PATRICK SISSON

Curbed

February 2018

Are economic development megadeals worth the price—and the risk? With cities trying to outbid each other for Amazon’s new headquarters, it’s worth examining potential cautionary tales.

Analysts say the recent Foxconn deal in Wisconsin, a blockbuster, multibillion-dollar investment in bringing more manufacturing to the state, is indicative of the sad state of big-ticket economic development deals, and even more tragic in light of the cheaper, more effective options available.

“Cities feel like there’s no alternative,” says Greg LeRoy, executive director of Good Jobs First, a Washington, D.C., policy center that promotes accountability in economic development. “They’ve grown up in a corporate dominated site-selection system, where public officials are playing poker with a weak hand. Their role is to wait for companies to come and knock on the door, and put as much money on the table as possible. We think HQ2 is a teachable moment to crawl inside the beast and show people how it works.”

Wisconsin bets big on Foxconn

Gordon Hintz grew up around manufacturing. The six-term Democratic state representative for Oshkosh, Wisconsin, is a native of the city, and has spent his career advocating on behalf of an area with one of the highest concentrations of manufacturing jobs in the country (paper mills and factories form the backbone of the regional economy). So when Hintz questions a deal to bring thousands of manufacturing jobs to Wisconsin, it’s notable.

The state and local incentive Wisconsin politicians put together for Foxconn was billed by Gov. Scott Walker as a $3 billion investment in the future. The third-largest such deal in U.S. history, the package enticed the Taiwanese multinational to break ground on a $10 billion plant that will eventually employ 13,000 to assemble liquid crystal displays.

It turns out those figures are a little off, in Foxconn’s favor. Last month, Hintz helped publicize a memo compiled by the state’s nonpartisan Legislative Fiscal Bureau that found the real cost to state and local governments was $4.5 billion. As Hintz told Curbed last week, the new numbers underline the big risk of shelling out public funds for jobs, the opportunity costs. The growing tab the state faces will use money that could be going to education and public schools, infrastructure, and other benefits.

“People want to see more manufacturing jobs,” Hintz says, “but they’ve also had enough of giving taxpayer money to billionaires. Why are we giving billions to a foreign company instead of investing in our own paper mills?”

Promoted vigorously by Walker, as well as area Congressman Paul Ryan and President Donald Trump, the Foxconn deal, its backers argue, will provide a jolt to the state and southeast Wisconsin region. During a meeting with Trump earlier this month, Walker said the factory, expected to open its doors in 2020, would result in 13,000 direct jobs, 22,000 indirect jobs, and 10,000 construction jobs.

The resulting infrastructure investments needed to support the massive manufacturing facility—expected to cover 20 million square feet of office space over 1.56 square miles—will update roads, electrical systems, fiber-optic networks, and water distribution across the region. An upgrade of Interstate 94, connecting Milwaukee to Chicago, was fast-tracked due to Foxconn’s expected arrival.

Officials representing municipalities near the factory expect additional dividends. Madison, the state capital, may be the site of a Foxconn-funded “hospital of the future.” A spokesperson for the local project team says the deal is a safe, conservative investment for the city and county, structured in a way that’ll guarantee investment in local infrastructure doesn’t come from existing city funds. Over time, the build-out will attract an ecosystem of more than a hundred new businesses to the area.

“We will have to develop an entirely new supply chain,” Mount Pleasant Village President Dave DeGroot told the Wisconsin State Journal. “The impact on this community is unprecedented.”

How local government helps pay for multinational companies

It’s a potentially transformative investment. But Hintz, LeRoy, and other analysts caution that local government is the one footing the bill in the long run.

Putting state resources into a single place to benefit a single employer is a risky deal, says LeRoy. In a state like Wisconsin, where austerity measures imposed by the governor and the legislature have already short-changed education and infrastructure spending, diverting resources to one employer means diverting money from already-thin budgets.

The infrastructure improvements for the Foxconn plant will come out of local budgets, specifically Mount Pleasant and Racine County. Foxconn will be part of what’s called a Tax-Increment Finance District, known as a TIF. This tax structure is meant to capture the additional value the company’s presence creates, then funnel that value to subsidize the promised infrastructure investments that attracted Foxconn in the first place.

The costs are substantial, including $160 million for water and wastewater and $116 million in public safety spending. This TIF has much more favorable terms than similar financing deals, and guarantees the city will be fully reimbursed for all infrastructure spending.

This is where opponents and supporters diverge. One one hand, it’s a better, safer bet; the city is guaranteed not to lose out on infrastructure spending. But it’s still a bet that this is the opportunity worth pursuing, and it still creates additional costs down the line.

“In terms of structuring a deal where the local community has some pretty solid protection that the investment will be repaid, this deal goes a long way,” says Rob Henken, president of the Wisconsin Policy Forum, a nonpartisan research group. “Where you could never hope to have appropriate protection is what happens after that.”

But Foxconn’s presence means property tax in the region will go up, and add more to the city’s coffers, correct? Not immediately: The estimated $31 million in additional annual tax revenue generated by Foxconn’s presence will be used to pay for $764 million in infrastructure investments needed to support the plant and surrounding campus.

“It’s like the company taking money out of its front pocket and putting it in its back pocket,” says LeRoy. “All or most of the money will be spent on public infrastructure, but most of it will benefit Foxconn.”

What about all those jobs? According to Tim Bartik, an economist at the W.E. Upjohn Institute for Employment Research who specializes in the impact of subsidies, most of the employment figures thrown around for these types of deals don’t take into account the people migrating to town for work. Not only do new arrivals, attracted to the opportunities, often take most of the jobs, says Bartik, but their presence means more expenses for local governments.

New residents mean more education costs, health care spending, and infrastructure improvements, all potentially coming from the same budget line items that have been diverted for Foxconn-related expenses. The Foxconn TIF covers police and fire costs, but that’s just a part of expected increases in city spending. Bartik found that for many of these incentive deals, 20 percent of the jobs go to unemployed locals, and the other 80 percent go to people who lived elsewhere.

“I don’t think the state of Wisconsin will ever make money on this deal,” he says. “Once you account for public spending needs due to an increased population, [the state will] never break even.”

Even if you discount local expense, the state is grossly overpaying for jobs, according to Bartik’s research. He’s created a subsidy database, and found that Wisconsin is paying $230,000 per job, 10 times more per job than the national average. LeRoy says at that rate, the deal can only be described as “a transfer of wealth from Wisconsin taxpayers to Foxconn shareholders.”

It also means the state will be playing a weaker hand when bidding for future economic development opportunities.

“If some company comes and says they want to create a factory and hire people in Milwaukee, and asks for the same per-job subsidy Foxconn received,” says Bartik, “how does the state say no to that?”

Development deals favor big companies, not local startups

Local economic development subsidies have come a long way since they were pioneered in Mississippi in the 1930s, according to LeRoy. Then, the Balance Agriculture With Industry program would guarantee factory construction fees for northern firms willing to relocate. It was a modest affair. At the program’s outset, the small town of Columbia, Mississippi, held a public meeting where locals signed promissory notes to pay for the cost of relocation. These were then used to guarantee a larger bank loan.

Even in the ’50s and ’60s, when a roaring economy meant new corporate headquarters and expanded manufacturing across the country, subsidies weren’t anything like the state versus state race to the bottom they’ve become today. LeRoy’s research has shown that this “great game” to land new headquarters and shiny manufacturing plants costs states and cities $70 billion a year.

What may seem extra puzzling, considering the huge investment and undersized return, is that many signs point to the most cost-effective solutions to catalyze Wisconsin’s economy. Slow, incremental small-business growth doesn’t capture public attention the way a big corporate opening does—Bartik joked that he’s talked about Amazon and Foxconn to numerous reporters, but no journalists ever ask him about manufacturing extension programs or small-business development centers—but it works. In addition to funding infrastructure and education to create a region of highly skilled, mobile employees, simply giving existing entrepreneurs more support can make a crucial difference.

“Investing in a 4-year-old’s preschool is the best you can do for future job development, but I don’t know if it resonates with the public as much as seeing a factory,” says Hintz.

Hintz emphasizes the importance of supporting small businesses, especially since the state is lagging behind in many measures of new business formation. There’s no reason this can’t include manufacturing, which has seen an upswing in the U.S. in recent years. It’s just an issue of giving smaller, more nimble companies some of the attention lavished on the big conglomerates.

“If a fraction of what was made available to Foxconn went to nurturing small-business opportunities, especially with the capabilities of our research university, you’d have much better outcomes,” Hintz says. “Foxconn amounts to trying to buy economic development, and that’s not how it works.”

It’s one of the tricky narrative needles to thread in American politics, Hintz says. Politicians chase things people can identify with, such as old-school manufacturing jobs, even though a return to robust small-business formation would be just as much in line with the U.S. economy of yesteryear.

“So much of what drives political rhetoric is identifying job development that people can identify with and understand,” says Hintz. “The future always loses to the past, especially if you’re someone who’s been negatively impacted by the transforming economy.”

Business formation has been a problem across the country, but cities like Pittsburgh, which have invested in education to spur innovative research and entrepreneurship, have seen big returns. In Madison, Wisconsin’s capital, a burgeoning tech scene has become a huge economic catalyst; funding incubators and educational initiatives could pay great dividends across a range of industries.

According to LeRoy’s research, in an analysis of economic development incentives, 70 percent of the deals and 90 percent of the funding went to large businesses.

“There’s been a long-term academic consensus that entrepreneurship is in trouble in the United States,” LeRoy says. “The numbers of startups that thrive is down. The two trends [rise in economic-development megadeals and declining startup survival rates] are parallel.”

Wisconsin’s Foxconn deal ends up looking more like a poker player going all in. Instead of placing many small, nimble bets on local companies, it’s backing one big deal. In today’s economy, that makes even less sense, says Hintz.

“In 2005, would we have been excited by a Blackberry factory?” Hintz asks. “And more importantly, would we have gotten our money back in 25 years?”

Curbed

March 2018

Despite recessions and demographic shifts, few building types have boomed like self-storage lockers. In fact, they’ve proven to be one of the surest bets in real estate over the last half century, while malls, starter homes, and even luxury commercial space in big cities, once safe and steady investments, have struggled. Behind the combination locks and roll-up doors lies a $38 billion industry.

One in 11 Americans pays an average of $91.14 per month to use self-storage, finding a place for the material overflow of the American dream. According to SpareFoot, a company that tracks the self-storage industry, the United States boasts more than 50,000 facilities and roughly 2.311 billion square feet of rentable space. In other words, the volume of self-storage units in the country could fill the Hoover Dam with old clothing, skis, and keepsakes more than 26 times.

Though the adage “sex sells” is hard to dispute, the decidedly unsexy self-storage industry made $32.7 billion in 2016, according to Bloomberg, nearly three times Hollywood’s box office gross. Self-storage has seen 7.7 percent annual growth since 2012, according to analysts at IBISWorld, and now employs 144,000 nationwide.

The industry’s boom over the last few decades mirrors larger demographic and real estate trends: Americans relocating from the Midwest and Northeast to Sunbelt cities store old gear in self-storage units. Millennials moving into increasingly crowded, high-demand downtowns require extra space. A wave of downsizing baby boomers needs a place to put a lifetime of accumulated memories. Small businesses want room to store excess inventory.

The confluence of these trends has created a building spree. The last few years have seen record-setting investment in self-storage expansion, including $4 billion alone in 2017. This year alone, planned or existing warehouse expansion will add 40 million square feet, or about 800 facilities, to the market, according to Investing Daily.

Investors see abandoned malls as a candidate for conversion into self-storage consumer cubby holes, a true full circle of consumerism. Venture capital firms are even betting on high-tech storage startups, such as Clutter, an on-demand service which does all the packing, storing, and moving for consumers, and can even retrieve specific items and deliver them to your door.

