Fixing The New Urban Crisis: Richard Florida

Our cities are failing the middle class, increasing inequality and deepening segregation. Here’s what to do about it.

TODAY’S URBAN CRISIS is not the first we have faced, but it bears little resemblance to its predecessor. The crisis of the 1960s and 70s was defined by the economic abandonment of U.S. cities. Shaped by deindustrialization and ‘white flight’, many cities lost their core industries and became sites of growing and persistent poverty. Housing decayed; crime and violence increased; and social problems escalated — many of which remain with us to this day.

What I see as ‘the New Urban Crisis’ is more all-encompassing. Although two of its core features — mounting inequality and rising housing prices — are most often discussed in relation to urban centres such as New York, London and Toronto, the crisis also hits hard at small and mid-sized cities, and its other core features — economic and racial segregation, spatial inequality, entrenched poverty — are becoming as common in the suburbs as they are in the cities.

Seen in this light, the New Urban Crisis is a crisis of urbanization itself, and of contemporary capitalism writ large. For the past six years, I have married my long-held interest in urban eco- nomic development with the insights of urban sociologists on the corrosive effects of concentrated poverty, mapping the deep new divides that isolate the classes and tracing the growth of economic disadvantage in the suburbs. In this excerpt from my latest book, I will present a few of my key findings.

Five Dimensions of the Crisis

As my colleagues and I have come to understand it, the New Urban Crisis encompasses five key dimensions:

GROWING GAPS CREATED BY SUPER STAR CITIES. The first is the deep and growing economic gap between a small number of superstar cities, such as New York, London, Hong Kong, Los Angeles and Toronto, along with leading technology and knowledge hubs, such as the San Francisco Bay Area, Washington DC, Boston, Seattle, and other cities around the world. These superstar locations have wildly disproportionate shares of the world’s leading high-value industries, high-tech innovation, startups and top talent.

Citizens of superstar THE CRISIS OF SUCCESS IN SUPERSTAR CITIES. cities face increasingly unaffordable housing and staggering levels of inequality. In these places, mere gentrification has escalated into what some have called ‘plutocratization’. It’s not just musicians, artists and creatives who are being pushed out: Growing numbers of economically-advantaged knowledge workers are seeing their money eaten up by high housing prices and now fear that their own children will never own a home. But it is the blue-collar and service workers, along with the poor and disadvantaged, who face the direst economic consequences. Both groups are being denied the opportunities and upward mobility that these cities have to offer.

This is taking place within GROWING INEQUALITY AND SEGREGATION. virtually every city and metro area — winners and losers alike. The New Urban Crisis is marked by ‘the disappearing middle’ — the fading of the once large middle class and its once-stable neighbourhoods. From 1970 to 2012, the share of families living in middle-class neighbourhoods declined from 65 to 40 per cent, while the share living in either poor or affluent neighbourhoods grew substantially. As the middle has been hollowed out, neighbourhoods are dividing into large areas of concentrated disadvantage and much smaller areas of concentrated affluence.

Poverty, insecurity and THE BURGEONING CRISIS OF THE SUBURBS. crime are mounting in the suburbs, and economic and racial segregation are growing deeper. In the U.S. today, there are more poor people in the suburbs than there are in cities — 17 million versus 13.5 million. And the ranks of the suburban poor are growing much faster, by a staggering 66 per cent between 2000 and 2013, compared to 29 per cent in urban areas. Some of this suburban poverty is being imported from the cities as displaced families seek more affordable places to live. But much of it is also homegrown: More and more people who were once members of the middle class have fallen out of it, as a result of job loss or rising housing prices.

THE CRISIS OF URBANIZATION IN THE DEVELOPING WORLD. Urban optimists believe that urbanization will ultimately bring economic growth, rising living standards and a growing middle class to the developing world, just like it did for the U.S., Canada, Europe and more recently, China. Cities, after all, have historically driven the development of national economies. But we are seeing the rise of a troubling phenomenon of ‘urbanization without growth’, in which people pour into rapidly-urbanizing areas of the developing world, but see little to no improvement in their living standards. More than 800 million people currently live in substandard conditions, and their numbers will continue to grow as the world’s urban population surges.

