What’s in a house price

All we’ve heard for the last several years is how the price of housing is going up. Up. UP! And for the most part that is true. Whether it is because Millennials are finally getting on their feet and need a place to have their own families, or whether the baby boomers are not moving to the lower priced condos and giving up their family homes, there is no doubt that there is a housing squeeze.

But seriously, for as long as I can remember, except in deep recessions, people have thought housing is expensive. Because it is! It is the largest portion of people’s monthly budget. And this distraction about the cost of a home is the most uninteresting fact one can take away from home prices. House prices are a rich reflection of the revealed preferences of a community.

An economist in the early part of the twentieth century by the name of Paul Samuelson came up with the idea that when consumers chose different products, they reveal what best suits their needs. This differed from theories up to that point which placed the burden on policy makers to decide which goods provided the greatest utility to consumers.

Samuelson’s relationship with economics is lengthy. This excerpt paints the broadest brush of his brilliance. “In receiving the Nobel Prize in 1970, Mr. Samuelson was credited with transforming his discipline from one that ruminates about economic issues to one that solves problems, answering questions about cause and effect with mathematical rigor and clarity.”

One economist, his junior by twenty years, heard the clarion call for greater mathematical representation of economic theory. Zvi Griliches contributed to a publication called Economic Statistics and Econometrics published in 1968. In a paper called Hedonic Price Indexes for Automobiles: An Economic Analysis of Quality Change, Zvi pulled apart the prices for automobiles so that he could show how much consumers were paying for improved engines or length of the vehicle or other features. By comparing the components of the cost of vehicles he distinguished between inflation and consumers revealing a preference for higher quality provided by advanced technology.

But back to real estate. The economist credited for using this statistical method (taking the price of a complex product and using data to divvy out the weighted values of its various components) was Sherwin Rosen in his 1974 paper Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition. Now this is exciting! The price of a house can tell you how much one school district is favored over another. It can tell you the value effects of violent crime, or proximity to mass transit.

The implicit prices tell us that we trade in public goods as well as private goods. We shop for city services and good roads, for youth programming and parks, as well as for good schools and safe streets. The implicit prices tell us how groups of people choose bundles of public goods. Real estate prices are incredibly rich with feedback.

So can we stop with the “They are so expensive.”

Squeezed out of the house

Most coursework taught in a classroom setting under the guise of real estate is centered on one of three aspects: appraising, financing, and legal underpinnings. In fact, most of the reports generated around real estate feature these same three topics. The recent sales data is sliced and diced along with market times and the rates offered by the mortgage brokers.

Cornell University proves to be an exception in its course offerings which include a wide range of topics on all aspects of real property. In addition to the oh-so-common Finance and Investment class, there’s a taxation course and one on hospitality real estate finance. There is analysis of transaction and deal structuring, and advanced project management for real estate development. There is an emphasis on flushing out the business side to real property.

But the courses designed to teach the work which happens(ed) in the home has been severed from the neighborhood and become Policy Analysis & Management (PAM). The evolution of the 1920’s department of the Department of Household Management is depicted in the flow chart below. Clearly 1969 was a breaking point from the quaintness of home, a throwing off of the apron in favor of an upwards and onwards momentum to a more distinguished framing.

Cornell University, the History of PAM

Another course offered at Cornell is Urban Economics and Real Estate Markets. The course description reads: “A theoretical understanding of the economic forces affecting urban land market change and development is needed for decision-making in the real estate profession… The two core models at the center of the course are the model of urban spatial structure that stems from the work of Alonso, Muth and Mills…” (Alonso, William (1964) Location and Land Use. Cambridge: Harvard University Press.)

A few years before the functions of health and human services were being detached from the geography of cities and suburbs, Alonso noted that the location of a central business district (CBD) created a spatial relationship within a city which affected real estate. While a model based on jobs and income and the commuting of a workforce was used and developed in the interplay of real estate uses in a city, the jobs of a homemaker in educating and feeding and educating her children found a new home in the Health and Human Services Departments across the nation.

This was unfortunate timing.

Infrastructure Bill- MN edition

There’s been a lot of celebrating today with the final presidential signature scratching ink across the infrastructure bill’s pages. It’s a lot of cash, that’s for sure. This was the speculation, a few weeks ago, on how the dollars would shake out for Minnesotans:

As with other recent large federal spending bills, the state has some idea what amounts will flow from the various categories but will have to wait weeks, perhaps months, for specific guidance on how it can be spent. The state usually spends about $2 billion a year on road and bridge work from fuel taxes and bonding and will likely receive an additional $4.8 billion over five years for that purpose from the federal law.

In addition to roads and bridges, early estimates are that Minnesota will also get $818 million for public transportation; $680 million for waterworks; $297 million for airport improvements; $100 million to expand broadband access; $68 million to expand electric vehicle charging networks; $20 million for wildfire protection; and $17 million to increase cybersecurity.

