The New Trumpian Landscape

When I created this site, the policy landscape for urban America seemed fairly predictable– continued divided national government, with a centrist Democrat in the White House and a Republican majority in the House and probably the Senate. That alignment would provide, as it has in the recent past, opportunities for incremental improvements in the quality of urban life and some hope for reversing the mounting inequalities that threaten America’s economic and social stability.

The 2016 election upset that projection, to say the least, and I have followed very closely the staffing and emerging governing philosophy of the Trump Administration. Putting aside the thousands of subplots and and nth-order considerations, I believe you’re left with two basic conditions that define the new landscape:

  1. America’s now has a President who is profoundly ignorant and has serious personality disorders, and;
  2. He will enable right-wing extremists to pursue a reactionary domestic legislative agenda and belligerent foreign policy goals unimpeded.

The first of those realities was obvious to many, maybe even a majority, of Americans before the election and has only become more obvious since. I think that as the country gets to know him better we will only become more astonished at the vastness of his ignorance and the severity of his personality flaws. Being a New Yorker I have been exposed to a constant dribble of Donald Trump for most of my life, and I have never seen him do or say anything that contradicted my basic assessment of his character. That he didn’t know who Frederick Douglas is, or was, comes as absolutely no surprise. Perhaps his ignorance results from having Adult ADHD, I cannot say, but there is plenty of circumstantial and testimonial evidence that he has read few if any books in his adult life.

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More Than Detroit

I recently read Thomas J. Sugrue’s The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit. I’m a bit embarrassed that it took so long for me to get around to this outstanding book, but I guess my timing was right as I finished it on election eve.

Sugrue tells what should be a familiar story, but probably isn’t to enough people, with a great deal of nuance and impressive historical research. African Americans from the south migrated to northern industrial cities in great numbers beginning around 1920. In Detroit, as in other cities, they enjoyed some prosperity and upward mobility in the 1920s and 1940s, although that progress was harshly interrupted by the Great Depression.  The war years and the immediate postwar period were times of hope and progress, but that came to an unfortunate end as Detroit and other cities deindustrialized and decayed in the 1960s and 1970s. The deindustrialization of center cities was not a conspiracy against the black migrants, but rather it was a historical coincidence with effects so cruel as to seem designed in malice. The ensuing impoverishment of inner-city blacks conttributed to the social unrest of the 1960s and the social disorder of the 1970s.

Sugrue’s research adds to the familiar story by showing that the roots of the urban crisis were sown much earlier than is typically portrayed; no sooner had WWII ended than the auto industry begin dispersing, both to the exurbs and to other non-urban areas of the country.  Backed with research that is concrete and detailed, Sugure shows that throughout the 1950s the UAW and other labor groups were resisting industrial deconcentration and automation, but ultimately could do little to influence the corporate decisions that threatened their jobs and disrupted their communities. Of course, many white workers were able to follow their employers to the suburbs and beyond, extending their hold on working class prosperity for a few more decades.  The black workers were not even that fortunate, as discrimination in jobs and housing left them stranded in the abandoned city.

Which brings us to the second major theme of Sugure’s book–the unrelenting discrimination and segregation African Americans experienced even in the northern promised lands. I grew up in a predominately white, working class neighborhood of Queens; it eventually transitioned into an exclusively African American and Caribbean neighborhood. The original white residents were on the whole decent people, there was little organized resistance to racial change, and racial transition was by and large accepted passively as a natural and inevitable progression. “White flight” there took place in slow motion over several decades, and when the white residents left they typically “fled” to grandchildren, nursing homes and graveyards. So I’m inclined to see residential segregation as an impersonal force driven by demographic flows and maintained by individual choices.  However, the virulent racism and violent hostility to neighborhood integration in 1950s and 1960s Detroit that Sugrue painstakingly documents is revolting and dispiriting, and underscores that much energetic activism was required to maintain the color line. Although he makes an effort to understand the threats white residents perceived to their communities, his heart doesn’t seem in it and truthfully, by the time I reached those passages, this reader’s wasn’t either.

