How to Fix San Francisco’s Housing Market

Want to live in San Francisco? No problem, that’ll be $3,000 (a month)–but only if you act fast.

In the last two years, the the cost of housing in San Francisco has increased 47% and shows no signs of stopping. Longtime residents find themselves priced out of town, the most vulnerable of whom end up as far away as Stockton.

Some blame techie transplants. After all, every new arrival drives up the rent that much more. And many tech workers command wages that are well above the non-tech average. But labelling the problem a zero sum class struggle is both inaccurate and unproductive. The real problem is an emasculated housing market unable to absorb the new arrivals without shedding older residents. The only solution is to take supply off its leash and finally let it chase after demand.

Strangling Supply

From 2010 to 2013, San Francisco’s population increased by 32,000 residents. For the same period of time, the city’s housing stock increased by roughly 4,500 units. Why isn’t growth in housing keeping pace with growth in population? It’s not allowed to.

San Francisco uses what’s known as discretionary permitting. Even if a project meets all the relevant land use regulations, the Permitting Department can mandate modifications “in the public interest”.  There’s also a six month review process during which neighbors can contest the permit based on an entitlement or environmental concern. Neighbors can also file a CEQA lawsuit in state court or even put a project on the ballot for an up or down vote. This process is heavily weighted against new construction. It limits how quickly the housing stock can grow. And as a result, when demand skyrockets so do prices.

To remedy this, San Francisco should move from discretionary to as-of-right permitting. In an as-of-right system, it’s much more difficult to stop construction. As long as a project meets existing land use requirements, city planners have to issue a permit. And although neighbors can sue based on nuisance, they don’t have any input in the actual permitting process. As-of-right permitting would go a long way toward defanging NIMBYs and overzealous planners.

Yellow equals a height limit of 40 feet or less than 5 stories.  Credit Mike Schiraldi

Yellow equals a height limit of 40 feet or less than 5 stories. Credit Mike Schiraldi

 

But even if San Francisco opened up the permitting floodgates, height limits, floor-to-area ratios, zoning designations, and minimum parcel sizes all prevent land from being put to its best use. Land use restrictions like these can increase the price of housing by as much as 140% over construction costs. Relaxing–if not abolishing–these types of restrictions would be hugely beneficial.

But for as much as regulatory reform would help, there’s another way of encouraging supply to catch up with demand. And, interestingly enough, it involves raising taxes.

Tax the Land

The more you tax something, the less of that something society produces. Raise taxes on income and you discourage labor. Raise taxes on capital and you discourage investment. Raise taxes on property and the same logic applies; the higher the tax rates the greater the burden on new construction. But property taxes aren’t just a tax on buildings, they’re a tax on the land underneath as well. Separate the two in favor of taxing land alone, and construction is not only unburdened, it’s encouraged.

A pure land tax would amount to fixed overhead for each assessment period. This would encourage landlords to use their holdings as intensely as the market would bear. Holding a valuable parcel vacant or underused would become prohibitively expensive.

In San Francisco, where land is incredibly valuable, a land tax would encourage  denser development.

In San Francisco, where land is incredibly valuable, a land tax would encourage denser development. Credit Ascher, Kate. (2011).

 

There are a few different proposals for implementing land taxation. The most aggressive approach calls for a 100% fee on land values and the abolition of all other taxes. A slightly more moderate proposal favors an 80% land tax to allow for some margin of error in assessment. The most realistic plan would be to retire San Francisco’s property tax in favor of a land tax and make the change revenue neutral. Considering the city’s property tax rate is barely over 1%, a revenue neutral land tax probably wouldn’t deliver the sun, the stars, and the moon like it would at much higher levels. That said, it would still be an improvement over the existing property tax.

Fix the Market, Not the Price

Neither rent control nor inclusionary zoning will fix the housing crisis. Both amount to price controls. Both drive up the price of market rate construction. Both create a gap between subsidized and unsubsidized housing. And as long as San Francisco can’t set its own immigration policy, there will never be enough subsidized housing to go around. It’s simply not a scalable solution. But that doesn’t mean there’s no room for a safety net.

Housing vouchers are like food stamps for….well, housing. They put resources directly in the hands of those who need them while avoiding the negative side effects of price fixing. It’s welfare that doesn’t try to mandate a price, but instead ensure that the least well off can pay whatever that price might be.

