Can We Fix Wall Street With Taxes?

Posted on November 6, 2019 by Nat Zorach

I woke up to a particularly fun article from Business Insider. I had slept well. But I had a dream that my dog had two heads, Voldemort style, which was admittedly, uh, pretty weird. (I blame Talenti.)

Turns out Jamie Dimon objects to Democratic presidential hopeful Elizabeth Warren’s plans to tax rich people. Color me shocked! He claims that she vilifies successful people. My first inclination was to just scream into the void. I’d like to remind Dimon that the taxpayers spent billions on Chase. Does that define a self-made millionaire or billionaire?

But the article made me think. Can we fix the economy with taxes? Can we fix Wall Street? Will Warren’s proposal for a wealth tax work? Will Bernie Sanders’ Wall Street transaction tax proposal work? Can we combine them?

Let’s look at both and look at what other options we might have.

THE ANTI-TAX CAMP

First: Jamie Dimon isn’t the only one who’s not excited. Bizarrely– though I didn’t think such a thing was possible- the Wall Street Journal has in recent years moved even farther to the right in attacking proposals to regulate and tax big business. They are, unsurprisingly, not fans of Warren’s proposal, which would essentially force rich people to reckon with their growing stockpile of wealth that, economists agree, provides little to no tangible value to the economy.

WSJ’s Richard Rubin (not to be confused with the historian) even went so far as to argue that taxing the rich to fund social programs and make society a better place– is actually bad because it would shake up philanthropy. Let’s remember that billionaire-funded philanthropy is wealth derived from creating the problems that the billionaire-funded philanthropy is then trying to solve. Kresge Foundation? K-Mart. Walton Family Foundation? Wal-Mart. But that, as they say, is a whole ‘nother article.

It should not be a surprise to anyone that some people just hate any and all taxes. Never mind that they love deficit spending and trade wars. Even when those things contribute to uncertainty and a decline in foreign direct investment.

SANDERS’ PROPOSED WALL STREET TAX

Sanders’ proposal would tax each market transaction on Wall Street.

Before you think, wow, that’s huge, let’s look at how things have changed in recent years. The stock market is far from what it used to be. Owing to the maturity of western economies, growth numbers that used to be there are simply not anymore. This is true in everything ranging from venture capital to large cap stocks.

While it’s theoretically more transparent and access is theoretically great (thanks, interweb!), market entry is still tough. A company looking to go public has many a hoop to jump through. So, while the stalwart crusaders sticking to that increasingly unpopular and demonstrably bogus idea that Mr. Market is all-knowing, free, and will fix everything, we’re faced with the reality that things are actually becoming less equitable.

We’re also losing things like economic mobility. And growth rates are slowing while debt is ballooning.

Wall Street hates the idea of a transaction tax because it would really throw a wrench in what has become a super messed up business model– trading massive volumes to derive profits solely from the bid-ask spread, something that has been likened to skimming pennies from transactions that don’t actually create wealth for the average investor.

If you’re unaware, stock markets work like any other market, where you offer to pay a certain price and someone else may or may not sell to you. The largest volume by percentage of trading is done by gigantic investors. They derive profit in no small part from razor-thin spreads per transaction. And– it gets better- most of it is done by an increasingly sophisticated array of robots, bringing to mind this great tweet from a 2018 mini-crash: 

 

This isn’t a new thing, but it’s gotten a lot worse in the past few decades. Markets didn’t operate fast enough to allow high-speed, high-frequency trading until the 1980’s, and valuations were only decimalized (they were previously fractions!) in 2001.

The funny thing, though, and a point I’ve raised frequently, is that most professional money managers and investment funds perennially underperform (random) stock market indices. That means that most times when you’re putting your money in the hands of a “professional,” you’re getting a worse return than if you were to just park your money in an automatically managed fund. This is true with the chartered advisor down the block as it is with hedge funds as it is with even venture capital funds.

Yea, tho the wealthy few may chase the unicorns, few ever find one.

(As a personal aside, my own investments also have underperformed the S&P 500 in the past few years. But I’ve realized few losses. And, if the market crashes, I’m well-protected to the point that I will actually make money. That’s a risk I’m willing to take. Incidentally, the Wall Street Journal thinks that the stock market still has a lot of runway left! Noticing a trend yet?)

Skeptics of Sanders’ proposal say that Wall Street will simply move their efforts to something else to make the bucks. Derivatives, for example, or new bond products. Collateralized debt obligations (CDO’s) and credit default swaps (CDS’s), among other products, were deployed in novel ways in the 2000’s and broke the market.

So, this proposal can’t be deployed in isolation.

WHY WARREN’S PROPOSAL ALONE WON’T WORK

A wealth tax might be a good start. It creates a disincentive for the wealthy to hoard capital. Warren makes the case that the problem can’t be solved through increases on annual income taxes alone because so much wealth is already being hoarded. Wealth held, as opposed to capital invested and reinvested, does not add value to the economy. The trillions of cash held in reserves by US corporations and the trillions held by billionaires simply loses money to inflation since it isn’t being spent. The argument is that it’s better to lose a percentage point or two to inflation than to have it invested in something less secure than the almighty dollar. Who knows? You also might need to buy a new yacht. Or a yacht to park inside your other yacht. Yachtception.

