Historic preservation: Bad for neighborhood diversity

Even while the likelihood of tax reform in 2015 is questionable, historic preservationists are actively lobbying to save the historic preservation tax credit from the chopping block. Currently, developers who renovate historic buildings can receive up to a 20% tax credit, significantly reducing the cost of renovation relative to redevelopment. New York Preservation League President Jay DiLorenzo is leading the effort to increase the historic preservation tax credit to 30% rather than eliminating the break. Those in support of the tax preference argue that  preservation makes neighborhoods more affordable, more walkable, and even more conducive to innovation than neighborhoods in which market incentives guide re-use versus redevelopment incentives. 

recent study by the National Trust for Historic Preservation and the Preservation Green Lab supports these claims:

Findings from the three study cities show that mixing buildings from different vintages—including modern buildings—supports social and cultural activity in commercial and mixed-use zones. Many of the most thriving blocks in the study cities scored high on the diversity of building-age measure. Scale also played an important role. Grid squares with smaller lots and more human-scaled buildings generally scored higher on the performance measures than squares characterized by larger lots and structures. These results support the concept of adding new infill projects of compatible size alongside older buildings.

Preservationists frequently point out that Jane Jacobs favored preserving old buildings with her famous quote:

Cities need old buildings so badly it is probably impossible for vigorous streets and districts to grow without them…. for really new ideas of any kind—no matter how ultimately profitable or otherwise successful some of them might prove to be—there is no leeway for such chancy trial, error and experimentation in the high-overhead economy of new construction. Old ideas can sometimes use new buildings. New ideas must use old buildings.

Boston's North End

Boston’s North End

She favored preservation for both the cheap rent that older and perhaps run down buildings could provide for new businesses  and for the aesthetic qualities and level of density that walk-up buildings in traditional neighborhoods provide. She correctly identifies that a variety of rental rates within neighborhoods and blocks allows for diversity and vibrancy that isn’t possible when rental rates are constant across the buildings in a neighborhood. Preservationists and perhaps Jacobs herself attribute this correlation is to entrepreneurs finding inspiration in old buildings rather than new businesses locating in their cities’ least expensive buildings.

However, both Jacobs and preservationists today fail to acknowledge that the cities and neighborhoods where preservation is strongest have uniformly high rents and low diversity because preservation efforts have led to insufficient building supply. Jacobs contrasted preservation with government-led urban renewal efforts relying on eminent domain to raze and reconstruct entire blocks and neighborhoods. She correctly points out that the resulting new construction would be more expensive than protecting old buildings from eminent domain. But this is a false dichotomy. Market-led redevelopment is very unlikely to result in uniform new construction. More likely, developers will gradually redevelop or renovate parcels as it makes sense to do so, creating blocks and neighborhoods with buildings of varying ages that are affordable to diverse residents and businesses of various types.

Ed Glaeser finds that in New York City, per-square-foot real estate prices have risen an order of magnitude more rapidly than prices outside of these districts from the 1980s to the 2000s. Neighborhoods like New York’s Greenwich Village and Boston’s North End are undeniably charming, but today they’re home to universally expensive housing and retail, hardly the bastions of diversity that Jacobs espoused.

Undoubtedly, local level preservation rules that create historic designations are more distortive than the historic preservation tax credit which marginally encourages developers to renovate rather than redevelop. But incentivizing historic preservation over new construction makes cities more  expensive by reducing supply. Some types of “creative class” businesses might truly prefer to locate in older buildings with character, but old buildings only support diversity of land use to the extent that they provide cheaper space than new construction. Slum clearance is no longer driving high real-estate costs in the most expensive neighborhoods. Historic preservation is now the culprit, ensuring that old buildings go to those wealthy enough to afford them rather than providing inexpensive space for new businesses.

Join us in Brooklyn for Jane’s Walk 2014

In addition to Sandy’s traditional walks in Brooklyn Heights, I will be hosting a walk through Downtown Brooklyn preceding Sandy’s Sunday walk.

