In this episode, we're joined by NYU professor Arpit Gupta to talk about transit, zoning, land value taxes and housing. We also discuss land value capture and public transit. This episode features my friend Lars Doucet as a co-host.
Transcript:
Will Jarvis 0:05
Hey folks, welcome to narratives. narratives is a podcast exploring the ways in which the world is better than in the past, the ways it is worse in the past, where it's a better, more definite vision of the future. I'm your host, William Jarvis. And I want to thank you for taking the time out of your day to listen to this episode. I hope you enjoy it. You can find show notes, transcripts and videos at narratives podcast.com.
Will Jarvis 0:38
Well, Arpit, how are you doing this afternoon?
Arpit Gupta 0:40
I'm doing very well. Thanks for having me on.
Will Jarvis 0:43
Absolutely. Absolutely. And just for the listeners, we've also got Lars to say on as well, again to talk to Arpit Arpit. Do you mind giving us a brief bio in some of the big ideas you're interested in?
Arpit Gupta 0:55
Absolute Absolutely. So I am a financial economists, system professor of finance at NYU Stern School of Business. And I primarily study real estate economics, urban economics, real estate finance. And by way of background, I got my PhD at Columbia. So stick around New York City for a little bit. And a lot of my interests relate to trying to think about how Housing and Urban Economics impacts people and impacts the communities that they live in. So a lot of my dissertation and PhD work was thinking about the consequences of the financial crisis, and the impacts particularly on households. More recently, I've been thinking about remote work, and other aspects of housing and urban design, thinking about the role of infrastructure and thinking about the role of property taxes as well.
Will Jarvis 1:45
Excellent, excellent. I want to get started just talking about housing costs in the US. I think it's, you know, something a lot of people talk about, but there's been this explosion of housing costs, that seems since the 1970s. Can you talk a little bit about about why that is what's going on, and and maybe some what we can do about it?
Arpit Gupta 2:04
Absolutely. So I sort of separate the problem into two. So there is an increase in rents, and there's an increase in prices. And the difference between the two is basically going to be the price to rent ratio, the evaluation multiple applied to real estate. So both of those I think are interesting questions, the evaluation, part of it, I think, relates to issues that we also see in other asset classes, basically, valuation multiples have increased across a range of different assets. Part of that, I think, has to do with the decline in interest rates. So we've had a pretty strong decrease in tenure bond yields, for instance, between 1970 1980 and today. And so that inflates the value in terms of prices of a lot of athletes. But we've also seen increases in rents, sort of the fundamental cash flows. And that I think, is determined by a combination of demand and supply side factors. So on the demand side, you have a lot of forces that are pushing people to live closer to each other. And in particular, near the center of cities, I think particularly a lot of industries that require agglomeration effects, and in person historically, in person contact, like the tech industry, financial services, a lot of these other so called skilled service sectors, require people to be pushed together more closely, and the centres of cities, and that's pushing up housing costs, particularly in those metropolitan areas. At the same time, we've had a lot of difficulties extending supply, a lot of which has to do with regulatory and other constraints on growth, that are kind of coming from hyperlocal restrictions on our ability to construct new housing. And that's really restrained the supply of housing also, on kind of a bigger macro level, there's also the issue that construction as an industry has, it seems one of the lowest productivity growth rates of any industry. And so our ability to construct new housing at all levels, whether we're talking about the multifamily stock that is increasingly constrained in density centers, or even the single family stock further away out in the Serbs, faces a lot of fundamental challenges in terms of our ability to just produce more of these units for a given set of inputs,
Lars Doucet 4:11
how much of the kind of lack of productivity growth and construction is related to basically regulatory costs, like paperwork, red tape, you know, denials, delays, versus just the cost of wood and bricks and concrete sort of thing. And can you even separate those things?
Arpit Gupta 4:31
Practically speaking? That's a really great question. And I certainly don't have the exact breakdown and the answer. My suspicion is that it has a good deal to do with that. And some reasons, I think, to suspect that the regulatory restrictions on housing broadly and so there I would include not just the zoning restrictions, right, the difficulty in converting a single family to multifamily building, but also the building code restrictions. The fact that we have a very constrained envelope But what's permissible to build seems to force developers to build that sort of a lower scale than they would sort of optimally prefer, and to be a little bit more spatially selective in the markets that they're willing to cover. And all of that sort of adds up to an industry that just isn't able to achieve the scale of production, that's really optimal for boosting productivity growth. You also see in other countries, and European countries, for example, that have a lot more prefabrication in their construction mix. So for example, the Elon Musk factory in Germany, the Berlin factory was largely prefabricated, meaning that they constructed and assemble constructed a lot of the units off site and assemble them. At the factory site, that sort of thing is more common in other countries and is, seems relatively uncommon, the United States, we actually used to do a lot of manufactured housing, the United States that we don't do any more. So I think all those things sort of hint at the idea that there are restrictions on our productivity growth that are coming from something about the building process that we're imposing, but I don't have a exact breakdown of that for you.