MinnPost

Compatibility, a review

I recently switched to an iphone after years of android use. It has been fun to compare their functionality. The ease of the transition is a tribute to Apple’s focus on the user experience. There is one feature, however, that I miss. It is Google Lens. My last phone was Google Pixel and the Google Lens icon is at the lower right hand side of the screen when you open a jpg. For instance, as I sort through some old travel photos from my youth, I often want to know where a shot was taken. Check Google Lens- Presto! It matches the image to ones on Google Maps.

Fath Ali Shah

I tried all sorts of methods to store and open this image from Iran on my new phone but gave up, and went back to my Google Pixel. Tapping on the picture on my old device summoned up web results which identified the location in seconds. The 4000 BC etching is located under a fortified wall at Rey Castle, near Teheran. Subsequent postings by the collective of google map supporters offered views of the image and surrounding landscape from multiple angles.

More than likely I’ll discover how to use Google Lens on my new device. But the fact that so many features are user friendly and this one is not made me reflect on how we are at the mercy of structures easily within our reach. And how we don’t make time (partly because we may not appreciate the benefits) of structures which we have yet to discover.

During the lockdown my family and I started a daily walk routine as it is good exercise and it was one of the few activities open to us. We used aps to monitor distances and times, and struck out looking for new scenic trails. I’m not sure how many times we shook our heads in disbelief that we had only now discovered so many pleasing miles in our figurative back yard.

On a recent trip to Calgary I discovered the ease and reliability of public transit. It was forced on me by the difficulty to secure a rental car in the era of Covid. This reminded me of when I took my kids on the Great Northern Railroad from Minneapolis to Glacier National Park. The line runs from Chicago out to Seattle skirting the northern most border of the US States. It appealed to me as it gave me a break from road tripping with young children and I thought it would make an impression on them. Many of the other passengers from places like Minot, Culbertson and Wolf Point used the rail frequently. It was their preferred form of transportation.

The dominance of some IT structures has made me wonder about other patterns in my life which have steered my activities. Where else have decisions kept me from advantageous experiences? What other take-it-for-granted services are people not using optimally which would make their lives better? And how can we reveal those little connectors to better engage a just-next-door infrastructure we have yet to discover?

Two sided games people play

There are many types of two sided games that people play. Say a politician devotes a large share of his time and energies to a light rail project which in the end is funded. He has a bragging rights to getting a project through, a resume builder. But in his own life he has no interest in using mass transit. It’s inconvenient. It’s time consuming and he’s a busy man.

Or consider the high-priced neighborhood’s reaction to the light rail line plundering down along a low use section of rail, right behind their carefully painted turn-of-the-century homes. No- no rail here when there are so many better routes! Law suits. Delays. The same folks who entertain mega-donors on verandas decked out with overflowing flower planters, raising funds for the morally upright party, have a thing or two to say about transit for the masses skimming exclusive dominium.

Then there are the folks who will use the transit for commuting as it is the best option for them. They will consider the location of the rail in the choice of their housing and their employment. Their lives are not devoted to political activism or moral considerations. Even though the thought of cleaner transport may appeal to them it is a straightforward balancing of accounts and utility which drives their decisions.

There’s a separate accounting for the time and energies and dollars for each of these actors in the development and consumption of light rail.

Understanding the Problem

I so enjoyed using the light rail in Calgary that it got me thinking about transit and what it means to a city. Ironically it is Covid that put me on the bus in the first place. The rental cars were all booked, and I have family in the city, so I wasn’t dependent on public transport. I wanted to use it to give myself a little independence. What a pleasant surprise to find it so convenient, clean and timely.

(The other companion structural hardscape I noticed were the frequent pedestrian bridges arching over the thoroughfares. They lead people to the light rail stops, of course. They also bridge neighborhoods, which is very useful for parks and trail access. But I digress, back to transit.)

It is no longer controversial to say that real estate home values increase along light rail lines. Studies are easy to come by. Here is a section from a piece posted on the Federal Reserve Bank of St. Louis’ site.

Property Values and Development

One benefit of light rail is its potential impact on nearby property values. There is much academic literature on this angle.

The research generally finds that rail transit has a positive impact on residential property values, although the impact is relatively small. One study found that property values in Portland, Ore., increased by $75 for every 100 feet closer a home is to a light-rail station, and the average home price in New York declined by about $2,300 for every 100 feet farther from the station.[1] In another study of the Portland rail system, the authors found that home prices increase as a result of being closer to a rail transit station, but the effect was only significant within 1,500 feet of the station.[2] Another study found that the typical home in San Diego sold for $272 more for every 100 meters closer to a rail station, but the distance to a rail station in Sacramento had no significant impact on residential property values.[3]

Saint Louis Fed

See the problem with the analysis? There is a pretty potpourri of measures. And the use of dollars (as opposed to percentages), as if property values in Portland are the same as New York or San Diego. The distances from the stations are in feet and meters. Then an observation is made that the effects are small– compared to what?

