Great piece by Richard Florida in the Atlantic. Lots of stuff worth quoting, but this in particular caught my eye:
In his forthcoming book, The Wealth of Cities, my University of Toronto colleague Chris Kennedy shows that only wholesale structural changes, from major upgrades in infrastructure to new housing patterns to big shifts in consumption, allow places to recover from severe economic crises and to resume rapid expansion. London laid the groundwork for its later commercial dominance by changing its building code and widening its streets after the catastrophic fire of 1666. The United States rose to economic preeminence by periodically developing entirely new systems of infrastructure—from canals and railroads to modern water-and-sewer systems to federal highways. Each played a major role in shaping and enabling whole eras of growth.
This is what people are getting at when we talk of infrastructure as investment. It facilitates commerce, and makes everything cheaper. The internet, for example, has to be seen as one of the most incredible infrastructure investments of the last 50 years. One big reason newspapers are dying is that the internet has simply decimated the costs of customer acquisition for businesses. You don’t need to run full-page newspaper ads when you can put up a website and optimize it for search engine traffic.
Transportation infrastructure works in much the same way. Building a high-speed rail link between two cities drops the cost of connecting those cities, culturally and commercially. In fact, transportation infrastructure and the internet are more linked than they might initially appear.
Years ago, we assumed that computers would lead to the "paperless office." They didn’t. One reason is that paper is simply an artifact of the amount of information we’re creating. And computers exponentially increased our information output. More recently, technology was heralded as having the capacity to reduce travel (telecommuting, teleconferencing, etc.). But travel seems to be increasing, probably because the internet is facilitating connectedness. How many times in the last few years have you made plans to visit friends in other cities that you’re only still in touch with because of Facebook?
The bottom line is that advancing telecommunications technology will accelerate our need for transportation infrastructure. So we’d better get building!
Interesting read. I agree with most of the analysis. However, there’s one glaring omission or redirection of focus. Somebody owns the house that is being rented! For this highly mobile society to work the way it’s described, home ownership becomes concentrated in a elite upper class. Perhaps by the very corporations which hold the fate of workers jobs in their grasp. Oops, need more renters in San Jose; cut jobs in Seattle. While this might be highly effective in economic terms I don’t really like the erosion of the middle class which it could bring with it.
I think the bone thrown to civic duty and investment in the community is grossly under played in this article. Investment in infrastructure benefits land owners and long term citizens. Who’s going to vote to fund a light rail project that’s ten years in the making if they’re going to move two or three times by then. Who’s going to take a vested interest in building schools and parks? Do we rely on the federal government to decide who the haves and have nots are going to be?
Yeah, Florida totally goes off the rails in his conclusion. I’m not so sure housing is the center of our economy, but even if it were, that could just reflect the fact that everybody needs it.
All of these people who think we should all be renters (except themselves, of course) are not dealing with the fact that the landlord charges a rent that covers the cost of ownership. And if you think the mortgage interest deduction is sweet, you should see what you can do to your net income by itemizing when you rent a house to someone else. Landlords are able to claim the mortgage interest deduction and more.
And that’s the only specific Florida has to offer- a future in which even more of the national income goes to the small number of very rich people who can afford to own apartment towers.
Beyond that, it’s just the usual blah-blah-blah about “innovation” and “redevloping” and “interact more efficiently”. Frankly, the guy needs an editor- he could have trimmed the first two thirds of his piece by two thirds and used the space to get specific in the conclusion. But maybe the specifics are where the editors of the Atlantic don’t want to go.
What would be specific? A federal guarantee for mortgages on condos in low-income housing in new TOD. This would spur an immediate move of pensioners to TOD with an immediate drop in the cost-to them and to us- of providing social and medical services. It would also provide customers for businesses in new TOD and ridership for the lines that serve TOD.
Now, was that so hard?
I noticed that my retirement plan owns a lot of office real estate. What’s wrong with housing being owned by corporations (whether for-profit or not) that exist solely to maintain housing?
