Because there are no market signals that could identify the best and highest use of street space, it is the role of urban planners to allocate the use of street space between different users and to design boundaries between them where needed.

This article appeared originally in Caos Planejadoand is reprinted here with the publisher’s permission.

As a city expands, planners and surveyors divide its area between private lots and public spaces. Architects, hired by the owners of private lots, design the buildings erected on each one. Lot owners’ taste, budget, and practical considerations shape the design of private buildings. However, land use regulations might restrict the use and shape of the final construction. Over time, changes in consumer demand, building technology, and land prices will require modifications or even the demolition of the original building, which will be replaced by a new one that responds better to current conditions.

This constant land recycling of private lots is a feature of market economies and the motor of urban land use efficiency. Unfortunately, current land use regulations, particularly zoning, tend to slow down this Schumpeterian creative destruction. A paper written by William Easterly, a professor at New York University, monitored the land use change on a Manhattan street over four centuries. The paper shows the unpredictability and necessity of constant land use changes in private urban lots.

In contrast with private lots, public spaces, which include the area occupied by streets, parks, and natural protected areas like beaches, riverbanks, and lakes, rarely change; they are not exposed to market price signals. So, when a city expands, how are the streets designed, and by whom?

On the American continent, little remains of pre-Columbian urban street design. The European colonists’ first task when creating a new town was to separate private lots from public spaces reserved for streets and plazas. Many of these original designs survive to this day. As cities expanded, private developers or municipalities created new roads.

Once fixed by the original surveyors, the city’s roads’ dimensions and patterns seldom change. Consider the design of streets in Manhattan, a borough well known for constantly demolishing and rebuilding ever-taller structures. The pattern and width of streets in the downtown Wall Street area remain identical to what they were at the time of the early seventeenth-century Dutch colony. Even the name, Wall Street, has not changed. The introduction of new, wide avenues, carved by Baron Haussman out of Paris’s medieval districts, is one of the few exceptions to the overwhelming endurance of existing street patterns. Most streets in our cities are fossils dating from the time when surveyors designed the neighborhoods.

Once they have been created, we must accept that streets’ widths and patterns are practically permanent. The areas of streets being fixed, their use has to be rationed. Because supply is inelastic, demand must be managed.

The primary purpose of streets is to allow the movement of people and goods between private lots. But in a large city, there are many ways of moving. Pedestrians, bicycles, scooters, buses, motorcycles, private cars, and cars for hire all contend for the same space. Street space could also be planted with trees. In addition, streets must have room for streetlights, electricity and telecommunication cables, and street and circulation signs. People also use the streets to rest, walk, and exercise. All these conflicting uses occupy precious space that cannot be expanded.

Because there are no market signals that could identify the best and highest use of street space, it is the role of urban planners to allocate the use of street space between different users and to design boundaries between them where needed.

With few exceptions, urban planners have neglected this critical design and regulating role. For instance, on New York City streets, more than two-thirds of the curb space is allocated for permanent parking free of charge. This neglect in the design and regulation of street space contrasts with the complex regulations that planners have applied to private lots. It is time for urban planners to switch their regulatory and design preoccupation away from private lot users and to concentrate on the design and regulation of the scarce space occupied by streets.

The use of private lots should be driven by consumer demand. Land use should emerge from a grassroot process creating an emerging order. By contrast, public spaces are not submitted to price signals that can make their use adapt to evolving demand. The separation of public space between different users is therefore by necessity a top-down design process under the entire responsibility of urban planners.

The post Urban Planners Overregulate Private Lots but Neglect the Design and Regulation of Public Spaces appeared first on Market Urbanism.

Sites and services projects are government-sponsored packages of shelter related services, which range from a minimal level of “surveyed plot” to an intermediate level of “serviced sites” to an upper level of “core housing” complete with utilities and access to community-based services. The level of services depends on the ability and willingness of beneficiary populations to afford them. Typically, such projects represent a sharp break with preexisting government shelter policies in that they attempt, in principle, to focus directly on lower-income deliver shelter and services with small or no subsidies.

