Wednesday, July 2, 2014

Going Driverless, or Not

A heated debate over the significance of Google's so-called driverless car has been raging over the past several weeks. On one side of the aisle are those hailing it as a "revolutionary" technology that will dramatically alter personal mobility to the point of  eliminating private car ownership. On the other side are those who reject the premise that the technology represents a groundbreaking shift, instead characterizing it as merely a "slightly different variation" on current transportation modes that is "so incremental that it epitomizes our national short-sightedness, and failure of imagination, when it comes to improving mobility in America."

It's difficult to imagine two more divergent positions on the significance of a new technology. Although I'm wary of attempting to forecast the future, knowing how likely it is that any predictions are likely to appear foolish or worse some years down the line, there are enough parallels, current and historic, that I think some general observations can be made here without wandering too far off into pointless speculation.

The human-driven motorized car, itself a recognizable variation on the 5,000 year-old horsecart, must have seemed like a rather mundane idea in the late 19th century — almost a throwback to horse-and-carriage travel that the railroads had put out of business — compared to steam railways, attempts at early aircraft and even the bicycle, which represented the first instance in history of a fast yet human-powered wheeled vehicle. The name for the early cars reflected this mindset, which some have used to argue that driverless cars are also being underestimated, as in this blog post:
"One reason I will eventually move away from my chosen name for the technology — robocar — along with the other popular names like “self-driving car” is that this future vehicle is not a car, not as we know it today. It is no more a “driverless car” than a modern automobile is a horseless carriage. 100 years ago, the only way they could think of the car was not notice there was no horse. Today, all many people notice is that no human is driving. This is the thing that comes after the car."
Could it be that these early observers were right, though? The very early car was slower than the steam trains, and its primary breakthrough was economic: by moving the horse out of the picture, and substituting the combustion of an oil, it became possible to maintain a personal carriage without the the constant care and expense needed for keeping horses. The earliest car ads emphasized the savings in cost, care and anxiety from not having to keep a horse rather than advantages in speed. It took several more decades until the velocities enabled by combustion power and paved highways could be fully realized.

By contrast, the driverless car offers no such economic advantage to the individual driver, since he is already donating his own labor to operate the vehicle. In implicit recognition of this fact, the claim is made that the most significant consequence of this invention will essentially be to reduce the cost of taxis to the point that renting a car on a trip-by-trip basis actually becomes cheaper, and no less convenient, than owning one. In other words, a driverless car network, for all the technology it requires, is really a simple labor saving device, which like the very early car, allows an existing function to be performed more cheaply but otherwise not much better: certainly driverless cars will not enjoy the kind of speed advantages over human-driven cars as the autos of the 1920s gained over horse-drawn carriages. In this sense, it is functionally equivalent to a massively subsidized (or, perhaps, completely unregulated) human-driven taxi service, which, in theory, could be funded for no more than the amounts currently spent on private car ownership, and certainly with less technological difficulty.*

As it happens, non-subsidized transit systems of this sort already exist, and have existed for decades, in many cities of the developing world where labor is cheap, car ownership is low and public transit options are limited.

Auto rickshaw in Bangalore and Xe Nom drivers in Hanoi. Wikipedia and Flickr/Gavin White
These transit systems, based first on human-powered rickshaws and later auto rickshaws, motorbikes and pedicabs, provide both point-to-point and last-mile transport, essentially substituting for private vehicle ownership.  However, the tendency over time, as a country grows wealthier, is not for auto rickshaws to become ubiquitous, but for public transit and private vehicles (motorbikes or cars) ownership to supplant them. This is certainly due in part to the rising cost of labor, but must also be due to the inherent comfort and convenience of owning one's own vehicle in low-density areas and of the geometric efficiencies of transit in a dense city (using Jarrett Walker's terminology). The dense city of taxi-based transport tends to be a traffic nightmare. The low-density city, on the other hand, generally uses taxis in a limited supportive role.

