Sunday, June 30, 2019

Is it reasonable for Angelinos to expect a shorter commute?

I have lived in LA for 11 years now, and I think it is safe to say that among the top topics of conversation is traffic and the misery of commuting.  And in a sense, people are right about
the fact that they have long commutes:  LA-OC Metro 2017 American Community self-reported average travel time to work ranks 246 among the 260 largest Metropolitan Areas, and share of people with a commute of an hour or longer ranks 231 (we will get to who does worse in a bit).  Thanks to Steven Ruggles, Sarah Flood, Ronald Goeken, Josiah Grover, Erin Meyer, Jose Pacas and Matthew Sobek, IPUMS USA: Version 9.0 [dataset]. Minneapolis, MN: IPUMS, 2019, who make it easy to download various data sets and play with them.

But should people reasonably expect LA to do any better than this?  Consider this plot of number of commuters in an MSA against average travel time (I looked to see if someone else had done this particular plot, and couldn't find anyone who has.  If I have failed to cite work already done on this, I apologize).

Two things are pretty clear: larger cities have worse commuting times, and Los Angeles has shorter commutes than New York, but also shorter commutes than some places with smaller numbers of commuters.

How does it do in context?  If we run a simple bivariate regression of number of commuters explaining travel time, we get this:

That is a lot of explaining for one variable--the t-statistic is 11 and the R2 is .32.  And I don't worry too much about getting the direction of causality wrong here.  The regression predicts that LA's commute should, given its size, be six minutes, or about 20 percent, longer than it actually is.  So it appears that people who live in Los Angeles and Orange Counties have shorter commutes than they should expect, given the very large size of their employment market (and there are large benefits to living in such large employment markets).  

I should note that the scatter plot above looks quadratic, and so I also did the quadratic regression:

The addition of the squared term improves the fit, and so now we can explain almost 38 percent of the variation in commuting time with one variable.  It doesn't change the basic result, however, that LA's commute times are considerably shorter than its size would predict (although its commutes are five, rather than six, minutes shorter than the model would forecast).

So we who live in LA really have nothing to complain about with respect to congestion--we get agglomeration benefits from living in a very large city (Ed Glaeser, Enrico Moretti, Vernon Henderson, Stuart Rosenthal, Will Strange, Jane Jacobs, Alfred Marshall, and many, many others have written about the productivity and consumption benefits of living in a large MSA), and the congestion costs, while real, are relatively low.   

But....this doesn't tell the whole story.  Look again at the scatterplot above, and one sees that the MSA with the longest commute is the relatively small Easton, Pennsylvania.  What is going on here?  Easton is a town immediately to the west of the Delaware River from New Jersey.  It is on Interstate 78, 68 miles to the west of the Holland Tunnel.  It is an inexpensive housing market.  And people commute from there to metro New York.

And so it is with Los Angeles. One place with fewer commuters than metro LA, but a longer commute, is Riverside-San Bernardino, the Inland Empire.  The Census counts people who live there as living in a separate metropolitan area, but they are in fact very much part of the Los Angeles regional economy.  And the people who live there have commutes that are more than 20 percent longer than the model predicts.  People who live out east may get some of the production externalities of the region, but I am not sure, after their exhausting commutes, that they benefit that much from the consumption externalities.

So I, and my neighbors, who live in Pasadena have no reason to complain about our commutes (cost of housing is a different issue).  Those who live in Ontario, on the other hand, have a point.

Tuesday, June 25, 2019

California is getting richer..because it is becoming clubbier.

Jung Choi, Eul Noh and I have a paper that shows that when high skill people move to high skill cities, rents for low skill people rise more rapidly than their incomes (high skill people generally see their incomes rise more than rents).  One manifestation of this is that high skill places are pushing out low skill workers.

And so we see this currently in California.  Adam Fowler and Hoyu Chong of Beacon Economics looks at American Community Survey Data to look at net domestic migration in California.  More people are moving out than moving in, but it is the lowest income people who are doing the moving.  High income households are actually moving in.

There is some irony here, because I often hear people authoritatively say that California's taxes and regulations are pushing wealthy people away.   We will have to see the impact of the curb on the state and local tax deduction on migration (that federal tax law change does increase the relative tax burden for income income people in California), but up to this point, the wealthy seem willing to pay the costs of California's access to labor markets and beaches.

What is disturbing, though, is that low income people are moving out at the same rate they are leaving during the great recession, despite the fact that unlike in 2008, the unemployment rate here is at historic lows.  For economies to function, they need people like home health care workers and cooks, people who do important work but don't make a lot of money doing it.  The culprit for the exodus of lower income people from California is almost surely that there isn't enough housing here (the only state with fewer units per person is Utah, whose fertility rate is 30 percent higher than California's).  It is no longer the case that scarcity in housing is limited to Malibu and Beverly Hills--it is reaching San Bernardino and Riverside Counties, the traditional safety valves for inexpensive housing here.  When higher income people compete with lower income people for the same resources, the higher income people tend to win. 

Ads that amuse

I was browsing the web, and an add popped up up for a beautiful Porsche, with the tag-line, "a slice of the Autobahn on the 405."