Mayo and Gross, World Bank Economic Review, 1987

A 2021 paper by Guy Michaels and colleagues found that S&S has been effective in the long run in Tanzania.

Mumbai retrospective

For my own look back, I revisited a 1983-84 S&S site in Mumbai, called Charkop Kandivali in 2010. I had been part of the appraisal team on the World Bank side. Mumbai planner VK Phatak (whose book I’m keenly awaiting) was also part of the appraisal team on the regional development authority side. VK personally supervised the implementation of the project.

The key elements of the S&S design I participated in is that there are different prices of lots with different standards. Not all World Bank
S&S projects applied this pricing method based on different infrastructure standards within the same site.

The pricing method and the design are based on this document that I wrote with Marie-Agnes and James Wright. It was published in 1988 (WB publications need a lot of reviews and clearance before being approved).

Why not imitated?

Money could be made with S&S. Why was it not reproduced at a large scale by the private sector? The answer is that the Housing Board would not allow the private sector to use these standards. The private sector was obliged to use minimum standards that were a multiple of those used in S&S.

The post Retrospective: Sites & Services appeared first on Market Urbanism.

At the heart of Jane Jacobs’ The Economy of Cities is a simple idea: cities are the basic unit of economic growth. Our prosperity depends on the ability of cities to grow and renew themselves; neither nation nor civilisation can thrive without cities performing this vital function of growing our economies and cultivating new, and innovative, uses for capital and resources. It’s a strikingly simple message, yet it’s so easily and often forgotten and overlooked.

Everything we have, we owe to cities. Everything. Consider even the most basic goods: the food staples that sustain life on earth and which in the affluent society in which we now reside, abound to the point where obesity has become one of the leading causes of illness. Obesity sure is a very real problem and one we ought to work to resolve (probably through better education and cutting those intense sugar subsidies). Yet this fact alone is striking! For much of mankind’s collective history, the story looked very different: man (and it usually was a man) would spend twelve or maybe more hours roaming around in the wild to gather sufficient food to survive. Our lives looked no different to the other animals with which we share the earth. An extract from The Economy of Cities:

‘Wild animals are strictly limited in their resources by natural resources, including other animals on which they feed. But this is because any given species of animal, except man, uses directly only a few resources and uses them indefinitely.’

What changed? Anthropologists, economists, and historians will tell you it was the Agricultural Revolution, which occurred when man began to settle in small towns and cultivate the agricultural food staples that continue to make up the bulk of our diet: wheat, barley, rice, corn, and animal food products. But this merely raises another question: how did the Agricultural Revolution that took place ten millennia ago come into being? Jane Jacobs’ (very compellingly argued) answer is that we’ve got it all backwards: the city is what makes civilisation possible. Agriculture, and everything that proceeded from it, is merely an export of the city, just like the factories, automobiles, and microchips which first arise in cities and are then spun out into a region’s wider territory.

Here’s how it might have happened: at some point in the distant past, the world was parcelled up into territories controlled by various packs of hunter-gatherers. But hunter-gatherers need tools to hunt. Those tools, in turn, are produced by a couple of basic commodities: at first primitive stone tools, then increasingly complex spears made from obsidian and glass, and finally weapons made with copper and iron. As our tools became increasingly complex, their production necessitated resources obtained from particular locations – not available everywhere by obtainable through trade. Hence the rise of the world’s first cities: places where people would come together and barter for those primary sources of production, necessitating permanent civilisations. The surplus from trade, captured and enabled by the city, could then be allocated to new and innovative uses of labour.

