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Filtering: Gentrification in Reverse

Co-authored with Anthony Ling, editor at Caos Planejado Gentrification Gentrification is the process through which real estate becomes more valuable and, therefore, more expensive. Rising prices displace older residents in favor of transplants with higher incomes. This shouldn’t be confused with the forced removal of citizens via eminent domain or “slum clearance.” Ejecting residents by official fiat is a different problem entirely. A classic example of gentrification is that of Greenwich Village, New York. Affluent residents initially occupied the neighborhood. It later became the city’s center for prostitution, prompting an upper-middle class exodus. Low prices and good location would later attract the textile industry. This was the neighborhood’s first wave of gentrification. But after a large factory fire, the neighborhood was once again abandoned. Failure, however, would give way to unexpected success: artists and galleries began to occupy the vacant factories. These old industrial spaces soon became home to one of the most important movements in modern art. In Greenwich Village, different populations came and went. And in the process they each made lasting contributions to New York’s economic and cultural heritage. This was only possible because change was allowed to take place. But change isn’t always easy. As a neighborhood becomes more popular, it also becomes more expensive. Tensions run high when long-time residents can’t afford rising rents. Some begin to call for rent controls or other measures to prevent demographic churn. But rent control is a temporary fix at best; in the longer term, its effects are negative. By reducing supply, rent control tends to drive up the cost of housing. And in the face of price controls, landlords may seek to exit the rental market entirely, further exacerbating any housing shortage. What, then, does this mean for urban development? How can cities evolve without completely displacing their middle and […]

How to Fix San Francisco’s Housing Market

Want to live in San Francisco? No problem, that’ll be $3,000 (a month)–but only if you act fast. In the last two years, the the cost of housing in San Francisco has increased 47% and shows no signs of stopping. Longtime residents find themselves priced out of town, the most vulnerable of whom end up as far away as Stockton. Some blame techie transplants. After all, every new arrival drives up the rent that much more. And many tech workers command wages that are well above the non-tech average. But labelling the problem a zero sum class struggle is both inaccurate and unproductive. The real problem is an emasculated housing market unable to absorb the new arrivals without shedding older residents. The only solution is to take supply off its leash and finally let it chase after demand. Strangling Supply From 2010 to 2013, San Francisco’s population increased by 32,000 residents. For the same period of time, the city’s housing stock increased by roughly 4,500 units. Why isn’t growth in housing keeping pace with growth in population? It’s not allowed to. San Francisco uses what’s known as discretionary permitting. Even if a project meets all the relevant land use regulations, the Permitting Department can mandate modifications “in the public interest”.  There’s also a six month review process during which neighbors can contest the permit based on an entitlement or environmental concern. Neighbors can also file a CEQA lawsuit in state court or even put a project on the ballot for an up or down vote. This process is heavily weighted against new construction. It limits how quickly the housing stock can grow. And as a result, when demand skyrockets so do prices. To remedy this, San Francisco should move from discretionary to as-of-right permitting. In an as-of-right system, it’s much […]

On the Mixing of Incompatible Uses and Incumbency

I 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 […]

Planned Manufacturing Districts: Planning the Life Out of 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 has become much more talent-based rather than resource based, and patterns have shifted accordingly.  In contrast to industrial, residential and office uses are […]

How Affordable Housing Policies Backfire

Affordable housing policies have a long history of hurting the very people they are said to help. Past decades’ practices of building Corbusian public housing that concentrates low-income people in environments that support crime or pursuing “slum clearance” to eliminate housing deemed to be substandard have largely been abandoned by housing affordability advocates for the obvious harm that they cause stated beneficiaries. While rent control remains an important feature of the housing market in New York and San Francisco, even Bill de Blasio’s deputy mayor acknowledges the negative consequences of strong rent control policies. In the U.S. and abroad, politicians and pundits are beginning to vocalize the fact that maintaining and improving housing affordability requires housing supply to increase in response to demand increases. While support for older housing affordability policies has dissipated, the same isn’t true of inclusionary zoning.  From New York to California, housing affordability advocates tout IZ as a cornerstone of successful housing policy. IZ has emerged as the affordable housing policy of choice because it has the benefit of supporting socioeconomic diversity, and its costs are opaque and dispersed over many people. However, IZ has several key downsides including these hidden costs and a failure to meaningfully address housing affordability for a significant number of people. Shaila Dewan of the New York Times captures the strangeness of IZ’s popularity: New York needs more than 300,000 units by 2030. By contrast, inclusionary zoning, a celebrated policy solution that requires developers to set aside units for working and low-income families, has created a measly 2,800 affordable apartments in New York since 2005. Montgomery County, a Maryland suburb of DC,  has perhaps the most well-established IZ policy in the country. After 30 years, the program has produced about 13,000 units. Montgomery County is home to over one million people, 20 percent of whom have a household income of less than $43,000 annually. While this is an extraordinarily high income distribution relative to the rest of the country, this makes the […]

