Brookings: Experts - Anthony Downs

What's Wrong With American Housing?

Anthony Downs — Wed, 28 Dec 2011 15:27:00 -0500

In 2004 and 2005, American homebuilders created over two million new housing units per year, including mobile homes. Then housing construction plummeted to under 600,000 new units per year, a record fall of 70 percent, and home prices fell drastically too.

Housing will not help lead the U.S. economy out of this recession, as it has done many times in past recessions. A major reason is that America’s housing industry suffers from nine deficiencies that limit its ability to meet our housing needs. Some of these deficiencies are not widely recognized or are even considered advantages by the housing industry. Until its problems are better and more widely understood, that industry will continue underserving U.S. housing needs. This article summarizes those nine deficiencies and then analyzes them in more detail.

The Nine Deficiencies

The biggest deficiency is the lack of households willing and able to buy homes
A combination of falling home prices, losses of jobs by millions of Americans, and low-quality home mortgages sold to home buyers led many home owning households to default on their mortgage payments.
The federal government has tried several times to enable foreclosed home owners to remain in their homes, but its efforts have been limited because both banks and other mortgage lenders have fought taking any “haircuts” in their loan amounts to make that possible.
The deduction of mortgage interest payments from the taxable incomes of home owners is a large government subsidy that provides most of its benefits to the wealthy owners of costly homes.
Control over what types of homes are permitted within each community is completely exercised by that community’s local government, but many suburban governments are pressured by homeowners to exclude housing affordable to lower-income households.
In each year, homebuilders construct as many new units as they can sell during that year. But doing so in prosperous periods requires selling into housing demands oriented towards the future.
Many thousands of individuals and low-income households are essentially homeless.
The measures of home prices used by the housing industry and major media distort what really happens to home prices.
Bankers and other parties who normally provide loans to potential homebuyers have adopted stringent requirements for persons trying to qualify for home loans.

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Image Source: © John Gress / Reuters

Revisiting Rental Housing : Policies, Programs, and Priorities

Eric S. Belsky, Foreword by Anthony Downs and Nicolas P. Retsinas, eds. — Fri, 01 Feb 2008 00:00:00 -0500

Brookings Institution Press and Joint Center For Housing Studies At Harvard University 2008 370pp.

Rental housing is increasingly recognized as a vital housing option in the United States. Yet government policies and programs continue to grapple with widespread problems, including affordability, distressed urban neighborhoods, poor-quality housing stock, concentrated poverty, and exposure to health hazards in the home. These challenges can be costly and difficult to address. The time is ripe for fresh, authoritative analysis of this important yet often overlooked sector.

In Revisiting Rental Housing, leading housing researchers build on decades of experience, research, and evaluation to inform our understanding of rental housing challenges and what to do about them. The authors look at contributing factors and problems generated by the operation of rental markets, and assess whether existing policies and programs have helped and what lessons have been learned. Finally, the authors suggest new directions for housing policy, including the integration of best practices from past lessons into existing programs and innovations for large-scale, long-term market and policy solutions that can get to the root of rental housing challenges.

Contributors: William C. Apgar (Harvard University), Eric S. Belsky (Harvard University), Jackie M. Cutsinger (Wayne State University), Anthony Downs (Brookings), Rachel Bogardus Drew (Harvard University), Ingrid Gould Ellen (New York University), George C. Galster (Wayne State University), Bruce Katz (Brookings), Jill Khadduri (Abt Associates), Ron Malega (University of Georgia), Shekar Narasimhan (Beekman Advisors), Rolf Pendall (Cornell University), John M. Quigley (University of California-Berkeley), James A. Riccio (MDRC), Stuart S. Rosenthal (Syracuse University), Margery Austin Turner (Urban Institute), and Charles Wilkins (Compass Group)

View the Virtual Book Tour with Nicolas Retsinas.

ABOUT THE EDITORS

Eric S. Belsky

Eric S. Belsky is executive director of the Joint Center for Housing Studies and a lecturer in the Harvard Graduate School of Design. He served as research director for the bipartisan Congressional Millennial Housing Commission and is a specialist in housing finance, economics, and policy.

Foreword by Anthony Downs

Anthony Downs is a senior fellow in the Economic Studies Program at the Brookings Institution. His specialties are housing, real estate, real estate finance, metropolitan planning, demographics, and transportation. His books include New Visions for Metropolitan America (Brookings/Lincoln Institute for Land Policy, 1994), and Still Stuck in Traffic: Coping with Peak-Hour Traffic Congestion (Brookings, 2004).

Nicolas P. Retsinas

Nicolas P. Retsinas is director of Harvard University's Joint Center for Housing Studies and a member of the faculty of the Graduate School of Design, the Kennedy School of Government, and Harvard Business School. He served as assistant secretary for housing and as federal housing commissioner at the U. S. Department of Housing and Urban Development, as well as director of the Office of Thrift Supervision.

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Credit Crisis: The Sky is not Falling

Anthony Downs — Wed, 31 Oct 2007 12:00:00 -0400

U.S. stock markets are gyrating on news of an apparent credit crunch generated by defaults among subprime home mortgage loans. Such frenzy has spurred Wall Street to cry capital crisis. However, there is no shortage of capital – only a shortage of confidence in some of the instruments Wall Street has invented. Much financial capital is still out there looking for a home.

As this brief describes, the facts hardly indicate a credit crisis. As of mid-2007, data show that prices of existing homes are not collapsing. Despite large declines in new home production and existing home sales, home prices are only slightly falling overall but are still rising in many markets. Default rates are rising on subprime mortgages, but these mortgages—which offer loans to borrowers with poor credit at higher interest rates—form a relatively small part of all mortgage originations. About 87 percent of residential mortgages are not subprime loans, according to the Mortgage Bankers Association’s delinquency studies.

Subprime delinquency rates will most likely rise more in 2008 as mortgages are reset to higher levels as interest-only periods end or adjustable rates are driven upward. Unless the U.S. economy dips dramatically, however, the vast majority of subprime mortgages will be paid. And, because there is no basic shortage of money, investors still have a tremendous amount of financial capital they must put to work somewhere.

On the immediate problem of mortgage defaults, some aid to the subprime borrowers might be justified, but bailing out the lenders even more than we have up to now would create a moral hazard by merely encouraging them to do it again.

Policy Brief #164

The Great Capital Inflow into Real Estate

Throughout the 1990s, the investment community had largely considered real estate undesirable because of its falling rents, occupancy rates, and prices; so investors shifted most of their attention and funds to stocks and bonds. This helped launch a record price rise in world stock markets. Soaring stock prices drew money away from real estate into stocks until the Internet stock bubble burst early in the new century.

Overnight, real estate morphed from a pariah among investors to the major viable and easily accessible way to invest funds, since stock markets were plummeting in value. The NASDAQ composite index fell over 70 percent in value from its 2000 peak in two years, and the other major indices also declined sharply. But real estate investment trust (REIT) stock prices started a steady climb as money flowed into both residential and commercial property markets.

This money came mainly from a global over-supply of savings from rapidly developing nations like China and India, from newly independent Eastern European nations just returning to market economies after almost a half-century of Soviet domination, from soaring profits in oil-producing states like Russia, Saudi Arabia, Venezuela, and Iran, from zooming corporate profits in the U.S. economy, from investors borrowing money at almost zero interest in Japan and investing it elsewhere at higher rates and from a variety of other sources. A fundamental paradigm shift took place in the attitude of world financial institutions and investors toward the relative desirability of real estate – especially commercial properties – as compared to other asset classes.

The Impacts of Securitizing Real Estate Finance

The expansion of a financial technique known as securitization helped to encourage the change in attitude toward real estate. Formerly, mortgage lenders often held onto the entire mortgage until it was repaid. But under securitization, lenders put many such mortgages into a single pool, dividing the interests into several different “tranches.” With differing yields and access to mortgage repayment flows, tranches offered differing degrees of risk. Mortgage repackagers could sell off tranche pieces to other investors, spreading the risks of any one mortgage among many lenders. This technique reduced the risks and allowed for the expansion of world capital available to real estate. The globalization of capital markets also aided the flow.

Securitization also generated more private mortgage lenders and packagers who were not covered by extensive federal regulations. Residential mortgage-backed securities issues by private labels rather than federally regulated agencies accounted for $135 billion, or 21 percent, of all such securities issued in the first quarter of 2003, but rose to about $320 billion, or 56 percent of the total issued, in the fourth quarter of 2005. Private label issuers were more likely to engage in reckless subprime lending with extremely easy credit terms for subprime borrowers. So their expanded responsibility for residential mortgage lending increased the risks of such lending through 2005.

Securitization of real estate debt also created great uncertainty about who would be responsible for absorbing losses or working out repayment problems if borrowers were unable to pay on time. The actual sources of capital for any one loan were so scattered among multiple lenders, each with a relatively small piece of each total loan, that no one was certain who would bear the costs for defaults or delinquencies. The massive amount of securitized debt outstanding had never been subjected to a large-scale repayment crisis; so past experience was not much of a guide.

Effects of the Massive Capital Flow into Real Estate Markets

As capital poured into real estate, especially after 2000, it generated a worldwide upward movement in real property prices. This was most evident in housing prices, not only in the United States, but throughout the developed world – except in Japan and Germany. According to Freddie Mac’s home price index for 381 U.S. metropolitan areas, based on repeat sales of the same properties, housing prices had risen 46.5 percent in all of the 1990s, but they then rose almost another 59.8 percent in just the first six years of the new century.

This worldwide inflow of financial capital into real estate was a crucial factor influencing U.S. housing prices and the general boom in housing production after 2000. As the value of housing soared, U.S. homeowners realized they had more equity in their homes; so many borrowed against that equity or refinanced their homes at falling interest rates and used some of the acquired funds to stimulate their general consumption. That helped keep the entire U.S. economy booming. It also led to bigger U.S. trade deficits with the rest of the world as we imported more than we exported, and paid for that deficit by issuing Treasury securities and other I.O.U.s to foreign investors and governments.

Much of that gigantic pool of capital from around the world is still out there looking for something in which to invest, and investors are still willing to consider real estate – including American real estate. The outcries of Wall Street that there is a capital crisis are exaggerated – there is only a shortage of confidence in some of the instruments that Wall Street has invented to capture some of that capital. Though the resulting uncertainty has spread to banks and other financial institutions, plenty of capital is still out there and looking for a home.

The Current Overall U.S. Housing Market Situation

In both 2004 and 2005, the U.S. housing industry built 2 million new housing units, including mobile or manufactured homes. Yet most demographers believe our economy actually needs only about 1.3 million new housing units to supply shelter to all new households formed each year, plus 200,000 to 400,000 new units to replace obsolete older ones. This means the homebuilding industry was reaching into future demand to support its high levels of new housing production in 2004 and 2005. Four previous high-level bursts of new housing production have been followed by two-to-five year production declines averaging 37.5 percent. Housing starts have already fallen below 2005 levels by 13 percent in 2006 and 29 percent so far in 2007. So the housing industry’s production decline is not over yet, and will continue through 2008.

Sales of existing homes have also decreased in number from a peak rate of 7.2 million per year in September 2005 to 5.5 million per year in August 2007, a drop of 23.6 percent. However, that does not mean housing prices as a whole will collapse, even though such prices have risen dramatically in the past decade. According to Freddie Mac’s home price index, housing prices in 381 U.S. metropolitan areas rose an average of 46.5 percent in 10 years from the first quarter of 1990 to the first quarter of 2000, then soared an average of 59.8 percent in the six years from the first quarter of 2000 to the first quarter of 2006. From early 2006 to the second quarter of 2007, home prices continued to rise in 314 of those metropolitan areas, or 82 percent, by an average increase of 7.3 percent. In the other 41 metropolitan areas, prices dropped by an average of 3.4 percent. The areas with continued price increases included 24 of the 29 largest metropolitan areas in terms of population.

As of September 2007, National Association of Realtor data show that the median price of existing homes sold was down only 4.2 percent nationally vs. one year earlier, though down 8.8 percent in the west. These data show that prices of existing homes are not collapsing, despite large decreases in both new home production and sales of existing homes.

Why is that happening? Most American home owners do not have to move. So when prices start to fall below what they think their homes are “really worth,” they will simply withdraw those homes from the market and wait for prices to improve. This puts a floor under the prices of most single-family homes. Where overbuilding has been spectacular and many buyers were speculating on flipping the units they bought rather than occupying those units, a price collapse could occur. That is most likely in condominium markets in big cities like Miami and Las Vegas, but probably will not spread to typical single-family homeowner units in most U.S. metropolitan areas.

The Subprime Mortgage Situation

The subprime mortgage market has recently generated the most concern that credit markets may completely seize up and paralyze the economy. In fact, subprime mortgages form a relatively small part of all mortgage originations. They are mortgages made to households with poor credit records at interest rates 3 to 4 percent above normal prime mortgages. Lenders liked them because they had higher interest rates than prime mortgage rates, which had fallen very low in the early 2000s. Borrowers with poor credit liked them because they enabled such households to buy homes when they otherwise could not do so.

But when prices stopped rising and began to decline, as they did in many markets after 2005, subprime default rates began to rise. Since many mortgage-backed-bonds had been based on subprime loans, the conduits floating those bonds had a hard time making their payments to the persons or institutions investing in such bonds. Surprisingly, those persons and institutions included many in Europe and even in Asia who had been attracted by high-interest rates and the prospects of continuing increases in housing prices. Moreover, the conduits creating such bonds were largely unregulated, private firms, unlike Freddie Mac and Fannie Mae, and took many risks by making loans with no down payments, monthly payments of interest only and even no checking of borrowers’ incomes.

Yet among all U.S. residential mortgage originations, subprime loans altogether comprised a cumulative total of under 13 percent from 1994 through 2005, though they rose to 19 percent in the year 2004 and 21 percent in 2005, according to the Mortgage Bankers’ Association (MBA). This means at least 87 percent of residential mortgages as of mid-2007 were not subprime loans, according to the MBA’s delinquency studies.

