With new study, air travel subsidies get another pass

There's a new MIT study out highlighting the struggles of small- and medium-sized airports, which over the past five years have seen 18.2 and 26.2 percent declines, respectively, in domestic flights. This means that people served by these airports have less options, and also that the costs of their flights have increased faster than those at larger regional airports. 

NPR has more on the specifics.

Plane taking off from Decatur airport. Photo from decatur-parks.org.

First, I just want to point out that this means service is objectively worse for travelers over this time period, even with continued federal and state investment in airport infrastructure. Unlike what we see with Amtrak, however, I have yet to hear any politicians threatening to pull the plug on the $4 billion in federal (and who knows how much state) spending on airport construction, or the billions we spend on security and traffic control. Are they okay with continuing to prop up an airline industry intent on withdrawing service from much of the country?

Perhaps a better analog of Amtrak's service--the unprofitable long distance routes, at least--is the US DOT's Essential Air Service. It saw the smallest decline in flights of all airport types, five percent. The EAS was created in 1978, coincident with the deregulation of private airlines, and was "put into place to guarantee that small communities that were served by certificated air carriers before deregulation maintain a minimal level of scheduled air service."

This service costs over $200 million a year, with most of the ~150 affected airports only making a few 19-seat flights a day; you can bet it serves far, far fewer passengers than Amtrak's 5 million annual long-distance passengers, or its 15 million state-supported route passengers. (Amtrak requested $373 million in operating support this year, a number that has been declining rapidly in recent years as ridership has soared.)

I genuinely have nothing against the airline industry, and actually think their private, deregulated system is pretty effective. As a whole, the airline industry also serves many more passengers every year. I don't even really mind the EAS much, although there are some cases where it's clearly being abused. The point is that just as with our system of roads and highways, no travel mode comes without some amount of subsidy (nor should it--mobility is an invaluable public good). Despite this, only rail and transit are portrayed negatively for their dependence on public support. 

This double standard is ridiculous, but especially so for the following reason. We spend hundreds of billions of dollars on roads every year and tens of billions on airports and security, and does anyone honestly think either driving or flying has gotten any better? Rail, transit, and bikes on the other hand, the most scorned forms of transportation in this country, and worst funded, are only becoming safer, more convenient, and more popular. I don't even know who the joke is on.

How do we address "Sunk Cost Bias"?

When someone is interested in shifting from car dependence to greater reliance on active and public transportation, they're often faced with a problem: the vehicle itself, one of the greatest costs of car ownership, is already paid for. Unlike gasoline and parking, which are relatively fixed and recurring expenses, a car is a sunk cost--the purchase is in the past, and much of its value is irretrievable. At that point the only really noticeable costs of driving--the ones that affect you on a regular basis--are gas, insurance, maintenance, and parking. Taking only these into consideration can make driving seem much more affordable.

From NYdailynews.com

This is less applicable to those who wish to sell off their vehicle and abandon car ownership entirely, but few people are willing to take such a leap without trying a car-lite lifestyle first. For those who just want to dip their toes in the water, to try something between complete car dependence and complete transit dependence, using public transportation isn't so much a replacement and reduction of costs as it is an additional cost. Not only do you still have to pay for insurance and some gas, you now have to pay for bus fare as well, and suddenly the savings don't seem like such a great deal compared to the relative inconvenience of transit (excluding the few places in the country where transit is actually more convenient). It's a catch-22: as long as you're holding onto the car you're not saving a lot of money, but unless you're saving a lot of money you may not be convinced to get rid of the car.

This problem is compounded by something I'm calling "Sunk Cost Bias," the tendency to try to make the most of your investment by driving more. This may sound foolish since the more you drive the more the costs pile up, but, in a way, it's also perfectly sensible. After all, the more miles you get out of your car, the lower the per-mile cost of ownership. And if you've already got the car and don't have a monthly transit pass, a trip on the bus or train can actually cost more than driving if you're only going a short distance.

We all know that public transportation is a less expensive way to get around that owning and driving a car, but what's less appreciated is that it's not a straight line from one extreme to the other. The jump from car-free to car-lite is massive. In reality, the spectrum of car usage and costs looks something more like this:

Just replacing some car trips with bus/train trips won't save you much money, but for many people getting rid of the car altogether may seem too drastic. The question then, as policy makers and policy advocates, becomes how to bridge this gap. How do we make it more appealing to try a car-lite lifestyle, with the hope that some who try it will end up going car-free?