(An exception might be the dense but mid-sized city of the developing world, such as Jaen, in Peru, a country that is notorious for the use of largely unregulated, and therefore quite cheap, taxi and bus systems to supplement inadequate public mass transit systems, such as in the far larger capital of Lima):

Motorbike-taxis on the streets of Jaen, Peru. Exploration of the city on Streetview shows a
largely taxi-based transportation system, supplemented with private motorbikes. There are
only a handful of automobiles visible here and there, mostly utilitarian in nature. A far cry
from the SUVs of American streets, these vehicles actually seem designed around the
size and weight of human beings, and create a steady but by no means congested flow of traffic.
For driverless cars to reverse this durable observed trend, and actually encourage people to dispose of their cars, we'd need to believe that the cost savings of driverless taxis could outweigh the inevitably increased inconvenience of not having personal ownership (including ownership of a driverless car) for most or all people. The problem with this scenario, though, seems to be twofold, as stated before:
  • In dense urban areas, very cheap and convenient taxi service may overwhelm highways and city streets, as it does in Hanoi or Mumbai or many other cities of the developing world, negating that same convenience and worsening the quality of urban life (miles driven are expected to increase with a "robotaxi" system, according to one recent study, and this may underestimate the number of transit riders, cyclists and pedestrians who switch to driverless taxis). If the number of taxis is limited, as in most cities in developed countries today, then this will partially negate the cost advantage of lacking a human driver and will certainly hinder convenience, illustrating again that this is as much an issue of restrictive licensing and geometry as it is technology. Arguments on behalf of robotaxis appear to assume that their numbers will not be limited by law.
  • In suburban and rural areas, sufficiently frequent robotaxi service may be difficult to provide, yet the cost of storing one's own personal vehicle will continue to be minimal or nonexistent while providing total convenience. Additionally, suburban errands often require multiple stops spread out over a large area due to car-based urban design, which will either require tiresome and inconvenient re-hiring of cars for each leg and practical difficulties with transferring purchased goods, or else cars will need to 1) park at each destination or 2) cruise around aimlessly while waiting, either of which would lessen certain of the the advantages over individually owned vehicles. 
There is one other issue which I raise by way of a insightful quote from Neil Salmond's article on robotaxis: "Once you own a car - and so mentally discount the cost of insuring, maintaining, fuelling the car - then every trip looks free." Although I agree with this, it also suggests a very difficult path toward weaning people off private car ownership. A privately-owned car is immensely versatile. It can handle short trips, medium-length trips and cross-country treks. It is always there and ready to go at a moment's notice, at times of high and low demand alike, with no questions asked. For many it is a personalized space as much as one's own bedroom or office, and doubles as a mobile storage unit. The opportunity cost of giving up all this "free" travel, and its associated comforts and conveniences, may therefore be much higher than might be suggested by a pure dollar-and-cents comparison.  Further, once the car is owned, whether it be human-driven or not, the incentive to use a taxi system at all is much reduced for the very reason Neil describes. No matter how reasonable a robotaxi trip might be, it cannot beat the perception of "free."
Whether or not robotaxis can succeed at large scale in American cities, there are a few areas where a privately-owned driverless car could provide an unmitigated social and economic good. For those unable to drive and without access to reliable transportation, such as young people or very elderly living in car-dependent areas, owning such a car could be a lifeline to mobility and independence. That would have the potential to remedy one of the greatest inequities of a car-based transportation system (though certainly not the only one). It's also tempting to imagine, as Neil suggests, driverless cars ferrying commuters to rail stations, and thereby opening commuter parking lots for redevelopment, and it's certainly possible, or even likely, that driverless cars could become the default ownership option. A cheaper, but non-revolutionary, taxi system might not be such a bad thing, especially for households that need access to a car but only rarely. And what of the implications of driverless buses, and driverless car sharing? As an incremental step that expands transportation options while lowering costs, it has promise.

The vision of a fleet of driverless taxis completely supplanting car ownership, however, seems to encounter significant practical difficulties. Many vehicles on the road must remain individually owned in any event (such as vehicles serving a particular business).  With the abundant free parking already prevalent in the United States, one of the greatest cost benefits of a taxi system — eliminating the need for costly local storage — is greatly lessened. In other countries or in certain US cities, this advantage might be more appreciable, but then, a city that is sufficiently dense will, or eventually will, offer alternative transportation options that do not require storage, either. In the case of this technology, only time will tell.

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*Let's consider that for a second. One study has estimated that a fleet of driverless taxis could dramatically reduce car ownership, on the order of one driverless taxi replacing eleven owned vehicles. Given car ownership in the US of 800/1,000 population, this suggests a reduction in car numbers to only 72/1,000, or approximately the same number seen on the roads of Mongolia.