In math, every problem starts with definitions. You can’t very well solve for something if you haven’t determined what is at stake. We know that the public good transit exerts an externality on the private good, a home. But how does it work?

TO BE CONTINUED

Addis street scene- early ’70’s

It has been a while since I’ve posted a vintage photo, so here is a scene from Addis in about 1974. The wall in the foreground encircled our residential compound, separating our house from all those along the road below. In parts it was studded with broken glass, and stood at ten feet above our yard, dropping fifteen or more to the road below.

The tall eucalyptus trees frame the edges of the photo. This is appropriate as their distinctive smell lingers in every memory of the mountain top capital. Fresh and pungent.

A smoke also lingers amongst the branches as there was always a fire lit, smoldering out of a cook top or a chimney. Although the daytime temps can be warm, the high elevation promises a cool night’s rest. Back then most women snuggled into the white muslin wraps just like the figure striding down the road.

Come morning the roosters were as reliable as the rising sun, beating the rays to the shuttered windows at announcing day break. Our first night in that house, with jet lag still playing on the rhythm of the waking hours, the crowing was unexpected. Exotic. It wasn’t long before the sounds of roosters were the steadfast signal of life on a new day.

Maybe difficult to pick out in the picture is all the corrugated tin which was (still is?) the roofing material of choice. Rust isn’t a problem, I think, due to the elevation. But when the rains come the clatter is impressive! It makes one feel extra dry to hear exactly how much water those roofs protect you from.

The recent pictures I’ve seen of Addis are nothing like it was when we lived there. There were no skyscrapers. Bole road to the airport was the only thorough fare. So I don’t know if the red clay roads such as the one by our house are still maintained by the pounding of foot traffic and donkeys loaded with bundles of firewood.

Someday I hope to return for a visit and find out.

Post note: Our Addis house is one of the tiles in the banner for the blog. Can you guess which one?

Tunnels in Norway

Subterranean roundabout– Norway

A few years ago we visited Norway as a family, retracing a few familial heritage sites. It was great fun as we had done a similar trip some forty years earlier. This time we were working off research my cousin had done through Ancestry.com and thus had honed in on additional family farms throughout the Oslo to Bergen area.

One memory from stepping off the plane back in the 70’s was that all the kids were blond and tall like me. After living much of my childhood in Asia and Africa, this was delightful. Similarly, on the more recent trip I kept having feelings of deja vu, when the waitress was slightly sarcastic like my cousin or the viking haired checkout guy nodded and chuckled in repressed good humor. Returning to an ancestral home can be a reflection back upon one’s self and one’s family. For me there was undeniable comfort in my surroundings.

Back when my ancestors left the country in the mid 1850’s most all travel was through the fjord system as the mountainous landscape makes for difficult road construction. The ferry system is still a significant player in the transportation infrastructure as it was in the 70’s. We drove along narrow roads with stunning vistas across fog filled fjords. But there are many more tunnels through the mountains now. In fact Norway boasts the longest tunnel in the world.

At an astonishing 15 miles (24.5 km) long, the Lærdal Tunnel is the world’s longest. Costing 1 billion Norwegian kroner to build (that’s about USD $110 million) the tunnel connects the small communities of Lærdal and Aurland.

Its design is admired all around the world, as it incorporates features to help manage the mental strain on drivers. Every 6km there is a cave to separate sections of road. The lighting varies throughout the tunnel and caves to break routine and provide a varied view.

https://www.lifeinnorway.net/norway-facts/

Romancing Infrastructure

City Union Bridge spanning the River Clyde, Glasgow, Scotland

River Clyde

The Glasgow people do take pride
In their river both deep and wide,
In early times the youth and maid
Did o’er its shallow waters wade.

But city money did not grudge,
And dug it deep with the steam dredge,
And now proudly on its bosom floats
The mighty ships and great steamboats.

No wonder citizens take pride
For they themselves have made the Clyde,
Great and navigable river,
Where huge fleets will float forever.

Dunbarton’s lofty castle rock
Which oft’ has stood the battle’s shock,
The river it doth boldly guard,
So industry may reap reward.

But more protection still they deem
Is yet required so down the stream
Strong batteries are erected,
So commerce may be safe protected.

Old ocean now he doth take pride
To see upon his bosom ride
The commerce of his youngest bride,
The fair and lovely charming Clyde.

James Mcintyre

Home buying and hedonic regressions

Here’s a fun game you can play if you are presently in the market for a home. One could consider a variety of home characteristics, but if you are in the market for a school district, the pricing lines should be very crisp. And you must be in the market for your own family. Speculating on what others will do just isn’t the same.

