Monthly Archives: May 2018

Would new local taxes on large tech firms really cause them to leave Silicon Valley?

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Several communities in Silicon Valley are considering levying special taxes on large companies, possibly affecting some of the biggest tech companies:

Cupertino, Mountain View and East Palo Alto have begun to ponder new taxes based on employer headcounts — levies that could jolt Apple and Google — and if voters endorse the plans, a fresh wave of such measures may roll toward other corporate coffers.

Alarmed by traffic and other issues brought on by massive expansion projects, the three Silicon Valley cities are pushing forward with separate plans to impose new taxes that could be used to make transit and other improvements…

A lot of factors point to this being a prime time for efforts such as these. San Francisco ranked fifth worst for traffic congestion in the world — and third worst in the U.S. — last year, according to INRIX Global Congestion Ranking. Record housing prices in 2018 boosted the median price of a single family home in the Bay Area to a record $893,000 in April, according to a CoreLogic report.

Federal tax cuts also have improved the balance sheets on an array of U.S. companies, large and small. Silicon Valley’s largest tech companies have contributed to the gridlock on freeways and soaring housing costs as they’ve grown rapidly in recent years, with brisk hiring and expansion in unexpected areas and mega-leases that gobble up huge swaths of office space.

If this works the way that some would argue it does, then the local taxes will be viewed by the tech companies as an unnecessary burden for their operations. They should then consider moving elsewhere where they are not subject to such local taxes. Indeed, if they wanted to move sizable operations, they could probably get numerous communities to offer them tax breaks.

However, this assumes that the local taxes are the primary factor that determines where companies and organizations locate. Instead, there are a variety of factors that both support and work against staying in their current location. I assume these are important reasons for why Apple, Facebook, Google, and others are in this location: the construction and maintenance of large headquarters, proximity to other like-minded organizations, an talented employee pool nearby, and the proximity to major cities like San Jose and San Francisco. Are local tax issues more important than these other concerns? Probably not. And even if they are, it would take some time before a large organization could significantly alter their operations in response.

Fighting smog not by reducing driving but by insisting on more efficient cars

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Smog and air pollution due to vehicles is a familiar sight in many large cities. Yet, Crabgrass Crucible suggests the fight against smog in Los Angeles did not target driving itself but rather automakers:

The ban on fuel oil easily found favor among antismog activists. After all, like the steps with which smog control had begun, it mostly targeted the basin’s industrial zones. Harder to swallow in Los Angeles’s “citizen consumer” politics of this era, even for antismog activists, were solutions that might curtail the mobility associated with cars. Consonant with national trends noted by automobile historian Thomas McCarthy, there was a widespread reluctance to question orthodoxies of road building and suburban development. Even the “militant” activists at the 1954 Pasadena Assembly only went so far as a call to “electrify busses.” By the 1960s, as motor vehicles were estimated to cause nearly 55 percent of smog, there were suggestions for the development of an electric car. Yet Los Angeles smog battlers of all stripes raised surprisingly few questions about freeway building. For many years, Haagen-Smit himself argued that because fast and steady-running traffic burned gasoline more efficiently, freeways were smog remedies. So powerful and prevalent were the presumed rights of Angelenos to drive anywhere, to be propelled, lit, heated, and otherwise convenienced by fossil fuels, that public mass transit or other alternatives hardly seemed worth mentioning.

Once pollution controllers turned their sights to cars, they aimed not so much at Los Angeles roads or driving habits or developers as at the distant plants where automobiles were made. Probing back up the chain of production for smog’s roots, local regulators and politicians established a new way of acting on behalf of citizen consumers. Rather than pitting the residential suburbs of the basin against their industrial counterparts, in an inspired switch, they opened season on a far-flung industrial foe: the “motor city” of Detroit. The APCD’s confrontations with Detroit car makers had begun during the Larson era, but quietly, through exchanges of letters and visits that went little publicized. In 1958, after the nation’s chief auto makers had repeatedly shrugged off Angeleno officials’ insistence on cleaner-burning engines, the Los Angeles City Council went public with its frustration. It threw down the gauntlet: within three years, all automobiles sold within the city limits had to meet tough smog-reducing exhaust standards. Because its deadline had passed, a 1960 burst of antismog activism converged on Sacramento to push through the California Motor Vehicle Control Act. The battle was hard-fought and intense, but the state of California thereby wound up setting pollution-fighting terms for its vast car market. (232-233)

This helps put us where we are today: when the Trump administration signals interest in eliminating national MPG standards for automakers, California leads the way in fighting back.

