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Dear Market Urbanists,

MUR has officially launched a Market Urbanism Podcast for you! Late last year, several of us got together in Washington, DC, to record this podcast. Today we’re releasing it to the public.

Hillsdale College was nice enough to lend us their studio. In a marathon 3 days, we interviewed 19 guests and recorded 10 episodes. The hosts included, from right-to-left, Scott Beyer (journalist & owner of MUR), Martha Ekdahl (Young Voices journalist), Antonio Grana (tech & land-use consultant), & Sergio Rodrigues (tech entrepreneur & bicycle activist).

We had fun while recording, and hope you enjoy the episodes. A new one will be published the 1st of each month. To hear them – and subscribe using your preferred podcast service – click here:

[ The Market Urbanism Podcast ]

The post Introducing The Market Urbanism Podcast appeared first on The Market Urbanism Report.

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San Francisco’s median home value is now at $1.3 million, and there’s a growing bipartisan consensus on how it got so expensive. The city’s in high demand, due to its desirability and tech growth.  And locals—embodied by the YIMBY movement—are starting to see how regulations worsen the problem, by blocking new housing supply from meeting the demand. The question, though, is which regulations have the most impact. Well, so many of them exist that the answer is complicated.

The regulation most often blamed is zoning. All of San Francisco is under a restrictive code that prevents high densities. Central neighborhoods like Nob Hill and The Mission District are relatively lax, allowing the mid-rise urbanism that makes San Francisco special. But a vast majority of the city is zoned for low-rise residential, such as single-family and duplex housing.

If this zoning code were thrown out, and land developers throughout San Francisco could build to meet consumer demand, much of the central area would likely get “Manhattanized” with towers; and much of the outlying areas would morph from sprawl into mid-rise multifamily buildings. This latter outcome is the goal of SB 50, a housing bill recently proposed by State Senator Scott Wiener. It would allow mid-rise density to be built throughout California near areas with jobs and transit. The bill would effectively rezone all of San Francisco, but until it passes, the city’s zoned capacity will remain low.

But much of what prevents more housing in San Francisco isn’t zoning, per se, but general “process.” According to a recent San Francisco Examiner piece, many projects take years to get approved.

“From the moment you write the offer to buy a piece of land it probably takes close to a year to submit your plans,” said Sean Keighran, president of the Residential Builders Association. “Then you’re in planning for two years—then you have [to obtain] your post-planning entitlements and then you have to build…So from the time you bought the land, five years passed.”

For large projects, this process can involve community benefits agreements that add major costs. The agreements often mandate housing affordability set-asides, prevailing wage laws, local hiring requirements, or public service provisions that have nothing to do with the development, such as when Twitter funded homeless services near its headquarters. San Francisco also has permit fees, which are famously high in California. Some projects die from all these demands, but even if they win entitlements, developers will find they need to sit on the properties because economic and financing conditions have changed.

State laws present additional hurdles. Take the California Environmental Quality Act (CEQA), which was passed in 1970 to prevent localities from approving environmentally-harmful developments. The law has since become a standard form of obstruction used by special interests to win regulatory capture. Unions use CEQA lawsuits to make developers hire them for projects. NIMBYs use them to block housing in their neighborhoods. And developers use them to stop rival developers from building. One study found that 98% of housing units targeted by CEQA lawsuits were in urban infill areas, which is ironic, since this obstruction forces development to sprawl out, thus countering CEQA’s basic environmental goals.

One example of these separate regulatory forces combining to stop a San Francisco development was profiled by Reason Magazine. Robert Tillman owned a laundromat in the Mission District that he spent 5 years trying to redevelop into a 75-unit building. He spent 3 years getting it through the planning commission. After they approved it, a neighborhood group used CEQA three times to block the project, using the final appeal to complain of the shadows the building would cast. The project finally got reapproved last year, but only after Tillman spent $1.2 million in studies and legal fees.

Stories like this—along with other factors, such as tough geography and high labor costs—show why housing in San Francisco is so expensive. It’s not just that zoning and approvals prevent new supply from entering the pipeline. But the housing that does get built has often endured Kafkaesque political processes that cost 7-figures to navigate. These costs get passed onto the consumer, raising the final sticker price of units that were in short supply to begin with.

[This article was originally published by the Independent Institute.]

The post San Francisco’s Regulations Are The Cause Of Its Housing Crisis appeared first on The Market Urbanism Report.

