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Category Economics

More on Parking Prices

At Wabi-sabi, Sandy Ikeda (former Market Urbanism writer) has a great analysis of San Francisco’s pricing for parking. He points out that assigning prices to spots is not equivalent to allowing a market to determine a price. For a real price to emerge capital (the parking space) cannot be state-owned. Sandy points out that the “shortage” of parking arises because no one owns street parking, so the appropriate incentives are not in place for someone to charge an equilibrium price for parking. While the San Francisco programmay be a step in the right direction, he explains that “more intervention usually doesn’t solve the problems that were themselves the result of a prior intervention.” In this case, the city is trying to set a price for something that it could instead auction off to eliminate the original intervention. On yesterday’s post, two commenters pointed out other parking reforms in Austin and in Long Beach that go a step further than charging higher prices for parking. These cities have allowed businesses to lease parking spots for outdoor restaurant seating or retail. San Francisco has also tried turning parking spots into mini parks. This has several benefits, including allowing for land to be better-utilized by permitting a form of street narrowing. However, as long as curbside parking remains city-owned, prices for either parking or land leases will be determined arbitrarily, preventing the actual highest-value use from being discovered.

Maryland realtors fight to protect their subsidy

This post originally appeared at Neighborhood Effects, a Mercatus Center blog where we write about the economics of state and local policy. We’ve already explored Governor O’Malley’s proposal for the Maryland budget here and here, but recently, a perhaps unintended consequence of the budget came to light. By limiting the deduction that residents earning over $100,000 can make on their state income taxes, the proposed budget would limit the size of the mortgage interest tax deduction for many taxpayers. I stand by my earlier argument that reducing deductions for only one group of people is not a step in the direction of fairness, but a reduction in the mortgage interest tax deduction may be a positive side effect of an otherwise bad policy. From a limited-government perspective, the obvious downside of a reduction in the mortgage-interest tax deduction is that this represents a revenue-positive change in Maryland’s tax code in a state that already has one of the highest tax burdens in the country. Overall though, I think reducing this tax expenditure is a positive change because the policy has many negative consequences. While the causes of the financial crisis were many, by subsidizing investment in homes, the mortgage interest tax deduction played some part in the overvaluation of housing stock. Aside from the poor incentives that this tax expenditure creates in financial markets, it amounts to favoritism of suburbs over cities. In Triumph of the City, Ed Glaeser argues that the deduction leads many people to abandon renting in a city center for homeownership in the suburbs. However the Federal Reserve Bank of Boston provides evidence that the policy is more likely to lead people to buy larger homes than they otherwise would rather than trading renting for buying a home. Richard K. Green and Andrew Reschovsky write: If one set out to design a policy to encourage homeownership, […]

A hole in the literature?

In the comments of a previous post, readers discussed the incentives facing different types of landowners whose properties are facing potential upzoning, demonstrating just how complicated the relationship between land use regulations and property values is. As I see it, theory tells us that upzoning will increase the value of much of the land that will be redeveloped by opening up options for the developer to put the land to a higher valued use. However, land that is not economically viable for redevelopment and perhaps some land near this margin would fall in value due to the increased supply permitted. The example from the earlier post was a proposal for upzoning in Hollywood. I would think that plenty of properties there would be ripe for redevelopment, as single family zoning is constricting supply to well below the market clearing level. If this is true, many homeowners would stand to receive a windfall with upzoning. I’m not very familiar with Los Angeles, but I’d think it likely that owners on the periphery of the area to be upzoned could potentially lose money, as the supply of housing would increase in the most desirable parts of Hollywood, devaluing homes in the less desirable areas. In the comments, awp provided clear analysis of what’s going on in this situation: The excess “rent” comes from having a part of a limited SUPPLY. Any one individual would be able to increase their portion of the “rent” by being the only one allowed to increase their supply, while lowering the total “rent” through the increase in SUPPLY.  If the zoning is removed there will be no remaining excess “rent”.  It would take some serious analysis that I have never seen to figure who would benefit the by moving from a zoning regime to a free market regime. […]

DC Office of Planning releases an underwhelming study of proposed new streetcar network