If you are not familiar with hedonic regressions, it is a mathematical process where given a set of data, which is subjected to an equation built with defining characteristics, the numbers reveal the various levels of importance of each feature. If we are looking at housing prices, the coefficient in front of the school district data will tell how much of the home price was dedicated to that selection.

But you don’t have to be a math geek with access to a bunch of data to come up with a result! I’d say any buyer who is seriously evaluating this choice can shoot from the hip (after looking, bidding and seeing the values the properties commanded at close). Ideally you want to be considering two school districts which both contain similar homes to choose from within their school boundaries– say a 90’s built two story with four bedrooms up and a nice yard for the kids.

Even non-number types of buyers will be able to discern the differences when their money is in play, or their abilities to access other ideal features. School districts can swing a home value price as much as 15%, so on a home of $450K, a $67K difference. That’s noticeable. And consistent opinions about districts, which affect a great number of buyers, filter out in the numbers.

Buyers do not need regression models to calculate the price of other features. The distance to job centers, for instance, or the premium for a prestigious neighborhood. People will pay to be closer to work in order to spend less time in the car. They will also pay for neighborhoods with corner restaurants, quaint historical business crossroads and neighbors with recognizable names. The numbers here are large enough so that no pointy pencil needs to scratch out a calculation.

But there are hundreds of neighborhood features which are priced out in the offer on a home. And many of these could be better understood with the help of a little math.

Facts about SW light rail

I happen to be by the Blake Rd light rail stop today and snapped a few phone pictures. It is really something how concrete is poured into suspended molds. The MSP area has been reluctant to put money into this sort of infrastructure– and there is plenty of money involved. But once a line is up and running, the fans show up and hop on board. It will be interesting to see how the need for commuting evolves as corporations entertain employment at a distance.

Southwest LRT at a Glance:

The approximately 14.5-mile route (PDF) will serve the growing communities of Minneapolis, St. Louis Park, Hopkins, Minnetonka, and Eden Prairie.

16 new stations with connections to streets and trails will be built, attracting new residential and commercial development.

In 2014, there were approximately 64,300 jobs within ½ mile of the proposed stations and 126,800 jobs in downtown Minneapolis. By 2035, employment is expected to grow to 80,900 within ½ mile of the proposed stations and 145,300 in downtown Minneapolis – a 18% increase in employment.

In 2014, there were about 35,800 people within ½ mile of the proposed stations and 16,400 residents with access to the 5 shared stations in downtown Minneapolis. By 2035, the population within ½ mile of the proposed stations is expected to grow by 56 percent to 55,800, and the population of downtown Minneapolis is expected to grow by 117 percent increase to 35,600.

The total project budget is $2.003 billion, funded by a combination of federal, county, state and local sources.

Construction began in 2019.

An estimated 7,500 construction workers will be needed to build the line, with $350 million estimated construction payroll.

The total project cost is $2.003 billion. Committed funding sources for the Southwest LRT:

Hennepin County: $591.4 million

Counties Transit Improvement Board (CTIB): $218.9 million (provided funding until dissolution in 2017)

Hennepin County Regional Railroad Authority (HCRRA): $199.5 million

State of Minnesota: $30.3 million

Other local contributions: $26.4 million

Eden Prairie Town Center Station: $7.7 million ($6.14 million CMAQ, $1.54 million Eden Prairie)

The Federal Transit Administration (FTA) will provide $928.8 million through the New Starts program with a Full Funding Grant Agreement which was signed in September 2020.

The Metropolitan Council

Rank your favorite public good

If there were a ranking for ‘the best’ public goods– how would it go?

A public good here at home-economic is a good which a group makes available to everyone in that group. For the purposes of this list, let’s extend that delineation to the political boundaries of the US. What are the public goods here in the United States that promote a service to its constituents, while maximizing individual freedom?

I’d have to say the winner is our road system. Most all roadways in the US are open to anyone’s use. Except for a handful of toll roads, there is no charge to the user, and little restraint in their availability. Furthermore there is timely efforts to keep them clear of obstacles.

I started with drinking water, but many people in the US use private wells. And then there was that problem in Flint and the complete absence of water in a number of spots in California.

Then I thought personal safety– which is the oldest public good. Here again, the variance in quality provision of protection varies too much across the states to say that it is consistently available.

Education is meant to be…but we all know the pitfalls here. Even though we do it much better than most.

Nope– it’s definitely the roads. More people have access to the open highway than other pubic good.

But what say you?

Platters II

There’s another aspect to the platter system which deserves a little thought. The rules put into play at the higher, overarching levels need to be the most useful to the most people. If they are too specific, they set the lower platters, or ecosystems of exchange, a kilter, setting up rules to counter act the rules.

