Monday, February 18, 2013

Putting Pieces Together

This emerged as a comment to this Old Urbanist post, but was rejected because of its length:
So the conventional theory is dead wrong; the data show the actual catalyst occurred during WWII. (Interestingly, there seems to be a strong correlation with home ownership and car ownership between the 1920s and 1950s; secondly, car ownership rises abruptly after WWII and surpasses the home-ownership rate.)

This, of course, begs the second question which the automotive theory "solved": the postwar collapse of the American city. My guess is that it was a combination of factors--some still at work--including a desire to emulate lifestyles portrayed in entertainment media, race, inefficient/incompetent/oversized city government, and even the ability to "cash out".

Think about it for a moment: the initial homeownership boom occurred BEFORE the Levitt brothers started their tract community, BEFORE detached housing became regulated as the dominant and standard housing type in zoning codes. If the initial catalyst for the homeownership surge was owners taking their properties off the rental market to avoid wartime rent controls, then it also stands to reason that the following sequence of events could have taken place:

1. Some owners, owning a property that was converted from apartments to a family property, would add supplementary income by renting out unused portions of the property.

2. For other reasons, some of them related to the ease of acquiring FHA mortgages, households engaged in this activity would buy a new (suburban) property, while continuing to rent out the existing property for supplementary income.

3. The Great Migration's second wave began in force after WWII. While urban families were enjoying unprecedented prosperity, the Migration would begin to control the demographics of the rental market.

(By the way, the first major wave of the Great Migration, in the 1920s, was probably catalytic in the imposition of zoning codes in the first place.)

4. Urban neighborhoods at this stage are composed of an even interspersion of homeowned and rental properties. However, a knock-on effect of the Great Migration is an intense demographic change in the rental market. Demographic mixing begins to take place, due to the ownership matrix, in a wide variety of neighborhoods.

5. Sociological norms take over. This was the nadir of American race relations, after all. Owners who had previously primarily invested in the city purchase elsewhere; some may convert their existing property to rentals; others panic-sell, driving the total stock into the hands of a few larger landlords aiming to make money off of the rental market.

6. The Great Migration creates an intense rental demand. Sociologists analyze the patterns occurring in existing neighborhoods as another example of invasion and succession (which it is.)

At this point, we can see why the demographic changeover occurred, but not the urban collapse. But the major collapse didn't happen until twenty years after WWII, which implies a delayed effect. It also happened concomitant with an (generally unremarked) failure in the financial system at large--the stagflationary period--which was remedied not by any great change in structure, but by increasing leverage (i.e. debt). This, in turn, would be the ultimate causor of the 2007-8 meltdown, as the scope of leverage grew to a level too great to bear.

This financial system was rearranged, by the way, beginning in the late 1920s. It shifted from a bipolar system that largely existed in the form of B&Ls and other small institutions that funded small-scale improvements in local neighborhoods, with a handful of large investment banks whose financial structures had been built to proffer vast streams of capital to the likes of the Goulds, Rockefellers, Vanderbilts, at the other end...The Great Depression was catastrophic on the smaller end of this market, and eventually produced regional- and national-tier institutions. Neighborhood finance had died by the end of the Great Depression. These new regional investors (a combination of larger neighborhood banks, smaller investment banks, and a few regional banks which had existed before), out for profit, in turn practiced a targeted investment strategy (which we today know as redlining).

The targeted investment strategy targeted investments which were focused around certain types of investments the Federal government heavily favored--FHA mortgages and the ancillary infrastructure--to the exclusion of all others. The system became efficient but fragile. The system failed--stagflation occurred--when Mother Nature presented Uncle Sam with the bill for maintaining that ancillary infrastructure (per Strong Towns).

But, because there were no local investment vehicles--the role traditionally performed by neighborhood banks, B&Ls, small-scale S&Ls, etc.--there was no capital available for areas disfavored by banks' targeted investment strategies. What had happened, if you think about Jane Jacobs' The Economy of Cities\, was that capital had become amazingly efficient, but it had ceased to be productive at developing a new middle class. With a dearth of capital, and an inability (due to Federal regulations) to develop neighborhood capital vehicles, the middle class that should have developed under traditional invasion and succession theory did not; urban tax bases began to erode, and cities found themselves in financial crisis. Collapse happened.