The current boom has led some market analysts to predict the previously unthinkable: We may just be inching close to peak storage. Many see a slowdown coming, due to a glut of space in cities like Phoenix and New York City, and in Orange County, California. Sky-high stock valuations for many of the big players, like Public Storage and Extra Space Storage, have tapered off. What happens when Americans, who see expansion and relocation as a birthright, get close to having enough room?

The unstoppable expansion of self-storage

The history of the storage industry has been one of steady growth and remarkable resilience.

Self-storage isn’t new. Many trace the concept back to Bekins, an Omaha, Nebraska, moving company founded in 1891 by brothers Martin and Josh Bekins. The company, which played a significant role in moving Americans to Los Angeles in the early 20th century, established a network of concrete-and-steel warehouses for new arrivals beginning in 1906.

The first business that looked more like contemporary storage units, complete with roll-up doors, was A-1 U-Store-It-U-Lock-It-U-Carry-the-Key, which opened in Odessa, Texas, in 1964. It was marketed to oilmen as a place to store their equipment (the company’s name was an attempt to get listed first in the phone book). Owners Russ Williams and Bob Munn, his stepson, erected a simple structure of cinder blocks and corrugated steel with wooden doors on each unit. Due to oil’s ups and downs in Odessa, the facility fell into disrepair and was closed. But, in what is perhaps a sign of the industry’s recent growth, the facility was purchased, renovated, and reopened as a new self-storage site in 2013.

During the Great Recession, the business thrived as millions downsized, moved, or faced foreclosure. In the ’90s and early aughts, when cities started seeing residential growth, self-storage found a new generation of space-starved consumers moving into neighborhoods filled with warehouse space ripe for repurposing.

A marriage of consumer behavior and rising rents explains the self-storage industry’s rapid recent growth in urban areas. High-end self-storage sites can command two or three times the rent per square foot than commercial or residential uses, and in many major metros, these warehouses are 90 percent occupied.

Once they sign up, renters become captive audiences, according to the Wall Street Journal. Paying for storage space is like a gym membership; consumers join and forget about it. Even better for owners, they’re often willing to accept slight increases in cost, rather than deal with the hassle of moving their possessions across town to a competitor’s warehouse.

While national firms have proliferated, with six of the largest—some of which are billion-dollar firms—cornering 18 percent of the market, 74 percent of the industry is still mom-and-pop shops, according to data from SpareFoot.

Can self-storage outrun our need for more stuff and more space?

Has self-storage hit a saturation point? With growth potentially becoming a glut, some analysts believe builders may have finally caught up with demand. It’s also led to backlash and restrictions in major markets. Critics argue that self-storage spaces are taking valuable buildings off the market; the oversized profits possible in storage mean that warehouses which could have been used for commercial, industrial, and even residential purposes are being transformed into profit-generating piles of boxes.

In New York City, which has roughly 50 million square feet of self-storage spread over 920 locations, Mayor Bill de Blasio signed a bill late last year that restricted new facilities in the city’s Industrial Business Zones, where much of New York’s remaining manufacturing takes place. Both Miami and San Francisco have also passed restrictions that limit where self-storage units can be built.

Demographics may also finally dampen enthusiasm for the storage sector, according to the Wall Street Journal. Baby boomers, set to downsize and shrink their housing footprint, will be a big boost for years to come. But younger adults are, compared to older generations, delaying marriage, parenthood, and homeownership, which means less suburban living and less stuff. In addition, Americans are less mobile, meaning fewer moves and less of a need for temporary storage during resettlement and relocation.

There’s even a technological threat on the horizon: autonomous cars. A recent report by the Urban Land Institute and research firm Green Street Advisors predicts that as mobility-on-demand services decrease car ownership, fewer vehicles will equal more space in garages for storage.

Industry boosters, of course, see these issues as simply speed bumps on the road toward greater growth. New Yorkers who feel like self-storage warehouses have sprung up everywhere haven’t seen anything yet. A report from CBRE says New York City, with 3.5 square feet of self-storage per resident, is actually the “most underserved market” in the U.S. (the national average is 7.2 square feet per person).

But consumers in the United States are far from the only ones navigating small space and conspicuous consumption. Unsurprisingly, China, along with much of Southeast Asia, has emerged as a massive growth market.

With larger trends pointing toward less space, less ownership, and more urban living, self-storage seems primed to find more room for, and profit from, your possessions. As Jason Lopez, chief marketing officer of U.S. Storage Centers, says about the industry’s prospects, “density trumps demographics.”

Curbed

April 2018

To understand just how unaffordable owning a home can be in American cities today, look at the case of a teacher in San Francisco seeking his or her first house.

Educators in the City by the Bay earn a median salary of $72,340. But, according to a new Trulia report, they can afford less than one percent of the homes currently on the market.

Despite making roughly $18,000 more than their peers in other states, many California teachers—like legions of other public servants, middle-class workers, and medical staff—need to resign themselves to finding roommates or enduring lengthy commutes. Some school districts, facing a brain drain due to rising real estate prices, are even developing affordable teacher housing so they can retain talent.

This housing math is brutal. With the average cost of a home in San Francisco hovering at $1.61 million, a typical 30-year mortgage—with a 20 percent down payment at today’s 4.55 percent interest rate—would require a monthly payment of $7,900 (more than double the $3,333 median monthly rent for a one-bedroom apartment last year).

Over the course of a year, that’s $94,800 in mortgage payments alone, clearly impossible on the aforementioned single teacher’s salary, even if you somehow put away enough for a down payment (that would be $322,000, if you’re aiming for 20 percent).

The figures become more frustrating when you compare them with the housing situation a previous generation faced in the late ’50s. The path an average Bay Area teacher might have taken to buy a home in the middle of the 20th century was, per data points and rough approximations, much smoother.

According to a rough calculation using federal data, the average teacher’s salary in 1959 in the Pacific region was more than $5,200 annually (just shy of the national average of $5,306). At that time, the average home in California cost $12,788. At the then-standard 5.7 percent interest rate, the mortgage would cost $59 a month, with a $2,557 down payment. If your monthly pay was $433 before taxes, $59 a month wasn’t just doable, it was also within the widely accepted definition of sustainable, defined as paying a third of your monthly income for housing. Adjusted for today’s dollars, that’s a $109,419 home paid for with a salary of $44,493.

And that’s on just a single salary.

A dream of homeownership placed out of reach

That midcentury scenario seems like a financial fantasia to young adults hoping to buy homes today. Finding enough money for a down payment in the face of rising rents and stagnant wages, qualifying for loans in a difficult regulatory environment, then finding an affordable home in expensive metro markets can seem like impossible tasks.

In 2016, millennials made up 32 percent of the homebuying market, the lowest percentage of young adults to achieve that milestone since 1987. Nearly two-thirds of renters say they can’t afford a home.

Even worse, the market is only getting more challenging: The S&P CoreLogic Case-Shiller National Home Price Index rose 6.3 percent last year, according to an article in the Wall Street Journal. This is almost twice the rate of income growth and three times the rate of inflation. Realtor.com found that the supply of starter homes shrinks 17 percent every year.

It’s not news that the homebuying market, and the economy, were very different 60 years ago. But it’s important to emphasize how the factors that created the homeownership boom in the ’50s—widespread government intervention that tipped the scales for single-family homes, more open land for development and starter-home construction, and racist housing laws and discriminatory practices that damaged neighborhoods and perpetuated poverty—have led to many of our current housing issues.

From the front lines to the home front

The postwar boom wasn’t just the result of a demographic shift, or simply the flowering of an economy primed by new consumer spending. It was deliberately, and successfully, engineered by government policies that helped multiply homeownership rates from roughly 40 percent at the end of the war to 60 percent during the second half of the 20th century.

The pent-up demand before the suburban boom was immense: Years of government-mandated material shortages due to the war effort, and the mass mobilization of millions of Americans during wartime, meant homebuilding had become stagnant. In 1947, six million families were doubling up with relatives, and half a million were in mobile homes, barns, or garages according to Leigh Gallagher’s book The End of the Suburbs.

The government responded with intervention on a massive scale. According to Harvard professor and urban planning historian Alexander von Hoffman, a combination of two government initiatives—the establishment of the Federal Housing Authority and the Veterans Administration (VA) home loans programs—served as runways for first-time homebuyers.

Initially created during the ’30s, the Federal Housing Authority guaranteed loans as long as new homes met a series of standards, and, according to von Hoffman, created the modern mortgage market.

“When the Roosevelt administration put the FHA in place in the ’30s, it allowed lenders who hadn’t been in the housing market, such as insurance companies and banks, to start lending money,” he says.

The VA programs did the same thing, but focused on the millions of returning soldiers and sailors. The popular GI Bill, which provided tuition-free college education for returning servicemen and -women, was an engine of upward mobility: debt-free educational advancement paired with easy access to finance and capital for a new home.

It’s hard to comprehend just how large an impact the GI Bill had on the Greatest Generation, not just in the immediate aftermath of the war, but also in the financial future of former servicemen. In 1948, spending as part of the GI Bill consumed 15 percent of the federal budget.

The program helped nearly 70 percent of men who turned 21 between 1940 and 1955 access a free college education. In the years immediately after WWII, veterans’ mortgages accounted for more than 40 percent of home loans.

An analysis of housing and mortgage data from 1960 by Leo Grebler, a renowned professor of urban land economics at UCLA, demonstrates the pronounced impact of these programs. In 1950, FHA and VA loans accounted for 51 percent of the 1.35 million home starts across the nation. These federal programs would account for anywhere between 30 and 51 percent of housing starts between 1951 and 1957, according to Grebler’s analysis.

Between 1953 and 1957, 2.4 million units were started under these programs, using $3.6 billion in loans. This investment dwarfs the amount of money spent on public infrastructure during that period.

The birth of the modern mortgage

Before these federal programs, some home mortgages were so-called “balloon loans,” which demanded that buyers make a significant down payment (somewhere between 20 to 50 percent) and pay back the loan over a relatively short time frame, usually five to seven years. This was one of many reasons homebuying was previously the domain of a more wealthy portion of American society.

This new era of cheap and easy financing radically changed the formula, and the face of the average homeowner. Buyers could access loans with low down payments and pay back the bank over a 25 or 30 year window. With the U.S. Treasury backing home loans and protecting lenders from defaults, the risk of a bad loan plummeted. Floodgates of capital opened, reshaping land on the periphery of cities.

Mortgage rates have been lower in the last decade than they were during the ’50s and ’60s. But they were still incredibly low during the suburban boom of the ’50s and ’60s. In 1960, the average mortgage rate was 5.1 percent, which dropped to 4.6 and 4.5, respectively, for FHA- and VA-backed mortgages.

An incredible investment

The creation of a new mortgage market, and a pent-up demand for housing, sent clear signals to developers. There was a lucrative market in meeting the housing demands of the burgeoning middle class and breaking ground to build in suburbia, rather than in cities.

Cheap land near cities offered a quick-and-easy profit for big developers, further subsidized by the federal government’s colossal investment in highways and interstates, which quite literally paved the way for longer commutes and a greater separation between work and home.

With rising incomes and homeownership rates, the mortgage-interest tax deduction, once a more obscure part of the tax code that only impacted certain Americans, began growing into a massive entitlement program that redirected money toward homeowners.

In 1950 alone, suburban growth was 10 times that of central cities, and the nation’s builders registered 2 million housing starts. By the end of the decade, 15 million homes were under construction across the country. And during that decade, as the economy expanded rapidly and interstate roads took shape, residential development in the suburbs accounted for 75 percent of total U.S. construction.

Many of these new homes, large-scale, tract-style construction, were built with the backing of various government financing programs, and became available to a much broader cross section of society.

