The post The weird D.C. housing grift that’s sending a former FBI agent to jail appeared first on Market Urbanism.
]]>WASHINGTON – David Paitsel, 42, a former FBI agent, and Brian Bailey, 53, a D.C. real estate developer were sentenced today on bribery and conspiracy charges for their role in schemes involving confidential information held by the D.C. Department of Housing and Community Development
United States Attorney’s officeThere are plenty of housing laws you can break. But these grifters were busted only for bribing a city official for information. Otherwise, they used the housing law – the most innocent-sounding of all housing laws – correctly.
Washington DC has a strong Tenant Opportunity to Purchase Act (TOPA). When a landlord sells, tenants have the right to match any offer, conceivably buying their own building. That never happens. But TOPA also allows tenants to sell their rights to literally anyone else. The law treats the new owner of the TOPA rights with the same exaggerated deference as a tenant.
The TOPA grift goes like this: A TOPA shark, like Paitsel and Bailey, approaches tenants whose building is on the market. The “approach”, as I’ve witnessed it, can be a hand-scrawled note placed in the tenants doors or mailboxes. The tenants rarely know the mechanics of buying a house, let alone utilizing an obscure city-specific TOPA scheme that would have to involve collective action among many tenants.
So the sharks offer the tenants a few hundred dollars for their rights. If the offer is accepted, the shark informs the landlord.
Now suppose a prospective buyer comes along and offers $1,200,000 for a D.C. sixplex. The landlord must inform the shark, who now has the right to match any bona fide offer on the property. But the shark has no interest in buying – he just demands ten or twenty thousand dollars to surrender the rights.
If the landlord resists extortion, the shark finds ways to delay the sale until the buyer walks away. If he finds a misspelled address or other technicality in the landlord’s legally required communications, he can add time to the clock. The shark can force the landlord to wait up to 240 days for financing to be approved. Of course, if the landlord does wait all that time, the shark can just decline to purchase…at which point the entire charade begins anew.
More often, the landlord will submit to extortion – if not before the first prospective buyer walks away in frustration, then before the second does the same.
(Patsel and Bailey didn’t get in trouble for extorting landlords. That’s within the letter of the law. Instead, they were busted for trying to make their shakedown operation more efficient, buying the names and addresses of TOPA-notified tenants. The info presumably gave them an edge on their competitors who drive around with sticky notes seeking for-sale signs on small buildings.)
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]]>The post Why Do We Hate Developers? appeared first on Market Urbanism.
]]>Earlier this year, researchers Paavo Monkkonen and Michael Manville at the University of California Los Angeles (UCLA) conducted a survey of 1,300 residents of Los Angeles County to understand the motives behind NIMBYism. As part of the study, they presented respondents with three common anti-development arguments, including the risk of traffic congestion, changes to neighborhood character, and the strain on public services that new developments may bring. But according to their findings, the single most powerful argument motivating opposition to new development was the idea that a developer would make a profit off of the project.
At first blush, this finding might seem kind of obvious. People really don’t like developers. As Mark Hogan observed last year on Citylab, classic films from “It’s a Wonderful Life” to “The Goonies” depict developers as money-grubbing villains.
But, when you think about it, it’s pretty weird that this is the case. In what other contexts do we actively dislike people who provide essential services, even if they happen to turn a profit? I don’t begrudge the owner of the corner grocery every time I buy a loaf of bread or a gallon of milk, and I hope you don’t either. In fact, most of us are probably happy that folks like doctors and dentists earn a lot for what they do. So why are developers, who provide shelter, any different?
One possibility is that developers are often, for lack of a better term, assholes. This is surely the case with at least some developers. Our president is arguably America’s most famous developer, even if he isn’t exactly the master builder he played on television. And President Trump’s defining characteristic in his “Celebrity Apprentice” role—and evidently in real life—is that he is a bit of an asshole.
But it isn’t just him. Most cities have a Trump-like major player in the real estate market: the kind of guy whose business model is built on over-the-top marketing and conspicuous displays of wealth. They thrive by calling attention to themselves, and in so doing, attract the imprudent investors and impressionable customers that make deals work. Meanwhile, they’re drowning out the large majority of vanilla developers who are earning an honest living building up their communities, coloring how we view developers for the worse. But entrepreneurs in many fields can be assholes. Why do we especially dislike developers?