Last week the DC Department of Transportation DC Office of Planning released a Streetcar Land Use Study describing the impacts that the proposed DC streetcar network will have for the city. Greater Greater Washington accepts the study as proof that the streetcar will be great for DC. The report is full of the feel-good economics that really bothers me about Smart Growth in general, and I think that this sort of treatment of the trade offs of public policy hurts the urban agenda in the long run. The study finds that the streetcar will pay for itself by raising the property tax base. From a Smart Growth perspective, though, this is a problem because it will make housing less affordable. The study suggests that inclusionary zoning will provide the necessary affordable housing after the streetcar raises property values. Current zoning laws require new multifamily buildings with 10 or more units to comply with inclusionary zoning requirements for low-income housing. As Stephen has pointed out before, inclusionary zoning is just a more complicated policy that ultimately has many of the same unintended consequences as rent control or subsidized housing. Subsidizing the cost of housing for a select group necessarily makes it more expensive for those of all income levels who are not lucky enough to secure this subsidy. Forcing developers to provide this subsidy does not change its economic impact on those who are left paying market rate. DDOT  The Office of Planning predicts that by far the greatest gains in real estate value will accrue to property owners within one quarter of a mile of the stops along K Street (see graph on page 24 of the study). It’s important to note that the vast majority of these gains will be realized in higher per-square-foot prices rather than new square footage since […]

Italy’s Austerity Plan Spurs Transport Deregulation

There’s been a lot of handwringing by American lefties over the austerity plans that Germany is asking indebted eurozone governments like Italy and Greece to implement in exchange for bailouts, but many aspects of the plans – especially labor market deregulation – are long overdue no matter which side if the aisle you sit on (in the US, at least). In searching for information on the deregulatory aspects of Prime Minister Mario Monti’s “Save Italy” austerity plan, I came upon this interesting bit on transport deregulation in Corriere della Sera. I’ve never actually studied or spoken Italian, but hopefully this is a workable translation, if a bit literal: The recipe that the Antitrust Authority has chosen for taxi liberalization will double the number of licenses, but with each driver receiving a second one as compensation….

Cutting Costs On California HSR Doesn’t Have To Add Delays

Scrapping viaducts like this would make California HSR cheaper, faster to build, and easier to maintain, without a loss in quality The recent peer review report recommending that California delay construction on the first segment of its high-speed rail project has caused a bit of consternation in the transit twittosphere. Blogger The Overhead Wire wrote, “Sorry, but defunding HSR won’t make local agencies $10b richer.” I replied, “But it might start a long-overdo convo on costs,” and he responded (and many agreed): “and then nothing will get done in my lifetime and costs won’t matter….

The Coase Theorem in Land Use

On a recent post about property rights in the land market, commenter David Sucher brought up the issue of transaction costs. He commented here and at his blog City Comforts: The “least intrusive means” should be always kept in mind. The only issue for me is the huge transaction costs which, I believe, make private agreements for land use quite impossible. The very reason we have government is because “voluntary private contracts” are too complex. We got rid of tort law (as to land use) because it was much easier to have uniform area-wide regulations. While David brings up very valid points, I think that economist Ronald Coase offered a persuasive argument against these area-wide regulations. The Coase Theorem, which interestingly, I don’t think we’ve written about in depth here, addresses this issue of transaction costs. In 1960, Coase published his most famous paper, “The Problem of Social Cost,” exploring a common problem for city dwellers: annoyance at their neighbors’ behavior. Coase uses as an example a confectioner whose business is adjacent to a doctors office. The confectioner uses loud machinery which causes vibrations next door and bothers the doctor. We can imagine a variety of solutions to this problem: the doctor could sound proof his office, the confectioner could upgrade to quieter machinery, one of them could move his business, the confectioner could compensate the doctor for the bother, or the doctor could pay the confectioner to stop making noise during his business hours. Assigning property rights would help any of these solutions emerge; if the confectioner has a right to make noise, the responsibility lies with the doctor to remedy the situation (or learn to live with the noise) or the reverse if the doctor has a right to quiet. In a standard Micro 101 class, in my experience, the […]

In Defense Of Land Reclamation: It Ain’t All Palm Islands!

Earlier today Urban Photo Blog tweeted earlier today a link to an article about Hong Kong’s latest land reclamation project, with an obviously sarcastic “because it worked so well in Dubai!” tacked on at the end. Not to pick on Urban Photo Blog – actually, his Twitter account is definitely one of the best I follow – but I think that some of boomtime Dubai’s real estate projects, among them the infamous Palm Islands, give land reclamation a bad rap. …

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