So as I put the book down on election eve and watched the results roll in from Michigan, I had conflicting emotions. I was saddened by the futility of white Michiganers voting against all logic in the desperate hope that Donald Trump and the GOP would save their jobs and communities or care enough about them even to try. But it was also hard to put out of my mind Sugure’s horrifying narrative of racial animosity and to convince myself that the echoes of it didn’t play an important role as well.

The Los Angeles Homeless Housing Bond

In few cities has homelessness been as contentious an issue as in Los Angeles. The residents of the city have long displayed a live-and-let-live attitude toward the homeless, and in one recent survey of Los Angeles County residents homelessness was cited as the second-most important problem facing the county. Yet, the city has often resorted to a strong-arm law enforcement approach to the street homeless; in 2009 two national advocacy groups anointed it the “meanest” city in the country for its criminalization of homelessness.

In November, Angelenos will have an opportunitunity to express which side of the street they are on, as a referendum authorizing the city to issue $1.2 billion in general obligation bonds to provide supported housing for the homeless will be on the ballot.

Los Angeles has by far the largest population of street homeless in the country.  According to the city’s estimates complying with HUD’s Point in Time enumeration, there were 17,687 unsheltered homeless people residing on the city’s streets in 2015. That compares to 3,200 in New York, 2,000 in Chicago and 500 in Washington DC.  Even allowing for errors in the count, the scale of the problem is severe.  With about 4.5 street homeless per 1,000 housed residents, Los Angeles is second only to San Francisco in terms of the intensity of the problem.

In 2002, under the direction of Police Chief William Bratton, the city began enforcing, especially in the “Skid Row” district near downtown, a 1968 ordinance that prohibited sleeping in or upon a street, sidewalk or public way.  The ACLU of Southern California filed suit on behalf of six homeless individuals, but a district court upheld the city’s sleeping ban. However, in Jones v. The City of Los Angeles the following year, a panel of Ninth Circuit judges reversed the district court’s ruling, finding that the plaintiff’s may have become homeless involuntarily and their choice to sleep on the street was “involuntary and inseparable from their status.”

In 2014, a federal appeals court also struck down a Los Angeles law prohibiting people from living in vehicles, and in 2016 the city was ordered to stop seizing and destroying the property of homeless people left unattended on the street.

In the Jones decision the appeals court ruled that the city could not enforce the prohibition on sleeping on public sidewalks as long as the number of homeless persons exceeded the number of available shelter beds.  At that time, and still, the city has nowhere near the number of shelter beds necessary to accommodate its homeless population, although the shelters that it does provide are rarely used to capacity.

In 2007, the City and the ACLU reached a settlement agreement stemming from the Jones suit, whereby the city pledged not to enforce the sleeping ban until at least 1,250 units of additional permanent supported housing are constructed for current or formerly chronic homeless persons. Although the city has supported construction of some excellent facilities, nearly 10 years later the City has not completed building all of the promised units and the exact count is a matter of dispute.

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Luxury Housing and the Rest of Us

Does the construction of ultra-luxury apartments raise the cost of housing for everyone else? Simple logic would suggest it doesn’t, insofar as an increase in housing supply should operate to satisfy some housing demand, even if it’s for a thin upper-crust of buyers, thereby relieving price pressure on the rest of the housing stock.

But before jumping to that simple conclusion, less expensive housing that might be demolished to make way for the ultra-luxury building needs to be considered. In the case of 15 Central Park West, one of New York’s most expensive addresses, the 365-room Mayflower Hotel was demolished and replaced by only 202 ultra-luxury units, thereby eliminating affordable housing and reducing overall housing supply. In other cases, however, sites were previously occupied by commercial uses, so there was no offsetting loss of existing housing. Moreover, in New York at least, luxury developers’ purchases of air rights from adjoining properties can lead to the preservation or improvement of existing housing. Overall, it seems that ultra-luxury housing development generally expands the housing supply.

But how does the emergence of an ultra-luxury housing market affect the price of land, and hence the type of housing that can be built in desirable parts of the city?  In theory it doesn’t, because the market values land according to the most profitable use it can be put to, and precisely orders sites according to the marketability of the housing that can be built on each. Each site would be developed accordingly. That is a very static view of the land market, however. In the real world, it can be rational for a land owner to keep her property underutilized if she thinks that at some point it will become a viable site for ultra-luxury housing.

