New York’s political community and the general public have yet to come to terms with reality on congestion pricing. While COVID-19 has suppressed travel demand across the region — deeply for now and to an uncertain extent over the next several years — that decrease has been concentrated in mass transit. Bridge and tunnel crossings into Manhattan are, as of this summer, only down 9% from the pre-COVID baseline. The average daytime travel speed in Manhattan below 60th Street is already back down to 8MPH, barely above the pre-COVID average of 6.9MPH. As the recovery continues, traffic will only get worse — and we need a flexible and dynamic tolling regime that can “roll with the punches” of varying traffic and economic fluctuations as it permanently solves the congestion problem.

The paper offers four novel suggestions for congestion pricing in New York City:

1. A speed target should be at the center of policy, rather than revenue, and the fee should vary dynamically in response to traffic volumes to achieve the target speed subject to a maximum peak toll. (Subject to political constraints, the closer the peak toll cap can get to $26, the better the economically estimated balance of speed and toll price).

2. Upstream tolls should be credited broadly to increase regional equity and ensure the incentives to choose any given route to Manhattan depend only on traffic management, not on revenue considerations.

3. Dynamic tolls on each entry point to Manhattan should float independently to incentivize only useful “toll shopping”. Current toll differences on priced and unpriced crossings are arbitrary and divert traffic to the busiest free crossings, while independently floating tolls would equilibrate to balance traffic volumes across all crossings.

4. The cap on licenses for For-Hire Vehicles should be removed and the fixed pickup tax should be replaced by a dynamic per-mile toll tailored directly to the per-mile congestion externality. While distance-based charging inside the cordon would work better for all vehicles in theory, in practice the privacy and political challenges of vehicle tracking have only yet been solved for taxis and FHVs.

The two key things to understand are:

1. The existing MTA plan to implement “scheduled variable tolls” in Manhattan does not set tolls high enough to eliminate congestion in Manhattan, and does not include a policy speed target.
2. Any variable toll scheme that ensures a minimum travel speed above 10MPH at all times in Manhattan would raise up to $5 billion annually, which would help the MTA financially bridge the COVID emergency and eventually pay off its excessive debt.

All else equal, traffic speed is a function of traffic volume. At higher volumes, speed declines. The relationship between speed and volume is called the “speed-volume curve”. Every day we observe this relationship: We can observe how many cars enter or travel within the Manhattan grid during a given hour and measure average traffic speeds during that time. At night, traffic moves at the speed limit. During the worst of rush hour, it moves below 5MPH.

Exploiting this simple empirical relationship to derive an average speed-volume relationship for the Manhattan grid, we can show the true average hourly traffic capacity of the grid. For example, the Manhattan grid can handle 91,000 hourly vehicle-miles (VMT) of travel at 20MPH, or 143,000 hourly VMT at 10MPH.

Figure 1: Traffic Volumes Consistent with 10MPH or 20MPH in Manhattan

If we want Manhattan traffic to move at 10MPH, hourly VMT can’t exceed 143,000. If we want traffic to move at 20MPH, hourly VMT can’t exceed 91,000. Any tolling scheme intending to get traffic moving needs to achieve volume reductions corresponding to the intended speed benefits. This is not a political thing or an economic thing, it is a geometric relation of vehicle volume to vehicle speed in the space available in Manhattan and its bridges and tunnels.

The optimal speed and toll is not a mere political question, even though it is likely to be chosen by political expediency. There is an actual fact of the matter: By observing the travel time losses imposed by each incremental mile traveled in real time, and multiplying that time loss by the average value of travel time based on wages in the NY metro area, we can give a precise estimate of the un-priced “congestion externality” imposed by an incremental mile of vehicle travel in varying conditions. Consider the full speed-volume relation chart with an imputed pro forma value of travel time at $30/hour:

Figure 2: Manhattan’s Speed-Volume Curve in 1 MPH Increments:

[Note: 6.9MPH is highlighted because it was the average daytime travel speed in the Manhattan CBD pre-COVID. The July 2020 daytime average was 8MPH, consistent with a ~$10/mile average daytime congestion externality for passenger vehicles on the Manhattan grid]

This chart shows how adding one more vehicle-mile of travel to the Manhattan grid slows down all other simultaneous vehicles, and translates that travel time loss into dollars at $30/hour. In the full paper draft, I translate the data behind this basic schedule of the “traffic volume-contingent congestion externality” on the Manhattan grid into a dynamically variable tolling system that permanently eliminates excessive congestion in Manhattan while raising up to $5 billion annually (in the pre-COVID baseline). The key is dynamic variable tolling with a speed target, where the one-way toll varies in short increments as necessary, subject to a maximum toll cap of $26, to suppress traffic volumes to achieve a policy target speed.

