Planned Manufacturing Districts: Planning the Life Out of Districts

Chicago’s Goose Island and surrounding Planned Manufacturing Districts

They are called different things in different cities, but they are similar in form and intent among the cities where they are found.  For simplicity’s sake, a Planned Manufacturing District (PMD), as they are called in Chicago, is an area of land, defined by zoning, that prohibits residential development and other specific uses with the intent of fostering manufacturing and blue-collar employment.

Proponent of PMDs purport to be champions of the middle-class or blue-collar workers, but fail to consider the unintended consequences of prohibiting alternative uses on that land.  At best, PMDs have little effect on changing land-use patterns where industrial is already the highest-and-best-use.  At worst, they have the long-run potential to distort the land use market, drive up the costs of housing, and prevent vibrant neighborhoods from emerging.

A Race to The Bottom

Before getting into it further, it is important to examine the economic decisions industrial firms make in comparison to other uses.  Earlier in the industrial revolution, industry was heavily reliant on access to resources.  Manufacturing and related firms were very sensitive to location.  The firms desired locations with easy access to ports, waterways, and later railways to transport raw materials coming in, and products going out.

However, the advent of the Interstate Highway System and ubiquitously socialized transportation network have made logistical costs negligible compared to other costs.  Where firms once competed for locations with access to logistical hubs and outbid other uses for land near waterways in cities, they now seek locations with the cheapest land where they can have a large, single-floor facility under one roof.  This means sizable subsidies must be combined with the artificially cheap land to attract and retain industrial employers on constrained urban sites.

Additionally, today’s economy is has become much more talent-based rather than resource based, and patterns have shifted accordingly.  In contrast to industrial, residential and office uses are still very sensitive to location.  In fact, residential preference for urban locations are increasing.  Likewise, most office and other commercial firms seek to locate where they can best attract talent or customers, or simply put, convenient to residential.  To the dismay of the politicians, blue collar jobs are destined to leave cities to seek cheaper land in less desirable locations.  We should expect industrial firms to prefer exurbs and sites close to negative externalities, such as near highways and airports where noise and air pollution drive out residential uses.  Efforts to stem the tide of these realities will surely incur dead-weight losses.

In a race to the bottom, prohibition of housing and other uses in PMDs drives the value of that land down to the point it can compete on price with the most undesirable suburban locations. That is, until a non-manufacturing use compatible with the wording of PMDs emerges to crowd out industrial.

We are are in an interesting time, and are witnessing the first cases where the long-term consequences of PMDs are beginning to emerge for us to witness.

Google and Chicago’s Fulton Market

Over the past two decades, Chicago’s West Loop has become one of the most desirable neighborhoods in the City.  Developers flocked to the neighborhood to take advantage of the neighborhood’s proximity to Chicago’s Loop, and abundance of underutilized warehouses waiting to be converted to hip lofts.  However, Fulton Market and meatpacking district on the northern part of the West Loop remained immune to the radical transformation.  Neighboring West Town, River West, and West Loop blossomed during the housing boom.  Was Fulton Market less desirable?  Far from it – meaningful redevelopment was forbidden.

As developers began converting West Loop buildings in the 90’s, the Randolph Fulton Market Merchants Association proposed the formation of the Kinzie Street Industrial Corridor.  The Association ultimately triumphed in their lobbying for the district, which formed a PMD to protect them from the encroachment of competing land uses.  They also won a Tax Increment Financing district to fund subsidies, and other programs aimed at enriching incumbent and new businesses in the area.

Then, along comes Google.  According to the wording of the PMD, “High Technology Office” is a permitted use in the Kinzie Street Industrial Corridor.  Google, in search of an office with large floor plates for its Chicago headquarters, chose to move into a former cold storage building in the Fulton Market that is being converted into office.

As a result of Google’s impending arrival, Fulton Market has attracted a flurry of speculative real estate investment as other technology firms, hotels, restaurants, and entertainment venues flock to the area.  Land prices have been driven up to extent that no matter how much the subsidy, Fulton Market is no longer an economically viable location for industry or manufacturing.  We should expect politicians to scramble to fight this over coming years, but extinction of Fulton Market industry is imminent.  Efforts to hamper market-forces, millions of dollars of wasted subsidies, and unnecessarily higher housing costs were sacrificed to achieve nothing of lasting value.

i3xnk4

Vibrancy Thwarted

Possibly the biggest victim of the vast prohibition on uses of land in Planned Manufacturing Districts are the neighborhoods in which they are located.  In her treatise, The Death and Life of Great American Cities, Jane Jacobs discusses the ingredients of what makes urban districts flourish or fail.  Jacobs makes the case that great urban districts typical have a diversity of primary uses, short blocks, diversity of the age of buildings, and sufficient concentration of people.  Districts aimed at preserving and fostering limited uses, such as PMDs, stand in the way of all of these factors necessary for the emergence of vibrant city life.