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If California’s SB 50 passes, all of San Francisco would be upzoned. / wikimedia

What level of government should dictate housing policy? In America, decisions have long come from the local level, thanks to our small-government tradition. But hyper-local politics for housing has done harm. Many large U.S. cities have housing shortages, yet can’t solve them because of who calls the shots on land use – it’s those who already live in an area, and who, unlike the people wishing to move in, can participate in local elections and meetings. These residents often own homes, and don’t benefit financially from allowing new supply (since it might slow the inflation of their own home values). Nor do they want all the new traffic. So they keep restrictive zoning laws in place, and little inventory gets built.

Various state-level housing bills have been proposed to override this local veto. Some of the more interesting among them are the so-called “transit density bills” that outlaw cities from enforcing restrictive zoning near transit. The first one came from California, and is being copied in Oregon. If other states want to tackle their shortages and encourage transit use, they should view it as model legislation.

California

California’s experiment started with SB 827, which was introduced in 2018 by Senator Scott Wiener. Known as the Transit Zoning Bill, it would have required cities to permit buildings of 45 to 55 feet within a half-mile of rail stops and a quarter-mile of frequent bus service. Rather than mandating that such buildings must get built near these lines, it simply prevented municipalities from enforcing laws to ban them – aka it tackled restrictive zoning. SB 827 would’ve affected large portions of San Francisco and Los Angeles, and various other parts of California served by bus and rail. The bill, which seemed radical, given the obstructionism in California land-use politics, died in committee

But late last year, Wiener proposed a new version— SB 50—that addressed concerns with his earlier bill. There had been two political factions that derailed SB 827, writes Matt Yglesias in Vox. The first was rich people who live in the coastal California cities where so many others want to move, and who aim to keep these communities exclusive. The second was low-income minorities who have transit running through their neighborhoods, and thought the incoming development wave would spike land values and displace them.

In the reworked SB 50, the housing-transit component is similar; but Wiener’s legislative team did more to address displacement concerns. Developers can’t demolish buildings that now house renters, and vulnerable communities can wait five years before enforcing the zoning changes. Another aspect of SB 50 mandates these zoning changes in “job rich” areas, regardless of whether they have transit. Wiener added this provision to prevent the “transit NIMBYism” that might be an unintended consequence of SB 50, and to encourage the bill’s primary goal, which is making wealthy job centers, like Silicon Valley, build more housing, so they’re accessible to more people.

Wiener’s bills were introduced as California’s estimated housing shortage has grown to 3.5 million, and causes an estimated $140 billion per year in lost economic output. Passing it could be a key part of Governor Gavin Newsom’s agenda, since he too ran on solving the housing crisis.

Oregon

Some of Oregon’s cities also have a housing crisis, and NIMBY politics. There’s an estimated statewide shortage of 155,000 homes. So this February, Democratic Senate President Peter Courtney introduced SB 10 that would permit mid-rise apartments within a quarter-mile of major transit lines, and small apartment buildings and townhomes within a half-mile. The bill would affect several Oregon cities, including almost all of Portland.

“If the only apartment you can afford is two towns over and a 70-minute car ride to work, I don’t think we’ve solved the problem,” says Courtney, echoing Wiener. “Senate Bill 10 is about building housing where people want to live.”

SB 10 makes particular sense for Portland, since it’s invested more in transit than many U.S. cities, but never allowed true surrounding density. The key will be building support, which has its challenges in these politicized West Coast cities. In California, SB 827 was resisted not only by rich and poor Democratic constituencies, but by various interest groups who would’ve seemed like allies. Bay Area Rapid Transit gave only conditional support; the American Planning Association California Chapter opposed it; and so did the Sierra Club. These organizations disliked the bill’s top-down nature, and its potential impacts on low-income communities

In Oregon, the homebuilders association and the environmental group 1000 Friends of Oregon has formed what one commentator called an “unlikely alliance” favoring the bill. But, like in California, SB 10 has drawn surprising opposition. Multiple Portland-area planning bureaucracies —including the Bureau of Planning and Sustainability, and the regional agency Metro—say it would disrupt neighborhoods. A lobbyist for Trimet, the regional transit agency, worried it would diminish support for transit projects.

Then there’s the Democratic Party. SB 10 was proposed by a powerful state Democrat, but it’s unclear what support he will get, since the party is so diverse, says Michael Andersen, senior researcher for Sightline Institute. A growing contingent of young renters might support the bill; but like in California, they face large factions within their own party of wealthy homeowners, and low-income minorities fearing displacement. So it might need the same modifications SB 827 did.

