NYU 2031: Rise of the Mole People

A few things.

First of all, the New York Times in 1992 on the postmodern skyline blight that is the Sony Building (then still the AT&T Building):

This proposal marks the latest instance in which landlords have tried to recreate ill-conceived or little-used arcades and plazas, which generated lucrative bonuses for builders but not much in the way of genuine public amenities.

In one of the most dramatic cases, a dank arcade under 2 Lincoln Square, an apartment tower on Columbus Avenue, between 65th and 66th Streets, was enclosed in 1989 and turned into a home for the Museum of American Folk Art.

The Sony plan is likely to provoke wide debate on whether the public will gain or lose through the renovation, given the celebrity of 550 Madison Avenue itself, which was designed in 1978 by Philip Johnson and is marked on the skyline by a Chippendale-style broken pediment.

Sony’s proposal calls for a net reduction of 8,727 square feet of space at ground level that is now devoted to the public; space that could conceivably be rented to retailers for about $200 a square foot.

And now the New York Observer in 2012, on NYU’s 2031 plan, which will involve upgrading the quality and quantity of open space while adding new buildings to their modernist superblocks in the Village:

“We are making publicly accessible [existing] open space that is not—and is not perceived—as publicly accessible now,” university spokesman John Beckman told The Observer.

Still, this ignores the fact that this is already N.Y.U. owned land, and many of the impediments in place that the university cites, such as fences and locked gates and requisite visitor passes, could merely be done away with by the institution. The public space would not be the best, but it still underscores the fact that there is not nearly a net open space gain on the scale the university is suggesting.

But the Greenwich Village is, of course, sacrosanct, being the home of Jane Jacobs and one of the first neighborhoods in America to gentrify after urban decline (that is, regain its former stature – there are some places, like Lake Shore Drive in Chicago and the Upper East Side in Manhattan, that never lost it).

Speaking of Jane Jacobs, commenter Benjamin Hemric, in one of his epic comments the other day, pointed me to this footnote on page 194 of The Death and Life:

“Dear, are you sure the sotve is one of the 51 exciting reasons we’re living in Washington Square Village?” asks the wife in a cartoon issued by protesting tenants in an expensive New York redevelopment project. “You’ll have to speak up, honey,” replies the husband. “Our neighbor just flushed his toilet.”

Washington Square Village is, in my opinion, the nicer of the two complexes that NYU wants to redevelop, despite not having the pedigree of I.M. Pei’s Silver Towers next door.

And finally, from another Observer article, right after the plan passed the first of two major City Council hurdles:

[Community Board 2 chair David Gruber] said the community did not get a single major concession from NYU, among them a hope that the Mercer building on the north block would be eliminated entirely. It was something everyone from the board to council members to The Times‘ architecture critic had asked for, but NYU said it was impossible given the huge underground building it was building on the north blocks for classrooms and labs.

“In order to for it to work, we have to be able to access it, for ingress and egress,” Alicia Hurley, the NYU VP shepherding the project, told The Observer. “People have to be able to get in and out.”

Why do they need to go in and out? Surely it would be more beneficial to the community if the mole people were contained within the earth’s crust!

I’m not sure what the ratio is now that the aboveground space has been reduced, but the plan was originally 1.4 million new square feet above ground, and 1.1 million below. Light and air are so important to existing residents that newcomers have to spend their daylight hours underground.

The Zoning History of New York’s White Brick Apartments

530 Park Ave.

The rehabilitation of the postwar glazed white brick apartment building continues apace, with the condoization of 530 Park Ave., a 1941 (okay, almost postwar) 19-story white brick building. I happen to like New York’s postwar white brick buildings, and am even warming up to the red brick variants – I’ve always consider anonymous white brick to be the most New York of New York buildings.

One reason that I like them is that because of the history of New York City zoning, they have the form of prewar buildings, with the embellishments (or lack thereof) of the postwar era.

Up until 1961, New York’s developers were still building under essentially the 1916 code. While the 1916 code definitely restricted and guided growth in the dense commercial core, where it encouraged set backs and discouraged Equitable Building-like dense massings, developers in residential neighborhoods like the Upper East Side generally did not bump up against the zoning limits. The setbacks on 530 Park are slight and decorative, and likely built according to the style of the day (which was heavily influenced by larger buildings downtown whose shapes were dictated by zoning).

So buildings erected before the 1961 code took effect tended to be lower than those that came after, but they covered more of the lot and their façades were flush with the sidewalk. Some of them included garages for the newly-motorized middle- and upper-classes, but they were small compared to those that came after. Above all they were governed by the laws of supply and demand. If you ignore the materials and lack of ornament, they were a lot like prewar buildings. But the brick apartment buildings of the ’40s and ’50s were the last in New York City built according to supply and demand, which is why I think we’ll come to hold them so dear in the future.

Goodbye free market, helloooooo 1961 zoning code! (Ruppert Towers, built in 1979, in Yorkville on the Upper East Side)

After the 1961 code went into effect, building form in New York City changed radically. The new FAR system combined with public plaza bonuses rewarded taller, thinner buildings (where new buildings managed to sprout at all), breaking the street wall, and perhaps encouraging architects to pay less attention to surrounding structures for context. It also downzoned the vast majority of the city just as people were seeking more living space per capita, meaning that these taller apartment buildings didn’t always hold more people.