Will Jarvis 6:09
What's your sense of why we don't build as many modular homes here in the US are prefabricated? Is it just the regulatory burden? Or is it something else?
Arpit Gupta 6:17
It's a really good question. I think part of it is exactly this difficulty in passing regulatory muster. I think there are possibly other demand side factors that make it more challenging as well. So the kind of prefabrication that would, you know, be most appealing to people might not necessarily kind of fit to the market that well, so the adu side of the market, for instance, seems to be coming along with mass manufacturing relatively well. And maybe that's related to the fact that the specific type of units that people are using at us for, right, these sort of granting law suites and things like that, that are sort of smaller units on the property might be more conducive to mass production relative to the primary residence that people have, maybe people just prefer more customization or something with respect to their their main house. But I don't have a great answer for you as to why we don't have more of it. I think it's it's sort of a first order really important question, why we're not able to improve the productivity of our housing construction, you see that I mean, you see the basic effect in many different places. For example, if you look at the starter home market, or you look at the sale distribution, right, there's a pretty substantial left truncation of that distribution, basically, meaning we're missing a lot of relatively cheap homes, that are just not being supplied by builders onto the market, because it seems like it's fairly uneconomical to actually build these kinds of units. And that's true even out into the excerpts, even for far away from city centers where you don't really expect traditional zoning based regulatory restraints to bind construction as much. I think that reflects the broader set of issues surrounding housing construction. And another fundamental factor, I think, does have to do with just raw materials and supply costs. So it's very expensive to hire people to do anything these days, the material costs, particularly lumber are increasing. Also, again, if you had a better productivity sector, you could try to economize on the scarce or units of production to try to improve productivity, but we just haven't really hit the type of productivity growth that you sort of need, right? We just haven't gotten on the tailors route for housing construction, the way that we have for many other different industries. And so that's kind of leaving us stuck in a little bit of a low productivity trap.
Lars Doucet 8:27
So I've heard this theory called Costas eats, right, which is this notion that, you know, certain kinds of industries have not gotten any more productive over time compared to others, like TVs and toys have gotten massively cheaper, but like housing and someone to watch your kid, and healthcare workers and stuff, it's not gotten any cheaper to purchase the products that they create, you know, or the services. And so my question is, what do you think of cost disease in general, and then also is housing construction kind of paradoxically, one of those industries to like some people have said that maybe cost diseases driven by we have to pay all these people's rent, and as rent goes up, you have to pay more. And so does that like perversely feed back into housing construction? Because you got to pay the people who build your house to pay rent, so that you know, and so on so forth? Or am I off base?
Arpit Gupta 9:19
I'm a little skeptical of cost disease as a general explanation. One reason I think, is that we've seen a number of different industries that we sort of thought were cost diseased. And we saw that, in fact, it's possible to realize pretty substantial cost sequence decreases without necessarily involving the role of human labor. So just give some examples. For instance, if you look at the space industry, this is an industry that was massively expensive, right, but, you know, kilogram of something out into space, and it would be very natural to tell a story in which well, it's just very expensive to do this, etc, etc. And we just sort of saw with Elon Musk that they were just able to reengineer processes, they didn't really radically innovate on the science per se. But they've done a variety of process innovations, which have dramatically decreased the cost of getting to space. And kind of in concert with that NASA has been really rethinking the way they do procurement auctions and so forth. And you look across a variety of different industries, right, you can compare veterinary healthcare to human health care, that healthcare is substantially cheaper than human health care. You can compare infrastructure costs in different countries, right? We know that many countries, even many countries with very high labor cost levels, like Sweden or Switzerland, actually build infrastructure for very cheaply, much, much more cheaply than United States does. So I think these observations sort of lead me to think that, in fact, when we see a sector that is very expensive, the reason is not necessarily some fundamental reason, but in fact, a variety of bureaucratic things going on in the background that are just increasing costs, I think daycare would probably be the best case for a genuine cough disease problem. But even there, I sort of wonder about the regulatory regimes even that industry is under, for example, we have very strict limits on the number of children allowed for supervisory adult watching them. And of course, you don't want to have that ratio go out to infinity. But I don't know if we're exactly at the optimum, where we set that particular ratio. There also lots of restrictions on even having daycare centers and higher stories of buildings. I don't know if we exactly need that particular rule for daycares. So I think when you look at a variety of industries, you just sort of see that there yeah, there are all these sort of regulatory issues in the background. And with housing, if you're kind of looking for a, you know, a perfect example, like, well, who is able to build housing more, you know, more cheaply, you know, the best case that the end community points to is really Japan, this is a country that has a lot of skilled service jobs, you know, they have a lot of industries that require office work, and so on, so forth. And yet, they're able to have a fairly affordable housing system. A big reason why Japan seems like they're able to do that is that they sort of had after World War Two property rights regime, that was something that sort of fairly protects the rights of the property owner to sort of do what they want, with with the property that, you know, that's sort of a legacy of the American imposition of laws after World War Two is sort of interesting that we, you know, Americans sort of imposed that system in Japan, but in America, we sort of have a very different property rights regime, but it left Japan with the ability to, you know, do all sorts of things with their, with their space, and they've been able to build a lot and even the most densely populated parts of, of Japan, Tokyo, for example, just have some markedly cheap, cheap housing. You know, people also wonder about the depopulation effect, but the densely populated parts of Japan are seeing competition increases as people are coming in from other parts of Japan. And nonetheless, they have cheap housing. So it's not an unavoidable fact of modern life. I think it's a product of a lot of flawed policies with respect to housing affordability.