“If the only apartment you can afford is two towns over and a 70-minute car ride to work, I don’t think we’ve solved the problem.”

Regardless of outcome, the idea within these bills is worth exporting. Right now the nation’s most expensive cities—whether on the West or East Coast—have similar DNA. They have housing shortages, NIMBY political cultures, and abundant but floundering transit. State bills that allow housing around transit, thus generating the impact fees to support the transit, could help solve multiple problems.

Even in cities that don’t have much transit, nor much of a market for density, “missing middle” bills, such as the recent one in Minneapolis, can improve housing situations, says Anderson.

“If passed, the transit-oriented bills would make a big difference in housing-shortage metros almost immediately, but in a lot of cities they probably wouldn’t matter much,” he writes by email. “The missing-middle bills, on the other hand, would change things more in the long-term than the short term, but I don’t think there are any communities in the country where they aren’t a good idea.”

As California, and perhaps later Oregon, might show, it will come down to tweaking these bills so they pass the political test. However they surface, though, the bills would move American cities closer to liberalized housing policy and away from excessive local control.

[This article was originally published by HousingOnline.com]

The post Transit Density Zoning: Is It A Model? appeared first on The Market Urbanism Report.

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[This article was originally published in Forbes, as a spinoff of a talk I gave at the 2015 American Dream Coalition conference.]

As a traveling journalist, I visit many cities, and whenever arriving, the first thing I do is step right into their downtowns and try to figure out at street level whether they are “working.” And after several days in town, I’ve seen numerous clues that imply this about Austin. There are construction cranes, new roads, an energetic young population–this feels like a boomtown. At the same time, I’ve visited other cities and instantly determined that something is off. Go to downtown Detroit, and you’ll see trash, graffiti, vacant buildings, and street people staring into their liquor bottles. So visually, Austin and Detroit are a study in contrasts.

But other times, a city’s looks don’t necessarily explain how it’s working. For example, many people would visit New York City, see a hyper-dense city, and conclude that it is ipso facto successful. But there’s more than meets the eye—that city has congestion, failing schools, unaffordable housing, and stifling regulations. So New York’s appearance is an anecdote. It doesn’t explain whether or not that city works, especially for the middle class.

The question I’m presenting today is this: when discussing cities, how can we surpass the street-level anecdotes, and explore data that truly quantifies how they are doing? Which statistical indicators describe why Austin works better than Detroit, or even New York? Is it growth rates? Median housing prices? Public service quality? Debt levels? In a world in which cities are constantly analyzed, which statistics matter—and which ones don’t?

My speech is thus a thought experiment—I’m covering 30 different economic and quality-of-life indicators, to explore why each is or isn’t important. The name of the speech is “How to Quantify a Successful City.”

There’s two reasons this conversation is needed. First, there’s an ideological divide now between the pro-density and pro-suburban set. One group, let’s call them the Richard Floridas, advocate for cities like New York and San Francisco, and the other group, let’s call them the Joel Kotkins, advocate for ones like Houston and Oklahoma City. There are statistical categories that each group uses to justify why their model is best, sometimes without mentioning the caveats that go into those statistics. For example, a New Yorker will brag that median incomes there are higher, but won’t mention that cost of living is higher, meaning these cancel each other out. Thus there is value in fleshing out the story behind the statistics.

The second reason is that there’s ambiguity about this subject, and oftentimes commentators who try explaining whether a city is working will either use irrelevant data, or none at all. For example, I’ve read stories about the “comeback” of Pittsburgh, and these journalists often point to the construction of a few new heavily-subsidized downtown buildings as proof. Well you know what? Pittsburgh’s population declined in every decade since 1950, including the 2000’s, during the so-called urban renaissance. Does that statistic not matter? What about the fact that Pittsburgh has high debt? Poor air quality? An aging population with little turnover? In other words, commentators aren’t using the indicators needed to arrive to proper conclusions, so they say things like “Pittsburgh is coming back,” even though it’s not.
Towards a more credible model for quantifying whether cities work.
Other times, commentators use dubious models. Take two studies I encountered while researching for this speech that aimed to calculate the world’s best-performing cities. Both used sensible economic criteria, but then added irrelevant criteria. One study was done by The Urban Land Institute, a smart-growth think tank in DC. They had dedicated a category to “Image and Attractiveness,” quantifying things like cities’ aesthetic characteristics and branding efforts. Unsurprisingly, global ones like Tokyo and New York performed best, although I didn’t learn from this study what it’s actually like to live in them.
The University of Navarra in Spain had a more respectable study, but it, too, had some curious indices. It quantified things like the quality of given cities’ government websites, cities’ number of Facebook users, and their ability to lure international tourists. It had an entire section dedicated to urban planning, with the stupid indices you might expect—such as number of bike shops per 100,000 residents, and the number of architectural firms in each city.
A legitimate study would ignore aesthetics, and branding, and how many bike lanes a city has, and get to the meat and potatoes of how it functions. So I’m about to present 30 indicators that factor in multiple aspects of city life. Hopefully in combining them, I’m presenting a holistic look at what should be weighed when determining the success or failure of given urban models.
Category 1—Economic Indicators