Suppose, for example, that the residual value of land for ultra-luxury housing development is three times as much as for normal, upper-middle income housing. Also imagine that there are ten vacant sites available for development, but that the ultra-luxury market can absorb only one of those sites per year. In a static world, the most desirable of those sites will be purchased to develop ultra-luxury housing and the other nine will be sold to developers of more modest housing. In the real world, however, it may pay for the other nine owners to absorb the carrying costs of their underutilized properties until their turn to sell to an ultra-luxury developer arrives.

Something like this may be playing out in Manhattan now. According to a recent New York Times article: The major impediment to more  of these projects (apartments modestly priced at $1 million to $3 million) coming to market is the price of land, which has not fallen along with the demand for ultraluxurious properties.

So it seems land owners would rather just hold onto their developable sites, hoping that eventually the ultra-luxury market will revive and their turn to sell to that market will come. In the meantime, development of professional-class housing is impeded.

 

What’s Up With Retail?

 

Early this year Macy’s announced that it was closing 40 of its department stores. In April, Sears Holdings said that it would close 10 Sears and 68 Kmart stores. Then last week, Macy’s announced that it would close about 100 additional stores. Do these retrenchments represent just the normal ebb and flow of company fortunes in a competitive marketplace, or is there something more profound going on in retailing?

Well, there seem to be three strong crosswinds impacting the retail sector today, and the large department stores are taking the brunt of them. The three are middle-class income stagnation, globalization and the internet.

Through 2014 (the last year for which data is available), the average real incomes of none of the five household income quintiles had recovered to their pre-recession peaks. However, the recovery of income has been more complete for the higher income groups. While the average income of the lowest quintile of households had recovered to only 88 percent of its pre-recession peak, the average income of the highest income quartile had recovered to 98 percent.  The share of total income garnered by the three middle quintiles declined from 46.9 percent to 45.7 percent, while the share of the highest income quintile went from 49.7 to 51.2.  Retail chains that cater to higher-income shoppers are reportedly doing well, but for many large chains the three middle groups, with annual household incomes from about $21,000 to $112,000, is where the volume is, and income growth for those households has been slow.

Competition between name-brand retailers and discounters is not new, but in recent decades the out-sourcing of dry-goods production to China, Bangladesh and elsewhere has tilted the playing field in favor of the discounters. Epitomized by the Walmart formula, which combines a cheap foreign supply chain with monopsony buying power and a no-frills “supercenter” shopping experience, the discounters have increasingly pressured the department store chains (as well as smaller chains and independent retailers) that traditionally marketed fashion and quality. Warehouse clubs like Costco have also made inroads among middle-income families whose incomes have stagnated. From 2000 through 2014 the number of department stores nationally declined from about 10,500 to 8,000 while the number of supercenter and warehouse club outlets has grown from about 1,800 to 5,300.  Walmart alone operates over 3,400 supercenters. Total retail sales in warehouse clubs and supercenters are now about triple the sales volume of traditional department stores.

Traditional retailers also face intensifying competition from internet sales. In 2015, internet sales topped $432 billion. While that represents only abut 9 percent of all retail sales, e-retailing has captured about 30 percent of the retail sales growth since 2007. As a consequence, in-store retailing has grown at only a 1.2 percent real annual rate over the past eight years, compared to the 8.2 percent growth rate of e-retailing.

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Corporate Eisodos

On August 1st the NY Times ran an article on corporations leaving the suburbs for downtown city locations. Featured in the article are GE’s move to Boston, McDonald’s to Chicago, and Chemours’ decision to stay in Wilmington. The exodus of corporate headquarters to suburban locations shaped metropolitan development in America for half a century, and a reversal of the trend could have equally profound implications.

(Oddly enough, there is no direct English antonym for ‘exodus.’ The English word derives from the Greek ‘exodos’ meaning an exit or departure, and of course is associated with the biblical narrative of the Israelites’ escape from slavery in Egypt. Unfortunately, the English language never got around to expropriating its Greek antonym, eisodos, which mean an entrance or act of entering.  Anyway….)

