Better Cities Project Policy Solutions for America's Cities Tue, 10 Dec 2019 01:31:00 +0000 en-US hourly 1 Better Cities Project 32 32 Economic development needs to get over its big-idea problem Mon, 09 Dec 2019 07:18:49 +0000 A report on how cities can improve economic development efforts swings for the fences; unfortunately, it's more of a foul ball.

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A new report from Drexel University’s Nowak Metro Finance Lab examines ways in which public policy can be utilized to support “a broad-based effort to build equity for low-income residents of disadvantaged communities.”

If the goals seem broad and lofty, described by the authors as “radical change at all levels,” so do the stakeholders needed to realize them, including, “existing community development entities, philanthropies, national financial institutions, the federal government, local governments, communities themselves.”

Despite the all-encompassing nature of the report, there may be less there than it appears.

The paper asserts that while the federal government “…drifts, local institutions and leaders are moving forward,” a new system of development has arisen, combining public and private investment.

One of the problems is their excitement about Opportunity Zones created in the Tax Cut and Jobs Act of 2017. I’m not as optimistic about the use of Opportunity Zones and the successes of place-based economic development programs are sketchy at best. State and local programs meant to drive investment toward economically challenges areas are largely a waste. Plus, a recent piece out of The New York Times highlights some of the criticisms of the new federal program.

Moreover, the paper holds up Kansas City’s 18th and Vine Jazz District as an example of good development:

Kansas City’s 18th and Vine district, for instance, is a historic hotspot for jazz and blues music, and today is the epicenter for a whole neighborhood development approach.

Anyone familiar with the Jazz District knows that it has been a money pit for decades, with taxpayers pouring in more than $100 million since the 1990s to revitalize the area. The results of all this economic development? Little more than mismanagement and lawsuits.

Elected leaders come and go, and each one offers promises of quick fixes and economic growth. But that growth isn’t a flick of the wrist or a rabbit from a hat.

Economic growth is the product of doing the little things right time and time again: maintaining infrastructure, providing for public safety, and being as little an obstacle as possible to the people generating their own wealth and opportunity.

Those things may not look good on a campaign sticker, but they really are the only things that have worked at building wealth in any community.

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To rein in cities, Texas tries to ban their lobbying Thu, 05 Dec 2019 20:10:05 +0000 Officials in the Lone Star State tried (and failed) to restrict municipal lobbying last session; the bill is expected to return in the next legislative session

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The five lobbyists at Focused Advocacy represent more than 20 Texas cities before the legislature. The firm tracked 3,300 municipal-related bills during this year’s 140-day session, and the walls of its downtown Austin offices are decorated with the framed logos of Austin, El Paso, San Antonio and other Lone Star cities.

Focused Advocacy’s three partners have years of experience under the pink granite dome of the Texas Capitol. Founder and CEO Curt Seidlits, 66, served for a decade in the legislature. Brandon Aghamalian, 46, was Fort Worth’s director of government relations. And Snapper Carr, 45, was legislative counsel for the Texas Municipal League.

All three are breathing a bit easier these days after escaping what could have been a catastrophic blow in the recently ended session. For weeks, local officials and lobbyists watched anxiously as a bill that would have severely restricted lobbying by cities, counties and other local government entities advanced through the legislature. The bill died in the Texas House just days before the session ended.

The measure would not have affected salaried in-house government affairs employees who advocate for cities and counties. But it would have barred cities and counties from spending money on outside lobbyists such as Focused Advocacy. Those firms earn millions of dollars arguing for local officials before state lawmakers during each biennial session.

The measure is likely to return when the legislature reconvenes in 2021 — a stark illustration of the widening chasm between conservative state lawmakers and liberal city officials in Texas and many other states.

At the state level, Republicans dominate Texas. The GOP has controlled both legislative chambers since 2003, and it has held the governor’s mansion — and every other statewide office — since 1995.

But Texas cities, where an increasingly large percentage of Texans live, tell a different story. Houston, San Antonio, Dallas and Austin lean Democratic. On issues ranging from immigration to plastic bag bans to protecting old-growth trees, cities have defied the state’s conservative leadership, only to have state leaders rein them in. The proposed lobbying ban significantly escalates that fight.

“You know, at one point I thought it was mostly directed at Austin,” said the city’s Democratic mayor, Steve Adler, describing the traditional friction that defines the relationship between his city and Texas lawmakers. “But in the last session or two, it’s become apparent that it seems to be directed to cities more generally.”

The anti-lobbying bill would have had a withering impact on the hundreds of outside lobbyists that represent cities, counties, special districts and other local government entities in Austin. It also would have prohibited the payment of dues by cities and counties to lobbying organizations such as the Texas Municipal League and the Texas Association of Counties.

In addition to lobbying, the Municipal League runs workshops, provides legal support to cities and helps them develop long-term plans. But the bill would have eliminated one of its most important functions: advocating for cities before the legislature.

“We would have gotten out of the advocacy business,” said Bennett Sandlin, the group’s executive director. “It would change our organization pretty dramatically.”

City and county governments vehemently protested the ban, saying it would silence the voices of their residents.

State Rep. Travis Clardy, a Republican from Nacogdoches who opposed the bill, said local officials in his largely rural district seek professional representation in Austin for the same reason they hire a plumber or a landscaper. “It means you hire people who are skilled at government relations that know what doors to knock on and where to go,” he said.

But supporters of the measure — among them the conservative Texas Public Policy Foundation — said publicly funded lobbyists often advocate policies that aren’t supported by many of the residents of the cities and counties they represent.

“It is fair to say that ending taxpayer-funded lobbying is the foundation’s top goal moving into next session,” said James Quintero, director of the Austin-based think tank’s center for local governance.

A 2017 report by the foundation found that governmental entities spent as much as $41 million on outside lobbyists during that year’s legislative session, based on a review of lobby expenditure reports filed with the Texas Ethics Commission. The amount constituted 11% of the total $376.6 million in lobbying expenditures in 2017, the report said.

The figures are the latest available, but Quintero said foundation researchers are working to determine the amount spent in 2019.

“It’s just not right that our local property tax money is diverted to the pockets of Austin lobbyists,” said state Rep. Mayes Middleton, a Republican who represents Wallisville, about 40 miles east of Houston. Middleton sponsored the House version of the ban. “And that’s money that can’t be spent on potholes or teachers and police and fire.”

State Rep. Matt Krause, a Fort Worth Republican, said the state is trying to “rebalance” the city-state dynamic in response to what he called “unconstitutional” actions by cities, such as requiring employers to offer paid leave and outlawing the oil and natural gas extraction technique of fracking.

“We’re seeing that over and over here in Texas, where local governments try to do something they don’t have the authority to do,” Krause said.

Although GOP state leaders lost on the ban, they prevailed in several other fights with cities during the session. They curtailed local property taxes, reduced cable franchise fees paid to cities and relaxed regulations of building materials for new construction. The Texas Municipal League, warning that cities were “under siege,” rallied city leaders against those measures but were unable to stop them.

“It was a rough session,” Sandlin said.

An uneven playing field?

At least 35 states plus the District of Columbia have no restrictions on using public money for lobbying, according to the National Conference of State Legislatures. The report lists Texas as one of those having restrictions because it prohibits state agencies from lobbying lawmakers.

The effort in Texas is the first serious state legislative attack on cities’ ability to lobby, said Brooks Rainwater, who heads the Center for City Solutions at the National League of Cities.

“There have been limited efforts around the country that have not gotten traction,” Rainwater said, “because residents understand the value of having their local elected officials’ voices heard in statehouses.”

Bill Kelly, director of the four-member government relations team in the Houston mayor’s office, put it a different way: “If you’re not at the table, you’re going to be on the menu.”

The Houston City Council allocated up to $662,000 over two years for outside lobbyists to advocate for Houston in the statehouse, and another $744,000 for lobbying in Washington, D.C. One 2019 success: obtaining $200 million from the state for Hurricane Harvey recovery efforts.

Austin allocated $596,250 for outside lobbyists in 2018-2019: $165,000 for the Focused Advocacy team and $431,250 for six other lobbyists. Fort Worth spent $224,000 on state advocacy efforts, including $73,000 to McGuireWoods LLP.

“I’ll call it advocacy, not lobbying,” said Fort Worth City Manager David Cooke. “Cities and towns have different needs. Each of these towns and cities knows best what their community wants.”

But Jon Russell, the national director of the American City County Exchange, an affiliate of the conservative American Legislative Exchange Council (ALEC), said city and county officials in his organization would welcome a ban on publicly funded lobbying.

“It’s one of the top issues for our members,” said Russell, a town councilman in Culpepper, Virginia. He said municipal leagues and associations often stake out positions that are “not reflective of many of my members.”

Source of a scandal

Even though the anti-lobbying bill flamed out this session, its repercussions are still rippling through Texas politics.

Just weeks after Texas Monthly magazine named Republican House Speaker Dennis Bonnen one of the state’s eight best legislators, he was accused of privately trying to persuade a conservative activist to campaign against 10 moderate House Republicans (including Clardy of Nacogdoches) in the next election.

All 10 lawmakers broke ranks to vote against the lobbying ban.

The activist, Michael Quinn Sullivan, the president of Empower Texans, ignited the scandal by alleging that Bonnen and Republican state Rep. Dustin Burrows of Lubbock offered House media credentials to Sullivan’s organization in exchange for campaigning against the lawmakers. Sullivan taped the meeting.

The case, which has raised the specter of bribery, is now under investigation by the Texas Rangers and the outcome is far from certain. Bonnen has apologized to House members for the meeting with Sullivan and for saying “terrible things that are embarrassing to the members, to the House, and to me personally.”

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Zoning policy, housing affordability and ‘Closed Access’ cities Tue, 03 Dec 2019 00:51:24 +0000 Many cities are not experiencing rapid growth despite offering some of the highest wages and best career opportunities in the country.

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Throughout American history, cities have experienced rapid population growth during periods when they offered exceptionally well-paying jobs. But population growth in high-wage cities is only possible when people can find housing within a reasonable commuting distance.