Animals, for example, were held for the local trading population, at first for immediate consumption, but then it made sense, as the surplus increased, to breed them in new and innovative ways. Hence the rise of animal agriculture – first in cities, then as land became more valuable, spun off into the surrounding countryside. So too for the seeds which led to plant agriculture: initially for immediate consumption, their storage (and the surplus entailed) permitted experimentation with cross-pollination and paved the way for more advanced plant agriculture. Agriculture, Jacobs shows us, was perhaps the very first significant export spun off from cities!

Jacobs herself notes the idea is surprising, for it completely reverses the typical chain of cause-and-effect that we are so familiar with and that comes so intuitively. After all, in our everyday observations, it is rural areas which become developed into cities, hence why we might believe that first came agriculture. But this cannot be the case: further archaeological research has indeed confirmed Jacobs’ theories, showing that large-scale urban centres in Mesoamerica and Mesopotamia (see the example of Göbekli Tepe) preceded the agricultural revolution. Civilisation, made possible by the agricultural revolution, quite literally emerged with the advent of the world’s first cities.

The striking thing is that this is still the case today. Just like in the earliest cities, which permitted innovation when new work was added to old work and advancements in technique were made – quite literally creating new industries and products through the experimentation that surplus permits – cities continue to be the base of all human innovation and ingenuity. For it is in the city that ideas permeate most effectively, that humans collaborate and learn from one another, building on previous knowledge and success.

For new firms to start, they require a rich ecosystem of existing knowledge on which to base new ideas and innovation. They require capital to turn ideas into reality, that capital being just one of the many exports that cities provide. In turn, as innovations and products emerge in cities, these are added to a city’s exports, growing its markets for additional goods imported from elsewhere.

Every city is, in this way, deeply interconnected and reliant on the success of the cities that came before. What’s curious is that Jacobs doesn’t define the city in terms of scale; rather, to be considered a city (as opposed to a large town), an agglomeration must have the capacity for economic self-generation – in other words, it must be able to sustain itself through this innovative process of adding new work to old work, innovating at every increment.

There is no end to the potential growth that might emerge from cities. In Jacobs’ words: ‘once we stopped living like other animals, on what nature provided us ready-made, we began riding a tiger we do not dare dismount, but we also began opening up new resources – unlimited resources except as they may be limited by economic stagnation.’ The potential growth stemming from cities is precisely because they draw on more than the immediate resources provided in their vicinity. Rather, cities grow, replacing imports and imports, through human ingenuity, talent and the application of ideas to concrete problems.

It has often been proclaimed, particularly in the environmentalist movement, just like the Malthusians that came before, that the human race faces an impending destruction for there comes a point at which we simply run out of resources. That is not the case, when one understands the process that Jacobs is describing. Planet Earth contains almost the same resources that it did twelve millennia ago when absolute poverty was the rule everywhere. In bringing millions of people together in one place and setting in motion this process of constant economic renewal and improvement, wealth was created as ideas about how to reorganise those same resources spread so much faster, setting off a process of ‘cataclysmic reciprocal growth.’

It’s hard to let go of old ideas in favour of new, sounder ones, especially when they are so deeply entrenched. Yet despite there being evidence, quite literally all around us, that it is cities that create growth, policy remains firmly grounded in the old paradigm. Policies aimed at spreading or redistributing wealth across nations as a way of developing them achieve nothing of the sort. It might provide temporary relief (more likely the gains will be captured by some vested interest) but does little to kickstart the self-generating, reciprocating growth process that allows cities to grow. Nor can industrial policy, subsidies to lure big enterprises, or tariff barriers create the growth or desired effects. Big companies, Jacobs goes at length to explain, are highly efficient because they are very vertically integrated. Yet the real growth engine for cities is smaller companies, operating with some level of slack that permits them to expand into new markets and carry out the process of adding new work to old (or in other words, further specialisation).

Then there is the countryside and rural areas. The Economy of Cities is brilliant because Jacobs’ shows us that their development is entirely dependent on the development of cities, and not the other way around. Cities, and the activities that occur within, are what produce the growth that is then expanded out into the countryside as space becomes scarce and new innovative uses for capital and land are found in cities. The success of our cities is therefore not a zero-sum game, it is something of importance to every single one of us.