The serious delinquency rate among subprime mortgage loans remained below 8 percent from 1998 through the third quarter of 2000. Then it rose to between 10 and 13 percent through the second quarter of 2003, and has declined to below 8 percent since the fourth quarter of 2003. Thus, at least 87 percent of subprime home loans had not defaulted as of 2005. True, this is much higher than the serious delinquency rate among prime mortgages, which has remained below 2 percent from 1998 through 2005. Subprime delinquency rates may rise somewhat more in 2008 because monthly payments on many such mortgages will be re-set to higher levels when interest–only periods end or adjustable rates are driven upward. But even then, the vast majority of subprime mortgages are likely to remain fully paid up as long as unemployment remains as low as it is now in the U.S. economy.

The Broader Repercussions of Subprime Mortgage Problems

These facts hardly indicate a credit crisis throughout the economy or even in mortgage markets. But the subprime mortgage problems do glaringly reveal the inadequate mortgage and other credit underwriting standards in practice during several recent years of high-volume, low-interest lending. Subprime mortgage problems make many real estate lenders realize they should have been conducting more thorough underwriting, demanding higher-interest rates and putting more loan covenants into their deals.

Lenders have woken up to the fact that their actual risks were much greater than they had recognized. In response, many recently stopped making any loans until they could better assess the real risks involved. Other lenders raised rates and increased loan covenants. The resulting shock threatened to upset lending activity throughout global credit markets. This fear was encouraged because many complex securitized loan funds contained small portions of delinquent subprime mortgages. If this seizing-up of credit markets became worldwide, that would slow down economic growth everywhere – hardly a desirable outcome.

In response, the Federal Reserve Bank, the European Central Bank, and the Bank of England all cut their discount rates (the rates at which they lend money to banks) and pumped more liquidity into credit markets. Then the Federal Reserve Bank further cut the fed funds rate (at which banks can lend reserves to each other) and the discount rate by 50 basis points each – a dramatic change in past policy. This has seemed to reassure credit markets somewhat, although interest rates and credit terms are almost certain to remain higher than before the subprime mortgage mess – as they should. How long it will take credit markets to recover fully is not yet clear. But investors still have a tremendous amount of financial capital that they must put to work somewhere – there is no basic shortage of money.

The Booming World Economy

The world’s generally favorable economic conditions suggest continued prosperity rather than a collapse of market economies. Western Europe, Eastern Europe, Asia’s developing nations, and Japan are all prospering and growing economically faster than they have been in the past decade. The U.S. economy has slowed down somewhat, but our gross domestic product is still growing and our unemployment rate is very low compared to historic norms. There are large supplies of capital being generated around the world looking for places to invest. Although growth rates in developing nations are faster than the U.S. growth rate, our economy is still regarded as the safest and most politically secure place to invest in the world, despite the devaluing U.S. dollar. This is shown by the recent decline in U.S. Treasury interest rates as lenders fled into Treasuries seeking guaranteed security. These are not the conditions likely to generate a financial crisis.

As noted above, the world’s major central banks have taken steps to pump more liquidity into financial markets to forestall any fears among investors of a credit crisis. The Fed has put billions of additional dollars into U.S. banks, and those banks must lend that money to someone to make it work for them. These actions are designed to offset the feelings of panic generated by the Wall Street purveyors of gloom and doom. Some aid to their borrowers might be justified, but bailing out the lenders even more than we have up to now would create a moral hazard of merely encouraging them to do it again when the next chance appeared.

Is Real Estate’s Boom Sustainable?

Nothing in this world lasts forever, and the recent unprecedented prosperity in housing and real estate markets is no exception. Activity in U.S. residential markets has already slowed down, and that slow-down will probably continue for the next year or so, though it may recover after that. But in commercial real property markets, though interest rates are appropriately rising somewhat, there is still considerable capital looking for someplace to go. Thanks to the paradigm shift among world investors about the basic desirability of real property as an investment asset class, much of the money that has moved into real property will stay there.

Yet the impacts of the tremendous inflow of capital into existing real estate have in some respects undermined its continued attractions as an investment. As competition among investors drove prices of existing properties up and their yields down, more investors have begun to consider building new properties rather than buying existing ones. They think they could get higher initial yields from new and “greener” or more high-tech properties than from older, more obsolete existing ones, since the older ones had become so expensive and have such low yields. This change in views could start another new development boom like those that have ended so many real estate cycles in the past. That is especially likely to happen if the oversupply of capital keeps borrowing very cheap and interest rates do not rise much. Eventually, such a new development boom would overbuild world property markets and make it less desirable to keep putting more money into them. But that would take several years of booming new development.

So real estate’s boom cannot last forever – nothing does – but it could last a lot longer than it has lasted up to now. There is still plenty of financial capital out there looking for somewhere to go, and there are still plenty of property markets around the world that present good development opportunities. In the absence of some catastrophic world crisis that would upset all forecasts, there is no reason to think we are in the midst of an inevitable credit crisis. Just look at the facts.

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Can Traffic Congestion Be Cured?

Anthony Downs — Fri, 30 Jun 2006 00:00:00 -0400

The Bush Administration recently launched a new "National Strategy to Reduce Congestion on America's Transportation Network." This new policy deals with both air and ground travel, but focuses mainly on highway traffic congestion. But does this strategy show an understanding of what really causes traffic congestion and what might be done effectively in response?

According to the U.S. Department of Transportation (USDOT), "congestion results from poor policy choices, and a failure to separate and embrace solutions that are effective from those that are not." This is inaccurate. Traffic congestion is a worldwide problem with four primary causes:

First, congestion exists because societies organize economies so most people will work during the same hours each day. This makes interaction among firms and agencies possible, thereby increasing society's productivity, and raising overall efficiency. But it also requires most workers and students to travel to and from their places of activity at the same times. This overloads ground transportation systems during the morning and evening peaks, and often longer. No large metropolitan areas have enough infrastructure to transport everyone who wants to move during peak hours simultaneously; nor do they have enough resources to build it. Hence some travelers must wait until others have moved. That waiting constitutes traffic congestion.

Second, rising incomes intensify congestion by permitting more households to purchase vehicles and buy homes—mainly in suburban areas. That encourages a shift to private vehicles from public transit, walking, or bicycles. This trend is occurring worldwide, including in Europe and Asia.

A third cause is population growth. When metropolitan growth is accompanied by rising prosperity, more households buy more cars, and roads become more congested. This is what is occurring in China today.

The final cause consists of incidents and accidents. They result from high volumes of traffic generated by the first three causes.

So, contrary to the USDOT's assertions, traffic congestion is not caused by poor policy choices but rather, by economic success. That is why traffic in high-tech areas fell sharply when the "internet bubble" burst in 2000. Moreover, since the U.S. population will continue to increase, and we hope it will remain efficient and with rising incomes, congestion will remain a fact of life for most Americans.

Can anything be done to counteract traffic congestion? Sort of. Some policies might make it less intense than it would otherwise become.

The National Strategy suggests using high tolls during peak hours and tolled traffic zones (as in London), so as to force more drivers to pay the true costs of moving during peak hours. But the London system is unworkable in the U.S. outside of a few places like Manhattan. Plus, putting high enough tolls on enough major roads to reduce their usage is not politically acceptable to most Americans. It would force millions of lower-income drivers off roads during the most convenient times.

However, if the tolls were confined to only some of the lanes on each road—so-called HOT lanes—and they were newly added lanes, it would permit most drivers to travel free during peak hours but also provide a choice of moving faster.

Other tactics mentioned in the National Strategy, such as roving teams to move accidents off highway lanes, providing more current road information to drivers, more lanes in key bottlenecks, and synchronization of traffic signals, would help. So would ramp metering on entrances to expressways and traffic management centers.

But the belief that these fixes will reduce existing congestion significantly is a delusion. As long as we operate our economy efficiently, continue raising our incomes, and add 30 million people—and 30 million vehicles—to our metropolitan regions each decade, we will have rising congestion.

And maybe that's ok.

Congestion should be considered the price Americans and others around the world pay to achieve and sustain high-level economic efficiency and to provide millions of households with varied choices of where to live and work and the means to move between them.

That price has indeed been rising over time, causing greater personal inconvenience and higher business costs. But our prosperity and growth have also been increasing. We may not like paying this price for greater prosperity, growth, and choices of where to live and work. But until we are willing to reduce those benefits, we will continue to have rising congestion.

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Publication: The Washington Post

Traffic Is Here to Stay

Anthony Downs — Thu, 11 Aug 2005 00:00:00 -0400

"'Summertime, and the drivin' is easy" ought to be the theme song for drivers in our nation's capital region. Traffic is lighter here in the summer for three reasons: School buses are off the roads, Congress is often out of session and many Washingtonians are on vacation. Yet summer is also a time when road repair crews do much of their work, blocking traffic flow.

In spite of lighter traffic, congestion is still a pain for many drivers during morning and evening rush hours. That is because of the way Americans—and residents of all other major nations—organize their societies. We want most people to be at work during the same hours each day so they can interact efficiently, thereby improving economic productivity. And during the school year, we want our children learning during the same hours so they can be taught in classrooms with one or two teachers and 20 to 30 students. These requirements mean many people have to travel to and from work and school at the same times each day. No highway or public transit systems in the world can handle all those people who want to move simultaneously without overloading the systems' capacity. So delays inevitably arise as all those people try to use the same roads and the same transit systems during the same periods. That is the fundamental cause of traffic congestion. And that cause is inescapable: There is no real remedy for congestion, once it appears.

Two other factors aggravate congestion. The first is traffic "incidents" that block one or more lanes. "Incidents" include accidents in which vehicles collide, flat tires, stalled engines, overturned trucks that spill their loads all over the road, people running out of gas, road repair crews and rescue vehicles blocking lanes, and plain bad weather. The rate of accidents per 100,000 miles driven has been falling over the years, but the number of incidents of all kinds is still great enough to cause many traffic slow-downs.

The second additional cause of intensifying congestion is the worldwide growth of populations and incomes. More people create more demand for vehicles, and higher incomes permit more people to own vehicles and drive them farther. In the United States, from 1980 to 2000, we added 1.2 more cars, trucks and buses to the vehicle population for every one person added to the human population. Moreover, in that same period, while our total human population was rising by 24 percent, the number of vehicle miles driven each year rose 80 percent. Yet the miles of additional roads and more lanes on existing roads we built did not expand by nearly as large a percentage. Nor could they have; no region in the world can build enough roads to permit rush-hour traffic to move without congestion delays.

The Washington area exemplifies this situation. The population of the Washington metropolitan area (not counting the Baltimore area) rose from 3.5 million in April 1980 to 5.1 million in July 2003—a gain of 1.6 million. If the area's residents were adding only one vehicle for every added person (the actual national ratio in the 1990s alone), that implies we have added at least 1.6 million vehicles since 1980, or 45.7 percent. But the Washington area's road capacity has by no means gone up by 45.7 percent since 1980. No wonder our roads seem a lot more crowded during rush hours, and those hours are longer than ever!

As populations and incomes rise, some tactics like "HOT lanes" and metered entry onto expressways can slow the rate at which traffic congestion gets worse, but no policies can completely halt that worsening. Therefore, I recommend that you relax and get used to congestion. If you can't commute by transit, as most people can't, get an air-conditioned vehicle with a stereo radio, books on tape, a hands-free telephone, a CD player and perhaps even a microwave oven, and commute with someone you really like. Then regard the time you spend stuck in traffic as part of your regular leisure time, and learn to enjoy it—especially since congestion here is less intense in the summer.

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Publication: The Washington Examiner

Growth Management and Affordable Housing : Do They Conflict?

Anthony Downs, ed. — Mon, 21 Jun 2004 00:00:00 -0400

Brookings Institution Press 2004 290pp.

Advocates of growth management and smart growth often propose policies that raise housing prices, thereby making housing less affordable to many households trying to buy or rent homes. Such policies include urban growth boundaries, zoning restrictions on multi-family housing, utility district lines, building permit caps, and even construction moratoria. Does this mean there is an inherent conflict between growth management and smart growth on the one hand, and creating more affordable housing on the other? Or can growth management and smart growth promote policies that help increase the supply of affordable housing?

These issues are critical to the future of affordable housing because so many local communities are adopting various forms of growth management or smart growth in response to growth-related problems. Those problems include rising traffic congestion, the absorption of open space by new subdivisions, and higher taxes to pay for new infrastructures.

This book explores the relationship between growth management and smart growth and affordable housing in depth. It draws from material presented at a symposium on these subjects held at the Brookings Institution in May 2003, sponsored by the U.S. Department of Housing and Urban Development, the National Association of Realtors, and the Fannie Mae Foundation. Contributors seek to inform the debate and provide some useful answers to help the nation accommodate the curtailment of growth in urban and suburban domains while still ensuring a supply of affordable housing.

Contributors include Karen Destorel Brown (Brookings), Robert Burchell, (Rutgers University), Daniel Carlson (University of Washington), David L. Crawford (Econsult Corporation), Anthony Downs (Brookings), Ingrid Gould Ellen (New York University), William Fischel (Dartmouth College), George C. Galster (Wayne State University), Jill Khadduri (Abt Associates), Gerrit J. Knaap (University of Maryland), Robert Lang (Virginia Polytechnic Institute and State University), Shishir Mathur (University of Washington), Arthur C. Nelson (Virginia Polytechnic Institute and State University), Rolf Pendall (Cornell University), Douglas R. Porter, (Growth Management Institute), Michael Pyatok (University of Washington), Michael Schill (New York University School of Law), Samuel R. Staley (Reason Public Policy Institute), Richard P. Voith (Econsult Corporation).

ABOUT THE EDITOR

Anthony Downs

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Still Stuck in Traffic : Coping with Peak-Hour Traffic Congestion

Anthony Downs — Fri, 21 May 2004 00:00:00 -0400

Brookings Institution Press 2004 455pp.

A completely revised and expanded edition of the landmark book, Stuck in Traffic.

Congested roads waste commuters' time, cost them money, and degrade the environment. Most Americans agree that traffic congestion is the major problem in their communities-and it only seems to be getting worse.

In this revised and expanded edition of his landmark work Stuck in Traffic, Anthony Downs examines the benefits and costs of various anticongestion strategies. Drawing on a significant body of research by transportation experts and land-use planners, he counters environmentalists and road lobbyists alike by explaining why seemingly simple solutions, such as expanding public transit or expanding roads, have unintended consequences that cancel out their apparent advantages. He argues that while there might be some measurable gains from increasing housing densities, most other land-use strategies have little effect. Indeed, the most powerful solutions, including higher gasoline taxes, increased public funding for transit, and highway tolls, are also the least palatable politically.