Ultimately, this is an interesting accommodation in the environmentalist movement. Cars are significant generators of air pollution. Additionally, cars do not just produce air pollution; they require an entire infrastructure that uses a lot of resources in its own right (building and maintaining roads, trucking, using more land for development). Yet, this passage suggests that because cars and the lifestyle that goes with them are so sacred, particularly in a region heavily dependent on mobility by individual cars, the best solution is to look for a car that pollutes less. This leaves many communities and regions in the United States waiting for a more efficient car rather than expending energy and resources toward reducing car use overall. And the problem may just keep going if self-driving cars actually lengthen commutes.

A smaller housing bubble: prices up, easier credit but homeownership down, fewer involved

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Discussion of a looming housing bubble hints at similar factors to the problems of the 2000s:

The number of FHA-insured borrowers who are behind on mortgage payments has jumped, Wade wrote in her testimony. The use of down payment assistance is up. The frequency of FHA borrowers who are spending more than 50 percent of their income on debt payments has increased, too. And the number of borrowers refinancing their homes to take cash out for other uses has swelled…

After years of tight credit in the aftermath of the Great Recession, both conventional mortgage lenders and the FHA have been easing credit standards — allowing for low down payments, for example, or higher levels of borrower debt — to lure first-time and low- to moderate-income buyers back to the housing market, industry observers say. By making it easier for these groups to obtain mortgages, the observers argue, it is only natural to see a modest uptick in missed payments — especially by FHA borrowers — after almost seven years of steadily dropping delinquency rates.

Not all market observers are convinced that these changes are OK. As federally sponsored mortgage giants Fannie Mae and Freddie Mac, as well as the FHA, have introduced these easier credit requirements to promote more homeownership, some critics worry that the mortgage industry could be headed toward dangerous  territory if it continues to become easier to get a mortgage — especially amid what Edward Pinto, a fellow at the conservative think tank American Enterprise Institute, currently calls the “Housing Boom 2.0.” By allowing borrowers to take on more debt or put less money down on a house in today’s super-charged real estate market, observers such as Pinto argue, lenders could be setting themselves up for higher rates of borrower default in the event of a recession — something that Pinto believes is not too far off…

To be sure, observers such as Nothaft add, the current easing of today’s requirements is nowhere near where it was a decade ago. Leading up to the recession, lenders were allowing borrowers to provide no documentation of their finances and granting loans with no money down.

Given the fallout and long recovery time after the burst housing bubble of the late 2000s, few policymakers or lenders would want a repeat. Yet, there are some significant differences in the housing market right now:

  1. Prices may be up and demand may be high but fewer people are participating in buying and selling homes.
  2. Home construction is not at the same level as it was through the 1990s and early 2000s.
  3. Lenders are not quite providing mortgages with the same terms they had in the 2000s (as noted above).
  4. Homeownership in the United States is at relatively low levels: 64.2% in the first quarter of 2018 after even lower figures in previous years.

All together, this suggests that the scale of a new housing bubble would be smaller than the last one. Perhaps significantly smaller. Fewer buyers, sellers, and lenders got caught up in the rising housing values (and low interest rates) of recent years.

This does not mean that there would not be pain if housing prices and lending collapsed a bit. But, the consequences would simply exacerbate some of the issues various interested parties have discussed:

  1. If prices decrease, even fewer people might be willing to sell their homes. This drives supply even lower.
  2. How much lower could interest rates really go? How much profit could lenders generate?
  3. This could decrease motivation for builders and developers, particularly at the lower ends of the market where there is already significant demand.

The conditions and consequences of a housing bubble today or the next year or two could be very different than the economic crisis we now think we have some handle on from the late 2000s.