Politicians, city planners and those in the development space ought to pay close attention to these. Growth cannot be bought; the only way to achieve it is to focus on cultivating its underlying drivers.

The post Lessons from Jane Jacobs on The Economy of Cities appeared first on Market Urbanism.

Witold Rybczynski’s 2007 book Last Harvest helps answer these questions. It tracks a specific cornfield in Londonderry, Pennsylvania, from the retirement of the last farmer to the moving boxes of the first resident.

With its zoomed-in lens, Last Harvest answers (or at least raises) lots of questions that are interesting but not especially important in the grand scheme: Why do expensive homes mix some top-line finishes with cheap, plasticky ones? Why do anti-development communities permit any subdivisions at all? What is ‘community sewerage,’ and how does it work? Exactly who thinks it’s attractive to have brick and vinyl cladding on the same house? What’s it like to buy a house from a national homebuilder? Does Chester County really produce forty percent of America’s mushrooms?

The Stack

Rybczynski does not use this term, but what he describes is part of what I call the “stack” of housing supply. One of the central facts of development is that it relies on a very long chain of industries and professions, each of which relies on every other part of the stack doing its job. If one part is left undone, nobody gets paid:

‘Without a water contract, we can’t get a permit for the water mains, and without a permit, the builders won’t buy any lots and start building their model homes,’ says Jason. ‘Everything is held up.’ (p. 223)

 This is an institutional outcome – I won’t say a ‘choice’ – and is not, strictly, necessary:

Americans take this for granted, but there are other ways to build communities. Some countries depend on centralized planning, in which the public authorities decide where people should live, and what kind of housing they should live in… The cities of the developing world, by contrast, depend on the unplanned and unregulated efforts of millions of individuals who build their own homes in so-called squatter or informal settlements, which eventually turn into urban neighborhoods. (p. 273)

Rybczynski calls this a “business” or “market” approach. The first term is clearly more accurate. The developing world is more of an open spot market, with many isolated, uninsured transactions and a very large number of decision makers. The American approach relies on predictable, tessellating business models.

Unlike in a simplified model, each stage of the work is done by a specialist who has to worry about reputation and liability. Joe Duckworth is the lead developer in Last Harvest, but the subdivision is planned by Bob Heuser and the architectural choices are the subject of an endless series of negotiations between the Londonderry Planning Commission, Duckworth, a loftily-titled ‘town architect’ (basically, a consultant), and the formula-driven homebuilders.  

The key source of tension in the book is that the township sought a neo-traditional development for the site, but would have preferred no development at all:

‘We’ve been doing conventional development and we hate it,’ [one public meeting attendee] says. ‘Why don’t we try something new, and if we don’t like it, we won’t do it anymore.’

‘Doing something new’ implies departures from the usual practice, and that creates problems throughout the stack. The drip irrigation sewage system is new to Chester County and takes longer to permit. The homebuilders stick to their standard marketing practices – advertising the interiors of homes – when the developer and township intended the exterior neighborhood to be the main draw.

Exurban new urbanism isn’t very urban and isn’t especially novel. But even its minor deviations put stress on several of the stack’s business models. So imagine the difficulty of trying to push through something really revolutionary!

The developer as a risk agglomerator

The business models in the stack are principally structured around the avoidance of risk. Even the largest, most liquid companies – the publicly traded “national” homebuilders – rarely buy a land parcel until they have a contract with a homebuyer. Their work is not riskless: they contract for parcel prices ahead of time, and a market decline can cut into their expected profits. But they can always walk away rather than take a substantial loss.

For most industries in the stack, participation is a simple fee-for-service. The businesses that provide site plans, utility connections, and lumber, for example, are all paid on delivery and expose themselves to very little risk.