Here are just a few quick ideas:

1. Widespread adoption of mileage-based insurance rather than a flat charge could reward people for driving less.
2. Likewise, vehicle-miles traveled fees instead of (or in addition to) gas taxes, which will be ever-less-burdensome as car mileage improves.
3. There's also evidence that offering drivers free transit for a few months can change their long-term commuting habits.
4. Renting out your car while you take the bus might also be fairly lucrative. Maybe some car-share services out there are interested in buying peoples' cars and including a bunch of free access to their service in addition to a decent chunk of money.

None of these feel like they're enough though. For nearly all the people I know who don't own cars, it took moving to a new city or a maintenance catastrophe to finally get rid of them. (In my case, both at the same time.) It shouldn't be such a big deal to consider ditching your car.

So what do you think? If making the car-lite experience more appealing is critical to getting more people to go car-free, what can we do to improve things?

Pro-car populism is about protecting cars, not people

Bill Lindeke over at streets.mn wrote an interesting post a few days ago titled "What To Do with Pro-Car Populism?", about a recent discussion he had with an old friend. The premise of it is summed up nicely in the following paragraphs:

I began explaining the distortions in the parking market. With his economics background, I thought he’d be interested. I did my best to describe the cumulative effects of minimum parking requirements, the perverse incentive structure of parking meters, the hidden cost of asphalt, and so on. The solution, I said, was to externalize the price of parking, raise prices in certain areas and begin acknowledging the opportunity cost of urban space. (See my explanation here.) Prices should reflect the cost of parking, I concluded. 

I was surprised at his reaction. ”What about poor people?” he asked me. “You’re going to make it impossible for them to drive. In my city, nobody can afford to live in the city. I've been to these towns and neighborhoods where the poor people live. They’re miles away from jobs. They drive everywhere. You have to think about them!” He began to get passionate, as he usually does. “If you make parking expensive, only rich people will be able to drive. Driving will only be for the wealthy.”

For many urbanists it can be kind of a slap in the face to be told you're not looking out for the interests of the poor, since we generally see dependence on the automobile as having negative consequences for everyone, and lower-income people in particular. Often, we may see ourselves as champions of the poor and down-trodden, fighting against a car-centric status quo and the great costs associated with it. But it's true that, within the current framework, increasing the costs of parking, gas, etc will disproportionately hurt the poor.

Lindeke's answer to pro-car populism amounts to a rejection of the premise; that is, a system in which driving is subsidized (as it currently is) can never be favorable to poor people--parking reform, vehicle-miles traveled fees, and everything else is just tinkering around the edges of an already busted system.

I think he's completely correct, but even he admits that he's not entirely satisfied with his response. After all, car subsidies and expensive city housing is the framework in which we live. To change things in a way that makes things better for a much greater number of people, the poor included, we need to demolish that existing framework and build anew, from scratch.

The following paragraph from Lindeke's post is where I think that reconstruction might begin (emphasis mine):

We've demolished affordable housing to make room for freeways and parking garages. We've eroded government services through municipal fragmentation, civic tax shelters, and fostered spatial segregation. We've abandoned our transit systems, relegating them to the margins. We've refused to accommodate transportation alternatives in ways that foster deep inequalities.

This is just a small part of the overall problem, but it highlights the choice we have when making local spending decisions, a choice that always exists even if we don't always acknowledge it: do we spend this money on making driver cheaper and easier, or do we spend it on increasing the supply of affordable housing (like the Yesler Terrace redevelopment, for example)?

Choose: more of this...

Right here in Seattle, for example, we have the Pacific Place parking garage. In 1998, the city bought the garage for $73 million, and it has been losing money for more than half that time. Now the city is looking to sell it for $55 million rather than continuing to bail it out year after year. 

...or this?

The city did not need to build or operate this garage. They did it because they wanted to encourage business downtown by making it easier to drive in the city. This was a choice to prioritize ease of driving over affordable housing, whether they thought about it in those terms or not (and you can be sure they didn't). It made it easier for people to get downtown by car, poor people included, but the basic problem of having to own an expensive personal automobile was unresolved. And, let's be honest: the people shopping downtown, on average, are not the people pro-car populists are concerned with.

The root of the problem, and what drives the pro-car populist's argument, is that poor people generally can't afford to live in the parts of the city where transit access is best. As long as that is true, owning a car will be necessary, or nearly so, for many of those forced to live in the suburbs. Instead of trying to reduce driving costs for lower-income car owners, why not just spend that money on providing them with housing in the city where they don't need to own a vehicle?

The problem with the pro-car populist's position is that it doesn't contain a solution. You just keep pouring money into services and infrastructure that keep driving costs as low as possible for the poor, but driving is always going to be problematically, if not prohibitively expensive for some people. And it's only going to get worse. 