Here’s a link to my walk, although they mistakenly listed it for Saturday morning instead of Sunday morning.  Hopefully, they can fix this, because I can’t do Saturday morning!! After my Sunday walk, and a lunch break, I’ll be joining Sandy Ikeda’s annual walk through Brooklyn Heights at noon.  Market Urbanists often gather for a drink after Sandy’s walk.  Sandy will also be giving a Saturday walk at 5pm.

See you Sunday morning at 9am in the Metrotech Commons – please do not come Saturday.  I’m a very tall guy, and I’ll wear a Brooklyn Basketball hat.

Spring Fever Links

1) Nate Berg at The Atlantic Cities covers new research on the world’s earliest cities. The findings would make Jane Jacobs happy as researchers have uncovered evidence that the earliest urbanization was a case of spontaneous order. Their construction wasn’t directed by kings as some historians previously thought, but rather by bottom-up decision-making.

2) Alex Block had two interesting pieces a while back on the politics of increasing urban density. He points out that the vested interests in urban development complicate the policy prescriptions that we often advocate here of loosening regulations.

3) Charlie Gardner at Old Urbanist points out that we shouldn’t get carried away with hopes for housing prices dropping in expensive cities with increased housing supply. While land use restrictions that Matt Yglesias, Ryan Avent, Ed Glaeser and others have written on force urban housing prices higher than they need to be, infill redevelopment is inherently a costly, slow process. It’s much easier for the price of housing in, say, Houston to stay closer to costs of construction because Houston has available land to build on cheaply and easily. Housing in New York is expensive in large part because of market fundamentals, but density restrictions make it more expensive than it has to be.

4) The case of the successful parking pricing in San Francisco that continues to receive opposition reminds me of this passage from Murray Rothbard’s For a New Liberty:

The libertarian who wants to replace government by private enterprises in the above areas is thus treated in the same way as he would be if the government had, for various reasons, been supplying shoes as a tax-financed monopoly from time immemorial. If the government and only the government had had a monopoly of the shoe manufacturing and retailing business, how would most of the public treat the libertarian who now came along to advocate that the government get out of the shoe business and throw it open to private enterprise? He would undoubtedly be treated as follows: people would cry, “How could you? You are opposed to the public, and to poor people, wearing shoes!”

Of course the San Francisco case is not nearly so radical, as street parking spaces are still government-owned, but the implementation of Donald Shoup’s market-based prices for parking serves as a step toward allocating spaces to their highest-valued use. The program’s success so far demonstrates that it is possible to move toward a free market allocation of a good that we are used to receiving free from the government, but it will always be a political struggle. Adam previously wrote at length about Rothbard the Urbanist.

TGIF Links

1. A reader from Vancouver wrote in to let Stephen and me know about a proposed policy to tax foreign investors at a higher rate than local property owners. Support for this policy is growing among residents, and with a mayoral election this Saturday, some are hoping to get candidates to endorse the policy now. Of course the higher tax rate would be done in the name of affordable housing for Vancouver natives. Hmm, with this one I’d say that the road to hell is paved with questionable intentions.

2. In other Vancouver news, recently upzoned parcels have sold for three times their previous value.

3. Two NYC taxi medallions sold for over $1 million each this week. On Marketplace, David Yassky, chairman of the city’s Taxi and Limousine Commission said that he believes the fundamentals are solid in the medallion market. When the supply of your commodity is rigidly fixed, you’re already halfway to strong fundamentals.

4. A University of Connecticut study finds that growth in the number of a city’s parking spots is inversely correlated with population growth rates.

5. Some have questioned whether the abismal state of American infrastructure is a fact or just something that everyone knows and repeats. Gizmodo points out that in the United States we have a road system that built with cheap initial construction but expensive and ongoing maintenance costs.

6. Roberta Brandes Gratz at The Atlantic Cities speculates that Jane Jacobs’ female perspective led her to be able to see the small-scale, bottom-up activities of cities more effectively than men, who tend to look at cities from the macro level. Not sure where this leaves Hayek.