The stack does as much as it can to offload risks to the farmer, the homebuyer, and various insurers. When the developer and farmer first strike a deal, it’s an option: the upside belongs to the developer, the downside to the farmer. The farmer is compensated, of course. But he cannot quickly receive the value of the site’s full potential. Rybczynski notes that conservation easements are attractive to farmers because they pay out immediately.

Years later, early homebuyers not only accept long-term market risk but also the risk that the site is not completed as (or when) planned.

In Last Harvest, the developer finally buys the land when the farmer refuses to renew the expiring option contract. The land has appreciated; both sides would like to capture those gains. Some of the increased site value comes from the general state of the market, but much is due to the developer’s work in shepherding a rezoning and development agreement through the township’s slow-moving approval processes. The final value depends primarily on how many homes can be built on the site, and township politics are mostly geared toward trying to reduce density.

For a few agonizing years, the developer owns the land. He pays for site improvements, strikes contracts with builders, and tries to time the market. The source of the risk, of course, is that an enormous amount of labor and capital must be sunk into the site before it becomes a habitable, valuable good. Until very late in the process, it’s possible for much of the investment to be lost to the vagaries of the market or the local government.

In a downturn, Rybczynski notes, about one in four developers go out of business. Even Robert Morris, the financier of the American Revolution, spent three and a half years in debtors prison (p. 47). Despite hitting the market at almost the worst possible moment (2007), the New Daleville subdivision survived.

Conclusion

So should all this detail – and I’ve only unpacked one aspect of the book – change the way we theorize housing construction? The importance of regulatory risk and the obvious risk aversion of all involved are clearly central to the internal mechanics of development. Slow permitting implies a disconnect between the price of land at the time a contract is written and the spot price that would prevail when the option is executed.

One paper (Mayer and Somerville 2000, JUE) incorporated this disconnect by modeling development as a two-stage process of land development and, subsequently, construction. They found that incorporating this complexity did not change the results appreciably.

The fragmented, interdependent ‘stack’ is likely more important to suburban reformers interested in changing what gets built. Incorporating accessory dwelling units, triplexes, or cottage courts into suburban development requires more than just regulatory reform. It also requires demonstrating to developers that no layer in the stack is going to fail them – and that everybody will ultimately get paid.

The post Book review: Last Harvest appeared first on Market Urbanism.

Monday, Y-Combinator, an early-stage technology startup incubator, announced it will “study building new, better cities.”

Some existing cities will get bigger and there’s important work being done by smart people to improve them. We also think it’s possible to do amazing things given a blank slate. Our goal is to design the best possible city given the constraints of existing laws.

They are embarking on an undertaking of noble intentions, and I will explain why the technology sector needs to be at the forefront of thinking about cities.  However, in the pursuit of designing “new” cities from a “blank slate” they have begun their quest with one fatally flawed premise, that wise technocrats can master-build entirely new cities catering to the infinitely diverse set of needs and desires of yet-to-be-identified citizens.  

Any visions of city-building must first humbly acknowledge that cities are an “emergent” phenomena.   According to wikipedia, “emergence is a process whereby larger entities, patterns, and regularities arise through interactions among smaller or simpler entities that themselves do not exhibit such properties.”   What makes cities vibrant are the “spontaneous order” which emerges among city dwellers as they pursue their individual desires. Cities are like the internet – networks, patterns, and interactions emerge not through design but from spontaneous order.  Like no entity could conceivably understand or control the internet, no entity has the knowledge to anticipate the desires of millions of individual agents, and design a city accordingly.  This is called the “knowledge problem.”

According to economist Friedrich Hayek:

If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them.

We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization. But this answers only part of our problem. We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used.