The pro-car populist understands that allowing more people to live in the city is good for health, environment, access, and, if affordable housing is available, the pocketbook, too. In combination with other housing supply policies (like reaping greater incentives from developers by relaxing height/density/parking regulations), we should consider the long-term return on each dollar spent on driving subsidies versus affordable housing. By doing so, we can start to actually address the root cause of the problem and shift the paradigm of poor = suburbs = car dependence = poor, give people a greater array of choices, and save people some money and commute time in the process.

Owning a car doesn't cost the average person $9,000 a year

Every year, the auto club AAA releases a study titled " Your Driving Costs" that--you guessed it--calculates the average cost of driving for various vehicle types. And every year, urbanists and other transit, walking, and bicycling advocates point to it as evidence of how expensive it really is to own a car. This year, for the first time, that average yearly cost exceeded $9,000.

The problem with this, as anyone who's ever simultaneously owned a car and earned less than $80,000 a year can tell you, is that it's completely untrue.

Owning and operating a car is indeed an expensive venture, but for the average person $9,000 per year is a pretty wild exaggeration, and for most of us the truth of that is obvious. Sharing this study without appropriate qualification is irresponsible, and especially so for those of us working toward a healthier, safer, more efficient and less restrictive transportation system. When car owners are told what they may perceive to be a lie about the cost of their driving, they're not likely to be receptive to any of your other arguments.

Before I stopped driving I owned a 1995 Toyota Camry for about five years. It cost me $5,000 to buy and I ended up running it into the ground before its time, but even with fuel, maintenance, insurance, and everything else the annualized cost of ownership couldn't have exceeded $4,000--and that was a lot of money for me at the time! (Actually, it'd be a lot now, too.) It didn't come anywhere close to the AAA "average" though. And, in fact, even the average fully-employed adult doesn't spend so much.

AAA's annual study [PDF] is widely reported on every year, by organizations ranging from transit advocates, to local government, to the AARP, to CNN. Given its automobile-oriented mission, it's taken for granted that AAA is not going to misrepresent the truth by artificially inflating vehicle ownership costs. The report itself even says that their goal is to "promote the interests of motorists and travelers." So what's the deal?

Cost estimates from AAA's "Your Driving Costs"

One possibility is just poor modeling. The study calculates the cost over five years, assuming the owner is driving 15,000 miles per year. Implicit in the study is the assumption that the average driver is buying a new car every five years. In reality, new-car owners hold onto their cars for closer to six years, and those cars aren't usually headed to the junkyard after the first owner is done with it--the average age of vehicles on the road is roughly 11 years. Over the next five years, the auto industry is also only expected to sell about 70 million cars to more than 200 million drivers. Used cars still rule the road, but they're being entirely overlooked in this report.

The study assumes that these cars are being paid off in five years, which is pretty typical. It completely fails to account for any of the years afterward, however, when the car owner is no longer making car payments (and the rate of depreciation has decreased). It's possible that AAA is really only interested in calculating the driving costs for people who purchase new cars every five years, but it's not clear why they'd desire such a narrow focus, and even if they do it's their responsibility to better communicate that fact. Mainstream news outlets aren't going to do the work for them, unfortunately.

Another, more charitable answer to this is that AAA is being selective about who they include in the study. Discussing their report's methodology (which is proprietary) they note: "It incorporates standardized criteria designed to model the average AAA member's use of a vehicle for personal transportation over five years and 75,000 miles of ownership." [emphasis mine] AAA has about 53 million members, and its likely that their members are somewhat more affluent than the average car owners, so it's possible that among AAA members average yearly costs really are around $9,000. The study limits itself to mid-priced vehicles like the Ford Fusion, Toyota Camry, and Honda Civic though, so this seems doubtful.

"What about me?"--Tesla Roadster, From TopSpeed.com

As to why this matters, I've already noted that this is argument is a huge turn-off for those who drive older cars (just look at the comments section of any articles discussing the study). It's actually worse than that though: some families really are spending $9,000 or more per vehicle every year, but the type of person earning enough to buy a new car every five years is the last person you're going to convince to get rid of their car for economic reasons. For the most part, people who burn through cars that quickly are not hurting for money. The people who might actually be swayed by concerns about their transportation spending are exactly those for whom this number is least accurate.

Just to grind this point into the dirt, 15,000 miles a year is a lot of driving. If you drive that much, there's a good chance you live pretty far away from all you do: work, go to the movies, shop for groceries, visit friends, etc. The easiest and most likely car-to-transit convert is someone who lives closer-in, nearer to city centers where transit, bicycling, and walking access is much better. So again, if you want to focus on those people the 15,000 mile estimate (and associated costs) is probably way too high.