Lars Doucet 13:02
So with regards to that, you know, so would you say that Japan is kind of a model of nimbyism? Or is there more to Japan specifically, to learn from that case? And nimbyism for the audience stands for yes, in my backyard. It's it's a kind of counterpoint to the so called NIMBYs, who are people who say not in my backyard, who are the kind of people who protest every every every new housing development in a neighborhood. And I think what it was kind of getting out here was that the property rights in Japan are such that the owner of the land gets to decide what to build on it, his neighbors can't come and say, No, you can't you can't build on there. Is that is that more or less what you're saying? And then what is the yimby? Would you say Japan is is a model that can be placed or not?
Arpit Gupta 13:49
I think it basically is, so a lot of housing regulations in Japan happened at sort of a national level, and they have sort of a nested sort of Russian doll, sort of zoning regime. So sort of means that there are a variety of permissible uses. And if you're, if you have a place that can build up, you know, build a certain set of types of things, it can, you know, sort of buy a right, build all the things, you know, like in one direction away from that
Lars Doucet 14:14
for the audience, what is by right mean, in this context.
Arpit Gupta 14:17
So if you have an area, for example, that you're, you know, it's the zoning permits, you know, a certain a certain type of thing in that particular area. In America, it'll sort of allow for, you know, a very constrained set of development, it can happen in that area, and in Japan, that the zoning regime will allow you to build just a variety of things. In addition to that one specifically. So is it just a relatively permissive zoning regime? They they tend to also be relatively permissive in terms of a lot of other zoning constraints beyond just what you can do with a particular parcel in terms of setbacks. So housing in Japan and buildings in general built very close to the sidewalk. It turns out to be a huge issue because the sort of the, the building, sort of floorplate, sort of the size and scope of the building relative to the land that it occupies is a really big component of density. And Japan allows for building to kind of take up the full envelope, they have relatively little street parking. So in most of these sort of bands free parking, instead, you're parking your car in your private garage, or on a for fee car garage. And one of the things that that means is that the car ownership rate in Japan is actually not that low. So if you look at countries like Germany and Japan that have very effective public transit, actually, the car ownership rate per household is relatively high, it's just that people don't use their car for many trips, right? In Japan. So Japan, they actually have quite a lot of cars, they're staying actually have quite a lot of cars, people do use cars for things like going to the grocery store, and so forth. But they're often using public transit to get to the office every day, same thing. And that means that people are much more reliant on public transit and public transit just works much better in Japan, than United States. And there's, of course, a close nexus between housing density and public transit, because the more dense in areas built, the more profitable will be the public transit serving these areas. And the more the better as a public transit system, the more you can allow a much broader part of the country versus a much broader region to access the benefit of that, that density is a very close connection between housing and transit. And so Japan, Japan also is a very high functioning transit. In fact, it's a lot of it is private. So these are privately, you know, here, we spend billions of dollars on transit, public transit to make it work. And in Japan, these are so effective agencies that they make money, their shareholders, and you pay out dividends, and so on, so forth, you know, the whole thing is value creative. So the transit part of Japan works as well, Japan does have some amount of sort of public housing, social housing, but it's a relatively small part of the stock, and it hasn't really been increased very much in recent years. So they really are relying predominantly on market rate housing, in order to provide the needs of housing needs of people, and the whole thing seems to work remarkably well.