Now, with the savings from not having 728 owned cars, at an average of $8,800 per year per car, a surplus of $6,400,000 per 1,000 population is generated, or approximately $90,000 per remaining car just based on eliminating ownership. Even if we generously assume $30,000 per year per car to account for gas, heavier maintenance and more frequent car replacement, that still leaves $60,000 for driver wages even before accounting for any per trip fees levied on riders. Even a modest fee of, say, $2 average per ride, could generate tens of thousands of additional dollars per year. In other words, replacing private car ownership looks, at least on a back-of-the-envelope calculation, like it would be financially feasible right now, not at some uncertain date in the future.

This still underestimates the savings, however, since by eliminating private car ownership, and turning the task of piloting cars over to professional drivers, we both eliminate the need for expensive parking minimums and may reduce the economic cost of crashes (estimated at $871 billion each year nationwide, or $900/person in economic losses).

Furthermore, such a network would presumably make many local bus systems obsolete or uneconomic (though probably not regional bus or rail systems), so that spending in these areas could be transferred to supporting a public network of taxis, offsetting the additional tax that would need to be levied to fund the system. Although the retention of human drivers creates a major added expense, drivers can be expected to perform some duties (refueling/recharging/basic cleaning and maintenance) that would otherwise need to be done by separate employees, and the human brain offers a proven technological fix to many of the difficulties still encountered by driverless cars.

Sunday, June 1, 2014

The Problem with Schools and Housing Supply

In an earlier post, I discussed how the population of young adults and young children is rapidly declining in the wealthy suburbs of New York City, a trend previously noted by the New York Times.  Although I alluded to high housing costs being an important factor in these changing trends, I failed to mention an absolutely crucial element that is driving much of the opposition to increasing housing supply: school funding. This factor is so important that is helps explain not only regional patterns in the New York area, but the NIMBY attitudes prevalent throughout much of the United States that have been so heavily covered in recent books and articles.

While it's often pointed out that the American system for education funding creates great disparities both between states and among school districts within states, what's less often noted is that the same locally-slanted funding system greatly contributes to and reinforces opposition to increasing housing supply. A glance at the particulars of the funding system makes it immediately obvious why this should be the case. Crunching the numbers for the city of Rye, in Westchester County, the Zoning Plan blog estimates that:
"While it’s true, higher assessments on large new homes provide more school tax revenue, there’s reason to believe high assessments may also increase turnover and that this, in turn, creates a larger school tax deficit. ... [A] large home assessed at $50,000 has more than double the cumulative school tax deficit of a smaller home assessed at $25,000."
I can't vouch for the accuracy of these particular figures, but there's no doubt that the typical state's funding system, which places around 44% of the cost of funding local schools directly onto homeowners through local property taxes, punishes those jurisdictions that choose to increase their residential housing supply, and in particular the type of housing supply that is aimed at families with children.* The town that adds additional homes of this type has two basic options: either increase the tax burden on existing residents, with no improvement in the quality of education, or keep taxes constant while letting school quality decline.

The quoted blog is particularly interesting in how it illustrates how opposition to demolition of smaller homes, and their replacement with so-called McMansions, is linked to concerns about school-related property taxes. The site puts its bluntly: "We don’t want to be told we can’t replace a three bedroom, senior-friendly ranch, with a five bedroom, family-friendly colonial, but then, why should neighbors pay more school taxes and endure class-overcrowding when [school] enrollment increases?"

The blog suggests the common-sense solution of increasing the proportion of child-free households by constructing much smaller single-family homes to retain empty-nesters, something I've advocated previously.  In most American towns, however, and certainly in the elite suburbs of Westchester and Fairfield County, such a recommendation is likely to be met with intense hostility. Multifamily residential is even less welcome, and non-residential uses are feared as nuisances and traffic generators. Faced with the threat of larger homes bringing increased taxes and smaller homes portending decreased property values, the shrill NIMBY voice is raised against any project, large or small.* 

The typical American system of local school funding appears to be unique in the world, or nearly so. As psychologist Robert Slavin wrote in 1999:
"To my knowledge, the U.S. is the only nation to fund elementary and secondary education based on local wealth. Other developed countries either equalize funding or provide extra funding for individuals or groups felt to need it. In the Netherlands, for example, national funding is provided to all schools based on the number of pupils enrolled ... ."
Canada's provinces maintained a roughly analogous funding system in the not-too-distant past, but educational reforms in several provinces in the 1990s — notably in Ontario, British Columbia and Alberta — brought about a transition from joint local-provincial school funding systems to provincial-level systems. These changes also seem to have involved a shift in funding sources away from local property taxes and toward general tax revenue. In the case of Alberta, these reforms are reported to have enabled a reduction in residential education property taxes of 65%.

