NewGeography.com blogs

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.

In a hard fought election campaign, voters in the city of Tigard appear to have narrowly enacted another barrier to light rail expansion in suburban Portland. The Washington County Elections Division reported that with 100 percent of precincts counted, Charter Amendment 34-210 had obtained 51 percent of the vote, compared to 49 percent opposed.

The Charter Amendment establishes as city policy that no transit high capacity corridor can be developed within the city without first having been approved by a vote of the people. High capacity transit in Portland has virtually always meant light rail.

In a previous ballot issue, Tigard voters had enacted an ordinance requiring voter approval of any city funding for light rail. Similar measures were enacted in Clackamas County as well as King City in Washington County. Across the Columbia River in Clark County (county seat: Vancouver), voters rejected funding for connecting to the Portland light rail system. After the Clackamas County Commission rushed through a $20 million loan for light rail (just days before the anti-light rail vote), two county commissioners were defeated by candidates opposed to light rail, with a commission majority now in opposition.

Further, a Columbia River Crossing, which would have included light rail to Vancouver was cancelled after the Washington legislature declined funding. In a surreal aftermath, interests in Oregon seriously proposed virtually forcing the bridge on Washington, fully funding the project itself. A just adjourned session of the Oregon legislature failed to act on the proposal, which now (like Rasputin) appears to be dead.

At the same time, Portland's transit agency faces financial difficulty and has been seriously criticized in a report by Secretary of State. The agency has more than $1 billion in unfunded liabilities and carries a smaller share of commuters than before the first of its six light rail and commuter rail lines was opened. Moreover, the latest American Community Survey data indicates that 3,000 more people work at home than ride transit (including light rail and commuter rail) to work in the Portland metropolitan area. Before light rail (1980), transit commuters numbered 35,000 more than people working at home. Over the period, transit's market share has dropped one-quarter.

Charles Heying, the author of Brews to Bikes: Portland’s Artisan Economy, covers Portland’s indie fashion, book and music sector, its recycling/reuse businesses, craft businesses, bike sector, technology businesses and non-profits.

His thesis is that Portland represents a return to the craftsmanship that defined the pre-industrial age. Heying mostly denies that the artisan economy produces high-end goods for a limited market, and sees it as a broader shift in our society away from mass production. A critic of Richard Florida’s theories, he denies that cities should make cosmetic changes to attract well educated professionals. Instead, he sees the artisan economy as something that emerges from below, rather than imposed from above by local officials.

But there are some problems with this thesis. Portland has many coffee roasters, but it also has many Starbucks. Silicon Forest, Portland’s tech hub, includes IBM, Intel and Techtronics. None of these firms are small, artisan firms. There are indie designers in Portland but Nike and Columbia Sportswear and Adidas also call Portland home. Sure, twelve percent of people in Portland bike, but that means a lot rely on the car as a primary mode of transportation. And only twelve percent of the beer consumed in Portland is craft beer. If 'small is beautiful' really defines this city, then why are there so many big companies lurking around?

Artisanal enterprises come along with the advancement of information technology, but will in no way replace mass production. I don’t think there will be many small-scale train, airline or automobile companies. The mini-economy represents a side of us that doesn’t want the creative impulse to die, and wants a more socially responsible model, but it won’t shove aside the big model anytime soon.

Andy Kiersz's article in the Business Insider  (see Americans are Still Moving to the Suburbs) summarizes data from the US Census Bureau's American Community Survey (ACS) to conclude that "Americans still love the suburbs, and are still moving there from big cities."

This has long been and continues to be indicated in the data, even as major media rely on anecdotes are to suggest that large numbers of people are leaving the suburbs to "return" to the core cities (from which, by the way, most never moved). There is no doubt that the core cities are doing much better than before, and that is a good thing. Much of this is because the cities are safer than in the 1970s and 1980s. The historic urban core has been restored as an integral part of the modern urban area. However, promoting the health of core cities does not require demeaning or dismissing the suburbs, which are just as integral to modern urbanism as core cities.