The Global Clustering Contradiction

The New Urban Crisis is shaped by the fundamental contradiction brought on by ‘urban clustering’. On the one hand, it is no longer natural resources or even large corporations driving economic progress, but the ability of cities to cluster and concentrate talented people, enabling them to combine and recombine their ideas and efforts, which massively increases innovation and productivity. Out of that ferment come the new inventions and entrepreneurial enterprise that power prosperity.

The extent to which economic activity has become concentrated in the world’s cities and metropolitan areas is staggering: The 50 largest metros across the globe house just seven per cent of the world’s total population, but generate 40 per cent of global economic activity. Just 40 mega-regions — constellations of cities and metros like the Boston–new York–washington corridor — account for roughly two-thirds of the world’s economic output and more than 85 per cent of its innovation, while housing just 18 per cent of its population.

The amount of economic activity packed into small urban spaces within these cities is even more astonishing: Just one small sliver of downtown San Francisco, for instance, attracts billions of dollars in venture capital annually — more than any nation on the planet save for the U.S. This is why I believe it is more useful to refer to contemporary capitalism as ‘urbanized knowledge capitalism’ as opposed to ‘knowledge-based capitalism’.

Even as urban clustering drives growth, it also carves deep divides into our society. Not everything can cluster in the same limited space; some things ultimately crowd others out. And, as with most things in life, the winners in the competition for urban space are those with the most money to spend. As the affluent

The 50 largest metro areas house just seven per cent of the world’s total population, but generate 40 per cent of global economic activity.

and advantaged return to cities, they colonize the best locations, while everyone else is crammed into the remaining disadvantaged areas or pushed farther out into the suburbs.

This competition in turn shapes a related economic paradox: The paradox of land. There are seemingly-endless amounts of land in the world, but not nearly enough of it where it is needed most. Place and class are combining to reinforce and reproduce socioeconomic advantage: Those at the top locate in communities that afford them privileged access to the best schools, services and economic opportunities, while the rest get the ‘leftover’ neighbourhoods, which have inferior versions of all these things.

Sadly, these divides will only deepen and harden in the age of Trump. For all of his populist rhetoric about fighting for forgotten blue-collar workers and rebuilding the middle class, his administration and the Republican congressional majority are unlikely to address the deep structural forces that created them — and even less likely to help the people and places that are being left behind.

Urbanism for All

So, what can we do to overcome the New Urban Crisis? My colleagues and I believe that a strategy for a more productive urbanism can take shape around seven pillars:

1. Reform zoning and building codes, as well as tax policies, to ensure that the clustering force works to the benefit of all.

2. Invest in the infrastructure needed to spur density and clustering and limit costly and inefficient sprawl.

3. Build more affordable rental housing in central locations.

4. Expand the middle class by turning low-wage service jobs into family-supporting work.

5. Tackle concentrated poverty head-on by investing in people and places.

6. Engage in a global effort to build stronger, more prosperous cities in rapidly urbanizing parts of the emerging world.

7. Empower communities and enable local leaders to strengthen their own economies and cope with the challenges of the New Urban Crisis.

I will now discuss the first three pillars in more detail.

1. MAKE CLUSTERING WORK FOR US, NOT AGAINST US

The clustering force is the key driver of economic growth, and it is absolutely critical that we effectively harness it to create the broadest possible benefits. As indicated, the crux of the problem revolves around the ‘urban land nexus’: Land is scarce precisely where it is needed the most. We can’t ‘make’ more land — but we can develop the land we have more efficiently.

A growing chorus of ‘market urbanists’ argues that the best way to do this is by eliminating the restrictive zoning and building codes that limit the market’s ability to build as needed. They make an important point: Zoning and building codes need to be liberalized and modernized. But land use deregulation by itself is insufficient to address the full breadth of the problem. While it will result in new housing and increased density, the high costs of urban land combined with the high cost of high-rise construction mean it is likely to mainly add more expensive luxury towers — and will do little to provide the kinds of affordable housing our cities really need.

