Opportunity for States to Protect Land Use

If this season’s political campaign rhetoric has demonstrated anything, it’s that governors love to take credit for job creation. What I haven’t seen any governor mention, though, is that there is huge opportunity for economic growth in relaxing zoning codes. Most obviously, allowing new opportunities for infill development will create construction jobs. More significantly though, in the long run, cities allow for faster economic growth (and job growth) than other locations.

The regulations that prevent cities from growing keep economic progress below what it otherwise would be. While researchers disagree over whether population density or total population is the variable that is most significantly correlated with economic growth, either way zoning plays an important role in holding back job growth, providing policymakers who are willing to deregulate with opportunities to improve their competitive standings next to other cities.

Political incentives stand in the way of this growth opportunity, however. Most zoning restrictions benefit a city’s current residents at the expense of potential residents. For example, minimum lot size requirements serve to raise the price of homes, preventing low-income people from moving into neighborhoods that current residents wish to keep exclusive. By changing this current order, policymakers risk losing the support of their homeowning constituents, and interest likely to be better organized than renters and potential city residents. Limitations on housing supply raise the value of existing homes, artificially raising the value of residents’ assets, which homeowners strongly fight to protect.

At the local level, policymakers are therefore incentivized to privilege homeowners’ interests at the expense of broad economic growth. At the state level however, the incentives may be different, such that economic growth may benefit state policymakers more than protecting home values. State policymakers have constituents who live in a wide variety of municipalities, some where land use restrictions are less binding in some than others. Additionally, homeowners will face greater challenges in organizing to support artificially propping up home values at the state level compared to the municipal level. State policymakers could therefore benefit themselves by setting limits on the how much municipalities are permitted to restrict development. Importantly, limiting the degree to which municipalities can restrict development does not force density; rather, it allows developers to provide more density if residents demand it.

California legislators considered a bill of this model earlier this year which would have limited cities’ abilities to set parking requirements in neighborhoods where transit is widely available. As Stephen explained, this bill came under criticism from both the American Planning Association and the Reason Foundation, both citing the need for local control of land use. However, this misses the key role of higher level governments within a federalism model.

After the Supreme Court decided in Kelo v. City of New London that municipalities have the power to use eminent domain for economic development, 44 states adopted amendments to protect their citizens from eminent domain for non-public use to various degrees. States did not have this type of reaction to Euclid v. Ambler, which set the precedent allowing cities to create zoning codes, but there is nothing stopping them from setting limits on cities’ zoning power now.  Federal and state governments have a role to set a floor of freedom for all of their residents, which gives states an opportunity to set limits on how much their municipalities can restrict land use.

Urban Development in Charter Cities

In light of approval in Honduras for three new charter cities (REDs), much has been written recently on their potential to improve economic development. Economist Paul Romer makes a compelling case for the potential of charter cities, asserting that countries with institutions that impede economic growth can benefit by designating small areas with rules that permit free trade.

Despite the promise of REDs, designating new areas for urban economic zones may pose some challenges that haven’t been addressed elsewhere. Cities almost always grow through spontaneous orders in locations that emerge through human migration. Cities are a product of human action, not of human design. Older cities grew through their accessibility to trade and natural resources. More recently, towns have become cities as they have become centers for specific industries. This process happens not with top-down planning, but rather as the market process leads individuals to move to specific places, resulting in the urbanization patterns that we see. In the case of Honduras’ REDs, however, the locations were selected by the state.

Unlike the approved sites for REDs in Honduras, Hong Kong and Singapore (models of charter cities) were not greenfields before they became charter cities. Since becoming models of charter cities, both islands’ populations have exploded, but some level of development existed before British rule, and the British did not set out to create large cities. Rather than being planned, the success of these two islands was an accident, in which good institutions in fortunate locations have facilitated enormous economic growth. In contrast, all of the infrastructure and design for the REDs will be built from scratch, at first by one company, MKG, until other investors and individuals move to the city. In a sense, city construction may have to begin before there is demand for it. MKG has pledged $15 million to begin building infrastructure, a small amount in the scheme of city-building, but as of now it’s unclear where future investment will come from, and whether it will be centralized within a few large firms or dispersed.

Greenfield development for charter cities is absolutely key; otherwise, they would coerce people to adopt new rules, eliminating the choice and voluntarism that Paul Romer explains is essential for charter cities to succeed, not to mention potentially leading to violent conflicts. However one firm starting a city in a greenfield will face enormous knowledge problems in beginning to build a city from scratch. The magnitude of this challenge will depend on how much development is required of the few initial, large investors before attracting significant numbers of entrepreneurs. I don’t think either the investors or Paul Romer support top-down city design, but this is a necessary aspect of starting a new city in a government-designated location.

Some towns have been started with charters in greenfields previously, in the American colonies, for example, but none of these were founded with the intent of becoming large cities. Those that grew did so spontaneously because of their advantages over other cities. I don’t think that a state-selected greenfield location will prevent success in REDs or other charter cities, but I do think it bears acknowedgment that starting a city from the top down will create an added challenge. Assuming success, however, REDs will provide a fascinating case study in modern urban development under free markets. Here’s hoping the charter doesn’t include height limits or parking requirements.