Lars Doucet 17:11
Now, this is usually the point of the argument, or someone who hears this, who's kind of opposed to that will lean into arguments like, well, yes, they're Japanese, though. And they're extremely compliant, or whatever kind of cultural thing they want to invoke, you know, when you bring up Norway, they talk about how, you know, they're ethnically homogenous, or whatever, you know. So I mean, let me just bring those all up. For the sake of argument, you know, the Japanese have magic pixie dust that we don't have that makes them able to do things and we just can't do it. Do you agree to a certain extent, even though I'm kind of making a strong argument here, like, do Is there some Japanese magic pixie dust? Or are there other places that have succeeded on the Japanese model to greater or lesser degree?
Arpit Gupta 17:53
Well, I think a lot of the successes of the Japanese model, if you want to call it that are seen throughout East Asia. So the transit housing Nexus method, for instance, is followed in Hong Kong and Singapore as well. So these will be transit companies that do value capture of some form, right? So the way they're able to make so much money, despite being private companies, in many ways, is to basically rely on the development rates in the vicinity of subway stops. So you said the magic word value capture, is that what you're defining right now, right? So Valley capture is gonna be this idea that the uplift in value that comes from the creation of infrastructure, so the fact that land is worth more when it's close to a transit stop, for instance, that uplift in value can be used in some way to help finance the project upfront. And they're right of ways of doing that either on formal taxation grounds, or just tax the area more in terms of development rights, so just allow for transit during development, more building in the vicinity of subway stops, or try to tax other ancillary products. So like a higher sales tax or something in the area of subway stop. And these tools are fairly commonly used across a number of Asian countries that allow for high density, high taxation in the vicinity of subway stops, that helps to finance them and make them profitable and brighter. These tools are used for all across the world, even United States, we've done a, you know, some measures of value capture in different infrastructure projects here. So I think the underlying economics go beyond Japan, if there is a uniquely Japanese component to this equation, it might be in the form of very low crime rates. So Japan is just exceptionally low crime. And that probably helps density and urban living on some margin because you're much more confident that you can go around around the city, but I think there still are a number of lessons that apply to even high crime cities. So for example, Sao Paulo in Brazil actually has fairly effective data capture mechanisms also, despite being very high crime. So I don't think the lessons of Japan should be restricted to one country
Lars Doucet 20:00
Okay, that's interesting. I mean, so even if we then broaden, you know, the retort to well, it's it's not Japanese pixie dust, it's East Asian pixie dust, you know, and that's why we can't do any of those things there, you're you're making the argument that value capture, you know, to what degree East Asian pixie dust does or doesn't hold, you're saying that value captures is one of the really key ingredients here that economically makes these projects make sense, do we in there, there's plenty of US cities that have had trouble, like with their with their public transit? Are you arguing that our public transit projects that don't work aren't doing value capture and the ones that are doing better?
Arpit Gupta 20:38
Well, there's both the demand and the cost side. So dolly capture is something that can help raise funds to expand transit projects, or at a minimum, if we're doing transporting development, we might at least do more upzoning in the areas around transit stops. And so this idea is certainly something that's been very popular recently, Minneapolis did this as a part of their broader review of housing regulations. California has done aspects of these reforms. So there's something that that many different places around the United States are considering. But if you're asking why does it transit necessarily work the United States, I think, that side of things, the ability to find ways of financing the infrastructure projects, or adding more demand for them outside of station stops, has to be balanced with the cost of these projects, which we know from the work of Alon Levy and many others is really high in United States. So there are many projects, that would be five all would be positive NPV if we were just able to build more cheaply in the United States, and we just have a massive cost problem when it comes to infrastructure. Similarly to you know, how we just have a cost problem with respect to building of many different types.
Lars Doucet 21:45
And so you said transit oriented development, is that what you just described, or was there a separate definition? So
Arpit Gupta 21:51
transit oriented development will just be this idea that we want to concentrate our building and allow for greater density in the areas around transit stops, because this will allow for the most number of people to be able to live in a place where they can use public transit to commute and get around and go to other places. And over the long run, this will generate a network, a transit network, where all the nodes of this network are relatively are places you want to go to are sort of hubs of agglomerative activity, right? What does agglomerated mean for the audience. So that's going to be this idea that there are spillovers that result from economic activity of various kinds. And as long as we have a density of building in a particular area, we can take advantage of the fact that these people will interact. And so these spill overs, whether that be on the consumption side, so having benefits of people being able to grab coffee, and drinks and so on with each other, or on the production side, having people that work in a similar industry, you co located and be able to share ideas or you know, job tips or where to move next, these kinds of activities will be co located in some way. And so having a lot of density of these activities in transit stops, specifically allows for greater ease of people to move between all these different areas. And so it's going to both concentrate economic activity in the highest value places. And in the long run, it's also going to reduce the need for non public transit, forms of transportation, particularly cars, because you can just used public transit to get around and access all the really high valued nodes of economic activity.
