Quantifying the costs of road casualties in London, by borough and mode of transport

Injuries and deaths as a result of road collisions impose huge costs on our society, both on the people directly involved and an others more indirectly affected. While everyone will react differently to being in a road collision, we can try to quantify the average social and economic impacts in order to get at the overall cost to society as a whole and hopefully provide a further incentive for change.

The Department for Transport estimates the total cost of a road fatality to be around £1.7 million, of a serious casualty around £190,000, and of a slight casualty around £15,000. These are arrived at using the 'willingness to pay' economic method, and are meant to take into account the 'human costs' of suffering and grief, lost economic output due to injury or death and the costs of medical treatment.

Using these figures DfT estimates the total cost of reported road casualties in Britain in 2001 to be around £15.6 billion, and the total cost including unreported casualties to be up to around £34.8 billion.

Using the same average costs, Transport for London estimates the total cost of reported road casualties in London in 2011 to be around £2.35 billion. Since TfL also provide data on the location, mode and severity of each casualty in London in 2012, we can use the same figures to see how these costs vary from borough to borough and mode to mode.

The chart below shows the estimated total social and economic cost of reported road casualties in 2012 by borough and the casualty's mode of transport, using DfT's averages. There's a table with the same figures below the fold.

There are huge variations between boroughs in terms of both the scale and the composition of the costs associated with road casualties. The total cost in lowest in Kingston at around £27 million, and highest in Westminster at around £128 million. In Outer London boroughs car occupants account for a higher proportion of casualties and therefore of costs, while in some Inner London boroughs pedestrians and cyclists account for over half the costs, reaching 58% of the total in Westminster and 69% in the City of London. Across all boroughs the total costs by mode come to £523m for pedestrians, £345m for cyclists, £674m for car occupants and £518m for other modes (motorcycles, buses, taxis, goods vehicles, etc).

It's worth emphasising that these figures are bound to be an underestimate. Not only do they cover only reported casualties and excluse those that go unreported, but they arguably don't capture the full range of costs. Road danger results in 'avertive' behaviour, where people go out of their way to avoid particular danger-spots or choose to take modes of transport which are safer but slower or more expensive. These costs are very difficult to quantify and so they aren't included in the DfT figures.

Also, the average costs per casualty are likely to be higher in London than in other parts of the country, given the higher wages in London and therefore higher costs of lost output and higher 'willingness to pay' to avoid casualties.

It may sound callous to talk about road casualties in terms of money but this is really just a way to try and quantify the non-monetary costs in a rigorous way. And I think these figures could be a useful tool for campaigners too. Some boroughs don't seem to attach enough importance to road safety (or road danger reduction, if you prefer), but if the government were to levy fines on them in proportion to these costs I think it would concentrate minds pretty rapidly.

Some simple economics of cycling

This post is an attempt to apply some techniques of economic analysis to cycling. There is a growing body of research about cycling, but most of it is from the perspectives of sociology (e.g. these journal papers) or engineering. Those approaches are very valuable (maybe more valuable!), but I think economics might have something to contribute too. However, while economics has had a lot to say about transport in general, as far as I can see this literature has tended to exclude cycling.

But I think taking an economic approach can help us think about some key questions regarding cycling, such as:

• Why has cycling increased in some city centres even but declined in the suburbs?
• Why do (some) people cycle in dangerous or unpleasant conditions?
• On the other hand, why do (most) people not cycle despite the convenience and low cost?
• What are the real costs and benefits of infrastructure projects or other policies to promote cycling?

Quite a lot of it will seem like simple common sense, or just bloody obvious. But my aim isn't so much to generate any startling insights as to show that cycling can be analysed using the same economic techniques as other modes of transport, and that future research using these techniques may be able to tell us useful things.

Time and money
At its simplest level (which is very much the level this post is written at, since I'm not really an economist), transport economics treats the choice of transport mode for a given journey as a function of a limited number of variables. Generally, the two most important are considered to be speed and cost. Reasonably enough, people are assumed to want to get to their destination as quickly and cheaply as possible.

The standard approach to comparing the speed of transport modes is to use door-to-door times, taking into account any time spent not going anywhere, such as sitting in traffic or waiting for a bus. In economic terms, people consider both the fixed and variable time costs of travel. The chart below illustrates this approach, showing (on the vertical axis) the estimated time taken to travel various distances (on the horizontal axis) in a typical urban environment [1].

Walking is the slowest mode of transport in terms of average speed (as indicated by the slope of its line), but for extremely short trips it is the fastest because there isn't any 'fixed' amount of time you have to spend getting ready, you just start walking. Cycling is the fastest mode for trips of a few kilometres despite having a lower moving speed than cars, because car users are thought to spend more time walking to and from their vehicles. Note, the average moving speed for cars in this chart is about 16km/h, which might seem very low, but that's because it's the average speed and takes into account congestion encountered in urban areas. Because bikes can filter through traffic jams cycling speed is much less affected by congestion and so is almost as quick as driving in this comparison.

This is a highly stylised comparison and you can obviously quibble with any of it, but for our purposes it makes two key points:
1. When thinking about transport speed people consider the total journey time rather than just the average moving speed.
2. On that basis, cycling may be the quickest mode for most short journeys in urban areas. Of course, if congestion is not an issue than the higher speed of cars will make it more attractive, while in extremely congested places cycling will look even better.

What about the monetary cost of travel? This is a bit more complicated, mainly due to the fixed costs involved in owning a car or bike (much less in the case of a bike). But if you set them aside and focus only only on per-trip costs, the important point for our purposes is that the cost of a bike trip is much lower than for any other mode except walking. Even if you take fixed costs into account it's likely that cycling still works out second cheapest for most people.

So if we stop at this point and consider only time and monetary costs, it looks like cycling should be an extremely attractive option for most short urban journeys. It's always cheap, and in congested traffic it's pretty quick. On this basis, cycling should be very popular in congested cities. So why isn't it?

Comfort and safety
Well, with some people it is. A growing number of Londoners, for example, choose cycling over other modes. But even in London cycling's mode share is low compared to its potential, and across the UK as a whole we still cycle very few short or medium-length trips compared to the Dutch or the Germans.