Kiersz refers to a list of the 25 largest met migration movements between counties as reported by the ACS for 2007 to 2011. In every case, the 25 largest net domestic migration movements are from more highly urban core environments to more suburban environments (domestic migration is measured only at the county level).

The list shows that even within the nation's largest core city, New York, people are moving to more dispersed areas. This includes net migration from Manhattan to the Bronx and Brooklyn to Queens. Then there is the suburban movement, with a stream of migrants from Queens, in the city to adjacent, suburban Nassau County. Migration from Nassau County even further out, to Suffolk County also made the top 25.

The outward movement is not limited to New York. A net 50,000 people left the Los Angeles metropolitan area than arrived, just among the 25 largest county migration pairs. Most went to the Riverside-San Bernardino area (which depending on the definition can be called "exurban") and a large number to the Bakersfield metropolitan area. Within the metropolitan area, 10,000 moved from Los Angeles County to Orange County.

The city (also a county) of San Francisco, which has had the strongest growth of any fully developed major US municipality that has not annexed since 1950, lost 5,000 people to nearby suburban San Mateo County.

The top 25 also includes nearly 20,000 people moving from Chicago's core Cook County to three suburban counties.

It will probably be quite a long time, if ever, before the top 25 migration list has meaningful representation showing movement from suburban counties to core counties. Yet, today's more healthy cities will do better if they genuinely tackle their remaining challenges. Most important are their education systems that send a disproportionate share of young families to the suburbs. However, from the United States to Europe, Japan, and China, the natural order is that cities (metropolitan areas with their core cities, suburbs, and exurbs) tend to disperse as they add population. That reality is again confirmed by the new data.

According to the Indianapolis Star, Mayor Greg Ballard of Indianapolis is poised to improve the slowing growing city's competitive position relative to the suburbs.  The Star  noted:

"Indianapolis may be a bigger draw than surrounding areas in attracting young residents, but it’s got a problem."

"Right as they begin raising families, many in their 30s split for the suburbs — taking their growing incomes, and the local taxes they pay, to bedroom communities in Hamilton, Johnson, Hendricks and other counties."

Mayoral Chief of Staff Ryan Vaughn told The Star that initiatives would include a focus on improving schools, and public safety, both of which had much to do with the decades long declines of US central cities. Vaughn told the newspaper that "Ballard wants to focus on strategies to compete more fiercely with suburban counties that draw — and keep — middle- and higher-income residents."

Certainly, the fact that central cities are far safer today than they were when New York's Mayor Rudolph Giuliani implemented his much copied policy of intolerance toward crime in the early 1990s. Even so, Mayor Ballard has it right. Long term, sustainable recovery of cities as livable environments within the metropolitan economy requires both good public schools and an environment in which parents feel that they and their children are safe.

There is a cautionary note however. While the Mayor's office is on the right track in wanting to solve the endemic problems that have so weakened core cities such as Indianapolis, he has yet to take a position on a proposed commuter tax that would be levied against employees who live in suburban counties and work in the city. This would make the suburbs more attractive for employers who are presently located in the city. Further, it would make the suburbs more competitive to businesses that choose the Indianapolis area for relocation. Trying to attract and keep middle income households, while repelling business makes little sense.

New US Census Bureau state level estimates have just been released. Repeating the pattern similar to that developing since 2010, North Dakota, the District of Columbia, Texas, Utah and Colorado have posted the strongest percentage gains.  North Dakota added 3.1 percent to its population between 2012 and 2013 and 7.6 percent since the 2010 Census. Close behind was the District of Columbia, which added 7.4 percent since 2010, though its growth over the past year has been at a lower 2.1 percent rate.

Texas added the most residents of any other state over the last three years (1.3 million), a fifth more than 22nd ranked California, which is nearly 50 percent larger. Texas has added 5.2 percent to its population since 2010, while California has added 2.9 percent.

