NewGeography.com blogs

On election day, the voters of Hillsborough County, Florida (Tampa) will vote on a one-cent sales tax that would fund transit (75%) and roads (25%). Part of the funding would be used to build a new light rail line, which is the focus of campaigns on both sides.

The proponents are the usual well financed coalition of business, rail construction companies and consulting engineers, who could well profit from the program going forward.

The opposition, however, is unusual. It is a direct outgrowth of the growing citizen involvement from the TEA Party and 912 Project. These groups have broken new ground in raising general issues of government waste and public expenditure policy. This could be an important step toward balancing the spending proclivities of special interest groups with taxpayer interests in spending no more than is necessary to provide essential public services.

In Tampa, the rail opposition goes by multiple names, including "No Tax for Tracks" and Smartmoms. The more interesting of the terms is Smartmoms, or "Suburban Moms Against the Rail Tax." They might have just as accurately called themselves "Soccer Moms Against the Rail Tax," reflecting the demographic that has been so important in recent elections.

I recall being told by a disappointed former federal official that one of his greatest disappointments was to learn that there was no constituency for economic efficiency. This may be changing, if the developments in Tampa are any indicator.

I had the privilege of speaking at one of their rallies recently and wonder whether Tampa might represent a new birth of citizen questioning of large spending projects. Their revulsion at the "if we don't take the federal money, Baltimore will" line of thinking was refreshing. One key to restoring a more prosperous America will be to minimize this mutual plunder, by which Washington seduces local areas to buy things they never would with their own money. A new day could be dawning.

----

Photo: Downtown Tampa (by the author)

The former Olympic athlete's village in Vancouver is in the news again, but this time no one is celebrating. The billion dollar plus development, originally built to house athletes then converted to a residential housing development, was primarily financed by a loan from the city of Vancouver. Millennium Development Corp., developer of the project, currently owes the city $731 million. Millennium was scheduled to pay back the first $200 million by August 31st, but came up $8 million short. They managed to find another $5 million by September 20th, but they are still $3 million short. On top of this, they have another $75 million due in January. The city is considering legal action against the developer.

This isn't the first we've heard about financial troubles with the project. The city actually took over the loan from Millennium’s initial lender due to cost overruns. The repayment schedule was considered feasible, given the strength of the Vancouver real estate market. Unfortunately for them, sales have been slow. While 223 units sold during the presale, only 36 units have moved since. This leaves more than half of the units. 454, lingering on the market. The city has actually been forced to take over the 252 units of social housing that were required to be built due to the city's inclusionary zoning laws.

Amidst this turmoil, the city is doing everything it can to ensure that the remaining units are neither sold off cheaply nor rented out, since this would reduce the long run selling price. Their solution is to wait for the market to rebound. Councilor Raymond Louie stated that “the benefit of being the city is that we are lasting and we can stay forever...it's a paper loss for now, but we can wait for the market to recover.” Of course, if this were a wise decision, why are private brokers and developers not doing the same? The answer is simple: the assets are depreciating anyways, so they may as well cut their losses. The problem here seems to be that the sitting government is afraid that it will look bad for them if the sale of the units doesn't cover the full loan amount. By telling the developer to sit on the assets, they can claim that the debt will be repaid when the market recovers (and they are happily retired from council).

The British Columbia government reported that the cost of the Olympics to BC taxpayers was $925 million. The original estimate was $600 million. On top of this, the federal government kicked in $1 billion for security costs. That also doesn't count the $700 million they spent on highway upgrades, $2 billion for a light rail extension, or $885 million for a convention center. Millennium’s financial troubles threaten to add to the losses incurred by taxpayers. Reports claim that the development is worth between $150-200 million less than what they owe the city. On top of that, at least 15 of the pre-sale buyers are trying to back out of their purchases. The bad news for taxpayers just keeps coming.

While the city was forced to back the loan in order to live up to its Olympic commitments, there is a clear lesson here: cities should not be in the housing business. Even though they've managed to keep housing prices artificially high, they can't break even on a housing development that was advertised to the whole world. Either the housing market will overheat again, and the project will become solvent, or the taxpayers will lose a couple hundred million dollars. Potential home owners in Vancouver can't seem to win. The best thing the city can do at this point is admit failure, and allow Millennium to have a fire sale. It won't do much about the cost of living in the city, but at least a few people will pick up bargains. Of course, politicians aren't likely to cut their losses. Better to pass the buck to the next council.

