NewGeography.com blogs

According to the U.S. Census Bureau, Chicago’s population peaked a long time ago.  In 1950, Chicago had 3. 6 million people. Recent estimates put Chicago’s population at 2.7 million. With the growth of American suburbs, many Chicago families have fled to public schools in the suburbs. Chicago’s horrible public schools have been an embarrassment for Chicago’s elite. A recent Chicago Tribune editorial estimated that only “only 8 of 100 freshmen who enter Chicago public high schools manage to get a college diploma.”  

In an attempt to keep white families from fleeing Chicago, the second Mayor Daley came up with a plan:  test-admittance-only public high schools. This was a reasonable solution for gentry liberals who pay high property taxes but didn’t want to leave the city or couldn’t afford to send their children to private schools. These select public high schools produce college bound students while “limiting” gentry liberal’s children from being exposed to children from “troubled backgrounds”. This is a sensitive subject because Chicago’s Public School System is only 9.2% white, while being 39.7% African-American.

Being admitted to these select magnet schools can often determine whether a family stays in Chicago or moves elsewhere. Recently, Daniel Hertz made news by graphically showing how Chicago’s middle class has being largely eliminated since 1970. The new Chicago is still a one-party town, but is now a coalition of rich and poor with a residual government worker middle class. White children have left Chicago’s Public School system leaving minorities as the majority. But, who gets into the selective public high schools?  The Chicago Sun-Times reports:

More white students are walking the halls at Chicago’s top four public high schools.

At Walter Payton College Prep on the Near North Side, more than 41 percent of freshmen admitted the past four years have been white, compared to 29 percent in 2009, a Chicago Sun-Times analysis of Chicago Public Schools data has found.

At Jones College Prep in the South Loop, 38 percent of this year’s freshman class is white, compared to 29 percent four years ago.

In 2010 — the first year race was no longer used to determine the makeup of Chicago schools — the percentage of white freshmen at Northside College Prep in North Park rose from 37 percent to 48 percent.

And at Whitney Young College Prep on the Near West Side, the percentage of black freshmen has steadily declined in the past three years, while the percentage of whites has risen.

As these schools attract white students, Mayor Rahm Emanuel had to shut down 50 public schools which according to Democracy Now affected” 30,000 students, around 90 percent of them African American.” While Chicago is closing public schools, it is getting ready to build a new school. Not just any public school, but an expensive test only admittance high school named after Chicago’s glorious leader who went far. The new high school will be named Barack Obama College Preparatory High School.

Gentry liberals leaders have told us with enormous conviction that public education is an “investment”. Yet, President Barack Obama and Mayor Rahm Emanuel send their children to elite private schools. What’s interesting in Rahm Emanuel’s case is he couldn’t find one public school in all of Chicago good enough to send his children. Mayor Rahm Emanuel is so committed to public education that he sends his children to a private school 15 miles away from where his children live.

Time Magazine's Sam Frizell imagines that the American Dream has changed, in an article entitled "The New American Dream is Living in a City, Not Owning a House in the Suburbs." Frizell further imagines that "Americans are abandoning their white-picket fences, two-car garages, and neighborhood cookouts in favor of a penthouse view downtown and shorter walk to work." The available population data shows no such trend.

Frizell's evidence is the weak showing in single family house building permits last month and a stronger showing in multi-family construction.

This is just the latest in the "flocking to the city" mantra that is routinely mouthed without any actual evidence (see: Flocking Elsewhere: The Downtown Growth Story). The latest Census Bureau estimates show that net domestic migration continues to be negative in the core counties (which include the core cities) of the major metropolitan areas (those with more than 1,000,000 residents). The county level is the lowest geographical level for which data is available.

At the same time, there is net domestic inward migration to the suburban counties. Moreover, much of the net domestic migration to metropolitan areas has been to the South and Mountain West, where core cities typically include considerable development that is suburban in nature (such as in Austin, Houston and Phoenix). As the tepid "recovery" has proceeded, net domestic migration to suburban counties has been strengthened (see: Special Report: 2013 Metropolitan Area Population Estimates), as is indicated in the Figure.