It’s inefficient. Though Reaganomics, Trumponomics, and WSJ types will insist that it’s “unfair” to tax these people’s wealth while also arguing in the same breath that their interests are in an efficient, growth-oriented market. 

My brother, a statistician, ecologist, and nerd of the highest order, came up with this idea when he created a since somewhat ill-attended platform for a virtual currency many years ago. The idea is that the currency would depreciate if you didn’t use it, encouraging continuous barter, exchange, and sale. Encouraging exchange to increase productivity rather than encouraging wealth hoarding? Radical, I know.

Such a tax could also be phased out over the course of a generation or two– it need not stick around forever if we can fix the other leading drivers of inequality. But, that said, good luck getting policymakers to think ahead more than the next election cycle.

IN SUMMARY: SOLUTIONS WORKING IN TANDEM

Here’s a summary of the ideas.

  • Increasing income tax on the highest-earning brackets. Also, create more brackets. This is overwhelmingly supported by the American public and even some billionaires. (Supported by most Democratic presidential candidates. Abhored by Republicans.)

 

  • Make capital gains tax progressive. If you are some sort of savant making millions from stock trades from your garage with money you made from a hot dog cart, you’re taxed at a rate pretty comparable to what a wealthy person would pay. We need to fix this issue. The current capital gains tax structure is regressive. (Unclear what the leading candidates have to say.)

 

  • Impose a small, per-transaction tax. This would have no impact on ordinary traders and individual investors but would discourage high-frequency trading. I’m not sure how much it should be, but I think you could make a case for a 0.5-2% per-transaction tax. Given that commissions have plummeted to zero in recent months in a particularly interesting race-to-the-bottom that seems to appeal to individual investors rather than institutional and large investors who don’t use retail brokerages anyway, this would hardly be an imposition. (Supported by Bernie Sanders.)

 

  • Repatriate trillions in capital being hoarded by the wealthy overseas. Minor problem. (Unclear what the leading candidates have to say.)

 

  • Rework the tax code to incentivize capital investment and hiring by corporations. Trump’s corporate tax cuts promised to do this. They didn’t. (Unclear what the leading candidates have to say– or how to tackle this elephant in the room.)

Anywho. It’s unclear whether any of these proposals will succeed. It is unfathomable to me that the reanimated corpse of James Buchanan couldn’t defeat Trump in 2020. In the dubious event that Democrats win the White House, Senate, and retain the House, policymakers will be clamoring to figure out which of these to implement and how.

In the mean time, I’m sorry to Jamie Dimon. I really am.

Channeling 2Pac: “I feel you, Boomer, trust me, I feel you. Last recession, we poured out liquor for you. This recession, Boomer, life goes on.”

Jamie Dimon doesn’t like how Elizabeth Warren “vilifies” successful people like him, who pulled themselves up by their bootstraps and didn’t ever get a bailout of $12 billion taxpayer dollars. (JP Morgan Chase photo)

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A Mayor Should Create Value, Not Refinance The Lack Of It

Posted on November 6, 2019 by Nat Zorach

Mike Duggan’s latest proposal to “eliminate blight” includes a proposed $250 million bond issue to finance his ongoing demolition program, which has run out of HUD Hardest-Hit funds.  At issue is not the feasibility of the issue itself, but whether it will impose a cost increase on Detroiters. (Spoiler alert: It will. And that’s problematic given that we already have some crazy high property taxes.) There’s an alternative to this kind of thinking. But first, it’s important to understand how we got into this mess.

Duggan has long embraced the “demolition as community development” strategy. I’d say that this has been controversial owing to a number of public fiascos (more on this in a minute), but it’s less controversial than simply problematic and, uh, at odds with reality. One study several years ago demonstrated, through some clever manipulation of data, that demolition could increase real estate values, and since then, it’s been all the rage. Other studies have looked at the effects of blight removal on crime. It’s not rocket science to imagine that a block with burned-out buildings might be less appealing to prospective homebuyers than a block without burned-out buildings.

The notion of “demolition to increase value” is, however, fraught. The market in Detroit is a stark microcosm of the “missing middle” that plagues the national housing landscape at large. Demolition is not executed on an “as absolutely necessary” basis but rather where it is politically expedient. As a result, many homes are demolished that could be rehabbed for a reasonable amount of money. Duggan’s point is that every abandoned house must be demolished, which, given the tenuous ability to classify homes already in states of disrepair, occupied or not, is troublesome. Is the idea to turn Detroit into his native Livonia, density-wise? (I’ll return to this question in a bit.)

The job of figuring out which houses to demolish is hardly an enviable one. The low density of a city that has lost more than two thirds of its midcentury peak population forces policymakers to allocate scant resources (mostly to billionaires downtown, but that’s a separate article).

Indiana St. on the west side of Detroit, where I used to do housing development work. This particular block had one of the highest rates of vacancy in the entire neighborhood. Rather than invest demolition funds into renovation, the city demolished several single-family and two-family homes, including one that we were at the time trying to purchase for renovation.

