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Category Economics

The need for low-quality housing

The market urbanism axiom — permitting housing supply to increase is key to achieving affordable housing — has been made recently by Rick Jacobus at Shelterforce and Daniel Hertz at City Observatory. However both argue that even with an increasing supply, low-income people will need aid in order to afford what the authors feel is adequate housing. History shows us, though, that if developers are allowed to serve renters in every price range, they will. The movie Brooklyn portrays the type of housing many of our grandparents and great-grandparents lived in when they emigrated to the United States. People of very little means could afford to live in cities with the highest housing demand because they lived in boarding houses, residential hotels, and low-quality apartments, most of which are illegal today. Making housing affordable again requires not only permitting construction of more new units, but also allowing existing housing to be used in ways that are illegal under today’s codes. Young adults living in group houses with several roommates have found a way around these regulations, but low-income renters were better-served when families and single people could pay for housing that was designed to meet their needs at an affordable price. Alan During explains the confluence of interest groups that successfully eliminated cheap, low-quality housing: The rules were not accidents. Real-estate owners eager to minimize risk and maximize property values worked to keep housing for poor people away from their investments. Sometimes they worked hand-in-glove with well-meaning reformers who were intent on ensuring decent housing for all. Decent housing, in practice, meant housing that not only provided physical safety and hygiene but also approximated what middle-class families expected. This coalition of the self-interested and the well-meaning effectively boxed in and shut down rooming houses, and it erected barriers to in-home boarding, too. Over more than a century, […]

Rent Control: A No-Win

In an otherwise excellent article on NIMBYism and luxury housing, affordable housing consultant Rick Jacobus writes: “economist Anthony Downs reviewed the published studies and found that while ‘stringent’ rent control imposed over a very long time had reduced private apartment construction in the UK, there was ‘no persuasive evidence that temperate rent control ordinances inhibit the construction of new rental housing’.” Since I am familiar enough with Downs’ work to know that he is not a flaming radical, I was a bit surprised to read this. So I looked at Downs’ paper.  Downs is generally critical of rent control, writing that while rent control transfers resources from owners to tenants, “the total net amount of benefits received by the tenants is usually smaller than the total net amount of costs imposed upon the owners; hence, rent controls are not efficient.” (p. 26). Downs adds that “the experience of the United Kingdom strikingly confirms that stringent rent controls reduce new construction of rental units in the long run…the share of all housing in the United Kingdom provided through privately owned rental units dropped by about 85 percent from 1950 to 1986.” (p. 18). Then he discusses the U.S. experience, contrasting New York City’s stringent rent controls with the more moderate controls of Los Angeles. Downs cites a Rand Corporation study that “estimated that 1968 rents under New York City’s stringent ordinance averaged 57 percent below what they would have been without controls [while] 1990 rents under Los Angeles’ temperate ordinance would average only 3.5 percent below what they would have been without controls.”  (p. 25).  This small gap “helps explain why Los Angeles has not experienced many of the adverse effects generally associated with more stringent rent control ordinances.” In other words, “temperate” rent control ordinances don’t do very much to […]

Liberate the Garage!: Autonomous Cars and the American Dream

Apple garage

When it comes to the impact autonomous cars will have on cities, there’s plenty of room for disagreement. Will they increase or decrease urban densities? Will they help with congestion or make it worse? At the same time, there seems to be widespread agreement on at least two things: First, far fewer people will own cars. Second, we are not going to need nearly as much parking. By combining the technology of autonomous cars with the business model of transportation network companies like Uber and Lyft, low-cost, on-demand ride-hailing and dynamic routing bus lines could eliminate the need to keep an unused car hanging around for most of the day. When that happens, we will need far fewer parking spaces, turning on-street parking into wider sidewalks and bike lanes and surface lots and parking ramps into residential and commercial uses. So how does the humble American residential garage fit into all this? On its face, the garage is little more than the sheltered parking space that comes with most single-family homes. Yet the garage holds a certain mythological status in the American psyche: It gave rise to iconic American brands like Disney, Harley Davidson, and Mattel. It offered a space in which the firms that would launch the digital economy could get their start, including HP and Apple. Google and Microsoft, which both started in garages, maintain “garage” work spaces to this day in order to cultivate innovation. By providing a flexible space in which knowledge, free time, and ambition can transform into entrepreneurial innovation, the garage has played a crucial role in the American economy.   At least in the near term, garages are not going anywhere. Unlike municipal governments and large private landowners who will likely face immediate political and market pressures to retool their parking spaces, many homeowners are structurally stuck with their garages. Millions of garages could go unused, occasionally kept active by automobile hobbyists, most likely turning into de facto storage units. But it doesn’t have to be […]

