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Sunday reading 22 May 2016

Welcome back to Sunday reading. This week, we’re leading off with two articles on innovative ideas from European places. The first is a Wired article explaining “why you should become an e-resident of Estonia“. Ben Hammersley reports on the Baltic country’s innovative approach to delivering government services digitally:

The most advanced digital society in the world is a former Soviet Republic on the edge of the Baltic Sea. And by handing over €50 and a ­photograph, allowing my fingerprints to be taken and waiting a few weeks while my ­credentials were verified, I have been issued with an identity card, a cryptographic key and a PIN code to access its national systems. I am now an official e-resident of the Republic of Estonia, as is the Japanese prime minister, and you will want to be one, too. And what’s more, by doing so, you’ll be part of a system that could not only reinvent public services for the internet age, but ­fundamentally redefine what it means to be a country…

Today, the fact that every interaction with, and within, the Estonian government happens digitally has had subtle social effects. For example, apart from only carrying two cards (driving licences, donor cards and the like have been subsumed into identity cards), Estonians have complete control over their personal data. The portal you can access with your identity card gives you a log of everyone who has accessed it. If you see something you do not like — a doctor other than your own looking at your medical records, for instance — you can click to report it to the data ombudsman. A civil servant then has to justify the intrusion.

Meanwhile, parliament is designed to be paperless: laws are even signed into effect with a digital signature on the president’s tablet. And every draft law is available to the public to read online, at every stage of the ­legislative process; a complete breakdown of the substance and authorship of every change offers significant transparency over lobbying and potential corruption.

Cool stuff. Hammersley points out that Estonia’s “e-government” model is replicable just about anywhere – just install the software.

Over in the bricks and mortar space, Vienna’s government-led housing development policies, a long-lasting legacy of “Red Vienna” in the 1920s, are also worth a look. In Governing magazine, Ryan Holeywell investigates how “Vienna offers affordable and luxurious housing“:

The idea that everyday citizens should have access to not just affordable apartments but also attractive ones — and that it’s the city’s responsibility to provide them — continues to this day. There’s a mindset that housing is a way to link residents to their communities and the larger city through design. “It was never just about housing,” Blau says. “It was always about the city. It was about not just providing private living space but also public living space to people for whom they were also providing housing.”

Thus, in Vienna, public space and private space are interwoven. Case in point: The city’s first libraries were part of the housing system. Kindergartens and day care, dental clinics and courtyard parks were all high priorities in the early days of public housing. “It made the division between housing and the city really kind of blurred,” Blau says. That trend continues, with the government emphasizing amenities that encourage interaction among residents. Those amenities also happen to be the same type found in high-end American residences. “These places are incredible,” says William Menking, an architectural historian, of the city’s subsidized housing. “There are swimming pools and saunas and bicycle parking.”

[…]

The city is able to put those standards in place through the control it has on land supply. The city government maintains a fund that aggressively buys up land throughout the city to be used for subsidized housing. Typically, if an area is suitable for residential development, the city already owns the land, which essentially gives Vienna a monopoly, says Wolfgang Förster, head of the city’s Housing Research Department. Once the city determines it’s time to develop residences on a piece of its property, it seeks proposals from various developers, who then present detailed plans that outline a development’s architecture, floor plans, costs, proposed rent levels, green features and more.

A jury ultimately selects the projects based on four criteria — architectural quality, environmental performance, social sustainability and economic parameters — that are all weighed equally. That means it’s just as important for the developers to create a building with a diverse group of engaged tenants as it is to create one that’s economical and visually pleasing. “It’s a way of avoiding ghettoization,” says Mark Gilbert, a Vienna architect who serves as a member of the jury. “It’s one of the problems American public housing has always faced.”

The most viral blog post of the week (at least in the urbanist circles in which I catch viruses) was Eric Fischer’s data-driven unpicking of the San Francisco housing market: “Employment, construction, and the cost of San Francisco apartments“. It’s rare to see someone lay out trends and their causes so clearly. He starts by covering prices:

After adjusting for the Consumer Price Index, real rents have only gone up 2.5% per year and have only quadrupled in effective cost in 60 years. It is still an alarming increase.