Still Stuck in Traffic contains new material on the causes of congestion, its dynamics, and its relative incidence in various parts of the country. In clear and realistic terms, Downs seeks to explore why traffic congestion has become part of modern American life and how it can be kept under control.

ABOUT THE AUTHOR

Anthony Downs

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The Need for Regional Anti-Congestion Policies

Anthony Downs — Sun, 01 Feb 2004 00:00:00 -0500

Traffic congestion is essentially a regional phenomenon requiring regional approaches to mitigate its impacts. This brief examines the governance options necessary to act regionally and the conditions required to implement such policies. Currently, the reauthorization of the federal transportation spending bill (TEA-21) presents a unique opportunity to build on previous reforms and increase the decision-making power of regional metropolitan planning organizations (MPOs).

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Traffic: Why It's Getting Worse, What Government Can Do

Anthony Downs — Thu, 01 Jan 2004 00:00:00 -0500

Rising traffic congestion is an inescapable condition in large and growing metropolitan areas across the world, from Los Angeles to Tokyo, from Cairo to Sao Paolo. Peak-hour traffic congestion is an inherent result of the way modern societies operate. It stems from the widespread desires of people to pursue certain goals that inevitably overload existing roads and transit systems every day. But everyone hates traffic congestion, and it keeps getting worse, in spite of attempted remedies.

Commuters are often frustrated by policymakers’ inability to do anything about the problem, which poses a significant public policy challenge. Although governments may never be able to eliminate road congestion, there are several ways cities and states can move to curb it.

POLICY BRIEF #128

The Real Problem

Traffic congestion is not primarily a problem, but rather the solution to our basic mobility problem, which is that too many people want to move at the same times each day. Why? Because efficient operation of both the economy and school systems requires that people work, go to school, and even run errands during about the same hours so they can interact with each other. That basic requirement cannot be altered without crippling our economy and society. The same problem exists in every major metropolitan area in the world.

In the United States, the vast majority of people seeking to move during rush hours use private automotive vehicles, for two reasons. One is that most Americans reside in low-density areas that public transit cannot efficiently serve. The second is that privately owned vehicles are more comfortable, faster, more private, more convenient in trip timing, and more flexible for doing multiple tasks on one trip than almost any form of public transit. As household incomes rise around the world, more and more people shift from slower, less expensive modes of movement to privately owned cars and trucks.

With 87.9 percent of America's daily commuters using private vehicles, and millions wanting to move at the same times of day, America's basic problem is that its road system does not have the capacity to handle peak-hour loads without forcing many people to wait in line for that limited road space. Waiting in line is the definition of congestion, and the same condition is found in all growing major metropolitan regions. In fact, traffic congestion is worse in most other countries because American roads are so much better.

Coping With the Mobility Problem

There are four ways any region can try to cope with the mobility challenge. But three of them are politically impractical or physically and financially impossible in the United States.

Charging peak-hour tolls. Governments can charge people money to enter all the lanes on major commuting roads during peak hours. If tolls were set high enough and collected electronically with "smart cards," the number of vehicles on each major road during peak hours could be reduced enough so that vehicles could move at high speeds. That would allow more people to travel per lane per hour than under current, heavily congested conditions.

Transportation economists have long been proponents of this tactic, but most Americans reject this solution politically for two reasons. Tolls would favor wealthier or subsidized drivers and harm poor ones, so most Americans would resent them, partly because they believe they would be at a disadvantage.

The second drawback is that people think these tolls would be just another tax, forcing them to pay for something they have already paid for through gasoline taxes. For both these reasons, few politicians in our democracy—and so far, anywhere else in the world—advocate this tactic. Limited road-pricing schemes that have been adopted in Singapore, Norway, and London only affect congestion in crowded downtowns, which is not the kind of congestion on major arteries that most Americans experience.

Greatly expanding road capacity. The second approach would be to build enough road capacity to handle all drivers who want to travel in peak hours at the same time without delays. But this "cure" is totally impractical and prohibitively expensive. Governments would have to widen all major commuting roads by demolishing millions of buildings, cutting down trees, and turning most of every metropolitan region into a giant concrete slab. Those roads would then be grossly underutilized during non-peak hours. There are many occasions when adding more road capacity is a good idea, but no large region can afford to build enough to completely eliminate peak-hour congestion.

Greatly expanding public transit capacity. The third approach would be to expand public transit capacity enough to shift so many people from cars to transit that there would be no more excess demand for roads during peak hours. But in the United States in 2000, only 4.7 percent of all commuters traveled by public transit. (Outside of New York City, only 3.5 percent use transit and 89.3 percent use private vehicles.) A major reason is that most transit commuting is concentrated in a few large, densely settled regions with extensive fixed-rail transit systems. The nine U.S. metropolitan areas with the most daily transit commuters, when taken together, account for 61 percent of all U.S. transit commuting, though they contain only 17 percent of the total population. Within those regions, transit commuters are 17 percent of all commuters, but elsewhere, transit carries only 2.4 percent of all commuters, and less than one percent in many low-density regions.

Even if America's existing transit capacity were tripled and fully utilized, morning peak-hour transit travel would rise to 11.0 percent of all morning trips. But that would reduce all morning private vehicle trips by only 8.0 percent—certainly progress, but hardly enough to end congestion—and tripling public transit capacity would be extremely costly. There are many good reasons to expand the nation's public transit systems to aid mobility, but doing so will not notably reduce either existing or future peak-hour traffic congestion.

Living with congestion. This is the sole viable option. The only feasible way to accommodate excess demand for roads during peak periods is to have people wait in line. That means traffic congestion, which is an absolutely essential mechanism for American regions—and most other metropolitan regions throughout the world—to cope with excess demands for road space during peak hours each day.

Although congestion can seem intolerable, the alternatives would be even worse. Peak-hour congestion is the balancing mechanism that makes it possible for Americans to pursue other goals they value, including working or sending their children to school at the same time as their peers, living in low-density settlements, and having a wide choice of places to live and work.

The Principle of Triple Convergence

The least understood aspect of peak-hour traffic congestion is the principle of triple convergence, which I discussed in the original version of Stuck in Traffic (Brookings/Lincoln Institute of Land Policy, 1992). This phenomenon occurs because traffic flows in any region's overall transportation networks form almost automatically self-adjusting relationships among different routes, times, and modes. For example, a major commuting expressway might be so heavily congested each morning that traffic crawls for at least thirty minutes. If that expressway's capacity were doubled overnight, the next day's traffic would flow rapidly because the same number of drivers would have twice as much road space. But soon word would spread that this particular highway was no longer congested. Drivers who had once used that road before and after the peak hour to avoid congestion would shift back into the peak period. Other drivers who had been using alternative routes would shift onto this more convenient expressway. Even some commuters who had been using the subway or trains would start driving on this road during peak periods. Within a short time, this triple convergence onto the expanded road during peak hours would make the road as congested as it was before its expansion.

Experience shows that if a road is part of a larger transportation network within a region, peak-hour congestion cannot be eliminated for long on a congested road by expanding that road's capacity.

The triple convergence principle does not mean that expanding a congested road's capacity has no benefits. After expansion, the road can carry more vehicles per hour than before, no matter how congested it is, so more people can travel on it during those more desirable periods. Also, the periods of maximum congestion may be shorter, and congestion on alternative routes may be lower. Those are all benefits, but that road will still experience some period of maximum congestion daily.

Triple Convergence and Other Proposals

Triple convergence affects the practicality of other suggested remedies to traffic congestion. An example is staggered work hours. In theory, if a certain number of workers are able to commute during less crowded parts of the day, that will free up space on formerly congested roads. But once traffic moves faster on those roads during peak hours, that will attract other drivers from other routes, other times, and other modes where conditions have not changed to shift onto the improved roads. Soon the removal of the staggered-working-hour drivers will be fully offset by convergence.

The same thing will happen if more workers become telecommuters and work at home, or if public transit capacity is expanded on off-road routes that parallel a congested expressway. This is why building light rail systems or even new subways rarely reduces peak-hour traffic congestion. In Portland, where the light rail system doubled in size in the 1990s, and in Dallas, where a new light rail system opened, congestion did not decline for long after these systems were up and running. Only road pricing or higher gasoline taxes are exempt from the principle of triple convergence.

How Population Growth Can Swamp Transportation Capacity

A ground transportation system's equilibria can also be affected by big changes in the region's population or economic activity. If a region's population is growing rapidly, as in Southern California or Florida, any expansions of major expressway capacity may soon be swamped by more vehicles generated by the added population. This result is strengthened because America's vehicle population has been increasing even faster than its human population. From 1980 to 2000, 1.2 more automotive vehicles were added to the vehicle population of the United States for every 1.0 person added to the human population (though this ratio declined to 1 to 1 in the 1990s). The nation's human population is expected to grow by around 60 million by 2020—possibly adding another 60 million vehicles to our national stock. That is why prospects for reducing peak-hour traffic congestion in the future are dim indeed.

Shifts in economic activity also affect regional congestion. During the internet and telecommunications boom of the late 1990s, congestion in the San Francisco Bay Area intensified immensely. After the economic "bubble" burst in 2000, congestion fell markedly without any major change in population. Thus, severe congestion can be a sign of strong regional prosperity, just as reduced congestion can signal an economic downturn.

The most obvious reason traffic congestion has increased everywhere is population growth. In a wealthy nation, more people means more vehicles. But total vehicle mileage traveled has grown much faster than population. From 1980 to 2000, the total population of the United States rose 24 percent, but total vehicle miles traveled grew 80 percent because of more intensive use of each vehicle. The number of vehicles per 1,000 persons rose 14 percent and the number of miles driven per vehicle rose 24 percent. Even without any population gain in those two decades, miles driven would have risen 47 percent.

One reason people drove their vehicles farther is that a combination of declining real gas prices (corrected for inflation) and more miles per gallon caused the real cost of each mile driven to fall 54 percent from 1980 to 2000. That helped raise the fraction of U.S. households owning cars from 86 percent in 1983 to 92 percent in 1995.

Furthermore, American road building lagged far behind increases in vehicle travel. Urban lane-miles rose by 37 percent versus an 80 percent increase in miles traveled. As a result, the amount of daily traffic that was congested in the 75 areas analyzed in studies by the Texas Transportation Institute went from 16 percent in 1982 to 34 percent in 2001.

Another factor in road congestion is accidents and incidents, which some experts believe cause half of all traffic congestion. From 1980 to 2000, the absolute number of accidents each year has remained amazingly constant, and the annual number of traffic deaths in the United States fell 18 percent, in spite of the great rise in vehicle miles traveled. So accidents could only have caused more congestion because roads were more crowded, and each accident may now cause longer back-ups than before.

Incidents are non-accident causes of delay, such as stalled cars, road repairs, overturned vehicles, and bad weather. No one knows how many incidents occur, but it is a much greater number than accidents. And the number of incidents probably rises along with total driving. So that could have added to greater congestion, and will in the future.

Low-Density Settlements

Another crucial factor contributing to traffic congestion is the desire of most Americans to live in low-density settlements. In 1999, the National Association of Homebuilders asked 2,000 randomly-selected households whether they would rather buy a $150,000 townhouse in an urban setting that was close to public transportation, work, and shopping or a larger, detached single-family home in an outlying suburban area, where distances to work, public transportation, and shopping were longer. Eighty-three percent of respondents chose the larger, farther-out suburban home. At the same time, new workplaces have been spreading out in low-density areas in most metropolitan regions.

Past studies, including one published in 1977 by Boris S. Pushkarev and Jeffery M. Zupan, have shown that public transit works best where gross residential densities are above 4,200 persons per square mile; relatively dense housing is clustered close to transit stations or stops; and large numbers of jobs are concentrated in relatively compact business districts.

But in 2000, at least two thirds of all residents of U.S. urbanized areas lived in settlements with densities of under 4,000 persons per square mile. Those densities are too low for public transit to be effective. Hence their residents are compelled to rely on private vehicles for almost all of their travel, including trips during peak hours.

Recognizing this situation, many opponents of "sprawl" call for strong urban growth boundaries to constrain future growth into more compact, higher-density patterns, including greater reinvestment and increased densities in existing neighborhoods. But most residents of those neighborhoods vehemently oppose raising densities, and most American regions already have densities far too low to support much public transit. So this strategy would not reduce future traffic congestion much.

Possible Improvements

While it's practically impossible to eliminate congestion, there are several ways to slow its future rate of increase:

Create High Occupancy Toll (HOT) lanes. Peak-hour road pricing would not be politically feasible if policymakers put tolls on all major commuter lanes, but HOT lanes can increase traveler choices by adding new toll lanes to existing expressways, or converting underused high-occupancy vehicle (HOV) lanes to HOT lanes, and leaving present conventional lanes without tolls. True, HOT lanes do not eliminate congestion. But they allow anyone who needs to move fast on any given day to do so, without forcing all low-income drivers off those same roads during peak periods. In some regions, whole networks of HOT lanes could both add to overall capacity and make high-speed choices always available to thousands of people in a hurry.

Respond more rapidly to traffic-blocking accidents and incidents. Removing accidents and incidents from major roads faster by using roving service vehicles run by government-run Traffic Management Centers equipped with television and electronic surveillance of road conditions is an excellent tactic for reducing congestion delays.

Build more roads in growing areas. Opponents of building more roads claim that we cannot build our way out of congestion because more highway capacity will simply attract more travelers. Due to triple convergence, that criticism is true for established roads that are already overcrowded. But the large projected growth of the U.S. population surely means that we will need a lot more road and lane mileage in peripheral areas.

Install ramp-metering. This means letting vehicles enter expressways only gradually. It has improved freeway speed during peak hours in both Seattle and the Twin Cities, and could be much more widely used.

Use Intelligent Transportation System devices to speed traffic flows. These devices include electronic coordination of signal lights on local streets, large variable signs informing drivers of traffic conditions ahead, one-way street patterns, Global Positioning System equipment in cars and trucks, and radio broadcasts of current road conditions. These technologies exist now and can be effective on local streets and arteries and informative on expressways.