Funding via a land tax would tie the amount of revenue available for vouchers to the state of the housing market. When housing costs increase, it’s not the buildings themselves that are becoming more expensive, it’s the land that they’re sitting on. Houses aren’t wine, they don’t typically improve with age. The actual ground they sit on, however, can become more valuable if more people want to move into a neighborhood. If a sudden surge in demand sends land prices through the roof, a land tax would ensure that funding for vouchers would increase as well.

Funding through a land tax would also prevent vouchers from becoming a subsidy for landowners. Pumping other sources of revenue into housing might simply make the market more competitive and allow landlords to charge higher rents. A land tax would limit this by moving resources from landlords on one end of the market to tenants on the other end without increasing the total amount of dollars chasing housing. Regulatory reform would also limit any price increases from a voucher system since an increase in demand would better stimulate an increase in supply. The extra supply would then put downward pressure on prices.

Slowing down–let alone turning back–the rising cost of housing will require a massive amount of new construction. Relaxing land use rules will clear the path. Changing the tax code will hurry things along. And rethinking the social safety net will ensure that no one gets left behind.

Tokyo’s surprising lack of density

9-Blue-Tokyo-Japan

Wendell Cox has received his fair share of criticism from this blog, but his post last week about Tokyo’s surprising lack of density is very interesting. Sure, Tokyo’s suburbs are dense enough to be connected by job centers by rail, but the core is almost completely low- and lower-mid-rise, and thus not very dense:

Tokyo does not have intensely dense central areas. The ku area [historic core] has a density of 37,300 per square mile (14,400 per square kilometer). This is well below the densities of Manhattan (69,000 & 27,000) and the ville de Paris (51,000 & 21,000). Only one of the ku (Toshima) exceeds the density of Paris.

And then the suburbs themselves aren’t as compact as they could be:

Further, according to the Japan House and Land Survey of 2008, Tokyo has a large stock of detached houses, by definition lower density. Nearly 45 percent of the Tokyo region’s housing is detached. One-third of the dwellings within 30 kilometers (18 miles) of the core are detached. This figure rises to more than 60 percent outside 30 kilometers from the core and 85 percent between 60 and 70 kilometers (37-43 kilometers) from the core (Figure 2).

Some might see this as a validation of New Urbanism (which is sort of a bastardization of Old Urbanism), whose response to tall building enthusiasts like myself, Ed Glaeser, and Alon Levy is that “dense doesn’t have to mean tall.” And it’s true – Tokyo manages a relatively high density with very few tall buildings.

But there are costs that Tokyo bears for its lack of height and downtown density.

First and foremost are the high housing prices. Imagine New York City if Midtown and the Upper East and West Sides were still tenement neighborhoods, and everyone living and working above the sixth floor was competing for housing and space in the outer boroughs. Narrow the streets and replace the prewars with postwar buildings, and that’s Tokyo.

Tokyo’s high housing costs manifest themselves in many different ways. For one, people cram themselves into tinier and tinier homes, and are forced to endure the noise of their neighbors in a way they wouldn’t be if half of them could be elevated into the sky. Smaller homes are ceteris paribus good more energy efficient, but not when so many of the homes in the suburbs are single-family detached, and thus less energy efficient than slightly larger apartments that aren’t leaking energy from all five exposed sides.

High prices also cause people to live very far from work. Many of them still take the train, but the commute is very long, sapping what is becoming an increasingly precious commodity: time. And some commutes are just impossibly long, limiting job opportunities and flexibility.

And then on an aesthetic note, the density caps lead to ugly (not to mention energy inefficient) buildings. Japanese cities have very few historic areas left compared to European and American ones, but redevelopment is limited by the fact that many urban buildings are built to the zoning envelope, and thus tearing them down and building anew will result in higher rents per square foot, but not more square feet.

In this way, Tokyo is a little like the northern Brooklyn neighborhoods of Williamsburg and Greenpoint: huge demand drives up prices for a hideous housing stock that isn’t being expanded even when it is replenished.