There is no question but that core cities are doing better than before. It helps that core city crime is down and that the South Bronx doesn't look like Berlin in 1945 anymore. For decades, many inclined toward a more urban core lifestyle were deterred by environments that were unsafe, to say the least. A principal driving force of this has been millennials in urban core areas. Yet, even this phenomenon is subject to over-hype. Two-thirds of people between the ages of 20 and 30 live in the suburbs, not the core cities, according to American Community Survey data.

To his credit, Frizell notes that the spurt in multi-family construction is "not aspirational," citing the role of the Great Recession in making it more difficult for people to buy houses. As I pointed out in No Fundamental Shift to Transit: Not Even a Shift, 2013 is the sixth year in a row that total employment, as reported by the Bureau of Labor Statistics was below the peak year of 2007. This is an ignominious development seen only once before in the last 100 years (during the Great Depression).

In short, urban cores are in recovery. But that does not mean (or require) that suburbs are in decline.

"Free Exchange" in The Economist has come down strongly on the side of economics in a review of housing affordability.

According to The Economist, the unusually high cost of housing in San Francisco (and other places) is principally the result of tight land use regulation, which makes it expensive or impossible to build. If "local regulations did not do much to discourage creation of new housing supply, then the market for San Francisco would be pretty competitive." Add to that Vancouver, Sydney, Melbourne, Toronto, Portland and a host of additional metropolitan areas, where urban containment policy has driven house prices well above the 3.0 median multiple indicated by historic market fundamentals.

The Economist explains the issue in greater detail: "We therefore get highly restrictive building regulations. Tight supply limits mean that the gap between the marginal cost of a unit of San Francisco and the value to the marginal resident of San Francisco (and the market price of the unit) is enormous. That difference is pocketed by the rent-seeking NIMBYs of San Francisco. However altruistic they perceive their mission to be, the result is similar to what you'd get if fat cat industrialists lobbied the government to drive their competition out of business." (Our emphasis).

Of course urban planning interests have long denied that that rationing land is associated with higher housing prices (read greater poverty and a lower standard of living). Nonetheless urban containment policies not only drive up the price of land, but do so even as they reduce the amount of land used for each new residence, driving prices per square foot of land up as well.

The Economist notes that unless the direction is changed, housing policy will continue to be "an instrument of oligarchy. Who knows. But however one imagines this playing out, we should be clear about what is happening, and what its effects have been."

The travel website escapehere.com has published an article with a list of the world's "10 most dangerous cities to travel." I was obviously interested, but was soon deterred by advertisements that kept popping up and a web architecture intended to ensure that for every city viewed another ad would be placed in the way.

At the same time, this could be important information, and is especially untimely for Rio de Janeiro, which will soon host World Cup and Olympics events. So I put up with the inconvenience, with the intention of making the information more readily available (the explanations were very short).

Here is the list, according to escapehere.com, in order of dangerousness.

1. San Pedro Sula, Honduras

2. Karachi

3. Kabul

4. Baghdad

5. Acapulco

6. Guatemala City

7. Rio de Janiero

8. Cape Town

9. Ciudad Juarez

10. Caracas

I was pleased to see that two places I would like to visit, Lagos and Kinshasa were not on the list, two places I have been avoiding. I hope the escapehere.com report is an indication that things have gotten better. As for Rio, to be on a list with Baghdad and Juarez is a real "downer."

I can attest to having encountered no difficulty during my two week visit to Rio about 10 years ago and I would recommend any to visit.

Photo: Rocinha Favela, Rio de Janiero (by author)

The shocking extent to which urban containment policy (urban consolidation policy) is associated with higher land (and house) prices is illustrated by a recent press release from RP Data in Australia. The analysis examined the vacant building lot prices for the period of 1993 to 2013.
During the period, the median price of a vacant lot rose 168 percent after adjustment for inflation. This is nearly 5 times the increase in the median household incomes of the seven largest capital cities (Sydney, Melbourne, Brisbane, Perth, Adelaide, Canberra and Sydney).
But it gets worse. The median lot size was reduced nearly 30 percent. This should put paid to the myth that urban containment reduces lot prices as it reduces their sizes (Figure). The same dynamic has been indicated in the United States.