#1—Population Growth Rate—The number one indicator for a city, or any territory, is its population growth rate. This fall I lived in Miami, and met exiles who had risked their lives floating on self-made rafts to escape Cuba. And I thought to myself, “When people are risking their lives just to get away from a place, you know it has problems.” Yet, if a city or country is growing, it means numerous factors are working. They are likely providing good jobs, schools, roads, and housing, otherwise people wouldn’t move there.

#2—Unemployment Rate—Perhaps the most important thing after moving to a city is whether you can find a job. But the unemployment rate comes with a caveat, which is why I’m giving this speech, because there are wrongheaded assumptions about many of these statistics. President Obama has claimed credit because the national unemployment rate has dipped during his presidency. But as the more astute Americans know, this is largely because many people who couldn’t find work dropped out of the workforce. In fact, the workforce participation under Obama has hovered around 63%, the lowest since Jimmy Carter’s presidency. When discussing cities as well, unemployment rates perhaps aren’t as important as workforce participation rates.

#3—Job Growth—This indicator takes a more holistic view of a metro economy. For example, NewGeography.com’s job growth calculations used statistics dating to 2003. Contrast this with the unemployment rate, which is seasonal.

#4—Wage Growth is also important, because it determines what kind of jobs are being created. Are they low-paying service jobs, or high-paying skilled ones?

#5—Innovation Rates, as defined by the number of patents granted, can convey an area’s entrepreneurial spirit.

#6—Startup Activity, as defined by an area’s rate of new businesses, also signifies this quality. The Kauffman Foundation ranks this by metro area, and in 2015 put Austin on top.

#7—Worker Productivity is usually defined as Gross Metro Product, divided by number of people living in that metro.

#8—Exports per Employee is an interesting one. I hadn’t heard of this until several days ago. I was interviewing Tom Bacon of Lionstone Investments, a company that finances developments nationwide. He was showing me a U.S. map, and on it were about 15 green dots representing cities that his research team, using many of the same indicators that I’m presenting, had determined were investment-worthy metros. These included all the stereotypical boomtowns: like New York, Houston, Nashville, and San Francisco. But I noticed Miami wasn’t a green dot, and told him how odd I thought it was that a city literally considered the U.S. destination for every rich Latin American somehow wasn’t a top investment. He said Miami’s problem is that it’s built on housing and tourism, while the high wage, high productivity cities are built on manufacturing or innovation. Tom said one indicator for determining a city’s strength in these sectors was “exports per employee.”

#9–Inequality Levels?—I do not think inequality levels are relevant. If a city is unequal, that means it just happens to attract both rich and poor people, but doesn’t imply anything about its underlying economic health. Inequality levels are merely a demographic characteristic. Take Miami—it has high inequality through the sheer fact that it attracts people from around the world, whether rich Brazilian bankers or Cubans escaping by raft. Thus it will be unequal. There’s no magic wand that Miami can wave to narrow this gap, because the fact is, the world is unequal, and cities that are “global” will therefore be the same. So the Gini Coefficient is irrelevant, although it was used in these other city-performance studies. But here are two indicators that are better than inequality…

#10—Median Household Income gives a better overall picture, rather than obsessing about the extreme ends of the wage scale, and…

#11 Upward Mobility Rates: It’s not so much whether a city has poor people—many have historically drawn them—but whether it can provide them opportunity. Harvard University published a study called the Equality of Opportunity Project, which judged how well low-income children growing up in a city were doing there by age 26. There’s probably better studies out there, but this one offers one view.

The remaining indicators deal more with quality-of-life, and while the Bay Area dominated many of the economic ones, these latter indicators favor America’s smaller, more spread-out cities.

