The Time I Called an Economist "Dude" RE: Caltrain

I've never really been called an "angry blogger" before today. Guess there is a first time for everything.

I hate arguing on twitter.  I don't think fighting in 140 characters is useful and it always just makes me mad and entrenched.  I do love twitter for sharing information, which I do very frequently as many of you reading this know.

But today I just couldn't help myself.  Right after yesterday's Caltrain post I was particularly incensed by Dr. Matthew E. Kahn, an economist who teaches at USC writing exactly what I was annoyed at the day before.  He made even more assertions that bothered me and I felt I needed to call him out on it.

@mattkahn1966 Also, Goog and FB riders take private buses. Perhaps you hadn't heard of them. Finally, why shouldn't we go after our own $$?

— The Overhead Wire (@theoverheadwire) March 14, 2017

To which he replied...

@theoverheadwire land value capture! Study some urban economics please.

— Matthew E. Kahn (@mattkahn1966) March 14, 2017

I don't expect Dr. Kahn to know where I've worked or who I am but considering my previous work on the subject I was a bit shocked by this dismissive response. I've put together parcel data over time in GIS to study the value changes in streetcar lines and have contributed to a number of papers on the subject of transit and value capture so no, I don't need to study urban economics.  I get the concept.

In fact, I understand value capture related to transit very well because of my colleagues that wrote exclusively about it at CTOD.  Case in point.

@theoverheadwire @mattkahn1966 value is already capitalized into the land, in one of the most unaffordable places to live. Capture what?

— nadine fogarty (@NadineFogarty) March 14, 2017

What Nadine is talking about has been discussed many times in her work. We know from the research that value can't be generated in significant amounts to pay for transit without vacant land to goose the increment.   

It seems as if people see Value Capture as a panacea when in reality it's a scrap that's constantly fought over.  Want affordable housing? Use Value Capture! Want new infrastructure for dense infill? Use Value Capture! Want new transit infrastructure? Use Value Capture!  And in his longer than 140 characters here is what Dr. Kahn said:

In truth, a simple Ricardian model of land would predict that the main beneficiaries will be land owners 10 to 15 miles from Silicon Valley whose land is close to the Caltrain stations.  As the train becomes faster, these suburbs will enjoy a sharp growth in housing values. A simple theory of land value capture would say that these land owners should be taxed and the collected revenue can pay for the train.   Why do the Federal tax payers get a bill while the local land owners of the land near the now faster train stations get a $ profit windfall as their asset appreciates in value?  

This ignores all the existing demands on value capture mentioned above, and that Caltrain already exists and development near it is virtually blocked.  Increases in value aren't going to come specifically from Caltrain investment, but rather from zoning restrictions. No one in? Lots of demand? Value up! That's not to say we shouldn't be trying to capture some value, but it's not going to be $2B worth of value created to pay for the line.

But here are some of his other arguments that are to me nonsense.

1.  There are 40 million people in California.  If we all pay for this "key project", then we will pay a one time fee of $16 dollars to invest in this durable capital. This is the immediate proof that California could fund this improvement on its own.

I think we already did pay for the slice of the project when we sent our money to the federal government as taxes.  In applying for funding through New Starts, we're getting our money back.  If you want devolution, say devolution.  If you think we shouldn't fund regional transportation at the federal level, then let us keep our gas taxes. But in the system AS IT CURRENTLY EXISTS, If we don't apply for that money, someone in another city will.  We don't build a lot of freeways here so we're not getting back federal money on the peninsula we're sending in for either gas or income tax.

So don't tell me we could pay for it ourselves.  Yeah. We can. But that's now how federal transportation funding works right now.  The theoretical in all of this bothers me as attack.  Because we aren't repealing Prop 13 anytime soon and the federal process for capital improvements isn't gone yet.  And it's going to be hard to kill it.  Theories are great.  But label them hopes and unicorn wishes.  Not analysis.

2. If the main beneficiaries are Silicon Valley workers, who will have a faster commute --- why don't Silicon Valley firms pay for this themselves?  Why don't the commuters pay a higher fee for the train? They can work away inside this sardine box and Facebook and Google's profits rise as their productive workers make progress.

