housing – Market Urbanism http://marketurbanism.com Liberalizing cities | From the bottom up Thu, 31 May 2018 20:23:23 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.6 https://i2.wp.com/marketurbanism.com/wp-content/uploads/2017/05/cropped-Market-Urbanism-icon.png?fit=32%2C32 housing – Market Urbanism http://marketurbanism.com 32 32 3505127 Loving the Stranger- Not! http://marketurbanism.com/2018/05/11/loving-stranger-not/ Fri, 11 May 2018 22:24:59 +0000 http://marketurbanism.com/?p=10036 The Bible says again and again and again to “love the stranger”. Although this phrase has been interpreted in a variety of different ways, one highly plausible interpretation of this maxim is that we should be at least somewhat hospitable to newcomers and temporary sojourners in our midst.   But American land use and transportation […]

The post Loving the Stranger- Not! appeared first on Market Urbanism.

]]>
The Bible says again and again and again to “love the stranger”. Although this phrase has been interpreted in a variety of different ways, one highly plausible interpretation of this maxim is that we should be at least somewhat hospitable to newcomers and temporary sojourners in our midst.

 

But American land use and transportation regulations seem to be motivated by hostility to “strangers” (or, as they are more perjoratively termed, “transients”).  For example, the most privileged uses in zoning are the most permanent: single-family houses and businesses tend to be the least controversial land uses, while the most transient-oriented land uses tend to be the most controversial.  Owners of single-family houses try to zone out apartments because renters are “transient”, and homeowners and renters in turn may ally try to zone out hotels and other forms of short-term rental because the users of these services are even more ‘transient” than renters.

Street design often seems hostile to transients as well; a visitor to a city is least likely to be disoriented in a place where one can guess a place’s location based on an address.  For example, if you are going to 1125 M Street, SW, in Washington, DC you know that your destination is near the corner of 11th and M Streets.  Other gridded areas are a little less legible, but even so you can somewhat guess where you are going if you know a street name or two.  By contrast, newer suburbs often tend to be much less legible to visitors:  for example, in suburban Atlanta, there is no street grid and the proliferation of cul-de-sacs makes navigation confusing for visitors.

 

 

 

 

The post Loving the Stranger- Not! appeared first on Market Urbanism.

]]>
10036
The Case for Subsidizing Deed Restrictions http://marketurbanism.com/2018/05/09/case-subsidizing-deed-restrictions/ Wed, 09 May 2018 17:46:19 +0000 http://marketurbanism.com/?p=10021 In most of my discussions of Houston here on the blog, I have always been quick to hedge that the city still subsidizes a system of quasi-private deed restrictions that control land use and that this is a bad thing. After reading Bernard Siegan’s sleeper market urbanist classic, “Land Use Without Zoning,” I am less […]

The post The Case for Subsidizing Deed Restrictions appeared first on Market Urbanism.

]]>
Houston skyline

In most of my discussions of Houston here on the blog, I have always been quick to hedge that the city still subsidizes a system of quasi-private deed restrictions that control land use and that this is a bad thing. After reading Bernard Siegan’s sleeper market urbanist classic, “Land Use Without Zoning,” I am less sure of this position. Toward this end, I’d like to argue a somewhat contrarian case: subsidizing private deed restrictions, as is the case in Houston, is a good idea insomuch as it defrays resident demand for more restrictive citywide land-use controls.

For those of you who haven’t read my last four or five wonky blog posts on land-use regulations in Houston (what else could you possibly be doing?), here is a quick refresher. Houston doesn’t have conventional Euclidean zoning. Residents voted it down three times. However, Houston does have standard subdivision and setback controls, which serve to reduce densities. The city also enforces high minimum parking requirements outside of downtown.

On top of these standard land-use regulations, the city heavily relies on private deed restrictions. Also known as restrictive covenants, these are essentially legal agreements among neighbors about how they can and cannot use their property, often set up by a developer and signed onto as a condition for buying a home in a particular neighborhood. In most cities, deed restrictions cover superfluous lifestyle preferences not already covered by zoning, including lawn maintenance and permitted architectural styles. In Houston, however, these perform most of the functions normally covered by zoning, regulating issues such as permissible land uses, minimum lot sizes, and densities.

Houston’s deed restrictions are also different in that they are heavily subsidized by the city. In most cities, deed restrictions are overseen and enforced by parties to a deed, typically organized as a homeowners association (HOA) to which members are required to pay dues. When a resident in a subdivision breaks the rules of the deed, the HOA takes them to court on their own dime. In Houston, however, the municipal government covers the cost of enforcement, much like with zoning. Neighbors complain, the city reviews the complaint, sends the offending party a letter, and eventually takes her to court if her noncompliance continues.

This has at least three effects: First, this encourages the creation of overly detailed and broad deed restrictions, which might otherwise be a hassle to oversee and enforce if all the costs were falling on residents. Second, this leads to consistent enforcement of all rule violations, even in minor cases where residents might otherwise agree to let harmless violations that aren’t worth enforcing slide. Third, following on this second effect, this preserves the legal force of deed restrictions far beyond what might otherwise occur. If so many violations go unenforced, eventually courts stop enforcing certain rules or enforcing the rules in certain parts of the subdivision. This gradual withering away of deed restrictions is still somewhat common in Houston, indicating that many violations aren’t even worth the phone call to the city to complain, but it is less common under a system of municipal enforcement.

Houston further subsidizes deed restrictions in at least two other ways: First, the city will not issue permits for developments and improvements that run afoul of any deed restrictions. Second, Texas state law allows deed restrictions in unzoned cities (e.g. Houston) to be created, extended, or renewed with a simple majority of residents in a subdivision and they can be modified with the support of three quarters of residents. In every other state, unanimity among the affected parties is required to create, renew, or modify a deed restriction, as with most other contracts. Similar to enforcement, this acts as a kind of subsidy, making it much easier for subdivision majorities to adopt and maintain deed restrictions, meaning that Houston probably has far more active deed restrictions than one might find under regular conditions.

All of this might sound bad to you, and with good reason. Why should majorities be able to strip minorities of their property rights?  Doesn’t this lead to an arbitrary patchwork of regulations, undermining comprehensive planning? Why should the city pick up the tab to enforce the preferences of middle- and upper-class homeowners?