Take a subway system as an example. The governance and maintenance of the infrastructure is managed as a system for a large population. The NY subway handles over 3 million rides a day. So in terms of setting user fees, the calculation is done with inclusivity in mind, pricing so as to be accessible to the most people, in this case of upwards of 20 million residents

User fees work well in carrying the cost of water delivery, but come up short in paying for sewer line replacement. User fees in subway systems are also insufficient in maintaining the physical structure. In sewer lines it is easy to assign the replacement cost to each dwelling. In metro stops it is less clear who should pay.

As different locations benefit to different degrees from their proximity to the subway stop and the line, who benefits the most from a particular piece of the system is more difficult to identify. But those who enjoy its use the most, are also those who are most likely to be agreeable to paying a surcharge in order to preserve its use.

Similar to the example of waste water removal, the daily patrons at any metro stop are the most likely to realize a tangible benefit. Another way to put it is the people who use the property, apartment towers, businesses, shoppers, office complexes, realized a benefit and hence receive an increased value in rents, level of employee employee satisfaction, and so on. Wouldn’t it be great is there were price signals to tell us how much they would be willing to pay?

Being able to price out the maintenance expense would realize another mid-level platter efficiency. The building owners who do not value the proximity to the subway, and hence would find the maintenance assessment a burden, would be incentivized to leave the property. There maybe ten other desirable aspects to their building keeping them in place. Hence they stay put neglecting the benefits of mass transit.

But if the market value expense of subway maintenance were great enough, the building owner may move five blocks away from the subway line where some combination of the ten other features would maximize their needs. By not have to pay for the line, which they don’t value, they voluntarily relinquish that space to others who value it more.

When new construction goes in, the cost of putting in sewer lines, roads, curbs, and so on are built into the price of the purchase. Developers are only able to go forward with a project if there are buyers who would pay for the package– including infrastructure costs. Last time I checked, these ran around $25-30K per household in Minnesota.

If all the decision making is done at the largest, most encompassing level of cooperative agreements, then then there is a glossing over of the pockets where the benefits are compounded. Infrastructure is an amenity to an entire city, and those who travel to see it. But to afford such a significant amenity, the details of all the various levels of users and daily riders could be better understood.

Numbers, pictures, and what they tell you.

I’m a sucker for images, and these new graphic representations at the intersection of maps and data are lovely.

A consulting firm out of North Carolina, Urban3, has a new measure for assessing the productivity of land in an urban environment. It’s an interesting new twist.

Urban3 makes maps that show the value of city buildings on a per-acre basis. That last detail is the kicker.

“We make the models to provide information equity,” explained Joe Minicozzi when I asked him about his approach. “We show a financial picture of what’s going on with the cash flow. You see where the holes are, what’s doing well, what’s not doing well. You can’t see where you’re leaking your money if you don’t know what’s going on.”

Per-acre analysis: a unique way of looking at urban economics | MinnPost

The general process is to take the tax revenue on the section of land and divide it by a spatial measure. Under this calculation, downtown buildings are more ‘efficient’ than suburban malls with lots of surrounding acreage of asphalt parking spaces. And in this way the analysis has flaws. Consumer (pre-covid) enjoyed the ease of mall access. Downtowns discourage shopping traffic. So if the objective is to encourage downtown visits, an understanding of transit and traffic and parking would be more valuable.

Reframing a means of analysis is exciting, but there are many more features of the built environment than simply tax collection and land space.

State capacity MN style: Stay off the roads!

Around 4pm this afternoon the temp in the Twin Cities creeped above zero ending a 95 hour streak of negative highs and lows. As far as I know there have been no deaths during this polar vortex. But down I35 W, past Iowa, Missouri, Kansas and Oklahoma, a tragic 133 vehicle pile up left 65 hospitalized and 6 dead in Texas. The winter weather conditions coated the interstate with glare ice jackknifing semis across the thoroughfare. Approaching cars helplessly collided into each other as they skated into the metal mangled mess.

Around the same time last week, in Minnesota, a “bridge appeared to be ice-covered when the driver crashed and nearly went over the edge…”Take a look at the video where bystanders stopped a pickup from teetering over a bridge rail into the Minnesota River. When it comes to winter weather, Minnesotans have high state capacity. As a group we have the extra skills and initiative to respond to unexpected winter weather challenges.

It’s not that the people down in the Lone Star State are hick, uneducated or inept. It’s not that they’re too poor to be responsible nor too rich so as think they’re above it all. It’s not that they are too stupid or too smart. Capacity is a combination of knowing what to do, and being able to engage when the need arises. It’s an identification process, a communication process and a step-up-if-you-are-there-and-available process.

The group has to have the expertise to distinguish the glean on the pavement as black ice, and not innocent damp asphalt. A network has strength to communicate the concern when it is reliable and trusted. Parents put in the extra ‘no’ with persistent teenagers who want to go meet their friends, errands are put off. Stories of cars sliding into holding ponds and drivers waiting through the night, half submerged, until someone comes to the rescue, are retold to confirm the nature of the situation. All these activities enforce behavioral sacrifices which lead to successful outcomes.