Is it any wonder why California’s economy has been so sluggish during the recession? According to the 2010 Kosmont-Rose Institute Cost of Doing Business Survey, one-third of the nation’s forty most expensive cities are located in California, deterring businesses from setting up shop in the state. The increases in sales, income, and vehicle taxes in 2009 further depressed the business climate and exacerbated the problem of unemployment. Though local governments are trying to cut costs and boost local businesses, they have not been able to reverse the effects of outrageous taxes and fees.

As one would predict, the ten most expensive cities in California in 2010 are located almost exclusively in the Bay Area or Los Angeles Area. Berkeley, Oakland, and San Francisco round out the Bay Area localities with San Francisco actually making the top ten national rankings as well. Beverly Hills, Culver City, Inglewood, Los Angeles, San Bernardino, and Santa Monica all represent Los Angeles County while Rancho Santa Margarita fills the final spot. However, none of these cities joined San Francisco on the national list.

There is one thing missing from Kosmont’s national list of most expensive cities: the Great Plains states and Midwest. With the exception of Chicago, there are no cities on the list from the area between Arizona and Ohio. Even in the West, there are only three cities, San Francisco, Portland, and Phoenix, that made the top ten.

Where do we find the least expensive cities? They are in the middle of the country, of course. Five of 2010’s least expensive cities are in Texas, one is in Nevada, and one is in Wyoming. Texas has fared surprisingly well during the recession, as have states like North Dakota. Low business costs and a bustling energy industry have made these states havens for new businesses and job seekers alike.

Companies in California are now packing up and moving north and west to save money. Friendlier and more stimulating business climates in states such as Arizona, Washington, Oregon, and Colorado are luring companies like Google, Hilton, and Genentech. As Larry Kosmont, President and CEO of Kosmont Companies, commented, “Just being located in California, cities are at a ‘cost’ disadvantage right out of the gate.” If California wants to keep the companies that bolstered its success during the beginning of the decade, it must reconsider its recent tax hikes and have faith that improving the business climate will stimulate the economic growth that the state sorely needs.

California, now in the midst of a heated debate on high-speed rail, could learn a thing or two from a few small villages in England about consolidating their opposition. Residents from five villages in Oxfordshire created the Villages of Oxfordshire Opposing HS2 (High-Speed Rail 2) action group to voice their concerns about the proposed project.

HS2 would link London and Birmingham by 2025, going through Finmere, Mixbury, Fingford, Fulwell, and Newton Purcell in north Oxfordshire. Not only would the rail line greatly alter the countryside landscape, but it would also create an immense amount of noise pollution. Trains would run through these villages at 250 mph about every three minutes. On top of that, rail authorities are giving out little information to citizens who are growing frustrated.

The Chairman of Villages of Oxfordshire Opposing HS2, Bernie Douglas, wants the group to influence rail authorities to route the line away from the area and raise awareness about the detriments of a high-speed rail line in the countryside. He has certainly succeeded in the latter goal. The group’s meeting in April drew more than 80 people from an area with only 100 homes. However, their efforts for the former cause have been largely in vain. Transport Minister Phillip Hammond and HS2 Ltd, the company behind the project, have not responded to the group's letters.

There is hope for Oxfordshire, though. A spokesman for the Department of Transport claims that “No final decision will be made on whether to proceed with a high-speed rail line or on its route until any scheme has undergone a full public consultation.” If this is true, it is almost certain that the rail line will not run through Oxfordshire.

Cities on the Peninsula have similarly started to band together to oppose the California Rail Authority, who has decided against using the much preferred trench system to cut costs, but opposition remains scattered throughout many different groups. Lawsuits from a few cities and organizations have driven the authority to reconsider the trench system, but the project seems like it will continue to progress, much to the dismay of many unhappy California residents.

Palo Alto, Menlo Park, and Atherton, who are at the forefront of the opposition, need to gather support from other cities on the Peninsula to truly affect the future of high-speed rail in the state. It is easy for the California Rail Authority, backed by Governor Schwarzenegger, to defend its position from a few cities, but a united Peninsula coalition would be a tough obstacle to overcome. Maybe Burlingame, San Mateo, and their neighbors should take a page out of the book of Oxfordshire and use collective action to more effectively voice their concerns.

The Age (Melbourne) headlined a story "CBA Accused of Choosing its Facts." CBA is the Commonwealth Bank of Australia, while UBS is the Swiss investment house. Commonwealth produced a report comparing housing affordability in Australian metropolitan areas to international metropolitan areas (Australian Housing and Mortgages: CBA Mortgage Book Secure). According to The Age:

Investment forums and housing blogs were alive with talk yesterday that an 18-page presentation used by the bank had replaced unfavourable housing affordability figures with data showing housing costs were not out of step with other cities in the world.