Unlike in the past, policymakers in some regions have implemented land-use regulations that block new housing development, creating “Closed Access” cities. These are highly regulated cities that are not experiencing rapid population growth despite offering some of the highest wages and best career opportunities in the country.

When housing demand increases in Closed Access cities, prices rise sharply. From 2012 to 2018, for example, rent grew 29.5 percent in the Closed Access San Francisco metro area while housing supply grew just 2.8 percent. In Open Access Austin, by contrast, rent grew only 13.8 percent and the housing stock grew 15.9 percent. The burden of Closed Access rules falls disproportionately on low-income people, both because those people spend a greater percentage of their income on housing than high-income people do and because they are more often renters, paying more without enjoying an increase in home equity.

The lackluster growth and high prices of Closed Access cities are caused by land-use regulations that limit property owners’ rights to build new housing. To restore the longstanding American traditions of national mobility and inclusive growth, policymakers from town halls to Capitol Hill must work to open up access to all of America’s cities.

Land-use regulations create Closed Access cities

Land use regulations include zoning, subdivision regulations, growth boundaries, fees, parking requirements, and environmental liabilities. These regulations place limits on property owners’ ability to expand their city by building up or out. Every city in the United States—even Houston—places some limits on growth, but the Closed Access cities are those that make it very difficult to build either up or out. In particular, the Bay Area, Boston, Los Angeles, and New York have restricted the supply of housing in the face of increasing demand, causing high and rising prices.

In many cases, mountains and bodies of water also block outward expansion. But instead of mitigating the lack of land by allowing especially dense development, Closed Access cities have exacerbated the problem. For example, Hawaii and Oregon require land surrounding urban areas to be preserved as open space or farmland. These urban growth boundaries prevent cities from growing out while zoning regulations prevent them from growing up. Today the median house in the Portland region costs nearly $400,000, compared to $225,000 nationally.

New York, before the adoption of its 1961 zoning resolution, allowed vertical growth and steady densification in the outer boroughs to counteract its lack of nearby land. The 1961 code placed new limits on how dense new housing can be. Population growth in New York has not been matched with growth in the housing supply, leading to high prices and crowding. While topography can certainly raise prices and make growth more challenging, Closed Access cities are a creature of regulation, not an accident of geography.

The myth of a national housing glut

A new book, Shut Out: How A Housing Shortage Caused the Great Recession and Crippled Our Economy, makes the case that the popular history of the housing price boom and bust of the 2000–2010 period is incorrect. The crisis was not primarily the fault of irresponsible lenders and bankers pushing housing demand to unsustainable heights; it was the fault of local regulations that limit access to America’s best job markets. Shut Out characterizes these as “Closed Access” cities. Although the specific market conditions in the middle of the 2000–2010 period have passed, the same high-wage cities are still Closed Access places.

Poorly underwritten mortgages have been blamed for creating a housing glut early in the 2000–2010 period. But far from a glut, the recent decades have been characterized by a shortage of housing. During the boom years, the ratio of national housing starts to population growth only modestly exceeded its long-run average. Closed Access cities largely exempted themselves from growth, issuing building permits at a lower rate than Rust Belt cities such as Detroit and St. Louis.

Instead of growing, Closed Access cities generated out-migration to make space for the high-income workers migrating in. Every year in the middle part of 2000–2010, nearly 2 percent of homeowners in the Closed Access cities sold and departed. Renters fleeing high costs and homeowners cashing out and moving away from their high-priced homes fueled the rapid growth into Florida, Las Vegas, Phoenix, and inland California. As Shut Out notes, “Just to handle the out-migration from New York City and Boston in 2005, nearly as many additional homes were being built in Florida for New Yorkers and former Boston residents as in New York City and Boston. The rate at which Nevada, Arizona, and Oregon were building homes just to accommodate refugees from San Francisco and Los Angeles was higher than the rate at which San Francisco and Los Angeles are even capable of building in total.”

Meanwhile, rent was becoming more important as a determinant of price differences between metro areas. Growing mortgages were facilitating new residential investment across the country, which was counteracting Closed Access supply constraints. But in the aggregate, the rise in debt did not constitute unsustainable mortgages to unqualified borrowers. Where rising mortgage levels were associated with extreme valuations, it was mortgages to highly-skilled young workers buying access to the exclusive, housing-deprived cities and to the fast-growing markets where many of the new buyers were trying to escape the rising costs of the Closed Access cities.

The same problems cities are dealing with today — tight supply and rising costs — were at the heart of what became known as the housing bubble. What appeared to be a glut was really triggered by a mass migration created by localized shortages.

How can Closed Access cities open up?

Local reform
Several US cities provide models for accommodating growth and maintaining affordability. Houston is famous for not having a zoning code and for allowing rapid suburban development on its urban fringe. But it also allows dense redevelopment. In 1999, Houston reduced the minimum lot size within its Interstate 610 loop to 1,500 square feet, making townhouse development possible. In 2007 it expanded this reform to cover a larger part of the city.

Atlanta recently updated its zoning code to allow accessory dwelling units in some of its single-family zones and to reduce parking requirements in areas served by rail transit. Minneapolis updated its comprehensive plan to allow duplexes and triplexes in all areas of the city that were previously restricted to single-family development.

While Minneapolis will begin permitting moderate density everywhere, Seattle has taken the approach of allowing for high-density housing in specific “urban villages.” For two years, Seattle has had more cranes up than any other US city, and the new supply is now leading to falling rent.

These four cities show that local reform is possible, politically as well as economically. However, local reform ends at the municipal limits, and metro areas comprise many jurisdictions, each of which sets its own land-use regulations and is responsive to its own voters. Large, rapid changes in policy thus require state action.

State reform
States have clear legal and economic bases for setting limits on local land-use regulations. Local jurisdictions are “creatures of their states,” so even “home-rule” states can limit local regulatory authority. The effects of local restrictions on new housing spill across local political boundaries, limiting population growth, economic growth, and income mobility at the state and national levels. Because these are valid objectives for state policymakers, they have a role to play in limiting exclusionary zoning and protecting property owners’ rights to build more housing.

California is leading the way in state preemption of local land-use rules. In 2016, state policymakers passed a law that requires all of the state’s localities to allow accessory dwelling units (also known as granny flats or backyard cottages) on all lots that have single-family homes. California lawmakers are considering further preemption, including a bill that would set limits on localities’ ability to restrict housing construction in transit-rich and job-rich areas.

Other states, including Oregon and Connecticut, have similar bills under consideration that would restrict local zoning authority. Washington state policymakers have a bill under consideration that would legalize accessory dwelling units, following California’s model.

Federal reform
The federal government is limited in its potential to reduce the harms that Closed Access cities cause. Direct federal preemption of local zoning rules would probably exceed the constitutional powers granted to the federal government and would infringe on states’ role of authorizing local governments and designating responsibilities for them.

The federal government should, however, steer its support toward more open jurisdictions. Both Senator Cory Booker and Secretary of Housing and Urban Development Ben Carson have proposed using Community Development Block Grants (CDBGs) as a tool to encourage zoning reform. CDBGs are one of the few grants that the federal government allocates to municipalities directly. While these grants are statutorily required to support projects that primarily benefit low- and moderate-income people, CDBG funds are often spent on small public works projects, such as façade improvements for private businesses, that have dubious value for low-income residents. Withholding funds from jurisdictions that have both high house prices and exclusionary policies would raise the profile of the harms that land-use regulations cause renters in Closed Access cities.

The federal government could make greater progress by shrinking its own distortions of housing markets. Federal subsidies to homeownership, including the mortgage interest deduction and tax-free capital gains for homes, encourage single-family development at the expense of density. Progress has been made: the 2017 Tax Cut and Jobs Act curtailed the distortion that the mortgage interest deduction causes by increasing the standard deduction and capping major itemized deductions.

To reduce the incentive that homeowners have to oppose new housing supply, federal lawmakers could institute a lower cap on the mortgage interest deduction in exclusionary jurisdictions. Alternatively, complete elimination of the mortgage interest deduction and a phase-out for the capital gains exclusion for homeowners would reduce the federal government’s role in encouraging Closed Access orders.

Finally, in an attempt to address high home prices rather than the more fundamental problem of high rents, federal monetary policy and mortgage regulations were tightened up during and after the financial crisis. This pushed prices down in cheap markets as well as expensive ones. But rents have not come down—just prices. This has made new construction in cities and neighborhoods where incomes are lower difficult because builders cannot profitably build at the new, lower price levels, contributing to tighter overall housing supply. Responsible, yet accommodative monetary and credit policies would help to fund the new supply that will bring down rents.

Download this policy brief with citations:


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Driverless vehicles and pedestrians don’t mix. So how do we re-arrange our cities? Wed, 27 Nov 2019 19:50:10 +0000 Autonomous traffic conjures up a vision of thousands of vehicles speeding along just feet apart. But the reality is far more complex.

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Videos showing autonomous or self-driving vehicles weaving in and out of crossroads at speed without colliding suggest this technology will solve traffic problems. You almost never see pedestrians or cyclists in these videos. The reality is that they don’t fit.

The vision of autonomous traffic is either of a large convoy of vehicles just a meter apart moving along road corridors at 100km/h, or of vehicles in an urban setting where their sensors are picking up every pedestrian movement and slowing or stopping. In the first case, the vehicles form an impenetrable barrier to pedestrians or cyclists (who, like on a freeway, will probably be banned). In the second case, pedestrians and cyclists are able to ruin traffic flow and are likely to just take over streets.

What’s missing from the demonstration of autonomous vehicles flowing through an intersection is the human element of cyclists and pedestrians.

It occurs to me this is a really good thing for our cities. I worried that the vision some had (mostly car makers, I suspect) was of a city completely taken over by self-driving vehicles.

All public transport would be gone as thousands of these vehicles scattered along every street looking for on-demand passengers. Historic centers and tram corridors would be ruined and we would no longer be able to appreciate their walkable character.

However, we may instead be able to take the best features of autonomous mobility technology to create cities that are more productive, liveable, inclusive and sustainable.

How would we do this?