Our cities are well rehearsed to handle the weather, whereas the Texas Department of Transportation lacks the physical equipment to plow off the half a foot of snow from the roadways. Formal government and its preparedness are just one feature of the ability of a community to identify, communicate and respond to the challenges, or ambitions, at hand. But it’s really the coordination abilities of the whole group which delineates its capacity.

Labor Wedge

Some words or phrases latch onto you like thistles while walking through blooming prairie grasses. They tag onto your pant leg until you notice them and pluck them off for a closer look. Labor wedge has such a nice visual, a separation between what a model is predicting and the empirical data, I think that’s how it wedged its way into my thoughts.

It seems to be a fairly new macroeconomic term, defined at the start of a paper by Loukas Karabarbounis, University of Chicago, as:

Do fluctuations of the labor wedge, defined as the gap between the firm’s marginal product of labor (MPN) and the household’s marginal rate of substitution (MRS), reflect fluctuations of the gap between the MPN and the real wage or fluctuations of the gap between the real wage and the MRS? For many countries and most forcefully for the United States, fluctuations of the labor wedge predominantly reflect fluctuations of the gap between the real wage and the MRS.

https://www.nber.org/system/files/working_papers/w19015/w19015.pdf

At different time periods, American households have found it advantageous to substitute out paid work for something else. They preferred to spend their time, perhaps at home, performing valued activities for their families. Or perhaps the value was found in associational life of another nature. De Tocqueville said years ago that Americans are apt at associational life.

More interesting are the measuring questions. How do we categorize where people have the opportunity to perform duties which build capital for themselves and, most probably, their communities? Where are they exerting energies in lieu of showing up for a paycheck?

Sorting by their economic benefit seems sensible. If the ambitions fall under health related activities (staying out of the workforce to care for an aging parent) then the credit goes to pubic health. If education (during these Covid times people are staying out the workforce to supervise their children’s education) is the goal then shuffle those hours to the public education column of the ledger. If governance (people are choosing to spend their time on park boards or citizen commissions instead of working) is where the hours are spent, then register the tally under civics, and so on.

A better understanding of these motives and ventures will smooth out the prickly problem of labor wedges.

Home after Covid

Lots of folks are speculating about what the world will look like once people emerge from the Covid induced hibernation. Zoom, Teams and other internet mediums have shown how it is possible to run companies and services remotely. But will people use this flexible employment opportunity and choose to live elsewhere?

One way to consider this is to look at why people moved before Covid-19. Porch.com is a home remodeling site and tracks this information. On average people relocate every seven years, and people don’t take it lightly. As Porch explains:

Moving is a hassle. From boxing up one home to finding another, facing a move can feel like scaling Mount Everest. It’s no wonder Americans have been moving at decreasing rates since the 1980s. In fact, the moving rate in America reached its lowest in 2018 since 1948, when the U.S. Census Bureau began tracking moving rates.

Buyers diligently write out a list of wants and needs when they start their home search. Some of these criteria change of the course of evaluating all the amenities that different areas have to offer. One in four (on Porch’s sample of 1000) said that more space was the greatest driver for a move. Realtor Magazine broke the other reasons down by percentages:

  • Desire for a larger home: 26%
  • Desire to own, not rent: 19%
  • Downsizing: 12%
  • New job or job transfer: 11%
  • Desire for a better neighborhood: 9%
  • Separating from a significant other: 6%
  • Establishing own household (e.g. moved out of parents’ house): 6%
  • Desire to be closer to family: 5%
  • Desire for a shorter commute: 5%

Only 5 percent (said) they made a decision based on commute times. A job relocation prompts a greater response. Still–few buyers consider distance from employment as a significant determinant. Perhaps we should consider how many types of jobs are really affected by the ability to dial-in from a home office?

Anyone involved in the construction or maintenance of built structures (plumbers, sheet-rocker, bull doze drivers, HVAC contractors) will always drive to job sites. Then you have all the service providers who interact face-to-face and hence are tied to location such as k-12 school teachers and administrators, nurses and hospital staff, lab workers. People who build stuff like workers in a production plant are also anchored by their workplace location.

That leaves white collar jobs such as attorneys, accountants, mortgage underwriters, IT workers, architects, engineers and actuaries. Many of these jobs have already provided opportunities for their workers to work remotely. And as some of these jobs grow to include management and partnership opportunities, it is less clear that the full-time remote option would be available. A transition to more of a business ownership role would require better proximity to clients and/or employees.

I speculate that remote work won’t send homeowners off to new locations as much as their home’s floor plan. With more time spent at home, the functionality of their living space comes sharply into focus. Many will decide they need more space. Or it maybe the issue of how the space is distributed. An accountant might be fine with spending one day a week wedged in a cinder block space in the basement laundry room of a 50’s rambler, but becoming a full-time home office worker will demand a more comfortable office with appropriate buffers from family life.