Australia has been plagued by huge house cost increases relative to incomes in association with urban containment policy. Before the adoption of urban containment policy, it was typical for house prices to average three times or less than that of household income. Now, Sydney has the highest median multiple (median house price divided by median household income) of any major metropolitan area in the New World, with the exceptions of Vancouver and San Francisco. Melbourne, the second largest metropolitan area in Australia, has a median multiple of 8.4, making it fifth most costly in the New World, behind San Jose. All of Australia's major metropolitan areas "severely unaffordable," including slow-growing Adelaide (6.3), as well as most smaller areas.
For a complete listing of median multiples by major metropolitan area, see the 10th Annual Demographia International Housing Affordability Survey.
Additional information on the RP Data research is available at Australian Property Through Foreign Eyes

Texas metropolitan areas continue to dominate economic growth, according to the latest Metro Monitor, produced by the Brookings Institution. The four top metropolitan areas in overall economic growth through the recession and "recovery" (our parentheses) have been:

1. Austin

2. Houston

3. Dallas-Fort Worth

4. San Antonio

Oklahoma City took the 5th position. Oklahoma City, located 200 miles north of Dallas-Fort Worth may be experiencing some "overspill" economic growth from nearby Texas.

Note: I owe both the concept for this measurement of income segregation and much of the actual data – all of it, except for 2012 – to Sean Reardon andKendra Bischoff, who wrote a series of wonderful papers on the subject and then were kind enough to send me a spreadsheet of their data from Chicago a while ago. The maps, however, are mine, as is all the data from 2012, and any mistakes in them or in the interpretation of the data is entirely my responsibility.

I think one reason I’ve felt less than compelled by Chicagoland, CNN’s reasonably well-made documentary series, is that its tale-of-two-cities narrative is so worn, so often repeated, that it’s become a little dull. Not the actual fact of inequality – which only seems to cut deeper over time – but its retelling.

In fact, I think the point has long passed at which simply repeating the story of Chicago’s stratification is equivalent to fighting it. For a lot of people, in my experience, it’s the opposite: an opportunity for distancing, for washing of hands. It’s a ritual in which we tell each other that this is the way it’s always been - The Gold Coast and the Slum was written about already well-entrenched institutions, after all, over three-quarters of a century ago – that these facts somehow seep out of the ground here, as much a part of the city as the lake, and that as a result there’s really nothing we can do about it.

But this obscures much more than it clarifies. Inequality has always been a part of Chicago – as it has always been a part of the United States, and a part of humanity – but the forms it has taken, and the severity of those many forms, have changed in truly dramatic ways. Take, for example, today’s monolithic segregation of African Americans: at the turn of the last century, black Chicagoans were less segregated than Italians, and not because Italians were then hyper-segregated.

Moreover, decisions made by people in the city have played, and continue to play, a huge role in determining what those changes look like. Had Elizabeth Wood received any serious support from white residents or their elected representatives – instead of meeting Klan-like violent resistance – the history of racial integration, economic integration, and public housing in this city would be very, very different. This isn’t to say that national and global factors aren’t important, since they obviously are. But neither do we lack responsibility.

Anyway, this is all by way of introducing the following maps: their goal is not merely to depress you (you’re welcome!), but to suggest just how dramatically the reality of Chicago’s “two cities” has changed over the last few generations, how non-eternal its present state is, and that a happier alternate reality isn’t just possible, but actually existed relatively recently.

I feel relatively comfortable telling the story of how Chicago came to be so segregated by race; I’m much humbler about my ability to explain this, except inasmuch as the ever-widening ghetto of the affluent could not exist without, yes, radically exclusionary housing laws, and I will take that up separately in another post. In the meanwhile, I’ll take a page from Ta-Nehisi Coates and ask you all, if you have some background in this, to talk to me like I’m stupid: what does the literature say about growing economic segregation? Who and what should I be reading?

One last piece: the obvious and immediate reaction to these maps is to see them as a direct consequence of rising income inequality. There is some truth to that, but the researchers from which much of this data came have already discovered that income segregation has actually risen faster than inequality. So that’s not the end of the story.

Anyway, here you go: the disappearance of Chicago’s middle-class and mixed-income neighborhoods since 1970, measured by each Census tract’s median family income as a percentage of the median family income for the Chicago metropolitan region as a whole.

This piece first appeared at Daniel's blog City Notes.