It's not all silicon valley workers, and many of these riders don't work for Facebook or Google or the giants because those workers ride their tech buses to work. As public transit, it should be affordable to everyone to make the economy work.  Perhaps they need an employment tax like Portland uses for Tri-Met, but ultimately electrification and speeding up the train allowing more people to take it benefits the environment and people that can't afford a car. 

Silicon Valley is a rich region.  Why on either equity or efficiency grounds does it merit federal transport subsidies? If this project is so valuable, why hasn't the local region figured out a local funding strategy?  My theory is simple.  Since the local political leaders thought that Hilary Clinton would be elected President, they chose to delay the project until her team agreed to provide the subsidy.  The temptation of waiting for other people's money caused an inefficient delay in launching a productive project (the faster train). Now a game of "chicken" is playing out .  I'm sure that speeding up the train is a good public policy. Now, there is a fight over who pays for it.  The winners from the local public good improvement should pay!

Sure! Caltrain officials just were waiting for Hillary to win. This is what made me tweet because its a stupid assertion that doesn't even make sense.  The federal funding process of capital projects doesn't follow a political cycle.  It happens when it happens because of all the analysis that needs to be completed behind the scenes. 

And the FTA has been funding projects since 1991 through different administrations. How is it so hard to think that good projects that get rated highly in a very scrutinized process (more than highways ever will be) wouldn't be approved even in a new Republican administration.  Perhaps they should have thought better because of the asshole tendencies of Trump.  But it was the minority party in the State of California at the federal level that pulled this for political and not value reasons. 

So now according to Dr. Kahn I'm an angry blogger.  I guess I also wear pajamas and live in my parents basement instead of doing my actual work as a transportation and planning consultant, podcast host, and aggregator of news about cities.  Perhaps my 8 years working for a well known non-profit research organization counts for nothing too.  At least my blog allows comments.  I wouldn't want Dr. Kahn to be inundated with views that challenge his blog assertions.

The Ravages of Prosperity

It's interesting how any transit investment can be seen as good or bad based on how the increase in values affects the community. Some want better property values but others don't for fear of being displaced. So you're damned if you don't, damned if you do.

Redevelopment, as it turns out, is actually bad because it prompts higher property values (and taxes) and might gentrify the district, forcing some people to move. In other words, light rail should be prevented from doing what it does best: add value to urban neighborhoods. More stations might be OK, according to the suit, but only if nearby residents and businesses are insulated from the ravages of prosperity. At least that's the drift of the argument.

So do we just not improve anything? I'm sure that's not the answer. But these things are tough to balance.

What is "Economic Development"?

What comes to mind when someone says that light rail, streetcars, or BRT will bring economic development? My first guess is that people imagine that more buildings will be constructed along the route and the economic impact of that construction is what comes to mind. But what about other measures of economic development like worker productivity and connectivity to the regional employment pool?

I think too often economic development comes in one form when we're talking about transit, which I think might be going down the wrong path. We know that transportation decisions which provide or increase access to a place are likely to increase its value and ability to develop. But what about all the other benefits such as fostering denser employment clusters or connecting workers of all economic levels to regional jobs? Increases in the quality of workers that an employer has access to is another measure of economic development. Allowing workers to save money on transportation in order to spend it elsewhere is local economic development as well.

The related issue is who gains from this economic development. With the building construction based economic development, its easy to assume that developers and the people that buy the new condos are the only ones who benefit. This type of thinking creates a flash-point on which opposition to your project can zero in on to say you're not helping the people that need it the most. It's a valid concern but it's also missing out on the creation of tax base that goes back into the budget for the whole city to use. Denser areas for their part are huge economic engines. Not discussing this larger view of economic development is doing a disservice to the project, especially when you think through how the specific project will or will not help the situation.