Indeed, these are all issues under a system of subsidized deed restrictions. Yet each of these issues are far more challenging under conventional land-use regulations. Under deed restrictions, residents only have the power to downzone their immediate subdivision. Outsiders have no say in the matter, but at the same time, many residential areas, and virtually all commercial and industrial areas, are almost completely unaffected. This is in contrast to conventional land-use regulation, where active minority interest groups (i.e. homeowners) can and do capture the process and dictate the property rights of entire cities.[1] Under conventional land-use regulations, these groups nearly always decide the zoning of their local neighborhood, which can often be in conflict with regional housing or mobility planning. Again, the city then picks up the tab and enforces these preferences citywide using public resources. At most, Houston’s private deed restrictions only affect 25 percent of the city.

Yet my argument isn’t simply that deed restrictions are less bad than conventional land-use regulation. You can find that argument here. Rather, my point is that subsidized deed restrictions perform a useful political function: they give those residents with the strongest preferences for restrictions the restrictions they crave, thereby obviating the need to agitate for restrictive land-use regulations. The “homevoters” who drive land-use and zoning policy are essentially allowed to opt out of the laissez faire status quo, with some support from the city. This allows Houston to avoid having to adopt citywide conventional land-use regulations for things like land use and densities, as has happened in every other major city.

There is substantial evidence for this from Houston’s history. Consider the failed 1939 zoning push. According to Siegan, the most enthusiastic support for zoning came from Montrose, whose covenants had expired in 1936, leaving the neighborhood open to then-unwanted commercial and multifamily development. At the time, there was no city enforcement of covenants and renewal or extension often required unanimous support. This is an important point to state plainly: When their deed restrictions expired, residents started agitating for citywide zoning.

This exact same plot unfolded surrounding the failed 1948 and 1962 zoning referenda. In 1955, the deed restriction for River Oaks—an affluent white neighborhood—were set to expire after their original 30 years run (they began in 1926), after which renewal would be required every 10 years. It won’t surprise you to learn that the city’s elites, who disproportionately lived in River Oaks, became enthusiastic supporters of zoning in Houston around this time. In both referenda, River Oaks was the source of zoning support. In fact, in 1962, it was one of only two neighborhoods that voted for zoning. Again, when their deed restrictions were threatened, homeowners started agitating for zoning.

 

Units Built per Half Decade in Houston: Spikes in 1946 to 1950, 1976 to 1980, and after 1996

Data from the Harris County Appraisal District

There is some evidence that the same phenomenon occurred with the 1993 referendum. As you can see in Chart 1, there was a massive residential subdivision building boom in the mid- to late-1970s. Assuming for our purposes that a standard share of these developments were subject to deed restrictions, and that these deed restrictions had a standard initial run of 30 years, these deed restrictions were poised to start expiring between 2005 and 2010.[2] If we take all this together, we would expect a zoning referendum somewhere between 1995 and 2000, with deed expirations on the horizon. Lo and behold, one arrived two years early in 1993. The narrative again comes into focus: when deed restrictions are at risk, homeowners start agitating for zoning.[3]

The natural takeaway is that if you want to avoid restrictive land-use regulations, the city should actively support deed restrictions. That is to say, you must provide an effective and inexpensive way for those with the strongest preferences for strict regulations to “opt out” of the lightly regulated status quo. When you do that, you take away their incentive to lobby for conventional land-use regulations.

Houston history indicates that I am not the first person to figure this out. A mere three years after the failed 1962 zoning referendum, the Texas state legislature changed the law to allow Houston to enforce private deed restrictions and lowered the barriers to creating, renewing, and modifying them, which we discussed above. That is to say, they created an “opt out” option. After four decades of constant agitation for zoning beginning in the 1920s, there wouldn’t be a major push after 1962 for three decades. Within a decade of the 1993 referendum, the city of Houston again scaled up the enforcement of private deed restrictions in 2003, broadening enforcement to include things like design and maintenance rules.

This general policy of allowing NIMBY residents to “opt out” of liberalization isn’t just limited to preserving the non-zoning status quo. It also makes easing up on existing restrictions easier. In 1998, Houston policymakers substantially lowered minimum lot sizes from 5,000 to 1,400 square feet within the I-610 loop.[4] This constituted the most dramatic liberalization of subdivision rules in any U.S. city to date.

How was this possible? Because everyone who might have preferred a larger minimum lot size either was either already shielded from the change by deed restrictions or could easily “opt out” of the new rules. At the same time that Houston lowered minimum lot sizes, they created a process whereby a majority of local residents could petition to set higher minimum lot size rules based on the prevailing lot dimensions within their local block or neighborhood. Residents with a strong preference for large minimum lot sizes had no reason to go out and raise hell about the city as a whole, as their community was protected in proportion to the preferences of local residents.

As with deed restrictions, these local minimum lot sizes are still even less restrictive than conventional land-use regulations. Not only do they only affect a limited area and require a majority vote; they also automatically expire after 40 years. Predictably, when the city expanded these newer, more liberal subdivision rules to the city as a whole in 2013 (i.e. beyond the I-610 loop), they also lowered the threshold for adopting higher local minimum lot sizes.

Is a system of subsidized private deed restrictions and “opt out” provisions the ideal policy arrangement? No. Like zoning, they can create a messy patchwork of rules and regulations for which, as far as I’m aware, there is still no public database. But we aren’t operating in the realm of ideal policy. We are operating subject to very real political constraints, namely a vocal and powerful special interest group (i.e. homeowners) that desires strict land-use regulations around their home.

This is the genius of Houston’s unique system: Let those with strong preferences for tight restrictions have them and the city as a whole can go on operating under a largely liberal land-use regime. There is a valuable lesson here for other cities: when attempting to liberalize land-use regulations, consider strengthening the private (subdivision deed restrictions) and public (stricter local rules subject to local consensus) mechanisms whereby the most powerful opponents of liberalization can simply opt out. Houston figured this out in 1965 and again deployed this strategy to great effect in the 1998 subdivision regulation overhaul. In relationships as in city planning, sometimes you have to give a little to get a little.

 

For future content and discussion, follow me on Twitter at @mnolangray.

 

[1] Refer to Bill Fischel’s “The Homevoter Hypothesis” (2001) and associated papers, which convincingly argue that middle- and upper-class homeowners play an outsized role in determining zoning and land-use policy, particularly in smaller municipalities.