I've written about the impact of transportation costs on peoples' lives and think it's incredibly important that every car owner understands the true, full cost of driving. The way to do that, however, is not to offer a one-size-fits-all number, especially one that doesn't even fit anyone. If asked to calculate how much they spend on driving, including the cost of purchasing their car, maintenance, and all the rest, people are perfectly capable of doing so. The problem is that not enough people are being asked, or asking it of themselves.

Whatever the cost is for the individual, the question then is whether the freedom of movement they get from owning a car is worth that amount. Is that freedom worth $4,000 a year to you, even in light of the health, safety, and environmental benefits of more active forms of transportation (assuming those things matter to you)? How about $6,000? Even if $6k a year could buy you a home worth $100k+ more than your current one, or pay off your loan ten years early? These are questions that can really change a family's thinking on transportation. Starting off that discussion with what amounts to a lie can shut that conversation down before it's even begun, so we need to be careful when communicating costs to those who know them best.

Hey, Amtrak: don't shelve that $151b HSR plan just yet

In 2012 Amtrak released their "vision" for passenger railin the Northeast Corridor (NEC), and it came with a price tag that shocked even the most ardent American rail supporters: $151 billion. I recall laughing to myself at the guts it must have taken to put together a report like that at the same time your organization is begging Congress for $400 million just to maintain operations at their current, generally low, level of service. After taking a closer look though, maybe the plan isn't quite as crazy as it seems.

To understand why, we first need to take a moment to understand the scope of the proposal. Broadly speaking, it involves two large projects: 1) upgrades to the existing corridor and 2) construction of a new, truly high speed corridor mostly parallel to the existing tracks (as well as trains to run on those new tracks). The former accounts for $33.5 billion of the total cost, the latter $117 billion. Here's what they they'd look like next to each other:

And here's the cost breakdown in greater detail:

The focus of this post is going to be on the NextGen HSR component of this proposal, the $117 billion part. The Master Plan's upgrades and Gateway program are both valuable, but less controversial and, frankly, less eye-popping in terms of cost. We'll take a look at the costs and benefits of a new HSR corridor in the Northeast, as well as some musings on how we might cobble the money together to build it.

Let's start with the benefits. First, and most important to most of us, is travel time: NextGen HSR, with top speeds of 220 mph, would cut travel times roughly in half. The trip time from New York to Boston would drop by 56%; New York to D.C. would drop by 41%. Traveling all the way from D.C. to Boston would take just over 3 hours, compared to the current six.

These times would make rail faster than air travel, door to door, and rail already has the edge for businesspeople (and anyone else) who want to work as they travel. This also relieves pressure on airports, both in terms of congestion and by reducing the need for low-profit, short-haul flights. Compared to air, rail already has the lion's (market) share of travel in this corridor; high speed rail would reinforce its position as king in the NEC.

Beyond travel times, HSR has a whole host of other benefits: fewer travel-related deaths and injuries,  reduced congestion along the I-95 corridor and other connected highways and arterials; investment and growth in second- and third-tier cities; integration with local transit, making car ownership even less essential; and, of course, reduced pollution compared to planes, cars, and even most buses.

It's also helpful to compare this investment to one likely alternative: widening highways along the corridor, especially I-95. This would undoubtedly reduce congestion, although, thanks to induced demand, only temporarily. More importantly, all of the externalities of highway widening are negative: increased pollution, greater strain on local roads, neutral or negative impacts on development, more deaths and injuries. And gasoline is only going to get more expensive. For HSR, on the other hand, all of the externalities are positive.

The costs associated with this plan are also great. $117 billion is a huge sum of money, and even a region as rich as the NEC will struggle to pull it together without an incredible act of cooperation and willpower.

The sticker price isn't the whole story, of course. To calculate the true cost we also need to take into account how much revenue is expected to come in, and this is where things get interesting. In China, despite the incredible amounts of money invested in high speed rail over the past several years, four of their lines are already profitable, and this includes capital costs. This means that, in the long-term, these lines (and others as the system matures) are likely to actually turn a profit for the Chinese government--and that's before taking into account the many other economic, social, and environmental benefits that were the real driving force behind these investments. Can we do the same?

Here are the revenue and operating expense projections for the NEC with NextGen HSR (this includes the increased ridership from Master Plan upgrades, but I believe the total operating profit would remain roughly unchanged, since nearly all profit comes from HSR):

The 2012 Vision is the one referred to in this blog post

At $1.65 billion in operating profit per year it would take nearly 71 years to pay off $117 billion. It's likely that as ridership continued to rise profits would increase as well (just as they are now on the Acela line), but for the sake of simplicity, and to be as conservative as possible, we'll assume that those levels would remain the same indefinitely. And while 71 years may sound like a very long time, rail is a very long-lived piece of infrastructure. For reference, it seems that much of the track in the Northeastern Corridor was built between the 1830s and 1917; most modifications since then have been things like electrification, crossing alterations, and so on. These would of course be provided up front in this case, and the technology is well-proven in markets across the globe. Operating expenses also already take all maintenance, including the tracks, into account.