Determining who is super-rich, private banking edition

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Categorizing people into different income groups is an interesting exercise for social scientists but it may be necessary for certain occupations. Take private bankers as an example:

Call it economy-class rich. Business class? That’s $100 million. First class? $200 million. Private-jet rich? Try $1 billion…

The measure of what makes someone rich has changed dramatically in the past two decades. In 1994, when Peter Charrington, global head of Citi Private Bank, first joined the firm, “Three million was largely considered ultra-high net worth across the industry,” he recalled. “Fast-forward almost 25 years, and $25 million is how we define ultra-high net worth.”…

Placing investable assets of at least $25 million with a wealth manager—and clients with that amount or more tend to work with a few firms—can bring access to initial public offerings, and having at least $5 million in investments moves a client past one regulatory hurdle to taking part in private offerings…

It’s direct investment in companies and buildings where the line between the rich and seriously wealthy is most pronounced. “This is a threshold differentiator among the world’s wealthiest, compared to the merely very wealthy, let alone the 401(k) investor,” said J.P. Morgan Private Bank’s Duffy. “These very large families are investing in private companies, owning a percent of the company versus a share of a public entity.”

On one hand, $25 million is pushed as a rough cut-off line but, on the other hand, there are some fine gradations both above and below this level. Does the quest to differentiate oneself in terms of resources as well as to offer different levels of service to such people ever end? (Presumably it must stop with the wealthiest people in the world but then there may be a quest to keep pushing those number upward.)

Another piece of this that is worthwhile to consider is the true sign of wealth is to buy into capital or the “means and modes of production.” It is one thing to own objects or investments and it is another to own significant stakes in companies and buildings. For example, the growth machine model of urban development would involve these super-rich individuals who the clout and resources to influence and direct development.

The well-cultivated lawns of Levittown

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The history of environmentalism in the suburbs Crabgrass Crucible includes this description of how Levittown encouraged good looking lawns:

Abraham Levitt, among others, remained keenly aware of the additional work and expense suburban horticulture demanded, as well as the collective benefits that could follow if all Levittowners took the time and trouble to cooperate. However well-chosen and planted, all their grass, shrubs, and trees would die, and the chickweed prevail, if new owners’ commitments and skills were not also fortified. Through a gardening column in the Levittown newspaper, Abraham opened up a weekly line of communication to bring home to Levittowners how “lawns, like all living things, require care.” He “used to come around in a chauffeur driven car” to check on his homeowners’ floral upkeep. If lawns went unmowed or unweeded, he sent his own landscapers to do the job and followed up with a bill in the mail. Most developers at the lower end, like the Romano brothers, were far less solicitous, especially once their homes had been sold.

As lawn cultivation was taken up by new as well as longtime homeowners, its collective benefits, reinforced by the pressure of neighbors’ peeled eyes, helped make it the most ubiquitous of horticultural practices on Long Island. Whether these residents were white or black, however, their memories downplayed the landscaping contributions of builders and developers. Early Levittowners recalled a “sea of dirt” or mud that surged with rain, an uneven respreading of the topsoil, and scrawny, “inexpensive” shrubbery and trees. Residents later remarked little about any lawn damage from roaming children or dogs, or the neglect of lawn care by a neighbor next door. Instead, whether they were Levittowners or lived in African American Ronek Park, their recollections revolved around a joint if rival pursuit of horticultural handiwork. “Everyone” took up the mowing and watering and often the fertilizing and weed killing. As with Levittowners, Eugene Burnett remember “a kind of competition goin’ with that” that made Ronek Park yards into “some of the most beautiful lawns I’ve ever seen anywhere.” Caught up in the lawn-making enthusiasm, even Robert Murphy tried to plant one outside his Crystal Brook home. Yet for large lot owners, the dynamic was less intensely communal – the Murphy’s lawn was not even visible from the road. For denizens of Old Field, but also for smaller lots of horticultural hobbyists, lawns drew less investment of emotion or energy than other vegetation they cared about. (77)

Three pieces of this stand out to me:

  1. The pressure to maintain a nice lawn was present in the early post-war mass suburbs. It may have been present in earlier suburbs but fewer Americans could access those communities.
  2. It appears some of this pressure was promulgated by Abraham Levitt, part of the company that founded the community. At the same time, the developers of Ronek Park did less to landscape new homes there and the pressure to have a nice lawn also was present there.
  3. There are some hints that social class matters here regarding lawns. Was the lawn an essential part of purchasing a single-family home which offered access to the middle class American Dream? Could a poor lawn reduce or invalidate the success of the new suburban homeowner?

It is hard to imagine images of postwar suburban homes, whether in magazines, film, or television shows, without lush green lawns.

