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Category Economics

Government-Created Parking Externalities

In new research on parking policy in the Journal of Economic Geography, Jan Brueckner and Sofia Franco argue that residential developers should be required to provide more off-street parking in places where street parking contributes to traffic congestion. They argue that because traffic congestion is a negative externality, off-street parking requirements improve urban living. But street parking only contributes to traffic congestion when policymakers underprice it. Rather than addressing the externality of a government-created problem with new regulations, cities should price their street parking appropriately. Brueckner and Franco’s argument relies on the assumption that off-street parking will be under-provided without government intervention. They argue that because drivers circle their destination looking for free or cheap street parking, minimum parking requirements make people better off. The authors are correct in arguing that street parking contributes to the problem of traffic congestions. Parking guru Donald Shoup estimates that drivers who are circling around looking for parking spots make up 30 percent of downtown traffic. Cruising for parking imposes an external cost on others by causing everyone to waste time in slow traffic. While, Brueckner and Franco actually cite Shoup’s work on street parking and traffic congestion, they ignore his insight that when parking is priced appropriately, cities can eliminate this externality. The incentive to cruise for parking originates with public policy when city officials provide street parking at below-market prices. When parking prices are high enough, drivers will leave some parking availability on each block, eliminating the cruising problem without the need for minimum parking requirements. San Francisco’s SFPark program provides an example of successful implementation of variable pricing based on demand. SFPark has the goal of maintaining one to two available spots on each block so that drivers don’t contribute to traffic congestion while they’re looking for parking. When street parking is priced high […]

Market Urbanist Book Review: Cities and The Wealth of Nations by Jane Jacobs

No one writer of the last 60 years has influenced urban planning and thinking as much as Jane Jacobs. It seems like just about everyone who has ever set foot in a major city has read The Death and Life of Great American Cities and most professional urban planners have embraced at least part of her ideas. But that was not the only book she wrote and the others deserve attention from urbanists. First published in 1984, Cities and the Wealth of Nations was her last book to focus on cities and her second concerned with economics. Conceived at the height of 1970s stagflation, Jacobs brought her considerable polemical skills to bear on macroeconomics and elaborated on the observations in The Economy of Cities. In that book she theorized that economic expansion in cities was driven by trade, innovation and imitation in a process she called “import replacement”. In this one she extended the idea, arguing that cities and not nation-states are the real basic units of macroeconomic life. She also examined how the economic expansion affected regions in differing geographic proximity and how import-replacement and the wealth generated by it can be used in ways that ultimately undermine the abilities of cities to create wealth, which she called transactions of decline. Import-replacement is one of Jacobs’ more controversial ideas, partially because it seems similar to a discredited development policy called import substitution and partially because her evidence is largely anecdotal, as Alon Levy wrote back in 2007. Nevertheless it’s the centerpiece of Jacobs’ economic theories. And dismissing her work based on a lack of conventional credentials ignores her entire rise to fame and influence. Two important things distinguish import-replacement from import-substitution. Substitution is a national policy pursued by governments with taxes, tariffs and subsidies while replacement is a process […]

Market Urbanism Is Still Underrated

New data keeps coming in that shows that increases in housing supply tend to be followed by declining rental rates, even in the cities facing the highest demand. After a boom year for apartment construction in 2016, rents are falling in New York City, San Francisco, and Washington, DC. Median rents for one-bedrooms across New York City fell by 9.1% in the past year. Even in San Francisco — the most productive city in the country — a burst of new supply in 2016 has led to falling rents. Estimates put rent year-over-year decline in prices at 1% to 9%. Rising vacancy rates and quarter-over-quarter declines in Seattle’s rental rates are a sign that it’s leaving a period of double-digit annual increases. A decade of increasing construction rates in DC has leveled off rent prices. Los Angeles has not seen the apartment boom that has benefitted renters in other expensive cities, and its rental rates are the fastest rising in California. Scott points out the striking correlation between housing construction and house prices in in-demand cities. This trend of declining rents is some very preliminary evidence against Tyler Cowen’s claim that densification in expensive cities will result in economic growth, but not falling rents as more buildings draw in more business activity and talent. A New York developer echoes Tyler’s view: “There are so many units, but then they all get eaten up. That is the way New York works.”