Will Jarvis 23:23
It makes a lot of sense. I'm curious, you mentioned crime crime in Japan, one of the Escha a question about incarceration here in the US, you've written a bit about it. Before, you know, I want to know a bit about the societal effects of incarceration and some of the downstream things we don't often think about. But But first, what's your sense of, of why we incarcerate so many people in the US? Are Americans just higher in criminality or something like that? Or do we just for some reason, decide it's good idea to let more people up in other places?
Arpit Gupta 23:56
Yeah, so America is a high crime society. And in fact, many of the countries in the new world are relatively high crime. So comparing both North and South America, I don't necessarily have a deep reason for why exactly that is that that the countries on these continents are relatively high crime. But it's definitely something that you sort of sort of see in the data and the way we responded to high crime, and particularly the time series of crime. So the fact that crime was really ticking up. And a lot of these periods of the 60s and 70s is we've adopted a relatively severe incarceration regime. So especially as you get into the 80s and 90s, you had a lot of prosecutors, these are the individuals who are charged with deciding what type of crime someone is going to be charged with and what the prosecutorial regime is going to be. A lot of the prosecutors seemed like they have adopted relatively high, severe sentence lengths to apply to people. And there is a The justification for this, which is the high crime in the first place, and it turned aspects of trying to require high incarceration and lengthy incarceration. But one consequence of that, I think, has been that we have certain neighborhoods and communities where there's a lot of people are behind bars. And I think the social consequences of that incarceration sort of strategy is it's sort of felt intergenerationally as communities are grappling with the absence of a lot of individuals from from broader networks.
Lars Doucet 25:33
So in your paper, you were talking about how there's this kind of notion of expected value, right? Like if I have a 10% chance of 100 bucks, or like, a 50% chance of 20 bucks or whatever, like the expected value, assuming I got that right is about the same, right, you know, and like, I think the expected value about $10. And so you can apply this to crime, I think you did in your paper, but it's like, okay, if you have a low chance of getting caught, but for a really big sentence, you know, versus a extremely high chance of being caught for a fairly short sentence, like the expected value should be about the same. But then you said, if a criminal's discount rate is high enough, those two things are not totally the same at all. Can you clarify what you mean by discount rate, and also what what that full argument cashes out to? Yeah, and
Arpit Gupta 26:26
to be clear, this is not just an argument for me, it's something that many people have made, particularly Alex Tabarrok, who's posted on this drawing for that observation. But it's basically the idea that when we're trying to incentivize criminal behavior, we are trying to impose a cost efficient so as to deter an outcome that we don't want to see, for example, higher crime. But our ability to impose that punishment is typically far off in the future, we're pledging to incarcerate a criminal and impose some costs that will happen at some future time when that individual is behind bars. And one problem is that criminals are sort of, you know, pretty impulsive. And so they're sort of making decisions on more of a short term basis. And so in order to equate that cost benefit, you have to make that long term cost really bad in order to achieve a deterrence effect. And that sort of means you wind up incarcerating people for a really long time, far in the future in order to deter some criminal activity today. So that would be in contrast to other frustrating strategies that try to do a better job at providing an individual with immediate costs. So having a high certainty rate of conviction, that is relatively painful, but will happen in a fairly short amount of time, in order to achieve that same deterrent effect. So you're
Lars Doucet 27:44
saying that, because a criminal might be like, I don't know, if I'm going to live till 18 is going to be less concerned? If it's like, oh, well, you go to jail till you're 70. It's like, we'll be cool. You know, it's like, I'm much more concerned about whether I'm gonna go to jail at all. And so you're saying you are definitely going to go to jail for a year or two years or five years? Versus we probably won't catch you. But we if we do, you're going to jail for 50 years? Yeah, you're saying that the, the, the lighter sentence can be more of a determined if it's much more certain, like we're absolutely going to catch you.