Most obviously, if residential and other uses are prohibited, a diversity of primary uses and sufficient concentration of people are impossible.  Since the optimal sites for today’s manufacturing and logistics firms are very large, single-story buildings, firms are likely to demolish older multi-story buildings otherwise desired by residential loft-lovers.  They are also prone to spread their facilities over several blocks, sometimes incorporation what was once a street into their property.

Clybourn Corridor, Elston Corridor and Goose Island PMDs

Inspired by Fulton Market’s sudden success, some developers have begun to set their sights on other well located PMDs.  These developers intend to snatch up the preserved land at artificially low prices and entice technology companies to come.  One such developer, South Street Capital intends to do just that in Goose Island, straddled between River North and Lincoln Park to the east, and River West and Wicker Park to the west.  Developers also have also been eyeing the nearby site of the former Finkl Steel Plant.

Ironically, it was Finkl who successfully lobbied for the formation of Chicago’s first PMD, the Clybourn Industrial Corridor.  In the debates leading to the formation of the PMD, light manufacturing firms and developers were opposed to protections.  Light manufacturing wanted to keep the option to sell their land to developers and move to the suburbs.  As reported by the Chicago Reader:

On the other side were a handful of industrial-property owners from the area and their battery of lawyers, who argued that Eisendrath was offering them protection they do not want. Someday they may want to move, they say, because their buildings are too small, old, or obsolete. And they want the right to sell to whomever they choose–builders of shopping malls, condos, town houses, it doesn’t matter–at the highest dollar the market will bear.

“I like doing business in Chicago,” says David Schopp, chairman of U.S. Sample Company, the second-largest manufacturing employer in the area. “But I don’t want to be restricted. I don’t think it’s government’s role to say who I can and cannot sell to.”

Now, it is Finkl who wishes for that option.

The southern part of Fulton Market, as much as zoning hampers it’s potential, should enjoy some vibrancy as adjacent uses spill over into the district. (further, we do expect the city to begin allowing more residential in it’s latest plans for the district)  However, without lifting the PMDs altogether, there is little reason to be optimistic about the Goose Island and Elston Corridor PMDs.  Unfortunately, development of the PMDs in line with current prohibitions will result in a large area devoid of residential uses and other essential ingredients needed to become vibrant districts.  The area currently lacks transit alternatives, so employees will get to work by car or bike, exasperating traffic on roads connecting Lincoln Park to the expressway. We cannot expect the area to be rescued by spillover from nearby residential areas, as the river acts as a border vacuum preventing interconnection and transit access is minimal.  Failure to remove the PMD before further development takes place will condemn the area to eternal dullness.

Chicago’s Goose Island, protected by PMDs

Other PMDs

There are a total of 15 PMDs in Chicago.  The PMDs mentioned above, in addition to the Chicago/Halstead PMD, are the PMDs that have successfully thwarted residential encroachment.  Because of their undesirable locations, the remaining PMDs are impotent at altering land use patterns.  Impotent PMDs only serve as a mechanism for politicians to pay lip service to manufacturing jobs, and window dressing that goes hand-in-hand with subsidies.

I often hear urbanists defend PMDs, repeating the Urban[ism] Legend that we need them to keep manufacturing jobs in the city.  We urbanists can do much to make these districts vibrant if we overcome our nostalgia for urban manufacturing and come to terms with how dangerous PMDs actually are.  Economically speaking, PMDs can only serve the purpose of keeping land prices low enough to compete with undesirable suburban locations for industry. PMDs nonetheless do little to overcome the enormous economic forces repelling industry out from desirable locations in cities.  At worst, PMDs permanently plan the life out of otherwise desirable areas in the long run after serving their purpose temporarily.  At best, PMDs are impotent to drive down land prices in already undesirable places any further than they already are.

At a time when housing affordability is a major issue affecting cities, one way to remove barriers to increased housing supply is to abandon our counter-productive nostalgia for urban manufacturing.  PMDs abolish urban vibrancy, and it’s time for cities to abolish PMDs before it’s too late.