The heavily localized school system in the United States long predated Brown v. Board of Education and school desegregation, but incentives for localization were greatly increased with the Milliken v. Bradley decision from 1974, which endorsed political balkanization of urban areas as a means of evading desegregation mandates. In combination with exclusionary zoning codes, which the court had approved nearly 50 years earlier, self-governing municipalities were given almost every imaginable enticement and ability to restrict increases in housing supply. Since good schools, no matter what their enrollment, are associated with higher property values, the incentive is to create the best possible schools for the fewest possible students.

At worst, the result is an urban area composed of petty, squabbling fiefdoms, each groaning under the weight of local property taxes and thus resistant to the arrival of any new families, but equally resistant to conceding any revenue or authority to higher-level governments. Is it any surprise that young families are deserting these areas in large numbers, as I showed was the case in Fairfield and Westchester Counties?

Not every state has so localized a school system, however. In Fairfax County, Virginia (a state that doesn't lack for its own school funding problems and controversies), where schools are run at the county level, property taxes are half the level of Westchester, achievement is comparable or higher, and the under-5 demographic, which is in freefall in Fairfield and Westchester despite overall population increase, is growing rapidly. Similarly, in Davidson County, TN, which merged with the city of Nashville 50 years ago, the 25-35 and under-5 populations have surged.

Westchester County school administrators object that the high cost of housing in the county requires higher teacher and staff salaries, but this too is partly a consequence of restricted residential supply. The attempt to exclude families in an effort to limit property taxes increase ends up inflating housing costs, and these increased costs are shifted back onto property taxes in the form of the increased employee salaries needed to account for the cost of living. Lately, cities have attempted to shift even this consequence onto the private sector by mandating inclusionary zoning for new development to provide for city employees (typically, law enforcement, firefighters and educators) unable to afford market prices, and doing so for purportedly altruistic reasons. However, when Darien, CT, attempted to limit its own inclusionary zoning program to so-called priority populations, including town employees, it drew attention from the Department of Justice.

Policymakers haven't been blind to the perverse incentives created by localized school funding. Massachusetts' Chapter 40R, which creates incentives for towns to upzone residential land, has companion legislation providing for additional funds for cities and towns that establish such upzoned districts to cover the costs of educating children who move into those same areas. Not that it has been successful in this end, at least as of a few years ago: according to a 2009 study, "[v]ery few districts approved to date allow construction of the type of housing (modest single family "starter" homes) that would be expected to trigger payments under [the law]."  In addition, the charter school phenomenon, although far too complex a topic to delve into in any detail here, frequently involves direct state-level funding of charter schools.

Even in Connecticut, the problem has long been known and obvious solutions proposed: a report from back in 2003 observed that the state was "badly in need of regional and statewide revenue raising and land-use planning for long-term development." In Connecticut's case, as is the case for many states, this is a solution that is easier said than implemented.

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*It's an easy task to find quotes from city and state officials raising concerns with affordable housing programs on the basis that they attract young families with children, typically prefaced with the caveat that the legislator in question doesn't disapprove of children per se. A state representative from the town of Trumbull, in Connecticut:, reacting to the effects of the state's affordable housing law (the notorious Section 8-30g): "The [affordable] developments tend to have children, and children are great. But the fiscal reality is that our schools have grown considerably. We've had to build a new school in part because of our increasing population. We would have had to have built it eventually, but that [affordable housing] sped that along."

*This paranoid mindset, especially when paired with other latent biases and prejudices, can result in what I would term "NIMBY derangement syndrome," where otherwise reasonable and mild-mannered homeowners make shocking, hysterical and/or outrageous claims and allegations, usually against so-called "greedy" developers.