Many people say that Japan’s low-rise skyline is the result of its earthquake-prone geology, but from what I understand, the consensus among engineers nowadays is that skyscrapers aren’t actually more earthquake-prone than lower buildings. Shortly after Japan’s earthquake last year, R. Taggart Murphy at TNR wrote that “skyscrapers, if properly constructed, were actually more structurally stable than the six-to-eight-story office buildings that then constituted Japan’s standard office blocks,” saying that Japan accepted this engineering reality in the ’60s when it allowed the first skyscrapers to go up.

And in fact Japanese seem to be demanding downtown high-rises. Even after the earthquake, Japanese buyers didn’t abandon high-rises like everyone thought they would:

In the months right after last year’s March 11 earthquake, sales of [high-rise] condominiums in Tokyo dropped 30 percent compared to the previous year. Much of the drop was in areas surrounding Tokyo Bay, which is basically landfill. Fears of liquefaction caused potential buyers of tower condos to reconsider, and for a while the media surmised that planned high-rise housing projects might be abandoned.

That didn’t happen. According to real-estate analysts, the earthquake convinced many commuters to move closer to their workplaces, so if another major one strikes they would be able to get home quickly and without the need for public transportation. And the waterfront is within 5 km of the central business district of the capital.

Tokyo doesn’t need to embrace all aspects of the “hypertrophic” city. The streets, for example, can stay narrow. But it’s got to at least give up on the obsession with low- to lower/middle-height buildings if it wants to bring down housing prices, cut commutes, and give its inhabitants more space and privacy.

Come to think of it, a modern Japanese take on Manhattan’s Financial District would be pretty cool!

Detroit’s Financial Future

After flirting with Chapter 9 bankruptcy or a state takeover of its finances, Detroit has reached a deal with the state of Michigan that will allow it to remain independently managed with a requirement for state oversight. The Detroit Free Press reports:

The city has seven days to create the positions of chief financial officer and program management director and 30 days after that to make a hire from a list of three candidates from the mayor and state treasurer. Lewis said the city is compiling a list of candidates.

“We’ve got a lot of requirements that are in the agreement,” Lewis said. “We’ve got a lot of work to do (with the agreement) and then getting to the work of fixing the city. Our focus is on executing the plan and getting the resources here to execute the plan.”

Snyder reiterated that the city “shouldn’t expect” a cash bailout, adding that Detroit is one of many troubled communities in the state. But he said the state would use its resources in a variety of ways to help the city.

Snyder said the agreement assures the things that need to be done will get done, describing it as a “progressive series of steps” that first allow the mayor and the council to make the decisions, and then empowers the project manager to do so if they don’t. “This is a legal document designed to deal with situations when they don’t go right,” he said.

While bankruptcy protection offers the advantage to cities of achieving a more manageable debt load, it doesn’t come without a cost. Bankruptcy would add an additional stigma to Detroit, already known for municipal financial distress, encouraging business disinvestment.

Vallejo, CA filed for bankruptcy in 2008, and as the New York Times explains, the city is still in a difficult financial position. After bankruptcy cities have less room in their budgets to provide public services such as infrastructure, parks, and schools while their tax rates don’t fall accordingly. This contributes to further erosion of the tax base as businesses and residents leave the city.

Municipal bankruptcy is always a two-sided issue involving both revenue and debt. At The Atlantic Cities, Emily Badger covers the equation from the revenue side. While cities often both subsidize and enforce sprawl through road-building, parking requirements, and minimum lot sizes, these policies are detrimental to their property tax equations. She cites the positive example of Asheville, NC as a city that has taken advantage of denser downtown redevelopment to improve its ratio of property taxes to infrastructure costs:

Asheville has a Super Walmart about two-and-a-half miles east of downtown. Its tax value is a whopping $20 million. But it sits on 34 acres of land. This means that the Super Walmart yields about $6,500 an acre in property taxes, while that remodeled JCPenney downtown is worth $634,000 in tax revenue per acre. (Add sales tax revenue, and the downtown property is still worth more than six times as much as the Walmart per acre.)

[. . .]

All of this is also just looking at the revenue side of the ledger. Low-density development isn’t just a poor way to make property-tax revenue. It’s extremely expensive to maintain. In fact, it’s only feasible if we’re expanding development at the periphery into eternity, forever bringing in revenue from new construction that can help pay for the existing subdivisions we’ve already built.

[. . .]

