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I’ve been swamped in my day job, but want to share the following: The blog, Agents of Urbanism recently gave praise to Market Urbanism. Thanks Matthew! Please check out Agents of Urbanism and Life Without Buildings, who followed up on Agent of Urbanism’s praise. I enjoy both blogs. Carl Close wrote How “Urban Renewal” Destroyed San Francisco’s Fillmore District for The Independent Institute’s blog, The Beacon. And finally, I came across some fantastic lectures at the Foundation for Economic Education, by Sandy Ikeda. I highly recommend listening to the MP3s during your free time this weekend. He discusses Jane Jacobs, urbanism, history, sprawl, economics, and most things of interest to readers of Market Urbanism: Urban Planning Private Cities
No doubt, mass production of the automobile is one of the greatest innovations of all times. It has allowed for increased mobility of goods and people, which has greatly improved productivity and leisure. But, is subsidizing mobility at the expense of taxpayers taking things too far? In various blogs and forums, I frequently come across the argument that the costs of automobile use are fully (or mostly) internalized through gas taxes and fees. Often, this argument is used by free-market impostors against transit subsidies, or by automobile enthusiasts in defense of highway socialism. The usual argument is that the costs of roads and infrastructure are paid through gas taxes, and thus the users of the roads are funding what they use. This is a powerful and pervasive myth that will continue to distort the truth, unless serious scrutiny is given to the assertion. Let us first examine the validity of the assertion through studies of the explicit costs (actual dollars) of roads in the US and the taxes and fees collected. Next, we will look deeper and discuss the implicit costs (ie opportunity costs) of roads and automobile use as well as acknowledge externalities involved with automobile use. The Explicit Costs We can see the extent of the Urbanism Legend by looking at wikipedia: Virtually 100 percent of the construction and maintenance costs are funded through user fees, primarily fuel taxes, collected by states and the federal government, and tolls collected on toll roads and bridges.[citation needed] (The claim that only 56 percent of costs are funded by user fees is based on the misinterpretation of a table that applies to all highways, roads, and streets, not just the Interstate Highways.[citation needed]) In the eastern United States, large sections of some Interstate highways planned or built prior to 1956 are […]
Don Boudreaux to the Washington Times: LETTER TO EDITOR: Roads don’t need new taxes Thursday, July 24, 2008 Upset that Virginians’ taxes were not recently raised to construct more roads, State Delegate Brian J. Moran, Alexandria and Fairfax Democrat, declares that “Government has an important role to play in strengthening our infrastructure, developing our economy and creating new jobs” (“Virginia’s transportation conundrum,” Op-Ed, Tuesday). Not so fast. Infrastructure that we today naively suppose must be supplied by government has in the past often been supplied by the private sector – supplied so well, indeed, that these private-infrastructure projects helped to spark the Industrial Revolution in 18th-century Britain. Harvard University historian David S. Landes explains: “At the same time, the British were making major gains in land and water transport. New turnpike roads and canals, intended primarily to serve industry and mining, opened the way to valuable resources, linked production to markets, facilitated the division of labor. Other European countries were trying to do the same, but nowhere were these improvements so widespread and effective as in Britain. For a simple reason: nowhere else were roads and canals typically the work of private enterprise, hence responsive to need (rather than to prestige and military concerns) and profitable to users…. These roads (and canals) hastened growth and specialization.” DONALD J. BOUDREAUX Chairman Economics Department George Mason University Fairfax Also, Cafe Hayek – Infrastructure and the State (by Don Boudreaux) for some good discussion in the comments.