One slide compared Australian housing affordability to several cities, citing figures from a combination of the US urban planning research house Demographia and the investment bank UBS.
The slide showed housing in Sydney and Melbourne was more affordable than cities such as San Francisco, New York and Vancouver. But it used UBS data exclusively for the Australian cities, and Demographia data for the overseas cities.

The data were not comparable. Commonwealth relied upon Median Multiple data (median house price divided by median household income) from the 6th Annual Demographia Housing Affordability Survey for international metropolitan areas. However, Commonwealth used a median/average multiple (median house price divided by average household income) calculated by UBS, the Swiss investment house, for Australian metropolitan areas. These are very different indicators.

There would have been nothing wrong with having used the median/average multiple, had it been shown for all metropolitan areas, Australian and international. However, comparing the median/average multiple to the Median Multiple is invalid. Average household incomes are routinely higher than median household incomes and the use of an average income figure inappropriately biases Australian housing affordability relative to international metropolitan areas.

For example, the UBS median/average multiple for Sydney is reported by Commonwealth to be 6.2. Commonwealth finds Sydney to be more affordable than San Francisco's, which it indicates at 7.0. However, the San Francisco figure is the Median Multiple and the comparable figure for Sydney is 9.1, making Sydney less affordable than San Francisco

In fact, had the UBS median/average multiple been used for all metropolitan areas, including the international metropolitan areas, it is likely that the gap between Australian metropolitan areas and international metropolitan areas would be of similar magnitude to that shown in the Demographia International Housing Affordability Survey.

From time to time, various interests have suggested alternate measures of housing affordability for Australia and then compared or suggested comparison to our Median Multiple data. Of course, that is invalid.

The Age article by Eric Johnston was carried in other Fairfax Media outlets such asThe Sydney Morning Herald and the Brisbane Times, and the subject has been covered by financial blogs.

Note: Author Wendell Cox of Demographia.com and Hugh Pavletich of PerformanceUrbanPlanning.com are co-authors of the Demographia International Housing Affordability Survey.

The Transit Equity Network has just published a study called More Transit - More Jobs in which it suggests switching 50% of highway funding to transit in 20 metropolitan areas to create an additional 180,000 jobs over the next five years. Their basic thesis is that each kajillion in spending can produce more jobs in transit than in highways. We don't comment on that, because, frankly, the purpose of transportation spending is neither to create transit jobs nor highway jobs.

We spend on transit and highways because of benefits that extend beyond any direct employment. And, the extent of those benefits cannot be compared between the two modes. At current rates of spending each billion dollars spent on highways supports about 25 times as much personal mobility as one spent on transit. Beyond that, highway spending supports the movement of more than 1.25 billion ton miles of truck freight, which keeps product prices low and supports our affluent life style. Transit carries 0.0 ton miles of freight. Researchers such as Prud'homme & Chang-Wong and Hartgen & Fields have shown that the type of ubiquitous mobility provided by road systems produce greater economic growth. Moving money out of roads would increase traffic congestion, destroy jobs and increase product prices by slowing down trucks.

Why, on earth, then would anyone make such a dubious proposal? To paraphrase Bill Clinton, "It's the ideology, stupid." As we wrote within the past week, much of transportation spending over the last 25 years has been solidly based in an anti-mobility ideology that has produced virtually nothing in return. Already, transit, which accounts for one percent of national travel and no freight movement, accounts for more than 20% of spending on highways and transit combined. Things would be better if that were raised to 60%?

If the Transit Equity Network were right (which it is not), then why stop at 50% for transit? Why not take all of the transit and highway money and just employ people to dig holes with shovels and then fill them up again. The only costs would be wages, benefits, shovels and administration. We could save money by not buying concrete, rails, fancy trains or palatial administrative buildings. Another advantage is that the holes would require no longer term operating subsidies.

So, we need to do more than dump the ideology. We need also to dump the stupidity. Government does not exist for the purpose of government services and transportation programs do not exist for the good of transportation employees or vendors. Each dollar of infrastructure expenditures should be used to facilitate the greatest economic benefit throughout society as a whole, not just among people employed in transit (or highways for that matter).

American and European planners have long sought to improve the "jobs-housing" balance, seeking to place residents and jobs within walking or cycling distance. Of course, planners don't place people anywhere. Not surprisingly, their efforts have largely failed, from the new towns of the London area, where people travel about as far to work as anywhere else, to fabled failures of Stockholm, where high rise housing close to suburban employment centers now houses migrants who tend to have far lower incomes than native Swedes.