See also:

2005 Study by the University of Wisconsin-Milwaukee on the performance of the Clybourn Corridor PMDs

 

The Status of Smart Growth Regulation

Image via Urban Milwaukee

Debates over land use policy often devolve into opponents arguing over how to interpret the same set of facts. For example, “market suburbanists” argue that because apartments in walkable neighborhoods tend to cost more per square foot than suburban single family homes, high densities make coastal cities expensive. Smart Growth advocates may look at the same data and argue that zoning rules that restrict the supply of high-density housing in desirable locations is what makes housing expensive.

In order to provide clarity to the debate on land use regulations, Mike Lewyn and Kip Jackson survey the zoning codes of the 24 cities with populations between 500,000 and 1,000,000 residents. In their new Mercatus Center study, they find that while some cities have in fact enacted the sorts of policies that market suburbanists fear — minimum density requirements and maximum parking rules — these regulations remain very rare relative to near-ubiquitous maximum density rules and minimum parking requirements.

Lewyn and Jackson list the mid-size cities that have adopted various types of Smart Growth regulations below. While a handful of cities have adopted the types of regulations they surveyed, every U.S. city in this sample has a maze of traditional zoning rules.

Lewyn Table

A perpetual challenge in studying the effects of both traditional and Smart Growth regulations is finding data. Municipal codes are all housed on unique websites with varying degrees of accessibility. The difficulty of achieving clear answers as to what causes high housing prices contributes to advocates of traditional zoning and Smart Growth to shout past one another.

While Smart Growth as a whole is maligned by some advocates of the free market, many Smart Growth tenets are actually deregulatory. Policy changes including upzoning, reducing parking requirements, and permitting mixed-use development are all steps toward laissez-faire land use relative to the status-quo, even though these policies are sometimes criticized by those who claim to support free markets. A clear analysis of whether and how cities are implementing Smart Growth allows us to evaluate whether Smart Growth as a whole is a step toward or away from the free market.

Lewyn and Jackson’s study shows that rather than embracing the deregulatory tenets of Smart Growth, regulators in some cities have layered Smart Growth rules on top of their traditional zoning rules, creating a complicated web of regulations. They explain:

Fort Worth imposes a variety of minimum parking requirements, adding simply that the “maximum number of parking spaces shall not exceed 125% of the minimum parking requirement.” For example, the city requires one parking space per bedroom for multifamily housing, which means the maximum parking requirement is 1.25 spaces per bedroom. Because the difference between Fort Worth’s minimum and maximum parking requirements is so small, it appears that almost all parking that is not prohibited is compulsory.

The authors show that while many Smart Growth objectives of such as permitting higher density, mixed-use neighborhoods could be achieved with deregulation, urban planners have instead chosen in some cases to replace traditional zoning rules with Smart Growth rules, in some cases requiring development that would have been prohibited under the traditional zoning regime. As Stephen has pointed out previously, some cities have gone from parking minimums directly to parking maximums without giving the market outcome a chance.

By assessing the legal environment in this sample of cities, Lewyn and Jackson have set the stage for empirical work on how Smart Growth rules are affecting prices. This empirical work is badly needed. Understanding the costs of both these new rules and traditional zoning rules is crucial for evaluating these policies, and these costs cannot be estimated without a clear understanding of which rules cities are putting on the books. This paper demonstrates that today Smart Growth policies are unusual relative to traditional zoning rules that restrict density. However Smart Growth is in some cases complicating the policy landscape rather than providing more freedom for developers to respond to consumer demand.

How Hong Kong Pulls Off Transit Oriented Development

Integrating rail and property development is the cornerstone of the MTR’s success. In the U.S., coordination between transit authorities and developers tends to be mediocre at best. In Hong Kong, however, the MTR is both the transit authority as well as the property owner, and this makes all the difference.

Coordination Problem

Most attempts at transit-oriented development in the U.S. involve multi-party negotiations. The agency responsible for the transportation system haggles with different developers interested in undertaking projects along the line. Instead of implementing a unified plan, the transit agency has to negotiate specific agreements with each developer. And, because the priorities of the transit agency and the developers are never perfectly aligned, development agreements become subject to second-best compromises. Further, any disputes that arise once significant capital has been committed are costly to resolve.