In Crabgrass Frontier, a history of suburban development, author Kenneth Jackson recounts the story of renters in Queens departing for the suburbs because their $50-a-month rent in the city seemed silly when a free-standing home was available in nearby New Jersey for just $29 a month— taxes, principal, insurance, and interest included.

“A much larger percentage of homes on the market in the ’50s were new homes, and they are much more expensive in relation to income now than they were then,” says Michael Carliner, a housing economist and research affiliate at Harvard. “We’re not really building starter homes now.”

While FHA loans could go toward new urban apartment buildings, the program had an anti-urban bias. Minimum requirements for lot sizes in FHA guidelines, and suggestions about setbacks and distances from adjacent structures often excluded many types of multifamily and apartment buildings. During the ’50s, the program was used on seven times more single-family home starts than downtown apartments. That anti-urban bias in building has shaped our markets to this day, and explains why so many urban areas suffer from a dearth of affordable units.

Housing starts are on the rise today. Last year, 1.2 million homes were started across the country. But adjusted for both an increased population as well as the large drop seen during the recent Great Recession, these numbers appear anemic, the lowest number per capita in 60 years. And unlike the postwar building spree, fewer new homes can be considered affordable starter homes. Builders say the combination of land, labor, and material costsmakes affordable homes impossible, and only more expensive models offer enough of a profit margin.

Redlining, racial exclusions, and a persistent wealth gap

The advantages created during the postwar boom were not equally shared among all Americans: Both the FHA and VA loan programs excluded African Americans and other people of color, through unconstitutional redlining, an outright denial of access.

Redlining was a system of appraising and rating neighborhoods, a practice that was especially detrimental because it accelerated existing prejudices, against both people of color and older neighborhoods. It originated with another government-created entity, the HOLC (Home Owners’ Loan Corporation), which rated every neighborhood in every city using a four-point scale, with red being the worst.

The system deducted points for older, more dilapidated areas, as well as areas where people of color were living (which, thanks to discriminatory practices, often ended up being the same thing). The manual literally noted that “if a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes.”

As Jane Jacobs wrote, “Credit blacklisting maps are accurate prophecies because they’re self-fulfilling prophecies.”

When this rating system became a guiding force for the postwar explosion in development, it hypercharged inequality, and further isolated already-marginalized groups. This created a cycle of shrinking returns on homes and properties.

The anti-urban, anti-black bias was at the heart of HOLC and FHA evaluations, writes Jackson in Crabgrass Frontier. Neighborhoods that received poor grades in St. Louis in the ’40s, for example, retain that stigma today. And in Newark, New Jersey, no urban neighborhood received an A grade during the initial evaluation, accelerating the process of money and investment fleeing to the suburbs.

According to a recent study by the Urban Institute, not one of the 100 cities with the largest black populations has anywhere close to an equal homeownership rate between black and white people. In Minneapolis, Minnesota, the gap is a staggering 50 percent.

It’s true that in the ’50s, both white and black rates of homeownership increased in the United States. But the gap widened; the black/white homeownership gap was 14 percent in 1940, but 29 percent in 1960.

Being locked out of this suburban development created a persistent wealth gap that exists to this day. Being denied access to the mortgage market and homeownership meant paying rent instead of owning and gaining value. Today, the average homeowner has a net worth of $195,400, 36 times that of the average renter’s net worth of $5,400.

And missing out on homeownership in the ’50s meant missing out on a goldmine. During the 1950s, land values in some top-tier suburbs increased rapidly—in rare cases, as much as 3,000 percent.

Consider an African-American urban professional locked out of the new, government-subsidized path to suburban homeownership, instead settling for renting, or for urban homes that would, over the decades, decrease in value.

Then compare this with a white professional who would be able to buy an appreciating asset with government-assisted loans, write off the value of that investment thanks to the mortgage-interest tax deduction, and still be able to work at a great job downtown, due to government-funded roadways and interstates (via the Interstate Highway Act of 1956). The rising tide did not lift all boats equally.

Skewed perspectives

Many of the pressing urban planning issues we face today—sprawl and excessive traffic, sustainability, housing affordability, racial discrimination, and the persistence of poverty—can be traced back to this boom. There’s nothing wrong with the government promoting homeownership, as long as the opportunities it presents are open and accessible to all.

As President Franklin Roosevelt said, “A nation of homeowners, of people who won a real share in their own land, is unconquerable.”

That vision, however, has become distorted, due to many of the market incentives encouraged by the ’50s housing boom. In wealthy states, especially California, where Prop 13 locked in property tax payments despite rising property values, the incumbent advantage to owning homes is immense.

In Seattle, the amount of equity a homeowner made just holding on to their investment, $119,000, was more than an average Amazon engineer made last year ($104,000).

In many regions, we may have “reached the limits of suburbanization,” since buyers and commuters can’t stomach supercommutes. NIMBYism and local zoning battles have become the norm when any developers try to add much-needed housing density to expensive urban areas.

In many ways, to paraphrase Roosevelt, we’re seeing a “class” of homeowners become unconquerable. The cost of construction; a shortage of cheap, developable land near urban centers (gobbled up by earlier waves of suburbanization); and other factors have made homes increasingly expensive.

In other words, it’s a great time to own a home—and a terrible time to aspire to buy one.

Curbed

April 2018

In 2006, neighbors in Philadelphia’s Eastern North section got a vision of the future—and it was a troubling sight.

The area, near Temple University and largely lower income and Latino, was beginning to feel the influence of nearby developments, loft-to-condo conversions that had been a harbinger of rising rents and displacement in similar neighborhoods. Eastern North residents felt they were next.

Motivated by a desire to fill the vacant lots in their neighborhood—and fears of getting priced out of their homes—residents turned to an old solution to address the new reality of rising rents: a community land trust. The trust was established under the banner of the Eastern North Philadelphia Coalition, which joined community groups, nonprofits, and community members.

In an era of both rising land values and speculation, the Community Justice Land Trust’s formation gave residents in Eastern North a way to take some control over nearby development. The basic idea behind community land trusts is bifurcated ownership: The community owns the land in perpetuity via a nonprofit, while homeowners or building owners take out extended ground leases.

“When you look at how homes appreciate over time and what markets do over time, we started to ask ourselves, ‘How do you take out the cost of land?’” says Christi Clark, the organizing director of the Women’s Community Revitalization Project, one of the groups involved in the trust.

The model allows for both collective control of development and individual ownership. Homeowners get a deed for their home and an extended lease for the land, and can purchase a house at a relative discount, since the speculative value of the land is removed from the equation.

Owners can sell anytime, but the trust retains the right to purchase the home for its original selling price, plus a portion of the appreciation on the land value. This model, which some have called a “dollar that lasts” approach, discourages speculative reselling and preserves affordability for the next family.

Currently, the Community Justice Land Trust has built 36 affordable rent-to-own units on property under the auspices of this program, and there are 75 more in the pipeline, with plans to develop both homes and commercial properties.

“With the community having control of the land, and preserving affordability, that helps future generations stay in an area they call home,” Clark says.

Keeping pace with soaring rent

Clark’s group and others have begun to see community land trusts (CLTs) as vital solutions in the wake of seismic shifts in the U.S. housing market.

The country currently faces one of its worst housing affordability crises. Statistics in the annual report on rental housing from the Harvard Joint Center for Housing Studies paint a particularly grim picture: The national median asking price for a new apartment rose 27 percent between 2011 and 2016, to $1,480 a month. More than 20 million Americans renters are cost-burdened, due in large part to skyrocketing rents and relatively stagnant incomes, and while the number fell slightly last year, it’s still at uncomfortably high levels.

Over the last six years, tenants across the country have seen increases in the median rent exceed inflation for non-housing expenses by 1 percent each year. And in hot markets like Austin, Denver, and Seattle, median rents are rising twice as fast.

Homeownership has become even more of a struggle. Between 2000 and 2010, when median home costs nearly doubled, from $119,600 to $221,800, median incomes actually decreased.

In the face of these trends, many neighborhood advocates and developers have started turning to community land trusts to help entrench affordability. Nearly 250 such groupsoperate across the country today.

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The huge run-up of prices in the 21st century, which can lead to gentrification, speculation, and predatory practices, has shrunk the affordable housing stock, says Andrew Reicher, executive director of the Urban Homesteading Assistance Board, one of the community groups collaborating on the Interboro Community Land Trust in New York City.

“People are looking around for a tool that creates affordable housing from the start, and prevents this type of change from happening again,” he says. “I’m not sure people realize how fragile our housing economy can be.”

Civil rights and the movement for collective economic empowerment

Activist Robert Swann, along with Slater King, a cousin of Martin Luther King, helped establish the community land grant concept, and launched it in 1969 with New Communities, a 5,700-acre farm and land trust in southwest Georgia collectively owned by roughly a dozen African-American families. Swann and King were inspired by previous collectivist actions, including the Garden City movement in the United Kingdom, Israeli collectives, and land-reform activists in India.

The idea of collective ownership and community control has taken root across the country: Some CLTs focus on building homes, while others, such as the Community Justice Land Trust, zero in on rentals. Groups often set up varying resale restrictions to control the flow of property sales and encourage long-term stays instead of a revolving door of residents. Most include significant community representation on their governing boards.

In San Diego, a local group has used the CLT model to encourage homeownership. The San Diego Land Trust recently bought a series of unused lots from the city, which offered them at the steeply discounted rate of $1 apiece. The San Diego Land Trust plans to construct 25 homes.

According to Jean Diaz, executive director of the trust, this new project shows the flexibility of the model. His organization is focused on providing homes for those making between 80 and 120 percent of the area’s median income. It’s a tool for middle-income housing, with a board that will be composed of one-third homeowners.

“We’re doing what we can to make a dent in the problem,” he says. “In San Diego, a lot has been done to provide low-income rental housing. There really aren’t subsidies for moderate-income ownership housing.”

Urban advocates point to the longevity of CLTs as a huge advantage. Most subsidies used for affordable housing target low-income renters, yet don’t help this population—and others with more moderate income—move up the rungs of the property ladder and achieve homeownership. In addition, many subsidies aren’t permanent. Affordable housing often reverts back to market-rate pricing after 30 to 40 years.

CLTs can be especially useful tools to help people of color and low-income workers achieve homeownership. According to data from the Grounded Solutions Network, a nationwide inclusionary housing and CLT advocacy group, since the mid ’70s, only one of every two low-income homeowners of color in the U.S. has been able to keep a home they purchase for more than five years. As it normally takes roughly 10 years of ownership to truly realize the value of buying instead of renting, many lose value instead of creating wealth. For homeowners in a CLT, however, 93 percent maintain ownership for more than five years.

Can land trusts work in expensive cities?

One of the more intriguing new CLTs, the nascent Interboro Community Land Trust, aims to apply this model to one of the nation’s most expensive real estate markets, New York City.

According to Reicher, Interboro will partner with developers and nonprofits across the city. New affordable homes, apartment developments, and co-ops will be added to the trust, which will help maintain affordability longer than standard subsidized housing developments.

While Interboro has already attracted seed funding from the city’s Department of Housing Preservation and Development, as well as a $1 million contribution from Citi Community Development, the organization will need to partner with existing projects to truly grow; even a few million won’t be enough to acquire significant land in New York. Still, despite the high costs of acquisition, Interboro believes it can grow to 250 units over the next few years.

This represents a long-term investment in stability and affordability. As Reicher says, the community land trust model can’t magically create affordability; it can really only maintain it. But at a time when rising urban land prices can seem as regular as the weather, advocates see the advantages of a long-term vision.

“This will keep housing stable and affordable in good times and bad,” he says. “People will be able to benefit from their own hard work.”

Curbed

April 2018

California has long been held up as a place of opportunity, whether or not it’s delivered on its promises.