CPI-adjusted median rent by year

He then moves on to housing supply:

San Francisco’s post-earthquake housing was built in a series of booms. The biggest were the immediate post-earthquake rebuilding from 1906 through 1918, when essentially all of the densest areas of the city were built, and then the transportation-led boom from 1919 through 1934, when the Marina, the Outer Richmond, West Portal, the Parkside, and the Outer Mission were built. From 1935 to 1943, the Central Sunset and Parkmerced filled in. From 1944 to 1954, the Outer Sunset and Ocean View were built. And that was essentially the end of the easily developed greenfield housing.
The next boom, from 1955 through 1967, still could fill in the hillsides of Twin Peaks and above O’Shaughnessy Boulevard. But the boom from 1968 through 1982 had no genuine vacant tracts to fill at all. It was the Redevelopment Agency’s boom, rebuilding the Western Addition and the Golden Gateway and Diamond Heights. (The demolition of the Western Addition is subtracted from the net new unit count in earlier years.)
The first private infill boom was from 1983 to 1993. It was entirely on scattered sites, with no large tracts available. A long, double-peaked boom ran from 1994 through 2011, with a dip in the middle for the dot-com crash. It too was a scattered infill boom, aided by the South of Market sites made available by the former Embarcadero Freeway and I-280 extension. Since 2012 we have been in the ninth building boom, focused on sites on or near Market Street. Few sites are involved, but the numbers are the largest since the early 1960s because the buildings are large. I don’t know how long it will continue.
(The Housing Inventory data only goes back to 1960, so information about earlier construction rates comes from the Planning Department’s 2016 Land Use map. It tracks the year of construction of each building, not the year of first occupancy as the Housing Inventory does, and only of buildings that stil exist, but the numbers are generally comparable.)

Net new housing construction per year

Like Auckland, San Francisco is heavily land-constrained – it’s a city on a narrow strip of land surrounded by water. As it has grown, the pressure has come on to build up – but planning regulations have conspired to make that expensive, slow, and rare. This has collided with rising wages and employment from several tech booms, which he summarises in another set of charts. The conclusion of the analysis is stark:

Can we roll the clock back 35 years, to when the CPI-adjusted median rent was approximately one third what it is now?

It will be very hard. If the (first) model is correct, it would take a 53% increase in the housing supply (200,000 new units), or an 44% drop in CPI-adjusted salaries, or an 51% drop in employment, to cut prices by two thirds. A steep drop in salaries or employment would also be devastating to the ability of people to afford the new lower prices. It is enough to make you believe Randal O’Toole that affordability can only be achieved by continued outgrowth, as San Francisco could do in the early 1950s.

But does it even make sense to try to go back to 1981’s prices? CPI-adjusted rent is three times as much today it was then, but CPI-adjusted average income has also doubled in that time. Maybe we should be trying for 1995 instead, when CPI-adjusted rent was half what it is now, not a third. But a 30% increase in the housing stock is not much easier to imagine. Whatever the goal ought to be, it is a long way away.

Fischer’s analysis has attracted a wide range of excellent commentary, including from Justin Fox (Bloomberg View), Portland-based journalist Michael Andersen, and Daniel Hertz (City Observatory). I would summarise it more simply: It takes decades to seriously fuck up a housing market in a growing city. It will probably take decades to un-fuck it.

If you don’t believe regulatory restrictions on building height and density are a serious part of the problem, take a look at this map of New York (from the New York Times’ Upshot blog). Effectively, in the century since New York wrote its first zoning code, it’s progressively tightened the screws on development, with the effect that:

NYT manhattan buildings that don't comply to zoning code

Ironically, many of the buildings that would be illegal to build today – or at any rate subject to costly legal challenges – are probably also illegal to demolish as they’re seen as a historic part of the urban fabric. The article does a great job of explaining how.

We shouldn’t be scared to go up. As Matt Yglesias (Vox) points out, in the US there’s a strong positive correlation between urban growth and changes in population-weighted density. He points to two cities above the trendline – Seattle and Portland – as good examples of the benefits of enabling more housing supply within cities:

Kolko household change and density chart

Let’s finish up with three pieces on retail and the long-run financial sustainability of cities. First, designer Nitin Gadia asks, “are your taxes paying the cost of your street?” He then answers this question with data from Ames, Iowa. There is a lot of red ink in this fiscal picture:

Ames are taxes paying for streets

Gadia explains the “growth Ponzi scheme”:

So how are streets being built, if they’re not being paid for?

It’s simple – here’s how it works:
*Say a community is built in Year 1.
*The community’s streets need to be rebuilt every 30 years.
*In Year 30 a new, identical community is built. Now twice the amount of taxes are coming, and so for time being the property owners only need to pay half the amount.
*And 30 years later, in Year 60, two new communities are built; as long as the number of properties and property taxes are doubling every 30 years, they can continue to pay half the amount.