I am sure the car is lovely to sit in, but that is about all one does on the 405.

Thursday, June 20, 2019

For those that think homeless people migrate to warmer climates.... is a scatterplot of the Census 2017 homeless count per capita against mean January temperature by state:

See a correlation?  No?  That's because there isn't one.

(Note: y-axis was previously mislabeled).

Update: David Albouy asked me to look after controlling for urbanization.  Here is what I got:

Homeless people do tend to congregate in more urbanized states.  But again, climate has nothing to do with propensity for homelessness.

Is California a Big Spender?

People say so.  But what people say is sometimes not true.

I did the following exercise.  I took Census of Government Data on State and Local Spending for 2016 (the most recent available year) and divided it by State GDP for 2016.  This is what I got:

California is right in the middle, ranking 23rd, and sitting next to that well-known hotbed of socialism, Utah.

Friday, June 14, 2019

Two Moral Dilemmas for Housing Policy

Of course there are far more than two, but two seem particularly all encompassing to me. They are

(1) Should everyone, regardless of income, have access to housing in every neighborhood?

(2) What is the minimum acceptable quality of a house?

These are questions whose answers come with tradeoffs.  With respect to (1): suppose we decide that everyone should, if they wish, be able to live in a house on a beach in Laguna (as it happens, the Southern California beach town I most enjoy visiting).  Such a policy would be costly, and has implications for the distribution of other goods.  But there are reasons to think it is socially desirable for people of mixed income to live together.  The correct answer will involve normative judgments we make as a society, but we need to make these judgments explicitly.  I don't know that we do that.  Personally, I think everyone should be able to live in a safe neighborhood, be in a place where they can send their kids to a decent, publicly funded, school, and have a reasonable commute to work (30 minutes or less?  45?) within their choice set.  If people choose to live further away, that is their business.

As for (2), in the US context, I would think the minimum acceptable house would have indoor plumbing, clean water (I wish I could say this was a given),  good sanitation, reliable electricity,  a minimum amount of floor space per person (although I am not sure what that is), and be very, very fire resistant.  I am perhaps leaving something out, but anything beyond an agreed upon minimum adds to the cost of providing housing.  Again, I don't think when we discuss housing we discuss the tradeoffs enough.   

Thursday, June 13, 2019

Rent Control

New York state is about to pass a suite of the most restrictive rent control laws in many years.  Among other things, the laws would restrict vacancy decontrol, and limit the ability to pass the cost of improvements through to tenants.  As such, it is moving New York away from second generation rent control toward first generation rent control.  Richard Arnott gives some examples of second generation control:

Second-generation rent controls commonly permit automatic percentage rent increases related to the rate of inflation. They also often contain provisions for other rent increases: cost pass-through provisions which permit landlords to apply for rent increases above the automatic rent increase, if justified by cost increases; hardship provisions, which allow discretionary increases to assure that landlords do not have cash-flow problems; and rate-of-return provisions, which permit discretionary rent increases to ensure landlords a "fair" or "reasonable" rate of return. Second-generation controls commonly exempt rental housing constructed after the application of controls, although new housing may be brought under the controls at a later time.  
In some jurisdictions, second-generation rent control has permitted full vacancy decontrol, whereby the unit becomes completely decontrolled when it is vacated. Other jurisdictions' programs permit inter-tenancy decontrol, whereby controls apply during successive tenancies but no restrictions are placed on inter-tenancy rent increases. Others contain alternative decontrol mechanisms; probably the most common has been rent level decontrol, whereby a unit is decontrolled when its controlled rent rises above a certain level. Yet others have no decontrol provisions.  
Such rent regulation often contains provisions which accord tenants improved security of tenure—rent increase appeal procedures, eviction procedures more favorable to the tenant, and so on—and it often includes restrictions to prevent cutbacks in maintenance, and on the conversion of controlled rental housing to owner-occupied housing.
Richard is one of the finest urban economists alive, and has taken the view that second generation rent control might do more good than harm.  This is certainly not Econ 101 gospel, but one one needs only to move onto Econ 201 to see where he is coming from.    If property owners have pricing power, the equilibrium rental rate could well be above the social optimum, and the quantity of housing produced could fall below the social optimum.  The idea that property owners might have pricing power goes back at least as far as David Ricardo, who worried about the corrosive effects of "economic rent" on social welfare.  It is certainly plausible to think that in a select few markets, such as New York and San Francisco, landowners do indeed have pricing power.  And this may argue for second generation rent control--but not the move toward first generation rent control, which puts tight caps on rent increases, eliminates vacancy decontrol, and imposes controls on new buildings.

Nevertheless, it is not clear to me that even second best rent control helps much with allocative inefficiency in markets where supply is inelastic--if there is a ceiling on the number of units builders can build, a price intervention is not going to bring about additional units.  So the issue is about redistribution.

have a nice white paper summarizing the literature on the winners and losers of rent control in the few jurisdictions where it exists in the US.  That literature shows that (1) rent control does indeed benefit incumbents; (2) does harm to those outside the rent control system (except, perhaps in Cambridge, MA); (3) probably reduces the stock of rental housing and (4) probably reduces the quality of the housing stock.  Diamond, McQuade and Qian find that the costs and benefits of San Francisco's second generation rent control (which has vacancy decontrol and no control of new buildings) are about equal.  This does not mean that this would be true for first generation rent control.

