Cities Should not Encourage Home Ownership
There’s a discussion on Twitter about home ownership. In the US, there are periodic calls to abolish the mortgage interest deduction on various grounds: it discriminates against low-income renters, it benefits people in higher tax brackets (i.e. the rich), it is a subsidy to the suburbs. Matt Bruenig, one of the strongest voices on the American socialist left writing about policy, makes an anti-racist argument: per a 2015 report from Demos (p. 12), home ownership contributes to a racial wealth gap, since whites enjoy higher returns than blacks and Hispanics.
In this post, I’m going to make a more general point: home ownership is a questionable individual choice, and a bad regional choice. Governments, from the urban to the national level, should not encourage it in any way.
Home ownership as wealth
Real estate, like any other asset, is a source of wealth. People buy it as an investment, which they can borrow against (“second mortgage”), bequeath to their children, or sell in retirement. In this, it’s no different from any other asset. The more down-to-earth use is as a source of savings: retirees who own a house or apartment debt-free, having finished paying off their mortgage, are not at risk of eviction if their pensions are limited. Near-retirees who lose their jobs are in a similar situation – they have lower immediate expenses than if they rented.
The problem is that this form of saving works in reverse for everyone who is of working age. A 40-year-old who loses their job might want to live off of savings while looking for a job of equivalent skill level and pay. If their savings are largely in their house, this is difficult, for two reasons:
- The house is less liquid than stocks – it’s hard to sell a quarter of it.
- The house is likelier to lose value when the owner needs it the most.
The second point is true to some extent of all pro-cyclical assets (e.g. stocks), but especially of real estate. Workers are more likely to be laid off in recessions, when pro-cyclical assets lose value. Counter-cyclical ones, like sovereign bonds, rise in value, but have lower returns in the long run, creating the familiar risk/returns tradeoff. Housing in that sense is no different from stocks.
However, in one sense, housing is different: it is especially sensitive to the state of the local economy. The American economy today is stronger than it was thirty years ago, but the Detroit economy is not, and people who bought houses in Detroit have had their home values wiped. In this way, home ownership makes people less capable of moving to places with better jobs.
Home ownership and NIMBYism
One of the points made by William Fischel in his writings about zoning and NIMBYism is that the impetus for this behavior comes from homeowners trying to safeguard the value of their investment. Per Fischel, since most homeowners’ entire savings are locked up in one risky asset, they are risk-averse when it comes to any neighborhood change, leading to NIMBYism. Renters are more flexible. So are the richest people, who have a broad array of investments (and often multiple apartments and houses): upper-crust NIMBYism is often the domain of the upper middle class rather than of the top 1%.
It is the general interest of society to have less NIMBYism and looser zoning. This is true even at the level of the individual city. It’s in the interest of San Francisco to be able to build more housing and more office space, even to replace single-family houses in outer areas near Muni Metro with mid-rise apartment buildings. And the higher the level of government, the more upzoning makes sense.
Condos and governance
As Ed Glaeser mentions in a 2011 paper, more than 85% of single-family houses in the US are owned, and more than 85% of apartments in buildings with 3 or more units are rented. Glaeser explains how this turns home ownership incentives into incentives for single-family housing. But it also affects how new multifamily housing looks.
Traditional mid-rise buildings are owned by a single landlord, who rents them to individual tenants. Newer buildings are either rentals or condos. Condos have more complex governing boards, and in extreme cases end up having the same social dynamics of suburbs: people who enjoy telling others what to do make rules about behavior.
The American practice of making mortgage interest tax-deductible is not common across the developed world. But there are more widespread policies that still treat homeowner wealth preferentially to other kinds of investments. There are no capital gains taxes on real estate appreciation, subject to constraints to make sure individual homeowners are not taxed but large-scale commercial developers are. Most countries also fail to tax imputed rents. Switzerland does tax imputed rents, but is unusual in doing so: Swiss homeowners owe taxes on the rents they’d be getting if they rented out their properties at fair market value.
There doesn’t need to be double taxation. In other words, housing should be taxed as personal consumption (so mortgage interest is not deductible, but there are no imputed rents) or as business expenses (so interest is deductible, but there are imputed rents). But it should be single-taxed, because it is not a state interest to depopulate the cities to create a class of suburban NIMBYs, who affect petty aristocratic manners when times are good but turn into a precariat when times are bad.
I agree with much of this, but there are considerable issues in getting there, especially the interaction with finance. Many people save through housing, which is seen as a safe asset as Frances Coppola sets out here: http://www.coppolacomment.com/2016/06/schroedingers-assets.html. These expectations would have to be unwound and an alternative source of saving would need to be found. (Frances’s post also refers to a global shortage of “safe” assets — there is a lot of capital seeking low risk with reasonable yield.) This is the other side of the reason why policy makers have yet to resolve this issue, as they don’t want to deal with the negative consequences of reduced savings expectations. Recent political events have highlighted public anger at a changing world and the risk it brings; exposing the public to housing market risk may be seen as unthinkable. (Many people think Obama should have bailed out underwater mortgages, for example, which would have eased some of the suffering in the last recession.)
Clearly there are some tax advantages in owning a home, at least in the US, but I’m not certain that they are especially racist, except insofar as we make the race/income correlation, which would make it more a class thing. It is no doubt more difficult for low income people to get into real estate, but there are, nevertheless, many low income homeowners, who are still able to get real benefits from these advantages albeit to an arguably lesser extent.
I’m not so sure that home ownership is really something to discourage, if that is where this is heading. There is a lot of good involved in people having a personal stake in their neighborhoods. While Nimby-ism is a regrettable flip side to this coin, the kind of destructive indifference to property values exhibited in public housing developments is definitely undesirable. Adequately housing the poor is a difficult challenge; warehousing people in vast high rise/high density projects seems to have been a failed policy. Some way to create neighborhoods worthy of local pride would seem to be a admirable goal. In DC, some housing developments were rebuilt as low income affordable/subsidized townhouse blocks more or less in keeping with preexisting housing in the area. Too early to tell, but seems an OK approach, although not necessarily affordable to the government and not necessarily applicable to areas that are not adjacent to otherwise healthy neighborhoods.
It is interesting that Trump’s budget proposal is said to propose retention of the mortgage deduction, but elimination of the state & local real estate tax deductions while most discussion of this issue focuses upon the mortgage deduction instead. Probably a reflection of his fondness of borrowing other people’s money in his wheeling/dealing and his general anathema regarding taxes (also plays to the rural vs suburban thing (ill-advised perhaps as a fair amount of his support comes from suburb types)).
It seems plausible that the great wealth creation engine of home ownership for the past 50 years was practically a government policy Ponzi scheme. One that is running out of steam as wages have lost pace with housing prices and the large Boomer generation among current owners will have a shrinking population of buyers.
To repurpose Thatcher’s famous quote, “The trouble with this country’s home ownership policy is that eventually you run out of other people’s money.”
Cities like homeowners-it gives them a steady source of property tax revenue that they can manipulate by either raising the tax rate per $100 of value, or raising the assessed value of the homes or both. Funding public school systems accounts for a significant percentage of money from local property taxes, as well as paying for police and fire departments, and maintaining public streets and roadways. Renters usually only pay these taxes indirectly as the landlords pay it with proceeds from their rents.
“Renters usually only pay these taxes indirectly as the landlords pay it with proceeds from their rents.”
So what? They are paid either way.
I think one of the biggest problems with zoning and related land use regulations is precisely that by limiting the use of residential property to residence they end up destroying the value of ownership — which has to be re-inserted by monkeying with prices and the financial system. Being able to start a business in the property you already own significantly reduces start-up capital needs and while you can’t sell 25 percent of your house you used to be able to rent a spare bedroom.