In the US, city finances are also threatened by the digital trends that Estonia’s government is benefiting from. Online retail is undermining the big box anchor stores that underpin suburban malls, and in doing so undermining many cities’ tax model. Financial analyst Conor Sen summarises the dilemma:

As retail stocks get pummeled again today it feels like we’re one step closer to the majority of the country’s malls being functionally obsolete, with many of them on the way to becoming “stranded assets.”

We’ve been through this transition before.

The last time this happened, when we transitioned from walkable downtowns and Main Streets to booming suburbia, before sprawl was a dirty word, the politics were relatively easy. There was a lot more growth in the growing places than there was decay in the declining places. The Atlanta metro area is roughly 6 million people while the city of Atlanta’s population is around 450,000. If the city of Atlanta stagnated it didn’t matter politically, because the people in the much larger suburbs were pretty happy and had more votes. And the percentage of the nation’s infrastructure stock that was obsolete was becoming a smaller and smaller percentage of the nation’s total infrastructure stock…

There’s also the challenge of how cities will fund themselves. Residential property taxes don’t get it done. Most communities rely heavily on sales taxes and commercial real estate property and income taxes for their budgets. What happens if more and more retail sales are powered by Amazon? How will that budget shortfall be made up if 60-80% of malls go dark?

Whoops.

Public spaces and retail centres are an important part of any city – not just for economic reasons, but also for their social function. In The Chronicle Review of Higher Education, Christopher Phelps describes his encounter “the Magic Bookshop“: an eccentric retail survivor in Manhattan:

Midnight is when I first came upon it, a step below street level and open for business. Never mind the lateness of the hour, the sheer existence of a secondhand bookshop was a miracle.

Almost all of Manhattan’s bookstores have been driven to extinction by high rents, although a few guerrilla booksellers persist out on the sidewalks. Near Tompkins Square Park one recent afternoon, I happened on a table whose proprietor could not be past her 30s but who had exquisite taste in the old literary counterculture. She wrapped her wares in clear plastic: immaculate editions of Richard Brautigan’s poetry, Abbie Hoffman’s ravings, Kafka’s stories, and Siddhartha. It’s as if she selected her stock to keep the East Village ’60s spirit alive against the depredations of the junior-finance types filling wine bars all the way over to Avenue C…

That’s it for the week. Until next time!

21 comments to Sunday reading 22 May 2016

  • Brendon Harre

    Auckland has a low percentage of road space and intersections. This is bad for active transport.

    One solution would be as Auckland intensifies that laneways are encouraged as part of land reallocation schemes.

    Land reallocation discussed here. https://makingchristchurch.com/why-land-contiguity-is-causing-market-failure-in-new-zealand-s-cities-eb00577c8d91#.sly3y7ny7

    • Peter Nunns

      I think there might be a case for Pigouvian subsidies for site amalgamation, creation of new lanes, unwinding of cross-leases, etc. This would respond to the fact that there are significant transaction costs in amalgamating sites.

      Interestingly, Auckland’s cadastral pattern came about as a result of a 19th-century attempt to minimise the public infrastructure costs associated with urban growth. Taxes were levied to pay for roads, but not to pay for water and wastewater infrastructure. The solution was to subdivide into long, narrow lots with space at the back for an outhouse and a well.

      This saved money in the short run but has created non-negligible costs / rigidities for development in the long run, as it’s harder to redevelop long, skinny sites without rear laneways. Policies to offload infrastructure costs can have some perverse consequences!

  • Harriet

    I love E-government I wish they would do it here.

    I allow hope they just get the ICT company from Estonia to do it not some local who will stuff it up for double the price.

    • Peter Nunns

      That link is very cool.

      From a civil libertarian perspective, I thought that giving individuals control over their own data (and the ability to see who was accessing it within government) was incredibly important.

    • GlenK

      Actually my impression is that generally Govt here seems to hire some bigwig overseas IT company rather than a smaller NZ firm (usually because their procurement criteria make it impossible for them to be considered). Said company then proceeds to botch it up (although how much that reflects changing demands and lack of technical understanding by the client is a moot point…).

      • Sanctuary

        The e-government idea raises an interesting question. At what point does access to the internet become a basic right in an advanced society? Why couldn’t the government provide free Wi-Fi in all public buildings? Here in Andalusia the local junta has a legal requirement that every village no matter how small has at least one cafe offering free internet. That is an idea worth taking up in NZ, along with allowing video conferencing as a way of, for example, satisfying WINZ requirements if you are unemployed and a certain distance from a WINZ office.

