Environmental Explanations for Urban Migration and Sprawl

The NY Times has a story about Chinese households moving away from the largest cities to smaller cities in part because of lousy air and water quality. This is no doubt happening, though data is scarce to  assess to what degree. This does highlight an explanation for urban spatial structure and sprawl in the United States that tends to be forgotten or ignored, which is the role of the environment. As an example of the state of the literature on sprawl, here is a link to a short piece by USC's Richard Green in which he identifies nine key causes of sprawl. I agree with all of these, but I also suspect that desire for clean air and water played a large role. The photo above is of Manhattan in 1966. If the air was still like that I doubt we'd have any $100 million penthouses as you wouldn't be able to see anything. Central cities used to be the center of industry, and that led to lousy local environments. Leafy suburbs were a solution to the dirty air and polluted waterways. Now that polluting industry has left central cities they are more desirable.

Cities in the 1940-1960s (and earlier, but I am thinking primarily of post-war sprawl here) were poisonous places. Toxic air was extremely common and manufacturing industries made things worse. For many reasons it was better and easier to move the people away from the pollution than move the pollution away from the people. It is reasonable to expect that one of the reasons that people did favor sprawling residential land development is precisely because of the known negative externalities associated with living near industry.

Another consequence of lousy air and water is that cities responded by strengthening their zoning codes and land use regulations separating uses. Consider that much (most? I'm not sure.) of the new residential development happening in central cities is happening on land that was rezoned away from industrial uses to residential uses. As an example, the eastern part of downtown Minneapolis was recently rezoned from industrial uses to residential (Update: to clarify, mixed uses are allowed, including residential.).  Links here. Downtown business interests desired that land remained zoned industrial for decades so that development would concentrate in a few skyscrapers, which is why the area is dotted with parking lots. Now that the zoning has changed development is occurring, in part because living downtown is no longer associated with polluted air and water. (As an aside, such development would likely have occurred after the rezoning regardless of a new football stadium, but I'm sure the stadium will get all the credit. The Metrodome didn't "create" any development because the zoning wouldn't allow it.)

So local zoning for industry was a reasonable reaction to major environmental problems of the time, but the regulations are outdated for today's economy. This will take time to fix. Perhaps all zoning should have a sunset clause where it expires after 30 years so the codes become more adaptable to economic conditions.

The main reason we have clean air and water is because of federal regulations installed under the Nixon administration, and a main reason we still sprawl is because of local regulatory responses to environmental externalities. But overall US cities, and cities around the world, were able to improve their environments so that people enjoyed them. From the standpoint of household preferences, it may be that clean air is preferred over any particular type of home. If true, this means that the observed preference for single family suburban homes may be misdiagnosed as the true household preference is (was) for clean air and water. Now that clean air and water are universal in the US, household preferences prioritize other aspects, such as housing type, amenity value, or other factors. There is little research on the role of environmental qualities for household preferences for suburban or urban living. I don't think the data exists to historically test this proposition for the US, but we can measure these effects in contemporary Chinese cities if we can collect the right data.

If it turns out that environmental factors are a non-trivial cause of sprawl, then federal environmental regulations may be effective pro-urban policies that complement other urban policies. In turn, the local responses of stricter zoning because of environmental pollution were ineffective and ultimately damaging to metropolitan spatial structure and sprawl, which work against other public interventions. Clean air and water are public goods that require global (or national) responses.

Can We Build Our Way Out of High Rents in Manhattan?

Zoning controls and land use restrictions limit dense development in many areas. Most of the literature looks at the effect of minimum lot size zoning and concludes that such restrictions create sub-optimal levels of density. In some cases, such as Edward Glaeser's Triumph of the City and his related academic work, scholars argue that places like Manhattan restrict development too much and future residential development should be skyscrapers. As the argument goes the increase in supply will lower prices. This is true if A) the demand for Manhattan living is stable, and B) the average unit size remains stable. I'm skeptical of both assumptions and that we can build our way out of high rents in lower Manhattan. 