Who Plans?: Jane Jacobs’ Hayekian critique of urban planning

Cities are fantastically dynamic places, and this is strikingly true of their successful parts, which offer a fertile ground for the plans of thousands of people. – Jane Jacobs, The Death and Life of Great American Cities For most of the field’s history, prominent urban planning theorists have taken for granted that cities require extensive central planning. With the question framed as “To plan or not to plan?” students and practitioners answer with an emphatic “Yes,” subsequently setting out to impose their particular ideal order on what they perceived to be, as Lewis Mumford put it, “solidified chaos.” Whether through the controlled centralization of Le Corbusier or the controlled decentralization of Ebenezer Howard and Frank Lloyd Wright, cities were to be just that: controlled. When in 1961 Jane Jacobs set out to attack the orthodox tradition of urban planning, it was this dogma that landed squarely in her crosshairs. With her characteristically deceptive simplicity, she invites us to ask, “Who plans?” While many take Jacobs’ essential contribution to be her insights into urban design, her subversion begins at the theoretical level in the introduction to The Death and Life of Great American Cities. Despite their diverse aesthetic preferences, Corbusier and Howard share much in common. Both assume that planning entails the enshrining of a single plan and the suppression of all other individual plans. Both insist on imposing a “pretended order” on the “real order,” treating the city as a simple machine rather than a manifestation of organized complexity. Like Adam Smith’s “man of system,” each thinker was “so enamoured with the supposed beauty of his own ideal plan of government, that he [could not] suffer the smallest deviation from any part of it.” Jane Jacobs’ critique of this orthodox tradition unfolds in three steps, closely following F.A. Hayek’s argument in […]

Economist David Friedman Says India Must Go Taller To Make Homes Affordable

In this exclusive interview to PropGuide, legendary economist David Friedman, who studied at Harvard University and University of Chicago, says that the government should allow developers to build high-rises to make homes affordable for everyone by 2022. I met David Friedman at Starbucks in Connaught Place, the Central Business District of Delhi. Starbucks, which exemplifies the age of aesthetics, tends to maintain consistency in look, feel and attitude across the world. But, its store in Delhi’s premier market reeks of traditionalism, with bare cement interiors, local crafts and furniture. The Connaught Place market, though somewhat dilapidated, is one of the most expensive office spaces in the world. Starbucks, which does not have many outlets in India, bought space here because as per its brand values, it cannot afford to open stores where the catchment area does not justify the investment. The young men and women who listened to Friedman consuming expensive retail space without consuming the expensive coffee epitomize India’s leisurely café culture. Economist David Friedman is one of the most creative minds of our times. Friedman studied Physics at Harvard and Chicago, and has never taken a course for credit in economics or law. But, the finest of minds vouch that Friedman’s class on legal systems is the best economics course in the world. David Friedman is the son of Milton Friedman, the 1976 winner of Nobel Prize in Economics, and economist Rose Director. Rose Director was the co-author of Milton’s best-selling book, ‘Free to Choose’ and sister of economist Aaron Director who was instrumental in the development of the Chicago School of Economics. Here are excerpts from an interview: Shanu Athiparambath: Economist Tyler Cowen said that when he visited India, he was surprised to see crowded streets where nothing happened. He couldn’t see their possessions, because they live on the streets. Why are so […]