Arpit Gupta 28:16
Yeah, and I think a related issue is the idea that a lot of criminal activity is done in context of impaired decision making. So for example, there's a lot of criminals or potential criminals are just drunk when they commit the crime. Right. And so it's it's hard to kind of make an appropriate discounting of future long run costs. If right you're in it appeared mental state. Another related observation, I think it that kind of thing at this back to our credit discussion is thinking about automated sentencing, of different tribes, different types of events. So we rely on our transit enforcement on a lot of discretionary activities. So a cop has to see you commit a crime and pull you over, etc, etc. And a different way to enforce traffic laws would be to have automated enforcement cameras, exactly as there are cameras that observe people speeding, and would just automatically issue you a ticket if you're found speeding. And so that's sort of a related observation. I think it's sort of the idea that if we're trying to sort of regulate behavior, rather than trying to do that, by having a discretionary amount of enforcement of some degrees of egregious offenses, it can be better in some ways to have a more straightforward, almost algorithmic, just sort of process oriented way of enforcing basic disorder crime offenses, ensuring that individuals pay some shore immediate cost for transgressions without having to rely on great amounts of discretion or other sorts of things which allow for individuals to form these you know, skewed cost benefit ratios when it comes to criminal activity.
Will Jarvis 29:56
So it sounds like we should, we should aim to have less capital punished a more consistent enforcement, more police on street corners, more algorithmic kind of enforcement and lighter sentences, and we might get better outcomes that way.
Arpit Gupta 30:08
Yeah, another thing, another thing, since you just sort of mentioned, police on street corners, that's another big change when it comes to policing. This is, you know, this is not my observation, many other people have made this point. But it used to be the case that we had a lot of bad cops, people that were just strolling, walking by the community, new committee members, and we've sort of moved to a more reactive form of policing, where police sort of sit in cars and react and drive to scenes of crime and interview people, you know, try to catch criminal after the fact. And something about moving away from that older model of policing has, I think, impair a lot of the trust that people have for for police officers, and has sort of lowered their general capacity to respond to, you know, just sort of prevent crime from stopping in the first place. And it does that role doesn't have to be served by police officers as well, I think there's a lot of interest in having other types of community mediators fulfill that role. But in general, having someone whose job it is to sort of enforce disorder and sort of look around, I think, I think it's important, I think it's particularly important as we're looking at these relatively higher crime rates, relatively high rates of social disorder, across the board, in the wake of the pandemic.
Will Jarvis 31:19
Why did we move away from that it? Was it just a cost problem? Is it more work to walk around the community and get to know everyone? Do you have any sense of why why we switch from having cops on the beat on every street corner to kind of this reactive, we're gonna, you know, show up screeching tires in our charger, and then like, and then screech out, once we've, you know, done our like, you know, assessment of the situation.
Arpit Gupta 31:42
I'm not fully sure, but I think something that people in that area mentioned is just the introduction of the automobile in the first place. Right. So police officers just used to be walking around, right? You know, you don't have a car, you just walking around the neighborhood and eventually, dealing with low level offenses, this as they happen. And once you put someone in a car, they're sort of natural habitat is to ride around that car and only show up when they're golfer.
Lars Doucet 32:07
So you're kind of as if we tell you two ideas together, the fact that like, we've moved to more automobiles center design, and our cities have become less walkable. That means they're also less walkable for the police. So the police have to drive to wherever you are, and the amount of area they have to cover is larger, because we're building less densely. So in a way, you know, I wonder what you said about Japan is that they're very low crime society. I mean, to what degree are these things sort of semi causal? I mean, I know you said Sao Paulo is fairly dense as good transit, still high crime. I mean, but if we build more densely, and I mean, simultaneously, like had like, some more effective policing, according to what you're saying, like, Could some of these, like like is the fact that America is currently high crime, not necessarily a constant if we redesigned our cities in certain ways?
Arpit Gupta 32:53
I think there is something to that. And, again, I would draw from people that have looked at these aspects of urban design from a crime standpoint, but I think something those individuals would say is that the context of crime matters a lot. And within a particular city, you'll see crime tends to be pretty isolated. Where you know, where the crime happened, you know, there's a small set of neighborhoods that are responsible for the majority of crime in most cities. And when you get aspects of urban design, that relate to things like, is there enough lighting? Right? Is it? Is it pretty dark in a particular place? Or is it well lit? And also just what's the foot traffic. So living in New York has always seemed like a very safe city to me, because at all hours of the day, wherever you are, you will see people walking by on a street. And that doesn't mean there's no crime. But it doesn't mean that there's a sufficient density such that there's a set of possible people nearby, outside, and most neighborhoods where you might be walking around even free late into the night. And that's very different from less dense areas where there might not be as many people, now people have an association of cities and crime in their heads, right. And there's more total criminal activity in cities for sure. But when you look at the statistics, you'll see that many cities, you know, New York is actually basically the last city in the US most crime city in the US, right,
Lars Doucet 34:09
lower crime by capita or by what measure? Yeah,
Arpit Gupta 34:13
exactly by capita. Right. So in terms of number of criminal acts, there's quite a few. But if you look at it on a per capita basis, it's generally been declining over the decades and in the cross section, comparing across places. It's really on the low side here in New York. And I think there are aspects of our density of sliding environment of just the the walkable neighborhoods that does contribute to that, that sort of that situation. But I think it's, you know, my guess is it's partly density, but partly these other little more intangible factors, like whether you feel that there's enough eyeballs in the neighborhood, and whether these other design elements were there as well. Things like lighting and so forth, that helped to promote just that conducive, you know, sort of intangible feeling of safety.