Matthew Yglesias – Straight Talk on Gasoline on drilling and how conservative deviation from free-market principles has hurt the environment: Meanwhile, take something like the accessory dwellings issue. Here you have a bunch of regulations that make it illegal for people to live more densely. Illegal, in other words, to build the kind of communities where the gas price issue wouldn’t hurt so much. But there’s a movement afoot to change things. Similarly with minimum parking rules — regulations that interfere with the operation of the free market in such a way as to make it more difficult for people to live energy efficient lives. And again, there are people trying to change this. These things are regulatory barriers to solving our energy problems every bit as much as the ban on offshore drilling is. And conservatives are against regulation, right? Except the anti-drilling regulation is good for the environment and for coastal economies whereas anti-urbanist regulation is economically inefficient and environmentally destructive. Naturally, conservatives have chosen to aim all of their fire at anti-drilling regulations. And that’s the sort of thing that makes the conservative movement hard to take seriously — it’s an organized defense of existing power and privilege that now and again adopts principled rhetorical modes of various kinds but basically can’t be moved to act unless some lobbyists pay them too. Similar arguments could describe progressives too, but that (and drilling for oil) is a topic for other blogs… I agree about the inconsistent anti-market sentiments of conservatives when it comes to urbanism. Conservatives tend to embrace socialism when they can abuse government to create barriers that exclude others from their communities, but not when others benefit from socialism. (Public schools, free parking, government roads, exclusionary zoning, community centers, etc…) They are just fighting over different […]
Harvard Economist Ed Glaeser wrote an opinion piece in the New York Sun about the differences in housing affordability and other costs of living between Houston and New York. New York is naturally more expensive than Houston because the geographical constraints force higher density development, which is more expensive to build. New York’s highly regulated land use and zoning process adds more constraints that exacerbate this problem. On the flip side, Houston has few geographical constraints and relatively loose regulation, allowing the market to allocate housing more efficiently. In conclusion, Glaeser recommends that New York could do much to improve affordability by loosening it’s many regulations. NY Sun – Houston, New York Has a Problem Why is it so much more expensive in New York? For one, supplying housing in New York City costs much, much more — for a 1,500-square-foot apartment, the construction cost alone is more than $500,000. Also, part of the reason is geographic: an old port on a narrow island can’t grow outward, as Houston has, and the costs of building up — New York’s fate, especially in Manhattan — will always be higher than those of building out. And the unavoidable fact is that New York makes it harder to build housing than Chicago does — and a lot harder than Houston does. The permitting process in Manhattan is an arduous, unpredictable, multiyear odyssey involving a dizzying array of regulations, environmental, and other hosts of agencies. A further obstacle: rent control. When other municipalities dropped rent control after World War II, New York clung to it, despite the fact that artificially reduced rents discourage people from building new housing. Houston, by contrast, has always been gung ho about development. Houston’s builders have managed — better than in any other American city — to make the […]
G.L.C. at Amateur Economist wrote an informative article on zoning, an issue which always gets attention at Market Urbanism – Why Zoning Laws Are No Longer a Benefit to U.S. Home Buyers Virtually every town in the United States has zoning laws which affect land use, lot size, building heights, density, setbacks, and other aspects of property use. Zoning laws are government regulated restrictions on how a particular piece of land can be used – residential, commercial, industrial, agricultural, and recreational. They impose many use restrictions, such as the height and overall size of buildings, their proximity to one another, what percentage of the area of a building lot may contain structures, and what particular kinds of facilities must be included with certain kinds of uses. G.L.C. goes on to discuss how zoning restrictions, such as height and density restrictions, constrain the supply of housing nationwide. These supply restrictions causes prices to be higher than they would be without restriction. The article also cites data from research by Ed Glaeser and Joe Gyourko: Edward Glaeser of Harvard and Joe Gyourko of the University of Pennsylvania studied this problem and attributed the error on the supply side to zoning restrictions. They studied the data from over two dozen American cities and concluded that zoning restrictions kept the housing prices high and did not allow competitive forces to correct the supply and demand position.
