done a good job of starting to address its infrastructure problems. The Philadelphia airport is actually quite nice these days, for example.
So we’ve actually done a lot already that 60 Minutes doesn’t give us credit for.
But what’s more, the presence of infrastructure that’s at or near the end of its useful life isn’t necessarily a bad thing anyway. Would it make sense for every single car on the road to be brand new? Of course not. Most cars ultimately end up getting driven till the wheels fall off. And that makes perfect sense. Why would you junk an asset that still has lots of service life left? We reallocate ownership of a lot of those cars during their lifespan, but we try to get the max out of their useful life.
It’s similar in our homes. How many of us replace a furnace at the first sign of rust? Yes, sometimes we do a complete upgrade or refresh of a kitchen or bathroom, but most of the time we don’t replace major household systems like furnaces or roofs until they appear to be at a point where paying for repairs when they break appears to be futile in light of the asset age. It makes sense to pay $400 to replace a starter that fails when the car has 125,000 miles. It’s more questionable when the transmission goes out at 175.
The fact that some issues or incidents with infrastructure can cause temporary closure or disruption is exactly how most personal capital assets work. A part goes out on our car. It needs to be towed and fixed. And it’s out of commission during that period. That’s annoying, disruptive, and costly. But does it mean that we should all go out and buy a brand new car? I don’t think so. And that’s certainly not how people behave in the real world. Obviously you have to build in a margin of safety on items like bridges where a failure would be catastrophic, but the same general principle applies. We shouldn’t wait for them to fail before replacement, but we do and should get the full useful life out of them.
Why would we expect our government to spend our money on its capital assets in a manner differently from how we spend our money on our own personal possessions? This explains why the public is much more skeptical of spending on infrastructure than the infrastructure lobby would like. It’s to be expected that some percentage of our infrastructure will perpetually be at or near end of life, as that’s the nature of the capital asset life cycle.
What’s more, when we replace a furnace or car, most of us don’t go out and buy Cadillacs. We buy something that fits the budget. Unfortunately, this mindset doesn’t seem to penetrate the public sector, where a significant amount of infrastructure is gold plated and priced at a level far out of line with international comparisons. The big problem in New York isn’t a lack of investment in transit. It’s the fact that the region has just about the highest transit capital costs in the world. Wonder why Madrid and Calgary have nice train systems? Among other reasons, they were very cost-efficient in their design and construction. Rather than more money, maybe we should first try some reform in our broken system of building stuff that results in lengthy project timelines and out of control costs.
So there are some things that need to be taken care of and we need to do that. But scaremongering about dangerous bridges isn’t the right answer. And where I see the biggest infrastructure needs are on local streets and bridges, where federal and state dollars are least likely to be applicable. It’s no surprise to me that most of the pothole ridden, bombed out streets we drive on are local city streets, where they are the maintenance responsibility of an entity that lacks the large, dedicated infrastructure revenue streams available to the state and federal governments. But that’s a topic I’ll have to explore in a future post.
Sunday, November 23rd, 2014
[ To my email subscribers: I’m about to start cutover type activities to my new mailing list system. So if you get some accidental test messages in there, my apologies. I’ll be in touch further as this moves along – Aaron. ]
Yet by late September of this year, the press – especially the technology press – had begun asking some serious questions, as the Downtown Project suddenly laid off 30 people – 10% of the total it then directly employed. Alongside portentous headlines announcing this “bloodletting” appeared claims that Hsieh had “stepped down” from his position of leadership of the project. A damning open letter from the Downtown Project’s former “director of imagination”, David Gould, called the operation from which he had just resigned “a collage of decadence, greed and missing leadership … There were heroes among us,” he added, “and it is for them that my soul weeps.”
Technology web site Re/code also ran a seven part series on the Downtown Project, some of it unflattering, including a part focused on a spate of suicides there, and other on about a prominent failed startup.
I noted at the time the audacity of one project trying to completely transform a place like downtown Las Vegas:
Las Vegas has the single most savagely bleak downtown of any major city I’ve ever visited. The Downtown Project is almost literally starting at zero. There are practically no assets. So anything that the Downtown Project accomplishes needs to be seen against that backdrop. Most of these other cities have been at the downtown redevelopment game for 30+ years, have massive architectural and institutional assets, and have already been the recipients of untold billions in investment, much of it public money.