Today’s laws turn land from a factor of production into a status symbol.
What Mr. Robare said. All of it. Relax the zoning laws and things make more sense.
It’s worth noting the history of the mortgage interest deduction: you used to be able to deduct ALL interest. Credit card interest, personal loans, everything. Under Reagan, this was eliminated (boooo!) but mortgage interest was carved out and kept.
We should really allow people to deduct all interest paid like they used to. Stop taxing the indebted.
A conventional mortgage stabilizes your housing costs. It eventually gets paid off making your housing costs much lower. Which allows retirees to stay in the house they have been in for decades. Most retirees “retire in place” – they stay where their friends and family are.
So basically you end up with an old woman living on the ground floor (because she can’t climb stairs anymore), of a 4/3 single-family detached, who won’t be discovered for days if she falls… and this is the positive side of your policy?
Now, that rosy outcome comes at the cost of families losing their ENTIRE NET WORTH if one of them needs to change jobs beyond the area quickly and they must sell in a rush. Or staying in place with lower incomes. Or super-commuting because the job they found most quickly is 50-100 miles away. Plus losing labor organization because employees won’t strike for fear of foreclosure- loss of natural environment as we piddle away greenfield after greenfield on foam-plastered ranchhomes built on floodplains.
All of this is bad. The acreage of developed land in the US doubled between 1990 and 2005. That means we converted more acres of farms, fields, nature, into stuff- strip malls and subdivisions mostly, in 15 years, than we had in the prior 5 centuries.
This is bad.
A lot of people like owning a home because it is theirs, where I work (in Upstate NY) many who rent would prefer to own a home, many times because they hate their landlord. When you own your own home, your own yard, you have a lot more freedom to live as you please compare to renting. If you want a dog and cat, you don’t have to hid it from the landlord. There is a lot more to this issue than strait economics and urban policy. People like owning homes the same they like driving their own cars. Its theirs. Failing to understand the sociology and psychology of home ownership will only led to urban policy failure, just like considering people to be unemotional rational actors has led to economic failures in recent decades. Populations are not computer programs.
Some people in the “sharing economy” prefer to rent everything up to and including their under ware, but many forks would rather not and governmental policy is not going to change that. Look at Canada, as I understand it has far fewer to no no federal subsidies to home ownership and its home ownership rate is about the same as the US. The only difference is they didn’t destroy their cities thru suburban flight. And from my understanding of Japanese culture, home ownership is a big dream there too. And read the NY papers, renters can be just as NIMBYist has home owners. And many cities in the USA have not acres but square miles of vacant land, look at Buffalo, look at Detroit. Plenty room for single family homes. Not everywhere is San Francisco. Look at Tokyo, lots of single family homes.
Yes, we in the USA need to do more for renters and find ways to create more multifamily housing in our mega cities. Some housing subsides could be trim back or eliminated. We could direct more infrastructure spending (what there is of it) from greenfield to existing urban centers and inner ring suburbs. Constraints on higher density and mix used from zoning codes to building heights to parking standards need to be addressed. I also think we need to push harder for regional metropolitan governance, thru municipal consolidation. Taxes are sky high in Upstate NY in part due to how many local governments there are, which when you take in account population and competition between local governments is very inefficient and counterproductive.
I think creating non-profit public corporations to build affordable housing utilizing free land and construction grants from local and state government would be a good start. Rents could be set to cover the costs of annual maintenance plus a reserve for major repairs. Mixing in retail and a certain percentage of market rate housing units could create cross subsidies. Call it local socialism. Cities could hire private sector construction and property management companies to design, build, and manage these housing projects so, you could eliminate the need for a large new public bureaucracy. I believe the word is “mixed enterprise” or perhaps public-private partnership.
Overall this post struck me (a liberal who hates Fox News) as ivory league/globalist/elitist snobbery that is very out of touch with America and Americans. Sure to a globetrotting internationalist wealthy person it might make perfect sense, but to the Hobbits in the Shire it falls flat. It is an argument that is not going anywhere in the USA, and would actually be very counterproductive by turning most people off. And this would be a shame when there are very good arguments why we need to do more to support multi-unit housing in America, to upgrade and build out transit, to reinvest in our existing urban centers, to rebuild our cities and older suburbs and not keep pushing further out into exurbia. But demeaning home ownership and insulting the people who prefer to own their own home isn’t going to do that. It will only create enemies.
Look, I along with my sister still live with my parents in their house which since their retirement and startup of their Etsy business now looks like Scrooge’s warehouse. A lot of Americans have hobbies that include gardening, motor vehicles, pools, musical bands, woodworking, etc… Owning your own home makes these things easier, I mean it’s a dream, and it’s not just brain washing or whatever, people like home ownership despite its costs and hassles.
Ya, maybe New York City shouldn’t encourage home ownership because land is at a premium down there… but what about Schenectady or Rochester? What about smaller places like Ithaca or Watertown?
Taxes are sky high in Upstate NY
No they aren’t.
I clicked on your link to CNN Money and its nationwide map of property taxes county by county showed a lot of deep dark blue in Upstate NY. Deep blue was symbolic of high property taxes. Granted there was low tax counties in Upstate like Hamilton County which is the least populated, most of it is forest on state land where bears outnumber people. Still property taxes there where higher than in similar rural/wilderness regions in other states.
In Albany, Schenectady, Troy, Saratoga, Utica, Syracuse, Rochester, Buffalo, and Niagara Falls property taxes where high, much lower than Downstate but still roughly equal to other urban regions like Chicago, Dallas, and Los Angeles and higher than other urban places like Denver or the Twin Cities. Compare property taxes in Upstate NY to those in Florida, Carolinians, Georgia, or Arizona… they are lower. Also, some of these states have no income taxes like Florida and Texas.
It’s clearly debatable if “taxes are sky high” in Upstate NY, or New York State in general, it’s a matter of opinion. But clearly the level of taxation is higher in New York State than other states, especially those in the Sunbelt or Mountain West.
There are several issues effecting taxes in Upstate NY including population loss, economic decline, state mandates, snow removal, and the multiple and overlapping local governments which is inefficient and is why municipal or county consolidation/merging as long been advocated. Even if taxes didn’t fall eliminating a lot of town, village, and city governments would reduce overhead and lead to more money for actual services. Look at Schenectady, it really should have one county wide metropolitan government. When I lived in Buffalo similar arguments were made about merging all of Eire County into one government. Louisville, Kentucky which merged with Jefferson County in 2003 is often cited as the paradigm to follow, but there is other example in the US too, and then there is Toronto, London, and Tokyo. The goal should be delivering the best services, the best regional planning, the best value for the money paid taxes.
Biggest problem in upstate NY is that the state forces counties to fund what are really statewide services, and the *only* tax the counties have available is property tax.
So we’re funding Medicaid out of property tax (what?!? — no other state in the country does this). Literally three quarters of the county budget is state mandates. The other quarter is fire protection and road maintenance (we’re not required to fund those, hilariously).
This is why all local politicians, Democrat, Republican, and Green Party, are calling for the state to pay for its own damn mandates, preferably out of the income tax.
Feel free to move to some low tax state. You get what you pay for.
Of course they want the state to pay for it out of income tax. Yet another way to suck money out of New York City to subsidize rural upstate lifestyles.
In Germany home ownership is about 50%, and in Switzerland, land of taxed imputed rents, it’s in the 30s or 40s. Is that a sharing economy? Hardly. It’s normal for people who live in cities to rent. Once enough people rent, the renting experience gets a lot more pleasant than in sections of the US where it’s designed for poor people and recent college graduates – just like public transit.
