Mid-week reading: Kim-Mai Cutler, map-making, the Black Death, and knowledge as a public good

Welcome back to mid-week reading. With luck, there are only going to be a few more of these until I’m back on a more regular posting schedule.

First piece of the week is from Kim-Mai Cutler, a tech journalist from San Francisco who’s produced some invaluable reporting on their (our) housing crisis. The Bay Area is really where the forces of the age are colliding – a disruptive (and very productive) tech ecosystem butting up against a set of inflexible land use policies.

Cutler’s put together a fascinating and wide-ranging set of slides describing “the San Francisco Bay Area in the Second Gilded Age“. It’s really invaluable reading for anyone seeking to understand the issue.

cutler-housing-slide-18

Thus far, it’s been housing affordability. Poverty rates have been rising and home ownership falling throughout the Bay Area, in spite of rising incomes. Notice those figures for home ownership rates in San Francisco – only 36.6% of dwellings are owner-occupied, and the city’s politics are still in the grips of reflexive NIMBY opposition to development.

cutler-housing-slide-31

In the process, Cutler covers transport and social mobility – the reason why it’s important to build more housing in the places where people want to be. It has been possible to build quite a lot of housing in far-away places like Stockton, but that hasn’t really fixed the problem.

cutler-housing-slide-36

Here’s a more light-hearted comment on the phenomenon:

On a completely different note, Alison Ballance at Radio New Zealand has put together a really interesting piece on how maps are made: “Points, lines, and polygons – the art of making maps“. It goes into the nitty-gritty of putting together topographic maps, talking to the people at Land Information New Zealand who are responsible for the process:

Maps tell the story of our ever-changing Earth.

The length and breadth of New Zealand is charted, at a scale of 1:50,000, across 451 topographic maps produced with technical skill, art and patience by a team of map makers at Land Information New Zealand.

The map makers are witness to several stories unfolding in the country.

The most dramatic is the impact of Christchurch earthquakes. The strong black block that was the city’s CBD has been shattered into a mosaic, while the red zone is a ghostly snake of deserted roads that echo the shape of the Avon River.

Meanwhile, in the countryside humans are changing the landscape as farming evolves with market demands and new practices.

In the pre- earthquake map the central business district is a large black shaded area. In the post- earthquake there is only scattered black in the CBD and the ghostly remains of houses and roads in the red zone along the Avon River

Christchurch city before the earthquakes (left) and five years afterwards (right). Photo: Land Information New Zealand

This is a good point to drop in a reference to my favourite song named after map coordinates: Wire’s “Map Ref 41°N 93°W”. For the curious, the title refers to a field in Iowa.

On a much less cheerful note (worse than housing affordability!), I ran across this interesting map of the progress of the Black Death across Europe in the mid-1300s (via Zach Beauchamp at Vox):

The Black Death was an epidemic of bubonic plague that devastated Europe in the mid-14th century, killing an estimated 60 percent of Europe’s entire population. And it spread scarily quickly just over the course of six years — as this stunning GIF demonstrates:

vox black death map

 (Andrei Nacu)

The plague originated in China in 1334 and then spread west along trading routes through the Middle East. But Europe was particularly vulnerable to a devastating outbreak. According to University of Oslo historian Ole Benedictow, European society at the time had created the conditions for “the golden age of bacteria.” Population density and trade/travel had grown dramatically, but European leaders still had almost no knowledge about how to contain outbreaks.

The forces that allow diseases to evolve and disseminate are stronger than ever. We live in a more connected world. But the last point in the above paragraph – knowledge – is crucial to how we respond to potential pandemics… and also to more mundane causes of death.

I was thinking about this issue after reading a review of Angus Deaton’s 2013 book Great Escape, which discusses the transformative increase in living standards over the last several centuries. Deaton, who won last year’s Nobel Memorial Prize in Economics, makes a really valuable point: living standards have risen faster than incomes in many countries, as knowledge has been freely shared around the world:

Knowledge — which is to say education — is humanity’s most important engine of improvement. Deaton concludes, based on the data, that rising education is the most powerful cause of the recent longevity boom in most poor countries, even more powerful than high incomes. A typical resident of India is only as rich as a typical Briton in 1860, for example, but has a life expectancy more typical of a European in the mid-20th century. The spread of knowledge, about public health, medicine and diet, explains the difference.

Unfortunately, knowledge and facts are often on the defensive today. Fundamentalists of various stripes keep many countries from completing their own great escape. In the West, science still sometimes yields to dogma, on climate change, on evolution and on economic policy. Elites on both the right and left question the value of education for the masses and oppose attempts to improve schools even as they spend countless hours and dollars pursuing the finest possible education for their own children.

It is true that many of today’s biggest problems, including economic growth, education and climate, defy easy solutions. But the same was true, and much more so, about escaping centuries of poverty and early death. It was hard, and it involved a lot of failure along the way. The story Deaton tells — the most inspiring human story of all — should give all of us reason for optimism, so long as we are willing to listen to its moral.

I like this story. As an economist, much of what I do is basically about trying to improve allocation decisions in the context of scarcity. Do we devote road space to this use, or that one? Do we require people to do X (when there may be reasons to believe they’d prefer Y instead)? This is probably useful work, but it’s still a bit depressing to be constantly working within the context of fundamental trade-offs.

However, knowledge (and information in general) isn’t like that. If I know something, it doesn’t mean that you can’t know it. If you communicate something to me, it doesn’t mean you have to give it up in the process. Knowledge can be shared, and one person’s attempt to learn more will probably increase the stock of knowledge available to all humanity. It’s a public good. It’s a positive-sum game. It is, as Deaton points out, the best thing we’ve got going for us.

Mid-week reading: Burglaries, governance, and managing change

Mid-week reading!

One of the more thought-provoking things I read this week was Patrick Lyons’ interview (in Vice) with Geoff Manaugh, who runs the incredibly interesting website BLDGBLOG and who has just written a book on burglary. Manaugh argues that burglary is an essentially architectural crime:

A Burglar’s Guide to the City takes a look at our everyday urban environments through the eyes of the criminals aiming to hack them, illuminating the spatially-specific tactics used to break in, escape, and stay hidden in today’s surveillance-heavy metropolises. The goal, however, is not to be an actual handbook for the aspiring thief, but rather an alternative study of architecture and urban design.

Through interviews with former burglars, as well as law enforcement and security professionals, Manaugh explains how various features of cities and buildings lead to very specific types of burglaries. Los Angeles, with its sprawling highways, lends itself to quick bank robberies with easy escape routes. Chain businesses with identical layouts and employee schedules, such as McDonalds, invite repeat thieves who’ve previously robbed other locations. “If you look closely, from just the right angle,” he writes, “every city implies the crimes that will one day take place there.”

Throughout the text, Manaugh carefully organizes chapters focused on cities, buildings themselves, common burglary tools, and, finally, getaway strategies, bringing us along for the ride for an exhilarating, perspective-shifting read…

I will have to check the book out at some point. Incidentally, heist movies are always fascinated with architecture. Think about the way that Die Hard and Ocean’s Eleven dwelled on buildings, or the way that Inception constantly subverted the built form.