In the time of Mao Zedong, China had achieved perhaps the ultimate in the jobs-housing balance. Companies provided housing for their workers, who were able to walk to their jobs in the same compound. However, the economic reforms instituted by Deng Xiaoping and his successors has led to an abandonment of this model (Danwei housing) and millions of Chinese households have been lifted out of poverty into affluence. Most Chinese households do not aspire to "living on top" of the factory or office.

Foxconn (Hon Hai Precision Industry), one of the world's largest companies, is among the last to provide large amounts of housing to its workers. In its Shenzhen "Long Hua Campus," which covers only one square mile, Foxconn employs 450,000 people (Figure). They are housed on the campus or nearby in company provided units.

Shenzhen directly borders Hong Kong and Dongguan, which borders the Guangzhou-Foshan urban area. All together, these contiguous Pearl River Delta urban areas, along with others down the western shore to Macao have nearly 50 million people, more than live in any geographic area of the same size anywhere else in the world. These Guangdong province urban areas, along with the special economic regions of Hong Kong and Macau have become one of the world's leading manufacturing and export areas. Shenzhen itself has been estimated to have a population of between 10 million and 15 million, depending on how the migrant workers are estimated. Shenzhen and other major manufacturing centers of China are estimated to house as many as 200 millions migrants from other parts of China (especially rural areas), coming to work in jobs that pay far higher wages than can be earned at home.

Foxconn itself is the world's largest manufacturer of consumer electronic technology, producing Apple's I-Pod and I-Phone and making products for Dell, Hewlett-Packard, Sony, as well as the Nintendo, Wii entertainment systems.

According to a report in The Wall Street Journal, Foxconn has plans to abandon its Danwei housing and move away from its "perfect" jobs-housing balance to the spatial arrangements that Chinese, Americans and Europeans routinely choose --- to work where they like and live where they like.

Foxconn has had its share of difficulties. There have been the multiple employee suicides at the Long Hua Campus. The company has faced rising costs in its Pearl River Delta operations, including higher wage costs. In its attempt to retain competitiveness, Foxconn is seriously rethinking its business model and appears likely not only get out of the housing business, but will also move many of its operations into central and western China, where costs and wages are lower. This also makes sense in relation to government policy, which seeks to develop the center and west.

Overall, Taiwan headquartered Foxconn employs 920,000 people in China, the equivalent of the entire work force in the Portland or Kansas City metropolitan areas.

Foxconn plans to increase its workforce in China from 920,000 to 1,300,000 and intends for many of its employees to be in new facilities in places like Chengdu (capital of Sichuan), Wuhan (capital of Hubei), Zhengzhou (capital of Henan) and Chongqing (capital of the provincial level Chongqing municipality). Foxconn's decentralization, and the location of other new and expanded businesses in the center and west is strongly supported by China's substantial infrastructure investment. The nation already has more than 40,000 miles of interstate equivalent highways. When all of the gaps are completed, trucks will be able to reach east coast ports from Zhengzhou or Wuhan in about days drive and little more than two days from Chongqing and Chengdu.

At the same time, corporate executives can get to Beijing, Shanghai and the Pearl River Delta and other East Coast urban areas in 2.5 hours or less through some of the world's most modern airports.

Finally, the more decentralized operations will allow the migrant workers to live much closer to their homes, rather than having to travel all the way to the East Coast. This will make more frequent visits to rural villages and families possible.

----

Photo: Wuhan (photo by author)

The Wall Street Journal notes that the London Underground (metro or subway) is on strike and that transit riders are having to find alternate ways to get around. This is of course, not good news, and the transit strikes that happen often in places like Paris and periodically in places like Los Angeles and Philadelphia are a serious impediment to transit's growth (along with spending on extravagant projects and excessive and rising operating costs).

Chicago’s Mayor Daley has decided to end his political career. Chicago’s Mayor since 1989, in December he will break his father’s record as Chicago’s longest serving Chief Executive. No one knows the real reason Daley chose to hang it up, whether it’s his wife’s health or his low polling numbers. Long time Chicago Sun-Times reporter Fran Spielman summarizes Daley’s current troubles:

Chicago’s stunning first-round knock-out in the Olympic sweepstakes, political fall-out from his nephew’s pension fund deals and a budget crisis that forced him to deplete the city’s long-term reserves and demand furlough days and other cost-cutting concessions from city employees.

Chicago is facing more of the same — and another painful round of service cuts — to erase a record $654.7 million shortfall in 2010.