High rents are not necessarily a problem for the city or region more broadly. There are areas that are highly desirable--and rightly so--and have very high rents. The average rent for a two bedroom in Manhattan non-doorman building in March 2012 is $4,208. The median rent for a two bedroom in Inwood, the northernmost neighborhood in Manhattan, is $1,600. In trendy TriBeCa the average rent for a two-bed non-doorman building is $8,013 while in Harlem, about nine miles and 40 minutes by subway north, the average rent for a similar unit is $2,132. High rents are really a problem for a few parts of Manhattan. There are certainly other issues at play, but because the super desirable places in Manhattan are so limited I'm not sure enough apartment supply can be built to satisfy existing demand, yet alone new demand that will occur.

As an example, here is a story from today's New York Times about the increasing size of Manhattan apartments. The story is explaining how large apartment conversions are:

A decade ago a typical Manhattan combination was closer to 3,000 square feet. “Now 6,000 square feet is the new 3,000 square feet,” said Kelly Mack, the president of Corcoran Sunshine Marketing Group. “The highest tier of buyers is really looking to create these mini-megamansions in the sky.”
Even without combinations, the average high-end apartment size has grown over the past decade as developers have recognized the demand for larger and larger. When the Time Warner Center opened for business in 2001, the average size of its apartments was 2,217 square feet. In 2003, at 1 Beacon Court, it grew to 2,362 square feet. Then, in 2005, the developers of 15 Central Park West built apartments averaging 2,655 square feet, according to Corcoran Sunshine.
The latest is 157 West 57th Street (One57, as it is branded), which opened for sales this year with an average apartment size of 3,584 square feet. In fact, more than half of the condos in the building have 3,000 square feet or more, said Gary Barnett, the president of Extell Development Company, which is building One57.
Yet even with 10 full-floor apartments selling for about $50 million each and a duplex penthouse listed at $115 million, Mr. Barnett was finding that demand among the world’s superrich for the largest apartments was heavier than he expected. The full-floor apartments — all bought by billionaires — are almost gone. So two months ago, the developer combined smaller apartments into four apartments of 5,500 square feet each that could be configured with five bedrooms or with four bedrooms and a library. Asking price: around $35 million apiece.
“As pricing has escalated,” Mr. Barnett said, “you are reaching into a new class of buyer, a wealthier class of buyer, and they want to live graciously. It is not the amount of bedrooms that counts, it is the graciousness of the space that matters.”

Because the demand for apartments in lower Manhattan is global and from extremely wealthy people, simply relaxing restrictions on height or preservation is unlikely to bring down apartment prices. As the price of residential space per square foot declines people will consume more space per apartment. The difference between Time Warner Center and 15 CPW is about 25% of the TWC apartment size. Every five TWC apartments are four 15 CPW apartments. That's just new construction. Combinations are reducing the supply of apartments in older buildings. (I've posted about this previously.) Those arguing that current land use regulations are getting in the way of the market should be prepared for plausible market-based outcomes that are no more socially optimal, at least do not offer cheaper rents, than the current system.

Land Use Regulations, School Quality and Metropolitics

A new paper from the Brookings Institute Metropolitan Policy Program authored by Jonathan Rothwell has received quite a bit of attention. Here is a link to the highlights, papers and interactive features. The main claims the author makes are:

An analysis of national and metropolitan data on public school populations and state standardized test scores for 84,077 schools in 2010 and 2011 reveals that:

Nationwide, the average low-income student attends a school that scores at the 42nd percentile on state exams, while the average middle/high-income student attends a school that scores at the 61st percentile on state exams. This school test-score gap is even wider between black and Latino students and white students. There is increasingly strong evidence—from this report and other studies—that low-income students benefit from attending higher-scoring schools.

Northeastern metro areas with relatively high levels of economic segregation exhibit the highest school test-score gaps between low-income students and other students. Controlling for regional factors such as size, income inequality, and racial/ethnic diversity associated with school test-score gaps, Southern metro areas such as Washington and Raleigh, and Western metros like Portland and Seattle, stand out for having smaller-than-expected test score gaps between schools attended by low-income and middle/high-income students.

Across the 100 largest metropolitan areas, housing costs an average of 2.4 times as much, or nearly $11,000 more per year, near a high-scoring public school than near a low-scoring public school. This housing cost gap reflects that home values are $205,000 higher on average in the neighborhoods of high-scoring versus low-scoring schools. Near high-scoring schools, typical homes have 1.5 additional rooms and the share of housing units that are rented is roughly 30 percentage points lower than in neighborhoods near low-scoring schools.