Cities and the Market Process: Part 1

In a post about the tendency for emergent urbanists to promote the idea of cities having a single equilibrium, Alon Levy recently wrote that collective choice is the best manner for determining urban form. Many urbanists accept that some of the top-down regulations that limit density or use are detrimental to cities, but they often stop short of suggesting that land use regulation should be abolished and transportation privatized, which I will support here with arguments based in Austrian economics. This post does not get to a critique of the collective choice that Alon supports; later entries in this market process series will address both the problems of creating urban policy through collective choice, and some of the institutions that have emerged within civil society that are essential to cities and their residents.

The cohort of economists and urbanists who support the elimination of land use regulation is small because cities present all of the problems that neoclassical and Keynesian economists describe as market failures, including externalities, high transaction costs involved in Coasean bargaining, non-excludable goods, etc. However, I believe that emergent solutions solve these problems more effectively than either central planning or collective decision making that becomes law, and the failed and inefficient government projects that urbanist bloggers write about everyday suggest that government failure is no trivial concern.

The first reason that regulation is a poor tool to for determining urban form comes from Friedrich Hayek. He clearly identified the calculation problem inherent in central planning: the information necessary to coordinate markets (including land use markets) is held by individuals with “particular knowledge of time and place.” Even assuming that urban planners are benevolent and seek to provide the best outcomes for their communities, they could never compile the knowledge necessary to determine what those outcomes are. Jane Jacobs identified the same problem in city planning that Hayek found in market planning because cities and markets are both emergent systems that coordinate human activity. She even coined the term “locality knowledge,” seemingly unaware of his writings on “local knowledge.” Of course urban development involves intense planning, but it should be done by entrepreneurs and consumers, who have the information necessary to make these decisions rather than bureaucrats. For anyone who hasn’t read Hayek previously, his essay “The Use of Knowledge in Society” provides a concise look at some of his most important insights.

Aside from the knowledge problem facing land use planners, another major reason not to forsake the free market for the planning commission is that planners do not have access to the feedback mechanism of profits and losses. Israel Kirzner, a scholar of Ludwig von Mises details the theory of market process most clearly in Competition and Entrepreneurship. He explains that unlike government entities, entrepreneurs get quick and accurate feedback on their products. If, for example, high-density apartments in a mixed-use neighborhood with good access to transit are renting well (as urbanists across the political spectrum tend to think they will) other entrepreneurs will see these profits and provide more of them to take advantage of this profit opportunity. If on the other hand, a certain style of housing in another part of town is not selling well and the entrepreneur is making losses, this development will not be systematically repeated as it might be under central planning (see: parking mandates that are higher than the free-market level, poorly designed public parks, public housing projects surrounded by open space).

Critics of free market urban development may argue that this system will produce less-than-perfect cities, so city planners should step in to make improvements. The Austrian response is that of course the free market cannot produce utopian cities, but no other system could do better. Believing that a regulated city would be superior to the market outcome is succumbing to the Nirvana fallacy. Markets aren’t perfect, but they’re the best we’ve got.

A blog post is clearly insufficient for explaining the knowledge problem and the market process that it took Austrian economists Mises, Hayek, and Kirzner many years and thousands of pages to work out, but I hope to expand and clarify on this subject of why regulators do not have access to the tools that are necessary to design cities. For a more detailed look at some of the areas where private cities would likely fare better than our current system, see Adam’s series on Rothbard the Urbanist.

Meetup before Sandy’s Jane’s Walk this Sunday

From the comments and emails I’ve gotten, there will be a pretty decent turnout of Market Urbanists at Sandy Ikeda’s Jane’s Walk on Sunday, “Eye’s on Brooklyn Heights.”

Here are the details from the site;

Date: Sunday May 8, 2011

Time: 1:00pm-2:30pm

Meeting Place: The tour will meet at the steps of Brooklyn’s Borough Hall (2nd stop on the #2/3 subway) and end at the Clark Street station of the #2/3 subway.