This paper relies on the Hayekian logic of dynamic pricing to build in robustness to error in our expectation of the responsiveness of traffic to price — much more so than a fixed toll schedule that policymakers would scramble ex post to change in the event of an economic depression or other unexpected negative exogenous shock to traffic volumes. Intellectual humility is warranted insofar as the headline speed target is subject to some model uncertainty. (It’s especially useful while facing uncertainty in the upside risk of excessive traffic volume recovery post-COVID.)

Specifically, the speed-volume curve tells us exactly how much to charge the next car to travel a mile for any given number of hourly vehicle-miles of travel in Manhattan. For any given volume of travel, we know how much the next vehicle mile will slow down all the other cars already on the road, and can then reliably convert those minutes of aggregate travel time loss into a dollar value of delay per mile without knowing anything about human behavior in response to tolls. We know, for example, that when hourly traffic volumes hit the PM peak of a little over ~170,000 VMT in Manhattan, corresponding to 6MPH on average, then the next average cordon entry causes about ~$26 in slowdown to all the other cars combined. That’s why this paper sets the ideal maximum toll cap at $26. Such a toll is “optimal” in the sense that trips valued in excess of the delay cost should keep happening, while trips valued less than that should not.

But federal legislation allowing dynamic tolling lanes on federally funded Interstates requires the additional step of setting a concrete minimum policy speed target, not merely charging the abstract volume-conditional Pigouvian toll schedule. So we know that roughly $26 is the maximum correct price to charge per entry, according to the speed-volume curve and our knowledge of the average value of travel time, when traffic is at its average hourly worst in the pre-pandemic baseline during the PM rush hour. But we must then translate the known $26 per-entry toll from the speed-volume curve into an estimated speed target achieved through a cordon toll. To do this the BTA model has to commit to an estimate of travel time and price elasticities and average travel distance per cordon entry by different vehicle and trip types — and the BTA happens to expect the human response to the $26 peak rush hour toll to coincide with roughly a 10MPH speed target. The speed-volume curve is a geometric fact, and the $26 toll cap is readily derived from the local value of travel time, but the next step, of projecting of human behavior in response to the toll equilibrating at 10MPH is an out-of-sample estimate.

To reiterate, we can be confident from the baseline speed-volume curve that $26 is the maximum necessary one-way toll by consulting the speed-volume relation chart corresponding with the worst average hourly congestion, but whether that optimum coincides with the 10MPH rush hour speed target in equilibrium relies upon the empirical accuracy of the BTA model. Less-responsive traffic would result in the $26 peak toll lasting longer throughout the day than currently projected. More responsive traffic could yield a higher optimal speed target than currently projected to result from the $26 optimal cap.

This empirical uncertainty favors a more dynamic form of variable tolling — I argue that true dynamic variable tolling is appropriate for Manhattan, but Singapore’s hybrid approach of quarterly adjustments to scheduled variable tolls to achieve an average speed target over a longer time horizon would also represent a realistic second-best option.

The key above all else is to target speed, not revenue, in order to ensure the traffic speed target is achieved without excessive tolling in an error-proof, continuously updating fashion.

To read more, find the full-length report draft here.

The post How to Price Congestion: The Benefits of Dynamic Variable Tolling appeared first on Market Urbanism.

In two previous posts, I’ve raised questions about the competitiveness of missing middle housing. This post is more petty: I want to challenge the design rigidities that Daniel Parolek promotes in Missing Middle Housing. Although petty, it’s not irrelevant, because Parolek recommends that cities regulate to match his design goals, and such regulations could stifle some of the most successful contemporary infill growth.

Parolek’s book suffers from his demands that missing middle housing match his own tastes. For instance, he has a (Western?) bias against three-story buildings. Having grown up in the Northeast, I think of three stories as the normal and appropriate height for a house. To each his own – but Parolek’s constant insistence on this point offers aid to neighborhood defenders who will be happy to quote him to make sure three-story middle housing remains missing.

The house in the doghouse

No form is in Parolek’s doghouse as much as the “tuck-under” townhouse, an attached house with a garage on the first floor. This is clearly a building that builders and buyers love: “If your regulations do not explicitly prohibit it, it will be what most builders will build” (p. 140). In fact, tuck-under townhouses are probably the most successful middle housing type around.