You can also look at it this way: construction of NextGen HSR would be complete in 2040, which comes out to about $4 billion per year in spending while it's being built. That's about a tenth of the amount the federal government spends on highways every year, and half of what it spends on mass transit, and those recipients aren't expected to pay the money back. It's a sixth of what we spend every year just on the TSA and FAA. The federal government makes these investments not because it expects to make a profit, but because mobility is important. Critically important. NEC HSR would not only drastically improve mobility for tens of millions of people every year, it would also recoup a huge portion of its cost--possibly the entire amount--in ticket sales over the coming decades. How is this a difficult choice?

Some might argue, "if high speed rail can be so popular, why not just let the private sector take care of it?" I'm sympathetic to this view, but based on the experience of places like the U.K., also quite wary of such private sector takeovers.

Tanya Snyder at Streetsblog just addressed this, noting that without an established HSR success in this country, private industry is unlikely to take the chance. For investments of this magnitude, government has to lead the way. Snyder quotes European rail consultant Jim Steer, who made the case before Congress:

[A] rail line needs to prove itself before the private sector steps up. In his testimony, he talked about a 189-mile line currently under construction between Tours and Bordeaux in France, an extension of an existing high-speed line between Paris and Tours. 

“The most problematic section of the overall route (access to central Paris) has been built,” Steer said in his written testimony, “the market for services is proven; now it’s a matter of shortening an already improved journey between Paris and Bordeaux. This project (worth $10.3 billion) has been privately funded through a PPP structure. As an extension to what is now a core national network, the perceived risks are much lower.”

If this still seems like too much of a financial and political hurdle to overcome, don't give up yet. We have options.

First, even if the private sector can't build something of this size and complexity on their own, they can certainly still contribute. This could take many forms, but one that really appeals to me is the following: government entities sell off land near HSR stations, along with very generous development rights in terms of height, floor-area-ratio, etc., and then collect a share of the income over the next several decades. Investors profit from increased demand and land values around train stations, new housing and businesses get built (which is good for everyone), and the government offsets some of its construction costs. It also lets us keep all the ticket revenue for ourselves.

Or, in the spirit of "proof of principle," we could start with just phase one of the NextGen HSR project: New York to Washington, D.C. Referring back to the projected costs table above, this section of the NEC corridor would actually be less expensive than the NY-Boston section by about $6.6 billion although they're roughly the same distance. It also stops at larger and more important cities along the way, including Baltimore, Philadelphia, and to a lesser degree Newark (and the airports for each of these cities). NY-DC is also better established as a rail corridor, controlling over 3/4 of the market relative to air, while rail accounts for just over 1/2 of trips between New York and Boston. In terms of federal support, this could be a considerably easier sell.

The inevitable success of HSR in the New York to D.C. corridor would help to galvanize support for expansion of the network, both from politicians in Washington and their constituents throughout the region. The population from New York to D.C. is also greater than that of the NY-Boston corridor, so putting together local funding to cover a share of the investment might be easier there.

Realistically, it will probably take all of the above to get things moving. NY-DC would cost about $60 billion--if the federal government covered half they'd be contributing just $2 billion per year, barely 5% of what's spent every year on highways. The remaining $30 billion might be raised through a combination of private investment and local funding, not an unreasonable prospect for the governments of D.C., Baltimore/MD, Philadelphia/PA, NJ, and New York combined, especially over a 15+ year period.. Under Amtrak's plan, New York to Boston construction would start long after New York to D.C., so the key is to get a commitment on the first step. By the time that first phase is nearing completion the case for expansion will be obvious, and irresistible.

What do we get in return for ultra-strict train safety regulations?

Transit projects in the United States are known for being unreasonably expensive compared to their European and Asian counterparts, but the reasons for the discrepancy are far from clear.

As this Bloomberg article notes, some of this may be due to poor incentives and little transparency for private contractors, conflicts of interest between engineers and builders, and legal roadblocks. Over at Systemic Failure, they dug up some recent press release quotes from the San Diego-area transit district to make the case for one more cause behind those exorbitant costs: incredibly redundant and over-the-top safety regulations.

BEEFCAKE.

Case in point: The North County Transit District needs to replace the brakes on a bunch of their trains (they had worn out much more quickly than expected), and this is how they plan to do it:

The next step is for us along with our contractors, Veolia and Bombardier, to determine the proper procedure for the installation of the new 100g split disc rotors. Together we will take all safety factors into consideration. Once all parties approve this process, we will begin the installation of the new rotors onto the Sprinter test vehicle. FRA and CPUC officials will observe the installation. We have invited representatives from Siemens (the Sprinter manufacturer) and certified California engineers to observe the installation and the testing and to review the data.