Landlords rent out single family houses all the time. It is the way many people pay for their second house.
Yeah, but the vast majority of SFH in the US is owner-occupied.
I think Mr. Levy you might want to consider that there is an enormous cultural gap between your personal life experience and that of others, including many in the United States. You seem to view home ownership as a “evil” that can and should be stamped out by government policy. One, this seems to overestimate the ability of government to change people’s deep set behaviors and attitudes and second it seems authoritarian and undemocratic.
“Home ownership is a questionable individual choice, and a bad regional choice. Governments, from the urban to the national level, should not encourage it in any way… Once enough people rent, the renting experience gets a lot more pleasant…”
Look, this Hobbit has never left the Shire but he is sure of one thing, most people at least where I live do not want to rent. Not my parents, my relatives, co-workers, even the one who is a recent immigrant from Laos and plans to forgo a second child so that her and her husband can buy a home. My parents dreamed of a home for years, they hated apartments, and they dislike living on a rented lot in a mobile home park. Ever seen one of those… Sir?
They wanted their own home on their own land. No matter what the cost. This is true of many people I have known. You try to take that away and you’ll have a public rebellion in this country. I have study this issue, America’s love with homeownership goes way back to the founding of the republic, it’s what drove the first commuters on the steam railroads, the later trolley suburbs, and later automobile suburban sprawl. It predates federal mortgage or highway subsidies. It’s a deep part of American culture. There is an enormous amount of literature on the subject of the “Crabgrass Frontier”.
I would agree that in the USA governmental policy at the local, state, and federal level has been tilted against renters and multi-family housing for decades. Mitt Romney obviously shouldn’t get mortgage deductions on all of his multiple homes. We have swung too far from the days of Robert Moses when government could bulldoze entire urban neighborhoods with little trouble to nowadays when you can’t get nothing built due to NIMBYs and multiple and lengthy environmental reviews. Also, nobody wants to pay more in taxes, tolls, or fares… or at least that’s what most in politics and the press think.
I would say that instead of tearing down home ownership we need to instead build up healthy balanced and diverse ecosystem of homeowners and renters, individual housing and multi-unit dwellings, highways and transit.
We especially need to work to provide affordable apartments for those in the in high price regions like the Bay Area or even where I live in Saratoga County. Affordable housing is an issue here in the one economically growing part of Upstate NY. Lots of new apartments and condos are being built in both the city and surrounding towns, multi-story and mixed used; but they are there all for upper middle class folks and millionaires.
What is needed is units priced to those who work in the service industries making $10 to 15 an hour wages. Many of my coworkers have 15 to 25 mile commutes from surrounding counties! Others are doubled up with several others sharing an apartment, sometimes with cohabitating with bedbugs. The private sector is not going to build multi-unit housing for working class folks when they can readily sell them to higher income people at the drop of a hat. Why sell low when there is a seemingly endless line of people who will buy high? It’s going to take government action to build something between public housing (which needs improving and expansion) and all the new $1200-3000 a month apartments and million dollar condos.
Homeownership isn’t really that much higher or lower in the US (64.5%) than other advance nations which have better transit systems and more vibrant urban centers like Great Britain (63.5%), France (65.0%), Denmark (62.7%), or Japan (61.6%). Homeownership and good public transit or not mutually exclusive, the electric streetcars and interurbans served the expansion of single family homes, and like I said home ownership isn’t lower in many nations with better transit like Japan or the UK. We can do both, it doesn’t have to be one or the other. There can balance in housing, balance in transport, and sustainable urban development.
France, Britain, etc., don’t tax imputed rents. I also don’t think they levy capital gains taxes on houses for people who only own one. (I know for a fact that Israel does not.)
Also, why do you think I think home ownership is evil? I don’t. Nor do I think the state should stamp it out. I just think the state should stop tax-subsidizing it. Mitt Romney should pay high taxes on his income; an upper-middle class homeowner sitting on a $1.2 million piece of real estate should pay high taxes but not so high as Romney; a middle-class salaried worker on a combined family income of $75,000 living in a rented apartment should pay less taxes; a working-class family with a combined income of $25,000 should probably not pay any income tax. Donald Trump, who the hell knows how much he makes, but if he’s worth $10 billion he should pay more than Romney, and if he has negative net worth he should get a tax writeoff in the event he manages to climb back up to solvency one emolument at a time.
“I would say that instead of tearing down home ownership we need to instead build up healthy balanced and diverse ecosystem of homeowners and renters, individual housing and multi-unit dwellings, highways and transit.”
To say that the federal government should no longer encourage home ownership is not the same as tearing down home ownership. It’s current method of encouraging home ownership is creating distortionary economics, worsening the boom and bust cycles in valuations, pumping home valuations out of the reach of starter home buyers, and giving many home buyers the idea their home should have an equal rate of return on value as an index fund.
Three generations of federal enfatuation with home ownership is wrecking havoc on the national economy. Some of the worst bubbles to crash on the economy since the 70s have been home ownership-related bubbles. Our federal way of “encouraging” ever keeps harming us, maybe it should get out of the way ant must be neutral and stop leaning of the scale?
The real estate bubbles happen in low regulation states where it’s easy to get unconventional mortgages. Rinse repeat every 20 years or so.
Low income people, even ones who have mortgages, don’t deduct their interest and taxes. They are lower than the standard deduction.
Because it costs less to buy the house than it does to rent it. Lower interest rate on the loan and no profit to be made. A lot less overhead too.
“In this post, I’m going to make a more general point: home ownership is a questionable individual choice, and a bad regional choice. Governments, from the urban to the national level, should not encourage it in any way.”
You make homeownership sound like smoking, that’s why I think that you think homeownership is if not “evil”, then its public nuisance, an undesirable activity. You seem to make it clear you hate suburbs. You list the negatives of homeownership but fail to list any positives. You also fail to mention why many prefer being homeowners opposed to renters.
I don’t think you really understand America and Americans, like I said you look at this from a cold analytical rational point of view that ignores actually human nature and human desires. You may be making the same mistake the economists who pushed free trade touting mathematical models that had people rationally and seamlessly moving from one industry/profession to another, from one place to another. That obviously didn’t happen, and combine that to the data obsessed folks in Hillary Clinton’s campaign, the result was Donald Trump. You’re like the liberal parody that Fox News is always rallying against. “He’s coming to take your home…”
I’m a foreigner; no matter what I say, I’m what Fox is rallying against.
The problem with arguing human nature on home ownership is that it completely misses the role of policy incentives. Stephen Smith had this experience, of talking to a Singaporean policy analyst about home ownership subsidies in Singapore. The analyst assured him that Singaporeans wanted to own and didn’t need any government incentives for that… and then when Stephen brought up CPF the analyst went “oh, yeah, there’s that.”
Rather than denigrating homeownership in general I think much fairer and politically productive questions include: Are the existing subsides to homeownership in the USA efficient and effective? And are they necessary? Could they be structured better? What can be done to balance the playing field between those who rent and those who own their own home? What can be done to encourage reinvestment in existing urban/suburban communities oppose to greenfield construction in the exurbs?
I actually wrote and got printed a letter-to-the-editor in the Wall Street Journal a few years ago that pointed out the reason why Toronto and Hamilton are not Buffalo or Detroit has a lot to do to Canada’s fewer federal subsidies to highway construction and homeownership. Overall homeownership between the two counties is about the same, just that Canada’s suburbs expanded due to population growth while across the border you had the “white flight” to the suburbs, and now exburbs.
