The Dow of Cities | Hacker News Reader

The Dow of Cities

cityobservatory.org

57 pointsALee80 comments

I prefer suburban living to city living. But I'm really glad to see the revival of cities in the US, particularly the one I live just outside of. The professional, upper middle class people who are moving in are rehabbing old housing stock and neighborhoods that had been decaying for decades, and it's good for everyone, in my view -- even suburban property owners such as myself.

> it's good for everyone, in my view -- even suburban property owners such as myself

I agree it's good in general but maybe not so good for people who are being displaced due to rent hikes caused by gentrification.

> rent hikes caused by zoning codes and regulations that push the price of building up higher and higher

-bostonjeff

Building isn't expensive. The space above the land is (infinitely) expensive due to zoning constraints.

Requiring garden space and car storage for every bedroom built is a quick way to double a project's costs. Why have zoning codes that prohibit the best use of the land?

Zoning codes are a double-edged sword. On one hand, they stop someone from building a high-rise in the middle of a low-density residential area... on the other hand, the very same regulations prevent the market from scaling up to meet new demand. New zoning legislation moves slowly when constituents benefit from rising real-estate prices (to the detriment of the broader public).

Legislation like "new construction must not be more than N floor(s) higher than surrounding properties" might help, rather than the simple fixed height limit many areas set.

Building high-rises (well, 8+ stories) in the middle of low-density residential areas is something that happens in Japan, and I find it charming. Why are we enforcing the aesthetic wishes of some people but not others?

High-rise should be close to shops, services and transport. In some currently low-density places these might be there (particularly in Japan), but in many they aren't.

'Heritage' is a different issue - most western countries are far too conservative here

Because there are ugly cities and there are beautiful cities. And they are so for a reason.

This video is really informative in this regard and has changed my opinion on a few things:

https://m.youtube.com/watch?v=Hy4QjmKzF1c

Society would be much better off in ugly cities rather than expensive ones.

the problem is that zoning is a bad hack to solve the problem of how a neighborhood feels.

we know that we don't want it get too big or loud - no 50 story office building, or vape shops and bars on every corner - so we write blanket rules restricting certain kinds of construction and grant power to the people already living there for changes to the code itself and approval over all buildings matching the existing code

this puts all the power in two types of people - those entrenched in this process with political and financial power, and existing homeowners. Both of these groups then use their power to preserve what they already have and impose their ideal of a neighborhood over everyone else

and because we live in America not only do the people in power act knowingly in the interest of preserving their wealth and power but also incorporate their biases - especially against members of a class or race - into exclusio

this is so fundamentally broken and yet as a fundamental construct American cities lack any mechanism for questioning the concentration of power in homeowners and it is crazy.

in a transit starved stretch of Brooklyn, homeowners blocked a bus lane from going up just because they wouldn't let go of a hundred parking spots during weekday business hours. entire communities suffer because people who own homes and cars refuse to compromise

I find high-rise buildings to be a straw-man. You can get amazing density with 3-story apartment buildings, but those are rare in a lot of expensive markets.

cities should allow up to 6-story buildings in residential areas, because that's the reasonable max height of a wood frame building (it used to be 4 stories, but i hear construction practices have improved to allow up to 6).

wood frame is cheaper to build than either concrete or steel, which are the other predominant building materials (which allow much taller builds).

http://missingmiddlehousing.com/

If a proposed high rise is near a BRT line or rail, a reasonable zoning code shouldn't mangle it or block its construction.

...and we're already pretty far down the rabbit hole of how zoning gets so complex.

There are always exceptions. There are always circumstances. There are always NIMBYs. AFAICT, you cannot regulate how land is used — which isn't necessarily a bad thing — without bumping into those things, which seems invariably to compromise, or at least complicate, the effort.

I would still very much prefer zoning over someone who can afford to do so deciding, simply on that basis, that he's going to build, say, a tannery up-wind of my home.

Imposing your externalities upon others is, IMO, a bright-line breach of the NAP. (Since it's so often Libertarian-leaning folk who are all, "But zoning!")

EDIT: phrasing

Getting rid of zoning doesn't mean getting rid of nuisance law. If someone builds a tannery upwind from your propeety, you can sue him formcausing a nuisance. And he can either pay you, stop, or buy you out depending on what is economically efficient.

The peoblem with zoning is that it allows you to stop lots of things that would not qualify as a nuisance. And it prevents lots of things that would be an economic win (buildimg a high rise in a previous low rise neighborhood if property owners were willing to sell out).

What's wrong with building a high rise on land you own?

Because state and local governments hate America.

ThatsThePoint.jpg

> people who are being displaced due to rent hikes caused by gentrification.

Isn't that displacement gentrification itself? When demand exceeds supply, housing goes to the highest bidder...