Saturday, May 3, 2014

Mobile Home Impediments and Opportunities

A few days after the recent post on American and Mexican housing, the New York Times Magazine ran a lengthy article, which I was alerted to thanks to Brandon Donnelly's blog, profiling America's mobile home industry. Brandon considers the ethical issues raised by the apparently considerable profits to be made in this area of real estate, such that there are now entire courses offered by successful investors in making one's fortune, or at least living, owning and operating mobile home communities.

The article serves as a nice jumping off point from the earlier post, as it deals with what is, in much of the United States, nearly the only type of single-family detached housing that is allowed to be both very small and built on very small lots. Much of the affordability of this housing type, it seems, is attributable not only to the efficiencies of mass production or the frequent separation of the cost of land from the cost of ownership, but the common exemption of areas zoned for mobile homes (setting aside for now the curiosity of why there should even be such zones) from the standard restrictions of single family zoning, including minimum lot sizes, front and side setbacks, parking requirements and even minimum street widths.

Consider, for instance, the zoning code of Bradenton, Florida, which like many Florida cities has a large number of so-called mobile home communities (though in the majority of cases, these homes are never moved after being sited):

City of Bradenton.
In the above chart, admirably simple for an American zoning code, R-1 is single-family, R-2 is two-family, R-3 multifamily, and R-4 "Mobile Home" (UV is a special "urban village" district that covers very little of the city). Note that in the mobile home district, minimum lot sizes are less than half that required in the single-family district, even though both only permit single-family homes! The comparative minimum dwelling sizes are a strikingly divergent 1,500 sq. ft. and 400 sq. ft. The mobile home zone is allowed to be built so densely, in fact, that its maximum permitted units/acre is equivalent to the multifamily zone. Not shown here are the parking tables, which require only one space for mobile homes, yet two for single-family homes, regardless of square footage.

The resulting streetscapes in the mobile home zones are completely different from almost anything else in American suburbia, featuring extremely narrow streets without on-street parking, very modest setbacks and tiny lots either with pocket backyards or none at all (from Bradenton):



Some are so tightly packed that streets can barely accommodate a single car (again from Bradenton):


The separate standards for site-built and mobile homes probably arise from the fact that the latter homes were initially presumed to be transient, and that the sites designated to host them were therefore viewed more as parking lots than as a formal arrangement of streets and building lots. As one study puts it, many of the complex issues surrounding mobile homes "arise, in part, from the mobile home's historical classification as a travel trailer, the vestiges of which persist even though mobile homes have become a more permanent housing solution." Although city planners, such as those in Bradenton, appear to be gradually imposing more conventional siting requirements on mobile homes, this statutory inertia continues to manifest itself in more permissive square footage and lot sizing requirements as well as the separate zoning designation itself.

The existence of dueling single family zones with such disparate requirements produces some striking visual contrasts, as below, where R-4 adjoins R-1:


The relaxed requirements for mobile home zones may help explain their proliferation in Florida, particularly in permissively-zoned unincorporated areas of surrounding counties such as Manatee. The looser regulations serve as a major subsidy on top of manufactured homes' significantly cheaper construction costs. A resultant surge in construction of such neighborhoods in Florida, where trailers have probably always been subject to less zoning ostracism due to the need to accommodate RV-driving and trailer-bearing seasonal visitors, appears to have normalized the type.

It may seem strange to discuss how mobile homes occupy a privileged position in many zoning codes, given that literature on mobile home areas tends to focus on the regulatory impediments to their construction. However, these impediments tend to take the form of limited areas actually zoned for mobile homes, rather than the restrictions within these zones. The money to be made in operating mobile home communities appears to be a form of regulatory arbitrage that takes advantage of the much smaller lots, home sizes and generally cheaper infrastructure permitted within mobile homes zones as compared to those for single-family zones. This permissiveness has not escaped notice of the tiny house proponents, who have sought to use existing RV park designations to accommodate tiny house communities.

Although Bradenton actually bans site-built homes within its mobile home district, a few cities are gradually coming around toward embracing by-right smaller lots for site-built homes in existing suburban neighborhoods. Portland's (Oregon) infill regulations permit lots as little as 2500 square feet in some instances, though not without predictable hysterical reactions. Had such small lots been permitted as of right in a city like Bradenton for site-built homes, it seems plausible that trailer homes would be less common. When small lots are combined with attractive homes on narrow streets, the result doesn't have to be so terrifying after all.