 

FUNDING DEMOLITION AS COMMUNITY DEVELOPMENT

There are a few problems with Detroit’s demolition program. First: The HUD Hardest-Hit Funds (HHF) were never intended to be used for demolition, but rather actual community development strategies in the wake of the 2008 collapse. Though it’s fair to argue that many of the demolished buildings did indeed need to come down as a matter of public safety, it is also fair to ask why so much has been allocated to demolition while funds focused on foreclosure prevention have been comparatively meager.

The Detroit Home Mortgage program, for example, was created to bridge the “appraisal gap” that exists between costs of construction and/or acquisition and the appraisal value that a bank will finance. Remember when those same appraisers justified sky-high valuations in 2004-2007? We didn’t forget! It’s a dumb problem to have to solve, but the program is a clever solution. DHM has unfortunately struggled with overall anemic loan volume in the city at large.

The Wells Fargo HomeLift program, which the company pitched as a “corporate social responsibility” initiative but was really part of a giant settlement for breaking the economy, was similarly quite limited in scope. I managed programs at Southwest Solutions funded in part by Chase Bank following a similar settlement.

Beyond these structural issues, Duggan’s programs have been plagued by scandal. Allegations of bid-rigging surrounded an ongoing FBI investigation. Contractors named their own price for backfill rather than bid it out, and could not verify the provenance of it, leading to questions about wholesale contamination, which was identified in a number of cases. A felon convicted of bid-rigging under the Kwame regime was caught working on a demolition contract. In a particular doozy, state representative’s house was demolished. Attorney Brian Farkas, who is sort of technocratic nobility and runs the demolition program through the public Detroit Building Authority, has brushed off concerns. Who cares where the dirt comes from, he asked, in fewer words.

Scandals aside, $250 million is, however you slice it, an awful lot of money. And if we’re being totally honest, there are better ways to spend that money. On, you know, things that might actually create value and tax revenue and jobs and actually effect development and investment. $250 million spent on demolition contractors means more taxpayer money leaving the city, since most of the demolition contractors are based in suburbs or owned by suburbanites.

What would that look like?

FUND NEIGHBORHOOD STABILIZATION THROUGH NEW DEVELOPMENT

Why not put that money into the city’s affordable housing trust fund? A quarter of a billion dollars could subsidize the development of thousands of multifamily housing units and accompanying renovations.

Focus on the spokes of the commercial corridors: Jefferson and Fort. Michigan. Grand River. Woodward farther north from New Center. Van Dyke. Gratiot. Focus on the areas that have abundant and salvageable, multifamily architectural stock, in well-developed transit corridors, and have low valuations. Dexter-Linwood, Joy-Tireman. Pair it with a bad old TIF regimen in several targeted districts to improve surrounding infrastructure and you’re well on your way to a complete makeover of the key corridors in the city. It’d go a hell of a lot farther than the more micro-targeted, $35 million commitment Duggan previously made.

The Detroit Park City model apartment at 872 square feet.

Let’s refer back to the rules of thumb that I, uh, so laboriously constructed for Detroit Park City. 872 square feet for an apartment at a cost of about $150,000 per unit. Land is more or less free if the city owns a lot of it and it is possible to acquire a bunch of cheap land along most of the major, formerly-commercial-but-not-anymore corridors. At these prices, you’re essentially subsidizing 1/3 of the cost of each unit, and that’s assuming it’s in the form of a grant rather than, say, a low-interest loan in a revolving fund.

A revolving fund could loan out this money at 0-5%, either operating at a net loss including administrative overhead or covering the bare minimum of operating overhead. A 5% annualized return on $250 million is more than enough money to cover administrative overhead, but not enough to cover the cost of capital, even in terms of inflation, so it would still effectively be sort of subsidy.

Livernois & Grand River looking south-southwest. Detroit’s commercial corridors are woefully underdeveloped, having suffered from disinvestment, demolition, and replacement of a coherent built environment with suburban-style strip malls.

As it stands now, developers don’t develop four-story mixed-use buildings way the heck up Grand River Avenue. It’s not because of a lack of demand, it’s because of a lack of capital. Mezzanine debt in a market where commercial (bank) lending is scarce is essentially like building a building on a credit card. You cut down the cost of capital and you’re cutting down risk– and maybe more developers would be interested. Especially if the city did the leg work to get these projects started. A transit-oriented project at Livernois and Grand River? Replacing a hellscape of strip malls and fast food joints with some attractive density– but located in between some of the city’s most historic neighborhoods?

While some demolitions are certainly necessary, the pace at which Duggan has demanded the work take place means that contracts will be awarded, by and large, to large companies. Those large companies will be, by and large, based in the suburbs (or, in one case, in Chicago). Subsidizing development instead at least provides an opportunity to create more local employment opportunities. And it’s not a stretch to point out that the biggest players in the small to mid-range of development are local.

Well, a boy can dream.

Detroit has more than enough space to deploy a quarter billion dollars of capital toward the development of affordable, quality, multifamily housing within developed transit corridors. (Panayot Savov.)

