Regional average rents are kinda noininformative

At the risk of engaging in what Scott Breyer dubbed on Fboo as “tedious overthinking” (😑😑😑😑 like that ever stopped me), I need to say something: regional average rents and average land prices do not really show us all that much of policy significance. People cite them, and it makes me wiggly because measures of central tendency only indicate trends if there are well-behaved, stable distributions. We really don’t know what’s happening to the bottom of the distribution unless we have the standard deviation; without stable distributions, it’s possible for average rents to stay the same, or even go down, while the rents at the bottom go up. It’s an embarrassing empirical mistake, and I’m tired of watching smart people toss out average rents or vacancy rates without caveating their discussions appropriately. The reason people do this is that averages are often all that’s available; unit data are expensive to obtain, and the companies that have these data tend not to let you have them unless you give them gobs of cash. But data constraints are no excuse for poor discussion, bad framing, and overstatement.

First off, usual disclaimer: lowering supply constraints is extremely important, particularly in US coastal cities. So if you plan to ‘splain supply to me again, don’t.

Yesterday I saw somebody claim that the Inland Empire still had higher than the national average rents, so there must be some housing shortage there. I suspect there may a mismatch between the vacant units available and what people are looking for/can afford there, but comparing a given place to the national average…people, look, some data points have to be above the average–it’s a mathematical requirement of the measure. All locations in the US are not made equal in terms of economic productivity, so even if there were absolutely no supply constraints anywhere, and absolutely all units were exactly identical, we would still have a distribution of rents in order to construct an average from.

Unless you are building in Lake Wobegone.

Housing and location markets are segmented, with asymmetries in the ability to move across segments; in markets with supply constraints (and even with unregulated land markets, supply is likely to lag demand with urbanization), those in higher segments of the market generally have greater ability to move down (downward raiding) than those in lower-priced segments have to move up, unless wages are growing sufficiently fast in the lower segments relative to the upper segments. This is not what has happened, in general, over the last few decades: wages at the top have grown in real terms, those at the bottom have stayed stagnant or decreased in real terms.

Market Urbanism also featured a nice modeling exercise illustrating some of these problems here if you want to play with it, including some thoughts about length of adjustment periods. I could parse out my problems with the assumptions in the model, but every model has its assumptions and issues, and this discussion lays out its assumptions fairly. It’s a toy model with representative consumers, and it doesn’t claim to be anything else.

The distribution can change in ways that really disguise important rental differences. Here are two distributions of average rents by zip code in (west and a bit of south) LA versus the lower-end rents recorded in those various zip codes. As you can imagine, there is likely to be quite some difference in building units for the average market rate in some of these locations versus others in the short term, and there is nothing wrong with that–it’s normal market functioning–but there is something wrong with assuming those on the low end of the market will do fine if you change rents in the short term or that movement in average rent, even if it’s the direction we want, is enlightening about what is going on on the bottom.

Plot Zoom

I got these from this map on Zumper. It’s not perfect by a long shot, but’s worth looking at for my point. This turned out to be a nice distribution so that we can see a global average out of the averages.

What we’d really like to know are how many units there are in each of these zones at each price level because equally weighting these zip codes is wrong. We’re just illustrating here, so we have to live with inaccuracy.

We can also show how the rent gradient in LA behaves going west to east, from Santa Monica to downtown:

Gradient ai 100 RGB GPU Preview

One thing I do like about average rents as a metric: if there is sufficient spread in the data to see a credible distribution (this is not true everywhere), I think it could be a good strategy to have a graduated regulatory structure where once rents or land values get more than one standard deviation from the median, it triggers an automatic upzone in the zip code of some kind. I think that would change the incentive structure quite a bit for landowners.