A review of the literature on the subject suggests that the mortgage interest deduction has not really increase overall homeownership and instead has help led to the wasteful unnecessary subsidy of the wealthy and volatility in housing prices. It has been proposed that “First-Time Home Buyers Tax Credit” and “Home Buyers Saving Plan” would work much better in its place, a being better targeted to lower income first time buyers who want a “home” for the long-term opposed to a short term “investment” that can be flipped or cashed into when property values rise.
Encouraging Homeownership Through the Tax Code
I think the best take away is that the aim of public policy should not to be “increase homeownership at all costs”. The US needs to do more for non-home owners, current subsides to renters (which from what I have read are actually quite large) are ineffective, for example Section 8 housing vouchers…
Section 8 Vouchers Help The Poor — But Only If Housing Is Available
The above story is not new, this is from a 1990 article… “Vouchers help low-income tenants pay rent in the private market; about one million households already receive them. But in cities with low rental vacancy rates, handing out vouchers is like providing food stamps when the grocery shelves are empty. About half of the voucher recipients now return them unused because apartments are so scarce.”
And this excerpt from the 1990 article could have come from a New York Times article this year…
“The underlying problem is a widening gap between what Americans can afford and what it costs to build and operate housing. Always a problem for the poor, this is now a growing problem for the middle class. Among people age 25 to 34, the homeownership rate dropped from 53.3 percent in 1980 to 45.1 percent in 1987. In 1973 it took 23 percent of the median income of a young family with children to carry a new mortgage on a typical house. Today it takes over half.”
“Because so many would-be homeowners have become reluctant renters, demand for apartments has increased dramatically. Rents have reached a two-decade peak, according to a recent report by the Harvard Center for Housing Studies. The poor are now competing with the middle-class for scarce apartments. Two-thirds of all low-income families pay more than half their incomes on rent. Many of America’s 33 million poor are only one rent increase, one hospital stay, one lay-off, or other emergency away from becoming homeless.”
“Since 1980 federal assistance for low-income housing has shrunk from $33 billion a year to under $8 billion. Today, only one-quarter of the poor in the United States (4.3 million households) receive any kind of housing subsidy. While the number of poor families has swollen during the 1980s, the number of low-rent private apartments has plummeted. Swollen waiting lists for subsidized housing and the growing epidemic of homelessness testify to the desperate need for more low-rent housing. The answer is to increase the overall supply. But the government must not only allocate money for that purpose; it must also ensure that the money is well spent.”
To me government needs to take direct action to see that affordable rental units actually get built instead of just relying on vouchers, inclusive zoning, and tax write-offs to create affordable multi-unit housing. The Canadian model of non-profit “social housing” that was featured in that 1990 article from the ‘American Prospect’ I think would be a good way to go.
Affordable Housing: Lessons from Canada
For people who change jobs often, don’t want the hassles of homeownership, prefer urban living, or are of lower incomes; they should be better supported by public policy. The fact is, if rents were lower, more units more available, the quality high… more people would rent in the United States. That seems to be the lesson from Germany…
Most Germans don’t buy their homes, they rent. Here’s why
Deductible interest on home mortgages also penalizes the relatively poor by by forcing upward the market prices on homes: the tax advantage of deductlbility is discounted in the market price upon sale–i.e., the present value of future tax savings (or an estimate of such) is built into what the seller asks and what would-be buyers are willing to offer in competition with other would-be buyers. Buyers who itemize deductions presumably recover the extra they paid to acquire the tax advantage, but a buyer in a relatively low income range and who cannot expect to have the advantage of itemizing will have lost that portion of the home price that was paid for tax savings that will not be realized. So, ending the mortgage interest deduction would actually result in a downward adjustment of all home market pricing, which would benefit the relatively poor, and would not disadvantage future high-income home purchasers (though present owners of homes would suffer a one-time drop in the market value of their homes).
Again, a review of the history is valuable. You used to be able to deduct ALL interest paid: credit card interest, student loans, personal loans, payday loans, the works. In that context, the mortgage interest deduction was just part of a general deduction.
Reagan eliminated the interest deduction but left the mortgage interest deduction in place to get more votes. I say, bring back ALL the interest deductions — those deep in debt would appreciate it.
Counterpoint: by making something tax-deductible, you incentivize it. Do you really want to incentivize people to go into debt?
A very high fraction of conservative social and economic policy boils down to “Do you really want to incentivize people to ____?”
The point at which the mortgage deduction is more beneficial than the standard deduction is essentially a function of the value of the mortgage. As such, the point of indifference is at or below about $150.000 (single return) or $300,000 (joint return). This point can be significantly lowered if there state and local taxes (income or real estate), or any other deductions, all of which would become usable given that itemized deductions were being taken; these other deductions are very likely available and may even rival the mortgage deduction sometimes.
A major factor in whether or not the deductions will be beneficial has a lot to do with the property’s location – i.e., the local real estate market and the state and local tax structure in effect. In the Northeast, California and Chicagoland, and I suppose in the typical Blue State environment in general, these conditions would prevail, making the deductions available to pretty much anyone who could afford to buy a house; therefore, not particularly discriminatory given a reasonably attainable job (or jobs). In the Red States, incomes, local taxes and property are generally lower value, so there may be people who could buy a nice house and still not be able to beneficially itemize deductions; thus the mortgage interest deduction could be a Red State perk for the well heeled.
In neither Red or Blue State situations do I see a deductible mortgage interest Penalty on the relatively poor. In the Blue scenario, it is appears that if you can afford the house, the deductions will also be there. In the Red States, the relatively poor cannot afford to buy a house in the price/tax range where deductions would become available, but the houses affordable for them would not otherwise be receiving deductible interest benefits by anyone else either, so their price would not include the value of the interest deductibility.
Zillow says the median house price is $245,000. Conventional mortgages have less and less interest in the payment as they amortize.
Those $150k &300k threshold values were based on conventional 30 year fixed rate mortgages at 4.5% where the first year’s interest payments were at least a little above tax year 2016’s standard deductions of $6,300 & $12,600, thus qualifying for using itemized deductions without considering extremely probable additional deductions due to state and local income and property taxes (and whatever other deductibles such as charity and medical expenses that might be also available to add on).
While it is true that the interest portion of the monthly payment declines over time with a fixed rate mortgage, the effect is fairly minimal over the first 5 years and is still quite close to the target amounts even for the 10th year in (still without mentioning the addition of the highly probable additional deductions. Moreover, the incentives, which after all is what this is all about relate much more to the initial conditions than to those down the road, and in the short run it is about whether or not one can become a homeowner and begin building equity while achieving an actual reduction in taxes. At reasonably low interest rates like these, the amount of principal paid down each month can be subtracted from the monthly payment to form a likely positive or at least acceptable comparison to the alternative rental expense.
The Zillow median price seems to fit well within the parameters of my previous post. The Red State single filers would still be well positioned to itemize deductions even with below median prices and for those who would not be able to reach the joint filing threshold, there would not likely be well off alternative itmeizing buyers to bid up the price (they would be buying more expensive houses). Likewise in the Blue States, the additional taxes and higher prices would just make it easier for everyone buying in to be able to itemize and therefore reap the deduction benefits.
Single filers are less likely to need four bedrooms and three baths. Two bedroom double wides with one bath tend to be a lot cheaper than the median.
A quarter of a million just doesn’t go as far as it used to.