[2] These are standard assumptions about length based on Houston history. Note that this expiration length maps onto the length of a standard mortgage. As you might have guessed, FHA and private sector underwriters were major boosters of deed restrictions, as a way to secure property values in the face of non-zoning.

[3] If my theory is valid, expect a fourth zoning referendum somewhere between 2020 and 2026, 20 years after the 2000 to 2006 building boom.

[4] The causes and effects of this liberalization are the topic of a forthcoming paper. Stay tuned!

The post The Case for Subsidizing Deed Restrictions appeared first on Market Urbanism.

]]>
10021
The Attack on Airbnb http://marketurbanism.com/2018/05/08/the-attack-on-airbnb/ Tue, 08 May 2018 15:13:37 +0000 http://marketurbanism.com/?p=10011 New York politicians’ attacks on Airbnb are now getting national press; they argue that because Airbnb units could be used for long-term rentals, Airbnb reduces the housing supply and thus raises rents. But just as a matter of principle, this claim leads to absurd results.  The logic underlying the claim is: a housing unit that […]

The post The Attack on Airbnb appeared first on Market Urbanism.

]]>
New York politicians’ attacks on Airbnb are now getting national press; they argue that because Airbnb units could be used for long-term rentals, Airbnb reduces the housing supply and thus raises rents.

But just as a matter of principle, this claim leads to absurd results.  The logic underlying the claim is: a housing unit that is used for short-term rentals such as Airbnb could be easily used for long-term rentals.  Thus, Airbnb reduces the long-term housing supply.

But this argument proves too much.  If you own a house, your house could also be used for long-term rentals.  If you have a spare room, you could rent out that spare room.  And even if you rent out every room in the house, your house sits on land that could be used for a much larger number of rental units.  Since there are far more single-family houses than there are Airbnb units, bulldozing every house in the city would increase housing supply to a much greater extent than would outlawing Airbnb. Does this mean the city should bulldoze your house to build more rental housing?

 

The post The Attack on Airbnb appeared first on Market Urbanism.

]]>
10011
What About Vancouver? http://marketurbanism.com/2018/04/11/what-about-vancouver/ Wed, 11 Apr 2018 18:19:12 +0000 http://marketurbanism.com/?p=9845 Market urbanists such as myself tend to believe that if a place suffers from absurdly high housing prices, there is probably not enough new housing being built to accommodate rising demand. A recent paper argues that inadequate supply is not a significant part of the problem in high-cost Vancouver, primarily because the number of housing […]

The post What About Vancouver? appeared first on Market Urbanism.

]]>

Market urbanists such as myself tend to believe that if a place suffers from absurdly high housing prices, there is probably not enough new housing being built to accommodate rising demand.

A recent paper argues that inadequate supply is not a significant part of the problem in high-cost Vancouver, primarily because the number of housing units has kept up with the number of people (p. 11)   It seems to me, however, that this theory overlooks people priced out of Vancouver, thus understating demand.

To put the matter in hypothetical form: suppose that in 1991, Nimbytown had 20,000 people and 10,000 housing units.  In 2011, Nimbytown had 30,000 people and 15,000 housing units; however, 30,000 more people are priced out of Nimbytown.    Obviously, it would be silly to say that housing is keeping up with demand.

Vancouver is, to be fair, adding housing supply- but at about the same pace it did 20 years ago.  From 1991-95, Metro Vancouver added about 18,000 housing starts per year, ranging from just over 14,000 in 1991 to just over 21,000 in 1993.    Housing starts then nosedived, not reaching the 20,000 level until 2007.  Between 2007 and 2011, the region averaged about 16,000 housing starts per year, slightly fewer than in the 1990s. In a region with a stagnant population, this would be a strong performance.  But from 1991 to 2011, the number of Vancouver households grew by over 40 percent, from just over 600,000 to almost 900,000.  So should a region with 900,000 households have the same number of housing starts as one with 600,000?  I don’t think so.

The paper blames Chinese investors for Vancouver’s high housing prices- and logically, any increase in demand should, other things being equal, increase housing costs.  But the author of the paper has written elsewhere:

There is very little good, government-collected data on the question of foreign ownership. No one disagrees on this point. This is to the discredit of federal and provincial authorities, who for years resisted gathering rigorous data, even though Mark Carney, then governor of the Bank of Canada, warned quite clearly in 2011 that the Vancouver real estate market was being affected by money from East Asia.  The fact that five or six years could pass without any effort to collect data is stunning and can’t help but stimulate a tinge of conspiratorial thinking. 

But there seems to me to be a contradiction between arguing that (1) Vancouver is expensive because it is being overwhelmed by a tidal wave of foreign demand and (2) there really isn’t enough data to determine whether there’s a tidal wave of foreign demand.   So we really don’t know very much about the demand-side element of housing costs in Vancouver.

The post What About Vancouver? appeared first on Market Urbanism.

]]>
9845
what about singles? http://marketurbanism.com/2018/04/03/what-about-singles/ Wed, 04 Apr 2018 03:39:27 +0000 http://marketurbanism.com/?p=9745 Both smart growth supporters and sprawl apologists focus on the needs of families with children: sprawl defenders argue that only suburbia can accommodate the desires of parents, while some smart growth types argue that cities should require lots of two- and three-bedroom units downtown because families need a lot of space. But a current exhibit […]

The post what about singles? appeared first on Market Urbanism.

]]>
urban single

Both smart growth supporters and sprawl apologists focus on the needs of families with children: sprawl defenders argue that only suburbia can accommodate the desires of parents, while some smart growth types argue that cities should require lots of two- and three-bedroom units downtown because families need a lot of space.

But a current exhibit at the National Building Museum in Washington suggests that this focus is a bit misguided.  The exhibit points out that nearly 30 percent of U.S. households are singles living alone.  Judging from all the planning-media blather about families, one might think that the housing market is focused on their needs, and that 30 percent or even more of the housing stock consisted of single-sized units.

But the exhibit points out that in fact, less than 1 percent of housing units are studios, and about 12 percent are one-bedrooms.  So family-oriented units are in fact overrepresented in the housing stock.