Large metro areas with the least restrictive zoning have housing cost gaps that are 40 to 63 percentage points lower than metro areas with the most exclusionary zoning. Eliminating exclusionary zoning in a metro area would, by reducing its housing cost gap, lower its school test-score gap by an estimated 4 to 7 percentiles—a significant share of the observed gap between schools serving the average low-income versus middle/higher-income student. As the nation grapples with the growing gap between rich and poor and an economy increasingly reliant on formal education, public policies should address housing market regulations that prohibit all but the very affluent from enrolling their children in high-scoring public schools in order to promote individual social mobility and broader economic security.

Overall this provocative work and I enjoyed the paper. Income segregation is associated with unequal educational outcomes as measured by test scores. Of the four claims above, the first is descriptive and points to a major problem with public education, the second associates income segregation with test score gaps, suggesting that populations self-sort according to income (this has been shown in many other studies), and the third point confirms that school performance is capitalized into housing costs. This is not new, but nice to be validated again.

The fourth point is the one that is getting the most attention and most provocative. Rothwell argues that restrictive land use regulations prevent families from moving to areas with better schools. If density restrictions were lifted then developers would build sufficient quantities of housing in good school districts to eliminate the premium associated with being near good schools (in the case an average of $11,000 per year). On this claim the limits of the research don't support his policy recommendations. Rothwell uses a number of regression techniques and instrumental variables in his analysis. His work is nicely described and technically sound, so I'm confident that the data accurately described the situation in 2010 and 2011. The problems are that these data provide a snapshot of test scores and housing prices when what is really needed is the effect of test score gaps over time. School improve and decline in quality, as do neighborhoods, and we need to better understand why this is and what to do about it.

As Rothwell assumes that school quality is fixed then the obvious and easiest solution is to move everybody to the good schools. But since these are public schools, why is there such a difference in quality, and shouldn't that be the policy focus? Myron Orfield made his name with his Metropolitics work (which I recommend to anyone interested in regional planning), where he eloquently argued that high quality public services should be available to everybody regardless of where they live. What if we were talking about fire protection rather than schools? Should people accept that some parts of the city do without while other parts of the city have good fire services, so we should move everybody next door to a station? All public schools, in particular, should have access to the same resources which is why Orfield promotes property tax base sharing. He has recently published a book on Twin Cities planning. From a Minnesota Alumni story about him:

Racial segregation is increasing in all of the 25 largest U.S. metros, Orfield says, but it’s happening at a much faster clip in the 16th largest, the Twin Cities. Neighborhoods and schools have remained more stubbornly segregated here, those once integrated have resegregated at alarming rates, and segregation is pushing steadily outward from cities to suburbs.

The causes of these trends are complex, says Orfield, a national authority on metropolitan growth. Segregation’s prime drivers include racial prejudice, housing-market discrimination, and misguided public planning and tax policies. And in the Twin Cities, Orfield says, segregation is exacerbated by mind-boggling government fragmentation that was once, but is no longer, well-managed by a muscular Metropolitan Council.

Segregation is complex, and Rothwell's models leave a lot unexplained. The connection between school quality and housing costs is well-established, and only in the past couple of years have voters stopped approving tax increases for school districts (here is a Minnesota example of this). Where Rothwell looks for silver bullets Orfield explains the complexity of segregation, and Orfield documents changes over time, which is critical if we want to understand causality. Rothwell's work only provides correlations of factors at a particular time, which is a limitation of not having time series data.

Overall, the Brookings research suggests to me that we should focus on developing high quality public schools in all locations, rather than try to move everybody from poorly performing schools to high performing schools in other areas of the region. Moving families may be a reasonable policy approach on the margin, but not for everyone. Taken to its extreme, Rothwell argues for families to abandon parts of the city (region) because the public services are irrevocably broken, crowd into areas with better performing schools and assume that the high quality schools will remain high quality. I don't think school quality is exogenous to this analysis. His research is interesting an provocative, but doesn't tell us much about causality. For a better and more complete discussion of these issues I recommend Orfield.