This should make We Work types of built-place solutions more popular, especially in neighborhoods with smaller homes which are more difficult to expand due to limited lot sizes. Suburban neighborhoods may have more elbow room, but residents here may feel overwhelmed with the increased together-time. Whereas suburbanites used to enjoy their anonymity, perhaps this will diminish when a bunch of them no longer depart to their other lives across town. Those who seek the old sense of distance and privacy may shift out to the third tier suburbs and beyond.

Maybe the post-Covid environment won’t be about people moving away from their present communities as much as employers reaching across the country into a larger pool of talent. There will be community upsides to more folks working from home as well. Keeping people out of cars and airplanes will give back more time for family work, free up roads from congestion, and reduce pollution. Overall the great work-from-home experiment of 2020 will contribute to increased productivity in both the private and public spheres.

7 Billion for a Transportation Revolution

That’s the election news from Austin, Texas. A pretty hefty purchase for a metro of 2.2 million people. More on the deets from the local Patch:

The project came in two separate parts for voters, Proposition A and Proposition B — both of which gained support from the majority of registered voters. The former, which passed with 59 percent of the vote, calls for an 8.75-cent increase per $100 valuation to the city’s property tax rate, resulting in around a 4 percent increase to the total bill, toward a high-capacity transit system known as Project Connect. Prop B, which passed with 68 percent of the vote, provides for $460 million in debt issuance toward transportation improvements —sidewalks, bikeways, urban trails, safety projects and the like.

This wasn’t the first run at a rail transportation package in the capital of Texas. It wasn’t for lack of need. The urban’s center’s population growth for the decade ending in 2018 was 37%. Yet two prior funding attempts had failed. This time things were different.

“There were three main arguments that were made,” says Austin mayor Steve Adler. “One was congestion. One was climate change. One was mobility equity in our city.”

This time the city was all in. The focus was not only on light rail to improve commute times and to connect various parts of the city, goals which appeal to those who could better use the hour from a daily commute, and to those who prioritize emission reduction. But the plan also provides for “transportation infrastructure including sidewalks, transportation-related bikeways, urban trails, transportation safety projects (Vision Zero), safe routes to school and substandard streets.”

Let’s count the public objectives: transit, health, environment, access to jobs, recreation, safety. And lest you think they forgot about housing:

The plan, funded by an increase in property taxes, also includes $300 million to help make sure that as transportation improves in some neighborhoods and housing values rise, residents aren’t displaced from their homes due to gentrification. They’ll do this by offering rent subsidies, building more affordable housing, and giving financial assistance to home buyers. 

Austin’s business success and hence population boom has put it in the enviable position of having a need for all these public projects as well as the financial ability to fund them, which they have tied directly to the assessed values of real estate.

But what about cities that just need one of those amenities, or even just a leg of light rail, or upgrades to a suite of bridges, or replacement of a water treatment facility? What are the standard pricing mechanisms and what are they tied back to in such a way that is financially acceptable to all those who support the improvement? What are the combinations that upsell a project and close the deal, such as this one in Austin?

Minnesota passed a 1.87 billion bonding at the fifth special session held in 2020. Two years of touring and evaluating worthy projects, and still the delays and posturing and addon’s. The beauty of a standardized pricing mechanism is that the crazy haggling is reduced to more amenable swings. And more importantly people don’t feel the hazy disbelief that I did when I walked away from a souk off the central square in Marrakesh after paying $20 for two sad sticks of incense.

Remote real estate

Saint Helena hangs in the Atlantic between the eastern reaches of South America and the west shores of Africa.

It is one of the most isolated islands in the world and was uninhabited when discovered by the Portuguese in 1502. It was an important stopover for ships sailing to Europe from Asia and Southern Africa for centuries.

A five day ferry ride from Cape Town takes Napoleon buffs to his final resting place on the island. See more great photos from The Atlantic.

Put me in title

In the is-it-private-or-is-it-public game, I agree that a home is a private good. The event which makes you a home owner is a closing, which in Minnesota, is usually held at a title company. On the chosen day the buyers and sellers sit down (pre-Covid) and the buyers sign up for a mortgage to finance the purchase while the sellers sign over a warranty deed. Done deal. No take-backs. The fees include a little state tax and filing fees so the documents are filed publicly in the county recorders office.

The process almost seems trivial but it so powerful. This singing over of a title and its public recording in a government office is the most significant feature of private wealth in the US system.

Interestingly, there are a whole assortment of local norms and customs revolving around closings across the United States. Most states either close at the table or over an escrow period. In Wyoming, however, real estate agents conduct the closings. Also specified and unique to almost every state is a foreclosure process. Most weigh heavily on consumer protection. And here is an interesting table breaking down all the nit picky processes and fees.