And then there were the minimum parking requirements, which required huge garages and parking lots that forced developers to think of cars before they thought about good design, obliterating any trace of good architecture in the outer boroughs, where the buildings were the most modest and the margins were the slimmest. The parking minimums also did some damage in Manhattan, until the EPA stepped in and forced the city to stop requiring parking in neighborhoods south of Harlem.

Most of the city is still zoned according to the 1961 code, but the post-Jane Jacobs emphasis on the pedestrian view has corrected some of these issues. There are no longer plaza bonuses, and there are some incentives for ground-level retail.

But the overall densities of the 1961 code are still in effect, which means that virtually all construction in the desirable parts of Manhattan and Brooklyn bumps up against zoning limits, and land prices are so high that even luxury builders end up having to skimp on materials to make projects pencil out financially.

I know it’s a risky thing to say, considering how drastically aesthetic tastes change, but I have a feeling that 20 years from now, we aren’t going to feel as good about the architecture of the ’70s as we do today about white brick.

The High Cost of Free Parking Chapters 16 – 18

This post follows on the earlier discussion of the The High Cost of Free Parking.

Chapter 16 — Turning Small Change in Big Changes

Here Donald Shoup gets to the idea of using Business Improvement Districts to manage street parking as Brandon Smith mentioned in the last post’s comments. When parking revenue goes to municipalities’ general funds, drivers see it as a fee with questionable benefit. Contrarily, when parking revenue stays in the neighborhood, it can provide tangible benefits in the form of neighborhood improvements. This may make drivers more willing to pay for parking. More importantly, it creates an interest group in favor of charging a rate for parking that provides an funding source for neighborhood improvements. Seen from this angle, paid street parking benefits businesses from multiple angles.

He uses to Los Angeles neighborhoods to demonstrate the potential benefits of parking revenues. In the 1980’s, Old Pasadena was suffering from a vacant building problem because historic buildings did not include onsite parking. As a result, they could not be repurposed. In 1993 the city introduced parkign emters and gave the revenues to the neighborhood to finance public improvements. Additionally, building owners were given the right to pay a fee for parking in a public garage rather than providing parking onsite, allowing existing buildings to be repurposed. These policy changes have created an environment where drivers can easily find parking and a streetscape that is more inviting for pedestrians.

Shoup contrasts Pasadena with Westwood Village which has been in decline since the 1980s. In 1994 a parking study revealed that curb parking was 96 percent occupied, meaning the neighborhood had a significant cruising problem. As a response to the neighborhood’s decline, though, the city decreased hourly parking rates from $1 to 50 cents, worsening the parking shortage. This revenue goes to the city’s general fund even though the neighborhood is in need of streetscape improvements. Shoup explains that Old Pasadena has become as desirable as Westwood Village once was.

Many business districts may believe that free parking is an asset, and in a sense it may be. But turning parking revenue over to the neighborhood will make the change politically palatable and will reallocate parking spaces to those drivers who are willing to pay for it. Additionally, higher prices will increase parking turnover, allowing more customers to visit local businesses.

Chapter 17 — Taxing Foreigners Living Abroad

The title of this chapter plays on the perennial desire of residents of one jurisdiction to receive public services at the expense of those outside the jurisdiction. Shoup suggests this may be possible when it comes to neighborhood parking. At present, property owners and tenants in residential areas often oppose commercial development because of parking spillovers. With good reason, these NIMBYs have concerns that commercial developments will lead to increased parking pressure for the free spots on their streets, making it difficult for them to park near their homes. Shoup suggests this creates an opportunity for residential parking benefit districts. Those with residential permits could park free in these neighborhoods, but drivers visiting the adjacent commercial uses would pay for parking. This parking management could ensure that parking does not become overly congested and also provide the neighborhood with money to finance improvements.

This policy contrasts with some neighborhoods that have created zones where only those with residential permits can park. This policy often leads to excess street parking availability and eliminates potential gains from trade.

In some residential neighborhoods, however, the parking commons problem comes from the residents themselves who pay below market rate for their residential permit prices. In these cases Shoup suggests that all street parking should be allocated with prices high enough to provide some availability. He points out that this could also reduce NIMBYism toward converting carriage houses or garage space to accessory dwellings, permitting new affordable housing. Because parking would be governed by prices, new residents will not lead to a parking shortage.

Shoup writes:

The twentieth century saw a great competition between two economic systems: central planning and market prices. . . . Parking is a perfect example of an economic activity where planners have usurped markets without justification. We have relied almost exclusively on the command-and-control approach to regulate parking, and we have failed spectacularly.

Chapter 18 — Let Prices Do the Planning

In this chapter, Shoup emphasizes that prices are the only way to allocate goods given consumers’ varying preferences. He models parking decision based on the variables of distance to destination, price of the parking spot, parking duration, walking speed, number of people in the car, and value of time. In a world of free parking, drivers varying preferences for time and willingness to pay cannot be served; rather everyone must pay for parking with their time. When parking is priced according to demand on each block, the invisible hand will efficiently lead drivers to park in the spot that meets their preferences for saving money and saving time for each trip.

