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Bribery for Property Rights: Federal Charges in Chicago

NBC5 has an update listing the people involved and video here: New Corruption Charges Hit Building, Zoning Departments Chicago Tribune: U.S. to announce charges against 15 in city bribe-taking probe (thanks to Dan M. for the tip) Federal authorities are set to announce charges Thursday against 15 people, including seven City of Chicago employees, after an investigation into bribe-taking at the city’s Zoning and Building Departments. City Hall’s zoning process is the subject of the Tribune’s ongoing “Neighborhood for Sale” series. The stories detail how millions of dollars in campaign donations greased zoning changes that transformed the city during the real estate boom of the past decade. What’s scary is that land use is so regulated and the stakes are so high, that developers have to bribe government employees in order to exercise their own property rights. But, that’s how it works: politicians downzone areas, knowing that developers will have to scratch the politicians’ backs to build what the market tells them. There’s often the added political bonus of downzoning to pander to NIMBY factions. The downzoning creates a barrier to entry so that only the developers who are politically savvy can get things done. (see Tony Rezko) It makes the whole planning/development system corrupt. Should we be a bit surprised bribery is happening?

“Green” Parking Garage in Chicago. Oxymoron?

Developer, Al Friedman plans to build a “green” parking garage in Chicago’s Streeterville neighborhood, where development has replaced many surface lots. (Crain’s) Environmentally speaking, it’s probably better than a surface lot and frees up more space for productive development. But, can the structure itself being green offset the environmental effects of the cars using it? Is this a lesser of evils? Or is making a parking structure “green” a wasted effort? What do you think?

Lower East Side Now “Endangered”?

photo by flickr user paytonc The National Trust for Historic Preservation announced that New York City’s Lower East Side, famous for it’s history of tenements and slums, is one of 11 architectural, cultural, and natural heritage sites that are most at risk “for destruction or irreparable damage.” By “damage”, they mean new luxury towers filled with wealthy people, replacing aged tenements filled with yuppies and hipsters. From the NY Sun: ‘Endangered’ Is Designation as Lower East Side Waxes Professor of Urban Policy and Planning at New York University, Mitchell Moss: “The overall neighborhood is witnessing a transformation. And just as young people move into that area, I certainly hope they are not planning to bring back historically dangerous conditions like cholera, typhoid, and open sewers,” Of course, this comes with downzoning, which will limit supply, drive up rent and land prices, and increase the incentive to tear down more buildings. Thus, quickening demolitions and gentrification. I can understand protecting a few particular locations or buildings, but to downzone the entire area will put a huge burden on the City’s housing supply. Also, Curbed: The Lower East Side is an Endangered Species

Rent Control Part 1: Microeconomics Lesson & Hoarding

This post has been released as the first in a four part series: Rent Control Part One: Microeconomics Lesson and Hoarding Rent Control Part Two: Black Market, Deterioration, and Discrimination Rent Control Part Three: Mobility, Regional Growth, Development, and Class Conflict Rent Control Part Four: Conclusion and Solutions Opposition to rent control among economists spans the political spectrum, including over 90% of American and Canadian economists.  In fact, Swedish socialist Economist Assar Lindbeck famously said, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing it.” (Assar Lindbeck, The Political Economy of the New Left, New York, Harper and Row, 1972, p. 39) Without getting into the morality of restrictions on property rights, I will discuss the more subtle consequences of rent control over a series of posts. Quick Microeconomics Lesson: As stated by the National Multi Housing Council: Rents serve two functions essential to the efficient operation of housing markets: they compensate providers of existing housing units and developers of new units for the cost of providing shelter to consumers; and they provide the economic incentives needed to attract new investment in rental housing, as well as to maintain existing housing stock. In this respect, housing is no different from other commodities, such as food and clothing — the amount producers supply is directly related to the prevailing market price. Those of us who have studied microeconomics understand the near-universally accepted supply/demand consequence of rent-control: a decrease in the quality and supply of rental housing over time. But, for those who need a refresher or quick intro lesson, Professor Alex Tabarrok of George Mason University and the popular Marginal Revolution blog explains the microeconomics of rent control in this video: When you have some spare time, watch this more […]

$12.8b Bid for PA Turnpike

From Toll Road News: With a bid of $12.8 billion an Abertis/Citi team has been selected as the concessionaire in a 75 year lease of the Pennsylvania Turnpike. The bids were received in a second round of best-&-final offer bids last Friday (May 16). #2 bidder was Transurban/Goldman Sachs at $12.1b. With this kind of cash, it’s going to be very tempting for more states to privatize to keep budgets afloat. I worry about how much wasteful spending today’s politicians plan to do after they get this windfall. It’s also a shame it’s a 75 year lease not a sale. This gives the state some authority to maintain some patronage, cap toll increases, and keep unions happy.