Transport economists have often acknowledged that people take other factors into account when choosing how to travel, with a key factor being the safety or comfort involved. Why 'comfort'? Because people tend to cite safety fears as a reason for not cycling, despite the 'objective' cycling casualty rates being very low even in London and the net health impact probably still positive. This suggests that it's not just the frequency of collisions that people are concerned about but also the frequency of near misses, and the generalised physical and mental discomfort of mixing with motor traffic.

Recently, some researchers have tried to understand how our own safety depends not just on our own choice of mode but also the choices of those around us. For example, in this article Anderson and Auffhammer provide evidence that people in the US are choosing bigger cars in part to protect themselves from the risks posed by everyone else's cars. The result is an 'arms race' in which the average US car becomes (a) bigger and (b) more dangerous to those around it.

Anderson and Auffhammer don't make this connection, but I think you can extend their model to cover cycling, treating bikes as basically extremely light vehicles that offer little or no protection in a collision.  Viewed that way, the choice to drive rather than cycle is similar to the decision to get a bigger car - for many people it is a deviation from their preferred option, motivated by fears over their own safety, that ultimately makes the roads less safe for everyone else too. Played out over a long enough period, it's easy to see how these individual decisions can cascade into a widespread rejection of cycling due to safety fears, as opposed to just the attractiveness of other modes or changing trip patterns.

However, this dynamic won't be the same everywhere. In places where most trips are short and the alternatives are very costly or slow, cycling may still be popular. That's why cycling rates tend to be highest in the centres of big cities - even though there's a lot of vehicle traffic it tends to be slow moving, which makes it less attractive as an alternative means of transport. The mixing of vehicles and bikes, however, means that cycling casualty rates may also be higher in these areas unless safer facilities for cyclists are specifically provided.

So to summarise, cycling has a cost advantage over other modes of transport (except walking, maybe) which is relatively fixed regardless of the conditions, but its relative benefits in terms of speed and safety/comfort are highly dependent on external conditions. Cycling will be quicker than other forms of road transport if traffic is congested, but unless traffic is so congested as to be stationary then the requirement to mix with heavy traffic will also make cycling less safe.

I think this helps make sense of trends such as the fall in cycling in Outer London and the simultaneous rise in Inner London. In Outer London the increasing availability and use of cars and their relatively high speed has cancelled out much of cycling's cost advantage and decreased its safety, while in Inner London high congestion and the falling number of cars has made cycling more attractive despite a still relatively high casualty rate.

Applications

One of the benefits of setting out the cycling decision in an economic framework is that it can allows us to estimate the effects of time, cost and comfort, and that in turn should enable us to make better decisions around infrastructure. Right now TfL are really struggling to properly analyse the costs and benefits of cycling infrastructure, apparently because their models don't incorporate any estimates of mode-switching in response to infrastructure changes, so cycling schemes look poor value for money in contexts where few people currently cycle, i.e. where such schemes may be most needed.

But if we can estimate a statistical model of mode choice with three factors (time, cost and comfort), then we can get at the question of how much additional cycling we should expect to see if we change the infrastructure on a particular route in a way that changes one or more of these factors simultaneously. Such a model could be expressed as something like the following:

Pij = axij + byij+ czij

where Pij is the probability of person i choosing to cycle trip j, x is time, y is cost, z is the comfort or cycling level of service, and a, b and c are the relevant elasticities of cycling with respect to each factor. This specification accounts for the fact that infrastructure elasticities will vary by person and by trip, although you could start with some averages.

Estimating this equation from observational data would be challenging, because every trip and every person are different and because simply gathering data on how people perceive safety is so difficult. So you would probably have to start by plugging in average parameter values from existing research about attitudes to generic types of infrastructure and road layout, assumptions about average speed, and so on.  

That way, you can start generating reasonable estimates of how many people might use a particular cycling facility in future, rather than just going on how many people currently cycle the same route. And that in turn means that you can get better estimates of the wider impacts of cycling, for example on how transport changes affect the 'market potential' of particular locations. This kind of analysis is already commonplace for vehicle and rail transport but not for cycling, due I think to a combination of the particular theoretical and empirical challenges posed by cycling and plain old cultural prejudice against what is still seen as an 'outsider' activity.

[1] Source: http://www.infrastructure.gov.au/infrastructure/mcu/urbanpolicy/files/ACTIVE_TRAVEL_DISCUSSION.pdf

Is housing scarcity bad for homeowners?

The other day I agreed with noted urban thinker EconomistHulk that we should build more homes by densifying existing urban areas where there is high demand, and also that this densification is frequently blocked by existing property owners for reasons of self-interest.

But Matt Yglesias (who has written an excellent short book on the housing problem) disagrees, arguing that housing scarcity is bad for homeowners, at least financially. The gist of his argument is that if you own a piece of land, then the ability to build more homes on that land is going to make you richer, even if the effect of supply on prices means the price per home is lower. Your neighbours might lose out because the increase in market supply makes their property cheaper, but that's their lookout.

As Matt notes, this begs the question of why we have so much NIMBYism in practice. He suggest it's partly because many people just don't understand how these things work, and partly because property owners attach a large use value to their property which can outweigh the exchange value, i.e. they want to live in the neighbourhood they chose rather than redevelop their land at higher density.

These are good points, but I think there's more to it. For one thing, density restrictions may serve several purposes, and in countries with highly decentralised political systems like the US where many services are funded by local property taxes one purpose is to minimise the level of fiscal 'free riding'. A rule stipulating maximum housing density effectively creates a floor price for housing and a minimum property tax contribution, ensuring that nobody can take advantage of local services without paying roughly the same entry price as everyone else. 'Fiscal zoning' of this kind is basically about keeping the poor out of your neighbourhood, but when key services like schools are locally funded there's a solid financial logic behind it which makes it very popular.

But even leaving these aspects of density restrictions aside, I don't think the home owner's decision is quite as straightforward as Matt suggests. He's right that land is a speculative asset, but as he says it's an unusual one in that home owners don't just own land but live on it too. And, very importantly, each property's value (in use or exchange) depends to a great extent on what does or doesn't happen on neighbouring properties.