If the main reason for a project is economic development, it would be helpful to describe the economic outcomes that you expect to achieve with the project. A streetcar or light rail line is going to provide a mobility benefit, but it is how we talk about those benefits that ultimately allow people to understand what the project is really about. Many projects don't do a good job at this and are maligned by the opposition. Many bad projects get oversold, hoping that "economic development" will save the day. I believe the key is to figure out whether the project is doing what its supposed to be doing, and move forward from there.

Monday Night Notes

Chris Leinberger tells us that "value capture" is the term of the next year. Though I wish he would dig a bit deeper.
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Izmir imports trams from China.
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Is McCrory for transit or against it? He likes the train when he's in Tampa, but doesn't want to spend money for the streetcars or an extension of light rail. Kay Hagen understands.

Hagan rode to her new Charlotte office – a symbolic short hop – on the Lynx light rail line, a reminder that earlier this year, she secured $24 million for the Charlotte Area Transit System

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Edmonton will levy a fee on suburban developers to pay for new transit.

Parking Rates & Housing Needs

In Phoenix, Light Rail has pushed more businesses to core areas and pushed parking rates up.

While they remain among the lowest in the nation, monthly parking rates in Phoenix grew faster this year than in any other major metro area in the country. A new annual report on parking rates from Colliers International says the median unreserved monthly parking rate in Phoenix is $65. That’s up 24 percent from last year’s survey, while the national average declined 1 percent. Two years ago, the average in Phoenix was just $35 a month.

The strange thing is the light rail is causing more people to drive downtown. Perhaps downtown parking fees should be harvested as value capture, since there seems to be some sort of causation according to the article.

“With the light rail’s capability of moving more people in and out of downtown, we are beginning to see entertainment venues and businesses shift from the Camelback Corridor and other metro areas to downtown Phoenix to take advantage of light rail traffic,” Miscio said. “This shift is also driving more auto traffic into downtown, increasing parking garage usage and rates during both the daytime and evening.”

Though businesses moved, development has been slow in Phoenix, for obvious reasons. But while the line connects destinations, according to local developers it's lacking in housing density, which is another likely reason that more people are driving and parking rates are higher. It's times like these that looking at value capture possibilities to pay for more transit and related infrastructure is probably a good idea. Especially since there is likely to be a residential building uptick if there is a lack of options along the line.

Rising Values Near Transit in UK

There is an article in the Times of London on whether purchasing a home near transit is a worthwhile investment. In London people are willing to pay a premium to be near a tube stop and values around areas that will soon be stations are rising quickly.

The extension of the former East London Tube Line will run from West Croydon and Crystal Palace to Dalston Junction, and will connect with the Tube network at Whitechapel. A second phase, due to open in 2011, will continue the line through Canonbury to Highbury & Islington Tube station. The average house price has already risen from £187,800 in 2001 to £317,959 in 2007, according to Hometrack, and gentrification has arrived in the form of the Dalston Culture House and the relocation of the Vortex jazz club to new premises, as well as several new restaurants.
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A 2005 report by the Passenger Transport Executive Group found that all UK tram schemes have led to increases in commercial and residential property values, in some cases by 15 per cent. Rental prices have risen by 7 percent.

What is most interesting though is something we never think of here in the United States. The warnings to some are that retailers won't be around until closer to the time that the new station opens.

But buyers must be prepared to wait. “The change will not be instantaneous. Some people who would never have considered living in an area without a Tube line will come immediately. Others will wait for the retail and restaurants.” Scotford urges buyers to be aware that retailers may not arrive immediately to the area because current leases will take a while to expire. But it should not take too long.

The fact that they expect retail that is within walking distance is a little bit different. Here there are a whole heap of issues surrounding the type of retail and whether there will be enough parking because around the station extensions, there is generally not enough density to support such retail without parking or other help from cities, but there it's expected. Kind of an upsetting commentary if you ask me.

$1.8 Billion

That's how much the development along the Charlotte light rail line adds up to. No small, change, that's over 250% return on the initial investment of just under $500 million. That's just on the development and doesn't include these savings:

Morgan said new mixed-use transit-oriented development has sprung up along the line. There’s numerous anecdotes about lifestyle changes, he said, including downtown workers living in condos or apartments near rail stations who have sold their cars and avoided insurance, gas and other costs while getting transit subsidies from their employers.