Additionally, charging appropriate prices for curb parking reduces political pressure for off-street parking. In this scenario, develoeprs will have the incentives to provide the amount of off-street parking their customers demand, and planners can begin rolling back parking requirements. Retailers that choose not to include parking in the price of their goods will be able to compete with lower prices or on other aspects of their service.

Thoughts on this Section:

These chapters provide some solutions to current parking problems that seem both effective and politically possible with BIDs and residential parking benefit districts receiving parking revenues in their neighborhoods. It’s heartening to see some market urbanist solutions that have succeeded in neighborhoods and cities already. However, I’m not convinced that the proposal to charge for all street parking in some neighborhoods would be accepted by many residents, and Shoup acknowledges it could be difficult. At present neighborhoods often oppose new development because of its parking pressures, but it’s not clear to me that residents would prefer paying for street parking than dealing with parking congestion.

Also, I think it’s important to acknowledge that some people benefit from the current situation, predominantly those who place a low value on their time, make frequent car trips, and prefer cruising to paying for parking. This is not to say that charging for street parking and eliminating off-street parking requirements wouldn’t be a step toward fairness and efficiency, but rather that it’s honest to acknowledge this change will make some people worse off.

I enjoyed this section as it focuses on the power of prices to create order and the role of institutions in the parking problem. He ends chapter 18 with an idea picked up in Eran Ben-Joseph’s Rethinking a Lota book I recently reviewed at City Journal. Shoup and Ben Joseph suggest that cities should move from regulating to the number of parking space to regulating parking design. However, as I see it regulating for design will be subject to the same knowledge problems Shoup points out in regulating for quantity.

What I learned today about SNCF and California HSR

If you’ve been following me on Twitter, you’ll know that I spent this afternoon on the phone with folks in California, looking into the recent SNCF-CHSRA bombshell. To summarize: SNCF, the highly experienced French national high-speed rail operator, apparently had a plan for California’s HSR network, but was turned off by the highly politicized routing. Namely, they wanted to make a straight shot from LA to San Francisco by running along the flat, government-owned I-5 corridor with spurs out to the eastern Central Valley, whereas the California High Speed Rail Authority (CHSRA) and state politicians wanted the main line to go through every little town in the Central Valley, directly. Now, all of this wouldn’t be a scandal, except for the fact that nobody at SNCF ever mentioned it to the public or the media.

That’s what the LA Times reported, but David Schonbrunn, a pro-HSR, anti-CHSRA activist, says there’s more to the story – SNCF not only advocated I-5, but they actually had private investors lined up! Here’s his letter to the LAT:

Your otherwise excellent story “High-speed rail officials rebuffed proposal from French railway” was far too kind to California High-Speed Rail Authority officials. At the time of its proposal, SNCF had the investment backing to actually build the LA-SF line, in a deal that sheltered the State from the risk of subsidizing an unprofitable project.

The Authority’s 2012 Business Plan covered up this offer, instead insisting that no private capital would be willing to invest until the first high-speed line showed a profit. The $6 billion Central Valley project approved last week by the Legislature thus exposes the State to unlimited operating losses. Worse yet, before that line can be completed, it will need an additional $27 billion from the federal government–quite unlikely in today’s political climate.

I’d sure like to understand the thinking behind the rejection of the French offer.

It’s unfortunate the story didn’t run earlier. It would have informed the Legislature’s debate.

I talked to David on the phone. He stuck by the story and said there was indeed a “secret meeting” between SNCF and CHSRA where such issues were discussed, and then I spoke to someone else – someone intimately knowledgeable about the SNCF side of things, who’s been quoted in the media before, but who requested anonymity – who confirmed David’s version of events. However, he said that CHSRA was so dismissive of SNCF’s plan that no formal proposal was ever requested or made, which tells me that there unfortunately may not be any written documents to request/FOIA from the CHSRA.

As to the identity of the private backers, my source wouldn’t go into specifics, but did hint that they were major, major US banks offering to fund the venture, and that they had experience funding SNCF projects in the past. But again, no formal proposal was ever made, since the CHSRA refused to consider the only alignment – I-5 – that private backers felt was financially viable. (When I pushed him on which banks offered to finance SNCF’s California plan, he downplayed the importance of the identify of the individual would-be investor, saying that it was a plan that would have had no problem attracting private capital, given SNCF’s past expertise and proven good judgment.)

Some have been dismissive of the LAT’s SNCF story because of a PDF leaked to Yonah Freemark in 2009 in which SNCF specifically gave its approval to the CHSRA’s more circuitous route following Highway 99 through Bakersfield, Fresno, etc. In response to this, my source said that that document was very preliminary and was intended only for the FRA, and was in fact drafted before SNCF established SNCF America. In other words, it was nothing close to their ultimate proposal, and the I-5 proposal that the LAT cites was the most recent and most serious one. (Indeed, it appears that SNCF America wasn’t created until 2010, a year after that PDF leaked, lending credence to my source’s claim that it was much more preliminary than the one cited yesterday by the LAT.)