This arrangement makes leveraging land values difficult as well. Developers frequently get tax breaks as an incentive to undertake projects. Whether abatements on property tax or straight-forward rate reductions, tax incentives typically preclude the use of land values to help fund transit. And, even without special incentives, major property owners who stand to benefit from proximity to a transit system have every reason to resist tax increases of any kind if there’s a chance of free-riding.

Kowloon_Station

The MTR, on the other hand, uses the integrated rail-property development  approach which combines the two roles of landlord and transit developer. The MTR owns the right-of-way as well as the surrounding properties. This removes the necessity of extended negotiations, having to settle for second best solutions, and the potential downside of disagreements partway through a project.

By combining the functions of landlord and transit developer, the MTR is also able to internalize land values. The rail line drives up the value of the MTR’s properties and that value covers the capital costs of the MTR’s rail lines.

Coase On Mass Trasnit

In 1937, the economist Ronald Coase asked why, if market exchange is such a good way to allocate resources, do firms even exist?

The short answer? Transaction costs.

Participating in a market comes with a price, and in some instances, the cost of participation is more than it’s worth. When transaction costs are too high, firms avoid them by internalizing specific functions and allocating resources at the discretion of management. This is not unlike the way in which socialist command economies deployed resources, albeit on a much smaller scale, and within an organization that’s actually responsive to external price information.

In many industries, falling transaction costs have brought about a wave of decentralization, supplanting the old paradigm of Fordist vertical integration. Younger companies now specialize in a narrower range of core competencies and outsource the rest. Apple, for example, is really a design firm that uses a global network of manufacturing and logistics partners to get its products into consumer hands.

In the case of transit development, however, transaction costs remain high. Technological innovation hasn’t made construction much less capital intensive or shortened time horizons for investment. This means that the costs of coordinating transit and property development mentioned above have remained persistent. What the integrated rail-property development model suggests in theory, and the MTR demonstrates in practice, is that a little centralization could bypass these costs entirely. To paraphrase Coase, there’s a price to pay for using prices; and in the case of transit development, that price may still be far too high.

Part 2 of 2 covering the policies and institutions behind mass transit in Hong Kong

Glamour in streetscapes

A while ago I attended an Urban Land Institute event on development trends in Fairfax’s Mosaic District. A presenter from the retail developer EDENS described their strategy of adding “sidewalk jewelry,” a design technique used to entice shoppers to travel down sidewalks between stores. Having never heard the term before, it nonetheless stuck with me as I thought about retail developments that manage to create relatively lively pedestrian environments from the top down.

At Mosaic District, this street jewelry takes the form of signage designed to engage pedestrians, fountains, and planters:

Mosaic 1

mosaic_icsc_award

It’s certainly more aesthetically pleasing and engaging to pedestrians than the average strip center. While the typical strip mall has a parking lot for a set back, Mosaic District has a parking garage that allows the rest of the center to be more pedestrian-scaled. With the “sidewalk jewelry” framework in mind, it’s easy to see that many retail developers have embraced this trend toward focusing on the pedestrian experience once shoppers have left their cars at the center’s periphery. While Easton Town Center in Columbus has many of the same stores as any major mall, it’s outdoor shopping environment is distinctly different, attempting to emulate the “town center” in its name:

Easton town center

For shoppers who value retail ambience, these “lifestyle center” sidewalks provide a much nicer atmosphere relative to more dated strip center or shopping mall designs, but they can’t compare to environments where storefront decorations developed more organically. A recent trip to Quebec City reminded me of the sidewalk jewelry term, but there the visual treats that lure pedestrians down the sidewalk have much more texture than the shopping centers’ above because they are the result of an emergent order among the street’s businesses and residents rather than one developer’s vision:

Quebec-City-street-Canada

This type of street meets social critic Virginia Postrel’s framework of glamour. In her book The Power of Glamour, she explains that glamour is something that transcends our everyday life and transports us to better, different circumstances. She explains that shapes that evoke mystery carry glamour because they create mystery at what lies beyond. The fortress walls surrounding the Quebec City add a sort of magic to the city’s charming streets:

Arch

Quebec City’s glamour makes it appealing to tourists, but cities that are home to more productive innovation have streets with even more glamour, such as this Tokyo scene where each sign invites the pedestrian to find out what’s inside the business:

Tokyo

As Postrel explains, this glamour “invites us into a world without giving us a completely clear picture.” While people may dismiss the importance of glamour in cities as a frivolous quality, Postrel explains the importance of glamour in our lives:

Glamour is all about hope and change. It lifts us out of everyday experience and makes our desires seem attainable. Depending on the audience, that feeling may provide momentary pleasure or life-altering inspiration.