Pent Up Demand, Synergy, & The Market

Chris Leinberger is hopping on the urban train so to speak. Brad Plummer's post over at TNR's The Vine has already gotten some coverage at Greater Greater Washington and The Bellows but here's the money quote that discusses the lacking supply of walkable communities people want but can't afford.

By his count, some 30 to 50 percent of residents in U.S. metropolitan areas want to live in a walkable urban environment—a trend fueled by the growing number of single and childless couples, who will constitute 88 percent of household growth through 2040. Trouble is, he estimates there are currently only enough walkable neighborhoods to satisfy about 5 to 10 percent of metro residents, which is why rents in transit-accessible areas are so exorbitant.

The other side of this as both blog posts noted above is the issue of land use and zoning. I'm going to throw another wrench in and say there has to be a market. There have been a few rail projects that hope the build it and they will come system will work but there needs to be a concerted effort and existing market to make it work precisely because of the problems with our zoning code. An example of this is Cascade Station in Portland. On the way to the airport, the Bechtel company traded building the line for the land at the station. Unfortunately 911 hit a few days close to the opening of the line and the market dropped out from under the developers.

There's also the synergy issue. Places like the Pearl District and the South End in Charlotte were the next places to grow and close to the downtown urban market. I would say the transit was able to shape the development intensity. Further down the South Corridor has been a bit slower to take off. Over time as the prime properties are expanded, I expect the development to move further south along the line.

So while I see there is demand for walkable urbanism as Chris calls it, there are timelines of implementation that should be mentioned as well so that people don't expect overnight change. The Rosslyn Ballston corridor didn't take off over night either. I feel like the synergy point is an important one that gets missed from time to time when people expect TOD everywhere once the line opens. It's a long term investment with long term results. It will be interesting to see what happens in Denver as the opening of the whole transit system almost at once under the Fastracks program. I have heard some state that the push and focus that happened along the Southeast Corridor won't be replicated because the demand will be spread out among all the opening stations. It makes for an interesting test of the synergy idea and whether transit will be able to focus the intensity as it has in other corridors that had all the attention.

On the issue of paying for lines, I think developers will get a major boost from the infrastructure investment and should pitch in, or at least not be able to keep the massive windfalls from the investment that was made by everyone. But its also dependent more on vacant and extremely underutilized property appreciation. More money will be generated through vacant to build out than the appreciation of properties that already exist. Too many people think value capture will always be the answer when sometimes it will not, because the increment is too small to generate the funding needed. These issues and a ton more are discussed in a recent paper on Value Capture by the Center for TOD. We'll discuss that piece another time.

Also, a while ago I covered some key quotes in Chris Leinberger's book, The Option of Urbanism. Here's the series post by post.

Series Intro
The Favored Quarter
The Endless Landscape
Real Development Subsidization
Metro Brings Change
Subsidizing the Rich

Friday Night Linkfest

Siemens will hire 200 workers in Sacramento to build light rail cars.
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Strip malls offer an opportunity to change our development paradigm. The Oregonian:

Strip malls offer a particularly keen opportunity. Look past the big box stores, Nelson said, and you have large, flat, well-drained, developable space linked to existing infrastructure. Broad rights-of-way allow easy access. There is space enough to bring in tracks for light-rail trains or streetcars. They are perfect for much denser, mixed-use developments in which people can live, work, shop and eat, he said.

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Ask Barack Obama to focus on smart transportation investments. T4America.
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No light rail? Empty commercial space. Denver Post:

New office buildings opening in southeast Denver are leasing well as long as they're next to a light-rail stop. Developer John Madden's Palazzo Verdi, which has direct access to the light-rail line, is 100 percent leased to Ciber and Newmont Mining. The building opens next week.

But Shea Properties' Maroon V, which does not have direct access to light rail, is sitting vacant. The building opened before Shea's Village Center Station, which is under construction along the rail line and is fully leased. Wireless-service provider Cricket and Shea will occupy the building.