Well the purpose of public policy is to make, to encourage, or to discourage, or forbid people to do this or that. Laws are made to shape society, influence the course of events. That’s true in a democracy or a dictatorship. Laws can be made against the will of the people, or at least without their input; but it’s also true that laws are made to gain the support of the people, to please them, to fulfill some need that is going unmet. As a advocate for rail I have heard or even once or twice been the target of the loaded accusation of “social engineering” so I’m very sensitive to the tone of debate on transport and urban planning issues. Obviously any law or public policy is social engineering on some level, be it zoning, healthcare or gun control, or lack there of…
Do people in America buy houses because the government policy incentives it, or did the government create the policy incentives because people wanted to buy their own home? Do people want to become homeowners because of their own free will, or have they been condition to do so by mass media, by government propaganda or corporate advertising? If you go far enough back I think you’ll see that the preference for the single-family home predates government policy in the US. After all the trolley suburbs of 1880-1920 were built before the mortgage interest deduction (no federal income tax till WWI), before government guarantee mortgages, and before zoning. It was the private sector and local government that built up our older cities, and including all of those in Upstate NY from Albany to Buffalo.
With the coming of the automobile and changes in government policy including various incentives (and disincentives like red-lining in urban neighborhoods) the form and shape changed, for example LA went from a interurban/streetcar city to a auto city. Yet the focus on the single-family home remains the same, even if dad drove home instead of catching the trolley. I think this reflects something in the basic American character, although the appeal of homeownership goes far beyond our shores if you look at England or Japan. It is striking how similar many parts of Japan or the UK look to many urban regions of the US, even in terms density if you compare let’s say Clark County (Las Vegas) or Orange County CA to the outer urban neighborhoods and suburbs of Tokyo-Yokohama. Obviously, government and the private sector play major roles in enabling and perpetuating homeownership and single family residences; but I think they are also in large part responding to a need, a desire on the part of many in the population.
Mr. Levy who I assume obviously doesn’t desire home ownership and sees no value in it from either a narrow personal or broad public viewpoint (“home ownership is a questionable individual choice”) does not understand the strong non-financial intangible benefits that many people find in owning their own home. As the “master planner” he weights the “costs/benefits” and finding them wanting recommends that the government take up policies to if not discourage it, then at least not to encourage it. Where I live, there are in fact a lot of middleclass apartments being built, and while I couldn’t afford one those where I work those who can are still mostly looking at single family homes, not apartments. Several have made or are now currently looking into purchase of a house. They have a choice, and they are choosing to own oppose to rent despite new apartments units going up every day.
I can see why in the big mega regions of the US like the Bay Area or LA Basin there is a need to place limits on homeownership and automobiles usage and to encourage higher density multi-unit housing and public transit use. But over wide swaths of America I find it hard to see how many people have been ill served their personal houses and motor vehicles. I own a car, I was very lukewarm to buying one after college because of the cost and hassles of maintenance and repairs, but after making the purchase I wouldn’t give up my car. It provides an incredible amount of freedom. After 15 years, my family was finally able to buy a nice house in the village, and we have lived in it as a family for 20 years. It seems to have served us well.
Do I want the government to make these things harder for me and my family? Do my family, friends, and coworkers want public policy to change? Could a politician win an election on such a platform? I doubt it. “Reform” is needed but condemning the idea or the aspiration for homeownership is not going to win the public debate. Not in America. That is why I would call for “balance” instead between homeowners and renters. For economic and ecological “sustainable” development.
I’m all for affordable multi-unit housing and increase transit use, and think we can change public policy to encourage the revitalization of existing housing stock and urban and inner ring suburbs oppose to further greenfield construction in the exurbs. A focus on infill and rebuilding, on making streets more pedestrian/bike friendly, and building apartments for those who cannot afford or do not desire home ownership (seniors, young professionals, empty nesters, working class) along existing transit routes or in existing urban centers. Coordination between public transit, local zoning boards, and private developers is very lacking in Saratoga County. We need to changing restrictive zoning laws and building codes, to encourage more mix-use and higher density development, and in fact those changes have or are being made in Upstate NY.
But at least up here in Upstate NY I don’t see the need or the desire for massive changes in how people live, this isn’t Singapore or Hong Kong, or even Boston or Los Angeles. Land is not scarce and the population is not large enough to justify massive investment in public transit, at least outside the compact urban core of places like Buffalo or Albany. What is need to change are the incentives that encourage extensive suburban sprawl at the cost of farmland, forestland and the existing urban and older suburban communities with their existing infrastructure and existing building stock. Look at all the “greyfield” distressed shopping centers or “ghost boxes”, redeveloping them as mixed use projects reduces the need for greenfield for construction and helps maintain the economic health of the community. This has recently begun to occur in the Capital District (Albany-Schenectady-Troy-Saratoga) where hotels, offices, and and even a aquarium have been added to rebuilt malls.
That’s one big reason why I support intercity rail, to help support the economies of our inner cities by giving them a long-distance transport advantage they once enjoyed before 1950, and which many suburbs (“Edge Cities”) have today from airports and interstate interchanges. If our older cities could get back the populations and business activities they once had their economies would improve, the tax base would improve, there be more jobs for working class people, and public services from education to public safety could be improve. There be more riders for the existing bus transit systems, even if most families retained car ownership. They just be able to use them less, there be less need to chauffeur older children or the elderly around.
I think a lot can be done at the local and state level to address the imbalance and in some cases injustice of current housing policy. I would be in favor of the federal government trimming back the arguable in part overgenerous, wasteful, and destructive incentives for homeownership. At the very least there should be a greater incentive to purchase and/or improve an existing home (or residential lot) oppose to building new in exurbia.
In a place like Buffalo or Schenectady encouraging homeownership is actually encouraging people to stay in the city oppose to move to a greenfield suburb. It can reduce the number of empty houses decaying from lack of maintenance, weather, vandalism, and theft. In Schenectady, there is a lot of new apartments and condos being built and that is great, but the vast majority of the city is trolley suburbs of single family homes, even rowhouses are actually rare in cities like Schenectady and Buffalo. It’s in the cities interest, and that of its citizens to see that those homes remain occupied (by owners or renters) and maintained in good condition.
That is why at least where I lived, and have always lived would reject the notion that homeownership is “a bad regional choice. Governments, from the urban to the national level, should not encourage it in any way.”
Benjamin Turon offers a constructive analysis that integrates many if not most of the elements that are to be considered in making public policy regarding land use, housing, transportation, etc. I was particularly impressed by his discussion of public transportation options.
It seems to me, however, that he misses the point I was attempting to make in my own comment concerning the deductability of mortgage interest. I was trying to make the case that mortgage interest that is tax deductible provides no advantage to anyone considering home purchase, whether one is relatively poor or relatively wealthy. The availability of interest deduction on one’s tax return has clearly served as an incentive for millions to buy instead of rent, but, as an actual “advantage,” it is an illusion, and market forces would serve Americans better if it were widely understood to be an illusion.
Consider three situations among would-be home purchasers:
(1) THE RELATIVELY WEALTHY: Whether or not the buyer realizes it, the price paid for a home purchased with a mortgage includes the estimated present value of future tax savings on mortgage interest. If the buyer paid cash, he/she would be able to buy the home for less. Presumably the buyer recovers the extra amount paid for tax deductability through future tax savings as realized (although those realized tax savings may be more or less than the estimated savings built into the the market price of the home when it was purchased). If, as presumed, the extra cost of home purchase is actually recovered through tax savings, then the purchaser with mortgage and the cash buyer break even–i.e., no disadvantage to the buyer, but no advantage, either.
(2) THE RELATIVELY POOR (who presumably do not itemize deductions): Let’s assume that the prices asked for houses that are affordable to this sector of buyers do not include some built-in estimate of the value of mortgage-interest deductions, in recognition of the fact that these buyers will not itemize and therefore will not benefit from present income tax law. In that likely case, the law providing mortgage interest deduction is not a disadvantage to a would-be buyer, nor is it an advantage. It is irrelevant.