“The thing is it all works fine when you have all this new growth and the new gap is met by all these new permit fees – that’s like free money,” Joe Minicozzi [of Public Interest Projects] says.

Cities should not be in the business of requiring the sort of development that is most expensive for them to support. However, this analysis ignores the debt side of Chapter 9, one that may be even more difficult to tackle politically. Despite the harm that poor financial management causes, local elected officials simply do not have the proper incentives to avoid it.

Politicians operate on election cycles, and during their time in office they generally seek to provide their constituents with the best possible services at the lowest tax rate. This leads them to put off payment on long term debt and liabilities using accounting gimmicks and fiscal evasion techniques to spend more on goods that residents will see in the near term.

A combination of debt and declining revenue has put Detroit in the position it’s in today. Its urban development strategy must be a part of the property tax revenue solution. Perhaps the new officials that the city hires will help with debt management, but as long as elected officials influence municipal accounting, the incentives will be in favor of debt and deficits.

 

Maryland realtors fight to protect their subsidy

This post originally appeared at Neighborhood Effects, a Mercatus Center blog where we write about the economics of state and local policy.

Image via Flickr user Images_of_Money

We’ve already explored Governor O’Malley’s proposal for the Maryland budget here and here, but recently, a perhaps unintended consequence of the budget came to light. By limiting the deduction that residents earning over $100,000 can make on their state income taxes, the proposed budget would limit the size of the mortgage interest tax deduction for many taxpayers.

I stand by my earlier argument that reducing deductions for only one group of people is not a step in the direction of fairness, but a reduction in the mortgage interest tax deduction may be a positive side effect of an otherwise bad policy. From a limited-government perspective, the obvious downside of a reduction in the mortgage-interest tax deduction is that this represents a revenue-positive change in Maryland’s tax code in a state that already has one of the highest tax burdens in the country. Overall though, I think reducing this tax expenditure is a positive change because the policy has many negative consequences.

While the causes of the financial crisis were many, by subsidizing investment in homes, the mortgage interest tax deduction played some part in the overvaluation of housing stock. Aside from the poor incentives that this tax expenditure creates in financial markets, it amounts to favoritism of suburbs over cities. In Triumph of the CityEd Glaeser argues that the deduction leads many people to abandon renting in a city center for homeownership in the suburbs. However the Federal Reserve Bank of Boston provides evidence that the policy is more likely to lead people to buy larger homes than they otherwise would rather than trading renting for buying a home. Richard K. Green and Andrew Reschovsky write:

If one set out to design a policy to encourage homeownership, it would make sense to target the
largest subsidies to the households least likely to be homeowners, while providing little or no subsidy to
households likely to become homeowners even without a subsidy. Data from countries that do not
subsidize homeownership (such as Canada, Australia, and Japan) indicate, not surprisingly, that
homeownership rates rise with household income. This suggests that a policy to encourage
homeownership should give the largest incentives to households with modest incomes and no subsidies
to high-income households.

The MID, however, does exactly the opposite. For low- to middle-income taxpayers, the mortgage
deduction provides little financial incentive to abandon renting for homeownership. For those
purchasing modestly priced houses and facing the lowest marginal tax rate (currently 10 percent) the
benefits of the mortgage deduction are small. In fact, for households with low state income taxes, the
mortgage deduction may be of no value at all, because the mortgage deduction, even when combined
with other itemized deductions, may be smaller than the standard deduction.

For most high-income taxpayers, the tax savings resulting from the MID are a minor influence on
their decision to become homeowners; these households are likely to own a home regardless of the tax
treatment of housing. Rather than encouraging homeownership among high-income households, the
MID provides an incentive to buy a larger house and to take out a bigger mortgage. Economists have
long argued that the result is an inefficient pattern of investment, with too many resources invested in
housing and too few resources placed in more productive investments in factories and machinery (Mills,
1989; Poterba, 1992).

This analysis ignores that those at the margin of being least likely to be homeowners are likely the riskiest loan candidates and those most likely to foreclose, but they do make a strong case for why the MID leads to larger homes. Regardless of whether the deduction primarily increases homeownership or leads to larger houses, it results in a subsidy for suburban sprawl and its negative side effects of traffic congestion and demand for public services across a wider geographic area.