The first thing is to realize that for 20-30 years cities around the world have been getting rid of cars in their centres and subcentres, drawing on the ideas of urban designers like Jan Gehl. This trend includes Australian cities. These centers are where the knowledge economy workers who drive innovation want to live and work.

Cities are not going to easily give up their cherished walkability to thousands of self-driving vehicles. Cities mostly are planning more walkable centers with even more public transport and fewer cars; they are unlikely to yield to autonomous vehicle ideology.

It’s more likely cities will ban self-driving vehicles from these centers, with just one small entry and exit point to enable vehicle access. Cities will not want to kill off the economic and social golden goose of walkable centers, let alone abandon climate change plans to reduce car use.

The second thing is that these active walkable centers are being heavily supported by quality public transport. Fortunately, autonomous technology is also being applied to transit services such as the trackless tram. These are guided but not driverless, like high-speed rail and metros, as they need drivers at times.

Not only could autonomous technology improve transit services, it could also take over some major road corridors that are failing at peak times. This could create an alternative rapid transit route carrying the equivalent of six to eight lanes of traffic.

Data source: author provided

The ‘movement and place’ approach

Around the world and in Australia, cities are looking to make roads into combined “movement and place” sites – some places will remain highly walkable and some will be just for movement but special corridors will be for both so theykeep people and goods moving and are places for people to live, work and enjoy. This approach gives priority to fast public transport using light rail or trackless trams combined with higher-density development around their stations.

The big issue on such corridors is how to get rid of cars so mass transit services have a fast, free lane to travel along as well as walkable station precincts to enter. Such a system would be much more efficient in traffic terms, but car users don’t easily give up their right to space.

However, the inherent problem with self-driving vehicles is that they will make a corridor impenetrable and travel through a dense precinct ridiculously slow and unpredictable. The politics will therefore shift towards a fast transit corridor along main roads together with walkable, car-free station precincts.

Self-driving cars can help make the fast corridor work as they are ideal for bringing on-demand passengers to the precincts where people can access local services and transfer to the fast transit line. This integrated service enables the best of both mobility solutions: fast and effective access, without destroying either the corridor or centers, and an on-demand local service as shown below.

Author provided

Each center will have micro-mobility options feeding into the transit system and the station precinct services. These options will provide “first mile-last mile” connectivity on demand. They include walking, electric bikes, scooters, skateboards and autonomous shuttles or cars that travel to and from the center along a specific isolated route.

Certain main roads would have to be declared as clearways for autonomous electric transit, with a set of stations serving high-density centers for urban regeneration. Autonomous vehicles could reign supreme out in the suburbs that were built around the car, but would not interfere with existing or new transit corridors as well as the historic and new centers where pedestrians would reign supreme. Such is the vision of the City of Liverpool for a trackless tram route to Western Sydney Airport.

Liverpool City Council’s vision of an autonomous transit link to Western Sydney Airport.
This vision is not anti-autonomous vehicles. It is enabling innovations to serve us rather than being our master. We cannot simply give up our cities to cars just when we are learning to overcome such dependence.

To make the most of autonomous vehicles’ advantages and avoid the disadvantages, we must choose to shape our cities. Autonomous transit services with feed-in autonomous cars and micro-mobility can achieve the walkability and civility we need for a good city in the future.

This work is licensed under a Creative Commons License.

The Conversation

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Mergers drive moves: Schwab will relocate to lower-tax Texas following Ameritrade purchase Mon, 25 Nov 2019 20:21:30 +0000 The Charles Schwab/TD Ameritrade merger shows how jobs and corporate revenue, like water, flow to the point of least resistance.

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The brokerage firm Charles Schwab announced today it would acquire TD Ameritrade in a $26 billion deal and as part of the transaction Schwab will move its headquarters to the Dallas-Forth Worth area.

The integration of the two firms is expected to take between 18 and 36 months, following the transaction’s close. The corporate headquarters of the combined firm will eventually relocate to Schwab’s new campus in Westlake, Texas, which is located in Denton and Tarrant Counties north of the cities of Fort Worth and Dallas.

Both companies have a sizable presence in the area. Any additional real estate decisions will be made over time as part of the integration process.

Schwab was founded in San Francisco and will maintain a presence in the city. However, in my experience, once a company establishes a footprint in a business-friendly location, more jobs gravitate there over time.

The move isn’t surprising considering that Schwab’s founder and chairman, Charles “Chuck” Schwab, has said that “We’re pretty much a national company now. I’m not sure [we’ll stay in San Francisco] … we’ll continue looking at that as a possibility [but] as taxes go … and the costs of doing business here are so much higher than some other place.”

Schwab in Dallas/Fort Worth area

Even before the TD Ameritrade event, Schwab has been more than doubling its workforce in Westlake. Scheduled to open in 2019 is a $100 million phase of a 70-acre office campus. The initial half-million-square-foot office complex is expected to house 2,600 Schwab workers.

Next will come a second, 617,000-square-foot phase that will add two more offices, resulting in an overall capacity for between 6,000 and 7,000 employees when it opens in 2020 or early 2021. That represents more than one-third of the company’s current workforce of 19,100, signaling where the brokerage expects to concentrate its growth in the years ahead.

It’s growth looks like it will be a bigger benefit for Texas than California. “We have a lot of our growth outside of California – a lot more outside of California than inside California,” Mr. Schwab said. In San Francisco, the company employs 1,200 people – down from the dot-com bubble boom peak of 10,000 employees in 2000.

Schwab in Austin

Schwab is sprouting big time elsewhere in Texas, too, by opening its 469,000-square-foot, 50-acre Austin campus in May 2018 to house about 1,900 employees. Construction started later on an additional office building and parking structure – all of which is designed to give room for future growth.

The Austin location encompasses two five-story office buildings and will be home to employees within all 15 lines of Schwab’s business, including its digital accelerator program. The new hires are in I.T., Digital Services, Retirement Services, Compliance and Marketing, among others. Schwab’s capital investment in current Austin projects is estimated to be at least $196.7 million and the company is hiring talent across the state.

Ten other corporate headquarters move out of San Francisco since the start of 2018 include Aatonomy, Bechtel, Circa of America, Core-Mark Holding Co., GoCheck Kids,, Maxar Technologies, McKesson Corp, PrePaid2Cash Holdings and Xero.

If we were to include moves of companies out of Santa Clara, San Mateo and Alameda counties, the result would show Silicon Valley is the epicenter of companies opting for out-of-California locations in full or in part.

More about out of state moves can be found in this account from Nov. 20, entitled, “Companies Join People in Fleeing California.”

A report issued earlier in 2019, entitled, “Why Companies Leave California” addresses in depth the state’s hostility toward businesses. Examples include regulations requiring steep fines for minor infractions, a ruthless legal climate, escalating taxes and utility rates, high labor costs, and signs that more workers plan to depart California.

None of us should expect California’s business climate to improve any time soon since Gov. Gavin Newsom and his friends in the legislature (and bureaucrats in regulatory agencies) show signs they will continue to treat companies in an unduly harsh manner.

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Upscale apartments net tax breaks meant for low-income areas Mon, 25 Nov 2019 01:09:16 +0000 Congress created the opportunity zone tax break in 2017; now, some question whether the no-strings-attached approach is paying off.

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Elyria-Swansea is a short bike ride from the epicenter of Denver’s brewery-hopping and co-working scene, but it feels farther away. Here modest mid-century bungalows and Victorian houses boxed in by chain-link fences press up against train tracks, Interstate 70, marijuana grow houses and a pet food factory that pumps musty smells into the air.

The neighborhood remains affordable in a city where housing costs have skyrocketed. Denver rents are up 75% over the past decade, according to the city’s housing team, and about a third of households are spending more than a third of their income on housing. More people are living on the street or in homeless shelters — almost 4,000 of them, according to the latest count this January.

But change is coming to Elyria-Swansea in the form of a hotel and conference center, high-end office space and “luxury, urban-style residences.”

Investors in all three real estate projects could enjoy a hefty federal tax break for investing in a low-income neighborhood — even though it’s not clear whether such projects will help current low-income residents, or whether they’re the leading edge of gentrification that will eventually push longtime residents out.

“A lot of what’s happening in our neighborhood hasn’t been designed for the people there,” said City Councilwoman Candi CdeBaca, a progressive Democrat who represents the mostly Hispanic area. To her, the tax break is just the latest example of urban renewal, the federal policy of the 1950s and 1960s that gave cities money to raze blighted areas but ended up displacing more than a million people.

“It’s a new iteration of something that’s existed over and over throughout time to really colonize areas,” CdeBaca said.

Congress created the opportunity zone tax break in 2017 to encourage investors to pump money into over 8,000 struggling census tracts selected by states.

But unlike other programs intended to help poor communities, the tax break has no strings attached. The law’s architects reasoned that if investors weren’t constrained by job creation requirements and other conditions, they’d be more likely to invest in the zones.

So investors can get a series of capital gains tax breaks over 10 years for investing in almost anything, from five-star hotels to data centers.

And the federal government isn’t closely tracking where the money goes. All investors have to do is show the IRS they spent money on real estate or a business in a zone. State and local leaders, unable to track projects any other way, are relying on self-reporting, gossip and local news.

“Embarrassingly, the ones that I know about are the ones that I read about in the Denver Business Journal,” said Irene Aguilar, a former Democratic state senator who leads the city of Denver’s efforts to protect residents from gentrification and displacement.

To be sure, some community-focused projects are in the works in Denver and other communities nationwide, and opportunity zone supporters say more will emerge in the next year or so. Even high-end apartment projects generate construction jobs and income tax revenue.

But in booming cities like Denver, the federal government may end up spending more money on tax relief for pricey apartment buildings, offices and hotels than on tax relief for community-focused but less profitable assets, such as affordable housing.

The Denver Business Journal, a business news publication, estimates that $1 billion in mostly market-rate real estate projects eligible for the tax break have been announced so far across the metro area’s 37 opportunity zones.

Perhaps the most ambitious: a $400 million package of hotels, apartments, single-family homes, restaurants, shops and a music venue planned for currently empty land in Aurora, close to Denver International Airport.