(3) THOSE WHO ARE IN THE MARGIN BETWEEN THE RELATIVELY RICH AND THE RELATIVELY POOR: To these would-be home buyers the present deductability of mortgage interest is a disadvantage, in that it tends to push up home prices within neighborhoods otherwise affordable to these persons.
In summary, the present law allowing deductability of home mortgage interest for those who itemize deductions benefits no would-be home buyers, while disadvantaging some. Housing prices would adjust downward if the law were abolished, thus home purchases would be more affordable. Furthermore, this law is one among many that unnecessarily complicate our tax system. It is time for radical tax reform……but that is another debate.
I noticed there is a key component missing on this discussion: the fact that a mortgage, in most cases and jurisdictions, is a nominally (or inflation-adjusted) obligation, thus not directly exposed to short-term fluctuations experienced on rental markets (there are plenty of stories on residential rents jumping more than 50% within 4 or 5 years in places like London or Oakland). This certainly has to be factored in.
That’s a risk, yes. And people who buy run the risk of a property value collapse, generally timed to a local recession, in which they also lose their jobs and need to relocate to find work.
These two risks are not complementary, and they are indeed problematic. A prosperous city might throw renters out through rent increases, or in less extreme events, divert substantial parts of marginal personal income gains due to city prosperity to rents paid. Expensive real estate might lose a lot of value on a local recession or depression, leaving homeowners with underwater mortgages.
So, in the end, both processes operate in a way to generate perverse incentives: to move out (or to be evicted) when your city is doing great and you are a renter, or to stay stuck if your city is doing bad and you are a homeowner.
Usually in the places where the last real estate bubble burst after the real estate bubble before that one. Rinse repeat. Someday the rest of the country is going to stop bailing them out.
From what I have read the the deductability of mortgage interest is not key to the higher home ownership rate in the US, its seen as a “sacred cow” politically in the newspapers when tax reform is discussed but if it was eliminated not much might change. I have never heard anyone mention it when talking about buying a home personally. Perhaps if I lived where there was a major housing boom like Florida or Nevada things would be different.
What I’ve read (and I’ll look up studies if you’re interested) is that the mortgage interest deduction doesn’t raise the home ownership rate, but does encourage people to live in larger houses.
I have read that too. Back to my own experience, a former coworker who visited the hotel recently now lives in Florida but has to return to sell his house, selling a house is not a fast thing. Homeownership is really for people who plan to stay, who if asked the question would you move to get a better job would say… “No, I like where I live”.
Ask the people in Detroit the same question and you’ll get a different answer.
True, but some people are really attached to their communities, I find it hard imaging myself leaving my little corner of Upstate NY. Its like people who stated they would move to Canada if Trump became president… how many people actually left the USA??? And did homeownership play a role? “Globetrotting elitists” who jump from place to place, job to job, belonging everywhere yet nowhere may look down on attachments to “blood and soil”, but its a big part of American culture. love for country, love for the hometown. Think of all those novels,plays, and films that dwell on these sentiments And its not just America, I see this in Japanese culture too all the time… Like the recent anime motion picture “Your Name”.
You know that blood and soil is a Nazi phrase, right?
My apologies, that was an unintentional and inartful. If I have unintentionally offended, I’m very sorry.
Actually I was thinking of Tolkien with the Hobbits and The Shire this morning at the breakfast table, the phase “blood and soil” must have popped up in my head because ever since an idiot from Midtown Manhattan and Palm Beach ran for president and somehow won (so much for an informed, moral, and rational electorate) Nazism is everywhere in America, not a day goes by when Hitler and the Nazis don’t make the pages of the newspapers, the letters-to-the-editors of the local papers, or the jokes of the late night shows on television.
I think the term “blood and soil” has popped up in one or two articles in the New York Times I have read concerning the rise of Trump and the “Alt-Right” since the election. That must left the term floating around in my subconscious . The Germany term actually predates the Nazis by several decades, and like much of their ideology and symbolism was appropriated from the existing culture. The term actually parallels to some extent America’s romanticism of the frontier and rural life. Jefferson’s “Yeoman Farmer” (or “Little House on the Prairie”) being the American version of the idolized German peasant farmer of the mythic past celebrated by German Romantics of the 19th Century and later the Nazi Party.
What I was trying to say is many people often have a emotional connection to specific places and their people, call it “family and home” or “community” that outweighs economics. The idea that people are unemotional rational actors who will “up sticks” and move for financial gain is wrong, its far more complicated and even in the face severe financial pressure while many may eventually leave many other people will still choose to remain in economically depressed communities. Your analysis of homeownership seemed to ignore human nature, that people can have strong perhaps illogical bonds to a specific place based on a number of factors be it family, friends, history, culture, or landscape. They will accept financial hardship rather than move to a place with better job prospects. There is more to homeownership than “profit and loss”, and of course renters too can form identical strong bonds to place when moving to another city or state would make more financial sense.
Yes, not owning a home frees one to pursue economic opportunities, but so does also not being married or having children. Along with homeownership, marriage and children could be called “a questionable individual choice” in terms of career advancement and wealth generation. Just has owning a home ties you to a community, so does a wife and kids. If you lose your job or get a better offer from another city you have to take in account your spouse having to also quit hers and your children changing schools and having to make all new friends. Worse is if your moving away from her circle of family and friends. It really complicates things and limits the freedom of action of the individual.
I only bring this up because homeownership is often tied to marriage and children in the USA. Obviously, this has been long promoted in American culture and several people I know who now live in apartments would like to buy a house, specifically a Latino family (2nd generation immigrants) and a Laotian family (1st generation immigrants) who cite their children as the reason to move from a rental apartment to a house that they own. My Laotian coworker has talked about forgoing a second child in order to buy a home. Landlords make the rules, on renovations, children, and pets, and many would rather live without the third party interference in home matters. So, while it’s a deeply held believe, it has been embrace by more recent arrivals from very different cultures, and this is backed up by what I have read in the NY Times… immigrants are following native born Americans to the suburbs with the “American Dream” of homeownership crossing racial lines. I also have read that the much-touted move to urban neighborhoods by Millenniums may actually being reversing, or just really didn’t occur.
Where millennials want to live might surprise you
You seem to think that people buy into homeowmership because of public financial incentives and propaganda, but I think it is much more deeply rooted in American culture and if the mortgage interest deduction was eliminated it wouldn’t change much. Changing public policy does not necessarily change culture, it can create unintended consequences, public resentment, and defeat at the ballot box. Good intentions to help renters and expand rental housing could backfire if it is seen coming at the expense of homeownership. Look, I don’t garden, I don’t do yard work, and I’m no good with home repairs, if I didn’t still live in my parent’s house I would be in an apartment, if I could afford one. But that among those I know that makes me a minority.
On homeownership and NIMBYism, it seems that at least in cities with high housing costs like New York City and San Francisco that renters can be as big NIMBYists as those who own houses or condos. They oppose the construction of new apartment buildings or extensions of the subways because they fear gentrification that will price them out of their existing apartments. The subway will increase land values and rents, new buildings will be luxury condos that make the neighborhood trendier and encourage landlords to renovate and raise rents.
San Francisco Is So Expensive Even Renters Can Be NIMBYs: Rent anxiety and fears of displacement fuel support for obstructing market-rate housing in pricey cities
The Lincoln Tunnel, 7 line and NIMBYism
Second Avenue Subway’s Arrival Brings Fear That Rents Will Soar
Also, I imagine renters who live in currently desirable neighborhoods would oppose construction of high speed rail lines, just as Jane Jacobs fought Robert Moses’ expressways. In fact from what I have read the Germans faced big NIMBYism during the construction their first high speed lines, and after the Tōkaidō Shinkansen construction costs for new lines skyrocketed due to NIMBY concerns including noise pollution. The TGV Sud-Est face big rural NIMBYism from rural famers and landowners in the 1970s, just as CaHSRA and Texas Central face today in America.