Will Jarvis 34:57
Got it. Got it. I'm gonna get a different lineup. Question and care to explore, you've written a bit a little bit about local newspapers, although it is somewhat related. You know, there's been a lot of talk recently about how several private equity firms have been buying up a lot of local newspapers. You know, they get rid of a lot of the beat reporters, and then they move everything online, kind of their streamlined costs and make money, of course. What's your sense of how how bad is private equity ownership of local newspapers? There seems to me like there could be some benefits around well, there's there's higher chance of continuity, there's more of a chance there will be a newspaper period. But also, there are probably these trade offs where they the reporting is not as good they do last, like investigations. What's your take on that?
Arpit Gupta 35:41
Yeah, I would say this is genuinely a trade off. So I don't think this is a easy to answer question. And that reason, I think is sort of a trade off is this overall sort of declining industry. And we've sort of had in the past is we just sort of rely on cross subsidization to sort of get local news content. So we sort of had, you know, back in the day is a situation when before Craigslist, in particular, we just have lots of advertisements, in newspapers, that served as a strong source of revenue to help support a lot of other investigative content, journalism, and so forth. So it's sort of like how Google uses their ad revenue in order to fund all sorts of pet projects, right, like self driving cars, and, you know, million different vanity projects, it's all kind of coming from some underlying profit source, when it comes to advertising. Newspapers were sort of a two sided platform that did that, historically. And so whether people themselves really wanted local news content or not. And I think in many cases, they did want local news content. But even if they didn't, they were sort of being served a media diet, where you've got the brussel sprouts of the local news content, along with the desert of celebrity news content, or, you know, whatever else it is, that's easier, you know, to, to consume. And over time, we sort of seeing a lot of the economics of the industry changed substantially where these revenue sources have steadily decreased over time. And so it's just a very difficult business proposition to be operating a local news industry today. And so that's exactly where private equity has come in. And the dark side of private equity is they are trying to unlock and realize value in the context of the declining industry. By doing all these cost cutting things we meant, like, like fighting the orders, having more centralized news content. So having one reporter produced content that 10 different newspapers will all report on it. So our local media die starts to look more homogeneous, we have less room for accountability for our local public officials as a consequence, at the same time, they are also putting in investments that help to extend the digital reach of these newspapers, and certainly seem to help to keep the newspapers alive longer. So it, I think, is a genuine challenge to think about, what is a, you know, different models of viability for newspapers in the future. One thing that number of papers are looking at is a nonprofit model. So that would allow for some amount of local news coverage, maybe there's some benefactors, local philanthropist, and they help to sort of endow and fund these kinds of measures. There's increasing interest in the internet itself. So that, you know, on one level is sort of the the cause for the disruption in the industry, but may also help to engage local, local readers by newsletters and other forms of digital communication that directly connect the producers of local news content directly to the consumers. And I think there's potentially a role here for public policy to play as well, in trying to think about what types of ownerships or what types of news, you know, regulation might be appropriate. And, you know, finally, I think there is potentially a role here also for social media, it's, again, sort of often the case that we're using social media to complain about things at the national level, but there may be better ways for us to remain engaged informed about local news contents, through different social channels. And finally, I think there's a sort of a deeper question about, well, do we need people to be aware of all local news? This is, again, a genuine trade off, I don't think there's a right answer. But the way we sort of do policy, the United States in many ways, pushes policy down at a hyperlocal level. So whether it's people yelling about buildings at their local community board, or decisions being made at City Hall, local city council, there are a lot of decisions that are made at a pretty low level here in the US. And another way of doing it is to just have that decision being made at a higher level. So having, for example, so winning or building codes being decided upon at a relatively high unit. So for example, in Canada, they do a lot of zoning rules at the provincial level. So Ontario will decide you know, the zoning rules with the whole province. So if you know and so if we push things up to that level, for example, then it wouldn't matter as much that I don't know what's happening medical community because I don't need to care about what's happening with the community board's decision on this zoning issue? Because it's the whole decision has been made at a higher level. Right? I say it's a genuinely trade off, because it's there are costs to that as well. There are benefits to having diversity of local municipalities, jurisdictions around the country, each of which sort of do something slightly different. But our ability to do that, to have a diversity of local government types around the country is on some level predicated on our being able to monitor hold these local politicians accountable. And there is a then therefore, a need for media to providing people with information on what's happening at these these local levels.