 

OTHER SOLUTIONS: FIX TAX FORECLOSURE

Nancy Kaffer of the Free Press pointed out that while the city may be easily address the monstrous and widespread issue of poverty in the city, it can easily address the tax foreclosure crisis, that results directly in vacant and thereby blighted homes.

“We’re pouring our money into a bucket with a hole in it,” she said on Michigan Radio. “You can’t demo your way out of blight when you haven’t meaningfully addressed blight the causes of blight.”

Duggan’s administration, ever in its increasingly Trump-esque quest to evade public scrutiny, is pitching the bond issue as a thing so great that it does not need to be questioned. (Incidentally, the “ineffable solution” pitch– that we’ve got it all figured out, so don’t worry about it- is characteristic of Trump as well.)

Which is why it’s been ever more interesting to watch investigative reporter Violet Ikonomova square off with Duggan’s crew, as she did when she crashed a private breakfast hosted by Duggan to promote the bond issue. (John Roach in the mayor’s office doesn’t respond to my inquiries, or I’d try and get a quote from him on the story.)

One thing’s for sure– as a city taxpayer and property owner, I’m not excited about the idea of kicking a quarter-billion dollar can down any of the major arterial roads in the city. Kwame had a similar idea when Wall Street dragged him into the metastatic debt bubble of the 2000’s to refinance the city’s crippling debt load.

It didn’t end well for him.

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Sorry, Tim– Pocket Change Can’t Fix Suburbia.

Posted on November 5, 2019 by Nat Zorach

Apple just announced that it’s committing a bunch of money to housing development in the Bay Area. That’s good, right?! The principal element of the $2.5 billion package is a $1 billion line of credit. $1 billion will also be committed to a first-time homebuyer assistance fund. At a median home price of $966,000, that’s just over 5,100 downpayments of 20%. But housing experts suggest that the Bay Area is hundreds of thousands, if not millions, of units behind. $1.1 trillion market capitalization, 1 million housing units short, $5 billion investment. How do we make sense of all of this?

First, Apple is joining other clubs of tech behemoths based in the Bay Area to produce this, well, whatever it is. The Bay Area’s notorious housing shortage has made international headlines in recent years with the explosive growth of the current tech bubble. That companies like Google and Apple are based in low-density suburbs distant from the, uh, “authentic culture” of San Francisco means, well, a whole lot of messy. Google made a similar commitment to housing investment earlier this year.

EQUITY CONTRIBUTED IN-KIND IS NOT GOING TO FIX THE HOUSING MARKET

Of course, when you read closer, both companies’ commitments are heavily dependent upon their “contribution” including not hard cash, but equity in the form of land that they own. The actual cash being committed works out to well under one percentage point of each company’s cash reserves. That’s the best you’ve got, Tim?

Lest I seem ungrateful: Companies desperate to attract and retain talent are interested in spending less than 1% of their cash reserves on things that could make a substantive difference for millions of people while also making their employees and governments happier. Figures. When the market crashes and trillions of valuation are wiped out from tech, this will moderate housing demand: San Francisco’s race to the top has slowed considerably in recent months as the market tops out. But at issue principally is the structural limitations of housing investment in the Bay Area.

Democratic presidential hopeful Bernie Sanders points out that Apple’s commitment does not solve the structural problems with housing in that it turns Apple into a real estate lender. (As someone who did time in a home repair grant program, I can attest to the fact that it’s not an enviable role.) Sanders’ solution instead suggests that corporations pay their fare share of taxes. It’s a fair point, especially returning to this question of how these companies have amassed so much cash and can’t do anything with it.

Except, of course, share buybacks, which is going to turn out great in the next economic downturn. Also important is the fact that we can’t just wave a magic wand and rewrite the tax code– that will take years and I am increasingly doubtful that in my lifetime we will even have an equitable system that works for human beings as opposed to primarily for billionaires like Mark Zuckerberg, Tim Cook, Larries Page or Ellison, Bill Gates, Jeff Bezos, and those other heralded titans of industry, dreams, and magic.

But I digress.

Also fair is the observation that California’s urban development platform, is, well, messed up. While the state is in some regards a leader in regional thinking and planning given the sheer necessity of it, it is to some degree held hostage by Silicon Valley wealth.

HEY, BIG TECH: PUT UP OR SHUT UP

Nor is Apple exactly a champion of sustainable urbanism. The Bay Area, that great, burning center of the cosmos of innovation around which we all aspirationally orbit, has woefully underdeveloped public transit for how much it has grown in recent years. Apple has not been particularly helpful in facilitating a long-proposed (and long-delayed) BART expansion to San Jose. Tim Cook wants Apple to be in the spotlight for their purported housing commitment, yet Apple is holding up transit expansion. Funny how that works.

Critics have further pointed out– correctly- that California’s addiction to the single-passenger automobile is perhaps the greatest threat to its otherwise generally laudable sustainability goals. The embattled high-speed rail project and hard austerity proposals to eliminate transit funding are further hurdles to sustainable development.

Where is Big Tech in this debate?

With beaucoup bucks in cash and lobbying money, they should be front and center. Heck, Apple could fund a national high speed rail network out of its own cash reserves. But they won’t, because that doesn’t involve selling more widgets. Of course, Apple isn’t a railroad. But that these companies have exploded in growth means problems for the cities they’re located in. They are necessarily stakeholders and are necessarily crucial to the process.