To recap: American race relations had created a demographic turnover structure called "invasion and succession" by sociologists. Like lived with like. Invasion and succession, by itself, explains why American cities became majority African-American during the Second Great Migration.

The Economy of Cities takes it from there, both by explaining how productive economic development happens within and without the invasion & succession framework, and how finance can be productive OR efficient (but not both): an economy can develop, adding new goods and new work, or it can stagnate, replicating existing work unendingly. After the Crash of 1929, the financial system shifted in favor of efficiency over productivity, which over time deprived the African American community of the ability to develop an internal middle class, which, by the 1970s, undermined cities' tax systems to the point of collapse. It is no accident that the highest level of population flight from cities was during those decades.


  1. I must admit that I didn't read the original post yet and only your comment - and this may not be the best place to post this reply either. Your post is indeed well-reasoned and very logical, but I think you miss a critical component of the collapse of cities. Cities collapsed because their economies collapsed. North Philadelphia turned into a wasteland because those hulking behemoths go unused. So, this isn't to say you are wrong - just incomplete.

    My understanding of it is that people didn't necessarily want to leave in all cases, but they didn't have a choice. Unfavorable tax structures and high costs of labor made it prohibitive for companies to stay in cities as they continued to gain economies of scale through mergers. Then, as you point out, racial dynamics of the time accelerated flight.

    The collapse of the classic urban economy is what is responsible for the relative absence of the middle class. If you 1) don't go to college and 2) graduate from college with a degree that has earning potential, you're really left with little hope. This wasn't true when decades ago all you needed was a high school degree and enough sense to not be a bad employee. Value-added jobs for high school graduates going away then of course led to the collapse of the local service economies and the community fabric that they afforded. So really, nothing was left except for a few cases.

    Things never would have gotten to the point they did if people had jobs. Lack of jobs was always the problem and continues to be so. The trend of return to cities by young people seems to run counter to that, but it remains to be seen how much more growth we can experience without a strengthening of the urban labor landscape.

  2. Steve – I was very surprised to find that the conventional theory is largely wrong. We read time and time again that the homeownership boom was a "postwar" phenomenon, only to find that the truth is more complex than we thought.

    As for car ownership and homeownership, I think we also need to think about the chicken and the egg: did car ownership spawn Levittown and its progeny, or did Levittown itself generate car ownership? I don't think it's necessarily a distinction without a difference. The Levittown homes seemed so affordable not simply because of mass production and FHA mortgage financing, but because they did not include the cost of transportation (vs. a townhouse in Brooklyn, for which proximity to the subway or bus was bundled into the price or rent, and into property taxes). This was also not true of the former commuter rail suburbs, or the streetcar suburbs. In other words, the Levitts' product appeared cheap partly as a result of hiding this substantial expense (buying a single car effectively added 20% to the cost of a Levittown house, not counting gas, maintenance, etc, and it was a required accessory). The early Levittown houses did not even have garages, unlike the 1920s tract homes.

    This could have been done in 1940, or 1930, or even 1920, but I think it took a psychological and investment leap of faith to abandon a mass transit option entirely and to count on buyers and renters (Levittown was initially rental-only) to rely on the motorcar exclusively in a community of tens of thousands.

    Also, I do think the Great Migration has strong explanatory power in a number of cities, but as I said in response to Marc's comment, I don't think it can explain everything. Much the same process occurred in southern cities, west coast cities, Canadian cities, etc., although not always to the same extreme. In New York, part of the appeal of Levittown was no doubt that it was subject to racial covenants - William Levitt seemed to believe they were essential for marketing the product to the white working class.

    In the city proper, by contrast, there was always a chance that one's neighbor might rent to the "wrong" type of person, and increasingly so as the rental market shifted, as you describe. This actually contributed to a very affordable housing market overall, as demand slumped in the old neighborhoods, and racial covenants catering to the fears of the age permitted low costs in the new ones. This should have been a good environment in which to cultivate a new urban middle class, but as you've said, redlining and the lack of appropriate financial institutions greatly hindered that.