The most important fact about urban development is that it creates various spill-over effects, and if you're a homeowner who doesn't plan on moving any time soon you're probably going to want to minimise the possibility of your neighbours redeveloping their property in a way that reduces the value of yours or makes it less enjoyable to live on through effects such as loss of light, traffic congestion and so on*. Rules against densification minimise the risk of this happening, and by buying into a neighbourhood with these rules home owners voluntarily accept a constraint on their own speculative activity in exchange for the knowledge that their neighbours are constrained too. Sure, when they're about to sell up they might be sorry that they can't just build a tower block on their plot of land, but the rest of the time they're probably grateful that nobody can.

To put it another way, Matt is correct that a property owner can increase that property's value by building as much housing on it as the market can bear, even if this extra density damages the value of neighbouring property. But the problem is that your neighbours can do exactly the same thing to you. And if everyone goes hell for leather in redeveloping their own land then you can end up with lower average land values and a less pleasant area than you would if everyone voluntarily agreed to constrain their redeveloping impulses**.

However, the average value of each housing unit would also be considerably lower, so from the point of view of a social planner interested in making housing more affordable this may still be a good deal, especially if you don't think the environmental or amenity costs of density outweigh the benefits. And in many cases there will be an intermediate range where increasing average densities does increase land values. But given the risks involved, the logic of the argument above is that if local planning / zoning rules are basically set by home owners acting in their own self interest then we shouldn't be surprised to see widespread NIMBYism.

* Matt mentions such 'non-pecuniary' factors but doesn't seem to accord them much importance.

** There's a proof of the potential negative impact on land values in DiPasquale and Wheaton's urban economics textbook, which is unfortunately out of print.

Hulkonomics and the housing crisis

A variety of voices have spoken out recently about the UK's housing crisis, none more distinguished than @EconomistHulk, who addressed the issue on Twitter this morning:

HULK THINK NIMBYS ARE THE LUDDITES OF THE 21ST CENTURY. HULK SAY WEALTH COME FROM INCREASING ABUNDANCE, NOT FROM PRESERVING SCARCITY
— ECONOMIST HULK (@ECONOMISTHULK) March 28, 2013

@generalboles HULK FEEL MOST IMPORTANT POLICY TO ENCOURAGE GREATER DENSITY ON ALREADY DEVELOPED LAND. DENSITY GOOD FOR ECONOMY.
— ECONOMIST HULK (@ECONOMISTHULK) March 29, 2013

I fully agree with Hulk's analysis, which goes to the heart of the housing crisis, not to mention the wider issues of macroeconomic volatility, wealth inequality and social mobility. The fundamental problem, I think, is that today's housing market is characterised by a spatial coincidence of elastic demand and inelastic supply. In other words, the places where we most need to build homes are often the places where people are least inclined to allow it.

It wasn't always this way. Elastic demand for housing means that as incomes grow at a certain rate housing demand grows even faster, but in decades gone by much of this demand could be met by expanding cities outward. This urban expansion and deconcentration was facilitated by huge improvements in the speed, cost and availability of transport technologies, from the tram to the train to the bike to the car.

But in the past couple of decades urban deconcentration in many of the richer parts of the world has slowed or gone into reverse, partly because we've stopped coming up with amazing new transport technologies and partly because shifts in economic geography mean that jobs have returned to city centres. In London, for example, population and incomes are growing faster in Inner London than in the suburbs, after almost two centuries of deconcentration.

This is a big problem for housing supply, because it is much easier to build in places where nobody lives than to redevelop existing areas at higher densities. But as Hulk says above, that's exactly what we need to do if we are going to meet housing demand.

One of the reasons it is so hard to redevelop existing residential areas is that we have allowed the existing property owners to effectively veto new development which they feel is not in their interests. And they use this veto a lot. Not uncoincidentally, this happens to enrich them if they are home owners. Hulk again:

HULK THINK HOUSING SUPPLY INELASTICITY IN AREAS WITH HIGH PRODUCTIVITY GROWTH LEAD TO HUGE RENT-EXTRACTION BY EXISTING PROPERTY OWNERS
— ECONOMIST HULK (@ECONOMISTHULK) March 29, 2013

Overall, restricting new housing supply in existing residential areas of high demand is bad for the economy (because it puts a brake on jobs growth and agglommeration effects), bad for the environment (because it forces people to make longer commutes), bad for social mobility (because it limits access to housing to those whose parents owned property in valuable areas) and bad for equality (because it exacerbates wealth inequality). But it's good for wealthy homeowners, so you can see the dilemma. 

In future posts I'll look at whether and how we can moderate over-consumption of housing demand by the rich and improve housing supply. But for now, make sure you follow the Hulk.

How first time buyers have lost out to home owners and what we could do about it

The Chancellor yesterday announced that the government would set up a mortgage guarantee scheme to make it easier to buy a house. Unlike previous schemes this will be open to those who already own a home as well as first time buyers, and there'll be a consultation on the details before the scheme launches in early 2014.

The extra subsidy for purchases by those who already own a home is interesting, since as a group they already seem fairly well served by the existing mortgage market - and they have massively expanded their share of that market over the last twenty years. The chart below, based on data from the Council of Mortgage Lenders, shows the trend in the share (by value rather than number of loans) of mortgages for 'home purchase' (i.e. excluding buy to let) between 1993 and 2012. 'Home movers', i.e. those who already own a home, accounted for 52% of the market in 1993 and 66% in 2012 (though note there was a change in how the data was collected in 2005).

Trend in home mover and first time buyer shares (by value) of UK mortgage lending (dashed lines indicate change in methodology in 2005)

When talking about 'squeezed-out' first time buyers the rise of buy to let gets all the attention, too much so I think, but going by the numbers the expanding market share of home movers may be a bigger issue.

So why has lending to home movers expanded so much? A new academic paper by Professor Geoff Meen, one of the country's leading authorities on housing markets, offers a partial explanation. He argues that

existing owners benefit particularly at a time of rising prices, because they are able to use the accumulated equity in their current properties to relax the constraints on their budgets and can, consequently, trade up-market or purchase additional properties. These further demands for housing will put upward pressure on prices and will be accompanied by added demands for mortgage debt by existing owners. Since new households do not have these advantages, the share of mortgage debt which they obtain falls and they also suffer from the rise in prices.