REGIONALISM AND ZONING

Ars Technica’s Timothy Lee points out that restrictive zoning limits the effectiveness of the package. Lee focuses on the high percentage of zoning in the city of San Francisco dedicated to single-family housing and the higher percentage in the suburbs. But YIMBY’s in San Francisco frankly bark up the wrong tree by focusing disproportionately on the city itself. Tech immigrés flocked to the city because it had decent, vaguely reasonably-priced housing. You know where they didn’t have a lot of decent and affordable rental housing?

The ‘burbs, of course. The ‘burbs that remain low density in spite of desperate and ubiquitous demand to become denser.

2000 density map of the San Francisco Bay ARea. Note the extremely limited areas of high density. This map increasingly represents not only the central urban area but a growing commutershed, if you will, as people commute into tech jobs from farther away. San Jose’s sprawling, gerrymandered municipal boundaries occupy the mostly green zone in the southeastern “corner” of the San Francisco Bay in this map, indicating, well, a lot of growth potential. Though San Jose has grown by leaps and bounds in recent decades (in density, too), it remains, by standards of modern urbanism, very low density.

Once we get into the billions of dollars, we’re moving a bit beyond gestural commitments. But the scale is different, too. And contribution of value principally through company-owned land will be dubious in the event of a real estate market crash. Lee’s article is right to point out the problem with zoning, because it allows wealthy cities like Mountain View or Palo Alto to retain their low-density, single-family exclusivity.

Communities can’t bill themselves as “livable” or “growing” if they, well, fight livability and growth. And yet.

Beyond the classist exclusivity of many suburban communities, the housing stock in the region is also generally just awful. The region’s population has nearly tripled since 1950, meaning that most housing has been built with automotive hegemony in mind. Cities like Mountain View or Sunnyvale didn’t appreciably exist before the midcentury. Build denser!

STATE VERSUS LOCAL INTERVENTION

For one or two million dollars in unrestricted grants and revolving funds, I was able to develop dozens of affordable housing units in Detroit. It’s a different market, sure. But it makes me think about how much could be done with more resources if the focus were to unapologetically build denser cities rather than to just make gestural, vague commitments to “affordability.” High density means that sky-high land acquisition costs amortize to a much more palatable per-unit cost.

Scott Wiener’s SB 50, which would force sweeping changes to zoning, has been tabled for at least a couple more months. New legislation does, however, make it easier to build accessory dwelling units, which is at least a start. What else could work? Absent a national housing policy, which is likely to only develop well after a Democrat takes office in 2021, local policymakers and electeds in cities like Cupertino could advance proposals without SB 50, valuable though it would be. Complex challenges require bold action. If “too little, too late” is the best that Big Tech can do to solve a pervasive housing crisis, local governments retains the ability to step in, exercise its constitutionally enshrined police power, and produce cities that work for human beings.

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New Mobility Needs Old Mobility, Too!

Posted on October 30, 2019 by Nat Zorach

I admit that I often approach discussions of “new mobility” with trepidation. Many mobility-themed events in Detroit are launched with much fanfare but end up just talking about, duly-hashtagged, #design and #autonomous. For the most part, autonomous vehicles are, as I like to borrow a phrase from one of my heroes, an intellectual tour de force in a conceptual desert. Essentially, “we’re inventing complex solutions for problems that, while intriguing, demand much simpler ones.”

So I was skeptical about a session I walked into at NetImpact last weekend. And boy, was I sure glad it wasn’t wholly focused on autonomous vehicles and how they’re going to change the world! Quite the contrary– though I might have guessed from Detroit’s own Lisa Nuszkowski‘s presence on the panel. Much of the session focused on strategies for partnership, expanding access, and improving operations and programs.

When asked what technologies the panelists were most excited about, Lime’s Nico Probst responded, enthusiastically: “City buses!”

Ever conditioned to the deluge of obsession over technological innovation for the sake of technological innovation, I had half expected him to say something like, “SpaceBikes that you can rent from your Google Glass!”

SYNERGY REQUIRES BOTH PARTS

Wait a minute. One of the companies that is aggressively pushing the “new mobility” paradigm is pushing for… city buses? Probst’s point was that Lime isn’t a universal solution for mobility. Data, he says, show that the average Lime trip is about 1.3 miles. Those same data also show that only about a third of Lime trips replace car trips. But can you take a bus between those points? Can you take a bus from your house to a point near your destination?

Probst’s point was that 1.3 miles nearly fits the literal meaning of “last mile” solution. But you can’t even have a last mile solution if you don’t have a solution for the first few miles. He echoed something Prashanth Gururaja of the Shared Use Mobility Center said at a TRU event a couple of weeks ago, basically that “none of this cool stuff matters if we can’t figure out public transit.”

What good will the “new mobility” be if we still have to have cars to get everywhere on congested streets?