This image has been a lure for younger generations and a catalyst for constant change and growth, through the entertainment, music, and tech industries. Today, as California’s cultural capital looms large, the state’s magnetism persists.

But California’s golden reputation has been tarnished in recent years by its high cost of living. According to a survey released last week by the Luskin School of Public Affairs at UCLA, residents of Los Angeles County have become increasingly anxious about housing costs, especially young adults. That comes as no surprise to those following the state’s rising housing costs, as well as recent legislative efforts to make California more affordable, like California senate bill SB 827, which would allow more development near transit lines.

But that’s not the entire problem. Spiraling housing costs, and the land-use restrictions that often accelerate unaffordability, don’t just push people out, but keep others out as well. Housing costs are keeping many Americans from moving to opportunity.

The Luskin study found that amid the many reasons for a decline in optimism among young Angelenos, and corresponding lower ratings on quality-of-life indexes, housing costs drove the most negative sentiment. That’s especially among people of color, who face even more pressure around rising rents and the challenges of achieving homeownership. According to a report from the California Legislative Analyst’s office, between 2007 and 2016, a million more people have left the state than have moved in from other states.

”[The rating] has been dropping like a rock these last few years,” Zev Yaroslavsky, a lecturer and survey organizer, told the Los Angeles Times. “Housing is driving the low rating. This is not shocking news, but it continues to drop.”

Today’s affordability debate rightfully focuses on the economic burdens high housing costs place on current residents, and those being driven out who can no longer afford to stay in expensive urban neighborhoods.

“Mobility of all sorts has fallen over the last 50 years; even mobility across neighborhoods has fallen,” says David Schleicher, a Yale Law professor who wrote a research paper called “Stuck: The Law and Economics of Residential Stability” about the mobility crisis. “You’ve seen a pretty big change in the ability of people to move to opportunity.”

According to data from the U.S. Census Bureau, the percentage of Americans moving over a one-year period fell to an all-time low of 11.2 percent in 2016, and the rate of domestic migration has halved since 1965. The broad economic shift toward a service economy only accentuates the value of being in larger population centers. That makes the ability to move to new jobs and find new homes even more important to growth.

The U.S. housing market, especially in expensive coastal cities, has reacted in the opposite way economic conditions dictate, restricting new supply and keeping workers away from jobs.

“When people talk about SB 827 and other [California] housing bills, they often talk about them exclusively in terms of affordability,” says Schleicher. “But that’s missing a key part of the debate. It’s also about the impact on economic output.”

A nation on the move finds itself stuck in place

Migration has long been an engine of U.S. economic growth. But in recent years, inequality has grown across regions, making finding a job that offers a chance at socioeconomic mobility in an affordable city that much more difficult.

Additionally, the rate of new business formation has slowed down: “Dynamism in Retreat,” a report by the Economic Innovation Group, shows a steep decrease in the number of new businesses being established. This slowdown is compounded by an increased concentration of opportunity in certain cities and regions, which fuels demand for housing in those regions, and accelerating what Richard Florida calls the New Urban Crisis: inequality.

According to a 2016 study by Peter Ganong, assistant professor of public policy at the University of Chicago, and Daniel Shoag, associate professor of public policy at Harvard, migration helped mediate the wealth gap between richer and poorer parts of the country for much of the 20th century. Those leaving low-income areas for high-income regions pulled down wages in the cities where they arrived, and by leaving, made the job market in their older homes more favorable to workers, boosting wages.

That equilibrium has been disrupted by strict land-use regulations, which didn’t start showing up until the ’80s, not coincidentally when it started become more difficult for poorer states to catch up to richer states. These restrictions “boosted housing costs in richer states so that migration was no longer an attractive option for low-skill, low-wage workers,” the report found, but that didn’t stop wealthier migrants and high-skilled workers from moving to wealthy places.

Ganong and Shoag discovered that the barriers created by land-use policy created a significant cost for low-income workers. It made hourly wage inequality 10 percent worse between 1980 and 2010.

The housing barrier is one of the more prevalent roadblocks among a number of economic factors discouraging migration. Noncompete clauses make it more difficult to switch jobs; occupational licensing fees and requirements have multiplied. In 1950, these regulations impacted 5 percent of jobs. Now, they affect anywhere from a quarter to a third of Americans, a number that includes more workers than labor unions.

“We have gone from a nation that moved—that followed economic opportunity—to a nation that has been fixed in place, and too often in underperforming parts of the American economy,” says Ed Glaeser, a Harvard professor who focuses his research on urban policy and economic growth.

As the Lutkin California survey found, young adults are feeling the pain. While stories about urban rebirth and renewal often talk about the scores of millennials flocking to urban centers, and it’s assumed that graduates starting to build their careers will bounce between cities and jobs in their 20s and 30s, data suggests that young adults face an uphill climb economically and aren’t moving at nearly the rates of their parents and grandparents.

The Census Bureau found that, even with full-time employment, young adults earn, on average, $2,000 less in real dollars than their peers made in 1980. And the National Household Travel Survey found that driving has increased among lower-income millennials, who have often been pushed by housing costs to live farther from employment.

According to Pew Research Center data, 25- to 35-year-olds are relocating at rates well below historical norms. In 2016, 20 percent of millennials moved sometime in the last year. When older generations were the same age as millennials now, they moved at higher rates: Gen X was at 26 percent, as was the generation between 1925 and 1942.

In an economy that demands mobility, housing regulations haven’t kept up

This slowdown in overall mobility coincides with a “sorting out” at the metro level, with expensive cities like San Francisco receiving more migrants with higher incomes than those moving about, accelerating issues of housing affordability and opportunity.

Characteristics of Domestic Cross-Metropolitan Migrants, a recent paper by BuildZoom economist Issi Romem, analyzed U.S. Census and Zillow data from 2005 to 2016 to track migration patterns. Romem found that continued stratification between expensive superstar urban centers and the rest of the country has created a larger form of gentrification. Between 2010 and 2014, 5 percent of metro areas accounted for half of U.S. job growth.

In the last few decades, cities built around tech and high-end services have prospered in ways that cities built around manufacturing haven’t. And cities embracing these changes, as well as making room for new arrivals, allow more employees to be near more potential clients—and take advantage of opportunity.

One of the reasons Texas cities are growing, and doing so with much more affordable housing stock, is a lack of regulations holding back developers. While Houston, Dallas, and increasingly pricy Austin haven’t solved the lack of affordable housing by any stretch, and sprawl is a side effect of growth, those cities are having an easier time providing more housing because developers are less constrained.

“The reason population flows into cities such as Houston and Phoenix are so large is that these cities allow you to build houses, which means you can afford to live there,” Schleicher told Curbed. “People want to live in San Francisco, but the city doesn’t accommodate their demands.”

But even some of the burgeoning Sunbelt metros, former bright spots in terms of inter-state economic mobility, have lost some of their shine. The fastest-growing states in 2017 weren’t Georgia and North Carolina, which expanded quickly in the ’90s and 2000s. As Conor Sen wrote for Bloomberg View, “their growth is slowing as they grapple with affordability and congestion problems brought about by decades of unbridled growth.”

One of the United States’s great economic advantages has been the ability of its workers to move where they could prosper. When government doesn’t address the affordable housing shortage, and workers can’t move where the economy is booming, it’s also not addressing the opportunity shortage.

Making that explicit connection not only highlights the affordability issues at the heart of many of today’s housing debates, but shows how, in the long term, continued urban growth needs more investments in human capital.

“Even where people support housing, they’re not talking about it in terms of economic growth,” says Schleicher. “[New York City mayor] Bill de Blasio, and candidates for mayor, may talk about how increasing housing is good for affordability, but they should also talk about how it’ll directly impact economic growth. Separating housing from growth is a mistake.”

Curbed

May 2018

If, 10 years ago, you had asked 28-year-old Sarah Luckett Bhatia if she’d eventually return to her hometown of Louisville, Kentucky, she “would have laughed in your face.”

Even just a few years ago, the prospects of coming home to Derby City would have seemed slim. Bhatia moved to Chicago for school, studied at Columbia College, and immediately got a job in corporate planning and strategy. Like many 20-somethings, she steered her life and career trajectory toward big cities and the opportunities they promised.

But Bhatia’s plans started changing after meeting Ravi, a video editor at Leo Burnett, and marrying him in 2016. After years of living in Chicago, the couple was getting tired of the urban grind and began prioritizing kids, a home, and a connection to family.

At the same time, it struck Bhatia that “Louisville got cool.” The city’s restaurant and bar scene, propelled in part by the surrounding region’s bourbon boom, has blossomed—“I think it’s on par with Chicago, which I realize is a controversial thing to say,” Bhatia says—and the city has a new pro sports team, the Louisville City FC soccer club, which plans to build a new stadium in the Butchertown neighborhood, part of a 40-acre, $200 million development.

In 2017, Bhatia decided to move home, joining a growing number of younger Americans returning to the small- and medium-sized cities they left after college. There are no studies yet measuring the movement by what some call “boomerangs,” those millennials moving back to their hometowns from larger cities, and much of the evidence is anecdotal at best.

But conversations with Bhatia and others, as well as some demographic data, suggests those moving home are part of a boom in the country’s second-tier cities.

Mid- or second-tier cities, loosely defined as those under a million people that aren’t regional powerhouses like Austin or Seattle, are increasingly seen as not just places to find a lower cost of living, easier commute, and closer connections with family, but also a more approachable, neighborhood-oriented version of the urban lifestyle that sent many to the larger cities in the first place. Between 2010 and 2015, cities such as Colorado Springs saw their millennial populations grow by more than 10 percent.

And many, like the Bhatias, see the move back as not a trade-off, but a trade-up. Young adults coming home isn’t anything new. But compared to just a decade earlier, many who have made the move say smaller cities now offer more viable career and entrepreneurial opportunities that may be increasingly difficult to realize in larger, more expensive metros.

On many levels, the Bhatias’ move back to Sarah’s hometown made sense. Ravi found a job doing video work for a local advertising firm, Scoppechio, with more of a leadership role and room for career advancement than he had in Chicago. Sarah, who currently isn’t working, is studying for her GMATs and plans to go to graduate school.

They made a big upgrade on the housing front, trading a $900-a-month apartment in Chicago’s Uptown neighborhood for a century-old Dutch Colonial in Louisville’s Audubon Park neighborhood. They’re paying more—the mortgage is $1,200—but now own a home with a yard on a single salary, something that Bhatia says would have been unimaginable in Chicago.

The new magnetism of mid-size cities

After a decade of investment in parks and greenspace, homegrown tech hubs, and downtown redevelopment, many small and mid-size metros are seeing more signs of life and increased migration, according to a recent Brookings Institution analysis of U.S. Census data. This comes at a time when larger superstar cities are seeing slower population growth and an uptick in domestic out-migration.

Cities such as Madison, Wisconsin, and Indianapolis, Indiana, have thrived due to the growing tech scenes, including headquarters for large companies such as Epic and Salesforce, respectively, as well as investments in public infrastructure, such as the Indianapolis Cultural Trail and Madison-area bike trails. Silicon Valley investors see possibility in the Midwest. AOL founder Steve Case’s Revolution’s Rise of the Rest seed fund plans to invest $150 million in new companies in the region, especially in sectors such as health care, agriculture, transportation, finance, and manufacturing.

Louisville has made similar strides in recent years, investing millions of dollars in an expansion of its Frederick Law Olmsted-designed park system, adding a new convention center and a pair of hotels to the recently coined NuLu neighborhood, and building new apartments downtown. Mayor Greg Fischer brags about $12.5 billion in economic development in the region.

Part of the attraction is what sociologist Jill Harrison has called “place character.” Surveying nearly two dozen young adults who have returned to Youngstown, Ohio, Harrison found those coming back to their hometown highlighted heritage, recovery, and the new opportunities in these revitalizing communities.