There’s not much Denver leaders can do to influence projects. If a developer comes forward with a rezoning request, the City Council can pressure the company to make certain changes, such as setting aside apartments for middle-income residents. “But as you know,” Aguilar said, “we don’t have any mandates that we can put in place right now, and it’s really just a request.”

The office of Denver Mayor Michael Hancock, a Democrat, did not respond to a request for comment.

Easy money

The opportunity zone tax break is several tax breaks in one. First, people can defer paying taxes on their capital gains if they invest them in an opportunity zone fund, which in turn spends that money on businesses and properties in a zone.

Investors earn a 10% tax discount on those gains after five years, then a 15% discount after seven years. Finally, if they hold on to the opportunity fund shares for 10 years, they can sell them without paying any taxes on the money they made from that investment.

The eventual windfall could be huge. But there’s a time crunch: To get the largest possible tax break, investors need to park their money in a fund by the end of this year. Under the law, they can defer paying taxes on their initial investment only until 2026.

Hence the giddy rush of investment into shovel-ready projects planned long before opportunity zone boundaries were approved by the U.S. Treasury Department, often without the local community in mind.

At an April opportunity zone conference in downtown Denver, hosted by the national accounting and consulting firm Novogradac, the excitement among real estate investors and developers was palpable.

“I frankly look at this legislation in somewhat of amazement,” said panelist Kevin Shields, chairman and CEO of Griffin Capital Company, an alternative investment asset management company based in El Segundo, California. The tax break will generate significant wealth for investors while driving money into communities, he said.

He argued the opportunity zones designated by states include plenty of locations in no need of subsidy, such as downtown Portland, Oregon; Austin, Texas; and parts of Brooklyn, New York.

The combination of good deal prospects and tax relief was so tempting, Shields said, he couldn’t resist throwing $7.5 million of his own capital gains dollars into Griffin Capital’s $275 million opportunity zone fund.

Griffin Capital and San Francisco-based real estate firm Legacy Partners announced last month they acquired land in Aurora, Colorado, where they intend to build a 363-unit apartment building. It will feature “a resort-style pool and spa,” fire pits, a clubhouse, a fitness center, a Pilates room and a rooftop deck. Griffin Capital declined to comment on the project or make Shields available for an interview.

Meanwhile, in Sun Valley, Denver’s poorest neighborhood and another opportunity zone, the Denver Housing Authority has been struggling to drum up investor interest in a master-planned community that will replace an aging 330-unit public housing complex with a mix of public housing, subsidized housing, market-rate housing, and other amenities and services.

“We want to do away with the old, obsolete and outdated — and failed, frankly — model of concentrated, isolated, public housing,” said Ismael Guerrero, executive director of the housing authority.

Opportunity fund managers are circling the $500 million project, but none has committed to it yet, Guerrero said. “They know our work, they know that Denver is a great market and a great city to invest in,” he said. “We just can’t land the planes at this point.”

Guerrero identified two challenges: Investors are looking for higher profits than affordable housing projects offer, and they’re looking for certainty. Much of his project is in the land-development phase, and it’s not clear under IRS rules whether investment at such an early stage qualifies for the tax break.

He said more opportunity fund investors may step forward in the coming months, once the tax break is better understood.

The White House Opportunity and Revitalization Council is trying to encourage investment by driving more federal grants and assistance into zones. Help from federal agencies might sweeten the deal for investors, Guerrero said. “We’d love to get some grants here in Sun Valley to help us with employment and training, with small business development, things like that.”

Jana Persky, the opportunity zone program director at the Colorado Office of Economic Development and International Trade, said it’s not surprising that higher-end projects that have been in the works for a while appear to be attracting more opportunity fund dollars in the Denver area. “Like anything, people are going to pick off the low-hanging fruit first,” she said.

“Our hope is that those types of projects can become models for a broader range of projects in more creative forms — more affordable, or more directly beneficial to communities,” Persky said.

One such project could be underway in Denver’s East Colfax neighborhood. Flywheel Capital, a real estate investment firm, plans to refurbish a building now used mostly as storage and turn it into office space for local nonprofits.

“I would say this is the poster child of the kind of opportunity zone project you want: the developer wants to bring in nonprofits, there’s a lack of nonprofit space in the area,” said Monica Martinez, executive director of the Fax Partnership, a community nonprofit.

As with most other projects attracting early opportunity zone investment, the redevelopment was in the works — and made financial sense — long before the zones were announced. “We kind of got lucky,” said Ben Hrouda, managing partner of Flywheel Capital.

Development for whom?

Denver’s 10 opportunity zones — selected by former Democratic Gov. John Hickenlooper and Colorado’s economic development agency with input from local leaders — are among the city neighborhoods widely considered to be poised for gentrification. Residents are riled up about housing costs, worried they’ll be pushed out and willing to lobby against development they don’t believe will benefit them.

In Elyria-Swansea, the planned redevelopment of an abandoned AT&T call center—a project eligible for the opportunity zone tax break—drew 32 agitated residents to a zoning hearing at the Denver City Council this spring, according to Laird Horigan, a 30-year-old homeowner who attended.

Horigan, a mining engineer who works for a software company, and his wife, an architect, bought a home in the neighborhood four and a half years ago after struggling to find a house they could afford elsewhere in the city.

Now investors Tom and Brooke Gordon are planning to turn an eerily silent office park and weed-strewn parking lot nearby into about 700 apartments, townhomes and other units, 2 acres of open space and playground, studio and performance space for a downtown ballet company, and about 20,000 square feet of restaurants and retail space.

A former AT&T call center in Elyria-Swansea, Denver. Investors Tom and Brooke Gordon plan to develop the property into a mix of housing, retail and performance space for a dance company. Photo courtesy the Pew Charitable Trusts.

Neighborhood residents didn’t oppose the plan, per se, but they felt that the developers were rushing ahead without seeking community input, Horigan said. A community group focused on that neighborhood and another one nearby, the Globeville, Elyria-Swansea Coalition Organizing for Health and Housing Justice, organized residents to respond to the project.

The City Council recommended that the coalition and developer work together on a compromise. The Gordons agreed to set rents in 70 of the planned apartments at 60% of the area median income and to ensure that the open space was open to the public, Tom Gordon said. They also plan to set aside retail space for local businesses.

The neighborhood activists aren’t satisfied. “That’s not what we asked for,” said Nola Miguel, director of the coalition. Among other requests, they asked for twice as many affordable units, for the developer to give local businesses the first right to lease affordable space, and for the developer to pay into a property tax relief fund.

Miguel said that as things stand now, there’s no guarantee the project will hire local construction workers or that it will benefit the community in other ways.

Gordon said he’s frustrated by the pushback. In his view, he and his wife are playing by the rules set by the federal government and the city and are trying to do the right thing. “At the end of the day, you’re not going to have development unless it’s financially feasible,” he said.

He does agree with the activists on one point, however.

“I do agree that the federal legislation should have had more strings attached,” he said. “Absolutely agree with that.”

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Cities: Ripe for policy change Tue, 29 Oct 2019 16:14:38 +0000 More than 61 million people call our 100 largest cities home.

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The new shame of our cities Mon, 28 Oct 2019 01:13:43 +0000 A generational population shift to our urban areas may have peaked as many cities risk driving out the middle-class residents that made them thrive.

The post The new shame of our cities appeared first on Better Cities Project.


Perhaps no song has been belted out more often than the one that claims that America is moving “back to the city.” Newspapers, notably the New York Times, devote enormous space to this notion. It gained even more currency when the Obama administration sec­retary of Housing and Urban Development, Shaun Do­novan, pro­claimed that the suburbs were “over” as people were “voting with their feet” and moving to dense, transit-oriented urban centers.

This celebration perhaps reached its crescendo when Amazon initially announced its move to Crystal City, Virginia, and Queens, New York. “Big cities won Amazon and everything else,” Neil Ir­win of the Times predictably enthused. “We’re living in a world where a small number of superstar companies choose to locate in a handful of superstar cities where they have the best chance of re­cruiting superstar employees.”

In fact, however, these views are more aspirational, or even delusional, than reflective of reality. Overall, data suggests that we are not seeing a great “return to the city” but, with few exceptions, a continued movement out to the suburbs and less dense cities, nota­bly in the sunbelt. The spurt of urban core growth that occurred immediately after the housing bust turned out to be remarkably short lived, with the preponderance of metropolitan growth—roughly 80 percent—returning, as has been the case since at least the late 1940s, to the suburbs and exurbs. Indeed, at no point did Census Bureau estimates show net domestic migration from suburbs to core cities, only a reduced rate of migration in the opposite direction.

Even the country’s most influential urbanist, scholar Richard Florida, now suggests that the great urban revival is “over.” Rather than the usual belief that density leads to productivity and innovation, a new Harvard study demonstrates that, between 1970 and 2010, suburban areas have overall steadily increased their economic advantages: the share of suburbs making up the top ranks of all urban and suburban neighborhoods (measured as the top quartile) went from roughly two-thirds in 1970 to almost three-quarters by 2010.

Shifting Demographics: Exaggerating the Urban Renaissance

Even at the peak of the urban “renaissance,” most of the population and job growth continued to occur in the suburban periphery. Cities achieved some parity in growth rates in the period between 2009 and 2011, as presidents Bush and Obama provided “a covert bailout”  to banks, universities, and government bureaucracies concentrated heavily in and around urban cores.

Yet as the rest of the economy improved, and urban land prices rose, population movement again shifted away from the dense inner city to less compact, more affordable locales. Analysis of census data by demographer Wendell Cox found that the core counties of the metropolitan areas with populations of more than one mil­lion, after losing only ten thousand net domestic migrants in 2012, experienced an outflow of nearly 440,000 by 2017.

This has occurred even in the most exemplary “creative class” cities. In New York, a city coterminous with five counties, the net domestic migration loss has been 1.1 million since 2010; and much of this is to surrounding suburbs, which account for five of the top seven destination counties in the nation for fleeing Gothamites. New York’s borough of Brooklyn, the acclaimed epicenter of early twenty-first-century urban dynamism, lost population in 2017 and 2018. In fact, in 2018, New York, Los Angeles, and Chicago all lost residents to the rest of the country. Net domestic migration has also plummeted in San Francisco by 80 percent since the early 2010s. The key here has been surging housing prices, which eat up much of the big-city wage premium that many boosters focus on.