So basically, home owners benefited disproportionately from the long house price boom of the 1990s and 2000s because they used the increased equity in their homes to put down a bigger deposit, increasing their buying power by enabling them to get bigger and better (in terms of interest rates) mortgages. This increased demand then fed back into house prices and the process continued, in what Meen calls a financial 'accelerator' effect. What's more, some home owners didn't sink their increased wealth into a new home for themselves but instead bought one or more additional homes - so this dynamic also can also help explain the rise of buy to let, not as some unrelated external factor but as the natural result of the hugely unequal accumulation of home equity.

First time buyers, meanwhile, got hit by both rising prices and a shrinking share of the mortgage market. The average time spent waiting to buy went up and the home ownership rate went down. When First time buyers got much of the blame when the market crashed, but Meen argues that "the rise in the debt stock was mainly a consequence of the actions of existing owners", with most first time buyers simply caught up in the consequences. With a crushing irony, the hike in deposit requirements that followed the crash hit first time buyers much harder than home owners.

There's one upside for first time buyers: during an economic downturn prices usually fall faster than incomes (because housing demand is 'income elastic', i.e. demand changes by more than the change in income), and the fall in prices disproportionately reduces the buying power of home owners while bringing some prices within the reach of first time buyers. So in a downturn the accelerator becomes a decelerator and the first time buyer market share can increase, as long as they aren't too crushed by high deposit requirements. And indeed, we do see some signs of first time buyers reclaiming market share in the last few years in the chart above.

It's a simple enough theory, but it seems to explain a lot of important features of the UK's housing market in the last decade or so, from the boom and bust cycle to the falling home ownership rate to the increased proportion of cash sales from all the accumulated equity still sloshing around the system.

But as the accelerator/decelerator dynamic seems rather built in to how UK mortgage markets work, the question of what we can do about it is a tricky one. As noted above, traditional controls on loan to value rates don't really help since they don't constrain home owners with significant accumulated equity. Instead, Meen suggests two things:

• First, we should increase the housing supply on a widespread and long-term enough basis that it outpaces rising demand from population and income growth, preventing house prices from rising too much and unearned wealth accruing to home owners.
• But for periods when prices do rise we should look into 'fiscal measures' to reduce the effect of those rising prices on rising demand - measures such as the property tax proposed by John Muellbauer in 2005. This tax would be a constant percentage of each home's value and would rise or fall in line with house prices, so that higher prices wouldn't be a free lunch for home owners.

Both of these seem like they could be quite effective, but given they would primarily hit the home owners who have done so well out of the last boom and who are so good at getting their voices heard in politics, it seems unlikely we'll see them any time soon.

Giving people what they say they want mightn't give them what they want

There's a school of thought which says that since people generally say they want big houses with gardens then that's what we should be building and not small flats in city centre locations. This is intuitively appealing, but the problem is that housing is a composite good: when people buy a home they're not just buying the structure but the location too, and in practice they're willing to trade off one for the other.

The huge price differentials between structurally very similar properties in different parts of the country indicate that people attach a great deal of value to location, and the small flats you see in high-density areas are in large part the result of people willingly sacrificing dwelling space for locational benefits, even if in an ideal world they would much prefer to live in a big house in a garden in the same location.

Making it easier to build more flats in high-density areas makes it easier to find acceptable trade-offs and would be good for people who value central locations, and it would also be good for people who want to live in the suburbs since there will be less displaced demand from the centre. You sometimes see city centre locations trying to restrict the supply of flats and justifying it on the grounds that people say they want to live in houses, but this doesn't get rid of the uneven pattern of locational demand - it just means that high demand in some areas is concentrated on a smaller number of properties so prices go (sorry) through the roof. Trying to give everyone what they say they want (a big house in a low-density area) makes it harder to give people what their behaviour shows they really want (a home that provides some optimum mix of a range of characteristics including structure and location).

There's an analogous situation in transport policy, in that if you asked people what they would like in an ideal world most of them would probably prefer a nice fast drive in their own car from A to B. But the spatially uneven pattern of transport demand means that trying to satisfy this just leads to huge levels of congestion on certain roads. Since what people really want is just a reasonably quick and cheap way to get from A to B, a better policy is to provide public transport on high-demand routes that moves more people without causing (much) congestion.

The lesson is that it's better to understand the aggregate impact of people's choices and learn from the trade-offs that we make, rather than just try to satisfy what we say we would like in an ideal world. Hardly anyone loves buses in their own right, but they do love the ability to get where they want to go. Similarly, most people don't dream of living in a high-density flat but providing these kinds of homes is a vital part of enabling people to live where they want and ensuring that cities stay as affordable as possible.

By the way, none of this is to say that we shouldn't make it easier to build suburban housing too. We should - but the point is that unless supply is increased in response to demand in city centres too then you won't fix the affordability problem.

Bike lanes, livability and displacement

The fact that the Evening Standard's property section is now running features about "good-value homes within cycling distance of the office" is good news for cycling as a cause, but perhaps not so good if you're just a normal self-interested cyclist.

Back in the good old days when cycling in London was a freakishly unusual thing to do, whether some place was within cycling distance of the City or not didn't affect its valuation much because there weren't enough cyclists for it to matter. So if you happened to be one of that small number of cyclists you enjoyed a quick commute without having to pay a price premium for it.

But now that cycling has become popular enough in Inner London for even estate agents to notice, "within cycling distance" has become a saleable feature and accordingly comes with a price tag. Given enough cyclists, things like infrastructure quality will start affecting prices too: if someone builds a great bike lane from your flat to the City then more people will want to move there to avail of it, overall market demand will go up and so will the property value.

Now, if you use the bike lane enough you might think the higher price is still worth it. And if you already own a flat in the area you might be pleased too, even if you don't use the bike lane, because your property value just went up. But tenants who don't cycle will be worst off as they'll see their rent go up for no benefit.