Just as a note: if somebody plans to send me the nice Sightline piece that inspired Scott’s summary above, a) I’ve read it, and it’s quite nice to explore what is going internationally, but b) it’s not a causal analysis and b) please also don’t confuse six decades of good, comprehensive housing and social policy (Germany) with plunking down large new projects in lower income American neighborhoods and expecting anybody to believe we would have the same outcomes. Most of the western liberal democracies that do a better job with land use than us also do a better job of social policy more generally. I’m sure that lower supply constraints is absolutely part of the solution, but it’s probably fighting less of an uphill battle in places where society assumes some financial risks for its members rather than having individuals bear them (and then wonder why individuals are extremely risk averse about home asset values).

Sometimes I miss my home so much I can barely breathe

I am an economic migrant to the city, like lots of other people around the world. I grew up in very rural location in northeast Iowa, with rolling hills, farms, and small towns. My early life was spent on a working farm. This makes me pretty unusual among academics. But being a migrant, however, to the city from rural areas puts me in a big 20th and 21st century global cohort.

I’m thinking about this today because I had a convo with one of my undergrads yesterday about what he’s going to do when he finished at USC. He says most people from his home country stay in Los Angeles to work after they graduate. But he feels called home. He’s just not sure he can find a job there, and he wanted to toss ideas around with me about what’s possible. I told him the truth: the opportunities are in the cities, they are easier to find. If you want to stay home, you have to make the opportunities, they are harder to come by, but there are rewards to home. Further truth: this was the first time I told a student that I left my home to chase my career, and while I have been very, very fortunate, and I am happy, when I think of my home my breath catches in my chest and I can barely breathe I ache for it so much.

Reality bites. What I long for is no longer there; I never fit in my town (I never fit anywhere), and I love California and everything about its troubled progressivism, and I can’t stand the short-sighted, hard-hearted, dim-witted Republican twats that appear to have a stranglehold on the Iowa state GOP, rather than the genteel, hard-working, and careful-minded GOP I remember from my youth.

But I still hurt, and my beloved adopted home of California, as interesting as it is, and as good as it has been to me, isn’t the landscape that still calls to me from across the miles.

It is national poetry day today, and along with these thoughts, I got John Browder’s obituary this morning. John was one of my colleagues at Virginia Tech; he was very sweet to me when I was fresh out, and he shall be missed. All of this has got me thinking about Elizabeth Bishop’s One Art:

One Art
BY ELIZABETH BISHOP
The art of losing isn’t hard to master;
so many things seem filled with the intent
to be lost that their loss is no disaster.

Lose something every day. Accept the fluster
of lost door keys, the hour badly spent.
The art of losing isn’t hard to master.

Then practice losing farther, losing faster:
places, and names, and where it was you meant
to travel. None of these will bring disaster.

I lost my mother’s watch. And look! my last, or
next-to-last, of three loved houses went.
The art of losing isn’t hard to master.

I lost two cities, lovely ones. And, vaster,
some realms I owned, two rivers, a continent.
I miss them, but it wasn’t a disaster.

—Even losing you (the joking voice, a gesture
I love) I shan’t have lied. It’s evident
the art of losing’s not too hard to master
though it may look like (Write it!) like disaster.

Elizabeth Bishop, “One Art” from The Complete Poems 1926-1979. Copyright © 1979, 1983 by Alice Helen Methfessel.

Go listen to WHIV-LP (@whivfm) Human Rights and Social Justice Radio

When Liana Elliott and fabulous partner MarkAlain Dery met me for dinner one night right before she graduated from our MPL program here at Price, they told me they were working on a radio project in New Orleans. I thought it was an interesting idea, but I didn’t quite get it and–I have to admit–I thought it was an idea they would try and let go. After all, MarkAlain is an infectious disease doctor, which is a demanding job, and Liana was going to be graduating and trying to build a career in public service in New Orleans. This, too, is a demanding job, especially when you are just starting out. Putting together a radio station is itself a really demanding job. How could they do it all?