Unsurprisingly, the Maryland Association of Realtors is strongly opposed to a budget that would lead to lower tax expenditures on housing. The current policy directly subsidizes their industry. The Washington Post reports:

The Greater Capital Area Association of Realtors says that mortgage interest and property taxes account for almost 70 percent of total itemized deductions in Maryland, and they argue that the proposal, if passed, would further harm the area’s housing market, which has struggled to recover.

WAMU interviewed a leader among MD realtors on the issue:

Jim Scurvin, past president of the Howard County Realtors Association says it’s just wrong to jeopardize an industry responsible for 49 percent of revenue that goes to state and local government

“When someone buys a house, on the average you employ two people, and you put $60,000 into the economy right then and there,” he says. “Real estate is the lead when it comes to getting the economy moving again. We have the wind in our sails, the last thing we need is someone to knock the wind out.”

Scurvin, however, is acknowledging only the visible impact of the tax expenditure. As Frederic Bastiat artfully explained, all policies have unseen consequences. In this case, the unseen impact is that the mortgage interest tax deduction fuels malinvestment in housing at the expense of other, more productive sectors of the economy. While Governor O’Malley’s budget proposal has many negative features, the potential for reducing the state subsidy to housing could be its silver lining. Unfortunately as Maryland realtors demonstrate, eliminating tax expenditures is a painful and politically difficult process.

Tea Partying at Planning Meetings

At the Atlantic Cities, Anthony Flint writes on recent Tea Party activism in urban development arena. Tea Party groups across the country have spoken out against all manner of urbanist plans, from CAHSR to Smart Growth in Florida. Flint opines:

What’s driving the rebellion is a view that government should have no role in planning or shaping the built environment that in any way interferes with private property rights.

Both Flint and the Tea Party members that he’s writing about are seeing right past an essential property right.  Don’t landowners have a right to employ their property as they see fit without explicit approval from their communities? Smart Growth tends to limit the right to build sprawl although its historic presercation component creates competing objectives. Traditional land use planning limits property owners’ right to build too though.

In an article all about the Tea Part and land use, Stephanie Mencimer at Mother Jones quotes a Tea Party activist who said, “”We don’t need none of that smart growth communism.” I love this as a stand alone quote, but this activist is ignoring the other side of the issue. Traditional planning, at least as top down as Smart Growth, has shaped his or her presumably suburban neighborhood. How about, “We don’t want these socialist setback requirements,” or “Down with pinko minimum lot sizes?”

Property rights in land use are, of course, a contentious and debatable issue. Charlie Gardner offers a summary of the court decisions that have led to a world where municipal governments are permitted to take away property rights without compensating land owners for these takings by limiting the density and uses that they are allowed to build.

The suburbanist side of this debate is that property rights include the right to control a certain degree of land use for the land adjacent to your property. These tend to include the to free and easily available parking, the right to see a green lawn in your neighbor’s yard, and the right to limit building heights.

As I see it though, these rights do not come with landownership. Those Tea Party activists who identify as libertarians presumably support John Stuart Mill’s harm principle. This principle was captured perhaps most concisely by Zechariah Chafee, Jr. who said, “Your right to swing your arms ends just where the other man’s nose begins.” I cannot ask government to intervene just because I think your behavior is weird or doesn’t fit with my preferred lifestyle so long as you aren’t violating mine or anyone else’s person or property.

As I see it, the harm principle extends quite straightforwardly to land use; your right to build and conduct business ends where your neighbor’s property line begins. For those who wish to live in a regulated community, the market provides plenty of HOA’s that should meet their needs just fine without relying on government land use restrictions. For commercial land uses, Business Improvement Districts can likewise provide a regulated built environment through voluntary private contracts.

Book Review of Instant City: Life and Death in Karachi

I’m reviewing Instant City: Life and Death in Karachi by Steve Inskeep as part of a TLC Book Tour. Other bloggers are also reviewing the book throughout October, and you can find links to their reviews here. I received a complimentary copy of the book, and I’d like to send it to a reader if anyone who’d like to read it doesn’t mind a copy with some underlining and margin notes. If you’d like it, just comment saying so by Wednesday, November 2nd. If multiple readers would like it, I’ll pick one at random.