I also mentioned that the accolades the project had received in the press were disproportionate to the actual accomplishments to date:
Honestly, it’s a bit infuriating as a guy who lived in Indy, Louisville, and Providence to see a place where so little has happened garner such massive press and accolades when most other regions the size of Vegas have done more while getting far less attention.
Indeed, it’s hard to think of a single downtown redevelopment effort that received as much glowing coverage as the Downtown Project. Not even Dan Gilbert’s Detroit efforts received such fawning attention. This is an accomplishment I’m not sure most people fully appreciate. Tony Hsieh was very savvy in using his status as a tier one entrepreneurial superstar, along with a bank of free “crash pad” apartments for visitors, to create buzz and publicity. Other cities should definitely stand up and take notice.
However, the very success of the project on the PR front primed it for inevitable blowback when problems arose. As the Guardian piece notes, “The story fairly demands an apocalyptic ending.” The higher a star soars in the celebrity firmament, the more knives get drawn when anything disturbs the pristine image. The Guardian reporter also said, based on a very recent trip, that reports of the project’s demise are premature.
So the Downtown Project has run into turbulence? Film at 11. Startups are hard, risky, trouble fraught endeavors. Tony went through multiple meat grinders in the past, and if you’ve read his book it’s by no means certain that Zappos would even survive. There were many times it could have gone under. Clearly the man has a massive appetite for risk, and the Downtown Project was certainly a risky and ambitious undertaking.
The initial puffery was overblown. Time will tell if the blowback is as well. Success was always going to be difficult. I noted last year that the project was going against the grain of the DNA of Vegas as a city, was very reliant on “best practices” type solutions vs. the innovative cultural approach of Zappos, and that “curating” a city was inherently dubious. Yet I admire the ambition and believe they’ve done a lot of things right.
I doubt that the project will ever realize the full, audacious vision that was laid out at the beginning. The commitment of Zappos to its downtown HQ probably prevents a complete flameout. But it may turn out that Tony was unwise to have so heavily promoted the project up front. That has more or less ensured that anything less than perfection will be judged as a failure. He set the bar so high, it is almost impossible to clear. Had there been more modest ambitions, then probably even incremental progress against the backdrop of the disaster zone that was downtown Las Vegas would have been seen as a win. But perhaps in one example of how the Downtown Project did match perfectly with the Vegas DNA, Tony Hsieh elected to pile all his chips on Red 14.
Full Disclosure: I had previous financial relationships with Downtown Project related entities and stayed for free in one of their crash pads during my stay.
Tuesday, November 18th, 2014
[ Here’s another nice piece of analysis about Chicago from Pete Saunders. He originally did this earlier this year – Aaron. ]
Chicago skyline. Source: wikipedia.org
Fast forward twenty years. Chicago’s transition from Rust Belt Capital to Global City has been unparalleled. Where there once had been large swaths of middle-class, working-class and impoverished neighborhoods, with high-income enclaves, there are now nearly as many high-income neighborhoods as there are of the other three. Perhaps someone who moved to Chicago post-1995 and lives in one of the up-and-coming areas is vaguely aware of this, but anyone who was here before then is quite right to be astounded.
Despite Chicago’s transformation, it’s been pretty well-documented that not all parts of the city have benefited. The battle over the closing of nearly 50 schools, mostly located in the city’s poorer South and West side neighborhoods, brought this to light, as did Chicago’s high-profile murder and violent crime rates through 2013 (which, to date in 2014, have gone down dramatically). Inequalities and disparities became evident in both areas; University of Chicago graduate student and blogger Daniel Kay Hertz brought the disparities to light with his analysis of violent crime in Chicago. As he said in his piece:
Over the last twenty years, at the same time as overall crime has declined, the inequality of violence in Chicago has skyrocketed. There have always been safer and more dangerous areas here, as there are everywhere; but the gap between them is way, way bigger now than it used to be.
Over the last two decades a new but undefined paradigm has emerged, the one of “Two Chicagos”. This is probably best explained once again by Dan Hertz, who recounted an overheard conversation on the L:
I was on the train earlier this week, and two white men got on and asked their neighbors, who were two black women, how to get to a hotel. The women told them. And then began a sort of stock conversation that Chicagoans have with tourists: How do you like the weather, ha ha? The men, who were from Atlanta, did not like it. Have you been on a subway before? Yes, but not often. Would you come back? Oh, yes. We love Chicago, the men said.