  3. Nick--Thank you for your reply. You are right that the ultimate collapse of cities was economic. However, I would suggest you take a look at Jane Jacobs' The Economy of Cities. What I wish to say is that invasion & succession changed the demographic makeup of cities, but changes in the finance system also going on in this period did not afford the new migrants a chance to build a middle class. In addition, it is absolutely true that a city's fiscal health is dependent on a strong middle class; in fact its long-term economic health is dependent on development work--creating new products and services--which in turn grows jobs, and thus grows a middle class. This is, however, a fragile feedback loop; one of the ways to short-circuit it is deny it capital. So capital was denied for development of products and services among the city's new migrants, which prevented the development of a new middle class over the first suburban generation, which in turn drove urban fiscal crises during the stagflationary era.

    Charlie--the data in your post show a strong correlation between homeownership and car ownership for about thirty years previous to the Levitt brothers' project. Indeed, Hoover's 1929 campaign slogan was "a chicken in every pot and a car in every garage". To me, this implies that (a) homeowning households increasingly had access to a car, and (b) that they decreasingly used mass transit over the 1920-1945 period; such a shift would have taken a generation to play out, and the Levitts (and others) would have been able to attract the investment and marketing because they were simply taking advantage of trends already noted at the time.

    (By the way, two of the early Levittowns, in particular, might have been tract housing, but were still located in close proximity to railroad stations; the LIRR even proposed to open a disused branch that ran through the New York Levittown, although the Levitt brothers dissuaded them of it--probably to keep prices down. The first truly car-dependent places seem to have been a product of L.A.--which, at the time, already had an unusually strong car culture.)

    1. "Charlie--the data in your post show a strong correlation between homeownership and car ownership for about thirty years previous to the Levitt brothers' project."

      Steve: I wouldn't argue there's no correlation, but it doesn't appear to me to be especially compelling. Going from 0% car ownership to around 46% car ownership was associated with only a very slight rise in homeownership (not surprising, as the people wealthy enough to already own homes were also those wealthy enough to purchase cars). And even the modest increase that occurred could be attributed to rising real incomes in the 1920s rather than increased mobility. From 1935-1945, the two are inversely correlated, especially 1940-45.

      For the "car hypothesis" to make any sense, it must mean that the new land opened for development as a result of auto mobility decreased land prices so greatly that it made homeownership a bargain even when accounting for the cost of a vehicle (that is, it became economically worthwhile for a car-free household to purchase a car simply to take advantage of extremely low housing costs). I'm not convinced that is what happened with Levittown or other auto suburbs. It doesn't explain why it changed the balance of renting to buying, for one, rather than simply decreasing rental costs (that seems to be explained by the FHA). It discounts more efficient production methods and rising incomes.

      Rather, my guess is that the land was cheaper precisely because it lacked certain transportation infrastructure – that cost was borne separately by the consumer. Cars did not open the land for development, creating a land glut, but simply permitted a different form of development to take place. The presence of nearby train stations does not change the fact that a car was a necessity in Levittown (by contrast, it is possible, though not as convenient as some may like, to live a car-free life in Hicksville). If households were already purchasing cars for the sake of basic mobility, rather than housing costs, buying into Levittown would make a lot of sense, since it increased the utility of the car while discounting the unneeded mark-up from immediate rail access (and, in any event, you could always drive across town lines to the neighboring rail station).

      Whether the Levittowners were actually paying less net of housing costs + transportation relative to their urban counterparts, when accounting for other variables, I don't know (it's an ongoing debate, but it doesn't seem that one is obviously much cheaper: One could argue that the car-centered lifestyle offered a higher quality of life for particular types of households for approximately the same cost, but that's a bit more of a subjective argument.

    2. I think we're arguing past each other. The point I was making is that for Levittown to make sense from an investment perspective--for people to want to buy into Levittown--they would already have to be used to the idea of car ownership--which is the same thing as saying "if households were already purchasing cars for the sake of basic mobility, rather than housing costs, buying into Levittown would make a lot of sense, since it increased the utility of the car while discounting the unneeded mark-up from immediate rail access".