Larger units may  not dominate downtown, but they start to dominate pretty close to downtown.  For example, when I looked at zillow.com I discovered that downtown Pittsburgh is dominated by one-bedroom units, but in zip code 15203 just south of downtown, 3/4 of housing units available for rent or sale have two or more bedrooms, including 80 out of 115 rental apartment listings.    In zip code 15202 just northeast of downtown, 34 of 60 rental apartment listings, and 71 percent of all rental listings have two or more bedrooms.

Of course, Pittsburgh is a pretty family-oriented city.  But even in Washington’s 20036 zip code (a wealthy downtown neighborhood) 1/3 of all listings are for two or more bedrooms.  And if you go just two subway stops north to Cleveland Park (zip code 20008) 108 out of 174 listings have two or more bedrooms.

What about more suburbanized, car-dominated cities?  In Houston’s downtown 77002 zip code, the majority of units are two or more bedrooms.  And in Montrose, a nice intown area a few miles from downtown, 82 percent of listings (276 out of 336) fit this mold.

So except for the closest-in parts of the most transit-heavy cities, the overwhelming majority of listings are designed for one person living alone.  Why is this?  One possible reason is that zoning locks up most of every city for single-family housing.  Another reason might be that most older housing was built when there were fewer single people, and it may take the market a long way to catch up with changing demand.

The post what about singles? appeared first on Market Urbanism.

]]>
9745
Density Is How the Working Poor Outbid the Rich for Urban Land http://marketurbanism.com/2018/02/05/density-working-poor-outbid-rich-urban-land/ Mon, 05 Feb 2018 15:00:38 +0000 http://marketurbanism.com/?p=9582 The great failing of modern land-use regulation is the failure to allow densities to naturally change over time. Let me explain. Imagine you are trying to sell a property you own in a desirable inner suburban neighborhood in your town. The lot is 4,000 square feet and hosts an old 4,000 square-foot home. There is […]

The post Density Is How the Working Poor Outbid the Rich for Urban Land appeared first on Market Urbanism.

]]>
multifamily housing

The great failing of modern land-use regulation is the failure to allow densities to naturally change over time. Let me explain.

Imagine you are trying to sell a property you own in a desirable inner suburban neighborhood in your town. The lot is 4,000 square feet and hosts an old 4,000 square-foot home. There is incredible demand for housing in this area; perhaps the schools are good, or the amenities are nice, or the neighborhood sits adjacent to a major jobs center, meaning that residents can walk to work. I’ll leave the reasons to you. Who do you sell it to?

You have at least two options: First, you could sell it to a wealthy individual, who would use the entire property as his home. He is willing to pay the market rate for single-family homes like this, which in this case is $300,000. Under current financing, he would likely have a monthly mortgage payment in the ballpark of $1,300. Second, you could sell it to a developer who intends to subdivide the house into four 1,000 square foot one-bedroom apartments, renting each of them at a market rate of $500 to service workers who commute to downtown. After factoring in expenses, her annual net operating income would be around $20,160. Assuming a multifamily cap rate of 6.0.%, this means that she could pay up to $336,000 for your property.

Based on this analysis, who do you sell it to? The answer is obvious: you will sell it to the multifamily developer who will subdivide and rent out the house, not necessarily because you’re a bleeding heart urbanist, but in order to maximize your earnings. As rents in the area rise, the pressure to sell to a buyer who would densify the property will only grow. The prospective mansion buyer simply cannot compete with the service workers under these very typical market conditions. How cool is that?

This may sound like an oversimplification. As with all economic examples, it is. But at the end of the day, these very simple market dynamics play an essential role in guiding the spatial patterns of our cities. When demand for housing grows in urban neighborhoods, low-density uses will convert into higher density uses. This might often start smallhomeowners converting underutilized floorspace in attics and basements into additional housing units to earn incomeand under high demand circumstances might escalatetearing down single-family homes and constructing apartment buildings.

When my great grandmother, a grocery store clerk and single mother, migrated to Louisville from a small town in Kentucky in the 1940s, they shared a subdivided mansion in Old Louisville with multiple other working-class families. The opposite also happens occasionally: when demand for housing falls, high density uses may be converted into low-density uses, or demolished altogether. When Louisville’s population collapsed in the 1970s and 80s, the glorified tenement my grandmother grew up in was converted back into a mansion owing to lack of demand.

Thus, density is the key to ensuring that the incredible opportunity that cities offer is available to everyone. It’s the only sustainable way that the working poor can outbid the rich for urban land, and it’s naturally facilitated by markets under normal conditions. Density is what makes a room in an old mansion affordable to a grocery store clerk struggling to provide for her children. Density is what enables the apartment developer discussed above to outbid the prospective mansion developer for land, because in a sense what she is actually doing is pulling the resources of those working poor families.

Density controls, whether the result of zoning, land-use regulations, or subdivision regulations, break this system, effectively prohibiting the working poor from outbidding the rich for urban land. These policies come in a variety of forms: minimum lot sizes, single-family zoning, parking requirements, minimum unit sizes, etc. But they all require some minimum level of housing consumption—purportedly for the residents own good, in many cases—which means that residents who cannot afford to consume this minimum threshold of urban land cannot consume housing in this neighborhood at all.

Let’s return to our above example. If your property was zoned for single-family housing, the developer who intended to subdivide wouldn’t even bother to bid and the structure would remain a single-family home, despite high market demand. The four prospective tenants would have to look elsewhere, bidding up other scarce units and suffering longer than desirable commutes.

Or imagine if the city allowed subdivisions, but restricted apartments to 1,500 square feet. In this case, the developer could only divide the house into two units. Rents normally rise with floorspace and additional bedrooms, but they rarely double in price. If the developer could only earn $800 per unit on the market, she could only justify spending $268,000 on the project, meaning she would be outbid by the prospective mansion buyer. If she could squeeze out $900 per unit, she would barely outbid the prospective mansion buyer, letting in only two tenants, and only those who could afford a 45% increase in rents. The two other tenants would be forced out of the community. Other mandatory minimum standards like parking requirements and lot sizes work the same way, prohibiting density and pricing potential residents out of the community. Needless to say, this process falls hardest on the working poor.

Banning density, whatever the pretense, whatever the means, effectively means banishing the working poor from cities. As the urban planner Alain Bertaud has put it, the market is not an end or a construct, it is a mechanism. It is an emergent system for distributing scarce resources. Sometimes it fails and state actors or civil society must intervene. Sometimes it produces undesirable outcomes that warrant rectification. But if we don’t understand it and work to build policy around it, the results will be ugly. From the mounting affordability crisis to the income and racial segregation of our cities, the failure of shifting responsibility for the distribution of densities from markets to planning boards has been a self-evident failure.