Growth isn’t evenly spread across the country, with hard-hit areas of the Rust Belt still struggling with population loss, and new arrivals and developments can lead to rising housing costs. But the economies of many smaller metros continue to grow and diversify. Louisville added 2,500 new businesses and 70,000 over the last six years, including a 53 percent jump in what the Brookings Institution called “advanced industries jobs,” all while home prices remained relatively affordable (compare the city’s median home value of $153,802 to Chicago’s $226,073). It’s helped make Louisville one of the leading larger cities when it comes to millennial homeownership.

“Taking the risk of reimagining their city”

Moving to smaller cities offers a hands-on opportunity to take part in the renewal and regrowth of smaller downtowns and Main Streets, a new sense of dynamism The Atlantic’sJames Fallows has called a “reinventing of America.”

The challenge—creating a city that provides a diversity of jobs and an interesting place to live—requires working on many fronts, and there is no formula, according to Tom Murphy, a former mayor of Pittsburgh and a senior resident at the Urban Land Institute. He sees the question of why some cities are succeeding in this moment as “the biggest story that isn’t really being covered.”

Civic leaders need to reimagine land use, especially at former industrial sites and buildings; build strong public and private partnerships; focus on arts and culture; and act locally, instead of waiting for state and federal help.

“Cities need the right leadership, from both the public and private sector, who are willing to take the risk of reimagining their cities,” he says. “It’s painful, because change is painful.”

Take Pittsburgh, where Murphy was mayor from 1994 to 2006. Economic jolts unmoored the city, which then turned to new industries for revitalization. Downsizing and steel industry struggles meant this proud manufacturing center lost nearly 60 percent of its population between 1970 and 1990.

It was a devastating loss, says Murphy, but in the past few decades, the city has turned the corner. The educational and medical industries fuel new economic growth. The tech sector, bolstered by the brainpower at Carnegie Mellon University, has turned the city into a hub for innovation, robotics, and autonomous vehicle research, while redevelopment of the industrial riverfront added acres of public space downtown.

“Pittsburgh changed from one of the most economically depressed and environmentally damaged cities to one of the most livable,” says Murphy.

Finding a larger community in a smaller city

Bhatia says money and family are far from the only upsides that led her to put down roots in Louisville. In the four years she lived in her Chicago apartment, she barely learned her neighbor’s name. In Louisville, she’s found a place in the community, taking part in planning neighborhood events such as the Festival of the Dogwood. She even petitioned City Hall about the placement of stop signs. She admits it’s “very Leslie Knope from Parks & Rec,” but she loves it.

“It’s all about approachability,” she says. “It’s intimidating in larger cities. You feel like you need to dedicate a lot of time to get involved. Here, we feel like we can make an impact.”

The ability to afford a home has helped many who moved from superstar metros to so-called second-tier cities connect with their new communities. Elissa Washuta, a 32-year-old author and academic, moved to Columbus, Ohio, last July. After a decade of living in Seattle, and staring down increasingly higher rents and cost of living that had “gotten out of hand,” she decided to scour academic job boards and found a position at Ohio State University.

Washtua now lives in a restored historic home near the popular Short North neighborhood, paying less for a mortgage than her Seattle apartment (a studio was $1,750 a month plus parking when she left). She says homeownership has given her a sense of permanence.

“It was a dream of mine since I was a kid,” she says. “I like the idea of a house with history and character. I’ve rented since I left my dorm in college, and never painted a wall.”

It’s not perfect. Washuta is still making connections to the college town’s local literary scene, and she misses her home and the Pacific Northwest landscape. But the change in her quality of life has been dramatic. Not having to worry about money as much, and feeling secure in her home, makes a big difference.

“It’s been a good move for me,” she says.

Finding a new home, and home base, for remote work

The changing nature of work, especially toward service and consulting and tech, and the growth of startups in second-tier cities, has altered the equation for younger workers. While business formation and venture capital funding is still concentrated in coastal cities, Revolution founder Case believes the next generation of tech companies can be more geographically diverse.

Max Wastler, a 37-year-old travel writer and brand strategist who has previously worked for companies such as Conde Nast Traveler and Basil Hayden, recently returned to his hometown of St. Louis after working in New York City, LA, and Chicago. After a job and relationship in LA didn’t work out, he came home during Thanksgiving, and his brother convinced him to give St. Louis a shot.

After being away for more than 15 years, Wastler found more happening, and more opportunities, than he expected. In the nearly six months he’s been home, he’s found numerous startup hubs and tech events in the city, courtesy of CORTEX, House of Genius, and programs like Arch Grants.

While the city hasn’t seen the same young adult population boom as others, with just a 0.9 percent jump in the millennial population between 2010 and 2015, the city has still changed. Today, St. Louis, and neighborhoods such as Tower Grove and Cherokee Street, are filled with locals who came back, or what he jokingly calls “carpetbaggers,” finding their own niche in town. Like other Midwestern cities with a rich industrial heritage, St. Louis has a central business district filled with impressive architecture ideal for a vibrant downtown.

“St. Louis is a city built on history,” he says. “Today, you can go out on a Friday and Saturday night, and there are wonderful, amazing cultural events in these amazing old buildings. The cultural community is growing by leaps and bounds, and it wasn’t that way in past decades.”

Wastler, who founded Rivver Co. since returning home, is working on partnerships with Lands’ End, based in Wisconsin, and Airstream, which often takes him to Ohio. He has found that he can operate from anywhere, and as a colleague told him, it’s always nice to make a “New York salary with a St. Louis cost of living.”

But there’s also a draw to being in his hometown, especially places he was unfamiliar with, or really didn’t visit, when he was younger.

“The realization that I can work from anywhere made me want to go to a place I feel welcome,” he says. “I feel welcome here. I don’t know if it’s part of a larger trend, but it’s part of a larger thing for me. I’m home.”

Curbed

July 2018

Chicago’s 606, a former industrial rail line turned linear park on the city’s near northwest side, opened in 2015 and has quickly become a part of daily life.

A car-free corridor filled with bike traffic, senior walking clubs, and arts and cultural events, the 2.7-mile trail even hosts the occasional evening stargazing event at a public observatory built into the parkway’s western edge. Miko’s, a neighborhood Italian ice stand visible from the path, has started an annual tradition of making a limited-edition flavor from berries grown on the 606.

Like the High Line, the Manhattan rails-to-trails conversion that inspired a raft of elevated pathways and industrial-to-recreational parks, the 606 has demonstrated the transformative potential of new parks.

But, just like residents in the neighborhoods around New York’s High Line, Chicagoans in the areas closest to the 606—Wicker Park, Bucktown, Humboldt Park, and Logan Square—see the trail as a case study in the consequences—and cost—of this new generation of urban amenities.

Housing prices alongside the trail’s eastern half, in Bucktown and Wicker Park, which passes over a stretch of Damen Avenue lined with expensive boutiques, have long been on the rise. But like other such signature park projects across the country, such as Atlanta’s Beltline or Philadelphia’s Rail Park, which opened last month, the presence of a photogenic new park supercharges property values and real estate development.

According to a November 2016 report from the Institute of Housing Studies at Chicago’s DePaul University, home prices alongside the western portion of the 606, which traverses more affordable, traditionally Latino neighborhoods such as Humboldt Park, increased 48.2 percent since trail construction started in 2013.

According to IHS researcher Sarah Duda, proximity to the trail lowered home prices when it was a postindustrial eye sore. But now, listings adjacent to the 606 carry, on average, a 22 percent premium, which normally means about $100,000 more than comparable homes.

With more signature parks in the pipeline across the U.S.—including El Paseo, a proposed trail in Chicago’s South Side Pilsen neighborhood—park advocates, community groups, and local leaders continue to grapple with the housing issues raised by these projects, or what’s been called “the High Line effect.”

Increasingly, a consensus has formed around what could be called a “slow park” movement: pre-emptive community engagement, subsidies and investment in affordable housing, and a focus on keeping the communities benefiting from these public investments from being displaced.

“The question now is, how do we create amenities like this that are inclusive, not exclusive?” says Juan Carlos Linares, executive director of LUCHA, a housing advocacy group working in many of the neighborhoods impacted by the trail.

“There is a lot of awareness nationwide that the 606 is a great case study for similar projects across the country. How do we make amenities for those residents [who are] already here, not just people who are being attracted to the neighborhood?”

Why turning postindustrial space into parks makes sense

It’s easy to point fingers at parks. Adrian Benepe, senior vice president of the Trust for Public Land, a nationwide nonprofit that also helps oversee and manage the 606, believes there are often more powerful forces shaping real estate and housing costs. In the case of the 606 and Chicago, neighborhoods like Logan Square were already gentrifying, and many of those displaced lived near the city’s Blue Line elevated rail.

Benepe, who once ran municipal parks in New York City, believes the worst lesson to take from this new generation of urban amenities and their potential impact is that they shouldn’t be built, or that we should dial down plans for signature neighborhood parks to avoid potential changes to the surrounding neighborhoods. He calls it the “green enough” fallacy, a concept coined in a 2012 article.

“I’ve never been to a community meeting where neighbors have said, ‘don’t make my community park as nice as Central Park,” says Benepe. “The people who say that tend to be upper-middle-class activists and advocates who don’t live there. The people who live there want the nicest park they can get.”

That was the case with the 606. For more than a decade, neighbors had asked city officials to transform the abandoned Bloomingdale Trail into a park, before Mayor Emanuel made it a priority shortly after being elected in 2011.

If you build a nice park, will it inevitably lead to displacement of the very people park advocates are trying to serve? Benepe doesn’t have easy answers, but he says that park groups are increasingly interested in finding them.

“You can’t stick your head in the sand and say, ‘It’s not our fault,’” he says. “What are the positives and negatives? You have to deal with it.”

New parks have often been borne of the adaptive reuse of outmoded or abandoned infrastructure because, generally speaking, abandoned rail lines, brownfields, dockyards, and old shipping corridors offer affordable, easier-to-obtain parcels on which to build. By their nature, these areas are marginalized spaces—and don’t attract lots of wealthy neighbors.

“Now you have new residents moving into former industrial area[s], and they’re asking, ‘Okay, where are the parks?’” says Benepe. “Cities are scrambling to provide park access to new young residents. Almost no cities have forward-thinking plans for park development.”

According to Duda, the DePaul housing researcher, the 606 and the surrounding area offer a perfect example. When it was a postindustrial railway, the old Bloomingdale Railway, it was a drag on local property values, making nearby areas more affordable relative to the neighborhood. Duda’s team found that certain communities living near these post-industrial areas—low-income renters, seniors, those with large families—were the most likely to be cost-burdened (paying more than 30 percent of their income on rent) and faced a higher risk threat of displacement, forming a kind of leading indicator.

These parks can speed up development and threaten displacement, even before they open. Take, for example, the High Line, which opened in 2009: Property values within a five-minute walk from the trail rose 103 percent between 2003 and 2011. In 2016, Queens College political scientist Alex Reichl studied the demographics of park visitors and discovered that fewer than 7 percent of High Line users were black or Latinx, despite the presence of large black and Latinx populations in nearby housing complexes.

From a strictly financial standpoint, these park conversions offer excellent value for urban land contaminated by past industrial use. Many of the renovation projects can tap into funds set aside by the Environmental Protection Agency, and parks and pathways present fewer regulatory hurdles than housing.

“This kind of green space is a great way to create value in urban space without having to make as significant an investment,” says Winifred Curran, a DePaul professor who teaches sustainable urban development. “It’s easier to build a park than a housing complex.”

Will Chicago’s proposed El Paseo trail better reflect neighborhood needs?