In lightly-regulated Houston, builders small and large have been building townhouses, sometimes on courtyards perpendicular to the road. Parking is tucked. Townhouses are usually three stories tall (bad!), sometimes four. A few are even five stories. Their courtyards are driveways (also bad!).

In a very different context – Palisades Park, NJ – tuck-under duplexes are everywhere. Their garages are excessive thanks to high parking minimums, but the form has been very successful nonetheless.

These examples are not to be dismissed lightly: these are some of the only cases where widespread middle housing is replacing single-family housing in walkable communities. Houston is the only substantial city in the US that is moving from a sprawl-only model to having a large, walkable urban core, and the tuck-under townhouse is making it happen.

What’s so bad about tuck-unders? Parolek says they’re too tall and the garage creates a “lack of activation” (p. 140). It seems to me, from walking and cycling around some of the many townhouse neighborhoods in Maryland and Virginia, that garages are the most street-activating feature of a house and are regularly left open while kids play or men tinker with their cars. Who interacts with a neighbor by peering in their kitchen window?

Long live missing middle housing

These posts have been excessively critical only because missing middle is so popular among urbanists as to warrant a corrective. “Gentle density,” as it is often called, can be a great strategy for squeezing some units into built-out neighborhoods. The runaway success of Houston townhouses and, newly, Los Angeles ADUs, certainly demonstrates that missing middle housing types can be instruments of large-scale change.

But missing middle housing cannot, on its own, achieve everything Parolek suggests. Although it fits well into walkable contexts, it is not inherently walkable. The neighborhood Parolek designed outside Omaha is definitely not walkable in the sense of having access to destinations. It’s true that low parking provision is a natural fit with walkability, but that can be achieved with any type of housing.

Nor is newly-built missing middle uniquely geared toward affordability structures. In low-cost areas, manufactured housing owns that crown. Where land costs are high, large-scale multifamily can beat smaller forms for affordability by dividing up the cost and providing small-scale units.

Where missing middle really excels, as most urbanists already understand, is in single-family neighborhoods. Single-family lots are typically too small for large multifamily structures. Politically, missing middle is palatable to neighbors in ways that larger buildings and manufactured homes are not.

So welcome that missing middle housing! And don’t be too picky about it.

The post Get the tuck out of here appeared first on Market Urbanism.

But what about all the disadvantages that middle housing faces? Aren’t those cost disadvantages just the result of unfair regulations and financing?

Indeed, structures of three or more units are subject to a stricter fire code. It’s costly to set up a condo or homeowners’ association. Small-scale infill builders don’t have economies of scale.

Those, and the other barriers to middle housing that Parolek lays out in Chapter 4, seem inherent or reasonable rather than unfair.

In particular, most middle housing types cannot, if all units are owner-occupied, use a brilliant legal tradition known as “fee simple” ownership. Fee simple is the most common form of ownership in the Anglosphere and it facilitates clarity in transactions, chain of title, and maintenance.

Urbanists should especially favor fee simple ownership of most city parcels because it facilitates redevelopment. Consider a six-plex condominium nearing the end of its useful life: to demolish and redevelop the site requires bringing six owners to agreement on the terms and timing of redevelopment. A single-owner building can be bought in a single arms-length transaction.

It’s no coincidence that the type of middle housing with the greatest success in recent years – townhomes – can be occupied by fee-simple owners, combining the advantages of owner-occupancy with the advantages of the fee simple legal tradition.

Many middle housing forms enjoy their own structural advantage: one unit is frequently the home of the (fee simple) owner. By occupying one unit, a purchaser can also access much lower interest rates than a non-resident landlord. (This is thanks to FHA insurance, as Parolek notes on p. 86). Having the owner onsite helps solve some of the common problems that arise in landlord-tenant relationships, and it’s a classic path to financial independence.

As the Dropkick Murphys spat in Flannigan’s Ball:

Then he hit a big one and felt like a man again

Bought a three-decker with two floors to rent

This is the second of three posts critiquing Missing Middle Housing. Check back Thursday for the final installment.

The post In praise of fee simple ownership appeared first on Market Urbanism.

Daniel Parolek’s new book Missing Middle Housing expounds the concept (which he coined), collecting in one place the arguments for missing middle housing, many examples, and several emblematic case studies. The entire book is beautifully illustrated and enjoyable to read, despite its ample technical details.