This kind of concern is why people sometimes campaign against what others see as entirely benign neighbourhood improvements, and it's what motivates polemics like this one against "livability" defined in terms of supposedly ephemeral amenities like bike lanes rather than the more 'real' livability concerns of jobs, transport and housing.

Campaigns against bike lanes can seem fairly insane, and to be honest sometimes they are, but sometimes they are part of a wider struggle over processes of neighbourhood change, gentrification and displacement. Advocates of livability improvements generally don't intend to displace anyone, but in my view it is irresponsible to not at least consider these price effects and the likely social consequences.

Displacement is not inevitable, though. Higher housing demand can be offset by higher housing supply, moderating or even eliminating the price impact while enabling more people to enjoy these new amenities. Of course, people tend to be hostile to new housing supply in their area so campaigners usually choose to avoid the topic, but there's really no getting away from the market dynamics. If you make a place more attractive without making it possible for more people to live there, prices will go up and people will get displaced. Is that really what you want?

People in London go out of their way to avoid cycling on busy roads

Transport for London's latest annual Travel in London report is, as usual, full of interesting information. I found this paragraph from p. 122 on attitudes to cycling particularly striking:

Cyclists generally feel safer on quieter roads. A survey of Londoners found that cyclists consider quiet roads to be safer than busy roads. Four-fifths consider quiet roads to be safe, compared with 49 per cent (regular cyclists) or 28 per cent (occasional cyclists) for busy roads. A recent study of current cyclists in London found that cyclists were willing to increase their journey time to travel on better, safer routes. Current London cyclists are prepared to travel further to cycle in cycle lanes, bus lanes, on residential roads and would travel three times further to cycle on off-road routes. Around half of all cyclists would change their route to travel through parks and green spaces, or to travel on a dedicated on-road cycle lane. And around 40 per cent said they would change their route in order to use a Cycle Superhighway.

The key fact is that only 28% of occasional cyclists in London think busy roads are safe, compared to a majority who think quiet roads are safe. That may sound obvious to some, but to me it shows illustrates two important points:

• Most people don't think cycling itself is unsafe, just cycling in heavy traffic.
• Busy roads are more likely to have cycling 'infrastructure' such as advisory cycle lanes, but they don't seem to have much impact on safety perceptions. This suggests we need better infrastructure, a la the Netherlands.

The research about how far out of their way people are willing to go for a safe cycle route is also important. Choosing a slower but safer route is a form of 'avertive' behaviour, just like people moving away from a polluted road. It lowers the observed costs in the form of road accidents (or respiratory disease from the polluted road) but it increases the hidden costs borne by people in the form of higher expenditure of time or money to avoid the problem. Avertive behaviour prompted by unsafe cycling conditions ranges from finding a slower but safer route to spending loads of money on luminous clothing to not cycling at all. These costs are very large but to my knowledge are not well accounted for in current transport assessment methods.

What do homeowners have a stake in?

Today's Census figures showing a fall in home ownership have excited plenty of comment about the struggles of so many people to get on the property ladder. With excellent timing, the IPPR came out with some research yesterday examining some of the knock-on effects of these housing pressures. Jenny Pennington, the author of the research, summarises the argument here. I recommend people read the full report as it has some really good qualitative evidence on the social consequences of high housing costs, such as people having to delay starting relationships or having children. But there's one particular result I'd like to focus on. Jenny writes:

Secure housing also makes a real difference to the way people invest in a particular community. Owning a home increases a person's sense of belonging to a neighbourhood. For example, an individual who has lived in the same home for 20 years without owning it is likely to feel the same sense of neighbourhood belonging as someone who owns their home, but has lived in it for just six years. Young people who did not own their home talked about not really seeing the point of committing to the area in which they lived or getting to know the people they shared a street with.

This conclusion is arrived at through a robust-looking analysis of survey data, and I'm sure it's accurate as far as it goes. I would just caution that it's very hard to control for all the relevant factors here, particularly the crucial one of how long people intend to stay in a neighbourhood. Someone who expects to be moving on in a few years is likely to be less keen to either buy a home (given the transaction costs involved) or get much involved in local community matters. If the average level of 'expected mobility' in the population rose (because more people need to move to find work, for example), then we should probably expect to see both less home ownership and less 'neighbourhood belonging' - but home ownership wouldn't be the causal factor.

That said, I suspect there probably is a positive effect of homeownership on community belonging, even if it is hard to identify empirically. Pure self-interest would suggest that homeowners are likely to be more committed to the improvement of their area, because when you own a home somewhere you are to some extent stuck there (transaction costs again), and the value of your (very large) financial investment will be determined by what does or doesn't happen in its surroundings.

Lest anyone think I'm just being cynical for the sake of it, there is some pretty good evidence that homeowners' attitudes towards community issues are influenced by the expected impacts on house prices. Here's Christian Hilber, writing in the Journal of Urban Economics in 2010:

This paper examines the role of local housing supply conditions for social capital investment. Using an instrumental variables approach and data from the Social Capital Community Benchmark Survey, it is documented that the positive link between homeownership and individual social capital investment is largely confined to more built-up neighborhoods (with more inelastic supply of new housing). The empirical findings provide support for the proposition that in these localities house price capitalization provides additional incentives for homeowners to invest in social capital. The findings are also largely consistent with the proposition that built-up neighborhoods provide protection from inflows of newcomers that could upset a mutually beneficial equilibrium involving reciprocal cooperation.

Translated, what this means is that home owners really do put more effort into building social ties ('social capital investment'), but only really in places where it's harder to build new housing ('more inelastic supply'). One possibility is that this is because in such areas any local improvements as a result of stronger social ties are more likely to result in higher house prices, while in areas with elastic supply rising demand results in more new homes and no effect on prices. It's worth noting that Dr Hilber previously found that in Massachusetts even elderly homeowners without kids tend to vote for (and pay for, through taxes) investment in schools because it increases the value of their home.

