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Liberalizing Cities From The Ground Up
Tag construction
High Rents: Are Construction Costs the Culprit?
(cross-posted from planetizen.com) I have argued numerous times on Planetizen that increased housing supply would reduce rents. I recently read one counterargument that I had not fully addressed before: the claim that no amount of new housing will ever bring down urban rents because housing in high-cost, high-wage cities is expensive to build.* This argument rests on two assumptions: (1) that construction costs are the primary reason some cities are more expensive than others, and (2) if new housing is expensive, the median citywide rent will be equally expensive. I find neither assumption to be persuasive. Admittedly, expensive cities do tend to have higher construction costs than more affordable costs—but this gap is far more modest than the gap in housing costs between high-cost and low-cost cities. For example, a study by the design firm EVStudio showed that the construction costs for a small apartment building in New York City were only about 30 percent higher than the costs of a similar building in Kansas City ($232 per square feet in New York, $181 in Kansas City). But rents in New York are far more than 30 percent higher; I pay about $5 per square foot for my Manhattan apartment, but paid just over $1 per square foot for a roughly comparable apartment in Kansas City (i.e., a doorman building in a fashionable intown neighborhood). Similarly, the Lincoln Institute’s land price database reveals that regional differences in construction costs lag behind differences in land costs: for example, construction costs in San Francisco are only about 60 percent higher than construction costs in Kansas City, but the median San Francisco-area house costs seven times as much due to differences in land costs. Thus, construction costs are not the main reason some cities are more expensive than others.** Moreover, the suggestion that high construction costs for new buildings mean high […]
HSR Urbanists: “We Are All O’Tooles Now”
I probably won’t make any friends today, but now I’ve read one too many urbanist (many who’s ideas I usually respect) use unsound logic to support high speed rail. This argument often includes something like this: “…and furthermore, highways and airports don’t come close to paying for themselves, therefore high speed rail need not meet that hurdle either.” Here’s some examples of the typical contradiction many usually-reasonable urbanists are making when arguing for high speed rail- Ryan Avent in an article plagued with this pseudo-logic: Government is going to build more capacity. Given that, what is likely to be the best investment, all things considered? Available alternatives, as it turns out, are not all that attractive. Roads do not appear to pay for themselves any more than railways do. Receipts from the federal gas tax come close to covering federal highway expenditures, but gas is used on highways and non-highways alike, indicating that at the federal level, highways are subsidized. and: I respect Mr Cowen very much, but I think it’s long past time we stopped listening to libertarians on the issue of whether or not to build high-speed rail. Who will ask whether road construction remotely passes any of the tests they’re so prepared to push on rail? And if we begin charging an appropriate fee on drivers to maintain existing roads and reduce congestion, what do they all think will happen to land use patterns and transportation mode share? Some have emailed to ask me why I dislike Randal O’Toole so much. The main reason is because people like Avent will always be able to point to the government highway-lover from CATO and rashly proclaim all libertarians have forever lost credibility when it comes to transportation and land use. Of course, Avent’s narrow-mindedness on this topic deserves contempt […]
Urban[ism] Legend: Positive NPV Infrastructure
As Washington debates how many hundreds-of-billions of the nearly trillion-dollar stimulus will go towards infrastructure or to other spending/tax cut schemes, pundits claim that spending billions on “shovel ready” public works projects can effectively create jobs that will lead to recovery. As readers probably know, I am skeptical that the anticipated spending could be activated so quickly. As Bruce Bartlett put it: Despite claims by the Conference of Mayors and the transportation lobby that there is as much as $96 billion in construction “ready to go,” the fact is that it takes a long time before meaningful numbers of workers can be hired for such projects. As a recent Congressional Budget Office study explains, “Practically speaking … public works involve long start-up lags. … Even those that are ‘on the shelf’ generally cannot be undertaken quickly enough to provide timely stimulus to the economy.” The prospects for unconventional projects such as alternative energy sources are even worse. The CBO calls them “totally impractical for counter-cyclical policy” because they take even longer to come online… Finally, the impact of increased public works spending on state and local governments cannot be ignored. Most federal transportation spending goes for projects initiated by them. When they think there is a chance that the federal government will increase its funding, they tend to cut back on their own spending in hopes that the feds will foot the bill. A study by economist Edward Gramlich found that the $2 billion appropriated by the Local Public Works Act of 1976 postponed $22 billion in total spending as state and local governments competed for federal funds and actually reduced GDP by $30 billion ($225 billion today). Meanwhile, proponents of infrastructure spending claim that Congress should sift through the shelved projects to identify those projects that will be economically […]