There is little reliable research into the economic returns of high-performance (green) features of buildings, but Professor John Quigley plans to release his groundbreaking research on the subject this Fall. I am very excited to learn this news, and will certainly look forward to reviewing the results. Especially if implementation could improve my own development practice. Professor John Quigley Discovers Green Building Pays Greenbacks Everyone’s talking about “going green,” but in the building industry, the cost of investment has been difficult to justify – until now. Haas Professor John Quigley has undertaken the first systematic analysis of environmentally sustainable construction and its economic impact on the real estate market. In the working paper, “Doing Well by Doing Good? Green Office Buildings,” Quigley and co-authors Piet Eichholtz and Nils Kok of Maastricht University, Netherlands, determined investments in proven green building practices lead to sizable increases in a property’s market value and effective rent, the average per-square-foot rent paid. Green-certified buildings produced an 8.5 percent increase in effective rent. The additional annual rent for going green amounts to almost $309,000, based on the average size building. Likewise, the incremental value of a green structure is an estimated $5.1 million more than an ordinary building. The study did not calculate the incremental cost of investing in green building practices. When asked why he decided to research the economic value of green-certified buildings, Quigley, the I. Donald Terner Distinguished Professor in Affordable Housing and Urban Policy, replied, “To see if this was hype or real.” While Quigley’s work concludes the resulting profitability is real, he is continuing to research why green commercial buildings produce higher rents and market value by using engineering data from the Environmental Protection Agency (EPA). The research focused solely on commercial property. It first identified 694 buildings, green certified by […]
I regularly listen to Russel Robert’s EconTalk podcasts. This week’s podcast with Michael Munger from Duke University is particularly interesting, and possibly my favorite, along with the Milton Friedman interview. Photo by Flikr user Silvia Sugasti Professor Munger had just returned from Santiago, Chile with some great insight into their transportation system. Up until a few years ago, Santiago had a completely private systems of transit and buses. He claimed that there were 3,000 different private companies operating transportation. The unsubsidized system worked very well and was profitable, until the city took over the transportation industry and forbade private companies from providing any transportation services. At the time the City took over, the planners thought they could improve the system by directing people to the subway system. It didn’t work, and now it’s a mess. photo of crowds cramming into a subway station by flickr user Thokrates I highly recommend taking an hour during your next commute to listen to the podcast. EconTalk Podcast – Munger on the Political Economy of Public Transportation Michael Munger of Duke University talks with EconTalk host Russ Roberts about Munger’s recent trip to Chile and the changes Chile has made to Santiago’s bus system. What was once a private decentralized system with differing levels of quality and price has been transformed into a system of uniform quality designed from the top down. How has the new system fared? Not particularly well according to Munger. Commuting times are up and the President of Chile has apologized to the Chilean people for the failures of the new system. Munger talks about why such changes take place and why they persist even when they seem inferior to the original system that was replaced.
This post is part of an ongoing series featured on Market Urbanism called Urbanism Legends. The Urbanism Legends series is intended to expose many of the myths about development and Urban Economics. (it’s a play on the term: “Urban Legends” in case you didn’t catch that) We’ve all heard it said by some NIMBY activist: “This greedy developer doesn’t care about the people of the neighborhood, he just wants to maximize his own profit.” Are developers the devil? No doubt, developers usually are self interested, and seek profit. However, just like in any business, profit seekers must try to satisfy the desires of its customers better than its competitors. The successful developer must direct capital towards creating value in the real estate market for potential customers. So, perhaps it seems particularly greedy that a developer who is creating value in a community, cares less about the current inhabitants than newcomers. But, as Henry Hazlitt wrote in the classic, Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics: the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups. here’s a link to the quote in an online version of the book Most Urbanism Legends, like most economic myths, rely on looking at policies from the perspective of one group without looking at the effects on other groups and society as a whole. This Urbanism Legend is no different. Looking deeper at the issue, the developer represents the needs of the community in a less visible, yet […]
Environmental and Urban Economics – Commuting Cost Arithmetic When people work in the suburbs, will they save many gallons of gasoline if they move to the center city? Yes, they will be closer to their center city friends and stores but they will still need to reverse commute by car to their jobs (unless they can ride the Google Bus from Center City San Fran to Mountainview). So this raises the question of whether high gas prices will push employers to move back to the center city? Employers who need land (think of Google) will be unlikely to want to rent out 35 stories of a skyscrapper. Total One Way commute cost = price of a gallon of gas + hourly wage Case #1: you make minimum wage = 5 + 7 = 12 and the share of expenditure on gas = 5/12 Case #2: Ivy League graduate = 5 + 100 = 105 and the share of expenditure on gas = 5/105 So this simple example highlights how the wage can swamp the price of gas for the high skilled but for the less educated, gas is a huge part of the commute cost. Interesting point. CBDs tend to attract highly talented workers, who tend to earn higher salaries. So, will those people have the incentive to move closer? Probably not much. However, there are plenty of middle wage workers who commute to CBDs, and may be tempted to locate closer. But, a firm that desires to attract the most talented workers will most likely locate in the CBD anyway. Thus, I wouldn’t expect as much difference in firm location preference, compared with the shifts in housing location preference. Those who work in suburban locations may end up moving closer to their jobs, making living patterns more compact near […]