Category 2—Public Service Indicators

#1—Violent Crime Rates—Columnist Michael Barone once called crime the most severe negative tax on property. I couldn’t agree more, and think this is arguably as important as population growth in quantifying cities, although I didn’t see it mentioned in other studies.

#2—School Quality—Crime and schools may be the two biggest factors for the middle class. There’s a website called Niche.com that uses data and community surveys to determine school quality, and the winner among big cities was intriguing—New Orleans. This is intriguing because New Orleans has been the nation’s biggest testing ground for charter schools.

#3—Road Quality—This is defined by which roads are in best condition. The only links available measured the cities with the worst roads, and according to a study by the transportation group TRIP, it was San Francisco. An additional question is whether public transit quality and access, which was a big factor in other studies, is as important as road quality? I would answer no, because transit use represents a small share of the commuter workforce in almost every metro, while almost everyone uses roads.

#4—Public Utility Fee Rates—This is a strong indicator, because in cities that don’t work, such authorities are mismanaged, so users pay high fees. Just think of the Port Authority for New York and New Jersey.

Category 3—Public Administration Indicators

#1–Economic Freedom Rates—This is an essential indicator, as it usually factors in government size, property takings, and labor freedom.

#2—Overall Tax Burden is a legitimate cost-of-living expense for businesses and residents. Because politicians often charge fees in lieu of raising taxes, perhaps fee levels should be factored in as well.

#3—Regulatory Climate is usually summarized as the time and cost required for opening a business.

#4—Property Rights usually refers to the rate with which cities employ their eminent domain powers.

#5—Credit Ratings have become an insightful view into municipalities’ finances, as has…

#6—Debt per Household

#7—Corruption Levels can indicate the quality of a city’s civil service. The most corrupt city, according to the University of Illinois at Chicago, is…Chicago…which between 1976-2013 had 1,642 federal public corruption convictions.

The funny thing about these public administration indicators is that they don’t appear in other city performance studies. But a city’s administration says a lot about how it is working internally, and the ones that do worst are the dense liberal legacy cities.

Category 4—Quality of Life Indicators

#1—Average Commute Times are longer in dense legacy cities.

#2—Affordability—Forbes measured this by comparing metro areas’ prices for homes and goods & services, with their median income levels. This is likely a more important indicator than median household income alone, because it explains residents’ spending power. When it comes to affordability, Southern cities do best.

#3—Car Collision Rates—This is a public safety issue, and is higher in dense northeastern cities, according to data from Allstate ALL -0.36% Insurance. Here are some other indicators that I will throw out there, with varying levels of seriousness.

#4—Air Quality?

#5—Pollution Levels?

#6–Health Care Access? Since costs can vary by city, depending on regulations.

#7—Amenities?… such as per capita availability of dining and entertainment options…

#8—Friendliness?—As someone who has traveled a lot, and witnessed the different personalities of cities, I think this is important. Conde Nast Traveler ranks this using reader surveys, and found, unsurprisingly, that Southern cities outperform coastal ones.

So I’ve covered 30 indices. Many of these may be self-evident to this audience, but they are not used in public conversations by journalists or even academics. These indices don’t explain everything that people may like about a city. But if someone crafted an equation that quantified city performance based on these indices, it would present a pretty accurate look at which models are succeeding.

If I had to hypothesize, I would say that America’s denser cities would perform well on the economic indicators, but not the service, administrative and quality-of-life ones, and would thus have low overall scores. Meanwhile, the best-performing cities would likely be the ones that are growing in population and economic complexity; but that are also maintaining the qualities of mid-size cities—by having less traffic, better schools, clean air, city halls that aren’t full of crooks, and public services that haven’t completely gone to hell. In other words, the cities that are “working” would be ones that are urbanizing, but maybe not too much. Examples might be Nashville, Indianapolis, Oklahoma City, or the Texas cities. I think they offer a model of success worth imitating in America. But debates about cities aside, I hope at very least that my collection of indices has presented a better way to define city success.

The post How To Define A ‘Successful City’? appeared first on The Market Urbanism Report.

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[Note: this is an essay I wrote for Tax Credit Advisor about my just-completed 3-year, 30-city cross-country trip. TCA specializes in U.S. housing policy & regulation, and hired me early into the trip to cover housing issues in each city. When the trip ended, they ran this cover story where I summarize what I learned along the way. Enjoy!] 