So not only are the contractors joining up with the transit agency to replace the brakes, they're also going to be "observed" by two additional government agencies, one federal and one state-level. And they're bringing in a third corporation as well engineers from the area to "observe" even more. One has to wonder if they might also need to rent some stadium seating to ensure that all these men and women are able to see over each others' heads.

He also notes that "testing is expected to go on for months," presumably with representatives from these myriad institutions all hanging around getting paid to watch trains roll by over and over, sagely nodding their heads at each pass. According to the NCTD's own web site, the current round of testing is only the beginning. Not until late April do they expect to start the real testing, which will take another 24 days. And just to prove they're serious, even though no one appears to have ever been in danger due to the accelerated wear on the old brakes, these tests are going to "go above and beyond the testing of the original brakes required by the state." What additional gains in safety will result from this over-achievement are unclear. What is made clear, however, is that the trains might not be back in action for upwards of four months.

The one thing they've done that seems to be reasonable was to take the trains out of service when they discovered the unexpected wear-and-tear on the brakes in late February. Safety is the highest priority from a public service perspective, and although no cracks or other dangerous circumstances seem to have resulted, it was probably correct not to take any chances. The trains were shut down on March 9th though, so perhaps a full month wasn't needed just to get started on the replacement testing...

All sarcasm aside, this is insane. While this is an example of operations being catastrophically disrupted by an overbearing regulatory environment, Systemic Failure has frequently documented exactly the same type of hyperventilating, leading to vastly-increased capital costs.

What's behind these regulations? Is there an epidemic of passenger train-related deaths sweeping across the country? Not even close. From 1999-2008 about five passengers have been killed in trains for every ten billion miles traveled [PDF, page 144]. This, compared to 72 per ten billion miles traveled by car and truck, a rate that is more than 14 times higher and a total fatality count that is almost 2,400 times larger. (Yes, twenty-four hundred.) The vast majority of people killed by trains are pedestrians, about 70-85% of them trespassers, and an estimated 20-50% of the total number (including trespassers) are suicides, not the result of an accidental collision.

From the National Safety Council's report, Injury Facts, 2011 edition.

Despite this reality, the vast majority of safety regulation, and therefore cost, seems to be centered around preventing the 5-10 train passenger deaths that occur every year. Compare this to the 600+ pedestrians struck and killed by trains and the thousands more injured. (The number of pedestrian deaths has been on a slow decline from over 1,200 per year in the early 90s.) Requiring reinforced, super-heavy train cars certainly isn't doing anything to solve that problem.

The financial burden of these cumbersome, ill-targeted regulations very likely reaches into the billions of dollars. Imagine how many more lives could be saved and injuries prevented if that money was reinvested into improving passenger rail service--rather than turning our trains into tanks we could recognize and celebrate the fact that they're already the safest way to travel and commute regionally, and then redirect our efforts into making them a viable, convenient option for a greater number of people.

Improving credit, not relaxing standards, should be focus for home loans

Zachary Goldfarb reports at the Washington Post that the Obama administration is pushing banks to make loans to those with weaker credit scores, contending that strict standards are leaving many applicants behind financially. If the problem is that many recession-stricken and younger first-time buyers are trying to get loans with poor credit, maybe the first step toward improving matters should be to target the cause: a lousy understanding of credit itself.

As I've discussed before, homeownership is rewarding enough without the incentives the federal government provides (often at the expense of renters). While our promotion of sub-prime mortgage loans was far from the primary cause of the financial collapse of 2007/2008 it definitely made it worse, and many of those who were convinced to take those loans experienced particularly tragic financial hardship. The idea that the Obama administration is so ambitious to revive the housing market that they'd resort to such drastic measures is a disappointment. It should be clear by now that we shouldn't be so reliant upon any one sector for economic growth, whether it be housing, finance, or anything else.

When it comes to credit, most people understand that paying their bills is central to a good score, but beyond that things get shaky. Ultimately the things that matter are to a) have multiple kinds of credit, b) utilize low percentages of your credit limits, and c) pay your bills on time; most everything beyond that is just tweaking for optimization. Despite this, about a quarter of the nation has credit scores under 600 ("poor credit"). There is clearly room for improvement.

Part of this is genuine hardship. Families that go through a serious illness often end up in collections or bankruptcy from medical costs, through no fault of their own--more than half of bankruptcies in the U.S. are due at least in part to medical bills. (Fortunately, the Affordable Care Act will help to reduce this number once it is in full effect.) People lose their jobs and the recession has been especially awful for many of the now long-term unemployed. Things happen, and sometimes no amount of knowledge about the consequences will prevent them from happening anyway.