Many people might say there's nothing wrong with any of this, and that if home ownership gives people a financial incentive to care more about their neighbourhood then so much the better for home ownership. My concern is that it also seems to give people a financial incentive to oppose new housing supply in their neighbourhood, as new development may reduce the value of their home (either through a supply effect or the amenity impact of extra housing) or, as Dr Hilber suggests, upset the social balance they have helped create. If homeowners are really less likely to be socially virtuous when housing is plentiful then it sounds like a society with high levels of home ownership and strong social ties may also be one with a persistent housing shortage.

And indeed, that's kind of what the basic numbers suggest. Surveys show that a sizeable majority of home owners say they would oppose new homes being built in the local area, while private tenants are basically split and social housing tenants are in favour of new housing. And over the long run, the rate of new housing supply has fallen while the rate of home ownership has risen. The graph below charts one against the other for England as a whole, starting in 1972 and ending in 2011. Throughout most of the 1970s we were building around two new homes for every new household, but over time, the rate of building fell as the rate of home ownership rose. There was obviously a lot of other stuff going on at the time so I'm not categorically claiming a causal relationship, but it's not a particularly positive picture either.

To sum up, I'm not sure home ownership gives people a stake in 'society' so much as it gives them a stake in their local neighbourhood, which is not the same thing, especially if one way to 'help your neighbourhood' is to prevent new homes being built there. That may make sense from a household's perspective (in fact for many people it certainly does) but that doesn't mean it makes sense for society as a whole.

We choose how congested our roads are

This BBC article about traffic congestion in Sao Paulo carries on like 180km traffic jams are an inescapable fact of life there and congestion is an insoluble problem. They even find a professor of engineering and transport from a Sao Paulo uni to say that "No city in the world will ever manage to end congestion".

Completely ending traffic congestion may be very difficult, but there are certainly cities who have reduced it substantially by doing things which Sao Paulo has chosen not to do. Congestion charging in Stockholm, Singapore and London has sharply reduced the level of traffic in their inner cities, and there is no doubt that if they were to whack up the prices that traffic would fall even further. Many cities have also built comprehensive, high quality rail systems, and given buses priority express lanes on main roads. But in Sao Paulo, instead of a congestion charge they introduced a rotating car number-plate ban which reduced traffic in the short term but mainly encouraged people to buy more cars. The metro system is far too small given the size of the city. And historically their buses haven't been given enough priority over other traffic and so suffer from the same congestion as cars. Hence, huge traffic jams.

I'm not suggesting these are easy choices, especially for a rapidly expanding city like Sao Paulo. Most cities are not fortunate enough to have built a huge underground system over a hundred years ago when it was nice and cheap, like London did. Sao Paulo now has a growing bus rapid transit system and big plans to expand the metro, but because Brazil is a democratic country where most people have the right not to be turfed off their land, building vast infrastructure projects is much harder and slower than it is in, say, China. Likewise, it's not easy to find the money to build a subway network big enough to adequately serve a city of 20 million people, or to convince drivers that they should pay to use roads they previously used for free. Those kinds of things are very hard, which is probably why more cities don't choose to do them.

But one reason they're hard is that many people are not convinced they are worthwhile, and that in turn is partly because the public discourse around these issues seems wilfully uninformed. There are solutions available which are workable and demonstrably effective. It's one thing to consider and reject them, but to pretend they don't exist is something else altogether.

The amazing fall in urban crime rates, and the downside

The Economist has an article about the sharp decline in crime in American cities since the early 1990s, noting that there is no consensus over what caused it. This disagreement isn't that surprising since so many factors may be contributing to crime at once, and since the debate also has some ideological and political significance.

But it is really worth emphasising just how large has been the drop in crime in US cities, because it's important not just on its own terms but for what it says about where our cities are headed. The longest reliable historical record of crime in US cities is probably the homicide rate in New York City, which the late Eric Monkkonen compiled for every year between 1800 and 1999. You can find his data series here. It includes not just the number of homicides but the rate per 100,000 residents, and I have updated the series to 2011 with homicide data from the NYPD and population data from Wikipedia. 

I think there is good evidence for the theory that lead poisoning (from car exhaust and lead paint) had a lot to do with these trends, partly because it helps explain why crime rates fell not just in the US but across Europe too (see Kevin Drum on this subject, including relevant links). I'm sure improvements in policing helped too. But in a way what caused the fall in crime is less interesting than what knock-on effects it will have.

People understandably put a high value on safety and are willing to pay a price premium to live in low-crime areas. So you would expect the fall in urban crime levels to have contributed to higher urban house prices, and at least in the case of New York you would be right - this research estimates that falling crime rates explain about a third of the mid-1990s increase in NYC house prices.

These price rises show that people really value the safer urban environments created by lower crime. But higher housing costs may not be good news for everyone, especially tenants facing higher rents. If New York City had built a lot of new housing to cope with rising housing demand it would have been able to moderate (but probably not eliminate) these price increases and allow more people to enjoy living in a great city with falling crime rates, but instead higher demand fed straight into higher prices. It would be tragic if this pattern was repeated elsewhere and low-income people pushed out of cities just as they finally become more liveable.

Land values and urban history

Via the Urban Demographics blog, here's a short video of Dr Gabriel Ahlfeldt of the LSE discussing his analysis of a unique dataset of land values in Chicago over time. Apart from looking pretty, this kind of analysis is of great interest to urban economists since land values are both fundamental to understanding cities and very difficult to observe in practice, because the value of land is usually mixed in with the value of structures on it. The data Dr Ahlfeldt analyses manages to separate the two out, allowing us to see how much people are willing to pay for 'pure' location as distinct from whatever happens to be built there.

You can see from the video that land values are very high in Chicago's central business district but then drop off sharply as you move out, a sign that people will pay a very premium to locate their home or workplace (mostly the latter, in this case) in that spot. And as Dr Ahlfeldt says, that particular location has been far more valuable than any other in Chicago for the whole period covered by the data.

So even though vast numbers of boats carrying corn, lumber and pork no longer come and go via Chicago's small harbour on Lake Michigan, the legacy of that waterborne trade and the density of businesses and institutions that built up around it can still be seen in the pattern of industrial and commercial location today. This suggests a very important role for path dependency, history and perhaps chance in explaining urban form.