BECAUSE THEY ARE SUPERHEROES THAT’S HOW. I should have realized. Liana was a star in a our planning program when she was here–of course she did all that and more. She recently talked about the station and her work with USC alumni magazine, and of course, everything she told me about that night when she was still a student is happening, and happening brilliantly. How do you manage 70 volunteers and hold down a high-profile public policy job? See superhero comment.

So I have been accused of humble-bragging and self-mythologizing on this blog (because God forbid a woman be proud of herself, that needs undermining, fo sure, and boy do some of y’all have a low standard for mythology if my rather prosaic practice background qualifies), this time out I AM STRAIGHT-UP BRAGGING Y’ALL because LOOK AT WHAT LIANA SAID about MEEEEEEE:

Lisa Schweitzer is one of my personal heroes. She is unapologetically smart, witty, insightful and genuinely caring. Dr. Schweitzer’s “Planning Theory” class remains one of the hardest classes I have ever taken, and one of my all-time favorites. I hope I grow up to be even just a fraction of her awesomeness.

IN YOUR FACE! IN YOUR FACE!!! Ha! Somebody fabulous thinks I’m fabulous, and if that’s not a big ego rush, I dunno what is.

Honestly, I can’t be one of her personal heroes because she’s one of *my* personal heroes! How can that be?

I can’t tell you how proud of I am to have been one of her teachers. Her whole cohort of MPL grads that year were great, and she was tops in *that* group, which was hard. And this wonderful update has me smiling. Of course, she did it all. What’s next? I can’t wait to find out.

She also notes that that David Sloane guy teaches a great community health class (for sure) and that TJ McCarthy is probably one of the most gifted instructors we have. She has good taste.

Tune into the radio, even if you don’t got time for all this self-congratulation.

Americans have a lousy record with free political speech, so stop blaming college students

So in the not-surprising-news of the day, a STEM guy does social science*, not particularly well, and it gets picked up by the media because it supposedly shows what everybody knows. Look, I’m sure the guy is brilliant, but honestly, social science is actually difficult, and designing and administering a valid survey is hell-to-the-yeah difficult (it is both time-consuming and usually expensive), and from what little the author divulges, this is not a valid survey. He also used hypotheticals, which takes a lot of prior validation and is generally discouraged in survey research unless you are going to be doing the survey interactively so that you can obtain information on what the subject imagines when they think about the hypothetical. In other words, this is not a great study, by an engineer who has a lot of opinions and virtually no peer-reviewed publications in social science or policy journals. His actual area of expertise sounds really fascinating, but he is not trained in political opinion nor does he really seem to know how to do a valid survey gauging political views.

Yet, Catherine Rampell the Washington Post calls his study on college students and their views about free speech “chilling.” Come on, people. He did a web survey. Rolls eyes. This is reason #1,211,339 why Americans need civics education, in order to understand our own history with regard to how rights have morphed and changed over time, and how very difficult good political science really is. From the Alien and Sedition Act to Donald Trump on Friday frothing that black NFL and NBA players taking a knee during the national anthem should be fired, Americans are not good at handling political difference or dissent, and there’s plenty of evidence that we never have been. “Ungrateful” seems to be the new “uppity” if I’m reading Trump and his cult’s social media correctly.

Dear friend and mentor Andy Sabl retweeted James Gibson’s actually good article from The American Journal of Political Science entitled “Intolerance and Political Repression in the United States: A Half Century after McCarthyism.” (Unfortunately, it’s behind a paywall.

Here’s a summary chart that gives you the basic findings:
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They didn’t ask about feminists or Jews (there are limits on how much you can ask and still get decent answers) but I’m already out on the “atheist” criteria alone.