Conflicting Affordable Housing Policies

Inclusionary zoning allows a few people to live in desirable, new construction buildings for much less than market rates. But it also carries with it a slew of perverse consequences. Because it’s a tax on construction, it reduces supply. Inclusionary zoning also leads developers to build higher-end buildings than they would otherwise, further squeezing out lower- and middle-income tenants. While inclusionary zoning makes life easier for a few middle- and high-income residents lucky enough to secure below market-rate units in expensive cities, it also contributes to the regulatory mess that constrains housing supply in general. This in turn drives up the cost of housing. The effects of these supply constraints fall hardest on low-income residents who can least afford artificially high housing costs. By placing further constraints on housing markets, inclusionary zoning makes it so that resources dedicated to providing housing for the truly needy don’t go as far as they could in a less regulated market. Subsidies to middle-income residents come with the unfortunate side effect of making it more difficult for non-profits and government programs to make housing accessible to the truly needy. Recently I presented on a panel at Chapman University on the future of housing in Orange County. Our panel highlighted the tensions between housing programs designed to help low-income and homeless households and those designed to help middle-income households. While my talk focused on regulatory barriers that make housing unaffordable for people across the income spectrum, Maria Cabildo — a former non-profit developer for low-income housing — talked about her experiences building housing for the homeless and very-low-income families. Maria pointed out that market-rate housing is too expensive for minimum wage earners in every single county in the country. In expensive markets, policies designed to subsidize housing for middle-income people drives prices even farther out of reach for low-income […]

If Landlords Can Profit, Homes Must Be Great Investments, Right?

  Homeownership boosters use many arguments in favor of buying rather than renting, one of which is that purchasing a home is a key part of the path toward a lifetime of financial success. They often say that renters are helping landlords profit when they would be better off paying their own mortgage instead. But a more nuanced analysis shows that it’s possible both for landlords to profit and for renting to make more financial sense than buying for some people. Someone purchasing a property to rent out will be purchasing an investment rather than a home — an emotionally fraught purchase often fueled with American Dream mythology. Because of the large transaction costs in buying and selling houses, people tend to buy the home they foresee wanting for many years after the purchase date. A childless couple might purchase a four-bedroom home in a good school district for the future, meaning that they end up over-consuming housing for their yet unborn children. If this hypothetical couple decided to rent until their children were school-age instead, they would likely be able to save and invest a substantial amount by spending less on housing in the near term. Would a landlord purchase this couple’s single family dream home? Probably not. Rather, with the same money, he might purchase a small apartment building in a  less desirable part of town. These differences in purchasing decisions help to explain why landlords can profit in the same cities where people may not come out ahead by buying instead of renting. In addition to having disparate motivations when purchasing property, a potential landlord likely has other comparative advantages that make him more likely to profit from real estate relative to the average homebuyer. He may have above-average knowledge of which neighborhoods are likely to see […]

The Urban Origins of Liberty

In The Road to Serfdom, F. A. Hayek tells us that intellectuals and governments in the twentieth century tragically abandoned the road to liberty in pursuit of collectivist utopias.  That road stretched at least as far back as the democratic polis of ancient Greece, but it was not always straight and unbroken.  Once, it was completely lost, only to be rediscovered centuries later. The idea of liberty emerged in the struggle between the forces of collectivism and individualism. It is the idea that each of us has a rightful sphere of autonomy in which we may be free from aggression.  In politics this manifested itself as liberal democracy, in economics as market competition, and in the broader social realm as scientific advance, artistic expression, and religious tolerance. In his concise masterpiece, Medieval Cities: Their Origins and the Revival of Trade, the Belgian historian Henri Pirenne explains just how, long after the fall of the western Roman empire, the liberal idea gradually reemerged and how this was directly tied to the birth of the modern city. The Decline of Cities and Civilization Between AD 400 and 900 cities virtually disappeared from Europe.  Even in Rome, which at its height had a population of one million, the population fell to mere thousands – most of whom were either Churchmen or those who served them.  Bishops and clerics dominated urban life, while princes, who had little reason to spend time in dreary medieval towns, focused attention on protecting their feudal estates, earning tribute from their vassals, and exploiting the labor of their serfs. Then as now, nobles followed wealth, and in the Middle Ages, as trade among cities dwindled, the basis for wealth went from money to land.  Money, liquid and essential for commerce, became superfluous, while control and acquisition of land became […]

The Psychological Consequences Of Rent Control

The University of Chicago Press has published a “definitive” edition of F. A. Hayek’s The Constitution of Liberty under the editorial guidance of long-time Hayek scholar Ronald Hamowy. Given my interest in urban issues, it’s a good time for me to focus on chapter 22, “Housing and Town Planning.” It has several insights that I really like, but given the constraints of this column, for now I’ll talk about Hayek’s take on rent control. I must confess that it was several years after I became interested in the nature and significance of cities that I learned that Hayek had written anything on what we in the United States call “urban planning.”  (Well, that’s not quite true; I did read The Constitution of Liberty as a graduate student, but in those days I didn’t appreciate how important cities are to both economic and intellectual development, so it evidently made no impression on me.)  The analysis has a characteristically “Hayekian” flavor to it, by which I mean he goes beyond purely economic analysis and points out the psychological and sociological impact of certain urban policies that reinforce the dynamics of interventionism. The Economics of Rent Control Hayek’s economic analysis of rent control sounds familiar to modern students of political economy perhaps because it’s so widely (though not universally) accepted.  This was hardly the case in 1960, when his book was first published.  Hayek points out that despite the good intentions of those who support it, “any fixing of rents below the market price inevitably perpetuates the housing shortage.”  That’s because at the artificially low rents the quantity demanded exceeds the quantity supplied. One effect of the chronic housing shortage that rent control produces is a drop in the rate at which apartments and flats would normally turn over.  Instead, rent-controlled housing becomes […]