Vending Machine Economics in Japan

Tyler Cowen of Marginal Revolution is in Japan, and is fascinated by the number of vending machines. He takes a minute to ponder on the economics of vending machines in Tokyo. First we must look to the shortage of storage space in homes. I suspect few Japanese want to buy big piles of stuff at Costco. So buy smaller “portions” and in the meantime the inventories are stored in the vending machines, where they are more or less at your disposal. I would also look at the storage space for humans in stores. Shops require expensive ground floor space. If you can eliminate the space the human takes up to manage the store and space shoppers use to enter and browse, you can store more compactly. It’s seems a little counterintuitive to think that the storage space could be more valuable than a human occupant… Bill’s comment led me to add this link to an automat in NYC: BAMN!

Does Urban Farming Make Sense?

Matthew Yglesias just posted a thought referring to a recent NY Magazine article about skyfarming: Should we build agricultural skyscrapers in-or-near our major cities? It’s certainly a cool idea. I think I’m going to put the notion that this is actually environmentally sound and feasible in my “too good to check” file. More plausibly, green roofs really are an environmentally sound idea, though not something with a good prospect for replacing farms. Check out the article, it’s very cool. Here’s my take: I think this would be really cool, but I can’t imagine this being economically feasible, except under extreme circumstances. 1. To locate this in a dense city would mean it would compete for land with the most expensive office and residential properties, where developers pay huge land prices to build in those locations. They build there because the most productive companies and individuals desire to locate there and can pay for it. The competition from farms, of all things, would drive prices for office and residential even higher. Perhaps, it might make sense to locate on less desirable urban land such as near highways or industry. 2. Construction costs of building vertical are enormous. Especially compared to the construction cost of traditional farms: nearly 0. 3. Labor costs: city labor is much more expensive than rural labor. Perhaps the skyfarm will be fully automated, but you’ll need engineers on site and other staff a typical farm does not require. 4. Traditionally, farms locate on land that is much less productive than agglomerative cities, which is why land is cheaper and farming can become profitable. Add in extraordinary construction costs, and it makes little economic sense. I can’t imagine farms competing with urban offices in productivity or profit per square foot. 5. The skyfarm probably isn’t so good for […]

Krugman: Stranded in Suburbia

Paul Krugman wrote an op-ed this morning how the US living and transportation patterns will not cope with high oil prices as well as European cities: Changing the geography of American metropolitan areas will be hard. For one thing, houses last a lot longer than cars. Long after today’s S.U.V.’s have become antique collectors’ items, millions of people will still be living in subdivisions built when gas was $1.50 or less a gallon. Infrastructure is another problem. Public transit, in particular, faces a chicken-and-egg problem: it’s hard to justify transit systems unless there’s sufficient population density, yet it’s hard to persuade people to live in denser neighborhoods unless they come with the advantage of transit access. Over the long-run the US can adapt it’s living patterns to expensive oil by curbing it’s habit of subsidizing roadways. However, only if density restrictions soften accordingly. If drivers were responsible for the full costs of their location and transportation decisions, they would gradually locate to more European-like locations. This will naturally increase the demand for transit. Private investment and entrepreneurship under such conditions should be able to provide innovative solutions to the chicken-and egg problem Krugman is concerned about.

The Great Depression and America’s Addiction to Government Roads and Oil

One of my favorite new blogs, Rationalitate brought up a topic that I have spent much time thinking about, The Great Depression and Public Roads: In a time before the widespread adoption of income and sales taxes, property taxes made up the lion’s share of local government revenues: two-thirds of all revenue according to Dick Netzer, and over 90% of all taxes levied in cities of more than 30,000 according to David Beito. …property owners and renters were subsidizing roads for the benefit of the wealthy. Real estate developers who ran private forms of mass transit (mostly streetcars) and who were in direct competition with government-financed roads were some of the biggest payers of taxes, which makes the transfer especially ironic. It is a tragic coincidence that big government policies became popular during the same era as the automobile. History books champion Roosevelt and his New Deal, but few are willing to attribute our dependence on oil to the progressive policies that exploded during the Depression and continued through Eisenhower’s Interstate Highway System and on to this day. The big government solutions to “create jobs” drew resources from productive sources to fund projects that burdened future generations with the costs of maintenance, debt repayment, and auto dependency, as well as the abandonment of urban areas and rail infrastructure for an extended time. This is a topic that deserves more attention. One could write a book on it.

NY Gov. Patterson’s Rent-Stabilized Apartment in Harlem

NY Sun: Paterson Pays A Stabilized Rate of Rent The governor of New York pays about $1,250 a month for a two-bedroom, rent-stabilized apartment in central Harlem, even while owning a home upstate in Guilderland and having unfettered access to the 40-room Governor’s Mansion in Albany. Governor Paterson and his wife, Michelle, made about $270,000 last year, according to their tax returns. This is a classic example of hoarding. He should be ashamed of his Lenox Terrace apartment that someone would gladly pay market rate to rent, but seems to think it’s ok. Can’t we at least deregulate apartments when the inhabitant can afford to live in a market-rate apartment? I hope the media pays attention to this, and properly scrutinizes the dark-side of rent regulation.

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