Utah grew 5.0 percent, followed closely by Colorado, at 4.8 percent.

Former perennial growth leader Florida continues to recover, placing 6th, with a three year growth rate of 4.0 percent. At its present growth rate, Florida should pass New York by 2014, to become the fourth largest state. South Dakota, Washington, Arizona and Alaska rounded out the top ten.

The slowest growing states were Rhode Island (the only state to lose population since 2010), Maine, West Virginia, Michigan and Vermont. A table is attached with the data.

I love Huy Fong Foods’ Sriracha sauce as much as the next guy, which is to say a lot. The red hot sauce with the rooster on the bottle has a cult following across the nation. So unsurprisingly it made national news when the city of Irwindale, CA sued to shut down production at the company’s processing plant there. The processing of the hot peppers, done during only a limited time of year because Huy Fong only uses fresh peppers, was alleged to be causing a noxious odor in the town.

This looks like a pretty garden variety dispute between neighbors and an industrial business. Clearly industrial odors can be a problem. I don’t know how long they’ve been in Irwindale, but Sriracha has been around a long time so I’m a bit skeptical something changed just this year. Regardless, I don’t think odor complaints are necessarily evidence of a bad business climate as there could be a legitimate problem.

Then came the state order to stop shipping the product for 30 days. The state of California decided that to reduce the risk of food borne illnesses, the sauce had to sit for 30 days before it can be shipped. Keep in mind, this is for a product that has never had a complaint against it for making someone sick.

How many businesses can afford to halt shipments for a month and survive? Sriracha has a cult following and so they’ll likely overcome it. But many businesses wouldn’t have this luxury. When their customers can’t get product, they lose the business. Indeed, I wouldn’t be surprised if restaurants do turn to alternative suppliers. At a minimum, Huy Fong is going to lose a lot of sales.

Who in their right mind would want to do business in a state like this? And this is far from the worst case. It just so happens that because this is such a popular consumer product, it’s visible. If even these types of companies get shut down, how much more so a firm where this wouldn’t create an avalanche of bad publicity?

Urbanists put way too little thought into business climate, which can sound like such a shady way of saying cut services and taxes. But taxes are often the least part of it. It’s the regulatory apparatus that makes doing business in many places too painful to contemplate. This even affects city-suburb investment patterns. I’ve observed that in many places, the urban core is a flat out terrible place to do business, unless you’re very politically wired up.

This doesn’t usually bother urbanists all that much until a trendy business they like gets affected. For example, an urban farming supply shop in Providence called Cluck got sued when they tried to open. The beautiful and the bearded were outraged and the shop was ultimately approved. But there’s no similar visibility or outrage when a Latino immigrant runs into the red-tape buzzsaw when he tries to open a muffler shop.

If we want to promote investments in our cities and states, we need to be focused on basics like an objective, predictable regulatory framework that operates in the timely fashion and in which arbitrary denials, rule changes, and such are minimized. This is way more important to attracting capital investment than sexier items like streetcar lines.

This piece first appeared at The Urbanophile.

California Superior Court Judge Michael Kenny ruled against the California High Speed Rail Authority in two decisions announced on November 25. In the first, Judge Kenny ruled that the Business Plan failed to meet the requirements of the voter approved referendum under California Assembly Bill 3034 (2008), in not identifying sufficient capital funding for the first segment. As a result, the Business Plan needs to be redrafted. In the second decision, Judge Kenny declined to issue a conformity ruling that would have paved the way for $8 billion in bonds that had been approved by voters, which were also subject to same Assembly Bill 3034.

Judge Kenny declined to stop construction of the project, which is scheduled to start in the Spring. However, the Authority only has federal funds for that segment, and which would require, in the longer run, matching state funds (which were to have been from the bonds).

According to the San Francisco Chronicle , Kenny's found that the California High Speed Rail Authority "abused its discretion by approving a funding plan that did not comply with the requirements of law."