For future content and discussion, follow me on Twitter at @mnolangray.

The post Density Is How the Working Poor Outbid the Rich for Urban Land appeared first on Market Urbanism.

]]>
9582
Zoning Laws, the Housing Market and the Ripple Effect http://marketurbanism.com/2017/12/28/zoning-laws-housing-market-ripple-effect/ http://marketurbanism.com/2017/12/28/zoning-laws-housing-market-ripple-effect/#comments Thu, 28 Dec 2017 13:23:18 +0000 http://marketurbanism.com/?p=9332 The adoption of zoning as a means of preventing external costs led to inefficient use of land and caused many individuals to suffer great unfairness.

The post Zoning Laws, the Housing Market and the Ripple Effect appeared first on Market Urbanism.

]]>
ripple effect housing

 Henry Hazlitt has called economics a science of recognizing secondary consequences. What he and others who have taken the time to study the working of free markets have perceived is that there is a natural orderliness in uncoerced dealings between men which tends to maximize the well-being of each individual and put resources to their best use. But to accomplish this, a market must be free, which means that each participant must be allowed to decide for himself how he will use his assets, whether personal skills, money, or physical property. Whenever government compels a person to use his property in a way other than he would freely have chosen, this natural orderliness is upset.

The effect of any such tampering with a market may be likened to throwing a stone into a calm pool. Waves of disturbance will ripple outward. Unfortunately, government will now look upon these ripples as new problems calling for its false remedies, and throw more stones in an attempt to neutralize the unwanted and unforeseen consequences of its earlier stone-throwing. I call this the ripple effect; it is nothing other than a failure to foresee secondary consequences.

This article is about one form of governmental interference with free markets which nicely illustrates the ripple effect. It is about zoning ordinances, particularly those which regulate the type of housing a person may build on his property. Such ordinances demonstrably have worsened the housing situation in this country, have been a vehicle for much manipulation, unfairness and favoritism, and, of course, have spawned new coercive remedies designed to set aright the problems zoning has caused. What government cannot see is that these “remedies” will even further impair the functioning of the housing market.

A Primer on Zoning

A zoning ordinance is a decree by government that land in its jurisdiction may be used only in accordance with its regulations. These regulations are contained in a zoning map, which designates the permissible uses for property in each zone. For example, a subdivision might be zoned to permit only single-family dwellings on lots of one acre or more.

The original rationale behind zoning was that it was necessary to prevent nuisances. City governments thought it desirable that industry and retail trade be segregated lest their attendant smoke, noise, and traffic impose costs on residential areas. The paradigm case zoning was aimed at would be the construction of a steel mill on a quiet, shady street. Zoning based upon this argument was upheld by the Supreme Court even though its adoption might cause an enormous loss to the owner of affected property. 1

Zoning, however, was not limited to the segregation of industrial from residential areas. It was also used to demarcate the boundaries for single-and multi-family housing. When challenged in court, cities argued that allowing apartment buildings to be constructed next to single-family houses would shut off air and light to the latter, increase noise and traffic, and deprive children of places to play. Lurking behind these doubtful arguments (which the Supreme Court also accepted as justifying zoning of this nature) was the objective of protecting the property values of homeowners against the decline which would follow if their area became less exclusive. It will be observed that this concern has nothing to do with true nuisances such as pollution and noise, but rather is an attempt to use the coercive power of government to protect against those losses which free markets must necessarily sometimes inflict.

The Law of Nuisance

The common law had long recognized actions for nuisance when zoning first became popular. This action was based upon the idea, inseparable from the argument for freedom, that one does not have a right to make use of his property in such a way as to injure or render less fit for use the property of another. If one did so, he might be compelled by a court to pay for the extent of his damage, and the destructive use might also be enjoined.

Now, it cannot be said that nuisance suits ever became a perfect solution to the problem of externalities (the imposition of costs by one landowner upon his neighbors). Legal actions have high transaction costs, and success is never a sure thing. And if the losses were spread over a large number of people—e.g., smoke damage from a steel mill—almost certainly no one of them would feel sufficiently aggrieved to undertake the expense of a lawsuit (at least prior to the advent of the class action). These factors served to deter many from asserting their legal rights.

All this may be admitted without indicting nuisance law for any inherent flaw. Courts and legislatures could have devised new procedures fairer to plaintiffs and new remedies for accommodating competing interests had they seen the necessity to do so. Nuisance law, however, has suffered from extreme neglect during the nation’s half-century infatuation with zoning. Even so, there have been noteworthy nuisance cases in the last few years, indicating that zoning is not the only answer to the externalities problem.2

Zoning vs. Nuisance Law

It is important to compare the way in which zoning and nuisance law operate. Nuisance law is based on the market idea that one should pay for the costs that he causes to be incurred, and works punitively—at least until people come to know what uses will probably cause them to have to pay penalties. At that point, uses for which the expected costs are too high will be deterred. Thus, nuisance law should—or could—lead to the same sort of economic calculation which underlies any business decision. An entrepreneur would decide against building a steel mill in a residential area for the same reason he would decide against building one where it was difficult to get raw materials—the costs Would be too high. On the other hand, a contemplated use of land, a grocery store, for instance, might impose small costs on the neighboring owners, but still be a worthwhile project because of large expected returns. It is this sort of rational economic calculation which optimizes the use of resources. Zoning, however, does not allow individual decisions as to the costs and benefits of the uses of land. While zoning may prevent some nuisances3, it lacks the ability to discriminate between nuisances which are worth their cost and those which are not, and prohibits some land uses which would not be nuisances at all. This is so because zoning is not predicated upon a calculation of costs and benefits, but only upon a planning “expert’s” notion of how cities ought to be patterned. With zoning, we pay a high cost in efficiency to prevent an unknown but probably small number of nuisances. The planners cannot know how much land will be demanded for each possible use at the time they draw up the zoning map; too much may be allocated to light industry, or too little to multifamily dwellings. As a result, we have waste and inefficiency.4

“Exclusionary” Zoning

Now we meet the villain of the piece. After the courts gave the green light to zoning, people quickly realized what a powerful tool they had been given. All manner of restrictions might be put on the use of land which would guarantee that “undesirable types” would have to live somewhere else. Municipalities frequently enacted ordinances requiring a minimum lot size of an acre or more; often there was no provision for apartment houses and mobile homes, while in some cases they were even affirmatively excluded. Various rationales were advanced to justify these interferences with freedom, but none more than tenuously linked to any proper governmental function of protecting health or safety, or preventing nuisances. At the bottom was always the desire to exclude people of lesser income from the community.