You can see the whole of Dr Ahlfeldt's lecture and many others at the Lincoln Land Institute here.

Utopia postponed - blame housing?

Owen Hatherley asks why those of us with jobs are still working so much when we have so much labour-saving technology. He doesn't get anywhere near a decent answer, and overall it's not a particularly good piece, what with the erroneous claim that the average Briton works a 12 hour day and the suggestion that all service jobs - including Owen's? - are "pointless". But it's an interesting question (go read Keynes), so here's my attempt to answer it.

Let's look at it in terms of supply and demand. More about supply later, but for the moment I think we can all accept that technology improvements have vastly increased the amount and quality of stuff we can afford. Most of us could probably work part-time and have a quality of life - certainly a life expectancy - that most of our ancestors would envy.

Yet we generally choose not to work short hours, and in part that's because we want a much better quality of life than our ancestors had. Our incomes have increased hugely in real terms, but so have our demands for goods and services. In economic terms, most of the stuff we want consists of 'normal goods', i.e. stuff we are willing to spend more on when our incomes increase. It's not clear, however, to what extent this all really makes us happier or to what extent we are just on a 'hedonic treadmill'.

But do we want more stuff for its own sake or because we want to show off to everyone else? Do we desire goods and services for their inherent consumption value or for the social status they impart? Social status is a positional good, something which we value according to rank rather than absolute quality - even if we could all have afford to have good lives, only one of us could have the best, and that seems to matter to us. It does of course help, but only a little, that we don't all share the same subjective rankings.

On the supply side, it obviously matters how the things we want are made. One important aspect is whether the production process is labour-intensive or not. Things that are easily mechanised have generally got a lot cheaper compared to our incomes over time, but things which require a lot of human labour, such as hairdressing or adult social care, have not. That's because you have to pay someone to do it and other people have high income demands just like you do.

I would suggest that the housing market combines many of these features, and may be the most important reason why we continue to work long hours. Housing demand is income-elastic: when we earn more we often spend it on bigger houses or better locations. Housing is positional in the sense of social status (one of the great things about a nice home is inviting people around to envy it entertain them) and in the sense that it is spatially fixed: each home gives us access to a different bunch of locational goods, which in some cases like access to a particularly good school may be extremely valuable. And housing production is intensive in two expensive and relatively scare factors of production: labour and land.

Certainly housing could be cheaper if we built a lot more of it, but I'm not sure whether it would be cheaper in absolute terms (i.e. we'd spend less on it) or in relative terms (i.e. we would maintain our level of spending but get more for it). Either outcome would be an improvement on what we've got now, but not necessarily in terms of fewer hours worked.

Homeownership and growth in the great recession

There has been a bit of a discussion going round about the link between home ownership rates and national prosperity - see Marginal Revolution, Matt Yglesias and Melbourne Urbanist.

The upshot is that when you look at the data, home ownership rates seem at best uncorrelated with prosperity at national level and possibly even negatively correlated. Lots of poor countries have very high levels of home ownership while at the other end you've got countries like Switzerland and Germany, who seem to have got by pretty well with ownership rates of less than 50%.

Part of this pattern, in Europe at least, is explained by the fact that many post-Soviet countries simply handed over ownership of public housing to the occupiers en masse as part of their economic reforms in the 1990s, instantly creating very high rates of home ownership.

But another big part of the explanation is that wealthier countries are more urbanised, and higher rates of urbanisation mean lower rates of home ownership. Big, dense cities are great wealth creation machines, and higher-density housing is more likely to be rented than owned, partly for reasons of population transience and partly for reasons of efficiency - owning an apartment is a risky business because you are so affected by your fellow building occupants, so it often makes sense to let one landlord own the whole building and absorb all those inter-apartment externalities.

Lastly, Andrew Oswald has argued that higher rates of home ownership impede the labour market by reducing mobility (because selling a house and buying another is generally more costly than moving between rented houses), thus lowering long-run economic growth. Argument still rages over this theory though.

What I think has been left out of the discussion so far (apologies if I've missed it from anyone else) is that countries with higher rates of home ownership also seem to have done worse out of the 'great recession' of the last few years. The chart below shows home ownership rates in Europe in 2009 (from Eurostat) against the change in per capita GDP between 2006 and 2011, adjusted for inflation (from the IMF). The size of the bubbles represents current GDP, also from the IMF.

The two countries on the left with lowest rates of home ownership are Switzerland and Germany, and both of them have actually seen positive per capita GDP growth in the last five years. On the far right you've got two very small countries with very high home ownership rates and very differing fortunes of late, Slovakia having posted pretty strong economic growth of 8% over the period and Estonia having lost about 9% of GDP. Of the bigger countries with home ownership rates over 70% only Norway and Belgium have grown over the period, while Italy, Spain, Portugal, Finland and the UK have all seen economic contractions. And then there's Greece down there at the bottom. Obviously this leaves out anything that has happened in 2012 so far or is about to happen, and it certainly looks at the moment as though the likes of Spain, Italy and Portugal are looking at more recession to come - possibly very deep and long ones if things go really awry.

So what should we make of this pattern? Is it just coincidence, or just the result of some other factor? It could, for example, just be that poorer countries have more home ownership (as above) and poorer countries did worse in the recession for some other reason. We would need some careful analysis to identify the real causal paths, but as far as I can see there has been zero academic work done on this so far. That's surprising, but it does at least leave a nice big gap for speculation to fill!

The key features of the great recession in most countries were/are bursting property bubbles and credit crunches. What a high rate of home ownership does is expose more households to asset price increases in the bubble phase (possibly increasing the risk of 'irrational exuberance') AND to big drops in wealth from falling house prices in the bust phase, which then lowers household spending as they try to restore their balance sheets. Meanwhile, the drop in bank lending freezes the owner occupied housing market, making it harder to move house unless the rental market can quickly expand. So you've got a combination of job losses (from the wider recession), lower consumer spending even where people haven't lost jobs, and barriers to mobility making it harder for markets to adjust.

Another way of putting it is that high rates of owner occupation make the wider economy vulnerable to falls in housing demand, because falling house prices make owners want to spend less. But in a country where most people rent, lower housing demand (e.g. through job losses) result in falling rents, which frees up money for higher spending in other areas, helping to stabilise the economy.