Another interesting take on cities – from an economic perspective rather than a criminal one – is provided by Noah Smith (in Bloomberg View), who looks at optimal government structures. It’s quite relevant for New Zealand, which sometimes seems like it has both too many and too few local governments. On the one hand, there’s an incentive to aggregate local governments to reduce coordination failures and share costs. On the other hand, there’s some value in competition between neighbouring local governments. Smith discusses the arguments for more fragmented government:

What’s the optimal size for economic performance? Are we better off with many little competing city-states, a bunch of midsized nations or just a few big super-countries overseeing hundreds of millions of people each? If bigger is better, what about a global government?

Actually, economists have thought about this a fair amount. In 1956, Charles Tiebout believed he had a solution to the problem. He reasoned that local governments knew more about their people’s needs than distant central governments, and so the best system was one where local governing units — city-states, essentially — offered different packages of taxes and public services. People would vote with their feet, going to the place that suited them the most…

Some people also claim that political fragmentation has been beneficial in the past. Anthropologist Jared Diamond, in his book “Guns, Germs, and Steel,” suggested that competition between small countries allowed Europe to get a head start on unified China in the Industrial Revolution. Economists Brad DeLong and Andrei Shleifer argued in 1993 that city-states helped Europe develop (though more recent evidence seems to counter this). Casual evidence would also suggest that Taiwan’s de facto independence from China helped provide the mainland with a capitalist model to revive its moribund economy in the 1980s and 1990s.

… and the arguments against:

But there are arguments on the other side, too. The mathematician and economist Truman Bewley examined the Tiebout idea in the 1980s, and found that a patchwork of little city-states doesn’t always lead to a well-functioning system.

There are several reasons why Tiebout’s idea can fail. One is that many of the services governments provide are what economists call public goods. These are things that the private sector either can’t or won’t provide. The classic examples are national defense, police, courts and support for basic research. But many other things, like roads, electrical grids and ports, are usually in short supply when left to the private sector…

A second issue is that governments don’t always have the right incentives. Some governments may decide to maximize the size of their tax bases. Others might care only about the welfare of their citizens, while others might be beholden to special interests — I imagine an independent San Francisco would be ruled by local landlords even more than it already is. There’s no perfect type of local government, and so we’ll have a wide variety of them. Bewley showed that this problem also prevents Tiebout’s patchwork from being an economically efficient utopia.

Finally, something from a month back. Public health researcher Alistair Woodward wrote a really invaluable article about Wellington’s Island Bay cycleway, which has aroused ferocious ire from some residents (via BikeAKL). It’s definitely worth reading in full, but here’s some highlights.

Woodward points out that the Island Bay arguments are nothing new:

But what is most remarkable about this story for me is its familiarity. What is happening in Island Bay has taken place in other cities. The arguments fit, almost word for word, with those made elsewhere.

Check out what was written about bike lanes on Lake Road, on the North Shore of Auckland, for example. Overseas, New York City has made many changes to its streets but attempts to re-allocate space from cars to other road users have been fiercely resisted, on much the same grounds as in Island Bay. Jason Henderson has written an excellent book on the politics of mobility in San Francisco, in which the chapter on bicycle space in the city applies closely to the situation in Wellington. In London the push to grow cycling by re-building roads has had many successes, but there has been opposition. See, for example, the arguments made against Dutch style separated lanes in Enfield.

The reason the Island Bay story is essentially a re-run of older controversies is this: there is a deep, underlying and terribly important issue here, and it has nothing to do with Island Bay (or any other specific location).

The issue is how we, as a society, negotiate access to resources that are shared and limited. Roads are part of the public commons – they belong to everyone and they belong to no-one in particular. Everybody benefits from access, but concessions must be made because the resource is finite. Who concedes, and by how much, are matters that are vital to everyone’s welfare and must be agreed upon collectively.

He goes on to make a few useful suggestions about how we can better manage change in the commons:

There must be a local solution, requiring hard work by Council and communities, stamina, good faith, political savvy and technical intelligence. But let’s not lose sight of the big picture, which is about how we, collectively, manage change. James Longhurst again: ‘the vehemence of the recurring battles since the bicycle’s arrival demonstrates that even the smallest alteration of perceptions, policy or physical construction may be perceived by competing forces as a new front in a war over a scarce resource.’

I argue that it is important to take a ‘responsiveness to change’ perspective because the present New Zealand transport system is, in many respects, stiff, constrained, and not well equipped to manage challenges to the status quo.

Here are three suggestions that are unlikely to resolve the Island Bay cycleway, but might contribute to sorting out future conflicts over what it really means to ‘share the road’.

  1. It would be a great help if governments signed up to a strategic vision and powerful targets for cycling and walking. There is nothing in New Zealand to match, just as an example, San Francisco’s vision of a 30/30/40 mode split by 2035 (30% motor vehicles, 30% transit, 40% walking and cycling). Many of those working in transport acknowledge the need for high-level goals to drive network change. Without this force from above, planning and operations fall back into incremental mode, and one of the consequences is that consultation tends to occur at the micro-scale. Change becomes very ‘sticky’ and difficult to progress.

  2. We must overcome a systemic tendency towards conservatism in design. Arising perhaps from concerns over institutional and political risk, and focusing on mind-numbingly fine print, putting a brake on innovation and experimentation is dangerous because it increases the chance of system failure. It is difficult in New Zealand at present, for example, to apply New York-style soft interventions (such as the first, temporary barriers in Times Square) that are easy to install, can be assessed rapidly, and if need be, taken down rapidly. In this environment the best minds in the world may struggle to get the best value from existing infrastructure, scope new challenges, test unfamiliar solutions, and respond quickly.

  3. Finally, I argue for a greater investment in evaluation. Compared with the intense scrutiny that applies at the front end of planning (business cases, benefit cost ratios, trying to find the best way of navigating blizzards of consents), remarkably little effort goes into learning after the event. In terms of cycling infrastructure and safety for example, there is generally no follow-up until police crash statistics reveal a problem – although it is well-known these data are insensitive, partial and slow to come to hand. Lack of follow-up also misses successes, which is important because re-allocation of road space may be a very good thing, benefiting residents, car drivers, walkers and cyclists, and local businesses.

Great suggestions from Woodward. How do you think we can improve the way we manage change?

The contribution of agglomeration to economic growth in Auckland

We’ve written quite a bit about agglomeration economies, as they’re one of the most important forces shaping urban life. Agglomeration economies refer to the benefits of proximity for economic and social interaction – when you’re around more people, it’s easier to meet the right person (for business or relationships!), easier to share knowledge, and easier to do things in general.

One “stylised fact” from the economic literature is that cities that are larger and better connected – i.e. denser and/or easier to get around – tend to be more productive. When it comes to economic performance, size matters. This benefits firms and workers, of course, but it is also good for consumers. For example, if you want to see a lot of rugby tests, you’re better off locating in Auckland than in Taupo, because test matches tend to go to where the people are. And if you want more restaurants and groceries, live in a denser neighbourhood.