A response to Interfluidity

On Interfluidity, Steve Randy Waldman posted some criticisms of the market urbanist position. The post was interesting, though I took issue with a few specific points. The following are my responses. Regulatory Authority as a Property Right The customary property rights surrounding homeownership in many cities and suburbs include much more than the use of a square of earth and whatever is built on it. Existing homeowners bought into particular neighborhoods in large part because of their “character”, which includes nice-sounding things like walkability or “charm”, as well as not-so-nice-sounding things like access to exclusionary education. I don’t buy the idea that local control of zoning is a customary property right. A property right implies someone owns something in a definitive way and can make decisions as to the disposition of said something within whatever bounds are prescribed by law. Land use regulations don’t work that way. The relative influence over land use between two homeowners comes down to arbitrary factors like who’s more charismatic in the homeowner’s association or who shows up most frequently at planning meetings. However, if we were to make authority over land use more like a property right, I might actually like that. Ideas like Tax Increment Local Transfers, state taxes on the municipal use of zoning authority, and municipal corporations with residual claimants move us to a world where authority over land use actually looks like something that can be bought, sold, and taxed. I’m partial to the idea of deregulation, but if reform means creating a market in which we can pay off NIMBYs, I can get behind that too. The Normative Case Against Deregulation “Zoning reform” is an anodyne way to describe an expropriation of those customary rights. It amounts to diminishing residents’ ability to preserve or control the evolution of their neighborhoods, in […]

Smart city data and political opportunism

The term “smart cities” encompasses the interaction of the Internet of Things, the urban environment, and city dwellers. While these innovations have facilitated some very successful new services, smart cities have important limitations in the public sphere. Smart city technology includes city services like bike share systems and pedestrian, transit, and driving directions conveniently accessible on smart phones. Beyond these services, however, some city leaders have plans to revolutionize city planning through smart city data. Their ideas include facilitating evacuation during emergencies, reducing traffic congestion, and lowering crime. The proliferation of data arising from smart city tools has fostered many public policy experiments. In his book Smart Cities, Anthony Townsend covers how big data has opened up new opportunities for government service provision and government control. Townsend cites the example of Rio de Janeiro’s implementation of IBM technology as an example of the utopian thinking that smart city tools have inspired: What began as a tool to predict rain and manage flood response morphed into a high-precision control panel for the entire city. […] Just how effective Rio’s operations center will be in taming the wild metropolis remains to be seen. Urban security experts with whom I have spoken are skeptical that it will dramatically improve the effectiveness of law enforcement, and technology experts point out that beyond the video streams there has been little investment in new sensor infrastructure to feed real-time data to the center. Townsend points out that a key motivation of city leaders in adopting smart city technology has been creating the impression of being high tech rather than actually improving city services. He quotes the IBM team that implemented Rio’s weather forecasting and surveillance system saying, “That was a big surprise to us. We thought that this was going to be about ROI models, and the efficiency that we can produce. To […]

Shell Games in NIMBYism

Yesterday the Cato Institute hosted an event featuring William Fischel’s discussion of his new book Zoning Rules! with commentary by Mark Calabria, Matt Yglesias, and Robert Dietz. Fischel explained his theory that zoning was an effective tool for minimizing nuisances between land uses through the 1970s. Until that time, he asserts that city planners did a good job of separating incompatible land uses, such as industrial and residential uses, benefiting residents and protecting home values in the process. His theory is that in the 1970s, inflation increased the value of homeownership relative to cash savings, leading homeowners to increasingly view their houses as investments. At the same time, the rise of environmentalism provided the policy justification for using zoning as a tool to limit the growth of housing supply. According to his theory, homeowners then began using their power to lobby for downzoning to protect their large, undiversified asset, and valued minimizing any potential downside risk in their home value. In his discussion of Fischel’s book, Matt Yglesias pointed out that today, NIMBYism has gone far beyond keeping out polluting land uses and low-income neighbors. For example, some residents in San Francisco’s Mission District are supporting a moratorium on luxury housing development, and some Brooklyn residents are fighting to keep vacant industrial properties in place on the waterfront. Permitting high-end residential development in these neighborhoods would be more likely to raise than lower nearby homeowners’ property values. This opposition to development is at odds with Euclidean zoning in these neighborhoods where expensive housing now abuts abandoned warehouses. It’s also demonstrates that NIMBYs are not motivated by narrow profit interests, but have complex preferences that are not easily understood by observing the policies that they advocate for. In the private sector, profit is measured in money, and it’s generally safe to say that both parties to a transaction […]