One reader suggested we meet for beers beforehand, and recommended The Henry Street Ale House

Let me know how that works for others. Now that I’m thinking about it – we may want to meet closer to Borough Hall where Sandy is starting the walk. O’Keefe’s on Court Street may work better:

I’ll plan for noon – if you plan to be around earlier, shoot me an email.

The best way to spot me is my height: 6′-5″. Or shoot me an email, and I’ll give you my phone number.

More Libertarians on Jane Jacobs

The Ludwig von Mises Institute publishes a podcast performed by Jeff Riggenbach called “The Libertarian Tradition”, which discusses significant figures in the libertarian movement.  The most recent edition is dedicated to Jane Jacobs, who’s ideas are highly regarded by many libertarians, despite the fact that she publicly distanced herself  from being associated with the term or movement.  It’s a great listen, and mentions fellow Market Urbanists and friends of the site, Sandy Ikeda and Thomas Schmidt.  It’s great to see more attention given to Jane Jacobs and urbanism by free market advocates.

Mises Podcast on Jane Jacobs
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On a similar note, Market Urbanist, Sandy Ikeda will be hosting a “Jane’s Walk” in honor of Jane Jacobs in Brooklyn Heights.  Here’s a description from the site:

Eyes on Brooklyn Heights

The beautiful and historic neighborhood of Brooklyn Heights offers excellent examples of Jane Jacobs’ principles of urban diversity in action.

Beginning at the steps of Brooklyn’s Borough Hall, we will stroll through residential and commercial streets while observing and talking about how the physical environment influences social activity and even economic and cultural development, both for good and for ill. We will be stopping at several points of interest, including the famous Promenade, and end near the #2/3 subway and a nice coffeehouse.

Please wear comfortable footwear and weather-appropriate clothing, and be sure to have lots of questions. See you there!

Date: Sunday May 8, 2011
Time: 1:00pm-2:30pm

Meeting Place: The tour will meet at the steps of Brooklyn’s Borough Hall (2nd stop on the #2/3 subway) and end at the Clark Street station of the #2/3 subway.

Host:Sandy Ikeda

Host Organization: Purchase College
www.purchase.edu

Contact info:
sanford.ikeda2@verizon.net

I plan to attend.  It would be great to see some other Market Urbanists there!

Even Jane Jacobs thought Houston doesn’t have zoning

“Houston has no zoning” is a very popular urban planning meme. It has its roots in Houston’s lacks one very specific kind of zoning: Euclidean separation of residential, commercial, and industrial uses. Euclidean zoning happens to be the one kind of planning that people easily understand (the whole meatpacking-plant-in-my-backyard fear), and so the usual panoply of density-inhibiting regulations (parking minimums, minimum lot requirements, FAR restrictions, etc.) is downplayed or even outright ignored, despite Michael Lewyn’s claims that Houston is in many ways more restrictive than even its Sun Belt neighbors.

But still, despite its pervasiveness, I was surprised to hear from commenter Alon Levy that in a 2001 interview with Reason Magazine, even Jane Jacobs was still laboring under the myth:

Reason: When the change comes, if it is an incremental, slowly evolving, uncontrolled sort of natural change, it’s easy for society to accommodate that, isn’t it?

Jacobs: Yes it is. But if all that zoning is kept, that can’t happen.

Reason: This is why I’m one of the few people you’ve met who likes Houston, because it has no zoning.

Jacobs: It has no zoning. But all the same, it looks like all the places that do have zoning. Because the same developers and bankers who deal with places that do have zoning carry their same ideas when they finance or build something in Houston.

Reason: There are not enough Houstons to change the way things are built or developed?

Jacobs: Right.

Maybe I’m just a sadist, but my favorite part of the interview was the first few pages where the interviewer tries to get Jacobs to support the usual libertarian “war on cars” line and she deftly avoids it. Finally, he thinks he’s gotten her when she says something bad about New Urbanism, but then it turns out that her issue seems more to be that New Urbanist communities aren’t really urban enough.