Lars Doucet 40:37
You know, when one thing that's interesting to me, my instinct is that when you talk about politically, people like the idea of like local control, right, you know what I mean? And so when you talk about pushing things up to a higher level, it's like, well, I mean, I mean, shouldn't the locals have a say in what's going on? I think that's also my intention with like, rhetorically individual rights, right? You know what I mean? It's like, people say, it's like, well, this is our town, this is our neighborhood, we should have a say in what gets built here. But another way to kind of look at that rhetorically, and politically is it's like, well, what right is more vocal than the individuals, right? And so local control can mean your neighbors get to tell you what to do on your own land. And so how do you grapple with that just politically and rhetorically this note, like, you know, what is the appropriate locus of control? And then how do you message that in a way that that's palatable to different different jurisdictions and constituencies? Yeah,
Arpit Gupta 41:34
it's a great question. I mean, I think one reason for the success of some of this EMB messaging, on some level is, is actually exactly because it's not denying local control, in some sense, as much as just re enabling the individual, the control of what they want to do with their own parcel of land, right, this goes back to early discussion of, in some sense your devolving decision down to an even lower level by allowing a person to decide what will happen on the land that they own. If you're not empowering the local busy bodies in the area, to instead determine what's happening for that person instead. So I think many of these regulatory changes broadly can be construed in a way that's actually pro individual. Another way of thinking about it, though, I think, is to sort of look back and try to understand where a lot of these hyper local bodies in particular sort of came from. So I've always kind of found these entities really interesting. It's not like they're in the Constitution, right? It's not like the Constitution and has Article Six is, well, this is how we're gonna establish the planning board and the community board. And, you know, and these are going to be the different institutions of governance for a lot of our transit and housing issues. But instead, they've kind of popped up over time, and a lot of emphasis has actually been central. So HUD in particular, around the 1970s started to make block grants. That is Housing and Urban Development. Right. Right. Right.
Lars Doucet 42:53
So is that the federal
Arpit Gupta 42:55
executive, the federal agency, responsible for a lot of our Housing and Urban decisions made these these block grants were able to cities, if they themselves created the local community boards?
Lars Doucet 43:05
Well, we wait. So you're telling me that this hyper local busy bardenas is the direct result of top down federal intervention?
Arpit Gupta 43:15
So it's not the full story? I think, because some cities already had some type of planning commission and things that were already sort of gaining ground. Certainly, they were, you know, certainly think of the Robert Moses era, the control the Robert Moses had across the city, you know, that that was sort of something he put he sort of put together through the parks department, for example. And then the backlash, Robert Moses, I think fueled a lot of this, it meant that there was sort of a latent demand for Busybody deaths, that was initially being put to good place being initially used to balk highway projects, you know, things, things of that nature, and then just sort of got diverted over time. So there's local bodies that were, you know, set up, you know, so just just to flesh it out. Right. So there was demand for local bodies as a result of this sort of urban renewal backlash, at the same time that there was a supply of these local bodies that was coming from top down direction and and end result was a series of local community boards that have basically all over the country been captured by the NIMBYs and use to litigate housing issues all over the country. So this is, yeah, now just sort of a universal phenomenon. But I think there is a substantial role for a centralized federal response and making it happen. And that doesn't need to be the case. Right? We could have different you know, a different perspective from HUD on this on these decisions.
Will Jarvis 44:38
Well, Arpit thank you so much for coming on the show. I've learned a ton. Where can people find your work? Where should we send them?
Arpit Gupta 44:46
Yes. You can find me on Twitter at arbitrage, at arbitrage on Twitter and on substack at arbitrage dot substack. And have a website as well. That one is a little bit different I guess. Arpit Gupta dot info. So we're constantly out there on the internet for all we're interested. Awesome.
Will Jarvis 45:08
Thank you so much there.
Arpit Gupta 45:10
Thank you so much for having me it was a lot of fun.
Will Jarvis 45:15
Special thanks to our sponsor does Mark analysis for the support. Bismarck analysis creates the Bismarck brief, a newsletter about intelligence great analysis of key industries, organizations, and live players. You can subscribe to Bismark free at brief dot biz market analysis.com Thanks for listening. We'll be back next week with a new episode of narratives. Special thanks to Donovan Dorrance, our audio editor. You can check out documents work in music at Donovan dorrance.com
105: Arpit Gupta - Transit, Zoning and Infrastructure