Create more HOV (High Occupancy Vehicle) lanes. HOV lanes have proven successful in many areas such as Houston. More regions could use HOV lanes effectively if there were more lanes built for that purpose, rather than trying to convert existing ones. Merely converting existing lanes would reduce overall road capacity.

Adopt "parking cash-out" programs. Demonstration programs have shown that if firms offer to pay persons now receiving free employee parking a stipend for shifting to carpooling or transit, significant percentages will do so. That could reduce the number of cars on the road. However, this tactic does not prevent the offsetting consequences of triple convergence.

Restrict very low-density peripheral development. Urban growth boundaries that severely constrain all far-out suburban development will not reduce future congestion much, especially in fast-growing regions. And such boundaries may drive up peripheral housing prices. But requiring at least moderate residential densities—say, 3,500 persons per square mile (4.38 units per net acre)—in new growth areas could greatly reduce peripheral driving, compared to permitting very low densities there, which tend to push growth out ever farther. In 2000, thirty-six urbanized areas had fringe area densities of 3,500 or more. Those thirty-six urbanized areas contained 18.2 percent of all persons living in all 476 U.S. urbanized areas.

Cluster high-density housing around transit stops. Such Transit Oriented Developments (TODs) would permit more residents to commute by walking to transit, thereby decreasing the number of private vehicles on the roads. However, the potential of this tactic is limited. In order to shift a significant percentage of auto commuters to transit, the number of such "transit circles" within each region would have to be very large, the density within each circle would have to be much greater than the average central city density in America's fifty largest urbanized areas, and the percentage of workers living in the TODs who commuted by transit would have to greatly exceed the 10.5 percent average for central cities in 2000. Even so, developing many of these high-density clusters might make public transit service more feasible to many more parts of large regions.

Give regional transportation authorities more power and resources. Congress has created Metropolitan Planning Organizations to coordinate ground transportation planning over all modes in each region. If these were given more technical assistance and power, more rational systems could be created. Without much more regionally focused planning over land uses as well as transportation, few anti-congestion tactics will work effectively.

Raise gasoline taxes. Raising gas taxes would notably slow the rate of increase of all automotive travel, not just peak-hour commuting. But Congress has refused to consider it because it is politically unpopular and fought by industry lobbyists. Despite Americans' vocal complaints about congestion, they do not want to pay much to combat it.

Conclusion

Peak-hour traffic congestion in almost all large and growing metropolitan regions around the world is here to stay. In fact, it is almost certain to get worse during at least the next few decades, mainly because of rising populations and wealth. This will be true no matter what public and private policies are adopted to combat congestion.

But this outcome should not be regarded as a mark of social failure or misguided policies. In fact, traffic congestion often results from economic prosperity and other types of success.

Although traffic congestion is inevitable, there are ways to slow the rate at which it intensifies. Several tactics could do that effectively, especially if used in concert, but nothing can eliminate peak-hour traffic congestion from large metropolitan regions here and around the world. Only serious economic recessions—which are hardly desirable—can even forestall an increase.

For the time being, the only relief for traffic-plagued commuters is a comfortable, air-conditioned vehicle with a well-equipped stereo system, a hands-free telephone, and a daily commute with someone they like.

Congestion has become part of commuters' daily leisure time, and it promises to stay that way.

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Anthony Downs

Growth Management, Smart Growth, And Affordable Housing

Anthony Downs — Thu, 29 May 2003 00:00:00 -0400

My tasks are to create an overall perspective on the relationships between smart growth, growth management, and affordable housing, and to advocate more emphasis upon affordable housing in future smart growth tactics. I will also try to be politically realistic.

Let me begin by stating what I believe is meant by growth management and smart growth. These terms have no standard, universally-accepted definitions. They stand for many different sets of policies espoused by diverse groups under different circumstances.

Growth management means specific regulatory policies aimed at influencing how growth occurs, mainly within a locality. These affect density, availability of land, mixtures of uses, and timing of development. Growth management seeks to accommodate growth rationally, not to prevent or limit it. That is growth control.

Smart growth refers to an overall set of broad goals designed to counteract sprawl. These usually include (1) limiting outward expansion, (2) encouraging higher density development, (3) encouraging mixed-use zoning, (4) reducing travel by private vehicles, (5) revitalizing older areas, and (6) preserving open space. Promoting more affordable housing can be a goal, but usually is not.

Since sprawl is a regional phenomenon, many smart growth goals cannot succeed without region-wide application. For example, to limit outward growth requires both regional growth boundaries and prohibitions against any urban development beyond those boundaries. Only state governments can do that. So smart growth must be applied at different gov't levels by different authorities.

The smart growth elements least likely to be adopted are those needing large public subsidies -- such as revitalizing old areas -- or regional action -- such as building major public transit systems. What can be done locally and cheaply with wide popular support is most likely: preserving open space and limiting outward growth within specific localities.

Actual adoption of a consistent set policies likely to achieve smart growth goals is very rare, because few acceptable mechanisms exist for coordinating all these actions regionally. Thus, smart growth is far more often talked about than achieved.

The third major subject of this symposium is affordable housing. But there are different types of affordable housing, depending upon to whom it is affordable

The people with the greatest housing needs are very low-income households that cannot afford to pay for "decent" quality units. Most of these households are renters, but U.S. government housing policies are mainly designed to encourage ownership. So there is very little housing affordable to the poor, who need housing assistance most.

The basic problem is an "affordability gap" between what poor households can pay for housing at some standard level --say 30 percent of income --and what it costs to occupy a "decent quality home" as defined by middle-class standards.

Most housing built today that is called affordable is too costly for low-income households; but it is affordable to working-class or moderate-income households. The "affordability gap" for these households still exists, but it is smaller and therefore can be bridged in various ways that do not require large public subsidies per unit.

There are only two basic strategies to make housing affordable those who suffer from affordability problems. One is raising their incomes, either directly like the Earned Income Tax Credit, or indirectly through housing subsidies like Section 8. To do this for all very low-income households would be very costly, so we don't attempt it.

The second strategy is reducing the cost of housing to the occupants. There are four tactics for doing this. One is making financing more available or cheaper. That is done through lower-down-payment mortgages, easier credit, and low interest rates. But these arrangements do not help low-income renters, who need help most.

A second such tactic is reducing the costs of producing housing units meeting middle-class quality standards. That involves (1) modifying building codes, (2) speeding up the development process, and (3) raising residential densities.

The third tactic for lowering housing costs is reducing the size and quality standards required for new housing. This can be done by using manufactured housing, allowing creation of accessory apartments, constructing small housing units like homes built after World War II, and building more multi-family units. These arrangements can be carried out with mainly private financing. Yet manufactured housing, accessory apartments, and smaller homes are illegal in most suburbs, and more multi-family units are blocked by limiting land zoned for them. Ironically, these tactics are all quite consistent with smart growth goals.

Almost all the households who have affordability problems live in older existing units, not brand new ones. Few will ever be able to afford brand new units. Unfortunately, making EXISTING housing more affordable has almost no political support in America. In fact, just the opposite is the case. Almost all groups interested in existing housing want its market values to rise, not fall --thus making it less affordable to those who need help.

Existing housing could be made more affordable by reducing its price across the board in relation to incomes. But all the institutions related to housing --builders, mortgage lenders, Fannie and Freddie, bondholders, realtors, insurers, and all homeowners --have invested trillions in existing housing and want their assets to rise in value. That goal is certainly understandable, and there is nothing wrong with it. But it also has an unfortunate impact on prevailing attitudes toward creating new low-cost housing.

In the suburbs, local governments are politically dominated by homeowners, who comprise a majority of residents and are the most vocal. The major asset of most homeowners is their home. They have strong incentives to want the market values of homes to rise. So they oppose any policies they believe might reduce home values They think letting more affordable units into their communities would do that and might also lower the quality of local schools and raise property taxes. So very few want to permit new low-cost housing near them, or to accept low-income neighbors.

Hence, a key goal of most suburban governments is to prevent actions that might reduce home values. They pass laws that require high standards of quality for new units, limit multi-family housing, prohibit manufactured housing, etc.

As long as full power over what housing can be built in a community resides with its local government, we are not going to see much additional affordable housing created in the suburbs. Yet that is where most growth of jobs and population is occurring. So that is where society most needs additional affordable units.

Consequently, making housing more affordable to those who need help most is a cause without powerful supporters. Only a few housing-oriented trade associations and non-profits, academics, and builders who use low-income tax credits, care about this cause. True, broader homeownership has a lot of promoters who would gain financially. But that does not help those most in need of more affordable housing.

Breaking this impasse will require shifting some of the decision-making power over where housing is built to other levels besides suburban local governments. Alternative stakeholders include developers, state governments, regional agencies, and possible public-private partnerships created to develop more widespread affordable housing.

Resistance to reducing local autonomy over housing is intense because it involves the social nature of who is going to live near me and who is going to attend school with my children. Most people accept regional approaches to infrastructures, such as sewage and transportation systems. But they reject regionalism regarding social aspects, such as schools and who lives where. Almost all attempts to create suburban affordable housing have been thwarted by such local NIMBYism.

Even in the one state that has adopted a statewide affordable housing policy --New Jersey --resistance to affordability in suburbs has been fierce. And when such units were built there, occupants have been mostly white households already residing in the suburbs. This is also true in Massachusetts. So there has been very little movement of any households out of central cities into suburban affordable housing --one of the basic purposes of locating affordable housing in the suburbs.

Thus, a key reason why many proponents of smart growth have not emphasized creating affordable housing is that doing so would arouse strong opposition from suburban residents. Getting smart growth accepted by itself is hard enough --why take on the even more controversial burden of promoting affordable housing too?

Yet without affordable housing, the other main smart growth policies restrict the supply of land usable for development. That normally places upward pressure on prices of both new and existing units, making housing less affordable that it would otherwise be. If land-restricting policies are adopted only locally, housing prices are very likely to rise. Only if such policies are adopted regionally, along with other policies that raise densities, can smart growth avoid making housing less affordable.

True, New Jersey's approach has caused construction or rehabilitation of quite a few low-cost housing units in older cities, paid for by suburbs "buying out" of their requirement to create affordable housing within their own boundaries. That is a definite benefit to central-city households needing better quality housing.

In most regions, smart growth advocates do not strongly promote affordable housing in localities where they want to pass land-limiting policies. Thus, they are often making housing less affordable to those who need it most.

If smart growth advocates are to avoid this unjust and undesirable outcome, they must make strong efforts to promote actual building of affordable housing in localities and regions where they are pushing smart growth. Their reason for taking on this extra political burden is that doing so is necessary to make smart growth socially just and responsible. Policies that leave out --or actually harm --the interests of low-income households cannot be truly smart and just.

A crucial ingredient in getting more affordable housing built is responsible leadership from state governments --especially governors. Only states have the legal power to modify the current autonomy of local governments over where, and what kind, of housing can be built.

The few state governments that have supported workable affordable housing policies have done so mainly in response to crises. In New Jersey, the crisis was imposed by courts that began to take zoning powers away from local governments. This prompted action by the state legislature. In the few other states that have started to promote more affordable housing, the crisis has been acute shortages of affordable housing also affecting middle-income households with greater political influence.

This is most evident in California. Before the High Tech bubble burst, housing prices were so high that teachers, police, fire fighters and other city workers could not live near where they worked. This hurts employers trying to hire people from other regions and citizens trying to operate schools and governments. So California required every locality to adopt an affordable housing target. But the state did not provide funding or any means of enforcing those targets.

Thousands of poor immigrants entering California are forced to double and triple up in overcrowded, often deteriorated units. Insofar as such slums are temporary way-stations while these households get established, this strategy can be perhaps be defended as the only feasible way to shelter very poor newcomers --and the same strategy America has always used to house them since colonial days.

But people forced to live in sub-standard, overcrowded units now include many households other than poor immigrants in temporary quarters. We are generating a whole new set of slums as de facto affordable housing for the poor and many working-class households. Since it is mainly in older urban areas out of sight of the middle-class majority, it is politically acceptable. Other cost-lowering tactics are regarded as too costly or too upsetting to nearby middle-class households.

Thus, achieving either more affordable housing or smart growth requires strong support from state governments that permits region-wide implementation of policies dominated by local governments. Advocates of both affordable housing and smart growth need to persuade state governments to support regional approaches. Such persuasion will be successful only if state leaders believe crisis conditions now exist.

However, most smart growth advocates, in my view, have up to now not put much stress on improving housing affordability, for reasons I have stated. Their efforts have been more focused on reducing traffic congestion, loss of open space, school overcrowding, and higher taxes, and slowing the spatial expansion of settlements into greenfields.

Some of these targets are in part inescapable results of rapid population growth. But no region can control its own population growth. That is determined by its own basic traits, such as location in the nation, climate, economic strength, demography, past investments, and topography. Insofar as these undesirable conditions are caused by growth itself, they cannot be completely eliminated through regional or any policies. Thus, smart growth probably could not fully overcome the conditions it was created to change, even if widely implemented. Some sprawl will be with us for a long time.

Moreover, implementing smart growth would have two impacts that tend to raise strong citizen opposition, as noted earlier. Many smart growth ideas won't really work unless carried out regionally. So some authority must be shifted to a regional focus, which local gov'ts oppose. Second, raising densities generally means raising them in many suburban neighborhoods too. But almost all suburbanites oppose higher densities in their own areas. Local NIMBYism limits smart growth's acceptability.

Implementing smart growth ideas alone is also likely to raise housing prices for the poor, even if some affordable housing is created for a few working class and moderate-income households. Since most residents of growth areas do not want poor people living near them, they fight against affordable housing measures. Also, many such measures require major public funding, so they are kept small in scale.

As a result, the main tactics advocated by smart growth proponents that have attained widespread public support are those that can be done locally without much new public spending, tax increases, or "social engineering." Those are local growth boundaries or other limits to developable land, mixed-use zoning, and permitting very limited higher densities for a few housing units. These tactics do not make much housing more affordable, and may make a lot of it less affordable.

Where does all this leave us? I suggest the following conclusions.