[. . .]

Glamour can, of course, sell evening gowns, vacation packages, and luxury kitchens. But it can also promote moon shots and “green jobs,” urban renewal schemes and military action. (The “glamour of battle” long preceded the glamour of Hollywood.) Californians once found freeways glamorous; today they thrill to promises of high-speed rail. “Terror is glamour,” said Salman Rushdie in a 2006 interview, identifying the inspiration of jihadi terrorists. New Soviet Man was a glamorous concept. So is the American Dream.

Glamour, in short, is serious stuff. It can alter life plans, even change history. And as a broad psychological phenomenon, it holds intrinsic interest. While rarely addressed in C-SPAN discussions, glamour is the sort of topic to which such 18th-century titans as Adam Smith and David Hume often turned their attention. It spans culture and commerce, psychology and art.

Land use restrictions do a lot to eliminate glamour from urban development through setback requirements, parking requirements, and height limits. Rules of the game that favor large-scale development over the environment that’s possible with the chaos of many small developments prevent the elements of surprise that glamorous streets have. Today’s retail developers are attempting to add glamour back into their products with sidewalk jewelry, but no amount of attention to design on their part will match the level of intrigue of the streetscapes above. Viewed through Postrel’s lens, rules that remove glamour from cities aren’t just bad for the pedestrian experience, but they also dampen what can be an important source of inspiration in our lives. If glamour plays a role in driving us to action, it may be one factor that encourages people to pursue their work in the place where they will be most productive. Rules that eliminate glamour from a city’s physical environment can ultimately reduce its contribution to economic progress.

 

Urban-Rural Political Alliances Hurt Cities

While House Republicans have stripped food stamp benefits from the farm bill to get enough votes to pass the bill’s agricultural supports,  the Supplemental Nutrition Assistance Program may be added back into the bill in conference with the Senate. The farm bill get its strength because it aligns the interests of urban Democrats and rural Republicans in Congress, facilitating log-rolling where the majority of congressmen are willing to support the bill because it directly benefits their districts.

While the food stamp program has in the past made up a large portion of the bill’s costs, with these these funds flowing primarily to urban residents, urbanists should be leery of the urban-rural alliance that facilitates continued support for the farm bill. Aside from the primary cost drivers including nutrition programs and farm supports, the bill also includes measures like rural broadband and rural utilities services loans designed to subsidize living in areas where providers do not find it profitable to provide services.

Unlike SNAP benefits, which are available for rural and urban residents based on income, rural infrastructure support is allocated to locations rather than individuals. Providing subsidies based on location is hugely attractive to Congress because it allows members to provide concentrated benefits directly to their constituents. However, subsidizing individuals’ choices to live in areas where building infrastructure is inefficient limits economic growth potential. Cities provide better job opportunities and are centers of innovation, so policies that subsidize rural living don’t make sense.

While the farm bill is a clear example of an urban-rural alliance that facilitates these subsidies, many programs similarly subsidize infrastructure in rural areas from USPS providing flat-rate delivery to the Essential Air Service program that subsidizes service to 163 airports that would otherwise not be profitable. Because all senators represent states with rural post offices and most have constituents who use airports in the EAS program, the political system is set up to maintain these subsidies that lead some people to choose to maintain a rural lifestyle.

This isn’t an argument that city residents aren’t getting their fair share of federal spending; in fact, residents of urban counties received more per capita spending than those is rural counties (link to 2010 data, the most recent available). Rather, urbanization is a process that provides benefits both to those who move to cities and those who live there through greater economic innovation and cultural diversity, so the political gains of rural subsidies come with high costs. As Ed Glaeser explains, urbanization is a key part of economic growth within the United States, with people in cities being more productive than those who don’t. “the three largest metropolitan areas producing 80% of GDP but containing only 13% of population.”

Rural living has its own set of advantages that individuals should be free to choose if they like, but this lifestyle choice should not be subsidized by those who choose to live in cities and suburbs. Subsidies should follow individuals rather than locations to avoid discouraging urbanization.

Ranking State Land Use Regulations

Yesterday, the Mercatus Center released the third edition of Freedom in the 50 States by Will Ruger and Jason Sorens. The authors break down state freedom among regulatory, fiscal, and personal categories. At the study’s website, readers can re-rank the states based on the aspects of freedom that they think are most important, including some variables related to land use and housing. The available variables include local rent control, regulatory takings restrictions, the Wharton Residential Land Use Regulatory Index, and an eminent domain index.