Critically, this trend has taken hold among the generation that many predicted would sustain the urban “renaissance”: millennials.  In fact, as a new Brookings study shows, millennials are not moving en masse to large, dense cities but away from them. According to demographer Bill Frey, the 2013–17 American Community Survey shows that New York now suffers the largest net annual outmigration of postcollege millennials (ages 25–34) of any metro area—some 38,000 annually—followed by Los Angeles, Chicago, and San Diego. New York’s losses are 75 percent higher than during the previous five-year period.

By contrast, the biggest winner is Houston, a region many plan­ners and urban theorists regard with contempt. The Bayou City gained nearly 15,000 millennials (net) last year, while other big gain­ers included Dallas–Fort Worth and Austin, which gained 12,700 and 9,000, respectively. The other top metros for millennials includ­ed Charlotte, Phoenix, and Nashville, as well as four relatively ex­pensive areas: Seattle, Denver, Portland, and Riverside–San Bernardino. The top twenty magnets include midwestern locales such as Minneapolis–St. Paul, Columbus, and Kansas City, all areas where average house prices, adjusted for incomes, are at least 50 percent lower than in California, and at least one-third less than in New York.

Perhaps even more significant has been the geographic shift with­in metro areas. The media has frequently exaggerated millennial growth in the urban cores. In reality, nearly 80 percent of millennial population growth since 2010 has been in the suburbs. Even in the Bay Area, the tech industry’s global epicenter, suburban Silicon Val­ley has continued to grow its STEM base rapidly, while San Francis­co has recently seen a rapid slowdown in tech jobs. Perhaps density, massive homelessness, and filthy and disorderly streets, not to men­tion unaffordable living costs, lose their appeal as couples contemplate childbearing.

Dense, high-priced cities still attract young people straight from college, but many don’t stay long. The average resident in the down­town areas so popular with postcollege millennials has lived in the same house for approximately 2.4 years, compared with seven or more years in the suburbs and exurbs. As economist Jed Kolko has observed, the perceived “historic” shift back to the inner city has turned out to be a relatively brief phenomenon. Since 2012, suburbs and exurbs, which have seven times as many people, are again grow­ing faster than core cities. Suburbs are also seeing a strong net move­ment among educated people, those earning over $75,000, and espe­cially those between the ages of 30 and 44.

Progressive Politics, Regressive Economics

During the last decade, several urban cores—notably New York, Boston, Seattle, Denver, and San Francisco—have enjoyed significant growth. Yet at the same time, as Florida notes in his New Urban Crisis (2017), this process has served to enlarge “deepening economic segregation between a prominent elite and stubborn pov­erty, as well as a shrinking middle class.”

In the past, the traditional urbanist notion, advanced by the late Jane Jacobs, maintained that cities grew best not by “luring” talent but by “creating” a middle class from its existing residents. Yet now, according to two recent Oregon studies, lower-income people in cities experience less upward mobility than people from rural areas. Indeed, according to Pew research, the largest gaps between the bottom and top quintiles can be found in some of the most progressive metropolitan areas, such as (in order from largest to smallest divides) San Francisco, New York, San Jose, Los Angeles, and Boston. In all these “superstar” cities, the middle-class family is rap­idly disappearing, even as poverty remains stubbornly high.

This reflects national phenomena. Research by urban analysts Joe Cortright and Dillon Mahmoudi shows that the number of high-poverty (more than 30 percent below the poverty line) neighborhoods in the United States has tripled in the last half century, from 1,100 in 1970 to 3,100 in 2010. Despite some steady growth of poverty in suburbs, the ratio of the impoverished, according to the American community survey, is still two-thirds higher in urban cores than in the suburbs. Thus recent growth in the cores seems to have done little to address poverty or inequality.

new study by the Center for Opportunity Urbanism found that, in most cities, unbalanced urban growth has exacerbated class divisions, while doing little to address the decline of middle-class households. Philadelphia’s central core, for example, rebounded be­tween 2000 and 2014, but for every one district that gained in in­come, two suffered income declines. In 1970, half of Chicago was middle class; today, according to a new University of Illinois study, that number is down to 16 percent. Meanwhile, the percentage of poor people has risen from 42 to 62 percent. Urban analyst Pete Saunders describes the city today as “one-third San Francisco and two-thirds Detroit.”

Even more prosperous core cities—San FranciscoPortland, and Seattle—are increasingly plagued by social dissolution and rising homelessness. Richard Florida’s most recent research suggests that “urban crisis” conditions—wage inequality, income inequality, eco­nomic segregation, and unaffordable housing—are most pronounced in “superstar” cities, such as Los Angeles, New York, San Francisco, San Diego, and Chicago.

Allan Mallach, in On the Edge: America’s Middle Neighborhoods (2016), points out that many of the middle- and working-class neigh­borhoods that long have served as the ballast and supplied the work­force for a diverse urban economy are systematically being undermined. Teachers, firemen, and police officers struggle to afford homes in many American cities, according to a study from Trulia. This pricing-out also applies to many skilled blue-collar professions like technicians, construction workers, and mechanics. Inclusive eco­nomic growth is now all too rarely found in American metropolitan areas, and virtually never in the most elite.

The New Urban Politics

The shifting demographics of cities have fostered a new political reality that could further hamper urban growth. When the urban revival first began to gain steam in the 1990s, many cities were governed by moderate, pro-business Democrats or even Republicans: Giuliani and Bloomberg in New York, Richard Riordan in Los Angeles, Bob Lanier and Bill White in Houston, even Frank Jordan in San Francisco and, later, Rahm Emmanuel in Chicago. These mayors were largely elected by middle- and working-class families, the traditional bastions of the city economy, and with the support of the local business community.

To be sure, city dwellers have historically voted more liberally than their rural or suburban cousins, but demographic trends are exacerbating the leftward impulse. Simply put, the cities that could elect a Giuliani or a Riordan no longer exist. As the middle and working classes have shrunk, urban politics has moved steadily to the Left.

Contrary to the narratives presented in the media, however, this is hardly a revolt of the masses. Indeed, the leftward shift has oc­curred amidst declining public participation. In fifteen of the thirty most populous cities in the United States, voter turnout in mayoral elections is below 20 percent. One-party rule, as one might expect, does not galvanize voters. In Los Angeles, the 2013 turnout that elected progressive Eric Garcetti was roughly one-third of that in the city’s 1970 mayoral election. Garcetti’s 2017 reelection boasted a similarly small turnout.

What this shift most accurately reflects is the superior organization and motivation of relatively small bands of progressive voters. For example, Alexandria Ocasio-Cortez’s primary victory came as the result of some 16,000 votes out of a total Democratic registration of almost 215,000.

Ocasio-Cortez’s victory reflected the new urban demography. She won not by sweeping the proletarian masses, or the Latino or African-American areas, but districts dominated by white, wealthier, and better-educated hipsters. This class is gradually re­placing work­ing- and middle-class voters in many cities, whose numbers in inner-city areas have declined, according to Brookings, to 23 percent of the central city population—half the level in 1970.

The new urban politics, notes the University of Chicago’s Terry Nichols Clark, revolves around different issues than those that moti­vated the traditional middle class. Largely single and childless, many current residents are not directly afflicted by the poor state of city schools, relieving progressives from having to confront politically powerful and usually left-leaning teachers’ unions. The new coin of the realm, besides the incessant virtue-signaling, tends to be good restaurants, shops, and festivals, not child-friendly parks and family-oriented stores. Sometimes even crazy notions—such as allowing people to walk through the streets of San Francisco naked—are tol­erated in a way that no child-centric suburb would allow.

These demographic trends are creating an increasingly homogeneous political culture. In 1984, for example, Ronald Reagan took 31 percent of the vote in San Francisco, and 37 percent in New York. He carried Los Angeles. By 2012, a Republican with a more moder­ate history could not muster 20 percent of the vote in San Francisco. And Mitt Romney lost Los Angeles by more than a two-to-one margin, while garnering barely 20 percent in all New York boroughs except less dense Staten Island. In 2016, Trump did just as badly and in some places worse.

This creates a new challenge. Promoters of the inner-city renais­sance expected a happy marriage between progressive politics and big business. But tensions between the two are rising. Even before being booted out of New York, Amazon tangled with Seattle’s city council, which demanded that Amazon and other tech giants pay to alleviate homelessness and housing shortages. In Seattle, Amazon CEO Jeff Bezos, responsible for nearly 20 percent of the city’s office space, fought back by using his employer leverage in America’s larg­est “company town.” When push came to shove, he could threaten to undermine the core city’s entire economy in ways reminiscent of a mill-town company boss in the early industrial revolution.

As it is, perhaps wary of the new political environment, Amazon is choosing not to fill a new downtown high-rise under construction and will reportedly focus its growth in the edge city suburb of Bellevue. Other large tech announcements, such as Apple’s creation of its second-largest employment center with more than six thousand em­ployees—roughly half the size of the company’s spaceship headquarters in Cupertino—is in less costly suburban Williamson Coun­ty outside Austin. Significantly, the Texas office houses the critical hardware engineering division.

Radical politics could accelerate this process. Oligarchs may have sought to position themselves as loyal followers of the Left’s party line on issues of racial diversity, trans-awareness, and feminism, but all this virtue-signaling is unlikely to placate socialists like Ocasio-Cortez, whose political cachet rests on her commitment to the view that “a system that allows billionaires to exist alongside extreme poverty is immoral.” The Green New Deal may sound consistent with the rhetoric of many prominent billionaires, but one must wonder what the impact of ever higher wealth taxes and ultra-expensive energy on electricity-consuming tech will be. On the other hand, as prices rise and economies struggle, those in poverty, especially minorities, often pay the highest price. There’s not much room for either the swashbuckling capitalist or the aspirational poor in the envisioned socialist ecotopian commonwealth.