There are also improvements to the home loan system that can be made, and the Obama administration is right to point them out. A more subjective analysis of individual applicants is completely warranted--someone with a few collections from five years ago (within the reporting time-frame) but consistently on-time payments since then is very likely a safe bet, for example. And Federal Housing Authority loans that allow smaller down payments are also sensible--being required to spend months or years putting away ten or more percent of a mortgage's value before making the purchase is crazy. Money in those amounts is effectively losing value due to inflation and housing appreciation, and once the decision is made to purchase a home it's wasteful to keep spending money on rent rather than investing it in a home.

Low credit scores impact far more than just your chances of approval for (and interest rates on) a mortgage loan, from passed-up rewards on credit cards to higher rates on auto loans to rejections on apartment applications. Rather than focusing on getting more people into homes despite their credit scores, lets first work on nationwide credit education so that people can take advantage of all the benefits of improved credit, not just a government-mandated loophole for home loans. Help people to understand and earn good credit and homeownership will follow, along with a whole host of other broad-based benefits.

"Luxury apartments and condos are a good thing, my friend"

As you may have guessed by the title of this post, I recognize that this is a touchy subject whose message can come across as insensitive, bourgeoisie, or worse. Snarky Mitt Romney reference aside, concerns about neighborhoods being overrun with high-income apartment towers and condos are sometimes justified. Gentrification is a real thing, and its negative effects tend to be focused on the most vulnerable citizens, those that are least prepared to cope with rapid changes to their community.

Despite this, luxury apartments and condos deserve to be defended. They don't need to be promoted (the market provides enough incentives for them on its own), but neither should they be reflexively attacked simply because many people can't afford them.

Here's why:

First, people with high incomes have a lot of options when it comes to where they choose to live. If they want to live in the suburbs and commute to work in a car they can afford to do so without being significantly burdened by transportation costs. And depending on the boundaries of your respective city, county, or region, living in the suburbs may mean not contributing significantly to the tax base of the major city in the area (usually the only place where land values would justify building apartments or condos more than a few stories tall). Look to Los Angeles County if you need an example.

If higher-quality housing--housing that fulfills the desires of wealthier families and individuals--isn't provided in sufficient quantity in the city, the choice has already been made for potential residents. Those tax dollars are going somewhere else, usually spent on less efficient infrastructure and government services, and for no good reason. If these people want to bring their dollars to our (often higher-tax) cities, who are we to say no? Affluence need not be synonymous with 3,000 sq ft homes, three-car garages, and half-acre lots.

Second, higher-income people are less likely to use transit. But, if they live in denser areas, particularly in the central business district where homes and businesses are very proximate to one another, this is less true. Transit and walking are both far more convenient where luxury apartments tend to be located, so this is an opportunity to get those least likely to use alternative transportation out of their cars and onto the streets and sidewalks. It might also be nice to have more moneyed interests on the side of alternative transportation, not against it.

According to the below chart from the APTA, households earning over $100,000 a year make up about eleven percent of transit ridership in cities with populations over a million people, but less than two percent of ridership in cities below that population threshold:

From the American Public Transportation Association [PDF].

Also from the chart, the ratio of rail use relative to bus use increases drastically as income rises, and rail transit is far more likely to be located in dense city cores where luxury towers are also usually found. Those making less than $15k a year use the bus about 2.5 times more frequently than they use rail; at $100-150k income the reverse is true, and at greater than $150k income bus ridership is almost non-existent.

Rail has a well-documented psychological appeal compared to buses at all income levels, so while building rail just to appease rich people would be wasteful, bringing them into the fold while improving the transit experience for everyone else as well has a lot of appeal.

For a graphical representation of the impact of income on transit use, Sightline has the following chart (focused on the Pacific Northwest):

From "The Demographics of Transit" at Sightline.org.

This chart also reflects the impact of population discussed above: the Seattle metro has a higher population and density than Portland, and it is more robust against the decline of transit use as income increases.

Another issue, not directly related to transit or housing but important nonetheless, is that when rich people live in economically diverse areas (rather than, for example, the high-income single-family-home enclaves dotted throughout the 'burbs), they appear to become better people. According to a study by the Chronicle of Philanthropy, living in economically diverse areas has a huge impact on the amount of money affluent families donate to charity.

In zip codes where wealthy filers (>$200k income) are surrounded by other rich people they dedicate a very small percent of their income to philanthropy, less than 4% in each of the most homogeneous zips. Regions where wealthy filers are members of communities with diverse incomes donate far more to charity, upwards of 30% of their discretionary income in the most giving neighborhoods. Presumably, personal and daily contact with those less fortunate has a humanizing effect, while living with a bunch of other richies leaves you more concerned with keeping up with the Joneses.