Skyscrapers as Economic Indicators
Ever hear of interesting economic indicators such as the correlation between the economy and length of skirts? Here’s one urbanists should appreciate: the skyscraper index, which shows strong correlation between the completion of world’s tallest buildings and downturns in the business cycle. Mark Thornton discusses the skyscraper index in his article, Skyscrapers and Business Cycles [or mp3 read by the author], which was originally published in the Quarterly Journal of Austrian Economics: The skyscraper is the great architectural contribution of modern capitalistic society and is even one of the yardsticks for 20th-century superheroes, but no one had ever really connected it with the quintessential feature of modern capitalistic history — the business cycle. Then in 1999, economist Andrew Lawrence created the “skyscraper index” which purported to show that the building of the tallest skyscrapers is coincidental with business cycles, in that he found that the building of world’s tallest building is a good proxy for dating the onset of major economic downturns. Lawrence described his index as an “unhealthy 100 year correlation.” Introduction Do Skyscrapers Predict? Table 1: Skyscrapers and Economic Crisis Figure 1: Skyscrapers and Economic Crisis Cantillon Effects in Skyscrapers Cantilloned Buildings and Business Cycles When the Skyscraper Index Is Wrong References Notes While macro business cycle theory is beyond my core strength in economics and the scope of this blog, this is a particularly interesting topic to me as I am an economics enthusiast with a passion for tall buildings. The basic premise is that construction of worlds tallest buildings has strong corelation with economic downturns. Construction of these buildings begin during times of economic expansion towards the peak of business cycles. However, by the time the buildings are complete, the market has taken a turn for the worse. Could the Burj Dubai be an indicator that tough times are […]
Urban[ism] Legend: Gas Taxes and Fees Cover All Costs of Road Use
No doubt, mass production of the automobile is one of the greatest innovations of all times. It has allowed for increased mobility of goods and people, which has greatly improved productivity and leisure. But, is subsidizing mobility at the expense of taxpayers taking things too far? In various blogs and forums, I frequently come across the argument that the costs of automobile use are fully (or mostly) internalized through gas taxes and fees. Often, this argument is used by free-market impostors against transit subsidies, or by automobile enthusiasts in defense of highway socialism. The usual argument is that the costs of roads and infrastructure are paid through gas taxes, and thus the users of the roads are funding what they use. This is a powerful and pervasive myth that will continue to distort the truth, unless serious scrutiny is given to the assertion. Let us first examine the validity of the assertion through studies of the explicit costs (actual dollars) of roads in the US and the taxes and fees collected. Next, we will look deeper and discuss the implicit costs (ie opportunity costs) of roads and automobile use as well as acknowledge externalities involved with automobile use. The Explicit Costs We can see the extent of the Urbanism Legend by looking at wikipedia: Virtually 100 percent of the construction and maintenance costs are funded through user fees, primarily fuel taxes, collected by states and the federal government, and tolls collected on toll roads and bridges.[citation needed] (The claim that only 56 percent of costs are funded by user fees is based on the misinterpretation of a table that applies to all highways, roads, and streets, not just the Interstate Highways.[citation needed]) In the eastern United States, large sections of some Interstate highways planned or built prior to 1956 are […]
Urban[ism] Legend: Zoning Creates Density