Because of flawed philosophical underpinnings that emphasized top-down design (urban planning) and failure to acknowledge the emergent nature of cities, American cities nearly destroyed themselves in reaction to the 20th Century’s greatest technological disruption, the automobile.  Cities’ master builders, armed with the best intentions progressive philosophy had to offer at the time, devastated vibrant communities and urbanity through the use of urban renewal projects, overbuilt a system of highways catering to the automobile, abandoned rail lines, and utilized zoning to separate homes from commercial activity and push growth further from where it was desired.

Perhaps future technocrats won’t make the same mistakes past technocrats made in reaction to the automobile.  But to “design cities” successfully will take a strong dose of humility that was lacking during the Progressive Era.  The focus should be on issues of governance, culture, and institutions instead of a top-down, build-from-scratch mindset.  This may sound like it is in the wheelhouse of social science instead of technology, but in fact, we can find analogies. Show technologies can (and perhaps, must) help foster emergent systems without being compelled to dream up all of the system’s components together.  This is commonly seen in the use of technology in the creation of platforms. Technology brought us platforms such as Microsoft’s Windows, internet protocol, Apple’s iTunes app store, Wikipedia, WordPress, ebay, and Uber.  Likewise, technology can be utilized to create platforms of governance (or Government as a Platform as Tim O’Reilly refers to it).  Platforms for governance and conflict resolution at the city scale would likely incorporate disparate, yet integrated systems of artificial intelligence, physical sensors, empathic interfaces, and machine learning to facilitate “Spontaneous Order” without implementing a top-down design.

Let us also set aside the premise that we must work “within the constraints of current law,” as effectively enforcing “current law” (particularly zoning) will be impractical and dysfunctional in the coming dynamism.  Platforms of governance using technology will develop over the decades, and the need for more dynamic governance will become more pressing as developing exponential technologies disrupt the construction industry and the dynamism of cities accelerate as a result.

Exponential technologies such as 3d-printing, robotics, and artificial intelligence will inevitably disrupt the factors of production of buildings, and thus cities.  This will usher in a new paradigm where construction costs, and thus rents steadily decrease instead of increase.  Buildings will be constructed in days instead of years.  Cities will become more affordable and dynamic than ever, and perhaps new cities will emerge seemingly overnight as the speed and economics of construction accelerates.

3d-Printing, Robotics and Artificial intelligence are not currently viable in the building construction industry. However, since they are supposedly “exponential” technologies, they would eventually disrupt conventional approaches, and usher in a new paradigm of increasing affordability and dynamism.

This new paradigm will more likely be led by firms that more closely resemble technology companies than the current regime of developers, realtors, construction companies, and city planners.  For this reason, the technology sector must be at the center of the conversation of what makes cities great, and how cities can best meet the needs of its inhabitants.

A society where housing and the components of vibrant cities are abundant and affordable is a vision worth striving towards.  As is a society where disputes are resolved speedily in a bottom-up fashion.  In many ways, the technology sector is already on a path to make that happen – they just may not yet realize it.  Now is the time the technology sector and intellectuals must look at the new urban paradigms technologies will usher in, and start thinking of how to responsibly handle the humongous opportunity.  For that reason, I applaud Y-Combinator.  Aside from Y-Combinator’s flawed premise, I believe technology will usher in a new paradigm of abundance and cooperation in cities, and now is the time for the conversation to begin in earnest.  We at Market Urbanism are eager to be a part of that conversation.

The post Y-Combinator, Tech, and “New Cities” appeared first on Market Urbanism.

Gentrification is the result of powerful economic forces. Those who misunderstand the nature of the economic forces at play, risk misdirecting those forces.  Misdirection can exasperate city-wide displacement.  Before discussing solutions to fighting gentrification, it is important to accept that gentrification is one symptom of a larger problem.

Anti-capitalists often portray gentrification as class war.  Often, they paint the archetypal greedy developer as the culprit.  As asserted in jacobin magazine:

Gentrification has always been a top-down affair, not a spontaneous hipster influx, orchestrated by the real estate developers and investors who pull the strings of city policy, with individual home-buyers deployed in mopping up operations.