So, what does all this mean? It means that the CHSRA very well might have been offered private funding for the plan, but turned it down because it didn’t fulfill desired political objectives of going through towns in the Central Valley onto the main trunk line (again: SNCF’s I-5 proposal would have connected Bakersfield, Fresno, etc., just through spurs rather than the main line, not on every single LA-SF trip). This would be okay if the CHSRA was public about it, but they stand accused – by the LAT and by David Schonbrunn – of covering it up. (Obviously it would also have been in Parsons Brinckerhoff’s interest to ditch the SNCF plan, and of course there are many people who have been employed both at PB and CHSRA.)

I’ve reached out to SNCF America for an official comment but my call wasn’t returned today (I’ll update if I hear later). I didn’t bother to try to contact CHSRA – if they wouldn’t talk to the LA Times about a well-sourced claim, I’m sure they won’t talk to some freelance reporter about anonymously sourced accusations appearing on blogs.

But I know for a fact that there are other reporters more experienced than I am on the case, and I’m sure it’s only a matter of time before the truth comes out. But so far, it ain’t lookin’ good for the CHSRA.

If you know more about any of this, even if it’s off the record, please don’t hesitate to contact me – smithsj@gmail.com, or +1-484-995-8479.

The High Cost of Free Parking Chapters 10-14

This post follows on the earlier discussion of the The High Cost of Free Parking.

I realized that I left a couple of important points out of the last post. First, Shoup applies the Hippocratic Oath of “first, do no harm,” to parking requirements. What a great way to think about city planning. If this standard was applied to all policies, we’d be living in libertarian utopia already. Secondly, he gives great treatment to the issue of why politicians sometimes choose regulations over taxation. Regulation imposes costs on everyone, but because these costs are hard to see, their costs are not easily traced to government. It is a less transparent way of manipulating behavior.

Chapter 10 – Reduce Demand Rather Than Increase Supply

This chapter explores some of the policy alternatives available to cities that could reduce the number of parking spaces needed to satisfy demand. Shoup supports programs that allow employers to provide their employees with unlimited transit passes. In cities where transit operates below capacity, transit agencies may be willing to sell this type of pass to employers at a low cost, knowing that many pass employees won’t use their passes regularly. As of 2002, Dallas, Denver, Salt Lake, and San Jose had adopted this type of program.

In two studies, providing these eco passes reduced employees’ demand for parking by 19%, offering employers an opportunity for significant cost savings if they can provide 19% fewer parking spaces as a result. Shoup points out that in some cases this policy can be a win for everyone involved because employees receive an additional benefit, employers can save money, traffic is reduced for the cities’ other commuters, and transit agencies earn some additional revenue at near zero marginal cost, assuming they are operating below capacity. Unfortunately, Shoup finds that in some California cities that have eco pass programs, municipalities did not reduce the parking requirements for employers that provide eco passes, eliminating the incentive to participate in the program.

In addition to their potential as workplace benefits, eco passes could make even more sense for other land uses such as stadiums or theaters, which could include the passes in ticket prices to reduce the amount of required parking. These might be destinations that customers would be likely to take public transportation to, and required parking that is used only for infrequent events is a particularly bad use of land.

Aside from eco passes, Shoup suggests two other policies that could lower parking requirements. He suggests employees could cash out their parking spaces, taking the value of their parking spot in cash while giving up their parking permit. The other option is car sharing, which he suggests could work well for apartment buildings which could provide some shared cars in lieu of all of the required parking spaces. All of these policies have the advantage of increasing flexibility and reduce the subsidy to driving.

Chapter 11 – Cruising

This is the beginning of Section II which switches to a focus of street parking instead of off-street parking. Because no one has property rights over street parking, we all face an incentive to overuse it. Street parking is often underpriced in monetary terms, so drivers pay for parking with the time they have to spend looking for a space. Several studies of cruising in various cities demonstrate that drivers who park on the street spend between 3.5 and 13.9 minutes looking for parking on average. While they are doing so, they contribute to the traffic problem for all other drivers, in particular because cruisers are likely to drive slowly and may block traffic while they wait for a car to pull out. This chapter includes some great anecdotes of parking in pop culture as well as stories of the lengths people go to to avoid paying for parking.

Chapter 12 – The Right Price for Curb Parking

Shoup explains that free or underpriced curb parking leads to the NIMBY demands for off-street parking:

If curb parking is free, and developers do not supply enough off-street spaces to satisfy the demand for free parking, neighbors will complain about parking spillover (real, anticipated, or only imagined). These complaints lead urban planners and elected officials to increase the off-street parking requirements until the spillover problems are resolved.

If cities charged higher prices for street parking this would cease to be a concern, but in many cases they have sought to satisfy demand for free parking instead. Shoup proposes that cities could alleviate this spillover problem and eliminate cruising by charging higher prices for parking. He suggests that the market price is when street parking is 85% occupied, meaning that each block typically has one open space. Prices would vary by block and by time of day to achieve this occupancy rate. Unlike a private parking lot, cities will not charge the profit-maximizing price but rather what he calls the “socially optimal price” that achieves these parking availability goals. He cites the success of raising the price of parking in London to eliminate cruising even in very high-rent neighborhoods where we might think residents wouldn’t be sensitive to higher prices.