>I agree it's good in general but maybe not so good for people who are being displaced due to rent hikes caused by gentrification.

You're correct. Thanks for pointing that out.

The notion of valuing cities is an interesting and useful one.

The notion of doing this by way of real estate valuation is somewhere between misguided and actvely dangerous.

Asset price inflation is not, should not be confused with, and proxies poorly for, real economic wealth increase.

The definition of wealth itself has been and remains something of a conundrum within economics. It wasn't until I actually started reading Adam Smith closely some years back that I realised his definition, "the annual produce and labour of the nation", is a flow rather than a stock measure. (Smith biographer and editor Edwin Cannan commented similarly in the late 19th century, I'm late to the party).

As such, Smith's metric bears a strong resemblence to Leslie White's law, "culture evolves as the amount of energy harnessed per capita per year is increased, or as the efficiency of the instrumental means of putting the energy to work is increased".

https://en.wikipedia.org/wiki/White's_law

Which might make for a more useful metric basis than City Observatory are proposing.

Reminds me of "Constructal law" (sic).

> "For a finite-size system to persist in time (to live), it must evolve in such a way that it provides easier access to the imposed (global) currents that flow through it."

https://en.wikipedia.org/wiki/Constructal_law#Constructal_la...

Thanks for that, TIL.

Oh, wow! Very interesting set of pubs.

https://www.worldcat.org/search?q=au%3ABejan%2C+Adrian%2C&qt...

https://plus.google.com/104092656004159577193/posts/hniKFN5R...

Cheers

Why not just use the Case–Shiller index? It's been around for 18 years, has data from 1890 to today, has a solid methodology that has been scrutinized by many economists, and is the industry standard for US residential home prices. Oh, and it's also widely quoted in the financial media.

Case-Shiller cuts it a different way though. The post is pointing out that city centre areas in general are increasing in value compared to outer areas. Case-Shiller is an index of price trends across different metro areas that doesnt differentiate city centres from suburban areas.

I don't think the headline statement for a 'dow of cities' is really useful to implement.

But there is a good point in there of society and industry not paying much attention to broad trends in cities. Case-Shiller is well regarded, but its a very blunt tool for analysis.

They're comparing zip-code level Case-Shiller index based on distance from city center. Metro level (which is what is widely quoted as far as I know) does not get at what they're trying to characterize, which is relative demand for housing in more urban environments.

> You can’t literally buy stock in a city, but buying a house is the closest thing imaginable.

I feel like this might be more generalized to "home" rather than "house", though I suppose it depends on what your conception of a house is. So far as I'm aware, focus on single family detached houses leads to a gradual decrease in every measurably quality of urban living by using a sprawl as a vehicle.

> You can’t literally buy stock in a city, but buying a house is the closest thing imaginable.

Maybe not accessible for the retail investor, but can't this be done by buying collateralized debt obligations? If you could be issued a CDO based on urban mortgages in particular, then you could profit from the rise of urban house prices.

In addition to this, the recent tax bill actually created "Opportunity Zones", which are intended to allow for "Qualified Opportunity Funds" -- investment funds so you can invest in distressed communities.

I don't know a lot about them, but they were discussed in the most recent Freakanomics podcast[0]. I don't think any such funds exist yet, but seems like the hope is that they'll become a way to "buy stock" in (some) cities -- from the sound of it, available to regular retail investors.

[0] http://freakonomics.com/podcast/awesome-terrible-tax-cuts-pa...

I could be wrong, but my understanding is that these are rarely packed on a geographic basis, and more on a risk (or owner?) profile basis, which kind of breaks the "buying stock in a city" metaphor.

My understanding is that they group the owners together, then issue CDOs such that some are paid before others. Those which are paid last have the highest risk, but the largest rate of return. If you believe house prices are safer than the rest of the market does, you'd buy the high return high risk CDOs.

It's also my understanding that they aren't issued on a geographical basis (beyond the country or state level). However, that's not to say they can't be, if investors take interest in distinguishing rural and urban mortgages.

market-specific residential REIT:

https://www.reit.com/what-reit/reit-sectors

That instrument would be far more useful on the short side - someone with a house in SF likely wants to limit their exposure to idiosyncratic SF-only housing price risk.

It could be reasonable to save up for a down payment in an investment vehicle that moves with the size of the down payment needed.

It works both ways. This is essentially what happened in The Big Short, although for profit, rather than hedging. You can purchase naked credit default swap options, whereby the issuer with insure debt which you don't own against default. This comes with some obvious criticism, much like taking out insurance for someone else's house.

Also, probably the mechanism of choice would be likely be opening up a cash-settled futures market on a housing price index.

Has anyone ever considered moving to some wilderness and just developing an urban center there, a la Sim City? If there's such a shortage of cities, perhaps building one from scratch is a viable option.

I mean, you can, but you need to start from a relatively powerful position.