There may well be benefits to home ownership (e.g. owner occupiers may take better care of their homes and it may provide a more stable environment for children), and politicians tend to like it, but I think the experience of the last few years suggests there are potentially quite large downsides too.

Congestion and road pricing links

It's been an interesting couple of days in the wacky world of congestion and road pricing. First, the House of Commons Transport Committee tried to identify some ways to address congestion without resorting to road pricing and came up with ... not very much really, just a lot of well-meaning but essentially small-bore stuff about trying to make motorists behave better or think smarter, and the usual griping about roadworks. None of these are going to have a very big impact on congestion, as the committee probably knows. So this report is actually another piece of evidence in support of road pricing, if only by omission.

Secondly, a much less noticed but more rigorous analysis of the issue was provided by the IFS in its Mirrlees Review of Taxation, which looked at a range of issues including 'Taxes on Motoring'. They make the very important point that while the existing fuel tax regime acts as a sort of indirect tax on road use, increasing fuel efficiency has made it less and less effective in this role, which means that our only national brake on congestion gets weaker over time:

However it is done, we do not underestimate the political difficulties of introducing road pricing nationally. But in addition to the long-standing case for such a move, we need urgently to wake up to the fact that, if the UK and other countries are to meet their targets for reductions in greenhouse gas emissions, petrol and diesel use by motor vehicles is likely to have to fall and eventually end as alternative technologies are introduced. This will leave the UK with no tax at all on the very high congestion externalities created by motorists. So, if we all end up driving electric cars, it seems that we shall have no choice but to charge for road use. It will be much easier to introduce such charges while there is a quid pro quo to offer in terms of reduced fuel taxes ... Of all the challenges raised in this volume, this seems to us one that is simply inescapable. It may be another ten years before change becomes urgent, but urgent it will become and the sooner serious advances are made to move the basis of charging to one based on congestion the better.
(emphasis added)

Lastly, Dave Hill of the Guardian makes the case for the crucial role of road pricing in particular and transport policy in general in fostering urban prosperity and quality of life here.

Taxi cabs: Deregulate and tax

Matt Yglesias says people who want to see less car ownership, less space used for parking and less driving overall "should support relaxing regulatory curbs on the number of taxis allowed to operate in a given place". I think I'd like to see this happen in London, with one small condition: they pay a per-kilometer tax to cover their external costs of congestion, pollution, noise and death/injury through collisions. Currently we don't tax these external costs so they create a lot of problems for everyone else. Removing one type of economic distortion without removing the other will just lead to more of these problems.

Let's get dense

I've been reading Ryan Avent's new book The Gated City, and it provides some good arguments in favour of the point I was making about prosperous cities needing to grow up as well as out.

As I said, in the debate over the National Planning Policy Framework I think there has been an undue focus on the virtues of making land on urban fringes available to develop at low prices, because that will lower costs for businesses and households. Avent's argument, as I understand it, is that we should be most concerned with the costs facing high-productivity or highly growth-promoting firms (and the people they employ), and they are much more likely to want to locate in dense urban areas because of the positive impact of density on productivity, innovation and entrepreneurship. So we should be at least as worried about restrictions on densifying in city centres as we are about restrictions on expansion of suburban areas.

You could argue that this is a false opposition and that cheaper land on the fringe will reduce pressure on the centre. The problem is I'm not sure the two locations are good substitutes. To generalise a bit crudely, those that like fringe locations - sprawl developers, lovers of low density housing and low productivity firms- will benefit from cheaper fringe land, while those who don't - higher density developers, lovers of higher density areas and higher productivity firms - will not. Of course, compact, well-planned urban expansion could potentially give us the best of both worlds, but we don't seem to be very good at that in this country and the current draft of the NPPF doesn't really encourage it.

The bottom line is that real estate prices are generally highest in urban centres. Insofar as that represents the market signalling something, it is a strong signal to build more in urban centres, and only a weak signal to build more on suburban fringes. 'Land supply' isn't everything, at least as it's generally conceived: what we are allowed to do with already-developed land is just as important.

NBER papers on transport and labour economics

The NBER publish some good economics! Here are a couple of new working papers I liked the sound of :

Pounds that Kill: The External Costs of Vehicle Weight
Michael Anderson, Maximilian Auffhammer

Heavier vehicles are safer for their own occupants but more hazardous for the occupants of other vehicles. In this paper we estimate the increased probability of fatalities from being hit by a heavier vehicle in a collision. We show that, controlling for own-vehicle weight, being hit by a vehicle that is 1,000 pounds heavier results in a 47% increase in the baseline fatality probability. Estimation results further suggest that the fatality risk is even higher if the striking vehicle is a light truck (SUV, pickup truck, or minivan). We calculate that the value of the external risk generated by the gain in fleet weight since 1989 is approximately 27 cents per gallon of gasoline. We further calculate that the total fatality externality is roughly equivalent to a gas tax of $1.08 per gallon. We consider two policy options for internalizing this external cost: a gas tax and an optimal weight varying mileage tax. Comparing these options, we find that the cost is similar for most vehicles.

(See also my post on external accident risk)

The Incidence of Local Labor Demand Shocks
Matthew J. Notowidigdo

Low-skill workers are comparatively immobile: when labor demand slumps in a city, low-skill workers are disproportionately likely to remain to face declining wages and employment. This paper estimates the extent to which (falling) housing prices and (rising) social transfers can account for this fact using a spatial equilibrium model. Nonlinear reduced form estimates of the model using U.S. Census data document that positive labor demand shocks increase population more than negative shocks reduce population, this asymmetry is larger for low-skill workers, and such an asymmetry is absent for wages, housing values, and rental prices. GMM estimates of the full model suggest that the comparative immobility of low-skill workers is not due to higher mobility costs per se, but rather a lower incidence of adverse labor demand shocks.

In other words, policies that protect against unemployment and poverty also reduce mobility, which obviously doesn't mean the policies aren't worthwhile but does tend to increase the likelihood of both spatially concentrated and temporally extended unemployment.