Right now, advocates and leaders in Chicago are asking how to be respond and plan for these new types of parks. In the neighborhoods around the 606, it’s more a matter of reaction.

“We want investment, too, but responsible investment that grows our communities, not displace them,” says LUCHA’s Linares.

There are still ways to blunt the impact of the park, says Linares. LUCHA and other organizations have promoted a 606 Preservation Ordinance, a policy tool that would raise the fees that come from demolitions and teardowns to preserve existing buildings and use the proceeds of increased development to fund affordable housing. That initiative will be voted on by the city council later this month.

In addition, LUCHA, which currently operates roughly 200 units of affordable housing, has come into ownership of six parcels of land adjacent to the trail and plans to build additional affordable units, including ones that meet the passive house standard—a measure of extreme energy efficiency—to cut down on tenant energy costs. Linares also wants to focus on cultural preservation through the arts, and to celebrate the neighborhood’s Latinx heritage with mural art.

Even Mayor Rahm Emanuel and his administration, which saw the 606 as a pet project, has promoted programs focused on neighborhood equity. His $1 million rehabilitation fund for homeowners along the 606, which would provide up to $25,000 to repair homes, has preliminary approval by city aldermen, and he’s also pitched a $30 million citywide Chicago Opportunity Investment Fund to help create more affordable apartments.

But many believe the real solution to this park-influenced property inflation is better planning. Caroline O’Boyle works for the trust for Public Land as the Director of Programs and Partnerships for the 606. She believes one of the biggest challenges for the 606 and other projects like it is time. Chicago’s rails-to-trails project went from green light to a ribbon cutting in four years, a relatively fast pace.

“I tell people, ‘A long timeline is your friend,’” says O’Boyle. “Use the time needed to raise funds to benefit the community. Is there going to be job training? Is there a way to link development to affordable housing? Some solutions are emerging, and one [solution] is planning well before the project breaks ground.”

Farther south, in Chicago’s Pilsen and Little Village neighborhoods, community members are trying to avoid a replay of the 606. The El Paseo Trail, a proposed path and greenway that would connect these traditionally Latinx neighborhoods, is still in very early stages. First proposed by the Little Village Environmental Justice Organization more than a decade ago, the concept has been championed by the mayor, and the city has investigated the possibility of creating a 4-mile trail that cuts through land poisoned by a former smelting factory and invested some capital but still needs money, especially EPA funds, to fully rehabilitate the soil and renovate.

But the community and developers have already acted on the potential. DePaul’s Curran foresees impact similar to the 606, since even the idea of the trail is spurring development, and could reshape the fast-changing neighborhood, raising fears of increased displacementand increased attention from developers. Between 2000 and 2015, Pilsen’s Latinx populationdecreased by 26 percent.

“There are real estate developers already advertising properties as ‘on the El Paseo’ before they’ve even moved a blade of grass,” Curran says. “There’s nothing there yet, it’s just the assumption. But this is about building the real estate market in a neighborhood that’s already hot. It’s a marker for those outside the neighborhood as opposed to those inside the neighborhood.”

Curran’s big concern is the project’s potential to create a “gentrification corridor,” as its current proposed path is bookended by two large development sites. ParkWorks, on the northeast end, the site of a former fruit wholesaler, may be turned into 500 apartments by a New York developer. And on the western terminus, the former Fisk Power Plant site presents another prime area for new construction.

Curran says the city has tried to “talk the talk,” pitching El Paseo as a family gathering place within a neighborhood that prides itself on being multigenerational and close-knit, but hasn’t taken the kind of preemptive action that may help dampen the community impacts of new infrastructure and increased development.

“The trail isn’t happening by itself,” Curran says. “Activists in the neighborhood can’t find time to come up for air. It’s one huge hit after another.”

Community groups have organized and pushed for equitable development and guaranteed community benefits. Byron Sigcho, a leader of the Pilsen Alliance, says the group is pushing for a community-led zoning ordinance, as well as potential tax relief for residents along the trail. He wants to make sure El Paseo helps residents, and doesn’t just become another real estate amenity.

“Luxury business and housing is coming into Pilsen,” he says. “What we want is balance. What makes this area beautiful is the diversity, culture, and murals. It’s all about the people. How do we keep them here?”

Can the next generation of parks plant deeper community roots?

Nobody has found a simple, straightforward answer to the problems of parks and property impact. But many groups are searching for one. Benepe says the Trust for Public Land received a $170,000 grant to study parks and displacement, and will soon launch studies in three different cities.

The High Line Network, a coalition of planners and developers, is working on best practices for park projects and methods to track infrastructure impact over time. According to Adam Ganser, the group’s vice president for planning and design, the organization plans to hold a public convening in 2019 to discuss these topics.

Some of the problem may be the focus on blockbuster projects as opposed to smaller neighborhood parks. Benepe points to a program in New York City working to transform schoolyards into community playgrounds, the “low-hanging fruit” of neighborhood parks. It’s a resource that every city has, and the New York initiative has already transformed 300 such playgrounds. Both Chicago and Philadelphia have initiated similar programs.

Many see great potential in a project taking shape in Washington, D.C., the 11th Street Bridge Project. The forthcoming park project, in the city’s fast-changing Anacostia neighborhood, has a much more explicit social justice and equity platform. The $45 million proposal to turn an unused bridge into a community recreation area includes an equitable development plan that features affordable housing and job creation programs. The nonprofit Local Initiatives Support Corporation has signed on to provide an additional $50 million in early childhood education, food support, and other services in the neighborhoods bordering the park, while JP Morgan Chase plans to invest $5 million over the next three years, some of which will fund a community land trust.

“The question we’ve asked ourselves about the park is, ‘Who is this for?’” project director Scott Kratz told Next City. “First and foremost, we’re building a park for the residents who helped design it.”

The 11th Street Bridge project also looks toward the long-term with plans to turn renters into owners, and help them capture the value that comes from being near a sought-after amenity, while also helping local businesses sign long-term leases and gain some measure of insurance against rising land costs.

Projects and proposals like these show how the conversation has evolved, says the Trust for Public Land’s O’Boyle, and how perceptions of what can be done have shifted. She says the 606 has been a case study, one that’s helping turn park development into neighborhood development.

“Keeping people from being displaced has become the No. 1 question,” she says. “The question is out there. Now we have a CEO who talks about affordable housing, and we partner with experts to make sure it’s a key component of what we’re working on. We completely understand that we have to [think about] housing and affordability to be in the park business.”

Curbed

October 2018

Amid the havoc Hurricane Michael caused on blocks of waterfront property in Mexico Beach, Florida, a single home stood out after the storm cleared, a survivor of winds that made buildings “buck like an airplane wing.”

This so-called Sand Palace, a home owned by Russell King and his nephew, Dr. Lebron Lackey, and profiled in the New York Times, has become famous for its resilient reinforced-concrete construction, which allowed it to survive the Category 4 hurricane. While the owners wouldn’t tell reporters how much their home cost, architect Charles A. Gaskin said that the techniques used to make the home less susceptible to storms, such as raising it on stilts and using additional concrete supports, “roughly doubles the cost per square foot.”

The striking image of the Sand Palace standing alone above the wreckage is one of many images communicating the scale of the storm’s impact. Property analysts at CoreLogic estimated that Florida alone will suffer $2 to $3 billion in wind-born property damage from Michael, and potentially $1 billion more in losses from storm surge.

The Sand Palace story also underscores a new reality that’s been slow to dawn on many involved in coastal real estate: Climate change, and the accompanying rise in sea level and storm activity, will require expensive investments and shake the foundations of some of the most expensive land in the country. Like many of the impacts of a warming planet, the serious economic reverberations and permanent damage caused by declining coastal property values are simply not being addressed in an urgent enough manner.

“The water always wins”

In 2016, New York Times writer Ian Urbina examined how climate change could “swamp coastal real estate.” At the time, economists warned that the real estate industry wasn’t addressing the issue quickly enough, and that the impact of a coastal property collapse brought on by climate change “could surpass that of the bursting dot-com and real estate bubbles of 2000 and 2008.”

“I don’t see how this town is going to defeat the water,” Brent Dixon, a resident of Miami Beach, told Urbina. “The water always wins.”

The warnings have only become more dire. Since Urbina’s report, increased coastal construction has likely made the problem worse. Orrin H. Pilkey, a Duke professor, noted what he called “urban renewal at the beach,” and the unsustainable building boom densifying areas facing increasing risk.

“Forward thinking is needed to stop coastal urban renewal and save our beaches,” he wrote.

In many ways, real estate will be the canary in the coal mine of climate change. Recent climate reporting has rightfully been focused on the dire warnings contained in last week’s report from the Intergovernmental Panel on Climate Change, which suggested that serious, destabilizing, life-threatening changes are coming to the globe by 2040. For many coastal communities in the United States threatened by hurricanes, a period of rapid change has already arrived.

The federal government has noted a significant rise in billion-dollar weather and climate disasters over the last few years. There’s a point at which the number of unprecedented, monster storms—Harvey in Houston, Florence in the Carolinas, Michael on the Panhandle, and Maria in Puerto Rico—becomes frighteningly commonplace.

The toll these storms takes on our housing stock and infrastructure should be followed by difficult discussions. Should we retreat from threatened areas? Invest in a massive plan for resilient infrastructure? Strengthen building codes? Reform the national flood insurance program, the federal program that underwrites so much reconstruction?

At the very least, we need a serious dialogue at the national level after repeated billion-dollar recovery efforts continue to tax the government as well as the insurance industry. But that conversation has yet to start.

Communities with highest potential flooding-related real estate losses

In June, the Union of Concerned Scientists released “Underwater: Rising Seas, Chronic Floods, and the Implications for U.S. Coastal Real Estate,” a detailed analysis of future flood risk that sought to put the true peril of coastal real estate into perspective. The long-term analysis of how increased flooding will depress coastal real estate noted, alarmingly, that most coastal real estate does not factor these risks into current value projections. That’s especially scary because the value of waterlogged land won’t simply bounce back. Everyone from institutional investors to private homeowners will face losses that will drag down the wider economy.

“Underwater” predicts that 300,000 residential and commercial properties will likely face chronic and disruptive flooding by 2045, threatening $135 billion in property damage and forcing 280,000 Americans to adapt or relocate. Florida, which has been battered by hurricanes Michael, Irma, and Maria in just the past two years, will be the state most at risk of this rise in chronic flooding, according to the report. Roughly 64,000 homes—including 12,000 in Miami Beach, a nexus of real estate investment—will face chronic flooding.

If you think U.S. cities struggle with high housing costs now, imagine decades in the future, when wave after wave of climate-displaced Americans arrive searching for work and an affordable place to live.

A slow-motion disaster, and a broken flood insurance system

Reducing real estate to dollar amounts and numbers of households can obscure the human cost of this type of climate-caused displacement. Longstanding communities will dissolve. Decades-old businesses will be forced to relocate. And personal homes, purchased after years of saving and sacrifice, may become devalued or destroyed.

The human toll of this slow-motion disaster only highlights how much the National Flood Insurance Program needs to be drastically rewritten to address this problem head on. Right now, the federal program, which is carrying a $20.5 billion-dollar debt due to the strain of repeated billion-dollar storms, functions as a subsidy for bad behavior.

Since the government guarantees payouts in special flood-hazard areas, some homeowners have rebuilt the same second home on slowly sinking coastal property multiple times, knowing they’ll always get bailed out (30,000 properties insured under the program have been labeled “severe repetitive loss properties,” according to U.S. News).

In other cases, homeowners ignore the requirement to buy insurance—and the government does little to enforce the mandate. Over the last decade, there’s actually been a decrease in the number of flood policies nationwide, according to Insurance Journal. Finally, the maps used to determine risk are outdated and, like the real estate industry at large, fail to take into account the accelerating risks of climate change.