However, economists have focused on agglomeration economies in production as they’re often easier to measure. For example, a few years ago the New Zealand economist David Maré estimated an “Auckland productivity premium” of around 50%. That means that firms located in Auckland are around 50% more productive than similar firms located in other regions. The premium was even higher for Auckland’s city centre.

In subsequent work, Maré and a collaborator, Daniel Graham, estimated that New Zealand had an “agglomeration elasticity” of around 0.065 (averaged across all industries). What this means is that places that are 10% denser tend to be around 0.65% more productive, all else equal.

But what does this mean in practice? How much does agglomeration contribute to the New Zealand economy? Is it a big deal, or not that important in the grand scheme of things?

To get a rough idea, I calculated changes in the “effective density” of jobs in Auckland over the period 2000-2015, taking into account the location of jobs within Auckland (from Stats NZ’s Business Demographics data) and the distance between job locations (calculated using GIS tools). I followed Maré and Graham’s formula for job density as a function of weighted distance to jobs in nearby areas – for the precise formula see equation 2 on page 12 of their paper.

Here’s a map showing how effective density of jobs changed over the whole period. Darker blues indicate higher percentage increases.

Almost everywhere in the Auckland urbanised area became more accessible to employment over this period – the rising tide of urban development lifted all boats. On average across the region, effective density rose by 29%. However, increases were faster around Albany and the upper North Shore, which saw rapid development, and slower in the western isthmus and west Auckland.

Auckland effective density 2000-2015

So things have changed quite a lot. The following chart shows that these changes happened incrementally over time. It shows the effective density of employment for the average job in Auckland. In 2000, the average job was proximate to around 71,000 other jobs. In 2015, that had risen to slightly less than 92,000 jobs.

Auckland effective density 2000-2015 chart

So job density has gone up quite a lot over the last 16 years as a result of Auckland’s growth. What effect has this had on productivity?

As a point of comparison, I estimated changes in GDP per employee over the same period. (I used Stats NZ’s employment data, regional GDP statistics, and GDP price deflators for the whole country. This isn’t a perfect estimate, as I’ve excluded self-employed people and haven’t corrected for part-time employment, but it’s not miles off.) Here’s what that looks like. Over the entire period, GDP per employee has risen by approximately 14.4%. The city’s economy currently produces around $88.3 billion in output.

Auckland real GDP per employee 2000-2015 chart

By comparison, Maré and Graham’s agglomeration elasticity of 0.065 implies that a 29% increase in job density is associated with a 1.7% increase in productivity (calculated using an arc elasticity formula: (92,000/71,000)^0.065-1). The true figure may be higher, as Auckland is specialised in industries that benefit more strongly from agglomeration economies.

In short:

  • Roughly 11-12% of the total productivity growth in Auckland over the last 16 years is due to increased agglomeration economies
  • In the absence of increased agglomeration economies from scale and density, Auckland’s economy would be around $1.4 billion smaller.

A wide range of other factors – increased skills, investment in capital goods, improved business practices, and changes to the composition of Auckland’s economy – also make important contributions to productivity growth. However, the contribution of agglomeration is significant – both in dollar terms and as a share of the city’s overall productivity growth. In the long term, those tenths of a percent add up to quite a lot. If we want a wealthier New Zealand, we need better, more productive cities.

Policymakers can do a lot to enhance – or undermine – agglomeration economies. For example:

What do you think about agglomeration economies in Auckland?

The “consumer city” and urban growth in Christchurch

This article was originally posted on Making Christchurch, a group blog set up by Barnaby Bennett in the wake of the 2011 Canterbury Earthquake, at the invitation of Transportblog commenter Brendon Harre.

Why do cities grow and change? And how can cities harness those dynamics?

Last month, I took a look at agglomeration economies, which describe the productivity and innovation gains arising from urban scale and density. The advantages that cities offer for production have underpinned urban success throughout history.

Economic productivity is important. To paraphrase Paul Krugman, in the long run, productivity growth underpins our ability to consume more of everything from electronics to healthcare, and to have more of the non-economic things that make life enjoyable. All else being equal, people tend to move towards more productive places in search of higher living standards. But economic productivity isn’t the only thing that matters for wellbeing — or for growth and change in cities.

Urban economics tackles urban amenities

For a long time, people assumed that cities offer advantages for production but disadvantages for consumption. This assumption, which shaped a lot of economic analysis and policymaking, was understandable. After all, modern cities first arose as manufacturing centres at a time when manufacturing was a dirty business. People could get jobs in the city’s “dark Satanic Mills”, but they had to suffer bad air, choleric water, and high crime rates to do so.

But things appear to have changed over the last half century, at least in developed countries. The bad aspects of cities, such as crime and pollution, have improved, and the good parts have also gotten better. Cities have become attractive for consumers as well as producers.

A pioneering 2000 paper by Ed Glaeser, Jed Kolko and Albert Saiz explored these dynamics. They argued that the availability of “four critical urban amenities” would shape future urban growth:

  • The availability of a rich variety of consumer goods and services —  which, in the era of Amazon.com and the iTunes store, means “non-tradables” like restaurants, live bands, bars, and dating opportunities
  • Aesthetics and natural settings — in other words, the quality of the city’s architecture, public parks, natural environment, and climate
  • Good public services such as schools and low crime rates
  • The quality and speed of transport systems — cities that make more destinations accessible are more likely to be attractive to residents.

In their view, the rise of the “consumer city” opens up other pathways for urban growth. If cities want to attract new residents and businesses, they don’t have to focus only on providing “producer amenities” like convention centres. Supplying great “consumer amenities” can also foster ongoing vibrancy and growth.

Here, I want to look at the prospects for New Zealand cities, and Christchurch in particular, to become successful “consumer cities”. I’m going to focus on the first two dimensions — variety in goods and services and aesthetics and natural settings — and leave a discussion of transport for a future post. (Public services are a bit less relevant to urban growth in New Zealand, as education and law enforcement are run by central government.)

Goods and services

New Zealand cities are coming around to the importance of consumption. It hasn’t always been thus. In the middle of the 20th century, when my parents were growing up in Auckland, the country was firmly in the grips of what historian James Belich called the “tight society”:

homogenous, conformist, masculist, egalitarian and monocultural, subject to heavy formal and informal regulation. There were no licensed restaurants, little weekend shopping, one supermarket (opened in Auckland in 1958) and a very limited range of goods and foods to buy in the shops and unlicensed restaurants that did exist… School milk was free, but you had to drink it.

A lot has changed since then, economically and demographically. While the wholesale deregulation of the 1980s was not an unmixed blessing, it certainly expanded the consumption choices available to New Zealanders. A more liberal migration policy brought new migrants with, thank goodness, new cuisines. And since the advent of mass-market international air travel, Kiwis returning from OEs have come back with new ideas for things to do in cities — from rock bands to restaurants to cycle lanes.

The result is a favourable climate for the adoption, invention, and proliferation of a variety of goods and services in cities — especially when it comes to bars, restaurants, and entertainment.

Christchurch has been instrumental in shaping a key part of the hospitality market: beer. When I started to be able to afford to drink nice beer in bars, the best thing on tap was often from craft breweries in Christchurch like Harrington’s and Three Boys. Their success has fostered competition: craft brewing has since taken off in Wellington and, more recently, Auckland.