Chapter 13 – Choosing to Cruise

This chapter explains the seemingly irrational behavior of drivers who choose to drive around looking for parking rather than save time to park off-street. He points out a couple of complicating variables, including that drivers place different values on their time, so some may be bothered by cruising more than others, and unlike other types of lines, drivers “waiting in line” to park don’t know how long they will have to cruise to find a spot. The factors that go into this decision for an individual are:

  • the price of curb parking
  • price of off-street parking
  • parking duration
  • time spent searching for curb parking
  • fuel cost of cruising
  • number of people in the car
  • value of time spent cruising

In a study of parking in Los Angeles at several different locations, Shoup finds that on average, drivers who are parking for one hour can save $4.89. Looking at parking near the city halls of several different cities, drivers could save on average $4.71 per hour. In both cases drivers face significant monetary incentives to cruise so long as cities price curb parking low enough that there are shortages.

Chapter 14 – California Cruising:

Shoup studies parking in L.A.’s Westwood Village more in-depth to get a more precise idea of the realities of cruising. Street parking there is free after 6 p.m. (or was as of the study at least), leading drivers to cruise for an average of 9.7 minutes in the evenings. Westwood Village includes 15 blocks, and Shoup discovered that on a typical day, drivers travel a total of 3,633 miles (!) while looking for parking in this small neighborhood, contributing to traffic and wasting fuel as a result.

He also points out that while it may appear that underpriced parking benefits a neighborhood’s retailers, this may not be the case. The benefits of underpriced parking go mainly to people who have a low time value, are solo drivers, and who want to stay parked for a longer time. All of these factors indicate that eliminating parking shortages could improve the situation for a neighborhood’s retailers.

Thoughts on this Section:

I think it’s important to focus on the different problems that parking policies create in varied environments. Section 1 of the book focuses primarily on places where developers are required to provide enough parking to satisfy demand at zero-price. This often results in sprawling surface lots, creates incentives to drive more, and makes walking and transit less appealing. On the other hand, cruising is a problem only in places where off-street parking is not free. Parking shortages are a disincentive to driving. While both issues go back to underpriced parking, it seems worth noting explicitly that they are rarely simultaneous problems.

My only real criticism of this section is the use of the term “market price” to describe the prices that cities should charge to achieve target curb parking availability. As Sandy Ikeda has pointed out previously, cities cannot set market prices, and we can never have a market in government-owned land that is unavailable for any uses other than parking. Pricing parking for occupancy is a second-best alternative.

En bloc condo redevelopment in Japan and Israel

So this weekend we learned that condos are bizarre and pretty much guaranteed to cause problems in the longrun, when maintenance bills skyrocket, the buildings are out of date, and the land beneath them appreciates, but you can’t redevelop the property because all the owners will never agree.

You guys posted some great comments, but I wanted to highlight a few.

This weekend we learned that Singapore has a method called “en bloc” redevelopment, whereby a condo building can be sold in its entirety to a single developer, with the idea that he’ll soon tear it down, if 90 (now 80) percent of the building agrees. Canada, on the other hand, is just starting to deal with the issue, but so far the only option for redevelopment is going to court – much messier compared to how it’s done in Singapore.

And today, Japan and Israel! Turns out they’re dealing with the issue of aging condos pretty much the same way as Singapore.

First comes Philip Brasor’s comment about Japan. Philip has a great blog and writes a column for the Japan Times about real estate in the country. In his comment he sums up a JT article he wrote on the topic which covers pretty much everything you wanna know about redeveloping condos in Japan:

 The problem is that many of the condos built in the 60s and 70s are now quite old, and unlike in the West, where it’s expected that property values will always increase over time, many in Japan are not worth much of anything unless they’re in the center of major cities. Until 2002, there was no specific law dealing with redevelopment of resident-owned condominium buildings, so if residents wanted to tear their building down and put up something new they had to gain 100% approval in accordance with the Civil Code.

But in 2002 the government passed a law allowing for redevelopment if four-fifths of the owners approved. Some believe the law was pushed by the construction and real estate industries to spur more development. As pointed out in the Market Urbanism article, Asians seem to prefer new buildings, and in Japan there is virtually no incentive to buy used condos. Though there have only been about 160 such redevelopment projects carried out on old condo buildings in Japan, the number may increase as more buildings become superannuated.

And then here’s Shlomo, on how it’s done in Israel:

Israel is much more densely populated that the US but is not as dense as Singapore. Israeli urban areas mainly consist of 3-4 story condo buildings constructed as far back as the 1930s. Recently an “en bloc” type law was passed (called “pinui-binui”, i.e. evacuation-building) requiring just 75% of owners to agree in order for a building to be destroyed and a new, taller building built on the site. I think all original owners are guaranteed ownership of a unit in the new development once it is finished. This has been used to replace many decaying buildings in central areas which where wholly unsuited for the current high property value of the site.

Here’s Levin Law Offices, an Israel real estate law firm, explaining “pinui binui” in further detail:

“Pinui Binui” projects are ones in which apartment owners are temporarily evacuated from their apartments, so that the buildings may be demolished and rebuilt.  The owners then return to new apartments in the new building.  The contractor pays all costs for demolition, construction, relocating apartment owners and renting their temporary homes during construction.  In exchange, the contractor adds new apartments in the building which he can sell in order to make his profit.  As with “Tama 38”, the value of the apartments in the building is increased and the owners receive a new, larger and safer apartment than what they previously had.  This beautifies the city and adds more apartments to the market.