Smart growth goals would be furthered by much more widespread creation of affordable housing because that would (1) lead to higher densities, since the most affordable housing consists of multi-family or attached units, (2) reduce traffic congestion, since low-wage workers would have to travel less to their jobs, (3) promote more mixed-use development, since multi-family units can more easily be co-located with retail uses, and (4) require a shift of some land-use regulation away from local governments, which is vital to effective smart growth. From this viewpoint, smart growth proponents ought to strongly promote affordable housing in the suburbs.

But trying to create more affordable housing in the suburbs where we need it most is vehemently opposed by a big majority of suburban residents and governments. So making widespread creation of more affordable housing a key goal of smart growth proponents might reduce their chance of getting any of their goals put into practice.

But several of smart growth's major goals themselves cannot be attained without either region-wide implementation or increased public spending or both. But these two actions are also unpopular. Consequently, in most U.S. regions, attempts to carry out smart growth have ended implementing only local growth management policies. Those policies cannot stop sprawl, and often reduce housing affordability.

Continuing the status quo is not likely to achieve either smart growth or more affordable suburban housing in most metropolitan areas. What is needed is greater receptivity to region-wide tactics. That must in turn be grounded in widespread citizen dissatisfaction with both existing sprawl development and existing shortages of local housing affordable to those workers who are necessary to run suburbs efficiently.

The best way to create such dissatisfaction is for advocates of both smart growth and affordable housing in the suburbs to work together to promote regional tactics aimed at their combined goals. Such coalitions could include churches and non-profits interested in social justice, businesses seeking housing for their workers, and developers who want to build low-cost housing. Both groups could then realize they were working for socially just outcomes for all income groups.

There is no guarantee that such combined forces will prevail soon, if at all. But I can guarantee you that chances of attaining either effective smart growth or more affordable housing without such coalitions are slim to none. Instead regions will wind up with more purely local growth management that pushes growth out farther --thus worsening sprawl --and raises housing prices more than ever.

Smart growth cannot be really socially just and responsible unless it includes a significant element of affordable housing. That would make it truly smart.

Authors

Anthony Downs

Publication: Keynote speech given at Brookings Symposium on the Relationship Between Affordable Housing and Growth Management

Some Like It HOT: High-occupancy toll lanes work best on high-traffic roads.

Anthony Downs — Wed, 01 May 2002 00:00:00 -0400

Economists advocate using tolls to ration space on congested roads. Their theory goes like this: Since drivers during peak hours do not have to bear the costs of the delay their presence on highways imposes, many drivers enter roads during peak hours. If a toll were charged during congested periods—and if it were set high enough—the number of drivers entering the road could be reduced enough to maintain rapid traffic flow.

In practice, this idea would be unacceptable to most American drivers. They believe high tolls would force them off the best roads during the most convenient hours while wealthier commuters move rapidly on those roads—a situation that strikes most drivers as grossly unfair. As I see it, this sense of unfairness is now, and will always remain, an insurmountable obstacle to charging variable tolls on congested freeways.

High-occupancy vehicle lanes—highway lanes designated for use only by vehicles containing two, three or more occupants—are a widely used alternative. HOV restrictions can drastically reduce the number of vehicles using such lanes, permitting cars that qualify for the lanes to travel rapidly during peak hours. This should create an incentive for people to switch from driving alone to carpooling, thereby expanding road capacity.

However, experience shows that the number of vehicles using HOV lanes is usually well below the capacity of each lane. Thus, HOV lanes are often underutilized.

Another approach involves high-occupancy toll—HOT—lanes. These are lanes that can be used by both high-occupancy vehicles (either without charge or with a reduced toll) and single-occupancy vehicles (with a variable toll during peak hours). The toll is determined by hourly vehicle flows and is set high enough in peak hours to keep the number of users down and, consequently, speeds of vehicles on the road up.

HOT lanes, however, do not eliminate peak-hour congestion on a crowded expressway, since such lanes comprise only a limited part of the road's total capacity. The normal lanes remain heavily congested during peak hours. But HOT lanes do provide all drivers with a choice of paying a toll and moving rapidly or using toll-free normal lanes and experiencing congestion. HOT lanes have been used successfully on State Route 91 in Southern California since 1995, where they have notably reduced commuting times on both the HOT and normal lanes.

HOT lanes work best on roads where there is heavy traffic and long delays during peak hours. Without such congestion, drivers would have little incentive to pay significant tolls.

Creation of both HOV and HOT lanes is much more acceptable if it is done by adding capacity to an existing road. Conversion of existing lanes reduces the overall capacity of the road, thereby increasing congestion on the remaining normal lanes. Yet the new HOV or HOT lanes are clearly less congested than the remaining normal lanes. So the peak-hour drivers still on normal lanes realize they have been penalized with greater delays to benefit people using the HOV or HOT lanes. This will enrage many drivers, who will vehemently protest to public officials, often causing speedy reversal of such conversions.

Converting existing HOV lanes to HOT lanes should be considered only if the HOV lanes are significantly underutilized to begin with. If an existing HOV lane is so heavily used by HOVs during peak hours that it is near the capacity it can handle while maintaining high speeds, converting it to a HOT lane may reduce the road?s efficiency. Such conversion would allow some SOVs onto that lane during peak hours, and tolls might drive some HOVs away. That would reduce the total number of persons using these lanes in peak hours.

Surveys of HOT lane users show that people with relatively high incomes are more likely to use them regularly than people with relatively low incomes. On the other hand, anyone can use a HOT lane for high-speed movement on a particular day when such movement is important to him or her—which would be impossible if the road was toll-free.

Since the per lane per hour capacity of HOT lanes is limited by the need to maintain high speed, there may be long lines of drivers waiting to get onto those lanes during peak hours. This would offset some of the benefits of the HOT lanes.

A few other pointers on HOT lanes: They should be created only as part of the entire highway network in which they will be located, with full recognition of how those lanes will affect the whole network. Also, HOT lanes will be more politically acceptable if the money collected from the tolls is clearly going to be spent improving the capacity of that road or others in the same basic network.

In the right circumstances, HOT lanes can be a means of at least offering an option during peak hours to drivers willing to pay for a fast-moving advantage. Such a choice would not exist without the HOT lanes.

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Anthony Downs

Publication: Governing Magazine

Peak-Hour Traffic Congestion

Anthony Downs — Tue, 19 Mar 2002 00:00:00 -0500

My name is Anthony Downs, and I am a Senior Fellow at the Brookings Institution. I am the author of the 1992 book Stuck In Traffic, which deals with the causes of and possible remedies for peak-hour traffic congestion, and which I am now revising for a second edition. The views I state here are solely my own, and not those of the Brookings Institution, its Trustees, or its other staff members.

My comments will consist of a series of major points, with some supporting discussion of each. These points are focused on a realistic view of the nature of traffic congestion, both present and future, and what actions might be taken to relieve it.

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Anthony Downs

Publication: Senate Committee on the Environment and Public Works

How Real Are Transit Gains?

Anthony Downs — Fri, 01 Mar 2002 00:00:00 -0500

A new day has dawned in American travel: Transit is gaining sway over highway travel.

That's what some public transit advocates have been claiming, based on a Surface Transportation Policy Project report in December 2000 that showed public transit boardings rose 4.8 percent in 1999 while vehicle miles of driving rose only 2.1 percent. Then, after reporting last November that there were larger percentage increases in transit usage than highway travel in 2000 and 2001, STPP said, "No precedent exists for this massive shift in travel behavior."

A less partisan view shows these claims are exaggerated.

Getting exact and consistent information about transportation trends is not easy. The basic data on transit use are published by the American Public Transportation Association and the U.S. Department of Transportation's Federal Transit Administration. Each agency produces multiple reports that do not always agree with each other. I have done my best to create a consistent database from these sources, but some extrapolation and interpretation remain necessary.

Two other background facts help put the discussion in perspective. First, a significant percentage of all public transit travel occurs in the New York City area and on its MTA, which accounts for 20 percent of all U.S. transit passenger miles and more than 27 percent of all unlinked passenger trips. So, although about 5 percent of all commuting is done by public transit, that fraction is only 2.2 percent outside New York.

Second, the absolute amount of total travel in private automobiles dwarfs public transit's totals: In 2000, transit provided about 46.6 billion miles of movement while passenger miles traveled in the same year on highways totaled about 4 trillion—2.5 trillion in cars and another 1.5 trillion in small trucks and SUVs. That's 86 times greater than passenger miles on transit. In fact, transit's share of all passenger miles traveled in the U.S. from 1985 through 2000 averaged only 1.26 percent.

Consequently, even very small percentage gains in highway travel involve vastly larger absolute increases in miles traveled than much larger percentage gains in transit travel. In 1999, a year about which STPP said that "growth in public transit exceeds growth in driving," total transit travel grew by about 1.7 billion passenger miles. But growth in car passenger miles was at least 51 billion miles and that in small private vehicles (excluding motorcycles and buses) was at least 80 billion miles. (These totals may be low because I adjusted the official data downward to reflect STPP's estimates of percentage gains.) Thus, the annual increases in highway passenger miles traveled in 1999 exceeded those in transit passenger miles by ratios of either 31 or 48 to 1. That hardly indicates that growth in transit was exceeding growth in driving.

True, transit usage has had a notable recent growth spurt. Between 1985 and 1995, transit usage declined in every year but 1989, falling overall from 8.6 billion trips to 7.8 billion, or by 10 percent. Then in 1996, transit usage began rising, reaching 9.3 billion trips in 2000—a gain of 20 percent over 1995. But driving travel was also increasing in that period. Although auto gains were smaller in percentage terms--11.9 percent--they were massively larger than transit gains in absolute terms: 425 billion passenger miles versus 9 billion. Thus, even during this period of transit's resurgence, 98 percent of the increase in total passenger miles traveled occurred on highways.

Transit advocates may hope that if transit continues to grow faster than highway travel in percentage terms, transit may eventually attain a much greater share of total passenger miles. But transit has two handicaps in this "race." It starts with a very low share—1.15 percent in 2000—and total passenger travel on highways is rising all the time.

A simple simulation model shows that if both types of travel start with their 2000 absolute levels, and transit usage increases 5.36 percent per year (its highest recent annual rate of gain) and highway travel gains only 1 percent per year, then the share of transit in total ground passenger miles would not reach 5 percent until 2036. Even if highway driving did not rise at all while transit did, transit would not reach 5 percent of all ground passenger miles until 2029. If transit usage rises at its actual compound annual growth rate from 1995 to 2000 (3.74 percent) and highway travel rises at its similar rate (2.27 percent), transit would not reach a 5 percent share until the next century.

Improving and expanding the nation's public transit systems and upgrading their images are worthwhile goals that deserve significant effort and intensive promotion. And all special interest groups have a "natural" tendency to overemphasize both the virtues and success of their causes in order to gain attention. But it is also a good idea to retain a statistically accurate and objective understanding of the facts when dealing with such complex and controversial issues, especially those that involve billions of taxpayer dollars.

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Anthony Downs

Publication: Governing Magazine

When Will Real Estate Recover?

Anthony Downs — Fri, 01 Feb 2002 00:00:00 -0500

When I wrote this column in January, the U.S. economy still was in a recession, but many observers were predicting a rapid recovery, perhaps beginning in the second quarter of this year. This optimism was based upon [1] recent signs of more economic activity; [2] the belief that the cumulative impact of the Federal Reserve's slashes in interest rates would soon take effect; [3] the sharp rise of stock prices since Sept. 21, 2001; and [4] the impact of increased federal spending in response to the events of Sept. 11, 2001.

But even if the general economy recovers quickly in 2002, how soon will commercial real estate markets emerge from their current overbuilt phase? As readers of this column know, the commercial real estate markets have three phases: the development boom phase, the overbuilt phase and the gradual absorption phase.

Clearly overbuilt

The current overbuilt phase probably began in late 2000. Its main cause was a rapid decline in the demand for existing space, especially office space. This decline is indicated by national rates of office absorption.

In fourth-quarter 2000, downtown office demand increased nationwide by 1 million sq. ft., according to Los Angeles-based CB Richard Ellis. It then fell by 2.5 million sq. ft. in first-quarter 2001, 11 million sq. ft. in the second quarter and 17 million sq. ft. in the third quarter.

Demand shrank much more in downtowns than in the suburbs. That shrinkage also stimulated the flooding of office markets with sublease space. And when corporations sublease, they slash rents.

Moreover, a substantial amount of new space came onto the market in 2001 or is about to do so in 2002. Total office space under construction in 49 major markets rose from about 18 million sq. ft. in third-quarter 2000 to 26 million sq. ft. in second-quarter 2001, and was still at 17 million sq. ft. in the third quarter, according to CB Richard Ellis.

According to Boston-based Torto Wheaton Research, 50 million sq. ft. were added to the national office supply in the first half of 2001, and another 77 million sq. ft. came on line in the second half. That means office vacancy rates are going to rise even more in 2002, perhaps by a lot. As a result, rents, which are already declining, are going to fall even more.

The net result is that most office markets are clearly in the overbuilt phase of the real estate cycle. Based upon data from 49 markets, the overall office vacancy rate increased from 7.7% in third-quarter 2000 to 12% in third-quarter 2001, according to CB Richard Ellis. Vacancy rates rose in 45 of those 49 markets. The overall vacancy rate rose from 6.2% to 10.4% in downtowns during the same time frame, and from 8.6% to 13.0% in the suburbs. Some spectacular increases occurred, such as the jump from 1.9% to 14.2% in the San Francisco area, from 1.1% to 12.1% in the San Jose area, and from 1.9% to 11.6% in the Boston area.

So far, these trends have not pushed office building values down much, mainly because uncertainty has greatly slowed the number of deals actually being consummated, and because property owners are not under pressure to sell at the low prices buyers are offering. But values should fall more in 2002.

Slow recovery

The industrial vacancy rate has risen too, but not by nearly as much. The rate was 7.7% in second-quarter 2000 in 42 major markets, and 9.5% in third-quarter 2001, according to CB Richard Ellis. But new construction declined from 50 million sq. ft. in second-quarter 2001—the highest since before 1999—to 22 million sq. ft. in third-quarter 2001.

The situation in hotel markets is worse because demand has shrunk even more there than in the office sector. There has been a slow recovery of hotel occupancy levels from their nadir late last fall. However, I do not believe travel will fully recover to the levels that existed during the 1990s boom for at least several years.

