Market Urbanism

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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