I suppose it’s only a matter of time before something similar comes to Canada – judicial resolution doesn’t seem like it would scale very well – and eventually the US. The Singapore en bloc method (of just giving you cash) seems much more efficient than the Israeli method (where they have to give you an apartment and pay for you to stay somewhere in the meantime).

Why do condos even exist?

It sounds like a dumb question – they exist because people like the security of owning a home combined with the services and lower costs that apartments offer, duh! But upon further reflection, condominium-style tenure can be a bit problematic.

240_Central_Park_South_2012-09-30_15-18-22The main problem, as I see it, is that a building that’s been carved up into condo units can almost never be redeveloped. So much so that preservationists have been known to cheer on developers doing condo and co-op conversions of historic properties:

Indeed, sometimes preservation advocates look to condo developers as white knights. Since the Bialystoker Center for Nursing and Rehabilitation on East Broadway closed last year, Laurie Tobias Cohen, the executive director of the Lower East Side Jewish Conservancy, has been “extremely eager” for a developer to buy the historic building and convert it to co-ops or condos. The closing of the nursing home was a great loss, she said; the goal now is to prevent the demolition, or further deterioration, of the building. “What we don’t want,” she said, “is to lose any more of the built historic fabric.”

This is no doubt an elegant solution to the problem of unprotected historic buildings, but what about the less-than-stunning condos and co-ops that have been built in the US – and pretty much every where else in the world! – since the end of World War II?

Why are condo buildings impossible to redevelop? Simple: gravity! You can’t keep your apartment on the 17th floor while someone demolishes their 5th floor unit. In Canada, Australia, New Zealand, and Singapore, they call condos “strata” apartments, which reflects what they really are: floors of apartments layered inseparably atop each other. To redevelop a condo or co-op building, you have to buy every single unit, after which you can dissolve the condo structure and own the property in fee simple (i.e., ownership over both the land and the structures on it – the way you own a detached or attached single-family home, or a landlord owns a building). And buying up every single unit in anything but the smallest of buildings is next to impossible.

So in theory, carving a building into condos should diminish its property value. All buildings are depreciating assets (long-run historic potential is too far into the future to matter), but when you own property in fee simple you can replace the buildings on it, ideally with bigger, more valuable ones (although not always “bigger” ones…more on that later). This option basically doesn’t exist for condos and co-ops (which for the purposes of this discussion are the same). One would think that dividing a building into separately-controlled residential condos would be so damaging to property values that nobody would ever do it, and yet, at least in the United States, it happens quite often.

The federal enabling legislation for the condominium form of ownership didn’t actually exist until 1970, when it was enacted for the benefit of Puerto Rico, and not, I believe, because of pressure from mainland developers. There had always been co-ops, at least in New York City (like the Dakota), and I’m not sure if these prewar co-op buildings were ever redeveloped (anybody know?), but they were only for the very wealthy and were much rarer during New York’s unregulated prewar growth period than they are today.

But condos didn’t become popular on the mainland for another 10 years after the 1970 enabling act (remember, the federal legislation was not passed in response to demand by mainland developers), so the oldest condos in American cities aren’t more than about 30 years old. But these are beginning to age – aesthetically, functionally, and density-wise – and I think in the not-so-distant future we are going to begin to feel negative repercussions from buildings that basically can’t be torn down without violating someone’s property rights. (I’ll also discuss later how Singapore does exactly that to get around the problem of a nearly 90 percent home ownership rate in a city-state chock full of multifamily buildings and a culture that has no love for second-hand apartments.)

I should also add that the inflexibility that comes with dispersed ownership in condos and co-ops can be problematic even before redevelopment. I once spoke to someone at a firm that did energy retrofits for prewar buildings in New York who said that even when the return on investment is obvious, it’s sometimes very difficult to get co-op and condo boards to approve the upgrades. But apartment landlords, he said, are much more economically rational, and are therefore willing to invest money when they see the savings. That seems borne out in this NYT article about a highly polluting heating oil used in New York that the city is trying to convince apartment buildings to phase out. It doesn’t mention rentals vs. co-ops/condos specifically, but all the drama in the article revolves around trying to convince co-op boards – not landlords – that it’s in their financial interest to do the retrofit. (I don’t think those sorts of oil furnaces were still around by the ’80s when condos became popular.)

So, back to the original question: why the hell do condos exist?

Though most of the (very smart!) real estate professionals I’ve talked to about it had never thought about it, I’ve read a few theories, and have a few of my own, which I’ll list, but I encourage readers – especially those with knowledge of foreign property markets where incentives and outcomes differ – to chime in. (I’m interested especially in East Asia, where the value placed on new housing is much higher than in long-built out American and European cities.)