A second possibility is that many people, especially homeowners, cynically see developers as unscrupulous competitors. Consider that for most Americans, their house is their single biggest investment. If they know anything about supply and demand, they probably have a sense that more housing mean lower housing prices. Even absent a rudimentary theory of housing markets, homeowners may see developers as threatening the things that give their house its value: the neighborhood’s character, the great schools, what have you. And if someone’s threatening your nest egg, that’s a pretty good reason to dislike them.
This is a kind of expanded version of the homevoter hypothesis, developed by the economist William Fischel, which postulates that much of the political behavior of homeowners can be understood as an effort to preserve home values. It’s not a big step to say that this type of desire could bleed into cultural attitudes as well. You don’t need to be Joseph Campbell to know that people like a good David and Goliath story. Thus, development narratives often take the form of ‘humble homeowner saving for retirement versus the wealthy developer maximizing for profit’ (note that this closely parallels narratives about local stores competing with chains). You hear this narrative even in the tony suburbs of places like Boston and the Bay Area, where in many cases homeowners are likely wealthier than the average developer. It’s a compelling hypothesis, but it doesn’t do anything to explain why a renter might dislike developers. To do that, we need a broader theory.
One final possibility is that the the way we regulate development tends to reward the worst kind developer. As unpacked by Anna Fahey of the Sightline Institute in her recent post, the current system of heavy land-use regulation favors developers with deep pockets and an aggressive approach. When virtually every large-scale development—or in a place like San Francisco, every development—requires a rezoning and multiple variances, the developers who thrive are those who are able to extract permits from local governments, rather than those who provide a quality product at a decent price.
To some extent, this is how developers like Trump succeed: they aren’t particularly adept at financing or building buildings so much as they are at lobbying lawmakers to give them what they want. From zoning permits to eminent domain to tax abatement, urban development as it exists today is a complicated and ugly process unintentionally designed to benefit developers with the fewest qualms about greasing palms and buying off opposition. This isn’t to say that there’s anything wrong with applying for rezonings or variances—far from it. Virtually all developers have to apply for them. But they serve as a massive barrier to small-scale, squeaky-clean developers, and, even when used for honest purposes, they can look a lot like cronyism to the untrained eye. This could explain why even renters often hold negative opinions of developers.
Under this final hypothesis, the harder we make it for honest developers to turn a buck, the more we end up with shady developers. This could have even larger downstream effects. This could produce a vicious cycle, as the more that developers are cast as unsavory characters—and housing development as an inherently corrupt profession—the fewer decent people will go into the field. Thus comes Monkkonen and Manville’s ironic conclusion: if people don’t like the developers they have, they should make it easy for more public-spirited developers to come in and steal their business. That is to say, cities should make building housing as open and competitive as starting a grocery or selling t-shirts. In an open housing market, the comparative advantage of the asshole developer disappears. Of course, one or two movies with an honest developer as the protagonist also couldn’t hurt. I’m thinking “The Goonies 2”?
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]]>The post Density Is How the Working Poor Outbid the Rich for Urban Land appeared first on Market Urbanism.
]]>The great failing of modern land-use regulation is the failure to allow densities to naturally change over time. Let me explain.
Imagine you are trying to sell a property you own in a desirable inner suburban neighborhood in your town. The lot is 4,000 square feet and hosts an old 4,000 square-foot home. There is incredible demand for housing in this area; perhaps the schools are good, or the amenities are nice, or the neighborhood sits adjacent to a major jobs center, meaning that residents can walk to work. I’ll leave the reasons to you. Who do you sell it to?
You have at least two options: First, you could sell it to a wealthy individual, who would use the entire property as his home. He is willing to pay the market rate for single-family homes like this, which in this case is $300,000. Under current financing, he would likely have a monthly mortgage payment in the ballpark of $1,300. Second, you could sell it to a developer who intends to subdivide the house into four 1,000 square foot one-bedroom apartments, renting each of them at a market rate of $500 to service workers who commute to downtown. After factoring in expenses, her annual net operating income would be around $20,160. Assuming a multifamily cap rate of 6.0.%, this means that she could pay up to $336,000 for your property.