These statistics indicate that most markets for the types of property highlighted above are going to remain in their overbuilt phase throughout 2002 and probably well into 2003. That is likely even if the general economy starts expanding again in the last half of 2002. It will take a while for recovering businesses to start demanding more space, and additional time for that demand to become strong enough to turn rents upward.

Sometime in 2003, the overbuilt phase will give way to the gradual absorption phase. In that phase, demands for space are rising but have not yet driven vacancies low enough, or rents high enough, to stimulate new building. If the recovery then continues strongly, the gradual absorption phase should soon lead into the next development boom phase. But I do not anticipate that happy day occurring until 2004 or even later.

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Anthony Downs

Publication: National Real Estate Investor

Can Transit Tame Sprawl?

Anthony Downs — Tue, 01 Jan 2002 00:00:00 -0500

Housing and transportation costs are inversely related. In outlying settlements, households with more than one worker usually need two or more vehicles to get everyone to their jobs. That increases their transportation costs. Because their homes tend to be built on lower-cost rural land, however, their housing costs are relatively low. Conversely, in denser urban areas that are well served by public transit, households with two or more workers can get by with one vehicle—or even none. For these households, transportation costs are likely to be a lower percentage of their budget than their rural counterparts. But urban land is usually valuable real estate, so their housing costs are likely to be steeper.

Data on consumer spending in specific regions backs up these observations. The highest fraction of consumer spending on transportation was 22.8 percent in the Houston area, which is notorious for traffic congestion. The lowest was 15.3 percent in the New York City area, which has an extensive public transit system. But Houston households spent only 30.6 percent on housing, whereas New York households spent 36.9 percent. Combined, both types of spending were about the same in the two cities. Similar inverse relationships between housing and transportation spending prevailed in all of the 28 metropolitan regions for which data were available.

Another piece of evidence that partially supports this relationship comes from "The Costs of Sprawl 2000," a recent study conducted by Rutgers University, the Brookings Institution and several other organizations. Part of the research examined how housing prices vary with distance from the regional downtown of each metropolitan area. Although only a few areas were analyzed, the study showed consistently that prices of similar homes tended to decline about 1.2 to 1.5 percent per additional mile from the regional downtown, except where proximity to the ocean had more influence on prices—as in Southern California. Meanwhile, longer-distance commutes added to fuel and travel-time costs by about the same amount per mile in every region. The study also found that per-mile housing-cost savings from added commuting distance were much larger in regions with absolutely very high housing costs than in those with absolutely low housing costs. Therefore, it was more likely to be economically worthwhile for households to move farther out to gain cheaper housing in high-housing-cost regions such as the San Francisco Bay and Boston areas than in low-housing-cost areas.

Different advocacy groups derive opposite policy conclusions from these findings. Supporters of more public transit claim that greatly improving a region's transit services and encouraging more compact future growth can reduce the total of both housing and movement costs, even if higher densities raise land prices and thus cause higher housing costs: Higher housing costs would be offset by lower transportation costs. Therefore, public policy should encourage more transit usage and limit outward growth, which would also preserve more open space.

But advocates of more road building claim that enabling households to move farther out onto cheaper land would also reduce their combined housing and movement costs, at least in regions where housing costs are high. Moreover, they argue that in regions where public transit services are limited—which is most of America—it would be impossible to get many residents to stop using their cars for most of their transportation, even if enormous sums were spent improving transit. Americans' preference for moving in private vehicles is too strong. Therefore, building more peripheral roads even though that might lead to both further sprawl and more traffic congestion would encourage construction of relatively low-cost housing.

Which view will prevail? The biggest factor influencing a policy decision is the nation's need to accommodate projected population growth of about 64 million residents by 2020—a 23 percent gain in population. It is hard to believe that this population bulge can be fitted into existing metropolitan settlements mainly through increasing density in already-built-up areas. Moreover, conversion of any significant fraction of American households from their almost total dependence on private vehicles to major use of public transit is highly unlikely. Therefore, at least some continued outward sprawl seems probable in most metropolitan areas experiencing growth, even though peripheral development will generate more traffic congestion. This will occur even if such areas improve their transit services considerably, as many should.

The reality is that sprawl will prevail not because it will provide lower-cost housing—although it may do that. Rather, the alternative of substantially raising densities in existing neighborhoods will be decisively rejected by NIMBY-oriented residents there. As long as power over land-use decisions and housing location remains totally in the hands of local governments, their continued support of exclusionary local zoning rules will dominate future urban policy.

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Anthony Downs

Publication: Governing Magazine

The Future of U.S. Ground Transportation from 2000 to 2020

Anthony Downs — Thu, 22 Mar 2001 00:00:00 -0500

I have been asked to take a brief look at the future of ground transportation in the United States. Given the rapid speed of social change in our world, I will focus upon the period up to about 2020, with a few comments on the longer period out to 2050.

Accomodating Future Population Growth

The first crucial consideration is the likely future growth of the U.S. population. Even before receiving results from the 2000 Census, the Census Bureau estimated that, from 2000 to 2020, the total population of the U.S. will rise by 48.2 millino persons, or by about 12 million every five years. That is a 17.6 percent increase in 20 years. And the first results of the 2000 Census indicate that future growth may be even greater than that. Somehow, U.S. ground transportation systems must expand their capacity to cope with this large increase in persons and households and goods...

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Anthony Downs

Publication: House Committee on Transportation and Infrastructure, Subcommittee on Highways and Transit

Traffic Congestion: Might as Well Enjoy It

Anthony Downs — Mon, 01 Jan 2001 00:00:00 -0500

Traffic congestion provokes spirited discussions at Washington area dinner parties. According to 1997 data, the average Washington area driver lost 76 hours in traffic jams that year.

Resentment against being stuck in traffic is a prime cause of anti-sprawl attitudes. People who moved farther out to "get away from it all" are discovering that "it all" has followed them. So they support tough, local anti-growth policies in the hope of preventing congestion from getting worse.

How bad is it? The average commuting time in the United States rose from 18.2 minutes in 1983 to 20.7 in 1995—an increase of only 2.5 minutes in 12 years. Even the time lost through delays in Washington traffic is not as great as it first seems. Dividing 76 hours by 240 working days a year, and then by two for the number of commutes per day, shows the average delay per trip is only 9.5 minutes. But those days with longer delays stick in our minds.

Why is congestion intensifying? For one thing, the combined population of Virginia, Maryland and the District rose by 2.2 million from 1980 to 1997—but the region's population of cars, trucks and buses soared by 3 million. In addition, we are driving each vehicle farther—up from 10,315 miles in 1983 to 12,226 in 1995. That is partly because real gas prices fell and incomes rose during that period. Also, most new subdivisions have low densities not compatible with public transit, so 59.5 percent of all households own more than one vehicle.

How about remedies? Unfortunately, there is no way to reduce peak-hour traffic congestion that Americans will accept.

The most obvious approach is to build more roads. That is worthwhile in areas experiencing big population increases. But improved roads encourage more development. Also, once a roadway's peak-hour speed has been increased by more lanes, drivers who formerly used other routes, commuted at other times or used other modes in order to avoid peak-hour delays, will shift back to driving on the improved road during peak periods. This convergence loads the bigger road beyond optimal capacity, producing crawling traffic once again. The same principle means that more telecommuting or staggered work hours will not relieve peak-hour jams for long, because other drivers will shift into these periods.

The favorite remedy of most anti-sprawl advocates and urban planners is to get more people to use public transit, but the chance of that relieving peak-hour traffic congestion is negligible. The cities with the most extensive public transit systems—New York, Washington and San Francisco—are among those with the worst traffic congestion.

In 1995 only 3.5 percent of all U.S. commuters used public transit (about 14 percent in the Washington region in 2000). More than 90 percent commuted in private vehicles because doing so is faster, more private, more convenient and more easily adapted to multiple activities on a single trip and often cheaper than using transit.

Even if improving transit could double its national share of commuting users to 7 percent—extremely unlikely—that would reduce auto commuting only from 91 to 87.8 percent—hardly enough to dent peak-hour congestion. And the policies required to drive people out of their cars—such as high gas taxes or license fees—are unacceptable to most Americans.

Changing future suburban growth patterns to higher-density developments is also unlikely to work. One reason is that more than 85 percent of all the settlements that will exist in the United States by 2020 are already here. Raising the density of the added 15 percent will not greatly alter overall surface transportation patterns.

Creating pedestrian-oriented subdivisions around public transit stops, as suggested by "new urbanists," might reduce local auto trips, but it would not cut longer-distance commuting enough to prevent congestion from rising along with population.

Economists long have suggested using peak-hour pricing on major arteries to allow drivers who are willing to pay to move rapidly during rush hours. Electronic "smart cards" make this possible without forcing commuters to stop at toll booths. But peak-hour tolls are strongly opposed by most citizens and elected officials. They regard them as a tax and believe that tolls give wealthy commuters an unfair advantage over poor ones.

In reality, peak-hour traffic congestion is inescapable in large modern metropolitan areas the world over. Business firms want most people on the job during the same hours so that workers can interact efficiently. Many firms also want to locate in low-density establishments scattered across the landscape. Households want a range of choices of where to live and work, and most want to live in low-density settlements that are separate from poorer households, use private vehicles for most travel and be able to carry out multiple errands on a single trip.

We cannot pursue all those goals without generating peak-hour traffic congestion. And as our populations of people and vehicles rise, the peak-hour congestion is going to get worse. If it gets bad enough, more people will move closer to their jobs or seek jobs closer to where they live. Otherwise, they will have to endure traffic jams.

So get yourself an air-conditioned car with a CD player, a hands-free telephone, perhaps even a fax machine, and commute with someone you really like. Learn to enjoy being stuck in traffic as another leisure activity, because congestion is here to stay.

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Anthony Downs

Publication: The Washington Post

Dealing Effectively With Fast Growth

Anthony Downs — Wed, 01 Nov 2000 00:00:00 -0500

Resentment against rapid population growth, aggravated by nine years of prosperity, has attained such a groundswell of support that citizens in two fast-growing states—Arizona and Colorado—are being asked to vote on ballot initiatives that appear to be partly aimed at slowing the overall population growth rates in those states. These initiatives require every locality to:

Designate specific areas for future growth
Have those designations approved by local voters
Receive future voter approval for subsequent changes in the initially-approved growth areas

Neither initiative provides a formal agency to reconcile conflicts among the plans adopted by individual localities, although the Colorado initiative calls for voluntary plan coordination by each locality with its adjoining neighbors. It is understandable that citizens of these and other fast-growth states are concerned about the adverse impacts of recent rapid growth. But, as I argue in this policy brief, passage of these initiatives is unlikely to slow growth, and would likely generate undesirable economic and social conditions. A better citizen response to growth-related problems would be to adopt regionwide strategies based upon statewide planning goals.

POLICY BRIEF #67

Why People Seek to Limit Future Population Growth
Many residents of a particular area become upset by rapid growth primarily because it generates increased traffic congestion, absorption of open space, disruption of habitats, more air and water pollution, overcrowded schools and other infrastructures, and increased local tax burdens to pay for added infrastructure.

How can concerned citizens reasonably respond to the adverse impacts of growth? A natural reaction is to try to slow growth so these conditions at least do not get worse. Since land-use policies in America are determined by local governments, citizens of each locality lobby officials to limit the number of housing units permitted there each year. Such local anti-growth sentiments are strengthened by two other factors. Homeowners usually oppose any local developments they believe might reduce the market values of their homes, which are usually their largest assets. So they fight most additional multi-family or affordable housing and try to limit residential densities. These voters control the election of local officials, so most local officials adopt only policies that enhance the well-being of their own constituents, regardless of the impacts upon the rest of the region.

The second factor reinforcing the anti-growth sentiment is fiscal pressure on local officials to keep property taxes low. So they reject most proposed new developments that generate more local spending than they produce in local revenues. This means limiting new housing, especially relatively low-cost units for families with children, even though every community needs low-wage workers to serve its residents and businesses. Many such workers are compelled to live in deteriorated or overcrowded units in older core areas.

Not all communities in fast-growth regions are opposed to more growth. The governments of central cities and older suburbs often welcome additional development on vacant sites to offset losses of their residents and businesses to more distant suburbs. Both Phoenix and Denver contain large amounts of vacant land suitable for development; so they could capture growth diverted from hostile suburbs. Encouraging such development is a commendable goal of ballot initiatives on growth.

Attitudes Toward Growth

Growth-limiting sentiments are prevalent among many local residents and officials, particularly in fast-growing regions. As a result, citizens who care about growth can be roughly divided into four groups: local anti-growth advocates who do not care what happens to the population of the region as a whole but want to slow the growth of their own communities; regional anti-growth advocates who would like to slow the growth of the entire region, even though they usually declare they only want to change the way anticipated growth will occur; pro-growth advocates who would like to continue present unrestrained growth processes; and smart growth advocates who do not necessarily want to slow the growth of the whole region but would like to see it take different forms that produce fewer adverse conditions. (Of course, all parties say they are for "smart growth," but they mean different things by that term.)

These four groups typically advocate different strategies. Local anti-growth advocates promote tough growth limits within their individual communities, but reject policies concerning the region as a whole. This approach tends to increase regional sprawl because developers blocked from building in anti-growth communities typically move farther out. Most pro-growth advocates want to maintain existing land-use and planning policies that have produced suburban sprawl for decades. Neither of these groups wants to change the present control of land-use planning by local governments. The strategies of the other two groups are discussed later.

Needs for Additional Growth and Development

Regions need to accommodate at least some new growth and development to remain economically stable and socially vibrant. The most basic reason is the natural increase of each region's existing population—the number by which births exceed deaths each year. In the entire United States, annual natural increase is about 0.6 percent of the current population. In an average metropolitan area initially containing one million residents, this increase adds 6,000 persons per year, or about 2,264 households averaging 2.65 persons per household.

The second need for new development arises from replacing obsolete existing structures through new construction or renovation. If, for example, the average useful life of a structure is 100 years, then about one percent of existing structures need to be replaced annually in order to maintain the same amount of structures. In the hypothetical region initially containing one million residents, if households average 2.65 persons and each occupies a separate dwelling unit, there would be 377,360 occupied dwelling units, plus another 9,000 vacant units, for a total of 386,360 units. Replacing one percent of them annually requires building another 3,864 units.