This highlights an enormously important point about new mobility, and that’s that we can’t have the new without the old. There is that great old chestnut of a meme (possibly the most millennial thing I have ever typed) with the buses showing that a bus is so much more efficient than carrying that same number of people in individual, single-occupant automobiles. And then there’s a great, tongue-in-cheek adaptation for the #newmobility era, showing that single-occupant automobiles take up the same amount of space as single-occupant autonomous vehicles! Who’da thunk?

Probst also pointed out that Lime riders are effectively turned into policy advocates, which was an interesting idea. “If it’s their first time on a scooter,” he said, “they might not have ever realized how bad the streets were.”

Such is perhaps not true in Detroit, where our streets are notoriously potholed. But it’s a useful point in thinking about how participants or customers can become advocates for improving the system they’re operating within.

One persistent critique of Lyft and Uber is that they actually create a ton of congestion. Cars circle and circle and drive from one dropoff to the next pickup. To be sure, TNC’s are super convenient– and I admit to using them once or twice a month. But autonomous vehicles wouldn’t really solve this problem of congestion caused by the TNC’s. That is, if people keep relying on the TNC’s for their primary mode of transportation, we haven’t really gotten anywhere.

TRANSIT: EXPANDS ACCESS, MODE CHOICE, AND LOWERS COSTS

From an economic standpoint, however, this doesn’t mean that transit will be taking customers away from Uber, Lyft, Lime, Spin, or Bird. And that’s good. Mode choice is a beautiful thing. If it’s rainy one day and you’d rather not bike, you can take the bus. If you don’t want to fool with locking up your bike somewhere, you can take a bikeshare bike or scooter. And, if you have to go from your office to pick up a special something out in the suburbs and then race back to see your kid’s school play and bring cookies for the bake sale, you might even drive (the horror, I know). Transit expansion principally means more disposable income and more choice for people who benefit from it.

The USDoT FHA estimates that Americans drive an average of 13,476 miles per year. If you’re one of the Americans who drives a light truck or SUV, that’s somewhere in the range of $1300-1800 per year in gas alone. With AAA’s all-inclusive estimate for the annual cost of car ownership at $10,000 per year, you’re also including things like insurance (which, in Detroit, can run you $400-600 a month) and purchase, financing, and/or depreciation. Purchase and depreciation alone run a few thousand dollars a year for a new car. But if you don’t own a car, you’re not spending this money– meaning you have more to spend on other kinds of transportation or, God forbid, the rest of your life.

Just another illustration of why it’s not a matter of “public spending” or, as they call it in Michigan, “socialism,” to shift the cost structure away from burning fossil fuels toward spending money differently and more efficiently.

It was a good panel and I was glad I went. There’s certainly a big push in the mobility space to obsessively focus on autonomous this and smart city that. But I’m glad there are a lot of smart, well-connected people who recognize that, at the core, much of this debate is simply about creating better infrastructure, and that begins and ends with public transit.

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“Recession Warning Signs? Nah, We Straight.”

Posted on October 28, 2019 by admin

Well, there’s this: 

A few big companies took a beating last week as they reported earnings misses, among them Budweiser and Amazon. Most earnings are, across the board, decreasing a little bit. (I’ve previously lamented that no one seems concerned about how disastrous this could be for companies trying to refinance massive debt loads.)

But no worries, because then there’s this:

So, we’re in an earnings recession, but no problem, because the market is at an all-time high? What does that mean?

For the lay investor, it means that there’s a high probability of turbulence ahead. Market fundamentals have deteriorated, rather than improved, over the past couple of years, while the market valuation has gone through the roof. Volatility? What volatility?! The Trump tax cuts propelled valuations beyond previous all-time highs through stock buybacks.

There’s also a question of whether the Fed will cut rates this week. By most estimates, investors have already priced in the appreciation premium of a rate cut. So, a rate wouldn’t do much to increase valuations. And yet most investors expect it. Why would the Fed cut rates when markets are this high? Powell called the last cut a “midcycle adjustment,” but the board really probably should have increased rates as a way to reign in the soaring market. Markets are cyclical, but regulators should work to ensure their stability. The Fed has been quietly spending hundreds of billions of dollars to do just that in the repo markets for the first time since 2008. Anything to reign in the growing debt pile that, while unlikely to break the economy on its own, will certainly hinder it in the coming decade.

It is all grossly illogical, kind of scary, and utterly dangerous. Because if the federal reserve has no downward runway to lower rates, it means it can’t easily stimulate growth in a recession. Trump has meanwhile demanded that rates be lowered to zero in the name of growth (though the Fed is supposed to be independent of the Executive). There are a lot of problems with this, but let’s stick to the market for a minute.

Ubiquitous bullish feelings means investors think the market will keep going up. I don’t mean the ever-shrinking number of individual investors, who do little to influence prices. Rather, the powers forcing the market up are doing high-frequency, high-volume trades. Often, these are being executed automatically and through passive investment vehicles, which some investors think poses its own huge problem.

Short-term, bearish options trades on indices– bets against the market- are minimal, suggesting that very few people are betting that this market still has some runway in the coming weeks. For any finance nerds among ye, consider that a latte-priced $4 bet against the S&P 500 (NYSEARCA:$SPY) could yield you $1,780 if the market takes a 10% dive by this Friday. That’s a 445-to -1 return. And yet an options contract having that low a premium means no one is betting it’s going to happen. (Unless, of course, they know something about what Trump is going to tweet next. Remember that mysterious trade that netted a few traders a cool few billion? Who’s buying e-minis on this one?)