Urban economies are powered not by extreme residential density and huge towers, but by the mid-rise, mixed-used density that promotes mixing and interaction. The world’s most innovative places are not the skyscraper districts and vertical sprawl of Hong Kong or Singapore, but the former industrial neighbourhoods of New York, San Francisco and London, which are filled with mid-rise buildings, factory and warehouse lofts, and the occasional high-rise, arrayed along streets that enable constant mixing and interaction to take place. Extreme land use deregulation could end up damaging these innovative urban districts by encouraging too much vertical sprawl and turning them into ‘condo canyons’. It is precisely these kinds of mixed-use neighbourhoods that are in short supply, because we effectively stopped building them long ago. Every time we kill one off, we lose an irreplaceable asset for innovation.

In his book Progress and Poverty, economist Henry George argued that a ‘land value tax’ would not only make more effective use of land, but also raise wages, reduce inequality and generate greater productivity. The basic premise is that the less developed land is, the higher it should be taxed. George in fact suggested that undeveloped land be taxed at a rate of 100 per cent, minus the improvements made to it. Absent such improvements, he

Building more rental housing reinforces the urban clustering that stimulates innovation and economic growth.

argued, all of the land’s value should return to the public commons.

In today’s cities, property owners who use their land for, say, undeveloped surface parking lots, would be taxed at a very high rate. A small apartment building would be taxed at a lower rate, and a larger one at an even lower rate. This system would provide greater incentives to put land in high-priced urban centers to its most productive use, increasing density and clustering.

Furthermore, under the current property tax system, landlords and property owners not only have disincentives to add density and further develop their properties, but they are able to reap extraordinary rewards by simply profiting from the increase in property values that is created by neighbourhood upgrading and the ongoing appreciation of real estate values. The High Line Park in New York, for instance, created a huge increase in the land value of surrounding property, which generated windfalls for real-estate developers, but little if any of those gains were returned to the park or to the broader community.

A land value tax can help ensure that such benefits are shared more broadly by the public, because the rise in the value of the land that occurs through these broader neighbourhood improvements is also captured by the tax and returned to the public, where it can potentially be used to invest in needed services and help to close economic gaps in the community.

2. INVEST IN INFRASTRUCTURE FOR DENSITY AND GROWTH Infrastructure is an important piece of the puzzle. If well planned and invested in strategically, it can help expand the scale of clustered development, the number of places that can support clustered development, and the connections between outlying areas and existing clustered development close to urban centres.

Infrastructure is certainly the topic du jour among politicians of all stripes, including Donald Trump, who has called for substantial investments in it to stimulate the economy. In Canada, the administration of Justin Trudeau is doing just this, making a huge financial commitment to infrastructure to spur economic growth and create better jobs. But a menu of random projects won’t do the trick. What we need are strategic investments in the kind of infrastructure that will push us closer together, as opposed to spreading us apart, and that will strengthen the urban density and clustering that power economic growth. That means shifting infrastructure investment away from roads and highways that spread us out and towards mass transit that helps cluster people and economic activity closer together. Research shows that transit-served neighbourhoods provide better access to jobs and improve residents’ chances for upward mobility. Expanding transit will increase the number of these locations and enable greater numbers of people, especially the less advantaged, to gain access to them.

The fact is, when metro areas reach a threshold of five or six million people, cars and roads are no longer a very effective way to move people around. The U.S. has quite a few areas that are roughly this size — for example, the Bay Area, Greater Washington DC, Boston, Philadelphia, Houston, Dallas, Atlanta and Miami. Investing in transit and reducing reliance on cars is a key mechanism for generating more clustered development in both central and outlying areas.

High-speed rail can also help to link separate metros together in larger and more formidable mega-regions. This has already happened in some parts of the U.S. without the benefit of high-speed rail — namely, the so-called Amtrak Corridor running between Boston, New York, Philadelphia, Baltimore and Washington, DC, an area with a population of more than 50 million people and economic output north of $2 trillion. True high-speed rail — travelling at speeds like France’s TGV or Japan’s Shinkansen — could reduce the travel time between New York and Boston to less than 90 minutes; and trips from LA to San Francisco, or Pittsburgh to Chicago, would shrink to a more manageable two and a half hours. This could substantially expand the functional labour markets of these places and bolster their overall economic competitiveness.

The most effective way to fund new transit and high-speed rail is to redirect a larger share of the gas tax toward such projects. It is time to level the playing field by reducing the outright subsidy we give to the automobile in the form of roads and highways. Cities in other parts of the world, including London, have begun to institute congestion charges, which make drivers pay for their use of busy roads to help alleviate traffic and pollution.