The Limits of Gentrification

The rise of progressive urban politics also reflects tangible economic realities. Chicago’s Rahm Emmanuel characterizes the high rents and costs associated with gentrification as a “tsunami” spinning out of control, dampening enthusiasm for continued economic development among his likely successors. Critics of gentrification are particularly concerned by the impact of outside investment and tax breaks for large companies and developers, along with targeted policy interventions, such as tax-increment financing, subsidized arts districts, sports stadiums, or urban-renewal projects, as in Portland, which typically depend on the exercise of eminent domain.

Rather than experiencing a landscape of opportunity, young progressives in major urban areas are seeing their incomes drained by rising rents and house prices. Since 2010, a study of the New York market shows that rents have risen at twice the rate of incomes. Overall, according to Zillow, for workers between twenty-two and thirty-four, rent costs claim upwards of 45 percent of income in Los Angeles, San Francisco, New York, and Miami, compared to less than 30 percent of income in metropolitan areas like Dallas–Fort Worth and Houston. The costs of purchasing a house are even more lopsided: in Los Angeles and the Bay Area, a monthly mortgage takes, on average, close to 40 percent of income, compared to 15 percent nationally.

Like medieval serfs in preindustrial Europe, America’s new gen­eration, particularly in some of the superstar cities, seems increasingly destined to spend their lives paying off their overlords, while saving little for their own futures. This explains much of the socialist rage that is au courant even among the very people—like coders in San Francisco and Seattle or fledgling New York professionals—who would seem natural beneficiaries of capitalist excess.

No Place for the Working Class

The bitter resentment felt by the working class and poor may prove even more destabilizing. Urban analyst Aaron Renn suggests that many pro-gentrification policies implicitly promote “driving blacks out” in favor of more affluent, better educated, primarily white and Asian residents. Some cities with the fastest gentrification rates, according to, have undergone dramatic displacement of their poor and minority populations. Washington, D.C., long cele­brated as Chocolate City, has seen its African-American population share drop substantially. In Portland, 10,000 of the 38,000 residents of the historic African-American section, Albina, have been “pushed” elsewhere.

The economic focus in many cities—centered on high-tech jobs or “executive headquarters” that employ only elite workers—seem unlikely to create opportunities for poor or working-class residents.  One can appreciate the economic benefits that firms like Uber, Lyft, Salesforce, and others have brought to San Francisco and other tech-oriented cities. But this also has engendered a neo-Dickensian reali­ty: sky-high housing prices, widespread homelessness, displaced mi­norities, and a rapidly shrinking middle class.

Consider that there are now more drug addicts in the city of San Francisco than high school students, and there is so much feces on the street that one website has created a “poop map.” Rising rents have obliterated that city’s cherished bohemian culture and hastened a rapid decline in the minority population, both in the city and across the tech-dominated Bay Area. In 1970, 96,000 African Ameri­cans lived in the city of San Francisco; today, 46,000 make their homes there, constituting less than 5 percent of the city’s population. At the same time, the city’s population has increased by nearly 175,000. More than half of the Bay Area’s lower-income communities, according to a recent UC Berkeley study, are in danger of mass displacement.

These same conditions apply in the far more proletarian city of Los Angeles, my home for over forty years. A lavish New York Times article recently lauded the growth of downtown Los Angeles without any reference to the area’s high vacancy rate and poor long-term market conditions. The savvy Chinese real estate website Mingtiandi predicts that downtown LA is heading for “an imminent glut of luxury condos.” The same Times piece makes only passing reference to the massive homeless population now spreading to many surrounding areas. It also neglected the fact that the downtown area is now overrun with rats and suffers an outbreak of typhus, including, appropriately enough, at City Hall, where a growing number of officials are being investigated for corruption.

In truth, despite a much praised art scene and often gushing media treatment, downtown LA’s revival has done little to improve the overall region. The LA basin has been losing jobs that pay more than $75,000 annually for a decade and now suffers among the high­est levels of housing overcrowding and poverty, the least af­fordable housing, the lowest homeownership rates, and the second-largest concentration of homeless in the nation.

Given these realities, it’s not surprising that would-be gentrifiers face increasing and even violent opposition. In Los Angeles, gen­trification efforts have sparked grassroots rebellions in the historically African American Crenshaw district, Chinatown, South Los An­geles, and, most especially, East Los Angeles. In 2015, a real estate firm littered LA’s Arts District with a “Why Rent Downtown When You Could Own in Boyle Heights?” flyer. Realtors promoted a bike tour through the “charming, historic, walkable and bikeable neigh­borhood.” After the realtor received messages like “Stay outta my hood” and “I hope your 60-minute bike ride is a total disaster,” the event was canceled.

Much of the concern is tied to changes in local zoning ordinances, notes Koreatown attorney Grace Yoo, all favoring developers who built swanky housing out of reach for local residents. Nor is this policy helping to retain LA’s beleaguered middle class. Nearly one in five LA census tracts have seen drops in homeownership since 2010, and Los Angeles County continues to suffer mounting out­migration. Nice restaurants, entertainment, and sports venues may be considered “cool,” and win the plaudits of urban tastemakers, but they can’t substitute for affordable housing, higher-wage jobs, and better schools, the proven ways of making life better for residents.

Whither the Urban Future?

The present situation is not sustainable. History shows us repeatedly that huge income gaps and a sense of diminished opportunity can lead to disorder, alienation, and a breakdown of the civic culture. Substantial underemployment and economic insecurity can undermine social stability. Ancient Rome, industrial-era London, Man­chester, St. Petersburg, and Shanghai, for example, all experienced revolts and, in some cases, revolutions led by the neglected classes bereft of hope.

More than a century ago, Lincoln Steffens chronicled in The Shame of the Cities the rampant corruption of the Gilded Age’s political machines, a “record of shame” that undermined the basic tenets of good governance and democracy. Today, the smoke-filled room and bags of cash may be less evident, but our cities re­main shameful in how they fail their residents, and the basic values of democracy. There is clearly a need for a serious reassess­ment of governance in places like San Francisco, Washington, and New York, which all stand among the worst-run cities in the country.

The situation remains far from hopeless, however. Contrary to the claim that our cities are “built out,” they contain large tracks of undeveloped land. The South Dallas neighborhood has an estimated 160 thousand acres, larger than the land mass of Manhattan, of unde­veloped land. Similarly, there are vast areas of vacant (non-beach) and potentially buildable land in Los Angeles and Orange County, ac­cording to the regional planning agency database. Large tracts of underutilized land—7,559 acres of vacant land, or 11.8 square miles, 4.3 percent—can also be found in the city of Chicago.

These areas could provide the locale for new middle-class neigh­borhoods and businesses. Our cities do not need more luxury,  high-density housing, such as the “pencil” high rises in Manhattan, ap­pealing to the ultra-rich and to foreign investors, who often don’t even occupy their units. Nationwide, as much as 80 to 90 percent of new housing product is luxury-oriented; what is really needed is more affordable mid- and low-density housing preferred by families. Current national data suggests that single-family houses are at least one-third less costly to construct than multifamily units.

New approaches to transportation also are needed. Bus service, critical to poor and working-class residents, has often been reduced, even as rail service, which seeks to serve more affluent riders, ex­pands. (Some cities have invested in passenger rail lines in an effort to reduce auto use, but transit market share has either stagnated or declined, a fact that rarely gets mentioned in reportage.) Public infrastructure spending on rail or implementation of urban-contain­ment policies does succeed in driving up the price of land, increasing economic pressure on lower-income residents who were better served by the plebeian bus.

A renewed working- and middle-class orientation should also extend to jobs. Rather than focus exclusively on the high-end pro­fessions, and the subsequent, largely low-wage service sector they re­quire, eco­nomic development needs to be aimed at creating mid­dle‑skill, good-paying jobs, including those provided by local entre­preneurs. For example, manufacturing, artisanal production, and cus­tomer support provide good opportunities for families. There also needs to be a thoroughgoing reform of licensing practices, which serve to keep working-class people away from opportunities in many service and light industrial fields.

Of course, getting inner-city residents ready for these jobs re­quires changes in the education system as well. Too many cities, like Los Angeles and Chicago, boast first-class higher education re­sources, and even some excellent public schools. But in South LA, more than fifty schools ranked among the state’s lowest 5 percent in 2015. Many of these students, perhaps unsuited for college, could be trained for middle-skilled jobs, and could escape a school environment where nearly 90 percent have had someone killed within walk­ing distance.

Cities need to shift from their exclusive current focus on tourism, media, and tech, which creates many high- and low-end jobs but few in the middle. The imperative is not to increase subsidies for favored companies, as New York tried to do with Amazon, but to address the basic conditions—taxes, public safety, schools, housing—that ultimately determine economic competitiveness. No amount of sub­sidy can make up for these failings. The road to enhanced growth lies instead in addressing the very issues most urban politicians like to avoid.

For most of the twentieth century, America’s cities incubated opportunity and produced upward mobility. The fundamental ap­peal of cities and their ability to attract diverse workforces has not disappeared. It’s time to forge an urban renaissance that transcends hype and embraces the interests of not only high-paid knowledge workers but middle- and working-class residents as well. We need to restore Descartes’s notion of cities providing “an inventory of the possible,” places that propel residents not outwards or downward but towards the achievement of their aspirations.

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A changing climate could make borrowing costlier for cities and states Tue, 01 Oct 2019 07:16:42 +0000 Municipalities rely on access to credit; some are starting to ask what that looks like when risks (and tides) rise.

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Someday soon, analysts will determine that a city or county, or maybe a school district or utility, is so vulnerable to sea-level rise, flooding, drought or wildfire that it is an investment risk.

To be sure, no community has yet seen its credit rating downgraded because of climate forecasting. And no one has heard of a government struggling to access capital because of its precarious geographical position.

But as ratings firms begin to focus on climate change, and investors increasingly talk about the issue, those involved in the market say now is the time for communities to make serious investments in climate resilience — or risk being punished by the financial sector in the future.

“We look not just at the vulnerability of state and local governments, but their ability to manage the impact,” said Emily Raimes, vice president with Moody’s Public Finance Group. “While we’ll be looking at the data on rising sea levels and who may be more vulnerable, we’ll also be looking at what these governments are doing to mitigate the impact.”