So, whether based on greed or naïvete, we continue to believe that trees will grow to the moon. Even when the view from atop said trees should be enough to induce acrophobia in the most experienced climbers.

Hold on– it’s going to be a wild ride.

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Gilbert’s Bedrock Is Beginning To Think Outside The Automobile

Posted on October 24, 2019 by admin

I attended an event last night hosted by Transportation Riders United in One Woodward. The second floor conference room has some great views of the city at sunset, thanks to Michigan legend Minoru Yamasaki‘s affinity for floor-to-ceiling windows. (Oh, I suppose he would, I said to myself as I perused the perimeter of the open space.)

TRU has been described to me as the slightly more polished corollary to other transit advocates in Detroit’s vibrant transit community. There’s the more social justice-oriented Motor City Freedom Riders, or the interfaith organization MOSES (Metropolitan Organizing Strategy Enabling Strength). It’s notable– and a testament to Detroit’s legacy of community organizing- in a city that has such a weak transit infrastructure, that there are so many groups working on transit accessibility. (Is the fact that we now have a parking reform advocacy group a sign that we’ve made it?!)

Andy Palanisamy from Ford presented on that company’s efforts in new mobility. And Bedrock’s Kevin Bopp presented on the Family of Companies’ (FOC) increasing attention to AMT’s, or Alternative Mode of Transportation trips.

For as much as I’ve complained about the Gilbert Chariots, that is, the Royal Transportation buses that block crosswalks and mow down pedestrians and cyclists while ferrying FOC staff from downtown to the parking lot megalopolis on the edge of Corktown (6th St., specifically), it seems that some upper management are beginning to be far more proactive about the transportation question. I also tend to think this is a “better late than never” initiative. I suspect Mr. Gilbert was far more interested in real estate empire building for most of the first decade of his tenure downtown than in supporting the development of robust and sustainable urban infrastructure. And, I mean, we’re the Motor City– why would ever challenge a dominant paradigm?

Bopp’s presented results were impressive, with as many as a third of FOC staff having engaged an AMT commute by 3Q 2019. This number had more than tripled from the beginning of the year. Granted, this is but a first step– key to longer-term success is, well, getting the whole thing put together. People are going to be more reliant on systems like buses or trains (I know, right?) if they actually exist and if the system is accessible and legible.

311 parking spaces! If we look at the spatial model I used for Detroit Park City, that’s roughly equivalent to 100 apartments. 100 apartments would produce some seven-figure sum of annual revenue, plus tens of thousands in tax revenue. This tradeoff model is a key to the DPC project, so, you better believe I loved that 311 number.

There was only minimal discussion about the technological advances behind things like autonomous vehicles and smart whatever. I was appreciative of this especially given a poll TRU conducted at the beginning of the event that agglomerated responses from the audience on what comes to mind when respondents heard the words “new mobility.” Top hits included “elitism” and “scooters.” Prasanth Gururaja from the Shared Use Mobility Center made the important point that none of this fancy stuff matters unless we have a robust regional transit system. Punctual, frequent, fixed-route service! Which, you know, maybe we’ll get one day.

Further coverage: Check out @nzorach, @grenadine, and others on Twitter and under the hashtag #MobilityEquity. And donate to TRU– they do good work.

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Ode on Michigan’s Business-Friendly Regulatory Environment

Posted on October 21, 2019 by admin

One day, I’d like to sit on my front steps with a cup of coffee, breathe deeply, and not catch a whiff of acrid diesel exhaust. One day, I’d like to come home in an evening and not see in my bike headlights clouds of tiny particulates. One day, I’d like to not have to wipe off the table on my front porch and come away with black soot. One day, I’d like to sit out in the back yard with a glass of wine and not hear the constant jake brakes from trucks crossing Moroun’s Folly. One day.

 

My street in Detroit, looking south toward the River.
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Saturday Night Parking Fever

Posted on October 9, 2019 by Nat Zorach

En route to the Green Task Force meeting at Walker-Miller Energy Services in New Center, I stopped at 550 W. Fort St., site of a protest against the proposed demolition of the vacant, Detroit Saturday Night building at that address. Owner Emmett Moten plans to demolish the building for– wait for it- twelve parking spaces.

The argument? The accessibility of off street parking would, he argued, add value to the condo units at the Fort Shelby Apartments, which he developed. But a new citizens’ group in Detroit is pushing back against developers like Moten and Olympia Development, who have relentlessly demolished historic property to build endless surface parking.

Nope, no parking here!

Moten was previously on record as saying he wanted to build a parking structure, but this plan appears to have been scrapped. One of the attendees at the protest explained that this was pitched as an “if / then” possibility that seemed increasingly remote as we move farther away from the original proposal. Certainly, demolition of a high-density building with full street frontage is unlikely to ever be replaced with the same, because Michigan.

At 550 Fort St., looking east-southeast across the glorious parking empire that is downtown Detroit.

