On the Mixing of Incompatible Uses and Incumbency

houses-pollution-nuclear-power-plants-industrial-plants-factory-_557745-47I noticed an interestingly ironic thing today.

The usual argument for the necessity of use-based zoning is that it protects homeowners in residential area from uses that would potentially create negative externalities – ie: smelting factory, garbage dump, or Sriracha factory.

Urban Economics teaches us that such an event happening is highly unlikely in today’s marketplace. (nevermind the fact that nuisance laws should resolve these disputes) The business owner who is looking for a site for a stinky business would be foolish to look in a residential area where land costs are significantly higher.

However, as Aaron Renn pointed out in the comments of my last post on Planned Manufacturing Districts, the inverse of this is happening in many cities as residential uses begin to outbid other uses in industrial areas:

I think part of the rationale in this is that once you allow residential into a manufacturing zone, the new residents will start issuing loud complaints about the byproducts of manufacturing: noise, smells, etc. I know owners of businesses in Chicago who have experienced just that. They’ve been there for decades but now are getting complaints from people who live in residential buildings that didn’t even exist when the manufacturer located there. This puts those businesses under a lot of pressure to leave as officials will almost always side with residents who vote rather than businesses who don’t get to.

It’s clear this is a more relevant defense of use-based zoning than the one we usually hear. Of course, I’d argue that segregating uses through zoning isn’t a just way to resolve these disputes, and my last post discusses some of the detrimental consequences for cities.

It seems ironic, because it inverts the usual argument in-favor of zoning.  Residents are choosing to move near established industrial firms, and PMDs are a tool used to defend incumbent industries from residents.  Despite it’s lack of economic soundness, zoning is typically rationalized through an emotional appeal to defend incumbent residents from dirty industry.

This doesn’t decisively refute use-based-zoning in itself.  In-fact, I’m afraid it may bolster the case, but it does help expose the appeal to emotions used to defend zoning.

Planned Manufacturing Districts: Planning the Life Out of Districts

Chicago’s Goose Island and surrounding Planned Manufacturing Districts

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

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

A Race to The Bottom

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

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

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

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

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

Google and Chicago’s Fulton Market

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

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

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

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

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Vibrancy Thwarted

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

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

Clybourn Corridor, Elston Corridor and Goose Island PMDs

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

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

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

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

Now, it is Finkl who wishes for that option.

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

Chicago’s Goose Island, protected by PMDs

Other PMDs

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

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

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

See also:

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

 

In Defense of Chicago

First of all, I should start out by saying that I’ve only ever been to Chicago once, and I really don’t remember anything but the inside of my aunt’s house. I remember asking them if there was good mass transit, and they said Metra is good, but the L, which is near them, is not something they’d ride. My aunt, who led the family, was a financial services executive in Chicago, but they moved to the Research Triangle in North Carolina when she went into tech/healthcare. I imagine just the people Aaron Renn has in mind when he wrote “The Second-Rate City?” for City Journal.

That anecdote aside, I think Aaron Renn is being a little too hard on Chicago. I’m sure my view of the city unduly weights its land use and transportation policies, but I do think it’s got more potential than Aaron gives it credit for.

A lot of his article is based on this grim demographic observation, which I admit, is hard to stomach:

Begin with Chicago’s population decline during the 2000s, an exodus of more than 200,000 people that wiped out the previous decade’s gains. Of the 15 largest cities in the United States in 2010, Chicago was the only one that lost population; indeed, it suffered the second-highest total loss of any city, sandwiched between first-place Detroit and third-place, hurricane-wrecked New Orleans. While New York’s and L.A.’s populations clocked in at record highs in 2010, Chicago’s dropped to a level not seen since 1910. Chicago is also being “Europeanized,” with poorer minorities leaving the center of the city and forced to its inner suburbs: 175,000 of those 200,000 lost people were black.

Poor minorities abandoning the center to wealthy whites, while it has a lot of unfortunate aspects, doesn’t seem to me to be an altogether bad thing. Aaron says “Europeanized,” but the idea that the wealthy, not the poor, poor live in the center of the city isn’t a European thing, it’s an urban thing! It happens in Tokyo and Hong Kong, Cairo and Beirut, New York and São Paulo. To say nothing of Chicago before urban decline!

Landlords walking away from properties in the South Bronx isn’t supposed to be the norm. There’s much that I think could be done to mitigate the effects of gentrification – such as letting cities grow in already-gentrified areas, where demand and prices are highest, which I’ve written about before – but short of solving the problem of racial inequity or rent controls (which are illegal in Illinois anyway), I don’t see how cities are supposed to retain minorities in close-in urban neighborhoods whose ornate buildings belie the fact that they were built for much richer people.

Aaron does, however, have a point when it comes to municipal government – at least, most parts of it. Illinois and Chicago’s pension and budget woes are legendary, as is its corruption. And while I don’t know much about small business regulation in Chicago, I’ve heard that it’s no walk in the park, either.