So, without further ado, a few possible reasons why condos and co-ops exist…

Tax subsidies. Henry Hansmann at Yale Law wrote a paper in 1991 arguing that condos and co-ops exist mostly for their tax advantages, and that absent these, there would be far fewer. I emailed Henry recently asking if he still believes this, and he was nice enough to respond that he did, but that he hadn’t really kept up on the issue since 1991. But the paper is pretty persuasive, with the caveat (as always) that the math is beyond me. Here’re the first two paragraphs of the paper, which is available as a free PDF:

Twenty-five years ago, cooperative apartment buildings were uncommon in the United States, and condominiums were virtually nonexistent. Since then, however, both forms, and particularly condominiums, have spread rapidly through the real estate market. This article explores the factors responsible for this development. In the process, it also assesses the relative transactional efficiency of consumer ownership and investor ownership in multiunit housing.

I argue that two factors appear principally responsible for the recent spread of cooperatives and condominiums. First is the large tax subsidy to owner-occupied housing that has existed since the Second World War and that has been particularly large during the past two decades. Second is innovation in the forms available for organizing ownership in multiunit dwellings. A variety of considerations suggest that the first of these factors has been more important than the second and that, in the absence of the tax subsidy, cooperatives and condominiums would occupy a much smaller share of the housing market than they do at present. In support of this analysis, this article offers the first sophisticated calculations of the magnitude of the pure tax subsidy to owner-occupied housing, as opposed to rental housing, and of the changes in that subsidy over the past fifty years.

In support of his tax theory he mentions the relative paucity of commercial condos, where ownership is not privileged in the tax code over renting. In fact, I recently worked with a New York City developer who bought and carved an aging postwar skyscraper across from the United Nations into condominiums to market (very successfully, it turned out) to foreign countries for their permanent missions to the UN, specifically because they don’t have to pay property taxes by virtue of their sovereign status, while their landlords do.

Rent regulation. In certain cases it appears obvious that condos and co-ops were created because rental profits were artificially capped through rent controls. This was definitely the case with the massive wave of co-ops that appeared in the ’80s in New York City. Landlords realized they couldn’t make much money renting the units at regulated prices, so they sold them to tenants at unregulated ones. Because the current tenant was the only person they could sell to, the tenant had an unusual among of pricing power (especially in the ’80s, before prices started skyrocketing and, at least I assume, raised the possibility of luxury decontrol so that landlords gained the upper hand), and therefore many got “insider deals” – that is, they bought their apartments as co-ops for less than market value.

I once read – but cannot confirm – that rent controls in prewar Europe had a similar effect on tenure choice in new construction. Rents were regulated but sales prices were not, so many builders (and maybe landlords with already-built buildings?) decided to simply sell the units outright as co-ops or condos (can’t remember which) at prices that were unregulated. Then again, in Europe there is (and was) also the aforementioned issue of restrictive land use regulation, which was introduced earlier than in the US (where the really restrictive stuff didn’t start till the 1960s), so it may have been a factor in encouraging condos/co-ops. (Someone who actually knows what they’re talking about regarding Europe, rent regs, and housing tenure – please validate me and/or set me straight!

Restrictive land use regulation. This is one that I thought of on my own, although I don’t think it’s as solid as the tax subsidies and rent regulation explanations. Redevelopment can only happen if the government lets it happen, and though zoning doesn’t (usually) forbid you from razing and rebuilding, it does often prevent building a bigger structure. Some will eventually redevelop their property even if they can’t raise the square footage, but they’re much less likely to do so. And if your right to redevelop is curtailed anyway by land use regulations (even more so if it’s got historic preservation protection), then you’ll have less compunction about giving it up entirely by carving your property into condos.

Time value of money. Economists dating back to the School of Salamanca have taught that a dollar today is worth more than a dollar tomorrow, and that a dollar in a million years is practically worthless. Redevelopment is by definition far into the future from the time that the developer is making the choice between rentals and condos. The “option to redevelop,” as one developer I spoke to called it, may simply be too far into the future to matter, and especially to overcome the benefits of owning your own home without having to maintain the grounds and, at least in cases where the units are stacked on top of each other (i.e., in an apartment building), without having to pay for your own plot of land.

* * *

While the problem of impossible-to-redevelop condos is most acute in apartment buildings, where you physically cannot redevelop one unit without disturbing the rest, it has also hindered non-stacked condo units. Lydia DePillis (peace be upon her) recently noted an example in DC’s ritzy Logan Circle neighborhood of non-stacked condos, usually found in more suburban locations, that were originally built as affordable housing, but now can’t be redeveloped because the owners can’t all agree to sell. Which is a reminder that condos’ lack of redevelopment potential is not only a problem for a city’s overall affordability and fabric (and aesthetics, in many cases!), but it also really sucks for condo owners who’d like to cash out but can’t because of their intransigent next-door neighbor.

Now onto the case of Singapore. Singapore has highly encouraged homeownership as a means of social engineering (despite its free market bonafides, Singaporean housing policy is highly interventionist), and has been very successful at it: at 87 percent, its homeownership rate is trumped only by former communist countries that simply deeded people’s state-owned apartments to them after the fall of the wall (which I’m sure is going to become a huge problem once Eastern Europeans become wealthy enough to want to redevelop their infamous housing blocks).

But Singapore is also an incredibly dense city-state where the vast majority lives in multifamily buildings, so “homeownership” means owning your own strata unit (their term for a condo, also used in Australia, New Zealand, and Canada). And like all strata and condo buildings, the owners will almost never reach an agreement to sell, so they cannot be redeveloped by conventional means. Combine that with the ugliness of the buildings and the fact that Singaporeans, like all East Asians, place a high value on new homes, and you can begin to see the problem. (Worthwhile to note that en bloc sales were not allowed until a few decades after the homeownership policy took off, and it wasn’t private investors who built the unredevelopable strata towers in the first place – it was the government.)