Culs de sac for safety?

At Cato At Liberty, Randall O’Toole provides a list of recommendations for reversing Rust Belt urban decline in response to a study on the topic from the Lincoln Land Institute. He focuses on policies to improve public service provision and deregulation, but he also makes a surprising recommendation that declining cities should “reduce crime by doing things like changing the gridded city streets that planners love into cul de sacs so that criminals have fewer escape routes.” This recommendation is surprising because it would require significant tax payer resources, a critique O’Toole holds against those from the Lincoln Land Institute. Short of building large barricades, it’s inconceivable how a city with an existing grid of streets would even go about turning its grid into culs de sac without extensive use of eminent domain and other disruptive policies. O’Toole is correct that the grid owes its origins to authoritarian regimes and that today it’s embraced by city planners in the Smart Growth and New Urbanist schools. But while culs de sac may have originally appeared in organically developed networks of streets, today’s culs de sac promoted by traffic engineers are hardly a free market outcome. As Daniel Nairn has written, the public maintenance of what are essentially shared driveways “smacks of socialism in its most extreme form.” Some studies have found that culs de sac experience less crime relative to nearby through streets, perhaps in part because they draw less traffic. However, it’s far from clear that a pattern of suburban streets makes a city safer than it would be would be with greater street connectivity. Some studies find that street connectivity correlates with greater social capital. O’Toole’s promotion of social engineering through culs de sac to create a localized drop in crime at the expense of a city’s residents’ social capital is […]

The Value of Walkability

Last week DC Streetsblog reported on a new survey from Kaiser Permanente. The survey covers Americans’ attitudes toward walking and their self-reported walking habits. While a substantial majority of people believe that walking has health benefits ranging from weight management to alleviating depression, the survey found that most people walk less than the 150 minutes per week that the Centers for Disease Control and Prevention recommends. The Streetsblog coverage attributes a lack of walkable infrastructure to low walking rates, although it’s not clear to me that the survey explicitly supports this conclusion. However, past research demonstrates that people who live in neighborhoods where they are able to complete errands on foot do, unsurprisingly, do walk more than those who don’t. While people may not cite walkabilty as an important consideration in choosing a house, choosing a home involves weighing many factors, from size, price, distance to work and other amenities, aesthetic, and countless others factors. Consumers rely on tacit knowledge to weigh many of these factors because they can’t consciously enumerate all of them in making a decision of where to live. For this reason, revealed preference theory is a more reliable tool than survey data for observing how consumers value one attribute of a complex good like housing. Building on a past project, my colleague Eli Dourado and I are studying whether or not consumers do pay a premium for greater neighborhood walkability. Using a fixed-effects model, across all metropolitan and micropolitan statistical areas in the United States, our preliminary results indicate that, on average, Americans are willing to pay a premium of about $850 for a house with one additional point in Walk Score. Because of the many restrictions that limit walkable development, consumers have to pay this premium for the scarce supply of houses in walkable neighborhoods. This finding […]