Key West, Florida.

Tuesday, April 22, 2014

NYC Suburban Demographics: Choice or Fate?

The New York Times recently profiled a study from Community Housing Innovations which noted a demographic collapse among the young adult population in the wealthy suburbs of Long Island and Westchester County since the 2000 Census. The decline is attributed largely to high housing costs rather than an immutable preference for urban surroundings:
"The villages and towns suffering the largest losses of their young workforce have historically restricted multifamily development in favor of single-family homes. The practice, known as exclusionary or snob zoning, makes living in these communities unaffordable for much of the Long Island and Westchester County workforce."
The study paints an interesting picture of the unintended consequences of restrictive zoning, which in this case may be hindering adults at a prime age for starting a family (25-34) from living in what, in many cases, are probably the very same towns they grew up in. Although the Times quotes a Westchester County source disputing the figures and noting that the "county’s own enrollment data shows that more children are attending its schools, a telling sign of young families," a glance at the Census figures reveals that the under-5 population in many of these towns is plummeting as well.

For instance, while Westchester County saw a decline of 11% in this group from 2000 to 2010 despite experiencing overall population growth, Scarsdale's under-5 population fell by 28%. Jericho, New York, mentioned in the article, also saw a decline of 27%. For further comparison, here are the figures for part of nearby Fairfield County mapped over median housing prices:


These can be compared to the same figures for the 25-34 population:


Although the numbers don't match up precisely, the correlation is strong. There is an overall decline of around 10% in both population groups, compared to an increase nationally of 3% for both, but there has been a rapid assortative process as young families have apparently been priced out of many locations and restricted to the few remaining jurisdictions without stratospheric housing costs.

Whether this is also due to a preference for urban living conditions is unclear, since the urban markets also happen to be the low cost markets, and are the only places in Fairfield County permitting the construction of significant quantities of new housing. The fact that population loss of these demographics was somewhat less in relatively more affordable suburban towns (such as Fairfield or Trumbull) suggests that cost is at least as important a factor, a pattern which is also noted on Long Island in the New York Times article.

The overall losses among the 25-34 age group indicate an accelerated outmigration in addition to the internal assortative process. The study cited by the Times suggests, in the vein of the Great Inversion, that this migration is a product of relocation to New York City proper, and to particular areas within the city, although many must be leaving the region entirely. In this broader context, though, I'm not satisfied with a sample period of only ten years and certain areas, and so I compiled median age data for the greater New York area from 1970-2010, dividing it into three regions*:


Although there is certainly a great inversion here, it appears to be a multi-decade process, rather than an sudden shift which occurred over the last ten or fifteen years. These trends can also be expressed as a function of the US median age in each Census period so as to show which regions were growing "younger" or "older" relative to the population as a whole:


Rather than the city abruptly changing course in recent years, a long term downward age trend actually decelerated after 2000. Trends have not always been consistent, with the inner suburbs actually growing relatively younger from 1970 to 2000. The continued aging of the outer suburbs is also notable. Several counties in this region now exceed a median age of 40, with individual towns highly coveted for their excellent public schools exceeding a median age of 45. These median age figures in some cases approach or exceed those of Florida counties known as retirement havens (cf. Westport, CT, at 44.6, with Palm Beach County at 43.5). With little new construction and limited housing turnover, combined with greatly elevated prices, these towns await a generational shift.

Just how big will that shift be? The Westport town newspaper, at it happens, suggests dramatic changes after 2015. According to one quoted source, "there's going to be major turnover in property. People who currently own homes and have for a long time, are going to decide to downsize. When turnover does occur, you'll get a flood of students entering elementary school." 

The problem for towns such as Westport, however, is that due to their resolute opposition to any new construction – even including senior housing, as described in detail in Snob Zones – there are not many options to downsize to. It seems more likely to me that the inhabitants of these homes will, by and large, remain in them to the end, as they will generally be unwilling to abandon their towns and long-established connections simply to find smaller accommodations elsewhere. The turnover point is therefore more likely to be in the 2030s than by 2020, but this will obviously come too late for the Boomer generation's own children seeking to start families. It's also not clear, given the widespread declines in the under-5 demographic, where a "flood" of new students could come from several years down the road.