So to solve it they instituted something called en bloc sales in 1994. The basic idea is that if a certain percentage of a designated building’s residents choose to sell their units (it used to be 90 percent, now it’s 80), then the developer wins the option to buy all the units (including apartments belonging to the “minority owners,” or those who did not approve the sale), which he can exercise at whatever price the supermajority agreed to.

The policy started with buildings that were built by the state-owned Housing Development Board, which is responsible for the vast majority of housing in the city-state, but I was told by Dr. Alice Christudason, an associate professor in the Department of Real Estate at the National University of Singapore, that private developments became subject to en bloc sales with less-than-unanimous consent in 1999 under the “Land Titles (Strata) Act,” which “supersedes any contracts made,” which of course didn’t contain any provision allowing for non-unanimous en bloc sales. (Not sure if newly-built private strata buildings contain any en bloc provisions?)

En bloc sales are very controversial, though (there’s even a TV show about them), and I can’t imagine a non-authoritarian country like the US or Japan tolerating that sort of routine violation of property rights quite the way Singapore does it.

It’s also worth noting that in some ways, a lack of redevelopability can be a positive externality. The ugliness of a 30-year-old condo building next door is mitigated by the fact that it won’t be replaced with a larger one that will take more of your light and air. And if the building is attractive – like the New York City co-ops of the turn of the last century, or possibly 1980s condo towers in the year 2100 (who knows, it could happen!) – then it’s not such a bad thing that it can’t be torn down. A lot of people much smarter than me don’t seem too concerned about the issue: I talked to NYC real estate guru Jonathan Miller about this a few months ago, and his thought on it was that it just contributes to a skyline that reflects all the layers of New York’s history.

But I do think that at some point it’ll become problematic, at least in East Asia. Thirty years from now, for example, is a 90 percent-urbanized China really going to want today’s unattractive, shoddily-built, auto-oriented condo towers marring the skyline and taking up precious land? Authoritarian China may adopt Singapore’s en bloc method of redevelopment, but what about democratic countries like Japan and South Korea that have more respect for property rights? (I’ve been told Japan didn’t have the condominium form of ownership until the early ’70s, but that means the older buildings are starting to become ripe for redevelopment.) Eventually I suppose everything will become attractive in an historic way, but what about the intervening years? (Or am I overestimating the number of condos in East Asia, and they’re actually a relatively rare form of housing tenure in multifamily buildings?)

Update: Here’s an article from March that @graemebone on Twitter sent me about Vancouver strata buildings facing this exact issue, with ballooning maintenance costs being the trigger. British Columbia passed its “Strata Titles Act” in 1966, so they’re facing these issues a few years before we will in the US. Some interesting bits about how they’re just now starting to deal with it:

“There is an implied provision in the Act, which is that if you have more than 10 units in a project, there will be one jerk,” says lawyer Patrick Williams, one of the city’s premier condo-law experts. “One jerk can bring down the whole house of cards, hold everyone to ransom.” Gioventu, from the owners association, is also less than reassuring: “If you live in a 64-unit building, think of those other 63 people you have to sell with as being like your in-laws.”

Until now, those dysfunctional relationships have been tested over familiar stresses: leaks, maintenance reserves, noise, pets, prostitution, grow-ops. Williams knows of just two cases in B.C. where judges have issued decisions on impasses between owners who want to stay and those who want to demolish and sell the land. (In both cases—one a three-owner condo in Kitsilano, the other a larger project in Burnaby—the judges ruled in favour of the owners who wanted to demolish over those willing to keep pouring money into maintenance.)

Even getting to those decisions hasn’t been easy. “The Strata Property Act here is really in its infancy,” explains Williams. Buyers don’t realize how fuzzy the law is when it comes time to shut it all down. It also sets the bar high for how much agreement is needed: 100 percent. Condo owners who can’t get that in their buildings have to go to court—as the Cypress Gardeners have done—to try to get a judge to order a sale. As if that weren’t enough, there’s another hurdle: the institutions that hold the mortgages may not go along with the deal.

And here’s some interesting research on en bloc sales in Singapore, in the same article:

In search of other jurisdictions where condo dismantling is further along, UBC professor Tsur Somerville and a group of colleagues looked to Singapore. “This is where we’re all headed,” says Somerville. They looked at the sales of 285 condo buildings after 1994 (when the government introduced regulations allowing developers looking for low-density properties to tear down and rebuild at higher densities). Their study found that the more units in a complex, the less likely the owners would agree (and the less likely a sale would happen). They found that another factor blocking sales was the difference between the smallest and largest units in a building: where units were similar in size (and, consequently, price), sales were more likely. Buildings that were owned mostly or entirely by investors reached sales agreements more easily. And sales became more likely when Singapore changed its law, reducing the owner consensus needed from 100 percent down to 80 or 90.

All this makes me wonder: why do condos/strata exist in Canada? Were they given tax subsidies similar to those in the US?