*One of our PhD students at Virginia Tech sat in my office and said that he thinks people who don’t “learn the science first” never really understand it, but it’s easy for scientists to pick up the economics. I suggested, in a way that I though was rather gentle, that perhaps he was rather over-estimating his knowledge of economics if it had really been that easy to acquire. His response was to stalk out of my office in a bit of a fury and deny me the privilege of being on his PhD committee. I lived. But no doubt he continued on in the world feeling most, most confident in his grasp of a field that is not really hard at the beginning levels but very much so when you get to the advanced stages, unlike some other fields (like languages) where the beginning learning curve can be quite steep.

I, too, have a wide-ranging set of interests, but I feel like I am fair when I say “eh, I haven’t studied this much, but hey this is what I think, what do you think?”

I’m still playing with the Access in America data because I am obsessive

I’ve had students work with these data simply because I want to help them understand how important land use and transit strategies are to job accessibility and how hard the playing field is tilted towards people who can have and drive cars. This was my I spent far too much time yesterday making this graphic from the data reported in Access in America:

Plot Zoom and RStudio and MyWay

It’s so irritating because even in the best transit markets (New York) cars still give job seekers an edge. It would be awfully nice if we could maybe see how these numbers shift with new lines that open, when we get new TODs, etc.

@Curbed 101 ways to improve transportation in your city is a treasure trove of ideas and great links

I always try to support urban journalists whenever I can by linking and responding to requests for content because journalism has become such a cutthroat field because the field is so crowded, it’s hard starting out in any profession, and the combination of these three means that urban reporting faces an uphill battle even though a) there are some fantastic outlets like CityLab and Curbed out there, and b) cities are the most interesting subject ever ever ever. I especially try to help resource the big cohort of young women reporting to help bolster new voices into a field that has not changed as much as the city itself, and I’ve always liked Alissa Walker’s writing, in particular, even before she made me a famous bossladyshark by highlighting some of my grumpier feminist rants in her column.

So when Alissa asked me for an idea for this piece, I was happy to oblige even though it took me long time to think of what I might say; there are so many things I think we need to do. But I didn’t think twice about how the piece was going to end up–it was just a request.

It was a happy surprise to see just how nice the piece, Curbed 101 ways to improve transportation in your city, turned out. I think I caught a few duplicates here and there, but not many, and there are so many *great* ideas included. In addition, they just collected a ton of links to stories that illustrate the concepts they present. The piece is a treasure trove. I super-love the link they chose as an exemplar for my points about making bus stops a useful, everyday pleasure instead of the punishment zones they are in so many cities. And the picture of the bubba and the cargo bike melted my heart, which takes some doing as it teeny tiny and covered in tar.

Go read it!

Why rents are sticky downward even if there is some slack in the rental market

Angelenos who follow the market in LA were treated to a good story from KPCC this last week:
As DTLA vacancies rise, landlords increase breaks on rent, parking.

Thanks to a wave of market-rate rental construction, supply has outpaced demand downtown since 2014. The vacancy rate now hovers around 12 percent — the highest recorded by real estate research firm CoStar Group since 2000, compared to a citywide vacancy rate of about 4 percent.

Ok, when I say that we should focus on Downtown because redevelopment is easiest there, there is tons of extra capacity, there is a lot of underutilized land from South Park all the way to the second Blue Line, downtown has tons of job access–long before we run into rampaging opposition from single-family homeowners–LA-area YIMBIES give me a stern look, like a preacher rebuking sin, and say “It will take more than downtown to solve our housing crisis!”

That may well be, but DTLA still strikes me as a really good place to keep momentum going. Downtown LA has way, way better transit access to most of the rest of the region’s job centers than anywhere else save for maybe Hollywood. The only subcenter really hard to get to (and that’s only hard if you refuse to get on a bus) is the Westwood/Century city areas. With the Purple Line coming, there will be *great* access to those job centers coming soon. Politically and functionally, I would much, much rather advocate for more units in DTLA than deal with furious, empowered homeowners and (legitimately) terrified renters in other parts of LA, especially as I have no desire to try to defend “meh” projects like The Reef, or to treat that as a real YIMBY contribution the way DTLA actually is.