More Prii at which location: Whole Foods on a weekend or an arboretum on Earth Day weekend?

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A recent experience at the Morton Arboretum led me to this question regarding where I was more likely to see Toyota Prii:

-The parking lot for Whole Foods on a weekend

-At the arboretum on Earth Day weekend

Since certain lifestyle and consumption choices are tied to other lifestyle patterns (for example: TV shows), connecting Prius owners to these two places may not be that surprising. One study had this to say about small car owners:

Small Car: Prius, Honda Civic, Smart Car
According to a study by researchers at UC Davis, “What type of vehicle do people drive?
The role of attitude and lifestyle in influencing vehicle type choice,” small car drivers are more pro-environmental and prefer higher density neighborhoods than drivers of others types of cars. This isn’t surprising; if you live in a big city, it’s simply easier to park with a small car and if you’re concerned about the environment, you’ll want something that’s more fuel-efficient. Small car drivers, unlike other categories of drivers, don’t necessarily see their cars as a ticket to freedom. They aren’t workaholics or status seekers who try to display wealth. They want to lessen their impact on the earth and have a reliable car—and find a parking spot.

When considering the number of Prii at the arboretum, there were also a large number of vans and SUVs, vehicles less friendly toward the environment. Can a driver claim to be an environmentalist while also driving a large vehicle? Is a Prius a special badge of honor?

True for Chicago and elsewhere: “cities don’t just crop up in random places”

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At Instapundit, Gail Heriot explains how Chicago came to be:

FATHER JACQUES MARQUETTE AND LOUIS JOLLIET: On this day in 1673, a 35-year-old Jesuit priest and a 27-year-old fur trader began their exploration of Lake Michigan and the Mississippi River, leaving from St. Ignace at the north end of Lake Michigan. From there, they went up the Fox River and then overland (carrying their canoes) to the Wisconsin River, which took them to the Mississippi River. Out of fear of running into the Spanish, they turned back at the Arkansas River. By then, they had confirmed that the Mississippi does indeed run to the Gulf of Mexico.

The route back was different. And this becomes important to the history of the country and especially of the City of Chicago: Friendly Native Americans told them that if they go up the Illinois River and the Des Plaines, rather than the Wisconsin, it would make the trip easier. That’s because the portage distance from the Mississippi watershed and the Great Lakes watershed was shortest there. The Chicago River, which dumped into Lake Michigan was only a short distance away.

If you’ve ever wondered why Chicago grew into a major city so quickly, this is why: Location, location, location.  In the modern world it’s easy to miss how much topographical issues like that mattered (and in different ways continue to matter).  But cities don’t just crop up in random places.

The locations of major population centers may seem fairly obvious now: a large population has been there for a long time and the city by its own large inertia continues to draw more people. This may be particularly true for cities outside of North America where there may be centuries or millennia of accumulated settlement.

Yet, looking at the founding of major cities in the United States often shows that there are located at places that provided major transportation advantages for people of that time. Even though this might be less obvious now since we do not think much about sea travel and shipping, a number of major coastal cities have protected ports. Inland, many cities are located on key bodies of water, primarily rivers. Even more recently, communities developed around railroad junctions and highway intersections where a lot of traffic converged.
Perhaps in a “perfect world,” major cities would be spread out at fairly even intervals. But, development does not typically work this way: it often follows earlier transportation links or patterns of development.

Walkable + suburban = desirable “surban” places

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Homebuyers may still desire to live in the suburbs but they now may want a different kind of suburbia: a walkable, denser, vibrant place.

No longer are McMansions, white picket fences and sprawling square footage topping suburban buyers’ most-wanted list. Instead, proximity to a suburb’s downtown and easy access to restaurants, schools and parks are priorities. For many, walkable suburbs reign supreme…

The shift toward more walkable suburbs started over the past two decades, thanks to planning efforts concentrated on creating mini-downtowns to revive traditional suburban centers, said Kheir Al-Kodmany, a professor at the University of Illinois at Chicago’s College of Urban Planning and Public Affairs…

A 2017 study by the National Association of Realtors found that walkers span the generations. Sixty-two percent of millennials and 55 percent of those born before 1944 prefer walkable communities and brief commutes, even if it means living in an apartment or town home. And 53 percent of Americans would give up a home with a large yard in exchange for a home with a smaller yard that’s within walking distance of the community’s amenities, according to the study. That figure is up from 48 percent in 2015…

A 2016 study from realty site Redfin seems to support Dunne’s point. The study took into account more than 1 million home sales between January 2014 and April 2016 and found that homes with higher walk scores tend to have higher sales prices than comparable homes in less walkable areas. One walk score point can increase a home’s price by an average of $3,250. In Chicago, the study found an increase of one walk score point can bump a home’s price by $2,437.