The men reached their station, and left.
One woman said to the other: I hate it when people say that – I love Chicago. No, you don’t. You love downtown and the North Side. The other woman said, Uh huh.
That is a frequent sentiment of those who live on the other side of the invisible divide in Chicago. But what, exactly, is that divide? Where are the boundaries? Exactly how deep are the difference?
I took a stab at trying to figure this out.
I compared some socio-economic statistics for the 56 zip codes in Chicago against medians and averages for the entire Chicago metro area (Indiana and Wisconsin excluded). The differences are stark.
Let’s start by looking at maps of the areas of examination. Here is the seven-county Illinois portion of Chicago’s metro area, with Chicago etched in:
I gathered data for all suburban municipalities and all City of Chicago zip codes within this area, for five variables — population, non-white population percentage, median household income, and median home value, and bachelor’s degree or more for persons 25+. The data comes from the 2011 U.S. Census American Community Survey. After collecting that data, I established an “average of medians” or “average of averages” to get a baseline for the metro area, and an understanding of how jurisdictions or zip codes would compare to one another. One fairly big caveat — an average of medians or average of averages weighs all jurisdictions equally, skewing the numbers higher due to the number of small but well-to-do suburban municipalities. So while the 2011 actual median household income for the seven-county area overall was $61,491, the average of medians was $74,731. But since all data is expressed this way, differences are negated.
Next, I looked for Chicago zip codes that were above the metro area average in at least one of three categories — median household income, median home value, and bachelor’s degree or more for persons 25+. These are the higher income neighborhoods that can be called “Global Chicago”. Within the city, they look like this, in yellow:
Most Chicagoans would recognize this as the wealthier parts of the city. It stretches from the far Northwest Side eastward to the lake, south to downtown and continuing south before ending in the Hyde Park neighborhood on the South Side. Again, I included all zip codes that were above the metro average for at least one of the three categories I examined, so not all communities are the same. Hyde Park, for example, is here because it has high educational attainment, but is below the average for income and home value. The same applies to Rogers Park and Edgewater on the city’s northern border with Evanston. Jefferson Park, Norwood Park and Sauganash, on the other hand, located on the Northwest Side, rank highly in home value but lower for income and educational attainment.
Taken together, you can see how “Global Chicago” compares with the Illinois portion of the metro area, the metro area excluding Chicago to give you Suburban Chicago, and the balance of the city beyond “Global Chicago” that I’ve called “Rust Belt Chicago”:
The differences are indeed stark. “Global Chicago” is on par with the Chicago suburbs and the metro area overall in terms of income, and has a lower percentage of minority residents compared to the metro area. Interestingly, “Global Chicago” has a much higher home value and educational attainment when compared to the metro area overall or the ‘burbs. Meanwhile, “Rust Belt Chicago” lags far behind. “Rust Belt Chicago” has a large majority-minority population, has an income nearly one-half as much as the suburban households, and has only one-third as many college graduates as “Global Chicago”.
I decided to take this analysis a little further and determine if there is a core to “Global Chicago”, and how it would compare to the rest of the city. I collected data for zip codes that exceeded the metro average in two or more of the three categories. That produced this map:
And this table:
Here, a “Super Global Chicago” compares favorably with the ‘burbs in terms of income, but far exceeds it in terms of home value and educational attainment. Including some of the peripheral areas of the previous “Global Chicago” with the previous “Rust Belt Chicago” to produce an “Average Chicago” leads to some gains, but it still lags far behind the other slices of the metro area.
Right now, the CNN series “Chicagoland” is doing its best to illustrate the “Two Chicagos” meme, highlighting blues festivals and Stanley Cup championship celebrations on one end of town and school closures and endless crime on another. However, these maps and tables may do a far better job of demonstrating the impact of past and current practices and policies on the city’s landscape. In fact, I think Chicago’s example is one that will serve as a model, for better or worse, for other cities across the nation.
In reality I see the “Two Chicagos” meme as overplayed. Chicago may be better understood in thirds — one-third San Francisco, two-thirds Detroit.
This post originally appeared at Corner Side Yard on March 18, 2014.