Using only these “Property Rights Protection” variables, Kansas ranks as the freest state, followed by Louisiana, Indiana, Missouri, and South Dakota. Texas, sometimes cited as the state without zoning, comes in at 18th. The least free state is New Jersey, with Maryland at 49th, followed by California, New York, and Hawaii. This result — states with some of the most expensive cities being the most regulated — is unsurprising.

In the places with the freest land use regulations, where a developer would be able to build walkable, mixed-use neighborhoods without going through a burdensome entitlement process, there isn’t demand for dense development. This may be one reason why the Piscataquis Village project, an effort to build a traditional city, is happening in a sparsely populated Maine county because new development of this sort is simply not permitted near any population centers.

As Stephen recently pointed out, public opinion in New York tends to see city policies as wildly pro-development:

In spite of the popular impression of New York as a builder-friendly city that’s constantly exceeding the bounds of rational development, the city’s growth over the past half-century has been anemic, and has not kept pace with the natural growth in population.

This ranking of New York near the bottom of the index demonstrates what urban economists already know — new development is not permitted to be built where rents are highest and it’s most needed in spite of perception of pro-development policies. Does anyone have development experience in some of the freest states? Does this ranking match your perception?

Update: For full disclosure I was a project manager on Freedom in the 50 States.

Q&A with David Schleicher

I recently spoke with George Mason University Law Professor David Schleicher about his research on land use law and economics. Here is our conversation including links to some of his academic articles that have earned a lot of attention in the land use blogosphere.

Emily: What are some the costs of land use restrictions? Talk about agglomeration economies and how these relate to development restrictions.

David: This is a huge area of research that spans back to Alfred Marshall looking at why cities exist in the first place. It comes up with explanations for why people are willing to pay increased rents to live downtown. These include lower transportation costs for goods, which was a major driver of urbanization for much of American history. Today this is a small driver of urbanization because the costs of internal shipping have fallen so dramatically. Now an important advantage of urbanization is market size. You can see this in all different markets. Restaurant rows are a great example of this. When you go to one of these rows where there are a lot of restaurants and bars, you have insurance that if one place you go is bad, you know you have other options nearby. The last category of agglomeration benefits is learning, or information spillovers. We see this in cluster economies like Silicon Valley where people at different firms learn from each other. As Marshall explained, “The mysteries of the trade become no mysteries, but are as it were in the air.” Wage growth is faster in urban areas than in rural areas, and this comes from this learning process. In the aggregate, if you keep people out of dense cities, you will decrease national productivity.

Emily: In your paper City Unplanning, you propose a tool called Tax Increment Local Transfers (TILTs) that would compensate property owners for allowing more development in their neighborhoods. How would these work?

David: The idea of TILTs is that new development increases the city’s property tax base. By multiplying the increase in the base by the tax rate, we get what is known as the tax increment. If we give some of this increment to neighbors of a project automatically, they may oppose projects less. It’s effectively an institutionalized bribe, but it would have some really neat effects. Currently we use Community Benefit Agreements, in which the developer bribes — “bribes” is so negative sounding — neighborhood opposition. But, CBA’s increase the cost of development. They act as a tax on development, so they are not as effective at lowering real estate costs. TILTs get money from a growing property tax base instead, so they have the neat effect of reducing the incentives to complain about new developments. So if you know you’re going to get paid through a TILT, your incentive to hold up the project goes down whereas with CBAs you have an incentive to make yourself a fierce opponent to development in the hopes of attaining a larger community benefit. Secondly, it has an information component. If residents know that they will receive monetary benefit from a development but they still oppose it, this provides the planning office with the information that residents would rather not have the building than have the cash.

It’s an idea to help overcome NIMBYist opposition to development in their neighborhoods and to help address the problem that we see very little housing and office growth in our largest cities. One source of this low rate of development comes from aldermanic privilege. The idea of this is that because most cities don’t have competitive political parties, we see that every councilman gets to decide on land use issues in his own district. The effect of this inside big cities is to turn a city like New York into something that politically looks like a lot of suburbs. All of the things that we’ve talked about with suburbs  using political influence to prevent new development in their town can happen inside a city legislature. The TILTs proposal is designed to make it attractive for individual councilmen who are going to control land use decisions in their districts to allow development. It’s acknowledging that the only way we might get more development is to pay off NIMBYs.