New developments like self-driving cars, electric vehicles and on-demand systems such as Uber and Lyft will certainly play a big role in the city of the future. But we still need mass transit to provide the connective fiber that will increase clustering and enable the development of a larger number of dense, mixed-use clustered neighbourhoods that are affordable to more people.

3. BUILD MORE AFFORDABLE RENTAL HOUSING In our most expensive cities, housing has become unaffordable for all but the top one-third of society’s most advantaged people.

Essential service providers — including police and firefighters, teachers, hospital workers and restaurant workers — are being pushed farther and farther away from urban centres and other key areas of economic activity. In some places, it is becoming so hard to attract people to these roles that large-scale commercial developers are calling for ‘urban workforce housing’ to ensure their cities have the workers they need to operate.

The problem of housing affordability may be most acute in superstar cities and tech hubs, but it extends far beyond them. People across the country, especially low-income renters, are spending too much of their incomes on housing. And the housing system is strongly oriented toward single-family housing in sprawling suburbs and against the more affordable, clustered rental housing that urbanized knowledge capitalism requires.

A big part of the problem is housing policy itself. Designed to stimulate suburbanization, current housing policy massively subsidizes homeowners. The U.S. government provides an estimated $200 billion in annual subsidies for home ownership via tax deductions for mortgage interest. When the indirect costs are accounted for, the subsidy may run as high as $600 billion, four to 12 times as much as the nation spends on housing assistance to those in need ($46 billion a year). The top 20 per cent of income earners gain 75 per cent of these benefits, and the top 1 % hauls in 15 per cent. These policies badly distort the housing market, causing it to produce too much spread-out, single-family housing and not enough clustered rental housing.

Despite these distortions, the shift from single-family suburban homes to multi-family rental housing, which I refer to as ‘the great housing reset’, is already under way. The number of renter households increased by nine million between 2005 and 2015—the largest one-decade increase on record. By the end of that period, 43 million Americans were renting, and the share of renters had grown from 31 to 37 per cent of the population. More than seven in ten Millennials between the ages of 18 and 34 are renters — as are more than half the residents of New York, LA and San Francisco.

In my view, renting is more closely aligned with the needs of the urbanized knowledge-based economy than home ownership. Renters are more likely to live close to work or use transit to get to their jobs, while suburban homeowners are more likely to commute long distances in their cars. Metro areas with higher levels of renters have higher levels of innovation, greater concentrations of high-tech firms, higher shares of college graduates and the creative class, and higher wages, incomes, and productivity, while metro areas with higher levels of homeownership are less innovative, less productive, and less diverse, on average, and have smaller shares of highly educated and skilled talent.

Building more rental housing and less single-family housing is in sync with and reinforces the urban clustering that stimulates innovation and economic growth. Still, too many renters are seriously burdened by their housing costs, many of them caught in a death spiral of rising rents and declining incomes. Average rents increased by more than 22 per cent between 2006 and 2014, while average incomes declined by nearly six per cent. The number of renters paying 30 per cent or more of their income for rent (which is considered the threshold for being cost-burdened) soared from 14.8 million in 2001 to 21.3 million in 2014, while the number who devoted more than half of their income to rent grew from 7.5 million to 11.4 million.

In closing

Ultimately, the only way forward for our economy and society is more — not less — urbanism. How we respond to the New Urban Crisis will determine whether our cities, suburbs and nations will successfully forge a new era of sustainable and inclusive prosperity, or fall victim to our growing inequities and divides.

New and better urbanism is indeed possible, but it will not create itself. Do we want the divides and contradictions of winner-take-all urbanism, or the promise of a fuller and fairer urbanism for all? This is the defining issue — and struggle — of our time.

Richard Florida is University Professor and Director of Cities at the Martin Prosperity Institute at the Rotman School of Management, a Distinguished Visiting Fellow at NYU and co-founder of The Atlantic’s Citylab. This article is an adapted excerpt from his latest book, The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class — and What We Can Do About It (Basic Books, 2017).

Rotman faculty research is ranked #3 globally by the Financial Times.