In short, New Zealand cities have potential, but they may have to do a few things differently in order to fully realise it.

The first is simple: get some of the barriers out of the way. For example, minimum parking requirements can be a major impediment to opening new restaurants and bars, or converting old warehouse space to retail. They often require restaurants to devote more space to parking than to dining areas, which can be the kiss of death for hole-in-the-wall eateries.

The second is to understand — and take advantage of — positive feedback loops between population density and consumer amenities. Neighbourhoods with more people support a greater variety of consumption choices. While density isn’t for everyone, cities need some medium-to-high density, mixed use neighbourhoods to supply a rich variety of urban goods and services.

In medium-sized cities, city centres have traditionally filled that role. As the following population density maps (darker blue = higher density) show, that’s an area where Christchurch lagged behind Auckland and Wellington even before the earthquakes. The destruction caused by the 2011 Canterbury Earthquakes has created an opportunity for revitalisation on different lines — but government bungles seem to have delayed the process. It’s important that it get back on track.

Aesthetics and natural settings

Christchurch, like many other New Zealand cities, has some intrinsic aesthetic advantages as a result of the natural landscape. Here’s the view west across the city:

 

Photographer: P. Stalder

New Zealand’s environment has always drawn migrants, who often come for the landscape and live in the cities. Take, for example, novelist Eleanor Catton’s description of what drew her family to Christchurch:

I grew up on the South Island of New Zealand, in a city chosen and beloved by my parents for its proximity to the mountains — Christchurch is two hours distant from the worn saddle of Arthur’s Pass, the mountain village that was and is my father’s spiritual touchstone, his chapel and cathedral in the wild. For many years while I was growing up my parents did not own a car. We rode around town on two tandem bicycles and one single (a source of considerable embarrassment to me at the time) and at weekends we would occasionally rent a car in order to drive into the alps, and go hiking.

However, urban aesthetics also matter — even if you go tramping on the weekend, you still spend your weekdays in the city. This is an area where Christchurch has some strengths and some challenges.

From the start, Christchurch had a reputation as a “garden city” as a result of its large public parks and street trees. Although the idea of parks as a city’s “lungs” is less salient today than in Industrial Revolution cities, parks and street trees are still public amenities. They make people better off simply by existing in the vicinity.

The earthquakes seem to have opened up some opportunities to enhance the garden city — particularly along the Avon River, where many houses have been red-zoned. In addition to the central government-promoted Avon River Precinct, some community groups are calling for a forest park out to New Brighton. Others have simply gotten on with creating something new.

The built environment, however, is more problematic. Central government oversaw the demolition of over 1200 buildings in the city centre in the years following the earthquakes, including many of the city’s historic buildings.

Source: Wikipedia

This has been controversial and at times acrimonious. As I am neither an architect nor a Cantabrian, I’m not in a good position to weigh in on the debate. But as an economist from Auckland I’d observe that heritage buildings have a definite public value  — not one that trumps all other costs, but one that should be accounted for in decision-making. At the very least, it would be smart to replace any demolished buildings with more attractive and usable ones.

Prospects for population growth in Christchurch

Thus far, I’ve considered — in a thematic way — some of Christchurch’s challenges and opportunities as a “consumer city”. But what would success look like?

Let’s take a look at a few data points. First, here’s a chart showing Statistics NZ’s latest (2015) regional population projections. The Canterbury region, which includes Christchurch and its satellite towns, is projected to grow faster than all regions other than Auckland over the next three decades.

In other words, Stats NZ expects Christchurch to be relatively successful at attracting and retaining people. But look at the range on their estimates: the city could grow faster than Auckland, or it could hardly grow at all.

Without digging into Stats NZ’s forecasting methodology, it’s difficult to say why they’ve picked such a wide range. But perhaps it reflects uncertainty about the future attractiveness of Christchurch as a consumer city. Wages in Christchurch tend to be lower than in Auckland and Wellington, meaning that urban amenities potentially have a stronger role to play in fostering urban growth.

A second data point. A few months ago, I took a look at the sources of Auckland’s population growth. I found that natural increase accounted for the majority of growth but that net migration — more people arriving than departing — fluctuated wildly from year to year. Here’s what the picture looks like for Canterbury:

Source: Stats NZ Infoshare

Net migration to Canterbury has followed a very similar trend as net migration to Auckland — the peaks and the troughs coincide remarkably well. However, the troughs are just a little bit deeper in Christchurch, as substantial numbers flow out of the region in a bad year. In Auckland, by contrast, net migration seldom turns negative.

Net migration will always be a bit of a rollercoaster in New Zealand — it’s followed a boom-and-bust cycle for a very long time. But it’s possible — with the right combination of a resilient economy and good consumer amenities — to reduce the depths of the troughs and raise the height of the peaks. It might not be an inspiring mission statement for a city, but perhaps it’s the right one for Christchurch.

A brief explanation of what just happened with the Unitary Plan

Over the past week Transportblog has published several posts on the brouhaha (or is that kerfuffle?) about Auckland Council’s position on Unitary Plan rezoning.

However, we haven’t really taken a higher-altitude view on the issue. So here’s a quick summary.

The underlying issue is that Auckland’s home prices are really, really high, and rising rapidly. Rents are also rising faster than incomes. That’s great news for people who already own homes, but terrible for everyone who doesn’t.

The housing affordability crisis is particularly bad for young people and low-income households, who may be renting or trying to save up to buy a home. These people directly bear the costs of rising prices.

Home prices are high and rising because Auckland isn’t building enough homes. If there isn’t enough housing to meet demand, prices must rise until some people give up and go away. This may mean living in overcrowded flats, living in unheated garages, staying in abusive relationships to stay housed, or simply packing up and leaving Auckland.

Residential zoning rules determine how many homes can be built in the city. The Unitary Plan originally proposed by Auckland Council applies low-density residential zoning to much of the city, including many of the areas of highest demand. This means that few new homes can be built in Auckland.

On Wednesday, Auckland Council voted against considering changes to zoning to enable more homes to be built in areas that are accessible to jobs, education, and transport.

The most likely outcome of this is that Auckland will continue to build too few homes and prices will continue rising. The social ills caused by that dynamic – poverty and unhealthy housing, crimped opportunities for young people, unsustainable levels of car-dependent sprawl, and high rates of outward migration among the young – will also continue.

Book review: William Fischel, Zoning Rules! (1 of 2)

Over the holidays, I read William Fischel’s new (2015) book on urban planning, Zoning Rules! The Economics of Land Use Regulation. It’s an important, interesting, and – fortunately for me – readable book on the topic. Fischel draws upon three or four decades of research on the topic, as well as his experience as a member of his local zoning board in New Hampshire.

Zoning, or urban planning more generally, exerts a strong influence on the shape of cities. It influences where people live and work, as well as the housing choices and prices that they face. It is a dull-sounding topic with important ramifications – very similar to transport policy in that regard. And, like transport, it arouses a surprising level of passion.