Irrelevant real estate trends

Earlier this week Wendell Cox wrote a piece at New Geography arguing that projections for increasing demand for multifamily housing relative to single family homes are incorrect. He was criticizing a study by Arthur Nelson that predicts increased demand for multifamily housing relative to single-family housing in California between 2010 and 2035. So far, Cox points out that this hypothesis is not being fulfilled; between 2000 and 2008 slightly over half of newly occupied housing units were single-family homes on conventional lots (larger than 1/8 acre), not indicative of a shift in preferences toward multifamily housing. Cox emphasizes that his data is based on revealed preferences rather than forecasts or surveys which may indicate a false preference for denser housing. However, he does not acknowledge that these preferences he cites are not revealed in a free market. The mortgage interest tax deduction biases home buyers toward larger homes, the complex entitlement process for dense infill development restricts supply of denser housing, and the the zoning and parking requirements that regulate development all shape revealed consumer decisions. Both Cox and Nelson seem to base their views of consumer preferences heavily on introspection, assuming that over time more Americans will come to share their preference for suburban or urban living respectively. And they both take the same approach of looking at the real estate trends aggregated across the entire state. This is an interesting question for academics, but not a particularly relevant area for real estate markets. Real estate is local, and state trends are not likely to apply to many cities and neighborhoods. The average home sold in California went for $309,000 at $195 per square foot last month. However this statistic is meaningless for West Hollywood residents where the  average sale price was $378 per square foot. It’s equally meaningless […]

Fields of Dreams in Tysons Corner

Earlier this week Cap’n Transit wrote about Tysons Corner in the context of the Silver Line TIFIA loan application and Tysons’ Smart Growth redevelopment. This development plan is something I am quite familiar with as it was the subject of my MA thesis, and his post brought to mind some of the weird issues in the plan. I am skeptical of Smart Growth generally, and the Tysons plan exemplifies some of the problems that are common to grand Smart Growth redevelopment plans. In an effort to win the support of all progressive causes, Smart Growth plans sometimes encompass many competing objectives. For example, a Smart Growth agenda may advocate increased density while simultaneously championing historic preservation and open space without acknowledging that these goals are opposed. Because of the emphasis on top-down planning inherent in Smart Growth, prices do no reconcile these competing goods. In the Tysons plan, this planning and consensus building somehow came to include strong support for emphasizing athletic fields. Developers who build in Tysons are required to either provide fields or pay into a fund to support fields on public land. I think that the support for athletic fields comes from the popularity of intramural sports on the National Mall where 20-somethings play sports in think tank or Hill staff leagues after work. Maybe Fairfax planners think that providing athletic space will lure young adults to the suburbs. This issue has gotten so much attention that residents outside of the Tysons area have even started lobbying for fields in Tysons to avoid the traffic of young Tysons residents driving to other parts of the county to find sports fields. The plan calls for 20 new fields of two-to-three acres each for a projected population increase from 17,000 to 100,000. From a pedestrian perspective, dedicated sports fields in Tysons will create long expansions of […]

From the experts on charter cities

After my post on charter cities, I received some interesting feedback from Michael Strong, CEO of MGK Group, the company investing in Honduras’ charter cities and Brandon Fuller, a Research Scholar at NYU’s Urbanization Project. The Urbanization Project is headed by Paul Romer who is no longer involved with the Honduras effort. Both stressed that their visions of charter cities do not rely on heavy-handed urban planning or much initial infrastructure. Brandon, speaking from his own perspective rather than on behalf of the Urbanization Project, said that he views the role of charter city investors as building arterial roads and providing some open space. The charter city government would not set any parking requirements or height limits, so the market would drive urban form at the block level. He writes: For planning, we favor a decidedly light touch approach. Our thoughts on planning are influenced by our colleague Solly Angel, an adjunct at NYU and one of our principal researchers at the Urbanization Project. Michael explained that the charter cities where MGK is investing will draw more from LEAP zones than from Romer’s charter city model. One important distinction is that MGK is purchasing land where these zones will be located whereas Romer suggests charter cities should be built on land donated by the host country. He writes: The Honduran government is not designating a specific location for us.  The current proposal is for them to designate fairly large regions within which we can identify specific parcels and sub-regions that are most appropriate for getting started. While Brandon might support a larger role for city leadership in building a street grid than Michael does, both made clear that urban development should fall to entrepreneurs rather than charter cities’ initial investors or governments. Both envision that a change in the rules governing the sites of charter cities […]

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