The city’s bond rating was dropped. Its homicide rate is on the rise, including the murder of three Chicago Police officers in recent months.

More voters were increasingly viewing Chicago as a city that doesn't work. Being known as a “union” town isn’t an asset in a competitive, global economy. Who will confront Chicago’s problems as the next Mayor?

Several people are interested in being Chicago’s next Mayor. The most noteworthy is Obama’s Chief of Staff Rahm Emanuel. Whether Emanuel will leave the White House before the November election to start a campaign for February is anyone’s guess. Would President Obama get involved in local Chicago politics to endorse Emanuel?

Emanuel will face scrutiny over his tenure as a board member of the failed GSE Freddie Mac. What exactly did Rahm Emanuel know about corrupt accounting there? But, Emanuel has other problems. Whether Emanuel can overcome hostility from the African-American and Hispanic community over comments made about issuing drivers licenses to high school dropouts is another issue. Both communities will look to run a candidate in February’s election.

Then there’s the problem Chicago may be reluctant to elect a Jewish Mayor. As Alderman Burke told Professor Milton Rakove’s in an interview:

“There is a latent anti-Semitism in Chicago and a large population that will never vote for a Jew. They would vote for anybody before a Jew.”

Whoever decides to run for Mayor will have to have the backing of powerful Alderman Ed Burke, who is Chairman of the Finance Committee. With $6 million in his campaign fund, Alderman Burke will be the kingmaker behind the scenes. After all, the business community “feels” it is good business to be on the good side of Alderman Burke. Chicago Sun-Times reporter Fran Spielman asked Alderman Burke if he would run:

“Stay tuned,’’ he said, laughing. “It would be one of the farthest things from my mind. [But] in Chicago politics, people never close the door.”

It’s not likely Alderman Burke is going to give up his lucrative legal business to take a pay cut as Chicago’s Mayor. Alderman Burke was handing out the money before Mayor Daley was elected and he will continue in that role no matter who is Chicago’s next Mayor.

The “Chicago Way” is likely to continue whoever is the next Mayor.

Despite its smart growth policies, the city of Austin has approved a new development on the urban fringe that will include new detached housing starting at $115,000.

Austin is the third fastest growing metropolitan area with more than 1,000,000 residents in the United States, following Raleigh, North Carolina and Las Vegas. The city of Austin accounted for 53% (672,000) of the metropolitan area's 1.27 million population in 2000, but has seen more than 70% of the growth since that time go to the suburbs. Now the metropolitan area has 1.65 million people, and the city has 785,000.

The Austin metropolitan area managed to experience only modest house price increases during the housing bubble, though other metropolitan areas in Texas (Dallas-Fort Worth, Houston and San Antonio) did even better (see the Demographia International Housing Affordability Survey). Austin's Median Multiple (median house price divided by median household income) peaked at 3.3, slightly above the historic maximum norm of 3.0. Like other Texas markets, there has been little price decline during the housing bust, illustrating the lower level of price volatility and speculation identified by Glaeser and Gyourko with less restrictive land use regulation. This stability has helped Texas weather the Great Recession better than its principal competition, the more intensely regulated states of California and Florida.

The city of Austin, however, is rare in Texas for generally favoring the more restrictive (smart growth) land use policy devices that have been associated with the extreme house price escalation in California, Florida, Portland, and many other metropolitan areas. The city's freedom, however, to implement the most draconian policies and drive house prices up is severely limited by far less restrictive land use policies in the balance of its home county (Travis), neighboring Williamson County (usually among the fastest growing in the nation), Hayes County and the other counties in the metropolitan area.

Austin is competing. This is illustrated by the recent Austin city council action to approve a new "mega" development on the urban area's eastern fringe that could eventually add 5,000 new houses, town houses and apartments. The first phase will be 350 detached houses that the developer indicates will be priced from $115,000 to $120,000 (including land), an amount less than a building lot San Diego, Los Angeles, Vancouver and Australia.

By comparison with other developments in the Austin area, however, these houses may be expensive. One home builder is currently advertising new detached houses, only 7 miles from downtown Austin for $90,000. These are not the least expensive in Texas. Detached houses in Houston are being advertised for $79,000.

A case study in the 3rd Annual Demographia International Housing Affordability Survey showed that the median income Austin household could purchase the median priced house for 11 years less income than in Perth, Australia (this includes mortgage interest). While both Austin and Perth have been growing rapidly, Austin's faster growth is evidence of stronger demand, which, all things being equal, would have been expected to drive house prices up more than in Perth. But, with more restrictive land use regulation, all things are never equal.