Emily: Transferable development rights share some similarities with TILTs in that both create incentives to build support for development. Do you see potential for TDRs?

David: I think of these as more similar to zoning budgets, another policy idea I’ve written about. Basically these are an announcement by cities that they want to allow more building, but they’re unsure of where they want to put it. TDRs are basically a market mechanism for setting the amount of building that the city wants to allow. They’re also traditionally a method of building coalitions, because they get preservationists in favor of new development near landmarked buildings because it’s going to channel cash to them. So the theaters of the 42nd Street theaters were able to sell their TDRs to nearby developers, and then the theater community got in favor of the redevelopment of Times Square. I think it’s a relatively attractive idea, and its a procedural solution like the ones I propose. Whether you could imagine it happening at the citywide level has never been done, but I think they’re very attractive.

Emily: I have previously considered a role for states in setting limits for how much municipalities can restrict land use because it seems that homeowner interest groups would not be as organized at the state level. What are your thoughts on that?

David: You have a problem here that the interest of the state is not necessarily maximizing land value. And of course states do get involved in land use. For example, Massachusetts’ anti-snob law created a work-around for local zoning. But in general, states don’t get involved because people get really angry when they do. I’m not opposed to states getting more involved in land use — I think I would probably be in favor of it — but there are problems. You can tell stories about how states get around land use inefficiencies because they are a higher level of government. People make the same types of arguments for regional governments. One of the problems with this is that states can end up behaving with the same aldermanic privilege that we see in cities, where legislators are allowed to make decisions for their districts. In states where there is not a lot of partisan competition, we see that legislators have a lot more power over bills that affect only their districts. So state land use policies might work better in states like Ohio or Michigan where there is more partisan competition, but in somewhere like Wyoming less so. You can imagine it going either direction.

Emily: What’s your opinion on the relationship between Smart Growth advocates and market urbanists?

David: The conflict between market urbanists and Smart Growth advocates is real, but it can be overstated. Their critiques of current zoning are roughly similar. They both think that we’ve separated land uses too much and that we’ve limited density too much. The modern regime governing land use is bad for the environment and its bad for economic productivity because it splits things up too much and it reduces entry to our richest cities. The answers that market urbanists and Smart Growth people give for how to fix this are different. So Smart Growth activists generally have a vision of what a city should look like. They’re prescriptive. Market urbanists are more demand driven. They say we have no idea what the optimal city should look like, we just think that unless there is a clear case of negative externalities, development shouldn’t be restricted. So the question of whether Smart Growth types and market urbanists are allies or enemies is an interesting one.  For the most part they are allies against the baseline position of modern American policy. That said, there are situations in which we disagree.  So take the never ending debate over the Height Act. Some, though not all prescriptive urbanists like the height limit because they have an idea of what a city should look like, and maybe a mid-rise city like Washington fits that pretty closely, whereas market urbanists think that’s ridiculous. If people want to build taller buildings on K Street, we can’t really see any reason why they shouldn’t. But in a lot of other arguments they agree.

Emily: Do you think that institutions like DC’s Advisory Neighborhood Commissions play a role in limiting development?

David: ANCs are effectively a mechanism through which neighborhoods are able to mobilize and organize opposition to projects. Their decisions are usually not fully binding, but they are able to make recommendations, and they usually win. They are designed to be a step in the process where the opinions of the neighbors can be heard. They are conceived of in opposition to Robert Moses-style trampling of neighborhoods, but their effect is by-intent to give neighborhood opposition to development more sway. And the way they do it is both by formally including them in the process and by providing a mechanism by which they can overcome the ordinary Olsonian limits on collective action. You have a hearing where everyone in the neighborhood gets together, and this allows them to coordinate opposition.

Emily: Some land use writers have focused on the importance of writing about the losses of zoning to educate people and changing public opinion. Do you think this is an important strategy along with advocating for procedural changes?

David: This is an area where the lawyers and the journalists approach the problem from a different method. I think it’s very well and good to educate people about the costs of excessive land use controls. The very use of the word NIMBY or BANANA is an effort to educate people and shame people for their preferences to stop development in their neighborhoods. To the extent this is effective I think that’s great. However, I think that opposition to building is rooted in something that you can’t talk people out of. People have made investment decisions to buy their homes and then have lots of incentives to stop building in their area. Procedural solutions are more likely to be fruitful, whether they’re mine or someone else’s, in changing the manner in which policymakers make decisions. These are differences in emphasis only. I think that educating people about the costs of zoning is great, but because people put so many of their assets into homes, I don’t think that telling people their decisions are economically unattractive is going to be very efficacious in changing their mind.