From "Study Reveals The Geography of Charitable Giving" at NPR.org.

Again, this isn't to say that we should go out of our way to accommodate wealthier residents in our cities, but the beauty is that we don't need to. Developers want to build that housing. We just have to let it happen. As the above chart makes clear, we also don't want to go overboard and turn our central neighborhoods into vertical gated communities. There is a balance to be struck, but it's clear that as long as we have people like Councilwoman Letitia James of Brooklyn complaining that we shouldn't get rid of excess parking because "[t]hey would turn it into luxury housing," we've still got a long way to go. We're seeing the same problem in Seattle this very week, where city councilmembers decided to stick it to rich people by turning down increased height limits in the South Lake Union neighborhood, and the $10-12 million for affordable housing that came along with the deal. Take that, fat cats.

Striking that balance also becomes more difficult when height limits, parking minimums, floor-area-ratios, and other regulations put a hard cap on the total amount of building capacity in an area, often far below the actual demand for living there. When these limitations are in place, it really does become harder to provide sufficient housing at all income levels. Matt Yglesias at Slate describes the problem aptly:

Think about other major classes of widely owned durable goods like cars and refrigerators. Obviously luxury cars and Sub-Zero fridges are a real thing. But the bulk of new car and new fridge production is targeted at a mass middle-class customer base simply because there are more customers there. But if you made the refrigerator industry abide by tight production quotas, all that mass market fridge building would vanish and everyone would make super-expensive high-end fridges. Middle class people would face a crisis of fridge affordability and need to subsist on used luxury fridges, very small fridges, or make substantial financial sacrifices in order to get a decent-sized properly functioning fridge. The Japanese auto industry did in fact face import quotas to the United States in the 1980s, which was the impetus for Honda and Toyota to develop the Acura and Lexus luxury sub-brands.

He goes on to discuss the problem of gentrification and its more positive corollary, filtering:

If a ton of new luxury apartments get constructed in a city, then at least some of their residents will be abandoning homes in other structures elsewhere in the area. Those homes are now free to be occupied by some less-rich people. And over time newer even more luxurious buildings will come on the market and yesterday's new luxury construction will age and filter down the socioeconomic ladder. When you see the gentrification trend outpacing the filtering trend, with higher-income families replacing lower-income families and lower-income families moving to worse-and-worse locations, that's a consequence of excessive restriction on new construction. In a healthy regulatory climate you should see more filtering than gentrification, lower-income families moving into houses that have been abandoned by the rich as rich people move into fancier and fancier new buildings. Of course in the worst case scenario you get filtering without construction—"white flight" and the like—as affluent families simply leave the area and your tax base collapses.

Filtering also helps resolve the issue of mere benefit versus dependence. Sure, we're all better off when wealthier people are persuaded to use public transportation (benefit), but lower-income people are often dependent on it. If we have to choose who should be able to live near transit, lower- and middle-income workers have a stronger claim. When we're debating between 65 and 85 foot height limits in a technological era where quarter-mile towers are possible, however, we shouldn't have to choose. Cities need to be zoned such that the supply of housing at all income levels can actually approach demand and everyone has the opportunity to live near frequent transit if they want to.

Building more luxury towers in the city isn't going to be the difference between a successful city and a failing one, but it can make a positive impact. Built alongside housing for the rest of us, high-income, high-density housing can improve the financial health of cities, utilize public resources more efficiently, increase transit ridership and political support, and encourage connections between people that benefit everyone. For those set on coming to the city regardless of supply, it also provides a place to go instead of bidding existing residents out of their homes and apartments.

The overall message is that all types of housing should be promoted, regardless of target demographic, as long as there is demand for it. As part of a complete growth plan for cities, luxury housing should be welcomed, not scorned.

*Addendum (04/04/13): Two good articles that somewhat address these issues just happened to be published today, here and here. One big takeaway, and something I didn't address sufficiently in my own post, is that failing to build this housing does nothing to reduce the demand for it. If the appeal of an area increases you can either accommodate it with additional density, replacing three-story buildings with eight-story ones for example, or you can wait for wealthy people to just come in and replace lower-income renters and renovate existing units, driving up rents even further because supply isn't actually increasing.

The only way you can deal with increased demand is to either meet it with supply or make the area a less pleasant place to live such that demand decreases. Doing nothing just leads to a sort of "gentrification sprawl" where instead of new residents being located on the relatively small footprints of apartment and condo towers (or just taller buildings), they instead spread out more widely into a greater number of buildings with lower densities.