Fischel Zoning Rules cover

In the book, Fischel addresses two main topics:

  • First, how did zoning / urban planning arise and proliferate? A century ago, cities did not have comprehensive zoning codes that defined how intensely people can develop land and what types of activities can happen in different places. Now, virtually every city has zoning / planning regulations. What changed?
  • Second, under what conditions is zoning economically efficient? Many commentators and researchers have critiqued the cost of planning rules, but there are also benefits – and complex interactions with other policies such as local government property taxation. What ties all this together?

In the first part of this review, I’ll discuss Fischel’s (convincing and well researched) answer to the first question.

Let’s start with a common story about why bad planning regulations exist. Here’s Finance Minister Bill English fingering some suspects in his recent speech on the topic:

Your prospects of being able to buy a house are directly related to the decisions made by planning officials about the availability of land, the environmental standards they apply to building, and the way infrastructure is allocated.

It’s very difficult to understand how planners do that, even though the consequences for the community and the economy are significant.

Central government has had the opportunity to sit alongside councils to understand how they make their decisions.

Some of those decisions appear quite arbitrary.

They can be driven by the tastes of individuals who have the power to make decisions.

English argues that planning rules are imposed in top-down fashion by council planning staff. In this narrative, planning rules exist because local governments have chosen to supply them to us in preference to other models.

Fischel argues that this story is backwards: urban planning rules have generally not come about due to top-down bureaucratic decision-making, but as a result of bottom-up democratic pressure. Politically active home-owners, or “homevoters”, advocate for tighter planning restrictions. Because the majority of the average homeowner’s wealth is tied up in their home, they have a strong incentive to vote to prevent developments that might put the value of their home at risk. In planning, ideas are secondary to self-interest:

Public officials respond to the interests of their constituents, and public ideologies such as city beautification, hearth-and-home, and environmentalism come to the fore when they serve the interests of property owners. [Zoning Rules!, p 215]

There is a significant amount of empirical support for the “homevoter hypothesis”. Saiz (2010) found that US cities with more severe geographic constraints also have more restrictive planning rules – suggesting that people who own expensive property are more likely to vote to limit development. (I recently reviewed Saiz’s paper.) At an international level, Germany and Switzerland have the lowest home ownership rates in the OECD and also some of the most affordable housing. At a hyper-local level, case studies of the great down-zoning of Los Angeles reveal the key role played by a relatively small number of vocal homeowner activists.

But timing also matters, as zoning is a relatively new phenomenon. Fischel identifies two critical periods in the development of urban planning. First, zoning was invented and subsequently spread quickly through America in the 1920s. Second, in the 1970s, zoning was tightened significantly, with increasing restrictions on both density and suburban expansion. Here was the result in Los Angeles:

FrameWORK_Housing_ZoningCapacity

The great down-zoning of Los Angeles (Source: Morrow, 2013)

Synchronised changes of this nature require synchronised causes. Fischel argues that zoning first arose as a result of a transport revolution in the 1910s and 20s:

As trucks, buses, and cars replaced rail-bound modes of transportation, suburban residential districts could no longer rely on nuisance law, informal pressures, control of rail routes, and piecemeal covenants to protect their residential investments from incompatible use. Zoning was a response to potential insults to their homes from near-nuisances transported to their neighborhoods by footloose trucks and buses. [Zoning Rules!, p 216]

The urban planning clampdown of the 1970s occurred as a result of a more complex mix of factors. The backdrop to these changes was the subsidised expansion of home ownership after World War II: governments handed out subsidised mortgages like candy, thus expanding the number of homevoters. Fischel identifies six main factors that increased homeowners’ demand for tighter zoning controls, and made it easier for them to get what they wanted:

…the three demand factors that led to the 1970s growth control movement were (a) the growing suburbanization of employment (as opposed to just residences) resulting from the construction of the interstate highway system and the spread of containerized shipping; (b) the expansion of equalitarian legal principles that derived from the civil rights movement of the 1960s; and (c) the sudden growth of housing values in the portfolio of homeowners [resulting from high 1970s inflation]. The three elements that facilitated the supply of exclusion were (a) the expansion of legal standing to opponents of development; (b) the federalization of the environmental movement that dawned on the national scene in 1970; and (c) state legislation that established multilayered review of many projects that were formerly regarded as entirely local. [Zoning Rules!, p. 217]

The details of the story are different in New Zealand than in the US. Our history with zoning as a means of racial exclusion is nowhere near as shameful as America’s. And planning legislation has followed a different (and, I hope, more efficient) course than in the US. But many of the key elements are likely to be similar. New Zealand cities have experienced the same revolutions in urban transport and suburbanised population and employment to a similar extent. And, of course, we also have a class of stroppy “homevoters” who will advocate for tighter planning regulations to maintain or increase their property values.

If you think that urban planning rules should be changed, it’s essential to understand the bottom-up drivers of those rules. Many critics of zoning are oblivious to the popularity of zoning among a vocal segment of home-owners. As City Observatory’s Daniel Hertz recently wrote:

anyone who thinks there is a “consensus” about the damage caused by too-strict zoning ought to attend the next community development meeting in their neighborhood.

Fischel’s excellent history of zoning is a useful reminder that urban planning policies generally arise as a result of pressure from homeowners, not as a result of a conspiracy of planners. Consequently, the path to reform or liberalisation of planning rules is a difficult one for local government politicians to walk. If they vote for significant loosening of planning rules, they increase their risk of losing the next election. And successful challengers may simply turn around and tighten the rules back up again.

Fischel’s awareness of that dynamic flavours his policy recommendations. Zoning Rules! closes with no proposals for sweeping change. Instead, it proposes various ideas for how a challenging “bottom-up” dynamic could be incrementally improved. At the top of the list is an important long-term play: reduce the demand for strict planning rules by cutting back tax subsidies for home ownership, like New Zealand’s lack of a comprehensive capital gains tax.

Next week: Fischel’s analysis of the economic efficiency of zoning.

Building a better city: Policies and perspectives (part 2 of 2)

This is the second and final post discussing some broad ideas for building a better city. The first post discussed the dynamic nature of cities and argued that a focus on appropriate pricing and incentive mechanisms was important to managing urban ills without stifling beneficial change. This part discusses how we might identify policy areas in need of improvement, and why we should care about efficient policy.

2. Cost benefit analysis is important for identifying opportunities to improve policies

Over the last 170 years, New Zealand cities have been shaped by a wide range of policies, ranging from planning regulations to public investments to government land-holdings to tax and subsidy policies. Many of those policies serve (or served) a useful purpose, and most are good intentioned. But it’s almost inconceivable that all of them are efficient. Cities are dynamic places, and policies put in place in past decades can easily become outmoded and begin to distort prices and limit people’s choices.

Fortunately, as I have tried to suggest in the previous post, we’ve got more policy alternatives than we think. We don’t have to use yesteryear’s solutions to solve next year’s problems. But how do we know what we might have to change?

In my view, cost benefit analysis, or CBA, has an important role to play in identifying which policies are good and which need to change. If you want to learn more about CBA, you can delve into the technical guidelines published by organisations like the Treasury and the NZ Transport Agency. But CBA is not really as complicated as the tedious official guidance makes it sounds. It boils down to a rather simple question:

“This policy has some benefits and some costs. Do we expect the benefits to exceed the costs?”