Based on this analysis, who do you sell it to? The answer is obvious: you will sell it to the multifamily developer who will subdivide and rent out the house, not necessarily because you’re a bleeding heart urbanist, but in order to maximize your earnings. As rents in the area rise, the pressure to sell to a buyer who would densify the property will only grow. The prospective mansion buyer simply cannot compete with the service workers under these very typical market conditions. How cool is that?
This may sound like an oversimplification. As with all economic examples, it is. But at the end of the day, these very simple market dynamics play an essential role in guiding the spatial patterns of our cities. When demand for housing grows in urban neighborhoods, low-density uses will convert into higher density uses. This might often start small—homeowners converting underutilized floorspace in attics and basements into additional housing units to earn income—and under high demand circumstances might escalate—tearing down single-family homes and constructing apartment buildings.
When my great grandmother, a grocery store clerk and single mother, migrated to Louisville from a small town in Kentucky in the 1940s, they shared a subdivided mansion in Old Louisville with multiple other working-class families. The opposite also happens occasionally: when demand for housing falls, high density uses may be converted into low-density uses, or demolished altogether. When Louisville’s population collapsed in the 1970s and 80s, the glorified tenement my grandmother grew up in was converted back into a mansion owing to lack of demand.
Thus, density is the key to ensuring that the incredible opportunity that cities offer is available to everyone. It’s the only sustainable way that the working poor can outbid the rich for urban land, and it’s naturally facilitated by markets under normal conditions. Density is what makes a room in an old mansion affordable to a grocery store clerk struggling to provide for her children. Density is what enables the apartment developer discussed above to outbid the prospective mansion developer for land, because in a sense what she is actually doing is pulling the resources of those working poor families.
Density controls, whether the result of zoning, land-use regulations, or subdivision regulations, break this system, effectively prohibiting the working poor from outbidding the rich for urban land. These policies come in a variety of forms: minimum lot sizes, single-family zoning, parking requirements, minimum unit sizes, etc. But they all require some minimum level of housing consumption—purportedly for the residents own good, in many cases—which means that residents who cannot afford to consume this minimum threshold of urban land cannot consume housing in this neighborhood at all.
Let’s return to our above example. If your property was zoned for single-family housing, the developer who intended to subdivide wouldn’t even bother to bid and the structure would remain a single-family home, despite high market demand. The four prospective tenants would have to look elsewhere, bidding up other scarce units and suffering longer than desirable commutes.
Or imagine if the city allowed subdivisions, but restricted apartments to 1,500 square feet. In this case, the developer could only divide the house into two units. Rents normally rise with floorspace and additional bedrooms, but they rarely double in price. If the developer could only earn $800 per unit on the market, she could only justify spending $268,000 on the project, meaning she would be outbid by the prospective mansion buyer. If she could squeeze out $900 per unit, she would barely outbid the prospective mansion buyer, letting in only two tenants, and only those who could afford a 45% increase in rents. The two other tenants would be forced out of the community. Other mandatory minimum standards like parking requirements and lot sizes work the same way, prohibiting density and pricing potential residents out of the community. Needless to say, this process falls hardest on the working poor.
Banning density, whatever the pretense, whatever the means, effectively means banishing the working poor from cities. As the urban planner Alain Bertaud has put it, the market is not an end or a construct, it is a mechanism. It is an emergent system for distributing scarce resources. Sometimes it fails and state actors or civil society must intervene. Sometimes it produces undesirable outcomes that warrant rectification. But if we don’t understand it and work to build policy around it, the results will be ugly. From the mounting affordability crisis to the income and racial segregation of our cities, the failure of shifting responsibility for the distribution of densities from markets to planning boards has been a self-evident failure.
For future content and discussion, follow me on Twitter at @mnolangray.
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]]>The post Interview with Alain Bertaud appeared first on Market Urbanism.