While cities frequently arise organically, they do exist for reasons. People move to cities for opportunity. Opportunity to find work is the most common one, but other ones crop up. Opportunity to meet people; opportunity to produce or consume the finer arts. Educational opportunities, for themselves or their children. Opportunities for freedom of some kind, religious, sexual, literal.

So if you want to build a new city, you have to ask yourself, what opportunities can we create for people, to inspire them to move here? You don't have to provide all the opportunities - once you have a critical mass of people they'll create new opportunities themselves to pull in more people - but to get the ball rolling you need to create some core opportunity that is great enough to pull in that initial critical mass of people.

Historically this has happened most often through industry. You go to a small nothing of a town, open a new factory that employs thousands of people, and it turns into a city.

Wilderness is, in general, a poor place to build a city.

Though it's happened. Brasilia, Phoenix, Las Vegas, Salt Lake City, Dubai, all come to mind. Each has major issues and limitations.

Historically, cities have been established near productive capacity, transport (nearly always water), and with local sources of essentials, especially food and water. It's possible to violate these norms, but incredibly expensive, long term, to do so.

https://en.wikipedia.org/wiki/Fordl%C3%A2ndia

Great reference!

I seem to remember some old computer game, I think it was Amazon Trail 3[0], in which there was a side quest where you had to trade rubber for other items while near Fordlandia.

[0]https://en.wikipedia.org/wiki/Amazon_Trail_3rd_Edition

That is incredible.

At least seven examples have been mentioned so far, but I'm shocked that the most prominent such city, by far, is missing:

https://en.wikipedia.org/wiki/Washington,_D.C.#Foundation

DC was not by any stretch of the imagination founded in the wilderness. Alexandria was the 22nd largest city in the country at the time its location was chosen and Georgetown was only a bit smaller. DC contained both.

https://en.wikipedia.org/wiki/Salt_Lake_City

Why start from scratch? Why not take over an existing town with some infrastructure which has been mostly abandoned? There are plenty of small towns in Northern California, say Corning, that were once large productive communities in the past that could be revitalized and modernized. One could purchased 5 homes for the price of a house in the Bay Area.

Others have pointed out that this has happened, with cities like DC and Brasilia, but I have yet to see an example of a new city that wasn't built in a car-oriented way. If you want a fundamentally walkable city, you have to make some decisions that hurt car drivers, and I don't think anyone has been willing to do so with these projects.

DC was not created in the middle of the wilderness. Alexandria was the the 22nd largest city in the country at the time DC's location was chosen and Georgetown was only a bit smaller.

DC was founded and laid out about a century before the automobile was invented. I don't think you can say it was designed for cars.

I would be willing :p

For an interesting take on this, read about https://en.wikipedia.org/wiki/Rajneeshpuram and consider watching the documentary "Wild Wild Country" on Netflix. I thought it was fascinating.

Not wilderness, but a city from scratch (Songdo, South Korea):

https://en.wikipedia.org/wiki/Songdo_International_Business_...

I think this has been done many times in human history. Sometimes with success, usually with failure. But considering the shortage of cities, maybe it is actually time for another success story?

It's been done in various ways.

Brasilia: https://en.wikipedia.org/wiki/Bras%C3%ADlia

England's garden cities: https://en.wikipedia.org/wiki/Garden_city_movement

And later the New Towns: https://en.wikipedia.org/wiki/New_towns_movement

I'm would guess there are examples from the former communist bloc, but i'm not familiar with them. Would Magnitogorsk count?

I wonder what the broad adoption of autonomous vehicles will do to the urban-center growth curve.

My personal bias tells me that it won't effect much: I think a lot of current city dwellers live in cities not only for jobs, but also because they like the easy access to amenities, culture, and walkability.

There's also the fact that the throughput of autonomous vehicles compares very poorly with the throughput of a decent subway or light rail system (multiple orders of magnitude).

More objectively, I suspect there are a lot of people who are only living in cities today because of job availability. But I question how many of those folks want to transition from a 30 minute walk/public transit ride to a hour+ drive in a (semi?) autonomous vehicle. Even if you can read or work in your autonomous car -- which, in itself, is a dubious proposition for anybody who needs connectivity to their team or the internet due to the price of data plans -- it's still time spent away from home, family, loved ones, etc. I'm not sure how many jobs are truly flexible enough for you to let commute time replace at-desk time: even software jobs don't all allow that.

So for many people, autonomous vehicles would just mean more time spent commuting, away from their families. And for all of that, you end up driving (autonomously!) 20+ minute to do anything on the weekends or after work. It's not a deal I would make, but maybe other people are more OK with it.

Prices will spike in small "urban-feel" bedroom communities that aren't currently on a major bus or commuter rail line and are within a ~30 minute drive of city centers. Also, cities will grow denser in areas that aren't currently on transit lines, at the expense of property values along transit lines in the inner suburbs.