Systemic bias against small scale development

In recent years, some of the country’s largest mixed-use real estate developments involved disposition of government-owned land directly to developers. For example, Atlantic Yards in Brooklyn and DC’s City Center and Marriott Marquis came about when municipal governments issued requests-for-proposals for underutilized land that they owned. Last week, Mid­Atlantic Realty Partners and Ellis Development Group closed on a deal to purchase 965 Florida Avenue NW from the District of Columbia. In 2012 the Office of the Deputy Mayor for Planning and Economic Development (DMPED) issued an RFP for this 1.45 acre at the intersection of the Shaw, U Street, and Columbia Heights neighborhoods. The RFP specified that any development on the site include affordable housing. Ultimately two developers submitted proposals. The winning developer purchased the land for just $400,000, at least $5 million less than appraisers estimated the land’s value to be, even after factoring in the affordable housing provision and needed environmental cleanup. By choosing to allocate very large parcels of land through this process rather than auctioning off small parcels of city-owned land, municipal officials favor large developers not only because smaller developers can’t afford such large parcels, but also because the RFP process favors established developers with political connections. In DC, large development firms provide some of the largest contributions to local campaigns. Not only does the sale of large parcels of public land exclude small developers who have less financial capital, it also reduces the pool of potential buyers to include only those with the political capital needed to navigate the RFP process. In the case of a private owner selling off a large tract of land, we would expect him to list the property for sale, accepting the best price he could get. If he thought smaller parcels would sell for more, the owner would likely try to subdivide before selling, expanding […]

San Francisco Turned Sisyphus: Why the City Can’t Fix the Housing Crisis On its Own

Housing prices in San Francisco are obscene. And, in large part, that’s because the city hasn’t permitted enough new construction. But that’s not the entire story. For as hard as San Francisco has resisted development, the Peninsula cities have resisted it even more. And in so doing they’ve pushed the responsibility of development onto their Northern neighbor. If San Francisco’s housing crisis is to be resolved, the Peninsula cities will have to quite literally grow up. Bad Neighbors San Francisco is synonymous with tech, but there’s plenty going on just down the road. Menlo Park has Facebook. Mountain View has both Google and Linkedin. These two cities alone are home to over 1,300 other tech companies and the story’s much the same elsewhere on the Peninsula. But where firms have sprung up and jobs have become abundant, housing has remained in short supply. Tech companies bus an estimated 7,500 workers from San Francisco apartments to Peninsula offices every day. They don’t do this for fun. There’s simply not enough housing near major employers. And what is available is often unaffordable, even for tech workers. But if housing prices are as bad or worse on the peninsula, one might ask why we only hear the word “crisis” in San Francisco. The reason is simple. What makes for crisis in San Francisco is nothing but windfall to the South. According to the U.S. Census, San Francisco’s homeownership rate is 36.6%. Mountain View’s is 41.8%, San Mateo’s is 53.6%, Palo Alto’s is 55.4%, Menlo Park’s is 56.2%, and Cupertino’s is 63.7%. Homeowners in these cities aren’t faced with skyrocketing rent. And thanks to Prop 13, they also pay almost nothing in property tax–no matter how much their homes appreciate in value. They not only face no downside from the anti-development status quo, they […]

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