The city, in typical fashion of handwringing– especially in the face of wealthy real estate development interests- says they can’t do anything about it after a recent attempt to designate the building as historic failed. Moten also has connections through his long-time affiliation with the Coleman Young regime and the Olympia Development Parking Lot Industrial Complex from his reign working for that company during a major phase of their acquisition spree that led to what critics have labeled a strategy of dereliction-by-design. 

Francis Grunow on the bullhorn, amicably leads pro-city, anti-parking chants at the 550 W. Fort St. Detroit Saturday Night building.

Francis Grunow, the community development advocate who co-organizes the Detroiters for Parking Reform group, points out that the site is surrounded by parking garages and lots. He argues that this space could easily be redeveloped, and also claims that residents of the Fort Shelby would prefer to keep the building there as it provides character to their block.

To be sure, running an anti-parking organization in Detroit is akin to running, say, an anti-coal organization in Newcastle. But, be it said, I’m about it. The latest from Grunow, et alia, is that their petition to city council to stop the demolition didn’t work. In a public post on Facebook, he attempted stoicism: “all I can do at the end of [these] days is revel in the fact that the sun shines on a broken world.”

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Greening Sprawl and The Limits of Incrementalism

Posted on October 8, 2019 by Nat Zorach

Often, when I get excited about a discussion about sustainable urbanism or green building, the projects in question turn out to be, well, lackluster. I joke that New Urbanism is about designing sprawling strip malls where the parking lots are on the inside of the block rather than fronting the street.  Take this article that talks about clustered homes that share common walls to save costs and face a central courtyard. Revival of the Cottage Court! Not a new idea– it’s been done in the United States for centuries and elsewhere for millennia.

Sure, we’ve favored suburban sprawl– but the idea here is that we are turning a corner and starting to think that, well, maybe sprawl is actually kind of the worst. 

Masonry walls? Wow. Neat little courtyards with gorgeous brickwork and some sick framing? Awesome.

First thought: Oh, cool– where is Carlton’s Landing? Some hip new urbanist neighborhood in a city I’ve never been to?

No. Bubble: burst. Turns out it is some greenfield project in the middle of nowhere:

Seriously, where the heck? If you had no idea from looking at the map, I didn’t, either, and had to zoom out several times before I found a city I was familiar with. An hour and a half from Fort Smith, Arkansas (greater metro population of about 275,000), an hour from Muskogee, or an hour forty-five from Tulsa. Effectively, nowhere.

Now, I have a lot of love for rural areas, having spent a lot of time in the sticks for life and school. I’ve also spent a lot of time in rural Arkansas (never been to Fort Smith, though). Finally, I have a lot more love for anyone talking about rural development because very few credible planners are, while they instead obsess over, uh, Detroit or Detroit or Detroit.

But in this case, we’re talking about greenfield development.

To the developer’s credit, prices are not outrageous, and the houses are admittedly gorgeous. But this is the same thing I periodically spar with Matt Grocoff about on the Veridian Farm project in Ann Arbor, or with Kevin McNeely about when he told me about consulting on a LEED-certified sprawl project in west of nowhere, Michigan.

“If you’re going to do sprawl,” he basically said, “do it in a less destructive way.”

Well, I guess. But incrementalism is not much of a path toward structural change. Much like liberals who think they’re saving the planet because they drive their gas-guzzling Subaru to Whole Foods in a new strip mall to… buy paper straws. Make no mistake: These are professionals who know their stuff, and, at a fundamental level, they get it. But we are too beholden to the entrenched forces of markets. Urban land ownership is often complicated and tied up. And no one is going to finance a five-story, net zero energy building on Livernois Avenue on the west side of Detroit.

Why? Well, for one, bankers lack imagination, investors are risk-averse, and suburban municipalities are obsessed with growth because they’re only concerned with the short-term, and because revenue sources are so limited for things they need, like schools and infrastructure budgets. Fiscal impact analyses are predicated on unending growth to provide more services, and states fail to recognize or, indeed, regulate at all, the fact that much sprawl is just a matter of shifting populations farther from dense centers in a zero sum game at taxpayer expense. So, more sprawl, where land is cheap and people want to live somewhere far away from Those People.

Is it a less destructive model, wherein people still have to drive to get everywhere, but have Rick Fedrizzi-certified light bulbs? I simply don’t buy it. Detroit’s population could increase sixfold before it hit New York City density, and that would only require developing vacant lots.

Detroit has entire neighborhoods that are all but entirely vacant. On this issue we should stop compromising. It does a disservice to urbanism and planning everywhere. But challenging this paradigm is challenging fundamental assumptions about capitalism, as Naomi Klein did when she pointed out that it isn’t a question of “greening” everything, it’s a question of rethinking our culture of consumption.

Veridian at County Farm in Ann Arbor. Is it a streetcar suburb, or greenfield sprawl by another name. Will the revolution be televised? Will your LEED Dynamic Plaque matter if global liberal market capitalism collapses and you are unable to gas up your gas-guzzling Subaru to make that eleven minute drive to the suburbs? Can you walk anywhere from your LEED certified greenfield house? (Courtesy THRIVE).
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