      You also mentioned that the correlation didn't get started in the 1920s. May I remind you Ford invented the moving assembly line only a decade earlier? It makes sense that that was when car ownership became widespread, and the flattening of the line as it became correlated with the existing rate of home ownership suggests an early market saturation. Subsequent changes would the reflect economic realities on the part of car owners (for most, it would have been a luxury they could have gotten rid of during the Depression, and would have been impractical after due to wartime shortages).

      Of course, this still begs a bigger question: Cars were luxury goods in urban economies, but had become necessities in rural economies. Shouldn't the experience of the Depression have forced them into a specialty submarket niche, where one could rely on the excellent publicly available transit locally available?

      ...One possibility may be the rural-urban migration that would have been happening around the same time: the Levittowns would have been an excellent purchase for (white) rural folks just moving to the city because automobility was a sunk cost for them, and so they neither needed to nor wished to pay for rail access. But that would have severely constrained Levittown's market; again, the question we have to ask is why, in the invasion & succession cycle called "white flight", did intraurban migrants not force the development of convenient public transit to their homes, the way it had happened in for the past several intraurban migration cycles (e.g. the ones that created the streetcar suburbs, and the ones that created the early automotive suburbs)? Why did the urbanites abandon mass transit at scale? Was the car really that much cheaper and more convenient? their fear of black people really that potent?...

    3. Not as a direct answer to your questions, but this original ad for Levittown homes ( touts "Fast, frequent transportation – 138 trains daily from Wantagh and Hicksville stations." So the transit option was not totally abandoned in the post-1945 LI suburbs. It even boasts that schools are within "walking distance." The "shopping centers" were not, apparently, or at least it wasn't seen fit to advertise them in that manner.

      There is not a word about cars or auto infrastructure, except to mention that, as a traffic calming/reduction measure, there are no through streets. Thus the planning paradox: we have to be dependent on cars in order to shield ourselves from the effects of mass car dependency. Stores in walking distance would have induced traffic; traffic posed safety concerns for the children walking to school and others, therefore, no nearby stores, and certainly no orthogonal grid, which was after all nothing but a mesh of endless through streets. This was the same concern which I think largely underlay use-based zoning, which coincided with the explosion in car ownership.

    4. Well, the genie's out of the bottle, isn't it. Since the data shows that the initial spike in home ownership occurred 1942-5, not the 1945-50 period conventional theory suggests, before the spike in auto ownership, the traditional theory that increased auto access caused a surge of home ownership seems dead in the water. But that then forces all kinds of new questions. Some are easy--wartime rent controls no doubt acted as the true catalyst in the spike, for instance--and others hard. Why did auto ownership spike during that time? I came up with two explanations and rejected them, because neither fits the data. Were the General Motors streetcar conspiracy (it's a thing, look it up) truly causal, it would have correlated with an auto spike to match the homeowner spike, and then more gently sloping up through the 1950s. So too would an infusion of rural culture in recently transplanted urban migrants. Why did the auto ownership rate spike so sharply between 1945 and 1950, far beyond the carrying rate suggested by its 1920 spike?

      We can also say with some certainty that between invasion & succession driven by the Second Great Migration driving widespread urban demographic change, and the total lack of useful developmental capital markets for them led to the cities' 1970s downfall; we can also say that Federal and local regulations demanded a far less dense built environment than that which had been provided previously. But all the explanations we have on the table should be associated with an auto ownership spike to meet the home ownership spike, and then a leveling out, and then a second, gentler, rise as autocentrism set. Yet that is not what we see in the data. We see a sudden, short spike that drove auto ownership rates far in excess of home ownership rates, and then a flattening out as the system met a carrying capacity well beyond any systemic need of the time. It's like cars oversaturated the market immediately postwar, and the market adapted after...

    5. We know that the cost of a new car was substantially less than that of a new house at all times from 1920-1950 (around 10-20% of the cost). And while having a car provided a significant mobility gain over not having one (for most Americans), owning a house did not provide a dramatic change in housing standards versus simply renting, while actually impeding mobility in an increasingly mobile and spread-out city. So it would seem very strange indeed if home ownership increased at a *faster* rate than car ownership (i.e. households buying homes but not cars). The 1940-45 period is in fact the only such 5-year period from 1900-1980.