The third potential need for new development is generated by immigration from abroad. About one million immigrants per year were legally admitted into the United States during the 1990s, plus another unknown number of illegal immigrants. A conservative estimate of illegals would be 100,000, totaling 1.1 million newcomers, which was about 0.4 percent of the existing population in the late 1990s. If these newcomers were distributed evenly across the nation, then a region initially containing one million residents would receive 4,000 immigrants each year, or about 1,500 new households. In the 1990s, however, over half of all immigrants from other countries went to California, New York, and Texas, and almost three-fourths to those states plus Florida, New Jersey, and Illinois.

Thus, total needs for new housing development or renovation from these three sources would equal 7,628 dwelling units, or about two percent of the initial housing inventory. These needs would be larger if the community replaced more than one percent of its dwellings each year, or received net immigration from abroad of more than 0.4 percent of the existing population, or smaller if the converse occurred.

If this hypothetical metropolitan area grew only from these three sources and residents did not move away at the end of one decade, it would have gained 10.4 percent in population and built 88,300 new dwelling units in a 10-year period—equivalent to 22.9 percent of its initial inventory. However, that inventory would have risen by only 40,400 units because obsolete units would have been removed or renovated. The region would also have added commensurate amounts of new stores, offices, streets, schools, and government facilities to accommodate its added population.

A fourth need for new development arises from migration into a region from other parts of the United States. For many decades, there has been a steady population flow from the Northeast and Midwest into the South and West. This flow generates above-average needs for new housing and facilities in many Southern and Western regions.

Migration from other states forms the major source of population growth in metropolitan areas such as Atlanta, Phoenix, Denver, Seattle, Orlando, and Washington, D.C. In fact, any region whose population grows more than 10 or 11 percent per decade is probably experiencing significant domestic migration. If annual domestic migration into a region equals one percent of the initial population, that doubles the typical rate of increase of a metropolitan area's population to two percent per year. Consequently, such a region would experience a 21.9 percent increase in population in ten years. I estimate that the Phoenix metropolitan area, one of the nation's fastest-growing, received an average of 2.47 percent net domestic migration per year from 1990-1996, and the Denver metropolitan area received 1.36 percent per year.

Growth often stimulates the economic dynamism of a region. More people expand the labor force and attract more employers, who in turn provide more jobs that attract still more newcomers. Growing areas often have higher wages and incomes than economically stagnant ones, and become large enough to contain clusters of firms in the same industries. Those firms can operate more efficiently than similar firms isolated in separate places.

These fundamental benefits of growth are today somewhat obscured by nine years of uninterrupted prosperity. People feel freer to think about aspects of their lives other than having good jobs and ample incomes, instead concerning themselves with issues like education, traffic, air and water quality, and recreational facilities—all of which deteriorate at least temporarily under fast-growth conditions.

Can Local Governments Really Slow Down Overall Regional Growth?

In my opinion, individual local governments cannot influence the overall growth rates of their regions or states by implementing local growth-control laws, statewide initiatives notwithstanding. Regional growth rates are determined by broad forces beyond the purview of any one or even several local jurisdictions. These forces include the region's location in the nation, its climate, topography, demographics, physical size, natural resources, past investments made in it by specific industries and government agencies, and the national economic climate. So when one locality passes laws limiting future growth within its own boundaries, it does not affect the future growth rate of the overall region, but rather moves the region's future growth to other localities, or to outlying unincorporated areas. Local growth limits, then, actually aggravate sprawl.

However, this conclusion depends upon the availability of some places within the region willing to accommodate more growth. If every square foot of land within a region lies within some incorporated locality, and if every locality adopts stringent growth limits, that could prevent additional growth from occurring anywhere within the region—at least legally. That combination of conditions has not existed in American metropolitan areas, though it almost prevails in parts of California.

Even if many communities adopt draconian limits on their own growth, there have always been other localities nearby willing to accept growth—or unincorporated areas without growth limits—or cities unable to stop overcrowding of their existing housing by newcomers. As noted above, central cities and older suburbs often want more growth to fill vacant sites or compensate for losses of people and firms.

Regional net migration—both foreign and domestic—is the major variable influencing the pace at which a metropolitan area grows. Therefore, slowing a region's growth requires discouraging net in-migration. But regions gain a lot of in-migrants because the areas possess traits that attract newcomers looking for jobs and a desirable quality of life. Most of these traits are almost impossible to change through policy, especially local policy. Therefore, those seeking to slow a region's growth can reduce its attraction to newcomers only by curtailing some of the very attributes that attracted them. Examples are reducing job opportunities, raising housing costs, increasing taxes, insufficiently funding public schools, and failing to finance adequate infrastructure. But all these negative changes will also harm existing residents. Therefore, few residents will support such policies unless they are billed as major taxpayer revolts—as was California's Proposition 13, a successful 1978 initiative that limited taxes.

Moreover, it is more difficult to dissuade poor, unskilled immigrants from abroad than middle-income, educated in-migrants from the rest of the United States. Unskilled immigrants willingly accept housing, wages, and other provisions that educated migrants consider sub-standard, because immigrants regard such conditions as markedly superior to those that existed where they came from. Therefore, the less attractive a region is portrayed to newcomers, the more likely the mix of immigrants into it will shift toward higher percentages of poor and unskilled ones and lower percentages of middle-income, educated ones.

The Regional Anti-Growth Strategy

Some citizens upset by rapid growth have developed a strategy that appears to be aimed at slowing future population growth in a state or region as a whole, even though they claim they only want to increase local control over growth, slow tax increases, and reduce absorption of open land. That strategy is to require every sizable community within a state to adopt targeted growth limits that are difficult to revise, thereby eliminating a region's "escape valve" consisting of some communities willing to accept growth, or at least unable to stop it. This approach is built into the state ballot initiatives this year in Colorado and Arizona.

This regional anti-growth strategy seems to assume that local voters who own homes will oppose most new construction of multi-family or affordable housing, favor local zoning rules that permit building of only expensive new homes, and limit residential densities. Regional anti-growth advocates appear to be counting on this conservatism to defeat future referenda aimed at increasing permissible new-growth areas within each region. Even if the authors of these two initiatives have not deliberately chosen to appeal to such parochial local motives, their proposals are likely to do so.

If statewide initiatives pass using this strategy, even if local communities adopt initial growth boundaries that contain enough vacant land to accommodate ten years' worth of future growth (as in the Arizona initiative), that vacant land will eventually be developed, especially in fast-growth states like Arizona and Colorado. Then, additional future growth can only occur legally if citizens in each community subsequently vote for amendments that permit expanded growth areas or higher residential densities. Regional anti-growth advocates who support these two ballot initiatives are hoping such amendments will not pass, as shown by their requiring a four-fifths vote for approval of future changes in Arizona. That means a mere 21 percent of those local residents who vote can veto further growth, and that very few communities will be likely to welcome more growth.

However, if the regional anti-growth strategy substantially reduces total permits for future housing construction per year, housing prices in the entire region would probably be raised by affluent newcomers who continue to move there. Rising home values will benefit existing homeowners, who are the same voters that support preventing expansion of existing growth limits. But it will hurt renters (who make up more than one-third of the population and most of the low-income population), newcomers seeking to enter the area, and first-time homebuyers.

A second unintended and undesirable consequence will be the expansion of overcrowded slums in the Phoenix and Denver metropolitan areas. High housing prices do not stop low-income immigrants from abroad from entering a region if jobs are available there, because they are willing to double-up and triple-up in already overcrowded units. If not enough new housing affordable to low-and-moderate income households is built—and very little is currently being constructed anywhere—these immigrants will simply overcrowd existing housing, even though doing so is illegal. Already widespread in Southern California, such slums are now growing in Northern California as well.

These conditions might eventually reduce the growth of the entire region. But slower growth also means fewer new jobs, especially in the construction industry, which has long employed an above-average share of all workers in fast-growth regions like Phoenix and Denver. Those jobs support many ancillary jobs, which will simply not materialize, and higher housing prices will eventually deter major industrial and service firms from expanding into these regions.

What Strategy Should Smart Growth Advocates Support?

In many fast-growth regions, citizens quite reasonably upset by the negative impacts of growth, but also aware of its advantages, are searching for a strategy to cope with these two seemingly conflicting factors. Ballot initiatives like those in Colorado and Arizona focused solely on local actions are not the answer. They may not slow growth and are quite likely to generate undesirable side effects. But what strategy should these smart growth advocates support?

The first step is recognizing that trying to stop a region's growth altogether—or even slow it dramatically—is neither feasible nor desirable. Moreover, regions such as Denver and Phoenix will inevitably suffer from some congestion and dislocations that irritate existing residents but do not discourage poor newcomers. The second step is realizing that localized responses cannot remedy the ills generated by regional growth. Coping with those ills requires regionwide policies marked by at least some effective cooperation among localities.

The third step is persuading the state legislature to create some type of regionwide agency with power to modify comprehensive plans developed at the local level. The state should also adopt a few basic growth-related policy goals, with all interested parties around the table, including local governments. These goals should address transportation, affordable housing, residential discrimination, habitat and environmental protection, open-space preservation, and land-use planning.

The next step is considering whether some type of urban growth boundary or utility district is appropriate for directing future development towards the region's interior on vacant sites. If so, that spatial limit should be adopted on a regional basis, not piecemeal by dozens or hundreds of localities, nor imposed from the state or federal levels. The boundary should be flexible enough so that future population pressures will not raise housing prices to levels that are unattainable for newcomers and many existing residents.

There are two significant problems with the "smart growth" approach. First, adopting an effective strategy for regional growth management will require abandoning some politically sacred cows—particularly the untouchable sanctity of "local autonomy" over land-use planning. But localities have no real power over traffic congestion, air pollution, overall open-space absorption, and shortages of affordable housing, which all occur regionally. In fact, leaving the solutions entirely to localities makes the problems worse. Each locality tries to push all the social costs involved onto others, and avoids accepting a "fair share" of responsibility for truly effective remedies. It is time for citizens and politicians to accept this reality responsibly.

The second difficulty is that there is no guarantee that even a regional approach will resolve all the problems associated with growth, the most obvious being increased traffic congestion. Further population growth will generate many more vehicles on our roads. While we can neither lure enough people out of their cars into public transit nor build enough new roads to offset rising congestion, regional approaches have at least a chance of significantly ameliorating these and other problems associated with growth. In contrast, we already know that continuing to use purely local approaches cannot work.

Conclusions

Some citizens upset by rapid growth are promoting a strategy that appears at least partly aimed at slowing the future growth of rapid growth regions, particularly Phoenix and Denver. This strategy, ostensibly aimed at increasing local control over future growth, appeals to the parochial perspective of most local governments that focuses only on the well-being of their own residents, and therefore pushes the problems of growth onto other localities. If every locality throughout a state adopts that strategy, future growth will have nowhere to go.

Whether this strategy can overcome the basic attractions of fast-growing regions, which have drawn so many newcomers, has yet to be seen. Many California localities have long had stringent anti-growth laws, and that state's population growth rate slowed dramatically in the 1990s. But the drop was caused by a severe recession in the early 1990s. During that decade, over two million mostly poor immigrants from abroad replaced over two million primarily middle class people who moved elsewhere in the United States. This experience appears to imply that widespread local anti-growth laws could slow a region's future growth to only natural increases. But slowing growth by motivating middle class households to leave while poor ones continue to arrive is probably not the aim of those upset by growth—or anyone else.

Now that prosperity has returned to California, its net out-migration to the rest of the country has stopped, while net immigration from abroad continues. So California's local anti-growth policies are not stopping growth, but are one of the major causes of soaring housing prices, extremely long commutes for many middle-income and poor households, low home ownership ratios, and burgeoning slums occupied by the poor. Arizona and Colorado are not California, but the passage of ballot initiatives in those states could move them closer to California's conditions without solving their growth problems. A "smarter growth" strategy would be for citizens to stop trying to grapple with regional problems using local policy. Instead, responsible citizens should support some form of regional approach to managing future growth.

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Anthony Downs

Housing Policies in the New Millennium

Anthony Downs — Tue, 03 Oct 2000 00:00:00 -0400

My daunting assignment is to present an overview of what our housing policies ought to be for the New Millennium. I cannot cover all policies, but only those I feel are most crucial.

I will begin with certain key background factors that underlie my subsequent analysis.

1. First, the American housing production and urban growth processes already provide excellent shelter opportunities for most households with middle- and upper-incomes, except in a few very high-cost areas like Northern California. Our housing markets are working well for most households with money.

2. Second, the most widespread and serious U.S. housing problem lies in the discrepancy between the low incomes of many poor households and minimal costs of "decent" housing as judged by middle-class standards. Household incomes go right down to almost zero, but the minimal costs of "decent" shelter level off at some amount needed to cover basic space, plumbing, kitchen, utility, and heating needs.

In 1997, 42.7% of all renter households had incomes below 50% of their area medians, 27% had incomes below 30% of those medians about equivalent to the poverty level and 15% had incomes below 20% of those medians.
The 1997 fair market rent for a household of 4 was $720 per month (derived from 15 large MSAs). That is equivalent to 90 cents per square foot per month if such an apartment contained 800 square feet. If that is equivalent to 30% of income, then the minimum income needed to avoid "housing poverty" was $28,800. That is much higher than the 1997 food-based poverty level of $16,400. In 1997, an estimated 57.3% of all renter households had incomes below $28,800, so they were "housing poor."
If the 27% of all renter households with incomes below $12,000 spent 30% of their incomes on rent, and if rent was 90 cents per square foot per month as derived from fair market rents, then such households could only afford to occupy 333 square feet. The 15% of all renters with incomes below 20% of the area medians could afford to occupy only 222 square feet. These unit sizes are far below the sizes considered "decent" and required by nearly all building codes.

This shows that millions of American families cannot afford ANY newly-built dwellings without spending over 30% of their incomes for housing. Hence they are excluded from living in all new-growth areas unless subsidized, and we do not subsidize anywhere near all households that are eligible. The only way you can occupy only 222 square feet is by having 3 households in one unit!

Clearly, low incomes comprise by far our largest "housing problem." The best way to attack that problem is by raising incomes of the poor. That means through programs beyond HUD's jurisdiction, except for vouchers, which in essence increase the money incomes of families who receive them.