However, I’m not sure how much I agree with his criticism of Chicago’s land use regime:

It also hurts small businesses that Chicago operates under a system called “aldermanic privilege.” Matters handled administratively in many cities require a special ordinance in Chicago, and ordinances affecting a specific council district—called a “ward” in Chicago—can’t be passed unless the city council member for that ward, its “alderman,” signs off. One downside of the system is that, as the Chicago Reader reported, over 95 percent of city council legislation is consumed by “ward housekeeping” tasks. More important is that it hands the 50 aldermen nearly dictatorial control over what happens in their wards, from zoning changes to sidewalk café permits. This dumps political risk onto the shoulders of every would-be entrepreneur, who knows that he must stay on the alderman’s good side to be in business. It’s also a recipe for sleaze: 31 aldermen have been convicted of corruption since 1970.

I’ve heard this criticism many times before, but how do you square that with the fact that Chicago is also the most (urban) developer-friendly big city in America?

A totally as-of-right regime under a reasonably liberal code would probably be preferable to Chicago’s aldermanic privilege system, but the aldermen’s choices seem to be manifestly better than those made by planners and citywide politics in every other large city in America. Chicago has been going through an apartment boom for at least a year now, and the commercial property market is showing surprising signs of life – the 45-story City Point office tower will be the first delivered on spec in downtown Chicago since 1998, and tight class-A vacancies mean another large tower is likely coming soon, as well.

Other than ubiquitous parking podiums that the city’s not-so-progressive minimum parking requirements foist on developers and architects, Chicago’s quite tolerant of density and growth. At least so far, supply has been allowed to keep up enough that housing is shockingly cheap to this East Coaster.

Chicago may be hemorrhaging population everywhere else, but the ring of wealth around the Loop is getting bigger and bigger. It’ll be a long time before it’s large enough that its growth will compensate for the post-crash exodus from the exurbs and slow trickle from the suburbs. But if Chicago post-urban decline is anything like Chicago pre-urban decline, the city’s got a ways to go, whereas its ‘burbs can only fall so far.

Speaking of which, being the unofficial capital of the Midwest ain’t half bad. With 65 million people, it’s about as large as France or the United Kingdom, and there isn’t a city in the region that even comes close to matching Chicago’s cultural and economic opportunities. If indeed there is going to be a massive migration from the exurbs and suburbs on the scale of immigration around the turn of the last century, Chicago’s in a pretty good position to pick up a lot of refugees from America’s vast, auto-bound interior.

And hey, with the Onion coming to town, maybe Chicago will soon be able to add comedy to the list of things it’s the center of, along with derivatives, supertalls, and corn-fed folk?

Links

1. Maps of sprawl and gentrification in Detroit, St. Louis, Chicago, and Boston. At first the picture looks bleak for cities, but Jesus – even downtown Detroit is growing! (More here.)

2. A real, live Texan (just kidding – he lives in Austin) replies to O’Toole on parking.

3. Why aren’t (more) urbanists cheering on Jerry Brown’s attempt to kill sprawl-inducing California redevelopment agencies? (Streetsblog SF/LA, I’m looking at you!)

4. NY lawsuit alleges that LEED standards are meaningless, and Charlie at Old Urbanist takes the opportunity to review the case against America’s most popular “greenness” metric.

5. This is awesome: The DC Office of Zoning makes the code and all the overlays accessible on Google Maps. Is there any other city with anything like it?

A question and a link list

Hey guys, before I start this link list, I wanted to ask: Has anybody had trouble posting comments here with Disqus lately? Either you can’t post them, or once you do they disappear? I’ve gotten two complaints in the last few days, so if you’ve been experiencing any problems please don’t hesitate to let me know so I can try to get to the bottom of it. If you can’t post a comment, email me at smithsj[at]gmail[dot]com.

1. DC gets upzoned. Why the Washington City Paper chose to bury that behind items about “neighborhood branding” and “supporting the enactment of pending federal legislation to ensure that insurance reserves are held and invested in the U.S.” is beyond me.

2. DC has, unfortunately, also started to cap the number of cabs in the city. American politicians just can’t get enough of screwing over Somalis, I guess.

3. Jamaica, Queens gets downzoned. The Post tells us joyfully that the city is implementing the “innovative and critically important” FRESH initiative to deal with the area’s lack of supermarkets – which will be sorely needed now that the city is guaranteeing that there will be no new demand for food.

4. “Vertical parking lot” in Chicago, circa 1930.

5. Communism in America: Roosevelt Island.

6. Matt Yglesias and Megan McArdle discuss bars and clustering, but Ryan Advent has the best post in my opinion.

7. Chicago’s Metra boosts home values (duh).

8. India fails at urbanism.

9. One Tea Partier thinks that only property owners (read: homeowners) should be allowed to vote. “If you’re not a property owner, you know, I’m sorry but property owners have a little bit more of a vested interest in the community than non-property owners.”