An apparent denialism about the effect of high prices on young families seems to be rampant among many of the wealthy towns profiled in the CHI study and in Fairfield County. Wishful thinking about floods of new students that are just around the corner, or analysis of falling school enrollments that fail to diagnose high housing costs as a contributing factor, rules out consideration of the supply-based solutions that have apparently worked to some degree to retain young people in certain Long Island suburban towns discussed in the CHI study. These towns need not be victims of fate, but unless changes are made, their futures are already inscribed on their current demographics.

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Related links: Remember this New York Times article from 2013 covering young families moving out of Brooklyn to suburban towns in Westchester County? As it turns out, Brooklyn experienced a decline in its under-5 population from 2000 to 2010, but only by 3%. Hastings-on-Hudson, by contrast, saw that group decline by 19%.

*By county, "Urban" = Manhattan (New York), Bronx, Brooklyn (Kings), Queens, Hudson; "Inner Suburban" = Westchester, Nassau, Bergen, Union, Passaic, Staten Island (Richmond); "Outer Suburban" = Suffolk, Fairfield, Rockland, Morris, Somerset, Middlesex, Monmouth. Exurban counties are omitted.

Tuesday, March 11, 2014

Housing Dreams, American and Mexican

In the previous post, I observed how newly-built single-family housing in the Mexican border city of Matamoros (and in fact in most Mexican cities) is both much smaller in size and far cheaper, even adjusting for lower incomes, than almost any housing in the United States outside of Detroit.

New Matamoros rowhouses. (Google Maps).
This is partially due to the underdevelopment of the mortgage banking industry in Mexico, with the result that six percent of all homes in the country are financed with mortgages. The vast majority of homes are either inherited, bought with cash, or else are self-built on cheap vacant land, although informal lending systems among friends and family members no doubt lie behind many of these cash purchases. In the absence of debt-financed home consumption, most new homes must be very modest to match the limited purchasing power of potential buyers. 

Although one might expect this lack of financing to impair individual property ownership, a surprising 80 percent of Mexicans own their own homes. This compares to a rate of only 65 percent in the United States, where 70 percent of homes are encumbered with mortgages and only 1 in 10 buyers pays in cash (at least, until the recent surge in buying by institutional investors). As I pointed out in a previous post, the homeownership rate in the US has actually been more or less stagnant since the mid-1960s in spite of extraordinary efforts to expand the availability of credit.

I think there is something else at work here, though, beyond the influence of two very different lending environments, and it relates back to the modest size of houses observed in Mexican cities. It's been a point often noted that the average size of new American homes has been steadily increasing since 1950 even as household sizes have fallen. Home sizes and household sizes have diverged so sharply, in fact, that a major structural mismatch has emerged throughout the US housing market, as shown below (charting percentages of all US housing units and all US households):

Data from 2012 ACS three-year estimates.
Although over 60% of US households consist of just one or two people, only 13% of housing units are studios or have one bedroom. Moreover, we know that very few single-family homes of the type produced over the past few decades years have been studios or one bedrooms (or even two bedrooms), making it likely that most of these units are apartment rentals. This can be confirmed through housing data on tenure status, which show that studio and one bedroom units are overwhelmingly renter-occupied:

Data from 2012 ACS five-year estimates.
Homeownership in the United States, evidently, is very much a large or larger-home phenomenon (assuming that number of bedrooms is a reasonable proxy for housing unit size). When owned units are looked at in isolation, this fact becomes even more startling:

Data from 2012 ACS five-year estimates.
In essence, new single-family detached or attached homes intended for just one or two people, of the size built in mass quantities in Mexico, virtually do not exist in the United States. A Zillow or Trulia search in most any major American city will quickly show that this type of home largely ceased being built after the late 1950s, which, perhaps not entirely coincidentally, is about the same time that the homeownership rate began to level off. Today, only about one in ten new single-family homes have two or less bedrooms. Although this might be understandable if the decline had been offset by significant increases in the proportion of small units in multifamily buildings, it turns out that this has not been the case.