I doubt prices in cities will change much, though. People who want to live in burbs are already living there. And there are lots of people living along transit lines who would rather be living somewhere else, if only they had access to trasnit.

If prices drop anywhere, it will not be in city centers. It will be in the inner suburbs along transit lines.

The common wisdom is that it will lead to more dispersion. (In fact, this will probably be true even before full hands-off door-to-door systems are available.) To the degree that at least some people live in cities, not so much because they want to, but because they work there and don't want the commute, they might move to the suburbs if that commute becomes easier. Of course, if a lot of people think that way, traffic probably becomes more congested.

> To the degree that at least some people live in cities, not so much because they want to, but because they work there and don't want the commute, they might move to the suburbs if that commute becomes easier

IDK if those people exist in high numbers within city centers. Those folks are all clustered along transit lines just outside of city city centers, right?

You may be right at least for cities with decent commuter rail systems. I'm most familiar with Boston and, if someone is working in town and doesn't want to live downtown, there are quite a few nice inner suburbs that aren't that far away along a rail line.

The rise of dual-income households has put a premium on commute time (as it now impacts both parents). I believe this has helped drive the 50% outperformance of city-center real estate cited in the article. Autonomous vehicles would likely slow that trend, not sure it would eliminate or reverse it all together.

I don't think the timing really supports that theory. If you look at the percentage of dual income households, it pretty much peaked in 1990 (and plateaued). [1] Yet, 1990 was really just around the beginning of the current interest in certain--mostly coastal--cities. For example, I think Boston was still losing population in the early 1990s.

[1]

Your link isn't working for me, but if it is the same PEW data I found it only measures households with kids.[1] My initial post did say "parents", but what about the rising share of the population that is Dual-Income, No Kids (DINK)?

[1] http://www.pewresearch.org/ft_dual-income-households-1960-20...

Yes, that was the link. I have trouble believing it makes a huge difference.

I suppose you could hypothesize that the increased propensity for mostly college-educated millennials to live in certain cities comes about partly because they're marrying later and/or are having fewer kids. But, in that case, I think the common thread is that they're not moving out to the suburbs for the schools and the yard--not that they're two-income households.

I'm certainly willing to believe that the urbanization trend seemingly being strongest among a demographic having fewer and later kids may well not be a coincidence.

This data shows "city center" with the largest increases. So it isn't just that they are focused in the "city", but the actual center of cities where jobs tend to be more plentiful, commute times tend to be lower and real estate values tend to be higher. This implies they aren't simply choosing to avoid the suburbs, but to live in the most expensive part of town.

That said, I am having a hard time verifying what they are using to delineate the different distance tiers.

If you get granular enough, the focus of jobs (e.g. the financial center of a number of cities) isn't really where most people choose to live. Neither Wall Street nor Midtown are the preferred residence addresses in Manhattan for the most part. Same thing with Boston and Cambridge for the corresponding areas.

==Neither Wall Street nor Midtown are the preferred residence addresses in Manhattan for the most part. Same thing with Boston and Cambridge for the corresponding areas.==

Do actual home values back up this assumption? Seems to me those are all very expensive places to live, which implies they are highly desirable.

If you ever wonder what autonomous cars will feel like, just imagine an uber ride where you don't talk to the driver.

It might also be a bit cheaper.

We might find out in 20-50 years. But I wouldn't count on that promise anytime soon.

I'm a bit hesitant to give this article any mind, simply based on the fact that they're using an antiquated index like the Dow as their point of comparison.

Or the fact that they don't seem to be aware of the Case-Shiller index which measures the same thing, is the industry standard, and is widely reported in the financial media.

Moving beyond the middlebrow dismissal... The only thing wrong with the Dow is the way it's weighted. Not a particularly relevant concern for the metaphor.

I don't see why it was necessary to make it personal with the "middlebrow" remark.

> The only thing wrong with the Dow is the way it's weighted.

You are right. Price-weighting is indeed unintuitive. Other things wrong with it:

* Its name, "Dow Jones Industrial Average". It's far from an average of modern US industry.

* It size. 30 companies is a small basket, when we have many alternatives that cover the economy much more comprehensively.

I really like this website: https://teleport.org/welcome

The new Fitch analysis make it abundantly clear that cities are hot, and suburbs are not.

I'm not sure this is true. I'd say it's more like demand in cities is outpacing supply, whereas that's not the case in the suburbs. It seems more like a commentary on the scarcity of real estate (both natural and artificial) in city centers.

TBH I'd have rather read about The Dao of Cities.

Or the S&P 500 of cities -- the DJIA is a silly metric.

He most stock indexs aren't great. Non of then have inflation controls and they AVG single units of a company's stock rather than their market caps.

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