The U.S. government, in effect, encourages bad bets and bails out wealthy homeowners, doesn’t fairly enforce mandated insurance purchases that would democratize the risk pool and create a more financially stable system, and does a terrible job capturing risk and appropriately pricing coastal development.

“We have been working for the last couple years to close the insurance gap, but still not near enough people have necessary coverage,” David Maurstad, the current director of the government’s flood insurance program, told reporters during a conference call last month. “We still have a lot of work to do.”

Instead of being an important focus of a policy-driven debate after years of record-setting storms, the program often gets re-approved by Congress at the last minute as storm season applies political pressure. Right at the moment when investors and developers needed to fully understand the costly risks they face, the last Congressional re-approval, in August, contained no reforms of any kind.

This approach does a disservice to lower-income homeowners, especially those in areas of emerging risk. In parts of the Carolinas damaged by Hurricane Florence last month, the Washington Post estimated that only one in 10 homeowners has flood insurance. Without proper insurance, the only compensation comes from the Federal Emergency Management Agency (FEMA), which normally covers just $10,000 in aid. Sen. John Kennedy of Louisiana said the mismanagement of the NFIP means “costs are out of control, and middle-class families have little choice but to just roll the dice” and go without coverage.

Allowing these systemic risks to fester will only make a coastal real estate crash more cataclysmic. As “Underwater” also noted, the waterfront communities facing repeated repair and reconstruction costs from storms will bear an increased burden just as tax revenue from coastal property takes a hit.

The report found that 120 communities will see 20 or more percent of their tax base destroyed, with 30 communities seeing more than half the property tax base at risk. That’s less to spend on roads, emergency responders, and the increasing amount of proactive infrastructure work these areas should be building to adapt.

Failing to build the infrastructure America’s coasts really need

In light of the increasing need for resilient infrastructure, the failure of the Trump administration’s infrastructure plan seems even more of a missed opportunity. As the dynamics of crashing coastal real estate values play out in local communities, state and federal support will become more vital. Instead of investing in resilience—strengthening coastal defenses, updating electrical grids, replacing roads and bridges, and other investments that, in an era of more frequent and powerful storms, would likely save money over time—a lack of action means local governments will rebuild in a rush after a storm.

Thankfully, that’s beginning to change. A bill passed by Congress with bipartisan support and recently signed by Trump will tweak the way that disaster relief is dispensed, creating a pre-disaster mitigation fund that will steer more post-disaster assistance to future mitigation and more resilient building. One of the main reasons both Democrats and Republicans have embraced the measure is its promise of increased cost savings.

Representatives repeatedly cited research by the National Institute of Building Sciences, which found that for every $1 spent by the government on mitigation, it saves $6. Imagine the potential savings if this kind of thinking was applied, even in part, to the massive infrastructure plan proposed at the dawn of Trump’s tenure.

“Too much of the U.S.’s response to natural disaster is completely reactionary,” Rob Moore, a senior policy analyst at the Natural Resources Defense Council, told Bloomberg News. “We throw a bunch of money after it happens.”

With coastal real estate facing such a significant threat, the current administration’s climate-change denial is a costly stance to take, a line in the sand that will soon be underwater, regardless of what Trump and others believe. Bureaucratic word games over replacing mentions of climate change with “resilience” hide the true risks and scope of the threat.

The president may feel comfortable downplaying or ignoring the risk of climate change. But it seems contrary to his self-professed real estate acumen and dealmaking ability to not see the risk on the horizon.

It’s especially puzzling when considering the president’s own relationship with waterfront property. At his Trump International Golf Links Doonbeg in Ireland, he applied for permission to build a pair of sea walls, citing global warming and sea rise as reasons for needing the barriers. In addition, Mar-a-Lago is in threat of chronic flooding by the end of the century, according to data from the National Oceanic and Atmospheric Administration.

Curbed

November 2018

For Seattleites sick of seeing their livable, laid-back city transformed by the tech industry, the chorus of complaints is growing. Newly minted millionaires are building luxury homes around the expensive corners of Puget Sound. Traffic is becoming a nightmare.

And a predicted population boom will create a severe shortage of affordable housing. The city seems headed toward being a place where only the wealthy can afford to own homes.

Yes, the urban sprawl of the Seattle area in the mid-’90s—caused in large part by the then-growing workforces at Microsoft and Boeing, as highlighted in this 1996 New York Timesarticle—were rough. And it followed a boom in the ’80s, when the region’s population rose 22 percent and the number of miles driven by cars quadrupled.

Seattle, home-base to six companies in the Fortune 500, is no stranger to big corporations and big growth. Which makes Amazon’s incredible flourishing, and its sizable office space footprint, that much more impressive.

The retail and technology giant will be in the spotlight for the foreseeable future, as the decision around HQ2—the Crystal City neighborhood of Arlington, Virginia, and Long Island City in Queens, New York, will reportedly split the prize—is finalized. This once-in-a-generation opportunity for a regional economy led to cities throwing themselves, and tax breaks, at the Seattle company.

But despite taking bids for what will be its second home, the company is far from stopping its growth spurt in Seattle. With total company spending on real estate reaching nearly $4 billion, the company now occupies or will occupy more than 13 million square feet of office space spread across 45 buildings, according to BuildZoom research, the largest footprint by both raw area and percentage of any single company in any single city. Between 2014 and 2017, Amazon went from occupying 9 percent of the city’s prime office space to 19 percent.

“Just the sheer amount of space they take up is unprecedented,” says Brad Hinthorne, managing principal at the Seattle office of Perkins + Will, an architecture and design firm. “Often, an anchor tenant will take up a few floors of a building. Amazon comes in and says, ‘I’ll take this and that building, build a few of my own, and then take up a few city blocks.’” Amazon’s growth has, according to many analysts, priced itself out of town.

As the company’s rise over the last decade has fueled exceptional economic and real estate growth, it’s also increased housing costs, driven up rents for small businesses, and led to long-term transportation challenges and local angst (Amazon declined to comment on the record for this story). Between 2010 and 2016, for example, per company estimates, Amazon spending added $38 billion to the city’s economy, with every dollar invested adding $1.40 more to the city’s overall economy.

In what reads like an Arrested Development joke, a pet project of company founder and CEO Jeff Bezos to hand out free bananas to Seattle residents became so big earlier this year that it, only somewhat humorously, was called out for disrupting the local produce market.

As planners and local leaders across the nation look at each other and the proposals they feel they’re competing against, it might be useful to take a long look at Seattle, and how the city has and hasn’t adjusted to Amazon-fueled prosperity. With the company’s forthcoming HQ2 expected to bring $5 billion in investments and upward of 50,000 workers, it pays to plan far ahead.

“When an employer commits to that much space downtown, and all the peripheral things that come along to all that kind of density, it drives the need for housing and hotels and transit. It drives everything,” says Hinthorne. “But I’d much rather have that problem than the problems many other cities are wrestling with today.”

Amazon’s unprecedented growth spree

Amazon’s success has made it a much different corporate entity, and citizen, than it was when it was founded in 1994 in a garage in nearby Bellevue (Jeff Bezos set up an oversized mailbox in front of the home he rented for all the book catalogs he’d receive).

The company expanded haphazardly into assorted office buildings in downtown Seattle as it grew during the first dot-com boom (and bust), but at nowhere near its current rate of expansion.

According to Matthew Gardner, chief economist for Seattle-based Windermere Real Estate, if you added all of Amazon’s forthcoming office projects under discussion or permitting to what it currently occupies, it would total 12.8 million square feet by 2022. That’s an increase of roughly 50 percent more office space over time, meaning the current workforce of 45,000 might grow by more than 20,000.

According to Rob Johnson, a member of both the city council and the Puget Sound Regional Council, an area planning group, Seattle is currently growing faster than at any point in its history, having added 100,000 residents in the last 10 years (mostly since 2013). There’s been significant growth in the hotel, retail, and service industries, and the overall unemployment rate, 3.0 percent in May, was below the national average. But the flip side, gentrification, has created a lot of new challenges.

“We try to walk a fine line,” he says.

Whatever feelings locals have about Amazon, it’s clear the city has changed. The money and growth have meant more density, and an end to many mom-and-pop shops, says Doug Ressler, an analyst at Yardi, a real estate technology firm.

“Seattle has always prided itself on being a friendly, lifestyle town,” he says. “But that’s going out the window.”

People call it Amazonia

Amazon’s real expansion into downtown Seattle started in 2010, when the company, then numbering 5,000 employees, moved into a million-square-foot facility in South Lake Union. An area that was mostly low-rise industrial, it wasn’t on the radar of many developers; one of the biggest landowners, Vulcan, a firm owned by the late Microsoft co-founder Paul Allen, had tried unsuccessfully to turn it into a large city park (a bond measure to enact the proposal for Seattle Commons was voted down). But that all changed when Amazon moved into the neighborhood.

By 2012, the company had paid Vulcan $1.1 billion for its portfolio of property, says Gardner, and began building offices and occupying a significant amount of space from leaseholders. What an Amazon exec once called “essentially a sea of parking lots” became a booming commercial district with restaurants and nightlife. Some even nickname the area Amazonia.

“South Lake Union exists as it does today because of Amazon—that’s just a fact,” says Jordan Selig, managing director of Martin Selig Real Estate, which has the company as a tenant at its building on Elliott Avenue West. “The majority of the office and residential buildings are occupied by Amazon’s employees.”

When Vulcan and Amazon, whose expansion was steered by John Schoettler, current global vice president of global real estate and facilities, began working together, according to the Puget Sound Business Journal, the company started to move fast. Schoettler told the paper they’d negotiate leases in the morning and meet with architects at night.

Five years later, Amazon, which has worked with numerous players in the city’s real estate and construction world, including Clise Properties, McKinstry, and Seneca Group, grew to encompass 9 million square feet of office space in South Lake Union alone.

It’s also building a trio of futuristic biospheres in Denny Triangle, adjacent to South Lake Union, and earlier this month, the company bought out the entire Rainier Tower, a 58-story skyscraper under construction downtown. And the tech boom has brought in other big players to the neighborhood; both Google and Facebook are expected to soon lease 1 million square feet of office space each.

According to the most recent Office Market Snapshot from Green Street Advisors, a real estate analytics firm, there’s risk in Seattle’s dependence on just a handful of tech clients (demand from Microsoft is also forecast to grow considerably). But Seattle is still expected to grow above the major market average for the next five years, fueled by strong income growth and a seemingly bottomless desire for high-end office space.

“You expect markets to expand and contract, it’s a normal part of the cycle,” says Gardner. “What we’ve seen is a skew to Amazon. In a certain quarter, we could have given square footage back to the market. But because of Amazon’s growth, it makes the market look better than it is. If you take Amazon out of the equation, the picture can look somewhat different.”

Growing pains

According to Gardner, the city responded to Amazon’s expansion with a “whiplash mentality.” Although it is already severely limited space-wise due to its geography—constrained by both Puget Sound, Lake Washington, and the Cascade Mountains—the city hasn’t fully addressed the infrastructure challenges of growth. Even the 2016 passage of Proposition 1, or Sound Transit 3, a $54 billion bond measure to fund mass transit expansion, won’t catch up, he says.

“There’s space for Amazon to expand in Seattle, but where are the workers going to live?” he says. “Consider that 20 percent of Amazon workers live within the same ZIP code as their office, and 15 percent walk to work. That’s driven lots of demand to nearby apartments.”

It’s also driven a lot of money just about everywhere. Retail sales in Seattle grew 19 percent between 2010 and 2015. And of course, so did real estate. Home prices have risen 47 percent since 2007, hitting an average of $668,000.

“A lot of other cities and regions would be glad for the kind of economic growth that we’ve seen,” says Johnson. “The tax revenues have built up our budget and allowed us to afford capital projects.”