In the "letter of the week" in The North Shore Times, Save Our Suburbs President Tony Recsei decries the rising traffic congestion that is occurring in Sydney from the densification policies. Urban planners had misled residents into believing that higher population densities would reduce traffic congestion as more people shifted to mass transit. Recsei notes that "While in higher densities, a slightly higher proportion of people use public transport, this is completely overwhelmed by the greater number now in the area who still have to use their cars for all sorts of reasons." With an understandable pride typical of Sydneysiders, Recsei asks "Why should policies be allowed to transform beautiful Sydney into just another overcrowded city in the world?"

Why indeed. There are two overwhelming outcomes that are shared by cities that have climbed on the urban containment bandwagon: (1) destruction of housing affordability and (2) severely intensified traffic congestion. Sydney suffers from a particularly acute strain of the disease. The land rationing of urban containment policy has house affordability to a severely unaffordable level. Sydney's traffic congestion has also become among the worst in the world. Of course things could be worse. Vancouver, with an urban planning regime to which some Sydney leaders and planners aspire, is even worse in both categories.

Note: Tony Recsei is also a newgeography.com author (an example is Predictable Political Punditry Down Under).

A new book by the original yellow journalist of Wall Street, Michael Lewis, initiated global coverage about the flaws of American capitalism. The culprit in Lewis’ new book is High Frequency Trading or “HFT.” There is no doubt that US capital markets are imperfect. New York Times DealBook writer Andrew Sorkin lays the blame at the feet of the stock exchanges of which there are so few remaining that the Federal Trade Commission could label them a monopoly.

Even defenders of HFT, like Tim Worstall at Forbes, have to admit that it has risks and problems. It pushes volatility when markets are under stress; programming errors and misuse of software packages have been known to bankrupt the trading companies. The argument in favor of HFT fails when its proponents bring in “free market” economic theories – primarily because the stock market is not “free” in any economic sense. There are a limited number of big players – 5 banks in the US control 85-95% of trading depending on which market you measure. That is still more like an oligopoly than a competitive market. There are barriers to entry set up by the SEC, the FRB, and state banking and securities commissions. Finally, the transaction costs are enormous. Anyone active in the market knows about trading commissions and management fees. DTCC took in over $1 billion in revenue in 2012 (latest available) and still lost over $25 million. You get the picture – there is no free market argument.

The programs used for high frequency trading are bastardizations of heat transfer dynamic equations. Those underlying equations are based on assumptions. First, they only hold true when time goes to infinity – but trades are executed in finite time. Next, they assume linear behavior – but markets are more like waves than straight lines. Finally, those equations require simultaneity of action. No matter how close the servers are located to the exchange, the computers are not fast enough to read the prices in one market and execute a trade in the next without some lag which violates the assumption. Richard Bookstaber called it A Demon of Our Own Design (Wiley, 2007). The university whiz-kids who built the programs knew they were violating the assumptions but they were under pressure from their Wall Street bosses so they decided to take the money and run the programs – warts and all.

Trading programs treat capital markets as if one security is indistinguishable from the next – and that defeats the purpose of having capital markets at all. The reason we have these markets is so that entrepreneurs can access capital to fund new opportunities. Instead of letting computer programs decide which stock has the best opportunity for a price change, investors should be deciding which business has the best opportunity for success. The funded opportunities create jobs that pay income to households who turn around and put some of those earnings into savings. Lots of little savings accumulate into a pool of loanable funds that become available to other businesses to fund other opportunities to create more jobs, etc., etc. The goal of high frequency trading is to make money – at any cost. And the cost is the ability of capital markets to serve their primary purpose.

There has been additional attention to the exaggeration of transit ridership trends claimed by the American Public Transit Association. Writing in The Washington Post, David King of Columbia University. Michael Manville of Cornell University and Michael Smart of Rutgers University said that the "association’s numbers are deceptive" and that the "interpretation is wrong.” Noting their strong support of public transportation, King, Manville and Smart said that "misguided optimism about transit’s resurgence helps neither transit users nor the larger traveling public." They further say that "there is no national transit boom."

They examine the data by metropolitan area and find that "transit use outside New York declined in absolute terms last year, and conclude that this "fact shows how crucial public transportation is to our largest city and how small a role it plays in most other Americans’ lives.

Also see: No Fundamental Shift, Not Even a Shift.