For those concerned not only with the state of California’s economy, but also its environment, an article last week’s LA Times describing the newest quarterly economic outlook from UCLA's Anderson School of Business was quite good. 

In it we learned:

• UCLA forecasters have seen the future of California's housing market, and it looks like this: more townhomes, condos and apartments near job centers, fewer McMansions in far-flung areas that require costly, back-breaking commutes;
• The state's population is also skewing younger, meaning there will be more demand for urban rental units. Jerry Nickelsburg, co-author of the report points out:

The incremental demand for housing is moving more into multifamily housing. Many of the younger generation have been buffeted by the boom and bust in the housing market, and see value in living closer to work.

Yet, in the very next paragraph we read:

That's bad news for the state’s economy, however, for two reasons. One is that construction of multifamily homes requires less labor than construction of single-family homes. Second, areas such as the Inland Empire and Central Valley that were hit hardest by the housing bust won't get a construction boom to help pull them out of the economic doldrums.

There are at least three problems with this statement:

1. There’s no evidence to support the claim that building multi-family housing creates fewer jobs than single family housing. In fact, the organization Good Jobs First finds the opposite:

It should be kept in mind, as shown earlier, that smart growth types of construction tend to be more labor intensive overall (especially when labor bare costs are analyzed), so that most trades should benefit.

2. The article also falsely assumes that you can’t build walkable urban places that will meet market demand throughout Southern California. However, cities like San Bernardino, Redlands, and even Brawley have recently received Compass Blueprint awards for their innovative planning to create, mixed-use walkable neighborhoods.

3. Finally, the article paints a false dichotomy between supporting construction jobs and the benefits of living closer to work in more livable communities.  For decades, California’s housing boom has been characterized by ever longer commutes, stretched municipal budgets, and, most recently, multi-thousands of Californians struggling with mortgages and threats of foreclosure.  Not only have Californians had to “drive ‘till they qualify,” but all that driving is not good for the pocketbook or planet.  Any broader economic trends that help reverse this state of affairs and provide greater opportunity for people to live closer to where they work or play should be welcomed.

Fortunately, the likely reality of this shift in the housing economy is actually good news. 

The Vision California Project, established to analyze just these types of broader housing questions, has compared "business as usual" development (that is McMansions and sprawl) to a development future more characteristic of what the UCLA report is predicting.  Building in established neighborhoods closer to work and local amenities brings a wealth of savings. Not only in time you aren’t spending in traffic, but in the following ways:

• Local governments save tens of thousands of dollars per household on infrastructure, like sewers and utility lines, when units are smaller and communities are more compact or built in established areas.
• Centrally-located homes use less energy, less water, less land and require less driving, saving the average Southern California household $6400 per year;
• Building to meet market demand will mean less driving and less air pollution, improving public health. These health savings are estimated by Southern California Association of Governments at $1.66 billion

Most importantly, however, the UCLA report leads us to a great conclusion: not only is demand for less energy-intensive homes increasing, but developers are building to meet that demand.  Utilizing the construction work force to build smarter homes that are less energy intensive could have the added benefit of bringing down the high cost of housing in our cities, producing local jobs and providing more complex and diverse communities.

Pay As You Drive (PAYD) insurance--which ties insurance premiums to the number of miles you drive, thus incentivizing and rewarding less driving--has been picking up steam across the country.  Massachusetts has included it in its climate action plan, New York City's Department of Transportation is looking for ways to push it, and California has approved a policy that is a step towards PAYD in the nation's most driving-hungry state.  Now, the State of Washington is getting in on the act.

Earlier this week, Washington State Senator Phil Rockefeller introduced Senate Bill 5730.  Its opening words offer a great summary of why PAYD is a good way forward:

Pricing insurance per mile is more equitable because low-mileage drivers would no longer subsidize high-mileage drivers. Having such "pay as you drive" policies available will provide people an opportunity to save money in the costs of insuring their vehicles, and would provide an incentive for reducing driving that will reduce costs for fuel and vehicle maintenance, reduce accidents, and decrease driving-related pollution and congestion.

The bill strives to eliminate barriers to offering Washingtonians sensible auto insurance.  Indeed, the bill requires insurance conmpanies to make mileage-based insurance products available to their customers by July, 2012 (or if they dont, at least offer a discounted product for low mileage drivers).  The Insurance Commissioner is also permitted to begin a pilot program to explore PAYD. 

This is a great affirmative step forward for PAYD.  Senator Rockefeller seems to have realized that this is a fair, common-sense approach to insurance that companies are able to make available to their customers.  Hearings may start next week.  Best of luck!

Nearly one year ago, the California Department of Insurance issued regulations meant to expand the availability of Pay As You Drive insurance, a common sense reform that rewards and encourages less driving.  As Commissioner Steve Poizner said, his intention in issuing the regulations was “to give California motorists financial rewards for driving less, leading to lower-cost auto insurance, less air pollution and a reduced dependence on foreign oil.” We couldn't agree more with those goals.  The regulations took the important first step of permitting insurance companies to collect actual mileage from drivers and to use that mileage to set premiums.

When the regulations were released, however, we had some concerns. By merely permitting the collection of mileage, the regulations really didn't provide the strongest guidance to expand PAYD.  To really provide meaningful savings to drivers, and environmental benefit, the mileage needs to be priced correctly.  As I wrote at the time:

The problem is, California’s new regs only get us half-way there: they permit your insurer to verify your mileage.   They do nothing to set a clear price.  They neither require a PAYD price structure nor even offer guidance on how to make one.  Setting up mileage verification programs is not the same as offering PAYD insurance.

We were also concerned whether this voluntary approach would be enough to make PAYD widely available. As I wrote in another post,

As we told the Department of Insurance, we are unaware of any instance anywhere in the country where merely permitting PAYD has resulted in the significant availability of PAYD policies.

Were our concerns were justified?  I think the answer's "largely yes," but there is some progress. 

First, only two companies--State Farm and the Auto Club of Southern California--have filed proposed programs with the Department of Insurance under the Usage Based insurance regulations. That's not a lot.  Putting that aside, however, how do they look?

There is clear evidence of progress with State Farm's Drive Safe and Save program.  State Farm uses actual mileage from drivers and prices premiums based on 500 mile mileage bands.  Now, narrow mileage bands are extremely important (as I explain here).  Ideally, we would pay for each mile we drive (we pay for each 1/8th of a mile in a taxi), but 500 miles here is a lot better than the 1,000, 1,200 or even 5,000 mile bands that are typical of California auto insurance.  If Drive Safe and Save passes all the other California actuarial requirements, we think it has the potential to encourage and reward less driving.

The Auto Club's filing, however, doesn't appear to have the same potential.  While using actual mileage, it makes no changes in pricing and relies on very broad mileage bands.  It's largely a typical insurance policy, and typical insurance policies perform badly. It likely won't do much to meet the goals of PAYD.  We'd hope the Department of Insurance would encourage them to move in a a direction more consistent with the Commissioner's intent before considering  approving the proposal.

NRDC, along with our partner Ceres, reviewed the proposals and sent our comments to the Department.  I am certainly pleased to see some progress on the PAYD front, and the slumping economy may have more to do with insurance companies' reluctance to explore new products than anything else.  I think we have a chance to move in the right direction with at least one of these products.  Hopefully, more, and more better, are to come.