To what extent these patterns are an expression of consumer preferences, market forces, financial and tax incentives and/or land use restrictions (such as minimum lot or square footage restrictions) is unclear, although there is evidence that square footage restrictions generally seem to have appeared at around the same time as smaller homes ceased being built in large numbers and to have increased in restrictiveness thereafter.* Very small houses, and very small lots, have in typical American zoning fashion been segregated and stigmatized in so-called trailer parks (note that Matamoros, despite being poorer than any American city, apparently has no trailer parks).
Tiny House movement circa 1921:
"Just the thing for two people!"

Whatever the explanation, the effect must be to impede further increases in homeownership. As the country has undergone a long-term reduction in household size, the market has produced fewer and fewer for-sale options sized for small households. The options that remain are not ideal. One can either buy a home that is far larger and more expensive than one needs or enter a competitive rental market for legally restricted multifamily supply (large swaths of American cities, due to restrictive zoning, have few or no apartments for sale at all). An additional option  subverting late 20th century cultural norms* by renting out rooms within a single-family dwelling larger than needed for just one or two occupants  invariably raises the hackles of incumbent homeowners (as seen in the occupancy limit controversy in Austin and many other cities).

These trends have been noted countless times before, in particular by Christopher Leinberger, while Nathan Lewis has been adamant about the need for an increase in production of much smaller homes (including multifamily construction) and, just as importantly, the availability of much smaller building lots. Americans seem to have some difficulty conceptualizing separately-owned very small homes on small lots, though, and even when structures of this size are recognized as meeting an important market need, they are typically imagined as mere accessories to "proper" single family homes, not least by the New Urbanists themselves. Still, that is an approach that tries make something better out of the traditional American pattern of building a series of small houses (on their own separate street network!) just for cars to live in:

Indianapolis residential alley with garages, origin ca. 1920s. (Google Maps).
The Tiny House movement, which partly emerged in reaction to the financial burden imposed by large homes, has no such hang-ups, though the emphasis seems to be almost exclusively on shrinking the size of the home, rather than the size of the lot, and is often associated with rural environments (though certainly not always, and also see here). But large houses seem to be a natural fit for oversized lots and overbuilt infrastructure, as Nathan Lewis has noted.

What would be a reasonable price goal, within the context of the dominant single-family detached form, for housing cost using both small homes and small lots? Nathan, in his writings on this subject, aims for $50,000, which, when adjusted for higher American incomes, would be roughly comparable to the greenfield homes of Matamoros. Nick Derome estimated $170,000 for very small-lot homes in surburban Toronto in comments on the previous post. For even the highest cost towns in Fairfield County, Connecticut, based on land prices, 1,000 sq. ft. homes of less than $200,000 appear financially (if not politically) feasible. Going almost anywhere else from such a high cost location, prices should drop significantly.

Even within certain parts of ultra-expensive Fairfield County itself, the few manufactured and/or mobile homes available for sale (the only type of contemporary single-family detached housing that, with its special zoning designation, has anywhere close to the lot sizes found in Matamoros) tend to run around $60,000 for a 1,000 sq. ft., two-bedroom home. Higher quality architecture and construction  such as that found on the Katrina cottages or better — could surely be provided at only somewhat greater expense. A major challenge, it would seem, is not simply surmounting legal barriers, but reaching an understanding that small homes are not just for poor families, but for small families and others too.

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Related posts: It turns out I'm not the first to connect Tiny Houses and Mexican urbanism -- an American homebuyer in the Mexican city of Merida linked the two on his blog here. Also, Life Edited opines on Why Household Size Matter and Why Are American Homes So Big?

*In striking down a Connecticut town's law fixing the minimum home size at 1,300 square feet (under challenge by a builder attempting to construct a 1,000 sq. ft. modular home), the Connecticut Supreme Court noted "the significant increase of the minimum floor area requirements over the years since 1955 when [the town] had its first regulation controlling minimum floor area requirements. At that time, the minimum floor area requirements were only 750 square feet for a one-story house... ." Builders Service Corporation v. Planning & Zoning Commission (1988). Similar New Jersey ordinances dated as early as 1949.

*Consider the connotations of the very term "single-family dwelling" and what it implies about the identity of the inhabitants of such a dwelling. However, such creative use of single-family dwellings used to be very common, legal and accepted as more or less ordinary (for an example, browse the appendix of the 1950 Housing Census, which describes a bewildering array of housing arrangements within a single home that enumerators might encounter).