Is Gentrification a Class War?  

In a way, yes.  But the typical class analysis mistakes the symptom for the cause.  The finger gets pointed at the wrong rich people.  There is no grand conspiracy concocted by real estate developers, though it’s not surprising it seems that way.

Real estate developers would be happy to build in already expensive neighborhoods. Here, demand is stable and predictable.  They don’t for a simple reason: they are not allowed to.  

Take Chicago’s Lincoln Park for example.  Daniel Hertz points out that the number of housing units in Lincoln Park actually decreased 4.1% since 2000.   The neighborhood hasn’t allowed a single unit of affordable housing to be developed in 35 years. The affluent residents of Lincoln Park like their neighborhood the way it is, and have the political clout to keep it that way.

Given that development projects are blocked in upper class neighborhoods, developers seek out alternatives. Here’s where “pulling the strings” is a viable strategy for developers. Politicians are far more willing to upzone working class neighborhoods. These communities are far less influential and have far fewer resources with which to fight back. 

Rich, entitled, white areas get down-zoned. Less-affluent, disempowered, minority areas are up-zoned. Politicians appease politically influential neighborhoods through limited growth.  They then appease developers in less influential neighborhoods.  Thus, less-affluent neighborhoods become the only viable places for new construction.

Fight Gentrification by Fighting Development?

Too often, the knee-jerk response is to fight development in gentrifying neighborhoods. The consequences of fighting development are two-fold. First, economics 101 tells us that capping supply will only cause prices to rise. Instead of newcomers filling newly-constructed units, they will quickly flood the existing stock of housing.  This then quickens gentrification. Second, thwarting development shuts the release valve that alleviates housing price pressures that caused gentrification in the first place. Politicians prefer to funnel new construction into disadvantaged neighborhoods instead of letting it happen where there is stronger market demand. Development suppressed where needed most, gentrification swiftly captures one neighborhood after the next.

Only 2 Solutions to Fight Gentrification

When considering gentrification, we must accept a plain fact: rich people don’t just vaporize by prohibiting the creation of housing for them.  If housing desires cannot be met in upscale neighborhoods, the wealthy can and will outbid less affluent people elsewhere.  With that in mind, there are only 2 solutions to stem the tide of gentrification:  The first solution is widespread liberalization of zoning.  Up-zoning is particularly needed in already desirable locations where incumbent residents have effectively depopulated their neighborhoods over several decades.  

The only other solution is to eradicate rich people altogether. This, I hope, is not what people have in mind when they declare class war.

Rich people don't just vaporize by prohibiting the creation of housing for them.

Twitter

Whether you are a class warrior or Market Urbanist, here are some tips to more effectively fight gentrification:

• The battlefield is not in the gentrifying neighborhoods. It is in the more wealthy neighborhoods where empowered residents fight to keep new people out.
• The enemy is not the gentrifiers or developers trying to serve them. It is the rich people who use their influence to thwart development in their neighborhoods. The more they fight to depopulate desirable neighborhoods, the more people are left seeking alternative neighborhoods.
• The mechanism of gentrification is not development. It is zoning, and other regulations that thwart development in currently desirable areas.
• The solution is not to fight development in currently gentrifying areas. The solution is to call for radical liberalization of zoning in already wealthy areas, and to stand up to neighborhood groups who try to abuse zoning to prevent that.
• The reason people gentrify is not to disrupt ethnic or economically-challenged neighborhoods. It is likely because they have been priced out of the neighborhood they desire.

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The post Only 2 Ways to Fight Gentrification (you’re not going to like one of them) appeared first on Market Urbanism.

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.

Greenwich Village circa ~1900

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.

Greenwich Village circa 2014

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 working class residents? By embracing gentrification’s opposite: filtering.