3. A third critical factor is that the population of the U.S. will rise by 48 million from 2000 to 2020, and housing should be created that those people can afford to occupy. Over one-third of these added people will be immigrants from abroad or their children. Many will be very poor; so they will be unable to afford new units built to our high-quality standards without subsidies. Yet poor immigrants are not deterred from entering our cities by high housing prices that force them to double and triple up, because overcrowded housing is superior to what they experience in their home areas.

Recent economic prosperity, combined with some negative conditions produced by growth in high-growth areas, have intensified anti-growth feelings in many communities, especially new suburbs. Although individual localities can slow growth within their own borders, there is no way for individual regions or the nation as a whole to stop or greatly slow their future growth. Yet concern with how to cope with this growth is arising all across the nation and will greatly effect the environments in which future housing must be created.
As a result, effective housing policy must be concerned with the entire growth process, not just the building of new housing as though it were separate from the growth process. Housing policies must be integrated with growth policies.

4. A fourth crucial factor in housing policy is that most middle- and upper-income households of all ethnic groups do not want to live in neighborhoods containing any sizable number or percentage of poor people. This is especially true of households with school-aged children. Therefore, non-poor households withdraw from areas where many poor live and erect barriers to the subsequent entry of the poor into their own neighborhoods. This behavior is the foundation for the socio-economic hierarchy of neighborhoods found in every U.S. metropolitan area.

Such behavior is similar to the unwillingness of most whites to live in areas where more than 25 to 33% of the residents are African Americans no matter what their income levels. This underlies continuing racial segregation. Similar but less intensive feelings are held by whites about other minorities too.
The non-poor exclude the poor not through purely market forces, but through local zoning and other regulations that prevent construction of affordable units. This behavior is rooted in the strong desire of homeowning households to protect and increase their housing values, since housing is their greatest financial asset. Hence suburban governments, which are almost always dominated by homeowning voters, tend to adopt parochial policies that aim at benefiting their own residents, without regard to the impacts upon anyone else.
Exclusionary zoning is reinforced by the desire of local officials and citizens to minimize taxes by blocking land uses that generate more local expenses than revenues. This means housing, especially housing for people with children. So truly affordable housing is regarded as a fiscal anathema by suburban governments, and they all try to shunt it off onto other areas. Yet our economy cannot run without many low-wage workers who cannot afford "decent" units.
These exclusionary motives are emphasized during periods of prosperity when residents have the luxury of not worrying about their jobs or incomes. Then they can worry about elements like congestion and life style. Another result of prosperity has been rising prices and rents that hurt the poor. From 1990-1999, median home prices in the largest 21 metro areas rose an average of 33.9%.

5. A central, if unintended, consequence of such exclusionary behavior is significant concentration of the poorest households together in high-poverty neighborhoods in central cities and older suburbs - especially poor minority households, who are doubly excluded. Yet concentrating many very poor people together produces adverse neighborhood environments that reduce the life-chances of people there, compared to environments with much more economically diverse populations. I am convinced, and so are most big-city mayors and many HUD officials, that we cannot improve the quality of life for the very poor without reducing big poverty clusters.

Such poverty concentrations have been worsened by federal and other government policies that focused most housing assistance and incentives on the very poorest households, in the poorest areas. This was done in the name of humanely aiding those who needed it most. But this policy has failed because it increased concentration of the poorest households together, as in high-rise public housing projects - thereby creating socially destructive environments.
It is time to re-align incentives created by federal policies so they encourage greater income diversity, even if that means giving public aid to people who are not the very poorest. For example, more points for low income housing tax credit projects should be given to those with moderate percentages of very poor residents, rather than to those with the highest percentages, as is done now.

6. The preceding points show the dominant American housing development process causes a progressive abandonment of parts of many large older cities through growth at the suburban fringe, aggravating urban decline. Many observers blame such urban decline on suburban sprawl, but that conclusion is not accurate.

Major suburban growth in U.S. metropolitan areas was, and still is, inevitable because of population increases in those areas, plus rising real incomes that generate desires for low-density living. "Sprawl" is just one possible form of suburban growth marked by very low densities, leap-frog new development, unlimited outward extension, and automobile dominance. In the U.S., sprawl has been so dominant that most people wrongly think it is the same as growth.
I have conducted extensive regression analyses that show almost no connection between the basic traits of sprawl I mentioned and urban decline - measured as either city population change from 1980-1990 or by an index of decline indicators like high crime rates, high poverty rates, etc. This surprised me.
Further analysis convinced me that it is not the low-density aspects of suburban growth - those which comprise sprawl - that lead to urban decline. Rather, it is the operation of six other basic characteristics of our development process.

(1) We require all new housing to meet high quality standards that poor people cannot afford without subsidies, (2) we do not provide most of the poor with such subsidies, so few can live in new-growth areas, (3) we encourage exclusionary suburban zoning, (4) we engage in widespread racial segregation in almost all housing markets, (5) we maintain major obstacles to redevelopment of older core areas, and (6) we have social values that encourage households to move to higher-status neighborhoods when their incomes rise. These factors - not low density - are the reasons why our growth causes poverty concentrations.
This is an important conclusion because it implies that continued growth would still lead to concentrated poverty even if we shifted from sprawl to much more compact forms of growth - unless we altered those six basic characteristics. And concentrated poverty would still generate withdrawal of the middle class to the suburbs, which aggravates urban decline. In fact, the poor themselves often move out of high-poverty areas once they get higher incomes.

Now let us turn to conclusions about housing policy from these background factors.

1. My first conclusion is that by far the most important housing policies are being set by local governments - not the federal government. True, the federal government influences the financial climate that affects housing affordability and production. But local governments set the rules of housing quality and density that really determine the amount of housing built and where different income groups will live. And those local policies are mainly determined by the parochial and exclusionary perspectives of suburban homeowners, as described earlier. This perpetuates poverty concentrations.

Therefore, the most important thing the federal government can do to improve housing opportunities for the poor is to exert influence on local governments to be less parochial in deciding what types of housing can be built where. This would require HUD and Congress to create incentives for local and state governments to modify their currently exclusionary behavior towards housing.
Examples have already been created by EPA and DOT - the latter in the form of Metropolitan Planning Organizations. Both require each metropolitan area to establish a regional planning agency that considers area-wide plans before the federal government will provide any funds to any governments in the region. HUD could make its financial aids similar contingent on regional planning.
Possible goals would be (1) to require each metropolitan region to establish "fair share" allocations of low-cost housing among its communities, (2) to allow owners of single-family homes of a certain size to create accessory apartments in their homes even if the local government does not permit it, (3) to require every community to zone some land for multi-family housing, and (4) to expand use of vouchers to encourage the "moving to opportunity" program. At the very least, HUD could make planning grants to local governments within regions where all such governments agreed to develop a voluntary regional plan.
Because suburban homeowners form a majority of voters in the U.S., Congress will be reluctant to permit such a policy. Yet HUD should press to get one because HUD cannot reduce inner-city decline without affecting the growth process as a whole, which means affecting local suburban growth policies.

2. A second key goal of housing policy should be to deconcentrate existing high-poverty enclaves in two ways. One is by using vouchers to give households voluntary opportunities to move to middle-income neighborhoods. The other is to encourage greater income diversity in poor neighborhoods, including in public housing. These are already present goals of HUD policy that should be promoted more strongly.

This approach contradicts the desire of middle-and-upper-income households to isolate themselves from the poor. Since the non-poor are much more numerous and more powerful than the poor, society has resisted nearly all attempts to deconcentrate the poor by integrating them into more affluent communities.
I have long believed in my heart that we in the middle-and-upper-income groups cannot ultimately upgrade our poorer brothers and sisters at arm's length, but must somehow share our neighborhoods with them if we want to create truly equal opportunities in our society. But this is distinctly a minority viewpoint strongly resisted by the vast majority of non-poor Americans, and by many poor.

3. My third key goal is striking a better balance between aid to homeowners "mainly as tax benefits" and aid to poor renters by greatly increasing the latter. In the 1990s, HUD placed much more emphasis on promoting home ownership than aiding low-income renters, even though the latter have more serious housing problems. Homeownership rates have risen notably, and that is good. But today builders are putting up many houses costing $2 to $3 million. It is ludicrously unjust to give those buyers tax benefits of as much as $58,500 per year while not providing any assistance to most eligible low-income renters. We do not need to encourage more mansions.

Changing interest and property tax deductions to tax credits would be much fairer without eliminating big tax benefits to homeownership. This would either shift more benefits to less affluent homeowners or save money. The money thus saved could be allocated to greater assistance to low-income renters.
More federal money should be spent on aiding low-income renters - mainly as vouchers and as aid to the rehabilitation of older units. HUD should also consider setting higher fair market rents in suburban markets with high housing prices to enable Section 8 households to live there; the present single-rent policy in all parts of a metropolitan area further encourages concentration of the poor.

4. Because it is politically impossible to focus all federal aids on deconcentrating existing poverty enclaves, we should also invest notable resources in improving conditions there. We will be unable to deconcentrate even a majority of existing high-poverty areas within any short time, so we should not ignore those still there.

However, we should recognize that efforts to up-grade such areas are not likely to be effective, unless many non-poor residents can be attracted to live there. Billions of dollars have been spent to encourage Community Development Corporations and empowerment zones to upgrade their entire neighborhoods. But few have succeeded, though they have built many new housing units. It is time to stop wasting such aid by focusing more of it on encouraging diversity.
But that means devoting public funds to providing incentives to persons other than the very poorest. This is a politically controversial but necessary strategy that most city mayors are now promoting because they realize it is necessary.

5. Another goal of federal housing policy should be closer integration of land-use planning, transportation planning, and environmental planning since each type of planning is heavily influenced by the others in a process of mutual causation. In theory, the Departments of Housing and Urban Development and Transportation should be merged into one federal agency. It could be called either THUD because of its heavily influence, or maybe HUDAT just for fun. That department should then require each metropolitan area to develop some type of coordinated affordable housing and ground transportation plan as a prerequisite to receiving federal funding.

Transportation planning is generally not done with full recognition of its impacts upon land use, and vice versa. The U.S. and state DOTs do not realize they are not just building roads but creating the future skeletons of entire metro areas.
However, it would not be possible to combine these departments without major changes in the committee structures of Congress. Yet Congress is far more resistant to reform than any other institution in America. And trying to closely integrate the actions of separate federal agencies is usually a vain exercise.
As a starter, HUD should clean up its own act a bit. For example, HUD's Economic Development Initiative financed a hotel in Huntington Beach without inquiring whether the low-wage workers to be hired could afford to live there, or would have to drive miles to work. No such grants should be approved without examining their impacts upon local housing and transportation requirements.

6. A final policy recommendation is that the federal government should continue to promote economic policies that keep interest rates low and labor markets tight. Low rates make it easier to build more housing, and tight labor markets raise the incomes of many low-income workers. The long run of nine years of prosperity has done more for the economies of our cities than any other federal policies of any types.

As we consider these policy recommendations, one enormous obstacle to achieving them emerges. It is the fact that present institutional arrangements in housing markets and growth processes favor the middle-and-upper-income majority at the expense of the low-income minority - especially low-income ethnic minorities. For example, concentration of poverty in older core-areas permits more affluent households to live in neighborhoods mostly free from problems associated with poverty. That is what they like and want.

1. In short, democracy is working, because the majority has created and sustained arrangements which benefit it and which its members therefore do not want to change. For decades, it has proven extremely difficult to persuade that majority to alter those institutional arrangements which benefit it by imposing high costs upon the poor. Appealing to their sympathy for the poor has had only modest impacts.

2. But now the suburban majority itself is beginning to complain about some of the costs of the growth processes it has generated, especially traffic congestion. The challenge to those of us trying to implement the policies I have described is to use these feelings of dissatisfaction to achieve institutional changes - such as at least some regional planning mechanisms - that might help remove some of the unfairness and ineffectiveness of our present housing and development processes.

3. Such appeals to the self-interest of the majority should include pointing out two consequences of the failure to up-grade the skills and incomes of people now living in concentrated poverty areas or to permit more of them to move to the suburbs.

First, such failure will weaken the ability of those people to buy the suburban homes of the current white baby-boomers when they or their children want to sell. The potential market will then consist heavily of minority households now living in cities. But those possible buyers cannot maintain future home values of the present residents if they have little money.
Second, if low-wage workers essential to both business and residential areas have to live far from where the jobs are located because there is no affordable housing nearby, then both traffic congestion and air pollution will rise, reducing the quality of life for the affluent households who can afford to live there.

In conclusion, I hope we will recognize that future housing policies and future metropolitan growth policies are inextricably intertwined, and cannot be treated separately. If so, we can perhaps use the growing awareness among even middle-and-upper-income households that our growth policies must be changed to achieve major improvements in our housing policies in the new millennium.

HUD Conference on Housing Policies for the Millennium, October 3, 2000 Washington D.C. - U.S. Department of Housing and Urban Development

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Anthony Downs

The Future Role of REITs in Real Estate Finance

Anthony Downs — Wed, 01 Sep 1999 00:00:00 -0400

Introduction
Major and somewhat conflicting changes in the roles of real estate investment trusts (REITs) in commercial real estate finance have occurred in the past few years. Before 1990, REITs played a relatively insignificant role in financing commercial real estate. But in the early and mid-1990s, REITs rose dramatically in prominence. By 1997, although REITs still owned only a small percentage of all existing commercial properties, they actually dominated current transactions in many commercial property markets. Yet REIT share prices began lagging the still-rising general stock market early in 1998. Then, in the fall of 1998, when the overall stock market dropped sharply, REIT shares also plunged. However, they have not recovered along with most of the rest of the market, even though most real estate properties themselves are still doing well.

These changes raise questions about the future roles of REITs in financing and operating commercial properties in the U.S. This article contends that the recent shift of much of on-going real estate equity and debt financing from traditional, purely private markets to securitized, public markets has changed the attitudes of investors towards commercial real estate in general. Their change in attitudes is unfavorable to the real estate industry under many economic conditions, including those prevailing in early 1999. This article explores these changes and discusses their implications for the future of commercial real estate in general and REITs in particular.

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Anthony Downs