It was in the mid-sixties that the people who are usually so fond of government planning and who enthusiastically support zoning as long as it is “only” commercial interests which are affected, realized that they had created a monster. The shoe was on the other foot now—one of their favored groups, the poor, was being victimized by zoning. The result was a large number of courtroom battles over the legality of what was called “exclusionary” zoning. (All zoning is exclusionary, but never mind.)

The Legal Outcome

In several cases, courts struck down large minimum lot size ordinances. Those who believe in freedom can applaud such decisions; if a group desires to insulate itself from the rest of society, it may do so by purchasing enough land to achieve that objective, but it is wrong to do so through the use of the coercive power of government. Unfortunately, not all courts and legislative bodies were content with a mere restoration of freedom. Instead, they sought to rectify the problems created by zoning by imposing even more zoning.

The leading case, Southern Burlington County NAACP v. Township of Mt. Laurel, comes to us from the Supreme Court of New Jersey.5 In ringing language, the court invalidated the town’s highly restrictive zoning scheme, and then intoned that every developing community has an obligation:

Affirmatively to plan and provide, by its land use regulations, the reasonable opportunity for an appropriate variety and choice of housing, including, of course, low and moderate cost housing, to meet the needs, desires and resources of all categories of people who may desire to live within its boundaries.

The animating force behind the court’s ruling was not a belief in liberty, but rather a simple-minded mathematical notion that each municipality should contain its “fair share” of low- and middle-income residents.

This idea that people should be distributed throughout society in accordance with precise ratios shows forth even more disturbingly in the so-called “inclusionary” zoning ordinance. The concept, which has found some support in academic journals6, is to require a developer to include a specific percentage of units for low-income families if he is to be allowed to construct any multifamily project. Such an ordinance was enacted in Fairfax County, Virginia, but was held unconstitutional by the Supreme Court of Virginia.’

Making the Problem Worse

Both the Mt. Laurel “fair share” requirement and the “inclusionary” ordinance recognize that zoning has been used to limit the number of places where poor people might live, and seek to remedy the shortage of housing which has resulted. But at best they will be ineffective, and will probably succeed in making the problem worse.

New housing is seldom constructed expressly for the poor. (One exception, of course, is the federal government, but its efforts, such as the famed Pruitt-Igoe project, have been smashing failures.) Rather, the poor benefit from the filtering down of older housing left empty as wealthier individuals move into new or better homes. Careful empirical studies have demonstrated that this intuitively appealing proposition is true.8 Therefore, to the extent that “inclusionary” ordinances or judicially mandated “fair share” plans operate to decrease the total amount of housing which is constructed, they will work against the poor by diminishing the filtering down of older housing.

There are a number of reasons to believe that these legal mandates will, in fact, lead to less housing construction. Consider first the likely eventuality that, under a “fair share” requirement, an incorrect amount of land would be zoned for low-cost housing—i.e., more or less than would be so used in an unhampered market. This must be considered likely because a developing community cannot know what sort of commerce will choose to locate in it, and hence the characteristics of the workforce which may desire to live there will also be unknown. Merely because there is a heavy-industry zone, for instance, there will be no reason to assume that some specific percentage of poor people will be employed. The skill and income level of the workforce will vary greatly depending on whether labor or capital intensive industries move in. Thus, the planner’s guess will probably be wrong when he zones for housing. If too much land is allocated for one type of housing, too little must be for other types. Some land will be inefficiently used, total construction will be less than we would have had in the absence of zoning, and fewer old homes will become available to the poor.

Discouraging Developers

Secondly, we must consider the attitudes of the would-be developers ordered by an “inclusionary” ordinance to use a part of their property for the construction of low-cost housing. They may be reluctant to undertake the project thus presented for any of several reasons. With the mandatory low-income units, the overall rate of return may not be sufficient to induce the builder to devote his resources to this development as opposed to one where he finds no government interference. Or, the developer may have doubts about the marketability of the non-low-income units if compelled to put them in close proximity to those built for the poor. A related concern might be the possibility of high maintenance costs for the low-income units. Reflection upon the way property frequently is treated in the inner city might well dissuade one from building with the poor in mind as tenants. Yet another obstacle might be the architectural difficulties of integrating the smaller low-income units in the same structure with larger apartments designed for the affluent.

Thirdly, many of the reasons which might make the developer hesitant would also be on the minds of prospective lenders. Even if the former were willing, the latter might not be. The result: housing construction foregone.

Two more arguments tell against these schemes to provide better housing for the poor. So far we have left out the intended beneficiaries of this new housing, the poor themselves. Are many of them likely to be interested? Professor Banfield has pointed out that the inner-city dweller is accustomed to the nature of life there, and probably would feel bored and uncomfortable if transported out to suburbia.9 The spaciousness and solitude would be entirely alien, and the preferred entertainments and companionship would be far removed. In short, there is reason to doubt that there would be enough takers for this housing to fill the government’s quotas, leading to further waste.

Lastly, it must be emphasized that low-income housing is quite infeasible without government subsidies. The Mt. Laurel court expressly noted this. Do we really want the availability of housing for the poor to depend upon the caprices of federal and state budgeting? The government is anything but a trustworthy provider. A change in administration or voter sentiment could halt building in progress and prevent new construction from being undertaken, again to the detriment of the poor. Uncertainty is one of the prices one pays for government dependence.

No doubt there are more arguments, and perhaps more persuasive ones which could be advanced against these plans. All I have attempted to accomplish in this brief space is to show that the government did not, and indeed cannot, take into consideration all of the reactions one might expect to its tampering with the housing market. Not enough housing for the poor? Why then just zone for more, or compel people to build more, says the government. This simple minded solution pays no heed to secondary consequences, and forgets that people have minds and wills of their own. That is why it will fail.