But even if second generation rent control is neutral in terms of costs and benefits, it doesn't necessarily lead to desirable distributional outcomes.  It is almost certainly true that the average property holder is wealthier than the average renter, and therefore that on average rent control redistributes income from higher to lower wealth people.  But rent control does not target the incomes/wealth of either property owners or renters.

We don't know much about the distribution of wealth among property owners.  We can turn to the US Census Rental Housing Finance Survey to see that nearly half of all units (and about 3/4 of all properties) are owned by individual investors.  Similar numbers are managed by either the owner herself or an unpaid agent of the owner.  So a substantial number of units are held by Mom and Pops.  According to the 2016 Survey of Consumer Finances, the median value of "equity in non-residential property (which includes residential properties with 5 or more units)" among those who hold such properties is about $70,000.  It is safe to say that a substantial number of owners of properties for rent do not have oodles of wealth.

As for the distribution of benefits to renters, consider the following graph:

Rent control in Los Angeles applied to buildings constructed through 1978.  I took data from the 2016 American Community Survey (I know, I need to update it) to look at the income distribution of those living in buildings built in the 1970s (the best I could do to get at the newest rent stabilized buildings) and those living in buildings built in the 1980s (i.e., the oldest non-rent stabilized buildings).  Do you see a difference in these distributions?  Neither do I.  And to me, good social welfare policy is targeted to those who need help.

The thing that bothers me most about rent control is that it allows elected officials to say they are tackling housing issues in our most expensive MSAs, while they continue to punt on the issue of supply elasticity.  I am waiting to see more of our great cities take up the example of Minneapolis, whose government eliminated single family zoning in that city.  I would even be OK with cities combining temporary rent control with Minneapolis style zoning, knowing that in the presence of sufficient supply, people would ultimately no longer feel the need for rent control.  Rent control alone, however, just gives electeds cover not to fix the fundamental problem.


Tuesday, June 11, 2019

Is there in the US a necessity of life...

...other than housing, where governments impose supply ceilings?  Racking my brain on this, and I can't think of another product.  I could be wrong, though. 

Monday, June 10, 2019

Supply and Demand do explain why LA has a housing problem

The most recent homeless counts came in last week, and homelessness in Southern California is getting worse.  As my colleague Gary Painter has shown, this is not because LA "attracts homeless people," which is the view of the data-free opinionaters in the LA Times comments section.

The change in homelessness reflects how very expensive housing is here in LA, particularly as it attracts people with college degrees who outbid lower skilled workers for the housing stock that is here.  Many people without college degrees are leaving LA, but people with strong social or familial ties have reasons not to do so.

So why are things so bad here?  I would argue the problem arises from the fact that LA policymaker "solutions," which include bespoke zoning and some affordable units here and there, do not address the fundamental problem facing the LA housing market--that it has an inelastic supply curve.  As my friend and frequent co-author Steve Malpezzi taught me a long time ago, there is a big policy difference between nudging an inelastic supply curve to the right and making supply more elastic.

We may approximate the state of the LA housing market with the following supply and demand picture.  Albert Saiz showed in 2008 that Metro Los Angeles had the lowest supply elasticity of any American MSA, and given its small levels of construction in the face of large rent increases since then, it is hard to imagine how it has gotten any larger.

Now suppose municipalities relax the constraint on supply through a little up-zoning here and there.  The picture changes to this.

The relaxation of the constraint allows some housing price relief.  But there is a problem.

Housing demand for LA continues to increase, not (any longer) because of in-migration, but because of the age profile of the population.  Large numbers of kids are becoming adults, and, as Sarah Mawhorter shows, want to move out of the parental home (the parents want this too!), but don't want to leave the town where they grew up.

For LA to accommodate housing demand, it would need to have a supply curve that more closely resembles other cities--it would look like this:

The supply curve would still be upward sloping, but changes in demand would also lead to large increases in supply, and hence bring about milder price increases.  Policy can move this relatively elastic demand curve rightward, by reducing the requirements necessary to build (these include things like fees, and in LA's case, linkage fees and parking requirements).

I should note that LAs current vertical supply curve is not the result of topography alone.  In his excellent dissertation at UCLA, Greg Morrow showed that Los Angeles zoning contemplated a city of 10 million; various down-zonings since then have reduced the city's allowable density by 60 percent.  LAs current population of 4 million largely uses up its allowable zoning, and as affluent small households replace less affluent large households (something Hyojung Lee has documented), it will be able to hold even fewer people--unless land use policy is completely overturned.

For those who think LA is overcrowded, let me use Alain Bertaud's work to point out the LA's density is one-third of Krakow's, one-fourth of Paris' and one-fifth of Singapore.   I can testify that these are all very pleasant, livable cities.  If LA were to completely change its land-use policy, it could at once become considerably more affordable and have even more walkable neighborhoods than it currently has.  But incrementalism won't work.