Emily: When upzoning is considered for broad areas rather than individual parcels, it seems that there could be a lobby among some homeowners who support upzoning for the chance to sell their home for redevelopment. Do you see less opposition to upzoning when the change applies to a larger area?

David: Absolutely. A project that I’m currently working on is that city’s master plans produce less-restrictive results than amendment-by-amendment zoning changes because you’re able to get deals across neighborhoods. So if you’re upzoning all of Washington you would have neighborhoods saying we’ll take a tower here if you’ll take a tower there, and you perhaps get something closer to expressing the city’s preferences. Whereas if you do this project-by-project, there is no reason to believe that if you allow a tower in your neighborhood that the next time the next neighborhood will be willing to take one. So you see cities where this happens. For example Philadelphia’s rezoning was consciously an effort to overcome the slow limitation on building and density created by amendment after amendment of downzoning.

Emergent Order in Cities and Markets

Last week at The Atlantic Cities, Allison Arieff posted a Q&A with Alex Marshall about what Marshall asserts are Jane Jacobs misunderstanding of how cities work. Marshall says:

Human interaction takes place, but it shouldn’t obscure what makes it possible, which is government. As much as I admire Jacobs, I suspect her experiences fighting Robert Moses, the master builder and destroyer of New York City, turned her off to government. So much so that I suspect she began to ignore it. Jacobs described how urban economies, such as say the computer ecosystem in the Silicon Valley, emerge in an organic way. I argue that these business ecologies emerge only within the containers that government builds. Both cities and economies emerge as overt political acts. They are constructed things.

Here Marshall completely eschews the historical evolution of both cities and markets in making his assertions. Both cities and markets are vehicles for human exchange, but neither is built by a person or a government. Populations, not infrastructure, are cities’ most important assets. Population changes, much like prices in a market, are a product of human action but not of human design. Historians have found evidence that the emergence of cities was not the result of ancient leaders’ direction but was rather the result of individuals acting in their own best interests. Likewise, we see both historical and current examples of trade emerging without government. States have much more power to limit trade or initiate plunder than they do to facilitate successful trade. Jacobs identified that the spontaneous order that allows prices to direct trade likewise leads city streets to serve their residents’ commercial and civic needs when they are not restricted from doing so.

Marshall asserts that Silicon Valley didn’t emerge organically because it came about within the legal and infrastructure “containers” that government provides. While it’s true that government provides infrastructure and rule of law in Silicon Valley, it’s impossible to point to a person or group who created this tech cluster from the top down. Rather many individuals pursuing their own plans created this tech center. We can see a clear difference between unplanned clusters like Silicon Valley and top down attempts to create similar economic centers. As Gert-Jan Hospers, Pierre Desrochers, and my former colleague Frédéric Sautet explain, governments are not equipped to create successful clusters:

There are no fundamental reasons to believe why policy makers are better informed than entrepreneurs in assessing the future economic potential of particular ventures (including clusters). Due to the inherent uncertain character of new technologies such government failure is likely to occur especially when it comes to high-tech clustering. As Schmookler (1966, p. 199) argues, almost all instances of innovative activities that he studied were not stimulated by policy-pushed scientific research but by the realization that a costly  problem had to be solved or that a profit opportunity could be seized. According to Miller and Côté (1985), this is one of the main reasons why ‘innovation centers’ and other greenhouses in innovation parks opened in the USA and Canada in the 1970s and 1980s have failed without exception. Also French high-tech policy in the 1980s shows the risks of a strategy of picking winners. After five years of subsidizing the micro-electronics sector the French had to admit that they backed the wrong horse.

The dispersed knowledge that prevents governments from creating economic clusters likewise leads to countless failures in government efforts to build or rebuild cities. While Jacobs recognized that both urban and economic development must be driven from the bottom up to succeed in the face of these knowledge problems, she was not anti-government as Marshall claims.  Benjamin Hemric, a regular Market Urbanism commenter, commented on the post to point out that Jacobs did not in fact disregard the importance of government. In fact while libertarian writers have often pointed out the free market themes in her writings with her appreciation of emergent orders, Jacobs herself rejected the libertarian label and instead spent the end of her life promoting the role of good government in both cities and economic development.