Conclusion

The adoption of zoning as a means of preventing external costs was ill-considered in the first instance. It led to inefficient use of land and at the same time caused many individuals to suffer great unfairness. Once this authoritarian power to restrict the uses to which a property owner could devote his land was acknowledged as legitimate, it followed inexorably that it would be misused to protect well-placed interests and exclude poor people from developing communities. In attempting to solve this government-created problem in the housing market, courts and legislatures have resorted to more of the statist medicine of coercion. “Inclusionary” zoning and “fair share” plans will not make more housing available to the poor, and will probably have the opposite effect. Then, we may confidently predict, government will react with yet more counterproductive laws and directives.

The radical solution to the chaos zoning has brought to land markets is to eliminate it. To be sure, people then will erect some buildings and do other things with their property that others will not like. If those uses actually interfere with the enjoyment of property by others, those people affected should be encouraged to sue in nuisance to obtain compensation for the damage done. If the offending use does not amount to a true nuisance—an apartment with poor people as tenants, or a building painted an ugly color—that is something people who live in a free society will just have to tolerate as one of the annoyances of life. The alternative to a regime of freedom in land use is zoning with its ever-present potential for waste and inefficiency, inequity and manipulation. Let us choose freedom.

‘ Village of Euclid v. Ambler Realty, 272 U.S. 365 (1926). The value of Ambler Realty’s holding fell by $300,000 when its tract was put in a residential zone.

²See, e.g., Boomer v. Atlantic Cement Co., 287 N.Y.S.2d 112. The court there refused to enjoin the operations of a cement plant, but awarded the plaintiffs the amount by which their property had been permanently damaged (based on market value) plus an amount equal to the ongoing monthly costs the plant imposed on them.

³It is not clear that cities would look much different in the absence of zoning. Professor Siegan points out in his book Land Use Without Zoning that Houston has no zoning, yet the market has neatly segregated industrial and residential districts simply on the basis of the differing characteristics which attract each type of development.

“Zoning decisions, it must be said, are not unalterable. Zoning maps may be changed or variances granted. But it is never certain that zoning mistakes will be corrected through these mechanisms. Whether a zoning change is made or blocked usually does not depend upon abstract considerations of eff¹ciency, but rather on the ability of interested parties to pressure the decision makers. Moreover, these escape hatches from zoning have frequently been used by unscrupulous persons to gain windfalls. See Ellickson, “Alternatives to Zoning”, 40 U. of Chicago Law Rev. 681, 701-05.

5336 A.2? 713. 6See Kleven, “Inclusionary Ordinances—Policy and Legal Issues in Requiring Developers to Build Low Cost Housing”, 21 UCLA Law Rev. 1432.

‘Board of Supervisors v. DeGroff Enterprises, 198 S.E. 2″ 600.

8See Lansing, Clifton and Morgan, New Homes and Poor People: A Study of Claims of Moves, Survey Research Center, Institute of Social Research, Univ of Michigan (1969). 9See The Unheavenly City, especially chapter 2.

George C. Leef


George C. Leef

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy, and is a graduate of the Duke University School of Law, Durham, North Carolina.

This article was originally published on FEE.org. Read the original article.

Facebook Page

Get regular updates and related posts via facebook

Facebook Group

Join over 3,000 others in an active discussion of topics related to Market Urbanism

@marketurbanism

Join over 20,000 followers in an ongoing conversation about urbanism and liberalization

The post Zoning Laws, the Housing Market and the Ripple Effect appeared first on Market Urbanism.

]]>
http://marketurbanism.com/2017/12/28/zoning-laws-housing-market-ripple-effect/feed/ 1 9332
The Rent is Too High and the Commute is Too Long: We Need Market Urbanism http://marketurbanism.com/2017/11/27/rent-too-high-commute-too-long/ http://marketurbanism.com/2017/11/27/rent-too-high-commute-too-long/#comments Mon, 27 Nov 2017 13:55:00 +0000 http://marketurbanism.com/?p=8949 Why is the rent so damn high? And why does it take hours to commute from cheap, plentiful housing to modern economy jobs? If you are living in a big city in America, you likely face this problem. And it isn’t just an American problem: From Ireland to New Zealand to The Philippines, the rent/commuting […]

The post The Rent is Too High and the Commute is Too Long: We Need Market Urbanism appeared first on Market Urbanism.

]]>

Dense Development Around Tokyo Transit

Why is the rent so damn high? And why does it take hours to commute from cheap, plentiful housing to modern economy jobs? If you are living in a big city in America, you likely face this problem. And it isn’t just an American problem: From Ireland to New Zealand to The Philippines, the rent/commuting crisis is hitting the 21st century hard, right in the big cities where most of the economic growth is coming from, and where most of the jobs are. Meanwhile, in the economically blighted regions of America, everything seems to be falling apart, with lead in the tap water, crumbling roads, and municipal bankruptcy for thousands of towns and cities a very real possibility.

But it doesn’t have to be this way. There are a few cities that seem to have figured out how to match a futuristic tech economy with futuristic transit and housing for the masses. And there are many small towns around the world that don’t face insurmountable backlogs of infrastructure repairs. What are they doing different? Why is the price per square foot for living space in Tokyo a third of what it is in Boston or San Francisco?  Both cities have similar incomes and geographic constraints. Why is it an enormous scandal in Japan when trains leave a few seconds off schedule, while in America it is normal for your bus or train to be an hour late or never show up at all? Chalking this up to cultural differences is an easy explanation, and may have some weight, but I submit that the underlying laws of human economics do not vary based on culture, and there is much that we can learn from looking abroad.

For Americans, the story begins in the nineteenth century when most of the country’s infrastructure was privately owned, as described in the paper “From Privies to Boulevards: The Private Supply of Infrastructure in the United States During the Nineteenth Century.” As a stand-in for all infrastructure, from highways to subways to sidewalks, let’s discuss sewers as a starting point. The main complaint at the time was that private sewer companies were not expanding fast enough: “Indeed, the main criticism leveled against private suppliers at the time was not poor service per se but a reluctance to expand to outlying areas.”

This frustration led to municipal regulation, subsidy, and eventually municipalization of the sewer systems: “By 1902, no city with a population of over thirty thousand still had a private sewer company.” Service began expanding to all areas of the city, and soon even small towns followed suit and were municipalizing and rapidly expanding their sewers, and nearly all their formerly private infrastructure. Problem solved, right?