_____________________________

In a manner that is rare for non fiction, Instant City is really a page turner. Inskeep takes us through the history of Karachi from Pakistan’s independence in 1947 through the present, stringing personal stories of social entrepreneurs, politicians, activists and real estate developers together to tell the city’s story. He revolves the historical accounts around a 2007 bombing, in which unknown perpetrators bombed a procession that was part of a Shia religious holiday. Following the bombing, rioters burned down blocks of wholesale retail buildings. Despite the arrests of four suspects, many of the city’s residents are so distrustful of the city’s MQM government that they believe that city officials caused the bombing and subsequent fires in order to clear out the neighborhood’s current tenants to make way for more glamorous businesses. While the city’s mayor passionately denies that city government had any involvement with burning its citizens’ property, that residents have so little faith in their government demonstrates how absent the rule of law is in Karachi regarding property rights to land.

In with the history of the city’s history, growth, and conflict, Inskeep covers land use in Karachi in considerable detail. To me, “Groundbreaking” is the most interesting chapter, where Inskeep details the experience of slum clearance in the city during the 1950s. Karachi had become home to millions of refugees, predominantly Muslims from India who moved there either by choice or by force, who had settled in camps downtown. City leaders wanted to move these refugees to the outside of the city and hired the Greek urban planner Constantinos Doxiadis to create a plan for relocating these people.

Doxiadis approached the problem through gathering as much local knowledge as possible. He designed the homes in a traditional South Asian style, taking advantage of shade and building homes so that breezes would help keep them cool without air conditioning. These homes would be occupied by low-income people as part of a rent-to-own program, so he designed them to be small and efficient, keeping the needs of the intended residents in mind. Throughout the process, however, Doxiadis realized that the plan had a major flaw. While these residents lived in informal settlements, they lacked adequate shelter, but they lived close to their jobs. By forcibly removing them to Levittown-style suburbs in North Karachi, well-meaning urban planners inadvertently made poorer the very group they were trying to help by saddling them with difficult and expensive commutes to job opportunities. For these people who were already living in poverty, this unintended consequence of urban planning could literally be the difference between life and death.

In one of the many incidences of violence detailed in the book, an activist who worked for an organization that seeks to protect Karachi’s open space was murdered the day after he called a press conference to explain that he felt city officials were encroaching on  a national park by building settlements. The park’s borders had been drawn and re-drawn over the years, so whether or not the settlements lay inside the park is a matter of ambiguity. Property rights are so uncertain that landowners and city planners must build projects as quickly as possible before others encroach on the land where they plan to develop, and open space stands a low chance of remaining undeveloped. While no conclusive evidence supports the conclusion that the MQM government arranged the activist’s murder, Inskeep writes:

Whatever legal cover the city council may have provided, the new construction led to an ethnic battle, which the MQM’s rivals also failed to restrain. Protests ended in gunfire, criminal charges were filed, an officer of the court was threatened at gunpoint, and activists were eventually killed…. Politicians pushed all the buttons of a volatile area, and the situation exploded. Absent more evidence, Karachi’s dominant political party could deny responsibility for the assassination of Nisar Baloch and his successor, Nader Baloch. But the MQM could not avoid responsibility for helping to create a deadly situation.

While the book focuses on Karachi, Inskeep uses it to analyze the trend of other instant cities, including Lagos along with Tokyo, Shanghai, Sao Paulo, and others. For me, the book provided a meaningful introduction to Pakistan’s history and development, a topic about which I’m not nearly as informed as I should be. As a journalist, Inskeep tells a fantastic story, and draws a compelling and, I believe, correct conclusion about urbanization around the world:

[Migrants from rural areas] represented the most powerful force in the instant city: the desire of millions of people–simple, quiet, humble, and relentless, no matter what the odds–to make their lives just a tiny bit better than they were.

Sometimes the most discussed aspects of instant cities include violence, crime, disease, and squalor, which of course are horrible realities that  Karachi’s social entrepreneurs and businessmen alike seek to improve. But the unseen side of instant cities is what drives people to move from subsistence lifestyles to cities where they and, perhaps more importantly, their children will have opportunities for a higher standard of living. Cities are growing because many different types of research have demonstrated what new city residents already know: dense urban cities allow for people to do better for themselves (and others in the process) compared to the relative isolation of small towns or rural areas.