The article is mostly anecdotal so it might be premature to extrapolate an inversion of metropolitan geography from it. Nevertheless, such anecdotes have been accumulating, suggesting something might really be going on.

Two basic explanations are offered for the increasing appeal of urban locations. One is the tax incentives (increasingly?) being offered by municipal governments to companies that are considering downtown relocations. The other is the increased livability of urban areas and corporations’ desire to access a skilled labor force that prefers city living. What’s interesting is that those two reasons represent very different philosophies of urban redevelopment, and are even somewhat contradictory. The first reflects a 1970s-era belief that it’s all about tax competition.  The second reflects a Richard Florida-type strategy that if you make cities attractive enough, the creative class will flock to them and corporations will have no choice but to follow suit. The potential contradiction is that if cities give away their tax base to attract business, there won’t be enough of it to make the quality-of-life investments necessary to attract the creative class.

But maybe they aren’t ultimately contradictory.  If a virtuous circle takes hold, opposite of the vicious cycle that occurred in the 1960s and 1970s, cities could both lower tax burdens and improve the QOL. There is nothing to suggest that central cities are at an inherent tax disadvantage; economies of scale in metropolitan infrastructure and services might even give cities a structural tax advantage. Maybe we’re reaching that stage of city-suburban competition. In any case, the $7.9 million in grants given to Chemours, cited in the article, came from the state of Delaware, not the City of Wilmington, as the DuPont spinoff was considering a move to Pennsylvania or New Jersey.

 

 

 

 

Homeownership and Retirement

The New York Times today presented a “Room for Debate” feature on the declining rate of homeownership, which has declined 6 percentage points from its peak. The debaters include Dean Baker, Elyse Cherry, William E. Spriggs, A. Michele Dickerson and Ed Glaser. Though I have some qualms with Cherry’s prescription of mass principal write-downs for underwater borrowers, the debaters generally offer reasonable takes on the pros and cons of home ownership and the implications of a declining ownership rate.

It is surprising, however, how little attention these reasonable commentators give to the retirement security benefits of homeownership. That oversight is particularly stark in Glaeser’s comments, where he states bluntly that “there is little public benefit in pushing people to own rather than rent homes.”

Consider a simple example where two identical families earning $75,000 annually at 30 years of age are contemplating renting permanently or plunging into homeownership. Say the first choses a permanent rental apartment for 20 percent of their gross income (about $1,250/month) and the other purchases an equivalent house with a similar monthly mortgage payment, although they will have to pay another 10 percent of their income in property taxes, insurance and maintenance expenses. To keep things simple, let’s ignore the tax benefits of homeownership and the opportunity costs of the home buying family’s initial down payment. Furthermore, assume that all rental and ownership costs inflate by 2 percent per year, except of course the homeowners’ mortgage expense, which is fixed for its 30 year amortization period.

Initially, in this simple scenario, the buying family would be paying a housing cost premium of 50 percent to own rather than rent. But since their mortgage costs are fixed, that ownership premium falls steadily, so that by the time they are 60 years old they are paying only a 6 percent monthly premium over their renting counterparts. By the time they are 61, their mortgage is fully amortized (No refinancing! No home equity loans!) and their ownership costs drop to 50 percent of their counterparts’ rental costs.

In nominal dollar terms, at age 65 the renter family will be paying $2,451 in monthly rent while the home-owning family will have total monthly housing costs of just $1,225. That difference will make a huge difference in the retirement welfare of the two families, not to mention the benefit of cost predictability enjoyed by the homeowners.

Of course, many embellishments to this simple model can be made, but the basic conclusion will stand under a wide variety of assumptions. The renters would have to display a great deal of savings discipline over their working lifetimes to generate enough investment income to offset their housing cost disadvantage and be better off overall than the homeowner at retirement age. I haven’t done a lit review of renter/owner savings behavior, but I’ll guess that very few renter families would display such savings discipline.

So, if there is a public benefit that the elderly be securely housed there is a public benefit to encouraging home ownership. If there isn’t a public benefit to homeownership in this sense, is there a public benefit to other retirement security policies, such as Social Security or 401-k tax advantages?