This post will be the first of many of an ongoing feature at Market Urbanism entitled Urbanism Legends. (a play on the term: “Urban Legends” in case you didn’t catch that) In many public forums and in the blogosphere, I consistently encounter myths about land development and Urban Economics. These myths typically look at how policies may benefit or harm a specific person or groups of people. However, as with many popular economic misconceptions, these viewpoints fail to look at how a particular policy may affect other, less visible people. These less visible people are the ones who William Graham Sumner called “The Forgotten Man” in a famous 1883 lecture. These myths are plentiful, and I expect the feature to be stocked with myths to dispel well into the distant future. In many different contexts, I have heard people argue that liberalizing zoning restrictions will cause “over development” or high density development filled with low income people. Even in relatively low density areas, people make the sensationalist argument that if zoning restrictions were lifted, high rises would be built in their community, creating congestion and overburdening infrastructure. On the other end of the spectrum, I have even heard free-market advocates argue against Smart Growth and other urbanist concepts using several Urbanism Legends. They argue that Smart Growth goes against the market and causes density to increase in urban areas. They are correct when they refer to Urban Growth Boundaries that restrict development in outlying areas. Strangely, these market advocates rarely applaud Smart Growth proponents advocacy for loosening zoning restrictions in infill areas. They have argued that the upzoning discourages single family homes, which is the desired living arrangement for most people. And that the market should allow for more single family homes. The reality is that zoning can not create […]
Want Density? Turn the Free Market Loose
Matthew Yglesias – What Price Density The solution, as Ryan Avent says, is to build denser communities. We ought to build more transit infrastructure, of course, but it’s cheaper to use what we already have more intensively. And, of course, it’s more practical to build new infrastructure if there’s a reasonable expectation that it will serve intensive development. Beyond that, density also serves to make walking and biking more practical for more trips. And best of all, getting denser could be accomplished mostly through growth-enhancing relaxation of regulatory burdens. And of course if the supply of housing in central cities and nearby suburbs were radically higher, then it would be much easier for people to afford to live in them. Instead, restrictions on the supply of conveniently located housing lead to high prices and the “drive until you qualify” phenomenon that’s currently leaving many Americans in deep trouble as they try to pay for fuel. In general, relaxing density restrictions will ease housing prices. But, a couple notes: Creating more socialized infrastructure, whether transit or roads, disperses development. High densities create demand for transit, not the other way around. Transit creates demand to locate near the stations, but not elsewhere. This is because as commuters are diverted from roads, congestion subsides, allowing drivers to commute from further-out places. So, if density is the goal, I would privatize highways & parking, while putting the breaks on construction of new public highways & parking prior to building new expensive transit. If individual commuters were to pay for their use of the roads, many would alter their habits and perhaps where they choose to commute to / from. The change in location preference will, no-doubt, increase density. Building densely has higher construction costs per unit as land costs are dispersed among more units, […]
Watch as “Expediters” Become Scapegoats of Corruption and Incompetence
It’s easier to look at the symptom: corruption, than treat the disease: government over-regulation: Chicago Tribune: Role of expediters under scrutiny as federal probe targets City Hall corruption The unsung and highly specialized role these private individuals play in the workings of city government gained notoriety last week when investigators revealed that for the last year, an expediter had been secretly recording conversations to help build an ongoing bribery case that so far has led to federal charges against 15 people. Expediters have multiplied and become fixtures at City Hall in recent years. During the height of the building boom a few years ago, the permit process stretched for many months, creating a cottage industry of people offering their expertise in the byzantine ways of the city’s zoning and building codes. These expediters will be made out as the bad guys, though most serve a valuable roll: wait in line, deal with city staff and other menial things professionals don’t want to waste valuable time doing. These guys are not squeaky clean – many expediters are people you wouldn’t want your daughter dating, but dig deeper to find the real bad guys: the bureaucrats who thrive on bad bureaucracy. The harder it is to do your business, the more it’s worth to hire someone to “expedite” the approval process. They get their kickbacks, campaign contributions, and SkyBox tickets just because they are not competent enough to get the job done quickly, and/or aren’t properly funded to do the job properly. Meanwhile, important projects are delayed, investment capital sits idle, materials wait in a warehouse, and people wait for their homes, offices, or stores to be built. Dig deeper below the surface, and you’ll see the whole crooked system of patronage, political contributions, payoffs, and deal-making fueled by government regulation, lobbying, […]
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 […]