I’m not sure about your argument that someone who owns land will make better decisions about the future. Maybe sometimes, but slum lords (by definition land owners) kill investment projects because they would have to pay higher taxes. Renters living in their properties would happily have invested their sales taxes for the future.
By the way, I’ve rented in the same neighborhood for 6 years now. There are people in major cities around the world who rent for a lifetime and certainly deserve a say in their communities.
Good comments. SC — Interesting idea about federal loans for housing near TOD. It’s amazed me how oriented our whole housing market is towards detached single family houses. It’s very hard for condo projects to qualify for FHA loan status, for example. Wouldn’t it be great if market-rate condos near high-capacity transit had an easier time getting FHA approval? That’s a start…
I think there are benefits to ownership, but on balance they’re VASTLY overstated by current policies. That is, yes, it’s pretty good for a community to have more owners, but not so good that we need to lavish homeowners with so many tax incentives. Consider how regressive the mortgage tax deduction is. You buy a $10 million house, and you get to deduct hundreds of thousands of dollars off your taxes. Why? What public good are you serving by buying a $10M house versus a $1M house? It’s hard to argue that having a well-manicured lawn on the $10M house is worth the hundreds of thousands of dollars lost to the public treasury. At the very least we should cap the deduction at some level.
Some good ideas. Government incentives for condos in designated TOD zone or other targeted areas sounds good. The home ownership incentives could certainly use some adjustment to realign them with the original goal of promoting a vigorous middle class. It could be to limit a mortgage deduction on a single home or some sort of sliding scale like we use for income tax devised. Although you’d want to avoid shifting demand to cheaper housing farther out and subsidizing sprawl. There have been changes in the way capital gains are handled and in general I think that was a decent idea but there’s room to tweak the specifics.
Renters can certainly be responsible civic minded neighbors. But, a big distinction needs to be drawn between private home owners and slum lords. The problem with shifting policy away from home ownership by individuals toward collective ownership by a select few is it encourages the slum lord mentality; or worse yet, government “projects”.
There’s certainly a place for tax policy in helping to shape behavior. The so called “sin taxes” are a good example. The mortgage deduction has done a lot to create the large middle class that America enjoys. Changes should be carefully considered and implemented with due caution.
While the federal tax returns suffer the county property taxes receive a windfall. I only wish those $10M houses had a nice lawn. Around here they’re taking what was horse pasture and building out 1 acre lots to the 8′ set backs. Yuck! Maybe we need a stupid tax. It wouldn’t be as regressive as one might think :+)
One thing to remember is that the mortgage interest deduction just extends to the homeowner the tax shelter the landlord already has. Capping it would seem to have a lot of advantages in encouraging a smaller more economical form of development.
That there are advantages to ownership would seem pretty obvious in Seattle. Forty years ago beautiful Seattle neighborhoods were being trashed by landlords. Since then, literally hundreds of thousands of homeowners have restored old houses to their former glory. It’s very hard to believe this would have happened if all those people had been tenants.
One thing (among others) that really changed things and created a balloon was the home equity loan. Before the home equity loan, savings in the form of equity in your home were a buffer, less likely to go up or down or fail than investments in the stock market or bank accounts. Home equity loans and second mortgages have made the housing market a volatile potential liability instead of a buffer.
There are several ways to sort out the costs of sprawl. One is to charge developers for the cost of new facilities needed to provide services for increased population, and this is already being done in some counties. Another will be a carbon tax that weighs heavily on transportation, and that is undoubtedly coming. A third would be to limit the amount of mortgage interest deduction, and that has other good effects, but that would act upon the rich, so it probably will be harder to enact.
These services need to be part of the rights of a citizen.
There’s a new model out there that puts infrastructure at the heart of our development and does so without seeking to displace the role of corporations or private ownership.
Whichever way you look at there need to be some big changes to the way we fund infrastructure investment. Have a look at http://standardsoflife.wordpress.com/2009/03/10/miscalculating-social-transactions for a view of how our current economic methodologies attract inflation in the tail wind of big stimulus.
That new model? Take a look at http://www.StandardsofLIFE.com