]]>Our Brazilian collaborator Anthony Ling, editor of Caos Planejado, met Bertaud at the NYU DRI conference last year entitled “Cities and Development: Urban Determinants of Success”, who gave us the following interview:
AL: You are currently writing a book tentatively titled “Order Without Design”, which in some way relates to the title of our website, “Planned Chaos”. What do you mean by the title of your next book – what should readers expect of it?
AB: “Order without design” is a quotation from Hayek that he uses in a different context in “The Fatal Conceit”: “Order generated without design can far outstrip plans men consciously contrive”. In the context of cities it means that cities themselves are mostly self generated by simple rules and norms applied to immediate neighbors but with overall design concept designed by one person or a group of designers. The spatial structure of large cities is a mix of top-down design and spontaneous order created by markets. Spontaneous order appears in the absence of a designer’s intervention when markets and norms regulate relationships between immediate neighbors. Most evolving natural structures, from coral reefs to starlings’ swarms, are created by spontaneous order. The objective of my book is to show that top-down design should be reduced to a minimum and much more room should be given to spontaneous order.
AL: Brasilia is almost a national token for urban planning, in this case with design. On top of that, its strict modernist “Plano Piloto” was landmarked only thirty years after being built, becoming probably the youngest city considered a heritage site. Today it suffers a lot of criticism from Brazilian urban planners, who usually take a stance against modernist urbanism. Many of them point out the lack of mobility as the main problem: the automobile is almost a requirement to live in Brasilia, as urban and architectural form limits access to pedestrians and public transit. There is a lot to say about Brasilia, but could you summarize your view on it? Do you think urban mobility its biggest problem or are there bigger problems with a planned city?
AB: I have written several articles on Brasilia, in particular: “Brasilia spatial structure: Between the Cult of Design and Markets” presented at a seminar in Brasilia in 2010.
I think the problem with Brasilia is the design process itself and the lack of markets. While buildings and apartments can be sold, the land belongs to the government and is therefore not subject to market forces that could recycle it to respond to changing conditions. The transport problem is only one aspect of it. The idea from the start to design a city as a finished product is a terrible mistake. Incredibly arrogant.
I wrote also an earlier paper on Brasilia, Johannesburg and Moscow titled “The Cost of Utopia” that summarizes my views on government designed cities. It is not that a better designer would have done a better job, it is the concept of design without market feedbacks from the users themselves that become a permanent flaw that cannot be corrected by more design.
AL: In both Brazilian and international urban planning literature, Curitiba is frequently referred to as a “green city” practicing “sustainable urbanism”, in large part due to the introduction of the BRT (Bus Rapid Transport) system. However, BRTs are being built in Brazilian cities gradually showing a number of problems: the system centralizes transit on a single operator – which frequently fails to deliver – and previously scattered routes are designed into a single fixed infrastructure. Are the several Brazilian cities currently building BRTs doing the right thing? And from what you have seen does Curitiba deserve its title as an international reference of urban planning?
AB: I think that the people who managed Curitiba in the last 30 years had many good ideas, for instance recycling water to irrigate public parks. Even the concept of BRT is interesting while limited in its application. However, Curitiba’s original sin has been to design an urban land use that will make a preselected transport system work, instead of looking at the land use and trying to find a transport system that would increase mobility. The land use of Curitiba is designed to make BRT viable, not to transport people to their job in a minimum time.
The idea, of course, that one mode of transport could solve the mobility problems of all its inhabitants for ever is also wrong. I think that BRTs being installed now in many very large and dense cities of Asia are creating more problems for their future and are in reality reducing mobility. See my paper on Danang (Vietnam) and the unfortunate plan for a BRT.
Of course fantastic public relations is one of the major achievements of Curitiba. No city has spend as much on it. At the Istanbul second Habitat conference in June 3–14, 1996 , the Curitiba municipality exhibited an entire BRT bus and bus station shipped from Curitiba to Istanbul!
AL: Rio de Janeiro gives us some of the most striking views of urban inequality: Leblon and Ipanema, two of the most expensive neighbourhoods in the country, are surrounded by favelas, the poor informal communities that usually occupy public land but lack public infrastructure. What do you think is the best way to help the lives of residents of these communities through urban policy? Is land formalization a good solution?
