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Tag Free-market

Urban[ism] Legend: Greedy Developers

This post is part of an ongoing series featured on Market Urbanism called Urbanism Legends. The Urbanism Legends series is intended to expose many of the myths about development and Urban Economics. (it’s a play on the term: “Urban Legends” in case you didn’t catch that) We’ve all heard it said by some NIMBY activist: “This greedy developer doesn’t care about the people of the neighborhood, he just wants to maximize his own profit.” Are developers the devil? No doubt, developers usually are self interested, and seek profit. However, just like in any business, profit seekers must try to satisfy the desires of its customers better than its competitors. The successful developer must direct capital towards creating value in the real estate market for potential customers. So, perhaps it seems particularly greedy that a developer who is creating value in a community, cares less about the current inhabitants than newcomers. But, as Henry Hazlitt wrote in the classic, Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics: the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups. here’s a link to the quote in an online version of the book Most Urbanism Legends, like most economic myths, rely on looking at policies from the perspective of one group without looking at the effects on other groups and society as a whole. This Urbanism Legend is no different. Looking deeper at the issue, the developer represents the needs of the community in a less visible, yet […]

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, […]

Free Market Impostors

I subscribe to the CATO Institute’s Daily Dispatch email. I enjoy ready the daily briefings of current events from a free-market perspective. But, once in a while, my capitalist stomach turns when they mention transit, usually accompanied by a quote from Randal O’Toole. Usually he bashes some transit plan, and gives some statistics about the inferiority of transit. Here’s a quote form the most recent Dispatch: Cato senior fellow Randal O’Toole writes: “A mile of rail transit line typically costs more to build than a four- to eight-lane freeway and typically carries fewer than half as many people as a single freeway lane mile. Federal funding for rail transit comes out of gasoline taxes and other highway user fees, and in most cases those funds would be more cost effective if spent on other transportation facilities.” Does this sound particularly “free market” to you? He’s just saying one socialist system is better than the other. On top of that he consistently presents only half the facts. You don’t even have to dig into his sources of data to know he is pulling a trick on the reader. Can you detect the deceptions? Yep, he discusses construction costs and completely neglects land costs, then focuses on cost/mile (as opposed to the more relevant cost/trip), while falsely inferring that the costs of automobile use is fully paid by fees and gas tax. Out in the country, land may be cheap and costs can be neglected. But, in urban areas where transit becomes more competitive, land is significantly more expensive. If one neglects land costs, one could justify tearing down several 60 story, $1000/sf office buildings Midtown Manhattan to build a 10 lane highway instead of an underground subway. I have a hard time respecting anyone who willingly neglects real costs (not just […]

Rent Control Part 4: Conclusion and Solutions

Welcome to the final post in the series discussing the consequences of rent control. Thank you to the subscribers who have patiently awaited each new post. I hope everyone found it enlightening. If you haven’t read the entire series, you can catch up with these links: Rent Control Part One: Microeconomics Lesson and Hording Rent Control Part Two: Black Market, Deterioration, and Discrimination Rent Control Part Three: Mobility, Regional Growth, Development, and Class Conflict Conclusion Rent control is not just a simple price control setting the price at which willing renters and landlords are permitted to do business, it is much worse.  It is a coercive act that gives landlords no legal option, but to rent to a tenant against his will, often at a financial loss.  Rent control adds a non-voluntary burden to landlords which deepens over time because landlords do not have the option to rent to a tenant at below market rates.  Not only does rent control cause huge distortions in the housing market, but the burdens fall disproportionately on the poor and underprivileged people it was intended to benefit. Although particular people are able to live with the comfort of low rent payments, even those renters will see their living conditions deteriorate as landlords neglect repairs and maintenance. As the situation gets worse, middle class residents are able to move away, leaving behind the poorest residents who have become reliant on the reduced rent. In effect, rent control grants property rights to renters, that originally belonged to the original property owners. Rent control becomes a redistribution of wealth to rent control tenants away from apartment owners, market apartment renters, and newcomers to the area. Nonetheless, over time the quality of life decreases for all residents of a city where rent control is imposed. Solutions So, it […]

Rent Control Part 3: Mobility, Regional Growth, Development and Class Conflict

Part One of this series was a refresher on the Microeconomics of Rent Control and touched on how it encourages hoarding Part Two discussed rent controls influence on the black market for apartments, rental property deterioration and housing discrimination. Here in Part Three, we will discuss how rent control hampers mobility, regional growth, tax revenue, apartment development, and becomes a catalyst for class conflict. Mobility As mentioned in Rent Control Part One, duration of residence in a rent-controlled apartment has been observed to be three times as long as duration at market-rate apartments. One can see that the incentive to hoard rent-controlled apartments is also disincentive to relocate. The mobility of both the tenants and newcomers are drastically hampered by rent control. Unless the tenant has the money to rent a second apartment (or Governor’s mansion), it will be difficult for him to relocate closer to better employment. The tenant may rather endure a very long commute in order to maintain the rent-controlled apartment. As Walter Block put it, "They are, in a sense, trapped by the gentle and visible hand that keeps them where they are rather than where they might do better." Difficulties are multiplied if the local economy takes a turn for the worse. A downturn in local employment would not be relieved by people relocating for jobs, thus making the unemployment and poverty situation worse. Employees looking to relocate in the city with rent control are hurt the worst as they will have a difficult time finding available apartments. The drawbacks to the local economy are discussed in the section on regional growth and adaptation. The reduction in mobility is especially burdensome on families with children, since public schools tend to be local. If the local school is under performing, a family under rent-control will lose […]