Moody’s has been especially vocal about its climate change concerns. The firm has issued numerous papers assessing climate risk, and two months ago it purchased a majority stake in Four Twenty Seven, a climate-risk data firm.

Emilie Mazzacurati, Four Twenty Seven’s founder and CEO, said that the bond sector’s attention to the issue should prompt local governments to make it a priority. “It creates an incentive for them to be better prepared, because it’s going to cost them money if they don’t.”

But some worry that punishing places for their susceptibility to climate change will just make it more difficult for them to finance the infrastructure improvements that might protect them.

“Nobody has yet been penalized for having a bad environmental policy or practice or system,” said Tim Schaefer, California’s deputy treasurer for public finance. “I don’t know how much longer that’s going to go on. I’m assuming not much longer.”

Assessing Florida’s future

Governments large and small rely on the $3.8 trillion municipal bond market for much of their infrastructure work. When officials want to build a highway or a school — or a seawall or an emergency operations center — they often issue bonds, bringing in the money needed to complete the project. Investors are repaid with interest over a period that can run for decades or more.

About two-thirds of infrastructure projects in the United States are paid for by municipal bonds, and more than 50,000 states, local governments and other authorities have issued bonds to finance their work.

Governments pay higher interest rates on those bonds when their credit ratings are low. Firms such as Moody’s Investors Service and Standard & Poor’s Financial Services issue the ratings assessments.

“Investors are in a position of demanding a higher return when they see greater risk,” said Kurt Forsgren, managing director of S&P Global Ratings.

Municipal bonds are considered a conservative investment, with a current default rate of around 0.3%, according to Matt Fabian, a partner at Municipal Market Analytics. To date, the bond market has done little to reflect that the risk may be increasing.

“There is almost no impact on muni bond prices with respect to climate change vulnerabilities. Prices do not acknowledge the risk in climate change,” he said. “Most investors believe that [climate change] is going to start affecting the market right after their own bonds mature.”

As more investors and firms study the risks, however, that might change.

“We are about a year away from climate change beginning to affect the muni market — a little,” Fabian said. “Changes on the investor side are going to happen first, [credit] ratings will come second, and issuer behavior will be a distant third.”

Some investors already have begun to factor climate change into their decisions. Eric Glass, a portfolio manager with AllianceBernstein, said his portfolio opted to steer clear of a recent three-decade bond in the Florida Keys, which is facing rising sea levels.

“What does [the Florida Keys] look like in 30 years?” Glass said. “I don’t know. But I know it’s not going to look like what it looks like today. That is a tough calculus to make, and we’ve decided not to take it.”

David Jacobson, vice president of communications for Moody’s Public Finance Group, called a downgrade over climate projections a “what-if type of thing.” Moody’s ratings are based on what its analysts expect a government’s creditworthiness to be in the next 12 to 24 months, he said, even though the bonds they issue can run for decades.

“The things that are happening right now or in the next 24 months weigh a whole lot more than things we think will happen in 15 to 20 years,” said Lenny Jones, a managing director at Moody’s. “We’re not scientists.”

Credit-rating firms have always acted conservatively, said Justin Marlowe, a professor at the University of Washington who studies public finance. To some critics, that reluctance to downgrade pre-emptively is leaving the market unprepared for the onslaught of climate effects that so many local governments will face.

That’s the conundrum facing the municipal bond market right now: If the market fails to be proactive about future risks, it could lead to billions in ill-fated investments in communities at the forefront of climate change. But making it more expensive for governments with environmental liabilities to borrow money could prevent them from making the improvements needed to strengthen their infrastructure.

And just because a city is likely to be struck by sea-level rise or wildfire doesn’t necessarily mean it will default on its bonds. Further effects like crop yields and population shifts — and their impact on a tax base — could prove even harder to project.

“It’s a pretty big step from ‘we have economic impacts’ to ‘this is going to affect their long-term ability to repay their bonds.’ There’s a really big difference,” Mazzacurati said. “[Ratings firms’] focus is really about counties who repay their debt. That’s it. There can be really important impacts that are not going to be reflected in the bond rating, and that doesn’t mean the bond rating is off.”

Disaster fallout

So far, the few climate-related credit downgrades have come after specific disasters. New Orleans and Port Arthur, Texas, experienced credit downgrades after major hurricanes. And after a fire nearly destroyed Paradise, California, last year, the pool of pension obligation bonds it was a member of saw its credit downgraded.

As New Orleans rebounded, its credit improved. The city adopted a resilience strategy, bolstered its levee system and pursued other projects, such as turning green space into water reservoirs during periods of flooding. Today, the city sees its biggest climate threat as extreme rainfall, which has increased in frequency in recent years and flooded parts of the city.

Leaders in New Orleans are asking voters to approve $500 million in new bonds, which would pay for infrastructure improvements such as the replacement of outdated pipes, as well as other goals like affordable housing. City officials say it shows New Orleans is “doubling down” on its infrastructure program.

“The environment is changing. More water’s coming down in a shorter period, and we have to respond to that,” said Norman White, the city’s chief financial officer. “Our first responsibility is to the citizens of New Orleans. Fortunately, that lines up with investors.”

Coastal cities across the country are building seawalls to stave off rising oceans. Others are elevating roadways to prepare for more frequent flooding. Some are requiring sturdier new construction and retrofitting existing buildings to withstand severe weather events. Communities in drought-prone areas may focus on projects such as water storage, while those with flooding concerns must fortify their sewage infrastructure.

Last year, Moody’s surveyed the 50 largest U.S. cities; 28 responded. Among them, they had 240 climate resilience projects, totaling $47 billion. Some 60% of the projects were to combat flooding.

Florida’s Miami-Dade County has been praised by analysts for its infrastructure investments focused on climate preparedness. Ed Marquez, the county’s deputy mayor, said future financing is a “concern,” but officials are trying to address that with capital plans focused on dealing with the changing climate.

“This is a many-year process as we fix our infrastructure, as we add new infrastructure, as new science comes on board,” he said. “Miami is still growing. People are still coming. Investors are buying our bonds. We’re telling them what the odds are, but it’s odds that they’re willing to play.”

Statewide, Florida remains in good shape creditwise, despite the challenges many of its communities are facing. Ben Watkins, the state’s director of bond finance, said that’s likely to continue, even amid hurricanes and rising sea levels. Even the most devastating hurricane seasons have ended up being a “blip on the radar” in terms of Florida’s credit health, he said. But concern remains for smaller governments within the state.

“People are dying to come to Florida and coming to Florida to die,” he said. “Until that changes, we’ll have the economic engines to be able to access credit.”

Cities with climate change risks should follow Florida’s lead and borrow now for local projects, said Fabian, the analytics researcher.

“As investors get smarter about climate change risk, it will become more expensive for governments with the largest need to borrow,” Fabian said. “Their costs to borrow could certainly be higher. Acting earlier is almost always cheaper.”

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Inclusionary zoning: A growing practice that hurts more than it helps Mon, 23 Sep 2019 22:57:57 +0000 Letting developers build denser communities in exchange for affordable housing sounds like a good idea. But there's evidence it may not work.

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Housing affordability is a serious problem across the country. Nationally, most households in the lowest income quintile are extremely rent-burdened, meaning that they spend half or more of their income on rent. In coastal cities, where land-use regulations severely limit housing construction, housing costs are a problem for middle-income households as well. In the Bay Area, even households earning $100,000 will struggle to find housing that costs 30 percent or less of their income in most zip codes.

In response to these affordability challenges in both high- and low-cost cities, local governments have adopted inclusionary zoning programs. These policies require or incentivize developers to designate a portion of new housing units as affordable for households making low or moderate incomes in exchange for density bonuses, allowing developers to build more market-rate housing than they would otherwise be allowed. But has inclusionary zoning actually improved housing affordability?

Inclusionary zoning programs vary widely in their implementation. While most offer density bonuses to fully or partially offset the cost of providing below-market-rate units, not all do. Some programs require developers to provide income-restricted units as a condition of building new market-rate housing, while others offer density bonuses in exchange for the optional provision of income-restricted homes. In some jurisdictions, inclusionary zoning units must be affordable to low-income residents (those earning less than half of their region’s median income) while in others, inclusionary zoning units are targeted to those earning the median income or even higher.

The term “inclusionary zoning” implies that the policy should alleviate the effects of exclusionary zoning. Exclusionary zoning includes rules that limit multifamily housing construction and mandate minimum lot sizes for single-family homes.

Exclusionary zoning restricts the number of households that can live in a jurisdiction, leading home prices to be bid up by those who can afford to pay them. Empirical findings indicate that rules that restrict new housing development are a key driver of high house prices that strain the budgets of households who make at least moderate incomes or higher for their region.

The density bonuses that inclusionary zoning programs include to offset the cost of providing below-market-rate units derive their value from underlying exclusionary zoning that prevents developers from building as much housing as they would under more liberal zoning. If inclusionary zoning density bonuses don’t fully offset the cost of requiring new development to include subsidized units, the policy may further exacerbate housing shortages, driving up prices for everyone who doesn’t receive a subsidized unit.

Inclusionary zoning is popular among policymakers for two reasons. First, it appears “free.” It produces affordable housing units without an outlay of tax dollars. Second, it allows policymakers to appear as if they’re adopting a pro-affordability agenda without reforming the exclusionary zoning that leads to high house prices in the first place. Policymakers should not pursue inclusionary zoning as an affordability strategy. Rather, policymakers who want to create an environment of housing stability for households of all incomes should pursue land-use liberalization (allowing for more abundant housing supply) along with subsidies targeted to those households that need them to afford market-rate housing.

Inclusionary Zoning in Action

At least 886 jurisdictions across the country have adopted inclusionary zoning programs. Inclusionary zoning is perhaps the most popular policy tool for attempting to improve housing affordability in the United States today. In policy discussions, mandatory and optional inclusionary zoning programs are often lumped together, but they can be expected to have different effects on housing markets. If the cost of providing affordable units under mandatory programs is not outweighed by the benefit of density bonuses for developers, the program as a whole will tax new housing development, resulting in less new construction. Optional programs can only increase new housing supply relative to the status quo if density bonuses make it worthwhile for developers to provide affordable housing.