Johnson also points out the downsides: an increase in homelessness; less of a chance for the middle and working class to live close to where they work; the impact on small businesses, housing, and rent. Johnson, echoing many critics, feels the city was a little slow to react. In 2014 and 2015, the Seattle region started seeing sharp year-over-year population growth in both the city and region, and sharp rises in home prices, which led to today’s supply crunch. That’s when the city started doing a lot of the policy development they’re now implementing, he says.

In a perfect world, according to Johnson, the city would have accelerated the process as soon as they saw that data. Seattle now has a Mandatory Housing Affordability Program(MHA) with the aim of creating 6,000 new units of restricted-income housing in eight years, says Johnson, which is positive, but seems unlikely to meet the challenge of Amazon’s forecasted growth.

“It’s a challenge,” he says, “but we’re working through the process, which will lead to good policies.”

Amazon has also caught up to its expanded role in many ways. The company plans to fund a homeless shelter that will be incorporated into one of its buildings; donated $30 million dollars to support homeless families, STEM education, and job training programs in Seattle last year; supports a local culinary training and apprenticeship program; and purchased and funded the operations of a fourth Seattle Streetcar.

Schoettler has said the company strives to be a good neighbor. With Amazon looking to make an immediate splash in another city with the opening of HQ2, and the press likely to focus on the outcome of this expansion, it might do the company well to carry those neighborly intentions to its new home.

The company’s huge presence showed itself during the city’s debate earlier this year over a head tax, which would levy a per-employee tax on large companies to fund efforts to battle homelessness. Amazon’s antipathy towards what the company considered a “tax on jobs,” and threats to pause construction over the measure, demonstrated its considerable clout. After initially passing the measure, the city council repealed it in June.

Many in Seattle caution whomever is picked to think long-term about their newest neighbor, and the tens of thousands of employees who will likely come to town. Gardner says housing affordability and apartments should be the first and most important focus, since rents are sure to go up.

Selig says to make sure the city is ready for an influx of people, and not just the obvious infrastructure issues like traffic mitigation and public transit; everything that would concern adding the equivalent of a small city’s worth of people should be factored in, including schools, daycare, urban green spaces, and medical facilities.

Johnson says the city’s adoption of a higher minimum wage was a big boost, especially to those in the service industry. He also says cities should focus on creating more affordable-housing units to reduce spikes in rent—there’s a correlation between year-over-year increases and increased risk for homelessness—and really think about development strategies that work alongside an organization as large as Amazon.

“Work together on land use, transportation, and infrastructure,” he says.

Ressler agrees that proper infrastructure planning, and laying down literal foundations, is important. But growth, as well as the payoff from a new corporate headquarters, can take time.

“Don’t give away too much too quick,” he says. “That’s what I feel like Seattle did.”

Curbed

November 2018

Amazon’s much-hyped expansion—the company will place 25,000 new jobs each in New York City and Arlington, Virginia—highlights how insular the tech industry can be when it comes to real estate. Tech companies based in the San Francisco Bay Area, Seattle, Boston, and New York City have taken up more than 25 million square feet of new office space outside of their primary markets over the past five years, according to a recent CBRE report. A good chunk of that is within those same four markets.

In conversations about tech capitals, Los Angeles rarely comes up, a distant second in its home state to the dominant Bay Area, which vacuumed up $26.5 billion in venture capital funding last year. But LA’s position in the tech ecosystem may be shifting.

While nobody believes that dynamic will change, LA has begun to come into its own. Homegrown successes, and the recent opening of large satellite offices by big players including Google, shows how tech is evolving here. The Bay Area isn’t suddenly moving to Silicon Beach. But it is benefiting from the changing nature of what we consider tech.

“We’re going through a renaissance at the moment because of the growth of entertainment and content,” says CBRE vice chairman Jeff Pion. “There’s a merging of tech and entertainment, and content is king at the moment. The potential from harnessing the existing entertainment workforce in LA immediately is incredible.”

Silicon Beach—a nickname for the areas of Santa Monica, Venice, Marina del Rey, Playa Vista and El Segundo where tech companies are congregating—is expanding, with companies such as Spotify setting up shop in the Arts District near downtown, and aerospace firms clustering in South Bay and Long Beach. The city’s tech employment increased 14.6 percent between 2016 and 2017, with many of the biggest names in technology—Facebook, Google, Apple, Amazon, Netflix, Spotify, and SpaceX—having opened or announced plan to open new offices. The 100 largest tech companies in the city saw a 24 percent increase in hiring last year, according to data from the Annenberg Foundation.

That growth has put pressure on the region’s housing stock and local office rents, which grew 15.8 percent between the second quarter of 2016 and 2018.

According to Eric Pakravan, a vice president with Venice-based venture capital firm Amplify, the city has always led the nation in out-of-town VC investment—a nice benefit of being an hour plane ride from Silicon Valley—but even as more investment pours into LA tech firms, VC firms are setting up shop in Southern California (the number doubled from 2016 to 2017). In 2016, LA and Orange County startups raised $5 billion collectively, and LA is on track to set a record for VC investment in 2018.

“Five years ago, a founder who wanted to keep their company in LA would get a lot of questions,” he says. “Today, it’s like, why do I need to be anywhere else?”

Everything is tech, and tech is everywhere

As every industry embraces tech, a more economically diverse city like LA becomes more valuable. In the capital of remakes and reboots, old industries have become new again.

Unlike San Francisco, LA has a ready-made wellspring of talent in the entertainment and advertising industries—the Los Angeles Economic Development Corporation estimates the region’s entertainment and content industries generate $55.9 billion annually, and a recent study said the city’s film and digital media industries generated 265,200 jobs—and a larger, more diverse population and economy. That’s led expanding entertainment giants, such as Netflix, Amazon, and YouTube, who collectively plan to spend billions on original content annually, to sign massive leases for new offices and production facilities. A study by research firm Beacon Economics predicts LA county will add 16,500 digital media and film-related jobs in the next three years.

LA’s employee base is unique, says CBRE’s Pion, with has no shortage of tech, design, and film talent coming from schools such as Parsons, USC, UCLA, and Chapman.

“It may not be equal to Silicon Valley, but the startup community down here is pretty robust,” says Pion.

With the expansion of direct-to-consumer marketing and brands, the ease of setting up e-commerce on improved sales platforms, and the tech industry’s push into a wider array of industries, Los Angeles has become much more desirable for startups. The city has birthed new consumer brands such as Honest Co. and Dollar Shave Club, which was bought by Unilever in 2016 for $1 billion. Last year, 23 percent of LA’s tech funding deals were for consumer products, and another 23 percent were for media.

These startups can cluster in neighborhoods already home to companies within their industries. Music and fashion companies may cluster around downtown and the Arts District, and the next generation of media companies are in West Hollywood.

“It’s not as much that it’s strictly tech, it’s these hybrid companies in very tangible industries,” Pion says. “An financial tech firm may take over a big office in Sherman Oaks to be near the traditional center of accounting. You’re now seeing venture-funded tech startups expand all over the city. There’s no one area that dominates.”

Further south, in Long Beach and the South Bay, Elon Musk has tapped into Southern California’s aerospace heritage with SpaceX, a private space startup. The company recently received approval to build its Big Falcon Rocket at a 19-acre plot in the Port of Los Angeles, a development that has already supercharged South Bay real estate.

Along with Tesla and Hyperloop, which plans on opening a test tunnel in Hawthorne, Musk has helped generate another LA tech cluster. In addition to raising funds—SpaceX and Hyperloop raised $450 and $135 million last year, respectively—it’s already spurred on the construction of new offices and apartment complexes, and added more excitement to nearby redevelopment plans, such as the Port of San Pedro renovation.

According to CBRE’s Pion, the move south, to an area once dominated by defense contractors, is attracting aerospace and space companies, and, increasingly, other tech firms seeking space in a supply-constrained market.

Jesse Gundersheim covers the San Francisco office market for CoStar. He says a lot of the growth in LA is spillover effect, companies that would like to be near the Bay, but due to space and price constraints, simply can’t afford it. He finds companies that do move from the Bay Area tend to head to West Coast cities such as Austin, Denver, Portland, and Sacramento, where space is cheaper. And if they have the choice, he says, they’d rather pick LA than Austin due to the lifestyle benefits.

Changing real estate currents in Silicon Beach

This activity and talent base explains why nearly every tech giant has a significant presence in Los Angeles: Apple is leasing a space being built in Culver City near a new Amazon Studios office; Netflix continues to grow in Hollywood, leasing a new 13-story tower on Sunset to match its existing 14-story office; Google just opened a massive space in the cavernous Hughes Company airplane hangar that will, after renovations, contain 525,000 square feet of office space and expanded production facilities for YouTube; and Facebook is looking for260,000 square feet of space in Playa Vista.

With those new companies and offices come more tech workers, who will continue to make an impact on local real estate. According to Stephanie Younger, who sells homes for Compass in Silicon Beach neighborhoods such as Venice, Playa Vista, and Marina del Rey, 65 percent of her buyers under contract are in the tech industry.

The number of techies and tech workers buying in Westside neighborhoods has driven up prices in an already-expensive area. While it hasn’t caused quite the same level of backlash as tech’s real estate takeover of San Francisco—the decentralized nature of LA, and the existing high prices, means the industry’s impact hasn’t been as concentrated—it has altered the homebuying market. For years, developers have been tearing down old bungalows on Venice side streets and replacing them with expensive, modernist boxes, or rehabbing with up-to-the-minute styles to appeal to 25- to 35-year-old buyers, says Younger. The growth of high, and higher-end, retail on Abbot-Kinney and Rose Avenue speak to the rising cost of living in Venice.

“Retail is probably one of the biggest indicators of what’s happened to this area,” she says.

The biggest catalyst in the emergence of Venice was the 2013 arrival of Snapchat, which decided to purchase an array of smaller spaces, including a beachfront bungalow, and gradually built a decentralized network of office spaces near the beach.

“Prior to Snapchat’s arrival, it wasn’t viewed as an office hub, it was a quirky beach town,” says Steve Basham, a senior market analyst at CoStar. “Over the last few years, it’s changed the character of the area, and there’s been lots of local resistance to the takeover. Snap [the parent company of Snapchat] took virtually all the available office space in Venice.”

In April, when Snap announced it was relocating much of its workforce, abandoning half its office space and moving workers into a traditional, centralized office in Santa Monica, it opened up 200,000 square feet of rental space — and a discussion of the future of the Venice office market.

More than six months later, it’s clear Venice isn’t going anywhere. Basham said nearly 40 new leases have been signed in the last half year, nearly double the pace of the previous three years. It’s expected that a vacuum of that size would lead to lots of new deals, but it also shows the premium new startups place on being located on the Westside.

“There’s so much opportunity to get into Venice right now,” says Michael Springer, another local analyst at Halton Pardee + Partners. “You can spend all day looking at new spaces.”

As the city’s tech scene grows, that decentralized nature is one of its biggest drawbacks. According to a Boston Consulting Group study released this spring that looks at LA’s potential, “Stars Aligning: How Southern California Could Be the Next Great Tech Ecosystem,” the city’s sprawl constricts growth opportunities, making it harder to create the critical mass of companies and employees typically required for successful innovation. The upcoming 2028 Olympics, which promises a region-wide transportation upgrade, as well as an increasing number of homegrown successes, can hopefully alleviate that problem and help build larger clusters of like-minded businesses.

Still, according to the report, Silicon Beach, where tech giants keep expanding their footprints, shows one vision of a tech-driven future economy. It may be why Venice is now attracting scores of smaller startups, says Springer. It makes sense if you follow the money; many of the city’s VC firms, including Amplify, are clustered near Santa Monica and Venice. There may be more than a few looking to capture some of the Snap magic.