I intentionally cited the broader data from the article (and not just the anecdotes from buyers, realtors, and local suburbs) because there should be an open question involved with this article: do we have a certified trend toward more walkable suburbs? Do we have clear population data showing people moving to walkable suburbs rather than other places? For a variety of reasons, including enhancing local tax bases and environmental concerns, this has indeed been an emphasis in a number of suburbs across the United States in recent decades. But, I would also guess that it is primarily in suburbs that have more traditional downtowns and mass transit options. In the Chicago region, this means the “surban” experience is easier to create in communities founded before World War II and along the major passenger railroad lines.

This possible shift also does not fit easily into the common narrative that suburbs and cities are locked in mortal combat and there are clear winners and losers. What if in the long term Americans want some of both city and suburban life: a little less density, a single-family home with a yard, a smaller town or city where they feel they can influence local government or organizations if need be, and also walkable and not just a bedroom suburb? Arguably, this tension has been behind the American suburbs for over a century: Americans want a mix of urban and country life. A denser suburbia may just be the newest manifestation of this ongoing balance.

We can now look back at “vintage suburbia”

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The Daily Herald introduced a new feature this week to examine “vintage suburbia”:

DailyHeraldVintageSuburbia.png

While the article discusses why they called it “Through the Film Magnifier,” I find the word choice “vintage” more interesting. This usually refers to an older item of higher quality. I suspect this would be contentious among critics of the suburbs. Are we really to look to the postwar suburbs as places that are worth celebrating? Communities marked by tract housing, auto dependency, and lifestyles only available to some should be commemorated? Yet, these postwar suburbs did offer new opportunities for millions of Americans to own a home and it was the only home known to millions more born and raised there. And those problematic suburbs continued to grow over the decades, even as the problems of suburbia became clear both to outside observers and many residents.

There are few words that could capture this nuanced past. “Vintage” strikes a more positive tone but other words like “historic” or “storied” or “complicated” may be too drab.

Fight McMansions to slow down the sixth mass extinction

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A letter to the editor in the Eugene Weekly links McMansions and broad environmental concerns:

We’re living through the sixth mass extinction. We see this firsthand in Lane County. Oak savannah is the most endangered habitat in the United States…

In this context, a group of neighbors and I are fighting a multi-million dollar “McMansion” development project in our area. “The Vineyards at Gimpl Hill” describes itself as a selection of “gracious estates” for “secure, sophisticated country living … the premier development in Lane County for discerning people.”

This project will destroy or impact 80 acres of prime wildlife habitat home to deer, elk, bears, cougars, wild turkeys, bobcats and a wide variety of other species.

Destroying large areas of habitat and impacting the area with higher traffic and additional access roads is a course of action I cannot support. These ostentatious houses will cost millions, and the developer (Roy Carver) stands to make millions more.

On one hand, 80 acres of land is a drop in the bucket of land in urban areas in the United States. On the other hand, this argument involving McMansions is a common one: McMansions represent the senseless sprawl that is gobbling up land, threatening wildlife, and contributing to our destruction of the environment.

I also suspect that because these homes are larger and more expensive (as well as more profitable, as this letter notes), they tend to get more attention in the same way that McDonald’s and Walmart receive attention for their environmental impact in their own sectors (fast food restaurants and retail stores, respectively). Sprawl over the past century or so in the United States involves a broad range of homes and other buildings, not just the big homes for the wealthy.

It also helps in this case to have a pejorative term for these large homes. They are not just “luxury homes” or places where wealthier people live; they are mass-produced, inferior quality homes that do not deserve the space they are taking up.

Finally, I wonder what the more compelling environmental appeal is to other locals: is it better to refer to (1) massive-scale change like the sixth mass extinction, (2) the loss of local nature (land and animals), or (3) the unnecessary use of land and resources for these larger homes? I suspect each of these could appeal to different people.