Which brings us to Lafayette, Louisiana, the 200th largest city in the US, with a growing economy and a public infrastructure system that’s growing even faster. Charles Marohn, an infrastructure consultant, was hired to figure out why the city’s backlog of repairs was growing longer every year, and whether there were any solutions. His analysis is quite morbid:

Except for a small handful of North American cities – literally five or less – Lafayette provides an insight into why your city has no money. Problems have solutions. Predicaments have outcomes. What is happening in Lafayette is not a problem; it’s a predicament…When we added up the replacement cost of all of the city’s infrastructure — an expense we would anticipate them cumulatively experiencing roughly once a generation — it came to $32 billion. When we added up the entire tax base of the city, all of the private wealth sustained by that infrastructure, it came to just $16 billion.

There is simply no way that Lafayette will be able to maintain the infrastructure it has built, and Lafayette’s story is America’s story. How did the great infrastructure bubble occur? The core of the problem is about decision making process: How does a municipality decide whether to make a particular expansion of its infrastructure?

Back in the days of private infrastructure, a company would determine whether a given sewer expansion was profitable by adding up the expected sewer fees and determining whether they were greater than the long-term maintenance costs.  i.e., was the investment profitable? With democratic municipalities, the decision-making process is quite different.

In a nutshell, the political economy of our democratic municipalities revolves around homeowner control. The main negotiation is one between the homeowners and the public employees, with some influence from developers, and even less from renters who are typically not very involved with their local government. The incentives of the homeowners are to lower taxes to as great a degree as possible while at the same time maintaining a well-funded public school, one of the main determinants of home price.

This is easily accomplished by allowing two types of construction: More single family homes in the same price range as existing homes, and new commercial property that yields a revenue stream without associated public school costs. Projects that are almost always opposed are ones that increase density in areas that don’t require new infrastructure, due to the NIMBY principle: It is an extremely rare thing in American politics post-WWII for an already built neighborhood to become more dense than they already are. Downzoning is the norm, and upzoning is an atypical exception. Before zoning took hold of America post-WWII, the normal development pattern was for the town center to be where almost all of the new development happened, and this is how towns grew into cities. After zoning, this process stopped: Once a neighborhood was even partially built out, it was typically downzoned so no new construction could occur.

Furthermore, homeowners care about the future of their towns for the next few years until they sell, but not beyond that. The story goes like this: A new shopping mall or cul de sac is proposed. The developer offers to pay for the initial install of the infrastructure, and for a decade or two there is new tax revenue with minimal costs, and everything is going fine. But then the town’s maintenance obligations kick in. Even in Homeowners Associations (HOAs) that are supposedly infrastructure self-sufficient, when the infrastructure reaches the end of its life cycle, there is nearly always a bailout of the HOA by the town. And the long-term unprofitability becomes glaringly apparent. In Detroit, it looks like abandoned neighborhoods. In Flint, it looks like poisoned water. And Detroit and Flint aren’t special, they just implemented these fiscally unsustainable development patterns a few decades before other cities, and indeed there are thousands of cities and towns that are already starting to look more and more like Flint.

The lack of a market feedback process produces forcibly sprawled, fiscally unsustainable cities and towns. The infrastructure-efficient urban core is downzoned, preventing any growth upward, and growth outward is heavily subsidized by flat infrastructure rates. A cul de sac might have 50 feet of street pipe per resident, whereas an apartment building might have 5 feet, but the residents in both locations pay the same. This is a subsidy to sprawl paid for by those who live densely and efficiently. Transit infrastructure is no different: Road construction can never keep pace with economic growth, and we get congestion and potholes, long commutes to where the housing is, and not enough housing where the jobs are.

The only way to begin designing our cities better is to admit that democratic socialism is very bad at city design. If there is a solution to our infrastructure woes, it is to incorporate more market feedback into the system, to avoid infrastructure boondoggles, and enable dense, efficient development. And some cities around the world show the path forward. Japanese mass transit infrastructure is a good case-in-point.

Over the past few decades, nearly all of Japan’s mass transit has been privatized. The trains are funded by fares, but more importantly, by the private rail companies’ real estate holdings. The rents from high rises constructed around the station pay for the operation of the rail line, which increases rents around the station, in a feedback mechanism. The profit/loss calculation determines how much housing construction should occur near which rail stations, and where the rail system should be expanded to next. As noted above, this has produced high-tech, high-speed trains that service nearly all of the 30 million or so folks in the Tokyo metro area.

And the rent is much cheaper, which is precisely related to the transit scheme above: In America, the socialist transit networks have very shallow penetration, with only a small fraction of the population living within walking distance of a rail stop. The trains don’t go to where the housing is, and the housing isn’t built where the trains are. Because land use is decided democratically, towns won’t approve high-density zoning by train stations, and so while many transit systems own quite a bit of developable land near train stations, they aren’t allowed to build on it. This means they can’t fund expansion of the rail system with these funds, and furthermore, even if you dump tons of money onto these transit systems, they don’t have the profit/loss mechanism to determine where the new stations should go.

And this is why Tokyo has futuristic trains and housing prices of around $339 per square foot, while in Boston prices are $661/sqft.  You have to be wealthy to afford one of the prized, scarce apartments within walking distance of transit, while the masses spend hours every day driving to the far corners of the metro area where housing is quasi-affordable.

The rent is too high, the commute is too long, the water is poisoned, and there are no easy answers.  But the first step is for Americans to learn from the successfully affordable and accessible cities of the world.  Ironically, these successful cities are typically more market-based in their planning decisions than the supposedly hyper-capitalist US.  Central planning for bread always produces bread lines, central planning for roads always produces congestion, and central planning for housing always produces a housing shortage and rising rents. Americans know they don’t want their bread from the government, but until the same attitude is adopted toward infrastructure, we will all be desperately waiting in long queues for stale crumbs.

Engage with Market Urbanism

Facebook Page

Get regular updates and related posts via facebook

Facebook Group

Join over 3,000 others in an active discussion of topics related to Market Urbanism

@marketurbanism

Join over 20,000 followers in an ongoing conversation about urbanism and liberalization

The post The Rent is Too High and the Commute is Too Long: We Need Market Urbanism appeared first on Market Urbanism.

]]>
http://marketurbanism.com/2017/11/27/rent-too-high-commute-too-long/feed/ 7 8949