      So the logic (repeated again) is not so much that a car was a mobility prerequisite to owning a home, but that a person who chose to buy a home was very likely to already happen to own a car. And if they already owned cars, why not design the new developments around this reality. The few exceptions would just have to accept that a car was an added cost of homeownership, but then, the savings from lack of transit access would offset this, and the maintenance obligations from all the spread-out infrastructure could be deferred. And again, this is different from saying that "cars allowed people to become homeowners."

      The 1945-50 boom in car ownership seems to be a return to this basic pattern, abetted by wartime savings from cheap rents and high wages. What I would also ask is: why didn't homeownership stagnate or fall after 1945, at least for a while? The answer does not seem to be cars, but the FHA and VA loans, which in Levittown at least converted renters to "homeowners" with a wave of the wand and little or no down payment(essentially nothing immediately changed for the renter except the payment went to the bank rather than the Levitts). Still, the Levittown houses were amazingly cheaper than anything available in the NY area today, even accounting for rising incomes (inflation-adjusted $75,000, where median family incomes in NYC even in 1950 were above $40,000). These are Houston-like prices or better. Stating that homeownership was beneficial b/c the owners could reap above-inflation capital gains from the sale of their homes only points to the subsequent failure of New York's housing market to remain affordable, and to a general fall in living standards for working class and middle-class families.

    6. Right.

      By the way, I took another look at your graph, and I must apologize--I was in error. The graph actually shows a sharp rise in car ownership immediately postwar, a gentler slope out to ca. 1965, and a gentler one still out to 1980 (where it appears auto ownership reached saturation levels).

      Another way of saying this is that conventional theory is not outright wrong--it is correct in its long-term causation that postwar affluence (translated into car ownership) translated, in the long term, into home ownership, which was abetted by an owner-friendly regulatory structure.

      The issues then become that it ignores the true catalyst--the initial rise in home ownership occurred during WWII--and it also fails to explain the rapid disappearance of non-auto options. Car ownership, it seems to me, turned from luxury to necessity far too fast.

      (By the way, my theory is that the rapid collapse of the nation's passenger rail system in the early 1960s is caused by a major change in the transportation financing structure, from roads needing bond issues to be built to being built for free, and secondly (and this is usually cited) because the Post Office nixed its Railway Express Service, which had been substantively subsidizing a great deal of passenger service for some time.)

    7. The error is mine with the unclear graph -- it is difficult to match the years with the points on the lines. But yes, there is a sharp rise in car ownership after 1945. I cut it off after 1980 partly because that time period was outside the scope of the post, and partly because as you say there is not much change after that point.

      Interesting point about passenger rail. The timing certainly matches up with the completion of the first segments of the federally-funded interstates.

    8. I think arguing over this is rather silly. What is clear is that home and car ownership went hand in hand. People were buying both at the same time, nad each influenced the other. Want a home? well the "best" place to live is in the suburbs, so you need a car (or two). Want a Car? well the best place to take advantage of car ownership is in the suburbs where (due to the development model) it is easier to buy than rent.

    9. Donald, you're missing the point. The point is that conventional theory assumes home ownership and car ownership are inextricable--each a feedback on the other, each a causor of the other. The prediction this theory generates is then that both should see their exponential rise occur entirely after 1945.

      Charlie shows the data doesn't match the prediction. This begs the question. This drives the debate. "Good enough" doesn't cut it.

  4. "However, I would suggest you take a look at Jane Jacobs' The Economy of Cities."

    You make a rather timely suggestion as I put it on order as of last night. I had been delaying buying that as well as The Death and Life of Great American Cities for far too long and finally just did it.

    As a side note, it's disappointing that they are not in ebook form. I suggest we start some kind of campaign to get the publisher to make them available this way. Perhaps it's as simple as getting everyone on Hidden City and other major blogs to hit the request button on Amazon.

    1. Fantastic! I've been reading it right now, and I suggest you take a look at Ch. 7, "Capital for City Economic Development", and particularly the section "Discriminatory Use of Capital" when you get it. It will answer all your questions.