AB: I think that the favelas are not there by chance. The denser they are the more demand it indicates for their location. They should be made permanent. The first step is to provide infrastructure, water supply, sewer and storm drainage and a convenient way to go up and down. The need to provide formal tenure depends on the country. Establishing a formal cadaster is long and costly. Sometime an informal tenure works well. In Indonesian kampongs one year water bill (which has an address) serves as tenure a document and allows the transfer of title with very little discount compared to cadaster registered tenure. If an informal tenure title allows real estate transactions and is recognized by the state then formal tenure is not necessary. What is important is for the state to recognize the rights of residents, whether they are renters or owners. Being next to expensive neighborhoods is an advantage for the poor residents. More formal jobs are available nearby and probably a better access to high level primary infrastructure.
AL: Brazilian cities are gradually enforcing a “progressive property tax” on unnocupied real estate: owners of empty buildings or lots pay higher taxes the longer they remain unoccupied. A frequent reason given by urbanists who defend this policy is that the owner of this real estate would be failing to deliver the “social function of property” (a concept established in our legislation) by devaluing adjacent properties and restricting access to housing in order to profit by real estate speculation. Are you in favor of this kind of progressive progressive tax? In what scenarios might it be applicable?
AB: I think that urban land should pay a property tax “ad valorem”. Buildings should not be taxed. An empty lot fully served by urban infrastructure should pay a tax to cover the amortization of primary infrastructure networks and road maintenance. Empty lots should therefore pay the same tax as a built lot, but just based on its land value. Rents from built property should pay a tax as part of the income tax of the recipient of the rent. The decision to build on an empty lot should left to the owner. Sometime it is an advantage to society when land owners delay construction as they may build a structure that is more responsive to demand. William Fischel documented well this apparent paradox. I do not see the point of a progressive property tax.
AL: What cities – or periods of development within a city – do you consider your favorite examples of good urban policy?
AB: Hong Kong has many very positive aspects. In particular because they try to maximize land values by having land use regulations that reflect demand. Shenzhen also has some impressive achievement. I like more and more Indonesian land use policy, Surabaya in particular. None of these cities are perfect models, all of them have some bizarre regulations that are detrimental to the welfare of their inhabitants, but in general they are doing well.
AL: A large part of your work explains how city planning, the attempt to control the apparent chaos of our urban environment, leads to negative unintended consequences, many times being the source of problems cities face today. Being so, what should be the role of urbanists in urban policy and working with city governments?
AB: Urbanists have a very important role to play in city development, but they are not playing it. They usually adopt unmeasurable slogans like “smart growth”, “sustainability”, “livable cities”. Do not use slogans, use measurable indicators and indicate what action will be taken to move these indicators in a given direction.
AL: In your opinion, what are three essential books an urban planner or a city enthusiast should read in order to understand how cities work and thrive?
AB: Read a lot, any type of book. For planners who have been trained traditionally (like myself) without much understanding of urban economics, read books on urban economics, Jan Brueckner “Lectures on Urban Economics” for instance. But best of all, walk around cities for hours and look around, and ask yourself “why is this building there? Why was it build that way?” nothing in a city is random or haphazard. A palnner needs to understand why a city is the way it is. Here is a link on my methodology to understand how cities work from a blog from Jon Stewart from NYU.
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]]>The post New York’s Funny Definition Of ‘Moderate- and Middle-Income’ Housing appeared first on Market Urbanism.
]]>Pretty interesting article in the NYT today about the Gotham West development that recently broke ground on Manhattan‘s far west side. But I think the part about affordable housing could use some context:
But the bulk of the project will be affordable units, 682 of them, or more than half the total homes….
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]]>The post The North Korean Origins Of Renzo Piano’s Shard Tower appeared first on Market Urbanism.
]]>To the eyes of us all at Koryo Tours it looks like Renzo Piano has been copying Pyongyang…
(Note the following is not 100% accurate – but close!…
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]]>The post In Defense Of Land Reclamation: It Ain’t All Palm Islands! appeared first on Market Urbanism.
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