Owning a home is a staple of the American dream. Owning a home ties you to a community where you participate in measure of all public venues: public safety, pubic schools, public transportation, parks trails and the environment, governance and civic pride.

The History of Hennepin Ave Bridge

When trying to understand why some goods and services are provided in the private sphere versus the public sphere, let’s consider the history of the Hennepin Ave Bridge. Back when Minnesota was just a territory, full of trappers and prospectors and a military force down the river at Fort Snelling, two entrepreneurs took it upon themselves to get folks across the mighty Mississippi. From MNopedia:

In 1847 businessman Franklin Steele and his friend John Stevens established a rope ferry from Nicollet Island to the western side of the river to help travelers cross.

While the ferry helped initially, an increase in traffic necessitated new construction. In 1851 a bridge was built from St. Anthony to Nicollet Island to make the trek to the island easier for travelers. A short time later Steele and local business leaders took steps to build a bridge that would reach both sides of the river.

On March 4, 1852, Steele and his associates were granted a charter by the Territorial Legislature to build a bridge. The group formed the Mississippi Bridge Company and soon after began planning for a new bridge along the same path as the rope ferry. 

The bridge opened to the public in January of 1855. The business partnership of Steele and Stevens charged a toll of 3 cents to the 1450 residents on both sides of the banks to alleviate their $36,000 investment. But there were problems.

The bridge was almost immediately plagued with safety issues. On March 25, 1855, a tornado tore through the area, nearly destroying the bridge. Although it was rebuilt and reopened on July 4, safety and capacity concerns persisted throughout its lifetime that eventually led to its being replaced.

After 14 years, the bridge changed ownership from private to public ownership.

In 1869 the charter the Mississippi Bridge Company held on the bridge expired and Hennepin County paid the company $37,500 to assume ownership. The toll requirement continued until the bonds sold to buy the bridge were paid off in 1872.

This bridge, as well as all other highways and bridges in the state, continue to operate as part of a public transportation infrastructure system. Why some products are deemed private and some are public is a topic this blog will continue to explore. Products and services that meet the demands of numerous groups, whether business groups, family groups, associational groups and so on, in conjunction with a need for some measure of public safety seem better suited to the public sphere.

Meet the Met

The Metropolitan Council was conceived a little over fifty years ago with the foresight that the Twin City Metropolitan Area of Minneapolis and St. Paul would benefit from a multi-county planning entity. Large infrastructure projects like transit and water/sewer in particular would be best coordinated regionally in lieu of by an aggregation of cities. The 17 member council serves at the pleasure of the sitting governor. Here is a nice fact sheet providing an overview of the council’s latest accomplishments.

The council wields a tremendous amount of power for an unelected body. Over the years objections to this structure have been voiced by champions of both the left and the right. But for the time being, it is a structure which continues to influence the growth of residential settlement through patterns of transportation provided by bus and light rail, and through the provision of city and water.

In a presentation last week, Charlie Zelle, the chair of the council stressed that his agency is responsible for planning. In light of this spirit, I would like to propose a new way to frame up some of the research.

There are two new infrastructure projects which will offer circulation options for residents. First off, a new interchange off interstate I94 will provide direct access to the city of Dayton, a third tier suburb. Dayton, with a population of 6,302, was bypassed for development and become donut hole to suburban expansion while the populations of neighboring communities grew: Maple Grove to 71k, Champlin to 25k and Rogers to the NW to 13K. The mayor of Dayton touts the economic potential that will be unlocked by the anticipated increase in vehicle traffic from the off ramp.

The second infrastructure project is the Southwest Light Rail which recently received its Full Funding Grant Agreement from the Federal Transit Administration. This transit option links the four SW suburbs of St. Louis Park, Hopkins, Minnetonka, and Eden Prairie to the City of Minneapolis.

Excitement around Southwest LRT in not just confined to transportation advocates, already the alignment has seen hundreds of millions of dollars of private investments along the line. From affordable housing to commercial centers, Southwest LRT is making an impact on the state’s economy a trend which will continue far into the future.

Both of these projects will allow a new pattern of circulation for residents. One will experience growth and transformation from rural low density to suburban. The other will allow a built community to circulate more readily to and from the downtown core.

Whereas commuters and businesses are often the focus of the benefits to transit, I would be interested in seeing how all pubic goods in these communities fare following the completion of these two projects. Are there effects to public safety? Are the public schools over-loaded or better-funded? Are people healthier due to better access to medical care?

Maybe part of the concern regarding representation within the Metropolitan Council is for this reason; for the need to voice both the positive and negative impacts of transit and water/sewer infrastructure (restrictions) on the suite of public goods underwritten by a city. Elected officials, especially mayors, manage a boutique of goods for their residents, and they are not seeing the Council take all of them into consideration