Preservation At The Expense Of Liberty

“Everything passes. Nobody gets anything for keeps. And that’s how we’ve got to live.” –Haruki Murakami   I feel lucky to live in Brooklyn Heights.  It’s been called New York City’s first suburb.  It offers easy access to most parts of Manhattan, thanks to the convergence of several important subway lines, and the view of Lower Manhattan from here is one of the most spectacular in the City. Not surprisingly it’s one of the most desirable and expensive neighborhoods to live in.  Along its periphery, warehouses and office buildings are constantly being converted into residences, to go along with townhouses in the neighborhood proper that were built in the early 1800s, as developers try to keep up with a demand that has remained strong even in a slack housing market.  In my opinion the Brooklyn Heights district is one of the most charming, and probably the prettiest, in all of New York.  So what’s to complain about? Urban Renewal and Landmarks Preservation Three things.  First, in 1939 the area just east of the neighborhood underwent the largest urban renewal project of its time, razing 125 buildings over 21 acres and creating “Cadman Plaza,” the first of many so-called “super-blocks” built in major cities across the United States in the mid-twentieth century.  Later, between 1947 and 1954, local authorities constructed the Brooklyn-Queens Expressway (BQE) along the northern and western borders.  Then in 1965 Mayor Wagner signed a law that made Brooklyn Heights the City’s first historic district (there are currently 100 such districts in New York) and eventually gave rise to the important Landmarks Preservation Commission. Cadman Plaza and the BQE effectively cut the Heights off from the hurly-burly of commercial development in neighboring districts.  The Landmarks Preservation Commission has made it very hard and very costly to change the existing […]

Episode 05: Samuel Zipp and Nathan Storring on Vital Little Plans

Alley

  This week on the Market Urbanism Podcast, I chat with Samuel Zipp and Nathan Storring on the wonderful new volume Vital Little Plans: The Short Works of Jane Jacobs. From Jacobs’ McCarthy-era defense of unorthodox thinking to snippets of her unpublished history of humanity, the book is a must-read for fans of Jane Jacobs. In this podcast, we discuss some of the broader themes of Jacobs’ thinking. Read more about the ideas discussed in this week’s episode: Pick up your copy of Vital Little Plans on Amazon. Mentioned in the podcast, Manuel DeLanda discusses Jane Jacobs in A Thousand Years of Nonlinear History. Read more about the West Village Houses here. The question of Quebec separatism is a fascinating—and under-considered—element of Jacobs’ work. Help spread the word! If you are enjoying the podcast, please subscribe and rate us on your favorite podcasting platform. Find us on iTunes, PlayerFM, Pocket Casts, Stitcher, and Soundcloud. Our theme music is “Origami” by Graham Bole, hosted on the Free Music Archive.

The Invisible City

  Italo Calvino’s Invisible Cities is a short, often wonderful but consistently enigmatic (at least to me) novel about an extended conversation between Marco Polo and Kublai Khan. Marco tells the Khan a series of tales about fantastical cities he’s perhaps only imagined. I’ve always assumed that the book’s title refers to that imaginary quality, since no one besides Marco himself has actually seen the cities he describes, and they likely exist only in his mind or in the words as he utters them. Recently, I hosted a couple of group “tours” of my neighborhood. These tours are called “Jane’s Walks” in memory of the great urbanist Jane Jacobs. In the course of explaining her (mostly laissez-faire) principles to the group, I realized there’s another interpretation of Calvino’s title that I much prefer. It is this: A city—especially a great one—cannot really be seen. Paradoxically, the closest we can come to actually seeing one is through the imagination. Otherwise, it’s invisible. Moreover, if you can fully comprehend a place, then it’s not a city. You Don’t See a City on a Map If you think about a particular city that you know, what comes to mind? An image, a feeling, a smell, or a sound? Before we visit a city, we may look at pictures of parts of it, perhaps its famous landmarks, but these mean little to us in themselves. We may study a map of Paris to get a sense of the layout or the general shape of the metropolis. But what we are seeing is not the city of Paris but something highly abstract, abstracted not only from Paris but also from the particular reality of our lives. If, before going there, we could somehow look at a photo we will take of Paris, the scene would not evoke much from us […]

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