If the answer is no, perhaps we should do something different instead.

Cost benefit analysis can be applied to a wide range of policy questions. It’s commonly applied to evaluate public investment options – that’s what NZTA uses it for – and less widely used elsewhere. But the principles can readily be extended to a wide range of urban policies. In a paper I wrote for this year’s NZAE conference, I looked at a couple of approaches to evaluating the costs and benefits of planning regulations. I found that analysis of property sales could be used to identify cases where planning rules distorted prices and prevented people from making useful investments – as well as cases where planning rules could provide benefits by managing localised externalities.

Here are a few good examples of how CBA can help in making better decisions.

Back in 2009, the new National-led Government worked with the Green Party to design and implement an insulation and clean heating subsidy programme. In the first four years of the programme, roughly 180,000 homes were insulated and heat pumps were installed in around 60,000 homes. A cost benefit analysis undertaken in 2011 (Grimes et al, 2011) found that the project’s benefits exceeded the costs by a factor of five:

The overall results suggest that the programme as a whole has had sizeable net benefits, with our central estimate of programme benefits being almost five times resource costs attributable to the programme. The central estimate of gross benefits for the programme is $1.28 billion compared with resource costs of $0.33 billion, a net benefit of $0.95 billion.

This finding provided a strong rationale to extend the programme to 2016 and trial a rental warrant of fitness programme to improve home weathertightness and safety performance in selected NZ cities.

A second good example is the Ministry of Transport’s recent analysis of the economic performance of state highway investment. I reviewed their analysis in a series of posts last year (parts 1, 2, 3, 4). Among other things, they found that the economic efficiency of road spending had fallen since 2008, with projects with low benefit-cost ratios being selected over projects with higher BCRs.

MoT state highway BCRs 2005-2012

This is a valuable finding that should be taken seriously by policymakers and the public. It suggests that there may be opportunities to significantly improve the value that we are getting out of transport investment. That being said, it also suggests that policymakers have chosen to take a more optimistic view about project benefits than indicated by conventional CBA procedures. Sometimes this is warranted – it’s difficult to accurately account for some benefits – and sometimes it’s not.

This reminds me of a third example. I was struck by recent comments by Wellington’s Deputy Mayor about the city’s new publicly funded convention centre and film museum:

Deputy Mayor Justin Lester said the museum would become New Zealand’s most significant man-made attraction and an international draw card.

“It’s a little bit when Disneyland first opened in California, but in a Wellington context… In the 150th year since Wellington became New Zealand’s capital, there are only a handful of moments that rival the significance of this announcement.”

I haven’t read the business case, so I don’t know what assumptions were made to sell the project. But if the financial and economic forecasts require Wellington to become the “Disneyland of the south”, I would be very nervous.

This leads on to a very important consideration when using CBA results: To get the real story, it’s important to dive into the data and calculations that sit behind the headline figures. In some cases, people make claims about projects that are not backed up by their analysis. For example, they may require unlikely things to happen in order for the hypothesised benefits to materialise. In these cases, a properly-done CBA should also provide you with a means of understanding the risks inherent with the policy.

3. In an efficient city, there is time and space left over to lead a good life

But why is efficiency important? At the start of this post, I argued that good urban policies facilitate agglomeration economies in both production and consumption. This, in turn, enables cities to succeed in attracting new businesses and new residents. (The alternative of urban stagnation or economic decline is not really very appealing.)

Or, as Stu argued in a post last year, efficient urban policies provide us with an abundance of good things. Efficient urban planning policies allow us to have abundant, affordably priced housing, without sacrificing public goods. Efficient transport policies enable us to have abundant access. Good management of public assets allows us to combine a productive economy with a good supply of public goods.

Furthermore, generally prioritising efficiency in our urban policies means that we will have more resources left over for all the non-economic things that make life beautiful and enjoyable. For example, allowing people to use land efficiently by building more housing in areas that are accessible to jobs and amenities will also allow them to avoid commuting long distances to sprawlsville. This in turn frees up time to spend with the ultimate in non-economic investments – children and families.

Last December, I saw how things could be a little different. It was the first day that LightPath / Te Ara I Whiti cycleway was open. (Incidentally, I think it should be called PinkPath.) I skipped the mass ride organized by Bike Auckland in favour of a drink elsewhere, but checked out the new cycleway on the bike ride home.

Now, I wasn’t extraordinarily enthusiastic about the project. It seemed to be too far over to the west edge of town and so I wasn’t sure how many people would want to use it. But it has surprised me. I’ve been up and down it eight or ten times since then, and there are always people out on it, even at 10pm. They are having fun cycling – a relatively new concept for Auckland.

LightPath - Vaughn Davis

PinkPath was designed to be fun to cycle on and fun to see from a distance. It sends a message: “Auckland will give you new choices about how to travel. Rock up on your bike.” It didn’t cost much – less than 1% of Auckland’s annual transport budget and a disused motorway off-ramp. But that money and space can easily be consumed by inefficiency elsewhere in the system.

Which leads me to my conclusion: the good things in life are not necessarily expensive, but they can easily be crowded out by bad urban policies. So get the prices right, do some CBA, and live a better life in a better city.

Building a better city: Policies and perspectives (part 1 of 2)

This is the first half of a two-part series of posts. It summarises a few ideas that have been banging around the back of my head for a while – basically, an attempt to answer the question: “What can economics do for cities?” In this part, I discuss a couple of important concepts: agglomeration economies, which underpin cities’ existence and ongoing success, and the potential role of pricing mechanisms for managing urban ills.

What do cities do?

Cities mean different things to different people. They are places to work, places to play, places to invest, places to consume, places to conduct politics, places to realise one’s individuality, places to blend into the crowd. (And many, many more things beside.)

In fact, one of the features of a successful city is that it can mean different things to different people, and attract and retain them for different reasons. Cities exist because they are efficient and diverse.

Economists use the term agglomeration economies to describe the advantages of urban scale and density. If you operate a business, locating in a city will allow you to access more workers, more customers, and more new ideas. But even if not, an urban location still offers advantages – more restaurants and retailers, a larger dating pool, better access to education and healthcare, and more choices about how to work, live, and get around.

New research from the Netherlands finds that agglomeration economies in both production and consumption are important, albeit to a different extent in different cities. Furthermore, ignoring agglomeration economies is a risky proposition for cities:

As history has shown (see, for example, what happened to Detroit or the decline in the population of Amsterdam and Rotterdam referred to above), current successes provide no guarantees for the future. This is what Gibrat’s law tells us, growth is independent of current size. Future growth is therefore largely independent of past success. The chances for policymakers that try to row against the tide are small. A successful policy requires to ‘go with the flow’. Large investments in infrastructure in a declining city do not satisfy any real demand but lead to large financial burdens for the local population, making these cities even less attractive. However, policy can make a difference in growing cities. In order to remain on the short list of hot spots, policymakers in these cities have two margins to work on.

  • First, the city has to be attractive for innovative entrepreneurs and enterprises to locate their business.
  • Second, the city has to be an attractive choice for high-educated top talent as a place to live in.