David Gunn on Amtrak’s $151bn NEC plan and how he rebuilt the Harrisburg line

First order of business: I wrote two articles for Bloomberg View (the opinion counterpart to Bloomberg News) on the high cost of US transit – one on private-sector gouging, and one on public-sector gouging.

Secondly, I’ve been talking to former Amtrak president David Gunn a lot recently – at first for the labor piece I just linked to, but the conversation has veered into other topics. (If you have any burning questions you’d like answered, leave them in the comments.)

The other day I got around to asking him what he thought about Amtrak’s $151 billion proposal for the Northeast Corridor and the $7 billion Union Station plan.

His verdict? “It’s all a fuckin’ pipe dream.”

His response was basically that big, flashy plans never work out, and that the only way to get things done at Amtrak is to do them under the radar.

He used the rebuilding Amtrak’s Harrisburg line from Philadelphia to Harrisburg as an example. The Harrisburg line (the eastern half of Pennsylvania’s original Main Line) is the most important stretch of tracks that Amtrak actually owns after the Northeast Corridor, so I think there’s a lot to be learned  Corridor itself.

Here is my transcription of what he said about rebuilding the Harrisburg line. Most parts are verbatim, but there are a few sentences that I wrote from memory, and a few things that I probably missed.

The Harrisburg line was a wreck. From Paoli on in [towards Philadelphia – i.e., SEPTA's most important regional rail line], it was a bad 60 mph railroad, and from Paoli to Harrisburg it was a bad 70-80 mph railroad. The signals were ancient, the track was rough, trees were brushing up against the cars, weeds were growing on the ballast.

I rode the line with a fellow who’s got a private car, and we were handling it on one of our trains. I was embarrassed. Being a railroader, you want the railroad to look good, you want the ditches to be clean, the ballast to be clean. This stuff’s important – it’s not just for looks.

I got back, and I said, what the hell are we doing? I had a meeting with my operations guys – the chief engineer, the head of track, power, signals, bridges, structures, and the car guys and the locomotive guys. It was a small meeting, maybe 10 people. Plus I had my planers (who didn’t survive much longer!). I said, what the hell are we doing? It’s a good railroad – electrified, designed for 115-125 mph operation.

The operations guys said, you wanna fix it? We can fix it. I said, you come back and give me a plan for what we need in terms of rail ties, ditching, what we’re going to do with the signals (to go to electric push-pull trains).

Long story short, my guys came back and said that for $300 million, we can give you a first class, 115 mph railroad.

But the planners said, “We have to get a consultant on board!” It was a tie and servicing job – ”TNS” (?). I threw the planners out. I went to Governor Rendell, and they had $100 million set aside for improving that corridor. I said, you give me the $100 million, I’ll give you a railroad, and I’ll put $100 million of our money in. Norfolk Southern also gave us $3-4 million, because they used the tracks.

So we put it together, and I had to get approval from DOT and the Bushies [i.e., the Bush Administration people]. I never called it a program to rebuild the Harrisburg line – what I did is I went in and said, I need 50 miles of rail, 300,000 ties, this much wire, and I gotta rebuilding signal houses, etc. [might have been some more things in here that I didn't catch].

They thought it was a lot – why would he need that many supplies, they thought? – but in two and a half years (they fired me just before we finished) we had it done. And it’s been a great success!

My point with this whole thing is, you get it done by bits and pieces. You don’t do it in these great leaps forward. Lots of stuff you can do on the Northeast Corridor doesn’t sound sexy – put high-level platforms on the lower level at DC Union Station, for example – but there’s all kinds of things your an do to make it faster.

And for reading this far, you get a bonus! Not horribly relevant to policy, but a funny story nonetheless about his time at Boston’s MBTA:

What you find in a lot of these transit systems, like Boston, is that it’s unionized up to the very top [of management]. We used to say, “Oh, Joe, he’s got relative ability!” In other words, he’s got powerful relatives.

The T was an example of a place that was absolutely inbred, totally politicized.

I was the director of operations, and I remember one night I was out at Matttapan, I was just walking around, and I went into the little car maintenance facility that we had there for the high-speed streetcars. I walked in, and here’s the car house repairman, drunk as the lord, and I said, “What’s your name?” I said, “You’re drunk!”

“That’s right sir,” he responded, ”I’m drunk! But you know who my son is? Senator so-and-so” – state senator.

I said, “Really? You’re still suspended, and you’re going home right now!”

We suspended the guy, sent him to our AA or whatever, and when I got back to the office on Monday, everybody there said, ooooh boy!

So I got a call early Monday from the state senator, and he says, “Is it true that you suspended my father from work?”

“Yup,” I answered. “And he’s not coming back to work till Timmy O’ says he’s fit for duty.”

And the senator said, “Thank god! I’ve been trying to get his drinking problem under control for years!”