All in all, Inskeep has succeeded with a gripping book that helps convey the importance of urbanization for the global community. I appreciated that he identified many of the problems that come from government failure in Karachi from the perspective of many different types of citizens and provided so much information about the city’s past and present in a fascinating and accessible work. Inskeep makes just one major point that I disagree with. He suggests that a stronger metropolitan planning authority is what Karachi needs to allow for more stable land use policy. I tend to think that instead, a legal system that supports the rule of law and protects property rights is what would help the city’s development rather than a master plan to enforce permissible land uses.

Alon Levy on the Suburbanization of Poverty

Over at Pedestrian Observations, Alon Levy has a typically well-written and researched post on the gentrification of poverty. He explores the well-researched trend that low-income Americans are increasingly moving to the suburbs as gentrification is driving up rents in inner cities. He hypothesizes that this “current” trend has really been happening for the past fifty years:

Both the inner and the outer limits of poverty are pushed outward. What we saw last decade was just a tipping point in which the expansion of the gentrified core was by itself enough to offset the wealth loss coming from the expansion of the ghetto.

Levy suggests that this trend is largely due to the typical pattern of poverty moving outward in a “donut” pattern, but today the center of the donut is in the suburbs. He writes:

In general, a similar story played out in the first-ring suburbs of many Rust Belt cities, especially in ill-favored quarters: the places that people used to flee the city to are now cities that people flee.

His post sparked two thoughts:

1) Could part of the reason that wealthy and middle income residents are moving to inner cities have to do with the demand for time? As we as a society are becoming wealthier, the value of time — the ultimate finite resource — is increasing. So as the price of free time rises, people may be moving to places where their commute times are shorter. In many cases, they are trading off quality of public schools and public safety to enjoy shorter commutes. When they move to Jacobian mixed-use neighborhoods, they could enjoy the added benefit of shorter travel time when running errands and seeking out entertainment. I think this pull toward inner cities helps explain gentrification, in addition to the push away from suburbs that are no longer as desirable as they used to be.

2) In DC with its uniquely terrible height restriction, the city has never achieved the typical inner city growth pattern with the tallest buildings and densest office space is in the center. Instead, skyscrapers have to be built in parts of Silver Spring, Roslyn, Tysons, and other suburbs. Is this development pattern shaping gentrification in these areas?

The Price of Parking in India

In Triumph of the City, Ed Glaeser offers a very insightful analysis of density restriction in India, home of some of the fastest growing cities in the world. He explains that while land use regulations are detrimental to economic growth in the United States, the consequences are much greater in developing countries. In particular he examines the strict FSI (floor space index, equivalent to FAR) limits in Mumbai and the ramifications for business there.

This week at India Lives in her Cities Too, Karthik Rao-Cavale offers and in-depth analysis of the impact of parking requirements in India. In New Delhi’s Khan Market, one of the most upscale shopping destinations in India, business owners are fighting against fees for parking, which the Environmental Pollution Authority has mandated. The case is currently at the High Court, and could have significant bearings for the future provision of parking in India.

The Times of India reports on the specifics of the case. The New Delhi Municipal Council that owns the garage wants to begin to start charging for use of the garage, but the traders at the market propose they could begin compensating the council to maintain free revenue for their customers. The court has ruled that parking will remain free for customers for now, with the market’s businesses paying a fee to the NDMC.

Currently, parking mandates play an important part in new development in India’s cities. The Urban Development minister supports requiring parking for all new buildings. This is on top of the extreme FSI limits in some Indian cities (1.33 in Mumbai for new construction).

Rao-Cavale suggests that instead of providing parking at no cost, the NDMC should sell its garages:

The task of providing parking primarily belongs to the private sector. The government can permit paid on-street parking where the street space is not required for any other purpose (by street vendors, for example). But the government should not be involved in construction and maintenance of off-street parking lots.

As Glaeser explains, the extreme development restrictions in India could have potentially life or death consequences. Previously discussed in-depth here, parking requirements can have many of the same results that density restrictions do. Given the sprawling development in many Indian cities, driven in part by FSI limits, cars and the space required to park them, parking spots are at a premium in many Indian cities. By giving away parking spaces in any of its garages, the NDMC is reducing opportunities for the growth that cities attain when they permit density of people and commerce.