Filtering: The Opposite of Gentrification

Buildings, like anything else, are expensive when they’re new but depreciate over time. Architectural styles change. Wear and tear accumulate. Buildings become harder to update with the newest amenities. Here is where we find filtering; aging units, originally built for the wealthy, become more affordable over time. What’s difficult to see is that filtering occurs simultaneously with gentrification. Every “gentrifier” frees up their former unit for someone slightly less well-off. That person, in turn, also frees up a unit and so on down the line. The process is akin to a game of musical chairs.

But for the game to work for everyone, chairs must be added, not taken away. Cities must allow additional units to be built so that the housing stock expands over time. Research suggests that this is a necessary condition for filtering to take place.

While filtering is not some panacea that cures all housing ills, it’s an important part of how housing markets work. Allowed to take place, it contributes to providing housing at all levels of income. The more a city impedes the process by restricting growth, the more its poorest areas will gentrify without the offsetting creation of less expensive housing over time.

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How about restructuring the property tax across America to install a two-tiered system? More tax on those horizontal pieces of empty land and asphalt, less on the buildings. That is, reduce the tax rate on homes and other improvements, and substantially increase the rate on the site value. I think such a system would induce more compact development and more infill work.

It sure would induce more development.

Higher taxes on the land, lower taxes on the building, discourages a land holder from leaving his land fallow and speculating on its increased value, and conversely, encourages improvements on the land and redevelopment. The monograph used Sydney Australia as a case study, but its general point, that a site value tax system puts “pressure on owners to sell their property for redevelopment if they cannot or will not redevelop it themselves.”

Note that ULI is an organization primarily of real estate developers, investors, and related professions. (I am a member.) So, I can see why developers would favor a mechanism that would force more land into development.

Overall, this type of scheme will help drive development in the short run, but be harmful in the long-run.  By encouraging development in the present by discouraging land speculation, we can expect a few consequences:

• Speculators play an important role in the land market, even if we don’t like the surface parking lots they often operate on their land.  Speculators essentially hold the land until development is optimal for the site, and all sites cannot be optimally built at once. Discouraging speculation drives the land into the hands of developers at cheaper prices than current market prices.
• At the same time in reaction to the new tax regime, all the new developers will compete for users of the space they are building on the vacant land. This either means they’ll build smaller in anticipation of the glut of new development, or vacancy rates will be much higher.
• The new supply of space will likely serve to lower rents and condo prices, but this will only be temporary as available development sites quickly disappear.
• Had speculators been forced to build on their lots, less dense, and less optimal buildings would be in their place, and a future developer faces the opportunity cost of demolishing that building. This would be similar to developing in New York, where vacant parcels are very rare, compared with developing in Chicago where developable parcels are relatively plentiful.  There is a huge affordability gap between New York and Chicago, which can be partially attributed the the availability of development sites.
  
• It will harm the diversity of building age that Jane Jacobs claims as a key ingredient that makes for great cities. The stock of buildings will be disproportionately represented by buildings built shortly after the tax scheme is enacted. As new development occurs, affluent people will be attracted to the developing areas. As these buildings depreciate, the more affluent will relocate. Without enough diversity, over a long period of time a neighborhood will be predominantly lower-class residents.
• This under-developed scenario will breed NIMBYism over the years, as the new development will be of lower density than under current taxes.  Residents will likely be resistant to future higher density development of sites to meet market demand.  However, new development would necessarily involve demolition of existing lower-density buildings, which is costly from an opportunity cost point of view, as well as community relations.

I do favor some regional, state, or other tax based upon acreage. (if offsetting income tax or other productivity-stifling taxes)  However, I would implement the tax to discourage sprawl, not to discourage speculation.  Thus, I would tax each acre equally, whether developed or vacant.  Encouraging development of vacant land may only serve to encourage lower density development as a “tax payer”, as opposed to a more optimal use of the land. As long as density isn’t overly restricted, speculation can allow for higher density, and more optimal land use in the long run.

By burdening speculators, we should expect speculation to shift to under-optimal “development” like this:

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