Missing Middle Housing is targeted to people who know how to read a pro forma and a zoning code. But there’s interest beyond the home-building industry. Several states and cities have rewritten codes to encourage middle housing. Portland’s RIP draws heavily on Parolek’s ideas. In Maryland, I testified warmly about the benefits of middle housing.

I came to Missing Middle Housing with very favorable views of missing middle housing. Now I’m not so sure. Parolek’s case for middle housing relies so much on aesthetics and regulation that it makes me wonder whether middle housing deserves all the love it’s currently getting from the YIMBY movement.

Can middle housing compete?

Throughout the book, Parolek makes the case that missing middle construction cannot compete, financially, with either single-family or multifamily construction. That’s quite contrary to what I’ve read elsewhere. In a chapter called “The Missing Middle Housing Affordability Solution”, Daniel Parolek and chapter co-author Karen Parolek write:

The economic benefits of Missing Middle Housing are only possible in areas where land is not already zoned for large, multiunit buildings, which will drive land prices up to the point that Missing Middle Housing will not be economically viable.

(p. 56)

On page 81, we learn,

It’s a fact that building larger buildings, say a 125-150 unit apartment or condo building, provides easier-to-identify and often larger cost efficiencies than building a four-, eight-, or even a sixteen-unit building or series of these buildings. “Overall, a 50-unit project requires about the same amount of development work to execute as a 150-unit project, but the margins are lower, and the cap rates/valuations are also generally lower,” says Curt Gunsbury, owner of Solhem Companies.

These disadvantages, relative to large multifamily developments, sound structural: there are fixed costs in land and process that have to be divided among all the units. Buyers would have to pay too much more, per unit, to make middle housing pencil out in a place where dense multifamily is also viable.

Laying out the nuts and bolts of his favored typologies, Parolek notes,

In areas of high property values, you may need to set a maximum FAR [floor area ratio] for single-family homes that is lower than FAR allowed for a duplex so the economics of a duplex can compete with them.

(p. 103)

There are good reasons to allow multi-unit buildings to be larger – but Parolek’s reason is that, pound for pound, the market prefers single family houses. This is awfully damning. It implies that missing middle housing is affordable because people don’t want it very much.

I hope that Parolek is wrong – but it’s possible that his experience is showing that his favored typologies are actually stuck in the middle. The figure below is a production possibilities frontier sketch, something you may remember from college econ. Suppose there are two main features that people like in housing (independence and square footage per dollar spent) and three ways to build housing. Single-family construction is efficient at providing independence but not much square footage. Multifamily construction, with its economies of scale, efficiently provides square footage but with little independence. Missing middle housing is more balanced, which sounds great.

But what if being balanced just means it’s rarely the best option?

In the sketch above, missing middle housing is at the “frontier” for only a short stretch, and only for buyers who demand a very precise balance between square footage and independence. Most buyers will be happier with housing built using one of the other technologies. Parolek seems to concede this with his arguments in favor of regulations intended to constrain single- and multi-family construction.

Back of the envelope

A stated advantage of missing middle housing is that it economizes on land (relative to single family) but uses low-cost construction techniques. According to the RS Means prices (for DC in 2012) that Payton Chung published in a helpful 2014 article, Type V construction (as in single-family homes and small missing middle typologies) is 16 percent cheaper per square foot than Type III construction, which is commonly used to build mid-rise buildings.

Inspired by a cool development proposal in my own neighborhood, I put together a quick calculator. Consider a developer is looking at a 15,000 square foot city lot with zero parking requirements. She can, by right, build a 60-unit apartment building with units averaging 800 square feet or subdivide into three lots and build a fourplex on each. Per Parolek, this would be a relatively dense form of missing middle. The fourplexes cost $137 per square foot to built; the midrise building costs $163.

Missing middle has an obvious construction cost advantage. But it has two disadvantages. First, it produces fewer units, so the project’s total impact on housing supply is much lower.

Second, land costs per unit are five times larger in the fourplex option, a decided disadvantage. As the graph shows, the break-even point for the developer is when the land costs $344,000 – which translates (coincidentally) to a million dollars per acre.

Where does land cost at least a million dollars per acre? Morris Davis et al calculated residential land prices across the U.S. They mapped two metro areas in the following figure. Of course, land prices are held down by zoning in many places where denser uses would command much higher land prices. Around DC, land costs fall below $1 million per acre in Prince George’s County and areas that are largely reserved for single-family zoning. In the Bay Area, land costs are below $1 million per acre only in Contra Costa County and a few other East Bay Zip codes.