In other words, urban success is a dynamic process. Cities can’t stand still – they must be capable of attracting new people and generating new ideas and opportunities. Simply identifying some things that people like about a city and then freezing them in amber is a recipe for long-term urban failure.

1. Incentives and prices matter, so it’s important to get them right

We need change, but we don’t necessarily need change at all cost. Most development is good, but some has deleterious side-effects. A new factory may contaminate local air and water quality. A coal-fired power plant will damage our climate. A new subdivision may pump traffic onto congested roads. A new retailer may attract more people to park on already-crowded streets.

Policy responses to these challenges can heavy-handed and inefficient. While negative (and positive!) spillovers are abundant in cities, some cures may be worse than the disease. A good example is minimum parking requirements, or MPRs, which require new developments to provide a defined minimum amount of parking. The aim of this policy is to prevent parking from spilling over onto neighbouring streets and properties.

Unfortunately, MPRs tend to be both inefficient and ineffective. They are inefficient because (a) there is usually poor evidence for choosing minimum ratios, meaning that many businesses and households are compelled to purchase more parking than they need and (b) they tend to be more costly than alternative approaches to parking management. Furthermore, they are often ineffective, as people continue to complain about a lack of parking even in places where MPRs have led to a major oversupply.

Better pricing is often a better alternative to blunt policy instruments. As any economist will tell you, if you want less of something, put up the price! This approach is applicable to a wide range of policy areas, especially in cities. For example:

There are several important advantages to using prices, rather than regulations or construction, to discourage negative spillovers. First, pricing respects people’s ability to make good choices. If we had a carbon tax, it wouldn’t prevent someone from burning petrol or farming cows. But it would make them pay the full social cost of those choices.

Second, prices can change in response to new information. AT’s new parking policy is a good example of this – they will monitor demand for on-street parking and tweak the prices up if occupancy is too high. This reduces the risk of screwing things up due to forecasting errors.

Third, and most importantly, prices provide governments, businesses, and households better information, which can enable them to make better decisions. Over time, this will result in significant dynamic efficiencies. For example, congestion pricing will help transport agencies plan infrastructure upgrades. Rather than having to guess whether people will value expanded roads – which frequently leads to errors – they will be able to measure the actual value that people place on travel.

Tomorrow: Part 2.

Costs, benefits, and East-West Connections

How transport projects are evaluated has always been of interest to me. I believe that although the standard cost benefit analysis approach that lies behind the NZTA economic evaluation manual has its flaws, the resulting BCR is still an important factor in determining whether a project, or a particular project option, should proceed. I don’t really buy the argument that a project with an unfavorable BCR should be trumped by “strategic” reasons to enable it to proceed. If the strategic reason is any good it will probably be reflected in the BCR, particularly if wider economic benefits (WEBs) are taken into account. I put the Puhoi to Warkworth business case in this category (BCR 0.92) , along with the eye-wateringly expensive Additional Waitemata Harbour Crossing for cars and trucks (BCR 0.4).

Recently I took a look at a number of documents on the East-West Connections project – formerly called the East-West Link, released by the NZTA . At this stage they’ve completed an “Indicative Business Case” (IBC) – essentially, an initial investigation of the options for improving connectivity in the area. They’ve published the IBC alongside a number of technical appendices.

This is a welcome step as this is the first time that the wider public is getting a decent look at the project, including all of the options on the table. NZTA’s decision to release the full documentation, without redacting large sections of the analysis, is really good for transparency.

So let’s take a high-level look at some of the specific trade-offs between costs and benefits of the different options. To jump right to it, NZTA’s conclusion is that Option F should be progressed to a Detailed Business Case. Here’s a picture of Option F, which involves a new highway along the Onehunga foreshore:

East-West Option F

For context, Options C, D and E also involved building new roads (part of the way) along the foreshore, while Options A and B entailed upgrades to existing roads, including freight lanes. A summary assessment of this “short list” is available in Appendix O of the business case.

NZTA conducted a cost-benefit analysis (CBA) of these six options. CBA for transport projects typically compares:

  • The financial costs to build and operate the project, and
  • The monetised economic benefits of the project, including user benefits such as travel time savings, vehicle operating cost savings, and reliability improvements and other benefits such as vehicle emissions reductions (or increases) and effects on economic productivity (“agglomeration”).

While CBA does have some weaknesses, largely due to shortcomings in the modelling tools available to us, it’s a conceptually robust way to assess project options. Especially in the case of road projects, NZTA’s approach should capture the majority of the economic benefits arising from projects, including productivity improvements for freight users.

This is the summary table:

East-West BCR table

You can see the net present value of the total benefits exceed the total costs for each option – i.e. the total benefit-cost ratio (BCR) for each option is above 1.

However, there are two problems.

The first is that the NZTA has made somewhat arbitrary assumptions about agglomeration benefits, which in theory reflect the productivity gains arising from improving connectivity between businesses. Rather than formally modelling it using the procedure specified in Appendix A10 of NZTA’s Economic Evaluation Manual, they’ve simply assumed that agglomeration impacts will add 25% on top of transport user benefits for each option.

As Stu previously highlighted in the case of the Mill Road highway, which included a similar “fudge factor” for agglomeration benefits, there is no real reason to do this (other than the rather circular argument that the same thing is being done for other projects).

In the case of East-West Connections, there is a stronger argument to be made for agglomeration benefits, as this project will serve a busy commercial/industrial area. However, it’s still necessary to do the analysis to establish their existence and magnitude! I (perhaps cynically) suspect that the 25% figure has simply been used to make the BCRs all appear higher than they otherwise would be. For public relations purposes it is preferable to have a higher BCR than a low one, even though the purpose of the exercise is an option evaluation rather than an assessment of the absolute economic worth of the project.

The second problem with this table is that it is not consistent with NZTA’s own requirements. Section 2.8 of the EEM sets out requirements for calculating and reporting BCRs. That section requires an incremental analysis of costs and benefits:

EEM incremental BCR guidance

In other words, if you are choosing between two options, one of which is considerably more expensive than the other, it’s not enough to say that the more costly option has a BCR above 1. It’s actually necessary to show that the added (incremental) benefits of the costly option exceed the added (incremental) costs.

This is an important step in cost-benefit analysis as it shows you whether spending that extra bit of money for a more expensive solution is justified. Failing to do an incremental CBA is basically an invitation for gold-plating and overspending – i.e. find a worthwhile project, and then jack up the costs as high as possible.

So let’s take a look at an incremental BCR analysis of the East-West options. For simplicity I’ve focused only on Options A, B, and F – the two cheapest options, and NZTA’s preferred option. (Options C, D, and E are fairly similar to F in terms of total costs and total benefits – including them wouldn’t get a different result.)