Nonetheless, optional inclusionary zoning is not a path to broad-based affordability. If land-use policy allows new housing to be built at diverse price points in response to demand increases, developers will not participate in optional programs because their density bonuses won’t offer them value.

The value of density bonuses depends on many factors, including house prices and how much the underlying zoning restricts development. Their value will vary from neighborhood to neighborhood, increasing with land prices. In places where zoning severely restricts housing construction relative to what a freer market would provide, and house prices are high as a result, density bonuses will be very valuable. In contrast, where land-use policy allows developers to provide as much housing as is profitable, density bonuses will have no value, and inclusionary zoning programs will be a clear tax on construction.

I have studied inclusionary zoning in the Baltimore-Washington region. In this area, 15 jurisdictions have mandatory inclusionary zoning programs, and 8 have optional programs. Among those with optional programs, only Alexandria, VA, and Falls Church, VA, have produced any units. Relative to other jurisdictions with optional inclusionary zoning programs, these jurisdictions have high house prices, owing in large part to their otherwise exclusionary zoning and high demand for housing. Across the region, the median house price per square foot is $206. Among all those jurisdictions with optional inclusionary zoning, it’s $210 on average, but in Alexandria, it’s $361 and in Falls Church it’s $417.

High house prices and limitations on new housing supply make density bonuses highly valuable in Alexandria and Falls Church. Because these jurisdictions allow much less new housing than what developers would provide absent land use regulations, developers are willing to provide affordable units in exchange for providing more, very-high-priced market-rate housing units. In other jurisdictions with optional programs, underlying zoning is less binding, so density bonuses are an insufficient incentive for affordable housing construction.

Inclusionary zoning programs produce few units relative to the number of households who qualify for them based on their income. In his book Order without Design, Alain Bertaud reports that in New York City, with more than 8.5 million people, inclusionary zoning produced only 172 units per year in the program’s first 25 years. Other programs across the country have also tended to produce few units relative to the demand for them. A 2010 estimate finds that nationally, inclusionary zoning policies have delivered between 129,000 and 150,000 affordable units during the entire time they’ve been implemented.

The difference between the price caps on inclusionary zoning units and the prices of market-rate units is a key component in determining the size of the inclusionary zoning “tax.” In very expensive markets such as New York City, this difference may be very large. In the case of one new apartment building, subsidized rents range from $565 to $1,067, compared to unsubsidized rents, which range from $3,400 to $8,957. On a yearly basis, some inclusionary zoning tenants are subsidized by nearly $100,000. Bertaud explains, “The program is likely to have the same distributional impact as a lottery, rather than that of a social program aiming to provide affordable housing to low- and middle-income populations.”

Measuring the Effects of Inclusionary Zoning

Inclusionary zoning provides huge benefits to a small percentage of low- and moderate-income households. But its general effect on affordability depends on whether the inclusionary zoning tax is outweighed by the density bonuses many programs include—if it is, inclusionary zoning could lead to more abundant housing overall. Six studies have attempted to measure the effects of inclusionary zoning on jurisdictions’ new housing supply and house prices; four of these studies use data from California.

  1. Bento et al. find that inclusionary zoning causes prices to rise 2 to 3 percent faster in California for those jurisdictions that have adopted it, compared to what they could have expected without inclusionary zoning. They find that inclusionary zoning decreased single-family home starts but had no effect on multifamily starts. They also find that inclusionary zoning reduced the size of housing units relative to jurisdictions without inclusionary zoning.
  2. Tom Means and Ed Stringham find that inclusionary zoning programs drastically reduced overall housing affordability in the California jurisdictions that adopted them. They find that inclusionary zoning reduced housing supply by 7 percent and increased prices by 20 percent between 1990 and 2000.
  3. Ann Hollingshead also studied inclusionary zoning in California, looking at the effect of a state law that reduced the tax effect of inclusionary zoning by leading some jurisdictions to increase their density bonuses and to transition from mandatory to optional programs. She does not find that reducing the burden of inclusionary zoning programs led to a reduction in house prices.
  4. Schuetz et al. find that in the Bay Area, inclusionary zoning caused increased prices during strong markets but caused further price declines during times of broadly falling rents for the jurisdictions that adopted it, relative to what they could have expected without it. In the Bay Area they find no relationship between inclusionary zoning and new housing supply.
  5. In the same paper, Schuetz et al. estimate the effects of inclusionary zoning in the Boston region. They find that when jurisdictions adopt inclusionary zoning, doing so reduces housing supply and raises house prices, but only during periods of broadly rising house prices.
  6. Finally, in my study of inclusionary zoning in the Baltimore-Washington region, I find that mandatory inclusionary zoning has raised house prices more than 1 percent per year the program is in place, relative to what jurisdictions could have expected without it. Like Schuetz et al. find for the Bay Area, I find a price increase, but no effect on housing supply.

Of the six studies, four find that inclusionary zoning increases prices. Hollingshead finds no price effect, and Schuetz et al. find that it contributes to price increases during times of broadly rising prices but causes price decreases during times of falling prices in the Bay Area. On the supply side, three find that inclusionary zoning reduces the quantity of new housing, two find no effect, and one doesn’t examine supply effects.

All six of these studies examine the effect of inclusionary zoning on housing market outcomes taking these jurisdictions’ exclusionary zoning policies as a given. Under traditional zoning rules, localities restrict landowners’ rights to build housing, and typically they most stringently restrict the right to build the lowest-cost type of new housing—no-frills, multifamily apartments. Under inclusionary zoning programs, localities return some of these property rights with the condition that development includes subsidized units. Without a baseline of traditional zoning rules, the density bonuses included in most inclusionary zoning programs would have no value and inclusionary zoning would be a clear tax on new housing construction.

A Better Path to Affordability

Relying on new housing construction to provide subsidized units is not a strategy that can lead to more housing that’s affordable for more people. In cases where inclusionary zoning raises house prices generally, the costs of the policy fall hardest on the lowest-income residents who aren’t lucky enough to qualify for one of the units that have been designated as affordable. Repealing exclusionary zoning is a necessary step for achieving housing markets that serve low-income people well. Layering inclusionary zoning on top of the rules that stand in the way of new relatively low-cost multifamily housing will never produce housing markets that serve the majority of low- and moderate-income households well.

High and rising house prices are not a necessary feature of large, thriving cities. Historically, US housing markets served low-income residents with low-cost housing options, such as single-room-occupancy residences and boarding houses. These low-cost housing options have largely been banned through city zoning regulations. Beyond eliminating shelter designed to serve low-income people, almost all American cities have designated large swaths of their land as exclusively for single-family detached housing, walling out anyone who can’t afford the price of entry to expensive neighborhoods and jurisdictions. Liberalizing land use policy can allow anyone making at least a moderate income to find safe, market-rate housing that they can afford. Today, cities from Houston to Tokyo show that this is possible.

In regions where housing is allowed to be built in response to increasing demand, new construction can be built that’s affordable to households making close to median incomes, but not always for low-income residents. Over time, though, in a market where new construction is reliably delivered year after year, housing stock “filters” down as wealthier households move to newer units, leaving older homes available to the less wealthy. One study finds that the filtering process reduces inflation-adjusted home prices by 1.9 percent per year. A new house that costs $200,000 today can be expected to cost $153,000 in 15 years in today’s dollars. Allowing for low-cost housing typologies, including low-rise multifamily buildings, mobile homes, and the subdivision of existing homes into multiple units allows the filtering process to start at a lower price point and to work at a faster rate.

Even with land use policy that permits abundant housing construction, however, some low-income households will struggle to afford housing. Housing security for these households requires subsidies, nonprofit housing, or government-built housing. Subsidies for these households should be funded by tax dollars, not through taxing new housing construction with inclusionary zoning.

Redistributive policies, including housing vouchers or government housing, are more effective and feasible at the federal level rather than the local level, where the tax base is smaller and large tax increases may cause residents to leave for lower-tax jurisdictions. But the limits on local governments’ potential to finance housing support does not mean that they should pursue inclusionary zoning in the absence of federal support. Rather, local governments should focus on doing what they can to reform exclusionary zoning rather than relying on it to give value to density bonuses. By giving the appearance of “doing something” to address housing affordability, inclusionary zoning gives local officials political cover while they fail to implement zoning reform or fund real housing support.

One argument in favor of inclusionary zoning over other housing supports is that inclusionary zoning leads to low- and high-income residents living in the same building. Research shows that low-income children benefit from moving out of high-poverty neighborhoods. But these benefits are found at the neighborhood level, not at the building level. Low-income residents who are given vouchers that allow them to choose where to use them offer the benefit of allowing low-income people to live in cities and neighborhoods that offer economic and educational opportunities and mixed socioeconomic communities.

Reforming exclusionary zoning is a clear win for housing affordability, but it’s extremely politically difficult. Some have argued that inclusionary zoning reduces opposition to new construction because neighbors support affordable housing, if not market-rate housing. This theory is not borne out in any empirical findings. While not all empirical studies of inclusionary zoning find that it reduces housing supply, none find that it increases it.


Inclusionary zoning, a policy intended to address the problem of households struggling to afford housing, may actually increase house prices generally. No studies of its effects indicate that it increases housing supply or contributes to broadly lower prices. It benefits a small portion of low- and moderate-income households rather than targeting aid at the households that need it most.

Serious improvement to housing affordability requires substantial land use policy reform that will allow significantly more housing construction, including low-cost housing typologies. Under land-use policy that allows new housing to be built in response to increasing demand, inclusionary zoning would be a clear tax on construction because density bonuses wouldn’t provide an offset to developers.

Even under vastly liberalized housing policy, some households will struggle to afford shelter. But taxing housing construction with the goal of creating more abundant housing for people of relatively low income levels doesn’t make sense. Rather than using inclusionary zoning to appear as if they’re pursuing housing affordability, policymakers who are actually concerned about affordability should reform exclusionary zoning and provide targeted support to those households that need it.

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