Rent Control Part 2: Black Market, Deterioration and Discrimination

With New York’s new Governor’s rent subsidized by his landlord and California debating the best ways to end rent control through Proposition 98, I thought it was a good opportunity to discuss the negative aspects of rent control. This post is the second in a four part series on the rent control. Read all four posts: Rent Control Part One: Microeconomics Lesson and Hording Rent Control Part Two: Black Market, Deterioration, and Discrimination Rent Control Part Three: Mobility, Regional Growth, Development, and Class Conflict Rent Control Part 4: Conclusion and Solutions Black Market and Deceptive Acts As current renters hoard their rent-controlled apartments, it is rare that new apartments become available. Sometimes, tenants would illegally sublet their units at higher rents. Landlords do under-the table deals or rent to friends and family. New York had to crack down on landlords charging “key fees” as high as several thousand dollars to new renters. Landlords will often find loopholes that will let them de-regulate a building, just to be released of the financial burdens. For example, in NY landlords will take their rent-controlled building and deregulate it by using the entire building as a residence for a certain number of years. This is space that could otherwise have been rented at a market rate. Deterioration of Existing Housing Stock Because of the disincentive to improve and maintain the property, landlords will often become slumlords and allow unhealthy conditions or activities to take place in the apartments. This lack of improvement not only is unpleasant to the current renter, but accelerates the end of the usable life of the aparment building. The Rand Corporation studied Los Angeles’ rent control law and found that 63 percent of the benefit of lowered rents was offset by a loss in available housing related to deterioration and […]

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 […]

How McCain or Obama Can Permanently Eliminate the Gas Tax, Cut Pork and Help the Environment

John McCain and Hillary Clinton have both supported the idea of a “Gas Tax Holiday“. The whole idea of a Holy Day to celebrate the worship of socialized transportation catered by Santa Clinton/McCain seems pretty absurd to me. Nonetheless, they expect pandering to gas-addicted voters to pay off in their election hopes. Unfortunately, such a gas holiday would burden the deficit, incentivize the burning of fossil fuels, and further socialize our transportation system. Highway advocates currently cling to arguments that roads are more “free-market” than transit because the costs of maintaining the highways are paid by the user through gas taxes and user fees. That is a myth to be debunked in future posts, but the argument would be void during McCain’s new “holiday”. And, with future tax money footing the bill instead of gas users, we would have a full blown transfer of wealth from the responsible taxpayers who don’t depend on petroleum to the gas guzzlers and petroleum industry. I propose a more free-market solution at the federal level – get out of the transportation business altogether! The federal government would end the gas tax permanently, but at the same time deed the entire federal highway system over to the individual states where the highways are located, and abolish the Department of Transportation over a span of a few years. The individual states would be free to handle their transportation as they see fit, as long as the they do not diminish the military’s ability to mobilize forces for defense. States could pay for maintenance of the assets in ways that best suit them, whether it be a gas tax, tolls, property taxes or states could actually raise money through complete privatization of the new assets. Besides easing the burden on the deficit, getting the federal government out […]

Abolition of Density Restrictions Would be Great for NYC In The Long Run

Tyler Cowen of Marginal Revolution asks a great question: How good would the abolition of zoning in New York City be? He argues that zoning restrictions prevent Manhattan from being a “forest of skyscrapers” such as Sao Paulo. Many of Manhattan’s skyscrapers are much taller than typical Sao Paulo skyscrapers. This is mostly because the rock that lies under Midtown and Downtown nearly eliminates the marginal cost of foundations for taller buildings. On the rest of Manhattan island the soil is less friendly to skyscrapers, rendering tall buildings less economical. Nonetheless, restrictive zoning prohibits optimal density in almost all areas of Manhattan. The restrictions are mostly created to cater to NIMBY activists who are afraid of too many people moving to their neighborhood, using more parking spots, making sidewalks more crowded, blocking views, and altering the “character” of their neighborhood. These activists have been granted property rights over their neighbors’ land by pandering politicians. Of course, this restricts creative destruction, and prevents entrepreneurs from increasing supply to meet the market demand. Shortages arise as a result of the density restrictions coupled with a limited stock of developable land. On top of all that, bureaucracy creates barriers to entry for new development. Only well-connected developers are able to grease city hall to get favorable zoning, and subsidies that others could not. This raises the price of land to a level that only well-connected developers can afford, flushing out wannabes that would build more housing and office space. Zoning restrictions, bureaucratic delays, and barriers to entry in NYC create a shortage of housing and office space, drive prices though the roof, and forces people to migrate to the outer boroughs and suburbs to find an affordable place to live. Without density restrictions, Manhattan would still be very expensive due to the higher […]

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