This article, though, shows one of the issues with believing that filtering happens quickly or excess supply eases the market (it should, it just takes time)–and it makes a pretty bad internal mistake in definitions:

The result has been thousands more luxury apartments than there are renters. Of the 21,000-plus market-rate rentals tallied in a recent report by the Downtown Center Business Improvement District, more than 2,000 are empty under the current vacancy rate.

CoStar senior market analyst Steve Basham said that in the last several years, landlords have been ramping up concessions to lure tenants. Of course, the savings are relative when the average rent for a one-bedroom runs around $2,500. Basham said the high rents are why apartments aren’t filling up faster.

“The stuff that’s being built right now is really targeting the very top of the renter’s pool,” Basham said. “The majority of the renters in L.A. are not going to be able to afford that.”

Now, up at the top of the story, they claimed all this slack occurred because of “market-rate housing construction.”

No. If your units are sitting empty, you aren’t building or offering at market-rates. You are at a price point above market-clearing rates, even in your segment of the market. And while they may be offering breaks on parking and rent, it’s a long ways down from $2500 to “affordability.”

Rents in this case will be sticky downwards for some time. You aren’t supposed to use the word “sticky” in a neoclassical world because as we (supposedly) know, Keynes was wrong about everything and Hayek was (supposedly) right, but I like the term and I think it’s a very good descriptor for why prices don’t adjust quickly, for a variety of reasons.

1. Information problems among both producers and consumers. Industry reports and forecasts like that reported in the story help producers figure out the lay of the land, but it’s really hard to know you’ve hit slack in the market until, collectively, landlords and builders have overbuilt/oversupplied a bit. It’s easy to see an inflection point in optimization graphed out; it’s hard to see it in the real world where you (and everybody else) is optimizing individually and watching everybody else and the market in your peripheral vision. You might think for awhile that you are alone in having some empty units, that you are just being unlucky in attracting people, or that your marketing is just missing the right eyeballs…until it becomes apparent that other people are in the same situation. Minimizing these information problems is a competitive advantage if you can do it.

It also can take renters awhile to get the message that rents in a particular area may be coming to within their range, or that a particular area is really desirable.

2. Gambles against loss-taking. When you pencilled out the project figuring $2500 rents and renters’/homeowners’ associations that could handle that rent and all the trimmings that are required to attract people at that income point, it’s a hard to pill to swallow that you are going to have to come down, and depending on how well-capitalized you are and how you read future markets, you may be willing to sit on some empty units for what you think is going to be “a bit” rather than lock yourself into year-long leases below what you pencilled. Since base rents, like salaries, may determine much about the income stream for the property over time, this gamble is not necessarily irrational.

3. Real potentials for loss-taking if renters are locked in and you have to offload the property. Many of these luxury units are predicated on pretty high maintenance bills for amenities, like swimming pools, that are really, hard to support with people who can’t afford premium rents. Lowering the average income of the residents is a great way to wind up with a bunch of renters that lead to lower levels of maintenance than you need, which can pretty quickly turn your nice, renovated building into a much less shiney version of itself, and by the way, if you want to buy the building, it’s going to come with a bunch of renters you will have to find a way to get rid of, or a bunch of maintainance headaches you will have to resolve with the renters you’ve got. It may be much, much smarter for a developer or owner to keep those units empty and attempt to sell the newly renovated building rather than go lower on their targeted renter profile.

4. Meanwhile, the land underneath the buildings is still appreciating a lovely rate due to urban productivity spillovers. And while that’s not as nice as having both speculative gains and streams of rental income, it does provide an asset cushion for you to hold out longer against lowering your rents. The same land speculation gains that we’re always yelling at homeowners occurs for everybody, not just single-family homeowners, and there are plenty of well-capitalized landowners who can just sit on relatively empty buildings (just like those dudes hanging onto parking lots) and still not lose the shirt entirely.