Here’s a picture of Option A, which is an upgrade of SH20 and the existing Nielson St route to SH1:

East-West Option A

And here’s Option B, which is pretty similar but also adds a south-facing ramp to SH1:

East-West Option B

I’ve ranked the options from least to most expensive:

  • Option A has total costs of $200 million and total benefits of $850 million. Consequently, it has an incremental BCR (relative to spending nothing) of 4.3. In other words, Option A seems like a good project.
  • Option B has total costs of $500m and total benefits of $1650m. This means that it has incremental costs of $300m (i.e. $500m-$200m) and incremental benefits of $800m (i.e. $1650m-$850m). Its incremental BCR, compared to Option A, is therefore 2.7. This suggests that it’s well worth spending the extra money for Option B.
  • Option F has total costs of $800m and total benefits of $1550m. Relative to Option B, its incremental costs are $300m and its incremental benefits are -$100m. Its incremental BCR is therefore -0.3.

In other words, if the NZTA were to follow their own economic evaluation manual it shows that Option F is not great value for money. It costs a lot more while actually delivering fewer economic benefits than Option B. Negative BCRs are generally not a positive sign that a project is a good idea.

This isn’t to say that we shouldn’t build Option F, or that we should build Option B. There may be some significant positive or negative effects that aren’t captured in this analysis and that may tip things in a different direction. For example, existing traffic modelling tools may not capture travel time reliability benefits very well. Similarly, we haven’t taken a look at environmental costs – on the one hand, Option F paves over the remainder of the Onehunga foreshore, which is negative; on the other, it potentially moves trucks away from the town centre and residential areas, which might be a good thing.

Admittedly I’m not a professional economist, but to me the incremental BCR analysis does highlight several questions that need to be answered:

  • Given the fact that Option F costs more than Option B while delivering fewer quantified economic benefits, is there evidence that other unquantified benefits, such as travel time reliability, are sufficiently large to justify the added costs?
  • Given that the project is primarily intended to improve convenience for freight users, has the government asked freight companies and shippers in the area if they would be willing to invest their own money to pay for Option F?
  • Given the results of the Basin Reserve Flyover hearings, in which a Board of Inquiry found that the incremental economic benefits of the Flyover weren’t sufficient to outweigh the added environmental/amenity costs, is there a risk that approval for Option F won’t be forthcoming?

And finally, given the results of an incremental BCR analysis, isn’t there a case to also progress Option B for a more detailed assessment in the next stage of the work, given that it maximises economic benefits at a lower cost?

Are cities really getting less dense?

I have been pondering a comment in William Fischel’s generally excellent new book on zoning to the effect that:

…suburbanization and reduced urban density are worldwide phenomena. All but 16 of the 120 urban areas on every continent grew outward and reduced their overall population densities in the last decade of the previous millennium, even as almost all of them grew in total population.

This is an interesting claim, but one that I find very difficult to reconcile with the evidence on other “big picture” changes observed in cities over the last three decades.

In recent decades, agglomeration economies have gotten stronger and the structure of advanced urban economies has changed. This has in turn increased the premium that people place on proximity and centrality – a phenomenon well illustrated by Grimes and Liang (2007), who show how close proximity to the city centre shifted from being a “disamenity” to an “amenity” during the 1990s:

Grimes and Liang (2007) value of proximity chart

Relatedly, regulations limiting density are increasingly binding (and, in places like Auckland, San Francisco and New York, more costly than regulations limiting sprawl). This was nicely illustrated by three recent pieces of research that showed that (a) Auckland’s legacy planning regulations imposed twice as many costs on apartments as standalone houses, and that (b) the cost of legacy councils’ building height limits were higher than the cost of the city’s former urban growth boundary:

Type of regulation Estimated cost of regulations Source
Rules affecting standalone houses $32,500-$60,000 per dwelling Grimes and Mitchell (2015)
Rules affecting apartments $65,000-$110,000 per dwelling Grimes and Mitchell (2015)
Metropolitan urban limit $860 per Auckland household NZIER (2014)
Height limits $933 per Auckland household NZIER (2015)

So colour me perplexed. On the one hand, I have a very respected and knowledgeable economist telling me that cities are getting less dense. On the other hand, I have a mass of evidence, often compiled by other respected and knowledgeable economists, that suggests that densities should be increasing, not decreasing.

As it turns out, Fischel’s claim is what my mathematician friends describe as “true but trivial”. It’s not inaccurate, but it doesn’t tell you anything interesting about the world either. The idea that urban densities are getting lower is in fact a statistical artefact – i.e. it’s a “fact” that arises from the way that Fischel has calculated population densities.

Calculating population densities is a slightly arcane subject. Last year, I wrote a short paper that explored alternative measures and explained why we should prefer a population-weighted density measure to a simple average density:

The most common approach to measuring population density is simply to divide the total population of a city by the total land area of the city. As shown above, this approach will tend to underestimate the density of cities with large expanses of lightly populated exurban land. However, this approach is commonly used for international comparisons due to the fact that it relatively straightforward to calculate…

The population-weighted density measure was introduced by Barnes (2001) to correct for the weaknesses of the simple average density measure. This measure was recently used by the US Census Bureau to produce consistent and meaningful data on American cities (Wilson et al, 2012). As the example above suggests, it more accurately reflects the density at which the average city resident is living (Eidlin, 2010).

Population-weighted density is estimated by calculating the density of all individual neighbourhoods within a city, assigning each neighbourhood a weight equal to its share of the city’s total population, and summing up the weighted density of all neighbourhoods. In other words, if a dense inner-city neighbourhood has ten times as many people as an outlying suburban neighbourhood, the inner-city area would be weighted ten times as heavily as the suburban area.

In other words, average density measures the density of the average hectare of land in the city, even if hardly anyone lives there, while population-weighted density measures the density of the neighbourhood that the average citizen lives in. Average density is not, therefore, a very meaningful number if you want insight about how people are living in a city.

Moreover, it turns out that a city’s average density can be declining even though every part of the city is getting more dense! This sounds counterintuitive, so I’ve put together a simple model showing how it can happen.

You can download the model here in case you’re interested in playing with it. For simplicity, I’ve assumed a linear city that extends in one direction from a centre. (This readily generalises to a city that extends in multiple directions.) Population densities are highest near the centre and decline exponentially with distance. (The distance decay parameter I’ve used loosely approximates observed outcomes in big NZ/Aus cities.)

I’ve tested the impact of a 20% increase in the urban population. In the model, intensification accounts for around 60% of growth, meaning that all existing developed areas get ~12% denser. The remaining 40% of growth occurs in low-density greenfield areas, which expand the city’s footprint by 33%.

Mathematically-minded readers will see where this is going. But for the visual learners out there, here’s what it looks like on a graph:

Changing population density example chart

Because the urban footprint has expanded by 33% while the population has only grown by 20%, the city’s average density has dropped by 10%. But if you look at the graph, you can see that it would be ridiculous to say that the city is spreading out and de-densifying. In fact, every part of the city is getting more dense, and most growth is occurring within built up areas.

In other words, Fischel is wrong to say that cities are getting less dense. Horizontal growth is certainly happening – but so is vertical growth.

I would argue that the latter trend – towards proximity, density, and efficient use of land – is the more significant of the two. We are currently seeing big changes in the function, structure, and use of cities. Recognising and responding to those changes is important, and policies that unwittingly stifle them will have large economic and social costs.

That’s why it’s important to measure density (and other urban phenomena) accurately – bad measures often contribute to bad policy decisions.

How do you think cities are growing?