NIMBYism may be just a fact of living in a democracy where people feel empowered and have legal, regulatory, and media tools at their disposal to oppose various projects that raise public ire. Many I know who decry NIMBYism against rail would be the first to cheer opposition to an oil pipeline or a Walmart. One person’s selfish NIMBYist is another’s person’s concerned citizen fighting “The Man”.
The most effective solution against NIMBYism is authoritarian government like the Peoples Republic of China where there is little property rights and local authorities will hire armed gangs to vandalize homes and rough up resisters to the will of the state. Of course, even China has its NIMBYs and sometimes they do win, for example the extension of Shanghai’s maglev (extension of HSR also made it redundant). In America, of course we had Post-War urban renewal and freeway construction, but the days of Robert Moses were ended by the growth of community activism (like Jane Jacobs) and new environmental regulations. A bigger issue than NIMBYism in the US I think is regulatory red tape.
Concerning Detroit I would like to point out its decline was due not just to industry and people moving out-of-state but to the surrounding suburbs. And many of those people moved from single-family detached homes they owned in the city to single-family detached homes they owned in the suburbs.
Had Detroit not built some many detached houses and built apartments buildings instead, the result would have been becoming much like the South Bronx in the 1970s. I don’t see how that would necessarily benefit the city. It would just look like Chernobyl or Pruitt–Igoe instead of the abandon houses and empty lots of today. Remember Detroit isn’t just the city with thousands of abandon wooden homes, but abandon skyscrapers too in its CBD! The biggest lessons of Detroit to cities and states would seem to be (1) having a diverse economy not over dependent on one industry or company, (2) promoting racial justice/harmony before riots break out (3) and not encouraging suburban sprawl when your core central city is losing population.
As I wrote before when existing cities consist of single-family detached homes, it’s in the interest of the city that those homes remain occupied. If it’s a choice of buying a house in the city or moving to the suburbs, it seems to be in the interest to encourage “homeownrship” on the part of the city government and local business community. Being a renter does allow residents to more readily flee economic downturn or racial strife, limiting their personal financial losses, but I don’t see how that benefits the city which still as to deal with landlord abandonment, squatters, criminal gangs, looters, vandals, and arsonists.
A large and stable population of homeowners who are invested in the success of their neighborhoods and the city would seem to be a plus, so as long as the city doesn’t discourage high-density multi-unit housing thru land-use laws like single-use zoning, height limits, or parking requirements. In fact mid-cities should encourage high density and mix-use development along transit corridors while encouraging the renovation of existing single family dwellings on the blocks in between.
Buffalo looks a lot like Detroit in many neighborhoods but other Upstate NY cities like Schenectady don’t… given that so much of Schenectady is single family detached housing it’s in the interest of the city to help keep people in those homes and discourage flight to the suburbs, even as it also encourages the construction of new apartment and condos downtown.
Decline of Detroit
A brief history of housing in Detroit
Have you read Pete Saunders’ series on the decline of Detroit? Here is the last entry, with links to the other entries. One of the features he identifies of Detroit is the single-family, auto-oriented housing, legacy of the city’s later expansion than other Rust Belt cities (first half of the 20th century, rather than last quarter of the 19th).
So, Fischel himself thinks NIMBYism is primarily a feature of homeowners. I don’t agree with him, but the main examples I have for renter NIMBYism against new housing come from areas with an entrenched, usually rent-controlled class of renters, like San Francisco and New York. There’s also renter NIMBYism against new housing in areas with weak or no rent controls (like Vancouver and Seattle), but it seems politically weaker.
The examples of NIMBYism against infrastructure are different in several ways. The most important is that eminent domain is required to build linear infrastructure like HSR. The eminent domain process here and in Japan is more difficult i.e. more respectful of property rights, than in the US. Anti-LGV NIMBYism here is concentrated among owners rather than renters – especially farmers, who SNCF has to negotiate with individually. In Provence, the NIMBYs who torpedoed the inland LGV alignment, forcing a more expensive coastal alternative, were a combination of farmers and rich dilettantes who like to take country road trips, and not urban renters. In Japan, too, the biggest example of a NIMBY movement, the riots against the construction of Narita Airport, was led by landowners who the state wanted to expropriate to build the airport. The American eminent domain process, in contrast, favors the state; in California, the main obstacle to HSR is funding and high construction costs, and not Peninsula-area lawsuits.
Concerning NIMBYism and rail infrastructure, the biggest opponents are not protesters but the lack of politicians to stand up to them. The benefits of a rail project ca be very large, but also very diffuse and those benefits lie in the future, often by a decade or more. In contrast the negative effects (or perceived negative externalities) are concentrated, giving more motivation to the NIMBYs to voice their opposition compare to those who would benefit. It’s like gun control in America, the majority favors it (even among gun owners) but it’s not a key issue. The passion is with the opponents who are single issue voters, and thus the political power. You see the same thing with NIMBYism.
Overall however the far greater obstacle to better rail service, particularly intercity service is poor planning and lack of funding, and that has been true for decades. Amtrak doesn’t have the same entrepreneurial or innovative spirit that you see at the state-owned railways in Japan, Britain, or France. And Amtrak’s funding has of course never equaled what JNR, BR, or the SNCF have received over the decades. State DOTs which are now in charge (PRIIA Section 209) of corridor services outside the NEC for the most part don’t have the expertise or staffing (or the imagination) for the most part to push for “HrSR” improvements on the scale of the Intercity 125 or the new ‘Brightline’ service. And the consultants they hire (and the FRA) don’t seem to have much knowledge of modern rail service either. There just is no one in authority to provide a visionary but knowledgeable pragmatic plan of how rail services could be dramatically improved and expanded, even utilizing the existing rail infrastructure and right-of-ways. Look at Gov. Cuomo in the past few weeks concerning Penn Station and the Subway, he’s making a fool of himself. And then there is the need for money. NIMBYs are problem, they’re not the main one.
Concerning housing, I don’t see much NIMBYism against rental housing or apartment buildings where I live in the Capital District of Upstate NY. Lots of new rental units are under construction, both in the suburbs and in downtown and urban neighborhoods including Saratoga Springs and Schenectady. It’s basically “New Urbanism” being put into practice by local governments and developers. There was NIMBYism against a proposal to convert an old dormitory of Skidmore College into affordable housing by the surrounding neighborhood of wealthy Victorian mansions, but that may be the exception. Other “workers housing” proposals have not faced much public outcry so far to date. The issue for me is just that these new rental units, even the “affordable units” are too expensive for working class people. The lowest rents proposed for “affordable housing” tend to be $750 a month ($9000 a year) which for people making $20,000 to $30,000 a year in the service industry like hotels and restaurants is not that affordable. Its double what I pay my father, and after you take taxes, health insurance, and 401k out of my paycheck, I would be paying half of my weekly income (about $300-400) on rent, while still having to pay my student loans, car payment, and auto insurance.
To wrap this up the problems facing a big growing city like New York or San Francisco are different from those faced by smaller cities in places like Upstate NY, cities that have actually lost significant population either out-of-state or to suburban sprawl. There may be a lot of similarities and common issues, but also big differences that might call for different solutions. But getting back to Detroit, all cities should aim I think for diversity in housing, diversity in transport, diversity in industry, and diversity in population. Mono cultures often seem to prove less resilient to future economic or cultural shocks.