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Follow the Yellow Brick Railroad for Fort Knox.

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The question should be: Do you really want to speed up traffic?

Waiting for Guffman or TOD

As I read this article about Developers in Austin who are postponing their development because the street they are adjacent to might have light rail, I think of all the wasted opportunities, such as the building of a Home Depot on the Central Corridor in St. Paul. But I also think back to if the light rail would have passed in 2000. It would be built by now and expansions would certainly be planned because ridership would more than likely be above projected ridership. And one of those could have been a Riverside line.

But the opportunity lost for smart redevelopment on Guadalupe and other streets was huge. My most hated project was the one on the corner of 38th and Guadalupe, a stupid Starbucks built by notorious rail hater John Lewis. What a waste of an acre. Instead of ground floor retail and 20+ housing units, they got a Texadelphia and a Starbucks in a single story building. That development was a direct result of the 2000 light rail loss.

Now in the current instance, the developer pausing is ok, but its likely the project as a whole won't be transit oriented like it should be. It's not like they need permission to build a dense transit oriented development on Riverside. There are University of Texas buses as well as Capital Metro buses that run there. At some point in the future their should be higher capacity transit. The last thing that irks me is that they are waiting for the city instead of being more proactive in pushing for the rail line. If they realized the value it would create for thier property they should be the ones pushing on the city, not the other way around. And it would benefit them to wait a bit for the market to get better as well. Apologies to my friends who are transit oriented developers, but your colleagues need an education.

Friday Night Linkage

Time to figure out which route is best for the Southwest Corridor in Minneapolis.
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Pelosi for HSR. Major firepower will make sure that this project gets its federal funding in the next congress.
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A Streetcar for Middletown Connecticut?
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Is a DDOT Streetcar ever going to get built?
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More on Denver's property increases near light rail:

As I've mentioned previously, many of the people that I've talked with on my trip have mentioned that transit is not good where they are, and it's a deciding factor not just in what neighborhood they move to, but what city they move to. We don't have any data yet on the West Corridor, but anecdotally, I have seen a lot of competition for properties on the west corridor. We lost a bid on a property that was listed for around $100,000, even though we bid $25,000 over the list price.

Property Near Light Rail Weathers the Storm

While housing values around the country are falling, there has been anecdotal evidence of value near rapid transit staying high or even going up. Now we have empirical evidence in Denver that this is true:

Homes near light-rail stations along the southeast line, which opened in November 2006, have increased by an average of nearly 4 percent over the past two years, according to an analysis by Your Castle Real Estate. But the rest of the Denver market declined an average of 7.5 percent.

"I know that it's always been a good neighborhood, but I didn't think it was like that," said Humphrey, who doesn't drive and frequently uses public transportation.

The closer a home is to the station, the more its value increases, according to the Your Castle analysis. Homes less than a half-mile from a station increased an average of 17.6 percent, while those 1 1/2 to 2 miles away increased just 0.1 percent on average. The data varied widely among stations, however.

17.6% is no slouching in this economy. I'd love to see the study in more detail, but the initial findings reported look very promising.

Rising Property Value Time Frame

Hamilton, just outside of Toronto, is expecting increases in property value from light rail that would be in the new Toronto long range plan.

It will rise again soon, suggested a real estate report yesterday. Older properties near King, Main and James streets will gain the most in value if Hamilton gets light rapid transit, as city staff hope. So says the Vancouver-based Real Estate Investment Network, which looked at the housing value added by big transportation projects in Hamilton and Kitchener.

Study co-author Don Campbell says the value of homes within 800 metres of new rapid transit or GO stations will rise 15 to 20 per cent more than homes in non-transit areas. He's excited by the prospect.

Somewhere in the article they discuss that it will take a year, but I'm not sure if that is believable. I often wonder with studies like this what the real time frame is. Such a quick time frame doesn't seem reasonable while a long time frame seems so far off it might just seem like regular increase. They also say that there is a price premium on living near highways.

But he said property near the Red Hill Valley Parkway will see real estate increases in the years ahead. Being one to three kilometres from easy highway access can give you a 10 to 12 per cent premium on your home's value, he said. Transportation-related premiums -- which insulate homeowners from market downturns -- appear a year after a project is done, he added.