Irrationality Towards Shortages

Brendan Crain at Where tipped me off to a great post by Ryan Avent at The Bellows. Here’s a little snippet of Shortage:

For whatever reason, we’re not built to naturally internalize negative externalities. When riding on a crowded highway, no one (no non-economist, at any rate) curses the government for not making the road more expensive; they demand more capacity — fewer traffic lights, higher speed limits, more lanes, more roads. And when free parking results in no available parking, no one demands market pricing for spots; they ask why the lot’s so small and the garages so scarce, and they get angry about those two new developments that just went in, bringing new residents who unsurprisingly use the valuable, yet free, parking spots when they’re open.

We see a shortage of a public good, and we think more, not more expensive. And as a result, the failure to price public goods appropriately leads to an inefficient use of existing resources, and an inefficient allocation of new resources. We don’t use existing roads well, and we spend too much valuable capital building new roads. We don’t use existing parking well, and we spend too much valuable capital building new parking OR we allow shortage concerns to undermine good investments.

This type of anti-market bias which seems to be the natural default in humans creates unhealthy positive-feedback loops such as the highway -> development -> congestion -> widen/extend highway, etc. loop. But in that light, we should be glad modern society has been able to overcome so many of its anti-market biases such as making profits, charging interest, and trade between strangers. Hopefully, as society adapts to deal with issues of scacity of land, resources, and time, it will overcome the unhealthy biases it needs to shed to sustain growth.

The Bellows post also refers to a post Matthew Yglesias wrote about the Chicago parking meter privataization, where he said:

In general, the market price of street parking should be very similar to the market price of garage parking. Since a garage is more secure and protected from the elements, that has certain advantages. But a street spot might be more convenient. So you’d be looking at rough similarity. And in parts of the city where there’s no viable market in garage building, that’s a market signal that parking demand is low and therefore street parking should be very cheap. But where garages are charging a lot, street parking should also be expensive. Among other things, that would reduce the need for new construction to be accompanied by expansive parking garages.

Perhaps more important, it would reduce the tendency for conversations about any new development to become immediately dominated by people’s fear of parking shortages. The whole shortage phenomenon is (as shortages tend to be) a symptom of bad pricing policy. Chicago is a big city with a vibrant downtown and tons of economic activity. Space is limited and expensive. Unless you charge more than a quarter for it, you’ll get shortages.

Still, the privatized meter pricing will remain highly regulated (to satisfy the anti-market bias of political constituents), preventing the full “market price” efficiency to be achieved.

Chicago Privatizes Parking Meters

Of course, Chicago is just privatizing the revenue from meters, not the actual parking spaces. Plus, the city will regulate rate increases, but it’s a step in the right direction. (right?)

For today’s politicians, this is a great way to get windfalls of money today for revenues of future generations in order to mask their fiscal irresponsibility. I think we’ll see more of this during the current mess as other municipalities catch on.

Ideally, cities should auction off the spaces (including the land), with no regulations on rates or use of the land. Let market mechanisms determine the highest-and-best use of the spaces and land.

Chicago Tribune: Most city parking meters to cost $1 an hour [Hat Tip: reader, Dan M]

City Hall officials said that after the first five years of the 75-year parking meter lease, rate hikes will be subject to approval by alderman and are expected to be at the rate of inflation.

The $1.1 billion to city coffers will come from Chicago Parking Meter LLC, which is made up of two Morgan Stanley infrastructure funds.

The Daley administration said $400 million will go into a long-term reserve, $325 million will be spent in city budgets through 2012 and $100 million is earmarked for programs helping low-income people. An additional $324 million is headed toward a fund city officials said “may be used to help bridge the period until the nation’s economy begins to grow again.”

and a video:

Cook County (Chicago) Sheriff Won’t Evict in Foreclosures

Cook Co. sheriff won’t evict in foreclosures from Associated Press

Cook County Sheriff Tom Dart says he’s ordered his deputies to stop taking part in evictions of properties that have been foreclosed upon.

Dart says the change goes into effect Thursday. He says the decision comes because many of those being evicted are people who’ve been faithfully paying rent and didn’t even know about the foreclosures.

Dart says he thinks he’s the first sheriff in a major metropolitan area to stop such evictions during what’s become a major foreclosure crisis around the nation.

Dart says the number of mortgage foreclosures in Cook County has skyrocketed this year and that he expects that number to climb much higher.

It’s really tragic that renters who have otherwise valid lease contracts, lose that right because of their landlords’ failure. But, I don’t have the same sympathy for the defaulters themselves.

What do you think will result from this move? Will banks stop foreclosing in Chicago without the rule of law on their side? Will defaulters squat?