P.S. I would also like to apologize again for my “blood and soil” comment, I felt even much worse yesterday than the day before after reading this informative opinion piece in the New York Times…
How the Swastika Became a Confederate Flag
I don’t think it’s true that the benefits of rail are dispersed. On the contrary – rail typically benefits the area it serves. In areas with major investment, the problem with rail investment is more NITBYism than NIMBYism: every region wants a project, even suburban ones where new rail is far less cost-effective than the core. Examples include Surrey, BC’s demands for light rail, paired with the Broadway subway; the Foothills extension in LA; and East Side Access, funded in a deal paired with Second Avenue Subway Phase 1. Of note, good rail projects are being built over the objections of rich NIMBYs, including the Broadway subway in Vancouver and the Wilshire subway in Los Angeles.
The big NIMBY problem in the developed world today is not about rail projects, but about more housing. And there, the situation is not that the benefits are more diffuse than the costs. The situation is that the beneficiaries are people who don’t live in the target city but would like to, and are thus disempowered in the target city.
I agree that rail certainly has concentrated benefits in some contexts. One city or one neighborhood gets rail service while others don’t. For example, the new 2nd Avenue Subway in Manhattan verse the “transit deserts” of Brooklyn and Queens.
However the benefits of a new transportation link, for example let’s say a new high speed line can be also seen as diffuse (as defined by the dictionary: to spread or cause to spread over a wide area or among a large number of people) concerning the overall population or economy in a city or region, a broad number of people and industries may benefit (others of course could and do in fact lose, like hotels in towns in Japan where the Shinkansen eliminated the need of overnight stays) from the new transportation link.
Yet the voices of those who object to the construction of the new line tend to be the loudest, the ones the media and politicians focus on. You see this in California, you see with the NEC Future, with Texas Central, and with Brightline. You see lots of interviews and angry gatherings of the NIMBYs… not so much the voices of future passengers. It’s simple, we need to take your property or inconvenience your life today in order to benefit the lives of countless others tomorrow. Its small but concentrated hardship verse broad but diffuse benefits.
It’s like free trade, it may direct hurt specific factory workers in certain industries or communities but they are a small percentage of the entire national population which will benefit from lower prices of goods and services. Overall most people, in the millions will get a small benefit that cumulatively adds up to a big benefit nationally. But those factory workers will very likely face deep hardship, along with their community. In the end the pain and resentment of these “few” workers and their families will be a greater motivation to voice their opinions than that of those “many” who saved money at Walmart or Home Depot. According to polls most people support gun control, even most gun owners… but anti-gun control politicians get elected because their voters have more passion, are more likely to vote, to be single-issue voters, to donate money, and thus have the ear of lawmakers.
Of course, there are other factors including how at the federal level political representation is divided between congressional districts and states at play. But the passion of the “losers”, even if they hold a minority view can carry the day. The failure of some many HSR projects in the USA a case in point. People care more about losing something they have today than what they could gain in the future. This has been pointed out many times concerning the healthcare debate in the US. It was politically hard to pass ObamaCare… and now its proving hard to repeal it.
The news media focuses on the stories of those who will lose their farm land or fear traffic congestion at local grade crossings, and not the stories of future rail passengers. That’s just a fact. Construction of a new rail line imposes concentrated pain on a few for the dispersed benefit of many people.
I’m not sure what you say about HSR is right, either. California HSR is going through the richest suburbs on the Peninsula, over their objections. The two big mistakes in the route decision – going via Palmdale rather than direct from LA to Bakersfield via I-5, and going between the Central Valley and the Bay Area via Pacheco Pass rather than via Altamont Pass – come from concentrated benefits, not concentrated impacts. Palmdale wants HSR, in order to have a fast transportation option into LA, and through its influence on LA County, LA County has asked for the Palmdale route to be retained as well. And the choice of Pacheco over Altamont comes from the role of San Jose’s Rod Diridon, who wanted San Jose to be on the LA-SF mainline; Altamont serves San Jose via a branch, and takes maybe 20 minutes longer than Pacheco to do LA-San Jose, while travel times to SF are about a wash.
LA-SJ travel times via Altamont depend a lot of the routing decision. I think that under the program alignment Altamont was 10 minutes slower for SJ and about even for SF. The program alignment, however, had some pretty odd routing choices through Fremont and Pleasanton. With better routing, like the SETEC alignment, it might actually be faster for SF and even for SJ
The SETEC alignment does not save enough time to compensate for a route that, for LA-SJ travel (and nothing else), is circuitous. Altamont and Pacheco are basically a wash for LA-Bay Area; what makes Altamont better is the existence of Sacramento.
Assuming San Jose ever got a spur. Does San Jose need three different ways to get to Fremont? If getting on BART is good enough for Oakland why isn’t it good enough for San Jose?
Yes, presumably Diridon understood this principle and realized that the spur would be value-engineered away, which is why he insisted on Pacheco.
Altamont was original rail access into the Bay Area. Also apparently the way the Lincoln Highway was originally routed. They have an unnatural fascination with it. There are other ways to get to Sacramento.
An excellent example of your “NITBYism” is the recent public debate over the Amtrak station in Buffalo, NY. Last fall the false ceiling of the downtown Exchange Street Station collapse in a heavy rain. After a few days of argument over who actually owned the station the city’s public works department tied a blue tarp over the roof and repaired the false ceiling. But by then seemingly everyone up to and including Sen. Schumer had called for the building of a new station, and Gov. Cuomo magically found $20 million earmarked for that purpose in a past state budget.
The debate over the next few months fell between building a new station downtown or at Buffalo Central Terminal, the massive yet abandon Art Deco station on the East Side, two miles from the CBD. Downtown is where the businesses, hotels, attractions, and public transit including the Metro Rail are concentrated. Today is served by three ‘Empire Service’ roundtrips but not by the ‘Lake Shore Limited’.
While BCT could be served by the NYC-Chicago ‘Lake Shore Limited’ (it stops at Buffalo-Depew in the suburbs, ten miles from downtown), the surrounding neighborhood resembles Detroit (another city with massive abandon station) and has nothing of interest or any services to out-of-town travelers within walking distance. And given the low frequency of Amtrak service, and travel times to big cities like Chicago or Buffalo, it’s doubtful that moving the intercity station there would prove too much of a catalyst to the surrounding neighborhood. And the cost of BCT would likely be tens of millions more than downtown.
Despite that, many advocated for BCT, according to written comments to the ad hoc station selection committee a very large majority. Much of this was nostalgia for the past, but another big argument was that too much development had occurred downtown, too much public investment, so it was the East Side’s turn for development aid from the local and state government. The station was a big symbol of the city’s decline, restoration of it would by a symbol of the city’s comeback, of the comeback of the Eastside. What place worked best for rail operations or travelers took a back seat to the public debate over urban renewal in the city. Luckily, the committee pragmatically vote for a downtown site.
Ooh, I like this story.
A similar story, about subway routing: if you look at the Washington Metro’s route map, you’ll see the Green Line swerves west around U Street. This means it swerves around Howard University, rather than serving it directly. This is not a racist decision to avoid serving the most prestigious HBCU in the US – on the contrary. When Metro was being built, there were race riots on U Street, and so WMATA decided to reroute the Green Line through U Street in order to help revitalize the neighborhood through good infrastructure. (This was decades before there was any gentrification in the area.) I heard, third-hand, that WMATA considered U Street vs. Howard to be a very difficult decision, before ultimately choosing U Street.
The Lake Shore Limited doesn’t stop there because there aren’t any tracks to get to it, not to/from Cleveland anyway. From the looks of it, they used them for the trolley cars. It sucks other wise , it’s surrounded by curves.