Though I wonder how much that will change with gas prices. In a PBS special that is going to air soon, they interview a family who are spending over $1,000 a month on gas because they live so far away. Those housing prices have to reflect that truth. As my colleague Scott Bernstein says, we need to build cities that isolate citizens from these peaks and valleys of cost. I believe the biggest way to do that is to invest in sustainable transportation.

Street Railway Resurrection

Michigan lawmakers are looking at a bill that would allow street railway companies to form in the state and use recently passed tax increment financing laws and other mechanisms to fund new lines. I don't imagine the line is completely private, but its an interesting step away from the public transit agency model. It seems similar to Portland Streetcar Inc, but I haven't looked deep enough yet to see the similarities. There are some interesting provisions though:

As envisioned in one set of bill drafts, for which state Rep. Bert Johnson, D-Detroit, is the lead sponsor, the street railway company could build, own and operate the system. The company could acquire property, including through gift, purchase or condemnation, and could borrow money and issue bonds.

It's a fascinating idea and the point is to have it replicated all over the state, from Grand Rapids, to Ann Arbor, to Detroit.

Allen also said a goal is “to come up with a replicable plan, which means that we can work it in Detroit, or Grand Rapids. We’re open to input from anyone. If this tool can work in a variety of communities in the state, that is one of our objectives.”

The Double Standard

Ryan makes a good point about the double standard that exists for freeways and transit. When you build freeways with excess capacity, it's generally called an investment. When we build transit with excess capacity for the future its deemed a waste and not worth the cost. In this respect, sometimes I feel as if the cost effectiveness index is like a handicap. Its supposed to make sure we're spending money wisely, but sometimes it's just holding back investment that would make real change.

The point that highways are built speculatively all the time while transit is not is a very good one, and one which never fails to get my goat. But I think it’s worth emphasizing that speculative transit isn’t really about building lines into the wilderness. It’s about building lines into places people already live in order to take better advantage of valuable land there.

Rising Property Values

The issue of rising property values is a blessing and a curse at the same time around new transit lines. On one hand, rising property values show improvement and that the line is making the area more desirable. On the other hand, rising property values show improvement and make an area so desirable that current residents get pushed out.

But it can help both if planned appropriately. If you know what happened in previous situations, you can plan for accommodating all parties. The value captured due to the infrastructure investment could pay for the transit, or even new affordable housing offsets. This is the possibility in Calgary, where property values rose 628%. That is double what housing prices rose in general. Amazing.

H/T to PC

Denver Bill Could Allow Public Bonds and Joint Development

The Denver Transit Stop has a post up alerting folks to a new bill passed by a house committee in the Colorado legislature that would allow the Regional Transit District to sell tax exempt bonds and loan the money to contractors building PPPs.

Another twist is that the bill would allow the private entities to use the money to develop at the stations. I'm not sure if this includes eminent domain but it does allow joint development which would be a way to offset some of the costs of the overall project.

The bill language states:

...political subdivision may, in connection with a mass transportation system project financed by private activity or exempt facility bonds issued by the district, lend or grant money or any other form of real, personal, or mixed property directly to a private business developing or operating the project or indirectly to such a private business through the district and may enter into contracts to make such loans and grants, all upon terms and conditions the district or private business and the state, state agency, county, municipality, (etc)...

Very interesting.

Increasing Value

In Toronto a study recently completed posits that with the completion of the Spadina Line expansion, land costs will have risen 20%. I hope they are doing something to capture some of that increased value. The Star reports.

"In the future, these areas will outperform the rest of the region. If the market goes up everywhere, these areas will increase by 10 to 20 per cent or more. If values in the GTA drop, these will drop by 10to 20 per cent less," forecasts Campbell.

Campbell said he doesn't own property in the area, but will be looking this week for multi-residential units as an investment.

Access to transportation is just one of many real estate criteria used to determine value, but it is becoming increasingly important as highways grow more congested and gas prices increase.