Nationally, of course, land prices are much lower. In many small cities, missing middle construction should, if other barriers do not interfere, pencil out better than mid-rise apartments, especially if consumers are willing to pay more per square foot. However, Parolek’s pessimism about the economic viability of his own favored style has made me substantially less optimistic about its potential impact.

Stay tuned: this review continues on Wednesday and Thursday.

The post Stuck in the (Missing) Middle appeared first on Market Urbanism.

One question (p.8) asked “If you could live anywhere, would you live…” in your current neighborhood, a different city neighborhood, the suburbs, or another metro area. Because of Manhattan’s high rents, high population density, and the drumbeat of media publicity about people leaving Manhattan, I would have thought that Manhattan had the highest percentage of people wanting to leave.

In fact, the opposite is the case. Only 29 percent of Manhattanites were interested in leaving New York City. By contrast, 36 percent of Brooklynites, and 40-50 percent of residents in the other three outer boroughs, preferred a suburb or different region. Only 23 percent of Bronx residents were interested in staying in their current neighborhood, as opposed to 48 percent of Manhattanites and between 34 and 37 percent of residents of the other three boroughs.

Manhattan is the most dense, transit-dependent borough- and yet it seems to have the most staying power. So this tells me that people really value the advantages of density, even after months of COVID-19 shutdowns and anti-city media propaganda. Conversely, Staten Island, the most suburban borough, doesn’t seem all that popular with its residents, who are no more eager to stay than those of Queens or Brooklyn.

Having said that, there’s a lot that this question doesn’t tell us. Because no identical poll has been conducted in the past, we don’t know if this data represents anything unusual. Would Manhattan’s edge over the outer boroughs have been equally true a year ago? Ten years ago? I don’t know.

Another question asked people to rate ten facets of life in New York City, such as the economy, mass transit, and housing. Not surprisingly people were most dissatisfied with housing costs; 48 percent of adults rated New York housing as “poor.” By contrast, New York’s mass transit was the most highly valued part of city life; only 20 percent of people rated it as “poor.”

A third question asked people to endorse or oppose various policy changes. One was “loosening land-use regulations in order to allow the building of new housing”. Surprisingly, 59 percent of adults endorsed this change; evidently, NIMBYs are in the minority. Roughly equal proportions of Democrats and Republicans endorsed more housing!

The post Survey: New Yorkers like Manhattan, the subway and more housing appeared first on Market Urbanism.

The key point of the book is that rather than focusing solely on “mobility”, planners should focus on “accessibility”. What’s the difference? The authors describe mobility as speed or the absence of congestion; thus, a new highway that saves suburban commuters a few seconds increases mobility. “Accessibility” means making it easy for people to reach as many major destinations as possible, regardless of the mode of transport.

For example, allowing more housing near downtowns and other urban job centers increases accessibility because it makes it easier for more people to live near work. However, residents of these neighborhoods might oppose such housing based on concerns about mobility; that is, they might fear that new neighbors might reduce mobility by increasing traffic.

Obviously, an emphasis on increasing accessibility favors more compact development: people benefit from living closer to work, even if they are not driving 80 miles an hour. It also seems to me that the emphasis on accessibility favors more market-oriented land use policies; in the absence of government control, landowners will naturally want to increase accessibility by building housing near job centers and vice versa.

The post Mini-review: From Mobility to Accessibility appeared first on Market Urbanism.

If there’s one thing that unites TV and film since the fifties, it’s the archetype of the dastardly developer – forever destroying homes and hiking rents. But it wasn’t always this way. Where did this trope come from, and is it true? This week on Pop Culture Urbanism, I dig into the cronyism and red tape that turned developers into Hollywood’s favorite villain.

Be sure to follow future episodes by subscribing to the Pacific Legal Foundation on YouTube! We have a lot of content in the hopper that you won’t want to miss.

The post How Developers Became Hollywood’s Favorite Villain appeared first on Market Urbanism.

Has the Water Tribe gone full NIMBY? Can Avatar Aang overcome his angry impulse to preserve? Why is Ba Sing Se so segregated? And what can we learn from the success of Republic City? In this week’s episode of Pop Culture Urbanism, we explore the trade-offs and complications that every growing city has to deal with, including fictional cities of Avatar: The Last Airbender.

Be sure to follow future episodes by subscribing to the Pacific Legal Foundation on YouTube! We have a lot of content in the hopper that you won’t want to miss.

The post The City Planning Behind Avatar: The Last Airbender appeared first on Market Urbanism.