  • The growth ponzi and ‘ It takes decades to seriously fuck up a housing market in a growing city. It will probably take decades to un-fuck it.’ have made it a pretty solid week “things that should be central to political discourse in Auckland this year but no one will ever talk about”

    I was alluding to the latter in the comment thread of the ‘locked out’ article – everyone is looking to ‘fix’ or ‘correct’ the housing market – RBNZ always talking about ‘tools’ etc – it makes me nervous that someone is going to do something stupid for political points without solving the actual problem (i.e. creating a short term bust followed by a bigger boom as a result, hurting lots of people in the process)

    • Peter Nunns

      Yes, exactly. One key lesson from the empirical literature on housing markets is that there is no short-term fix. Of you want affordable housing for the bottom half of the income distribution, the best time to build it was 20 years ago, so it could depreciate and “filter” down. New housing is intrinsically more expensive because it hasn’t had time to depreciate.

      However, it should be possible to build enough to keep prices from inflating further, which should be the short to medium term goal. But in doing so I think it’s important to be attentive to social costs (and the degree to which we can internalise them into development costs) and the long-term sustainability of what we’re building. There’s no reason to toss all that out in pursuit of a short-term fix that may not even work.

      • Yeah I’m all for stopping the current inflation. I still believe that supply is the major issue – pinging investors is just targeting the result of the true cause (if that makes sense) – as long as there is a shortage of houses, prices will go up, housing investment will return a profit (perhaps less profit if taxed appropriately, but still a profit) and thus investors will continue to buy properties.

      • Matthew W

        Back in the 60s and 70s, no one believed you could control inflation. There were forces beyond the control of central banks. Then we found out everyone was wrong and you could control inflation if the government / central bank credibly committed to “doing whatever it takes” to control inflation.

        If the market believed the government would do “whatever it takes” to increase housing supply, I think we would find out something similar. As it is the market hasn’t thought for a long time that the government will do this, and the market been right! I am sure you know the empirical evidence well, but the question is – has it yet been tried?

        • Peter Nunns

          I’m pretty sure that most economists back then believed you could manage inflation – after all, that was what central banks had been established to do. There was a period when this was difficult due to oil shocks and supply-side rigidities, but that was temporary.

          My specific claim with regards to housing is that allowing people to build more dwellings starting now would help curb house price inflation, but it would take a longer period for this to flow through to affordability at the bottom of the market, because it takes a while for new housing to depreciate and become affordable for low-income households. (See some figures on new builds here.)

          Stopping things from getting worse and creating the conditions for them to get better in the long term is a very good idea. But I don’t think we should be under any illusions that we can immediately unwind the cumulative impact of decades of policy decisions. I’d love to be proven wrong, though!

          • jezza

            All housing is housing. People who move into new build vacate older houses, thus they become available for those on a lower income.

  • Harriet

    btw here is a link for all the features e-government has

    https://e-estonia.com/component/

  • mfwic

    Casey Neistat is great. He got a ticket that didn’t make sense so rather than checking out if it was valid he paid $50 and crashes into stuff for Youtube.

  • Matthew W

    On the taxes paying for your street link. This is exactly right. We systematically underprice infrastructure and seem to forget about depreciation. This contributes to the idea that new development is “too expensive” because of infrastructure costs.

  • Matthew W

    I had got that factoid on 60’s and 70’s inflation beliefs from here: http://www.themoneyillusion.com/?p=31717

    I agree with you about the bottom end of the market. However one thing to consider is that one of the reasons new builds currently only cater to the top end of the market is because of the lack of supply. If we had more supply and competition their would be more opportunity and incentive for developers to cater to more segments of the market (like most normal goods). We used to build affordable new homes targeting the lower end of the market in NZ (think of all those 80-90 sqm hardiplank houses from the 70s and 80s).

    Edit this was supposed to be a reply to Peter above.

    • Matthew W

      The other thing is Auckland isnt short of tatty old housing to filter down if lots of new mid level housing came on stream.

  • Owen Thompson

    “fuck”. How common!

  • Regarding that map of Manhattan, a version for Auckland should look hilarious once the Unitary Plan is in force. “100% [to close approximation] of the buildings in Ponsonby could not be built today.” For starters, there’s almost no houses on lots larger than 600m².

    • Peter Nunns

      Here you go, just looking at lot size in Ponsonby’s single house zone. Could be a good future post:

      Ponsonby single house zone parcel size chart

      • Interesting that 20% are larger than 600m². What is the land price over there these days? At $2000 / sqm that’s over a million for the land alone. It’s almost unbelievable that we’re actually considering this change.

        Cue angry voices shouting that Ponsonby is about to be demolished to make way to mansions on large sections. Or not.

        Not sure if the CBD will fare better. The apartment where I’m living now would be red as well since the floor area is less than 40m².

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