America is a big place – I would know. For the past three years, I’ve seen about as much of it as anyone could. As Tax Credit Advisor readers are likely aware of by now, I just completed a three-year cross-country journalism tour, living for a month each in 30 cities. During the trip, I also stopped in hundreds of small towns and cities, visited the lower 48 states, and met countless people. I learned a lot about this country’s culture, demographics, politics, and of course, its housing situation. Much of the info I’ve compiled will be useful to affordable housing developers who are building in different areas, or who just want an overview of how America is functioning.

The Route

First, I’ll describe the inspiration for the project. Throughout my 20s, I spent time traveling and living off and on in various U.S. cities. I became somewhat of an urban aficionado – one of those people who spent their free time reading about the history and architecture of cities (or walking around to see them firsthand). I used this self-taught knowledge to build a freelance journalism career, landing articles about urban issues across the mainstream media landscape.

By age 30, I decided it was time to chronicle all this research through one last cross-country tour. So I began pitching different magazines about becoming their “roving urban affairs columnist” – aka a guy who reports on different cities from street level, month by month. Forbes and Governing Magazine—and later TCA—signed me on. In the fall of 2015, I left my hometown of Charlottesville, VA, and drove to my first stop, Miami. From there, I traveled roughly clockwise around the country, going through the south, the southwest and up the west coast, with Seattle serving as halftime. Then I headed back east, traversing the Intermountain West, the Great Plains, the Midwest and the Mid-South. The final fifth of the trip was up the east coast, ending in New York City. On Christmas Eve of 2018, I drove from Brooklyn back to Virginia; the road trip was finally over.

A map of the Route (credit: Tax Credit Advisor)

Demographic Shifts

I had many takeaways from this tour. Perhaps the main one was seeing America’s demographic shifts firsthand. The U.S. continues to be a fast-growing nation, increasing its population by 20 million since 2010. Our country has also grown more diverse: Asians and Hispanics represent an increasingly larger share of the population. One big swath of the country where this growth and diversity isn’t too evident is rural America. While the overall condition of our rural areas is variegated, two-thirds of counties with under 50,000 populations have declined since 2010. I was amazed when traveling to see just how disperse some parts of the country remain. Throughout the American West, for example, towns are often separated by 50 miles, and barely get FM radio. These towns are full of abandoned homes and mostly-empty, two-block-long Main Streets. But in metropolitan America, it’s another story. Since 2010, 47 of the 50 largest metros have grown. Even in metros, such as Detroit and Baltimore, where the city cores are hollowed out, there’s still significant suburban growth, with much of it butting up against city boundaries.

Growth has been particularly strong in the Sunbelt, which I traversed over the first third of my trip. The net population growth in recent years of the South and West has been over five times that of the Northeast and Midwest. Dallas and Houston are generally the fastest-growing metros in America, adding six-figure populations annually, while other Sunbelt metros, like Miami, Atlanta, Austin and Phoenix, are also routinely among the national leaders.

While the desire for warmer winters has something to do with this, so too does the economic climate. A recent study by Southern Methodist University economist Dean Stansel ranked U.S. metros by their “economic freedom,” calculating things, like tax burden and labor regulations, to determine the role governments have in given areas. Stansel found that the southeastern U.S. had more economic freedom than urbanized northern and coastal areas. Demographers Joel Kotkin and Wendell Cox, using Census Bureau estimates, write that Americans are “relocating to cities, states and regions that are less dense, less heavily taxed and less regulated.”

As I noted for Forbes in 2017, after finishing the Sunbelt portion of my trip, all this growth has created a new sort of society in this part of America.

“While growth remains mild, and cultural norms conservative, in much of the rural Sunbelt, this is no longer remotely the case for many Sunbelt cities…These places are instead the modern U.S. embodiment of urbanization, economic agglomeration, diversity, multiculturalism, globalism and rapid change.”

The skyline of Houston, one of America’s fastest-growing metros.

That said, America’s urbanization has affected almost every major U.S. metro. Every one of them has large professional networks, vast dating pools, globally-inspired cultural amenities, and, depending on one’s skill-set, robust job markets. The downtown revival trend has hit almost every city, and generally spread to outlying neighborhoods. If the population figures aren’t enough, simply visiting a major U.S. metro in 2019 will convince you that these places are the current and future heartbeat of America.

Three Different Housing Markets

To get more specific about the differences between these metros, though, let’s look at housing. This has overwhelmingly become the nation’s biggest urban issue, especially for my generation – a determinant of where we move, where companies relocate, and what the financial well-being is for millions of households. I’ve found while traveling and writing about the issue that, while every metro is unique in some way, there are three general types of housing markets.

One is the infamous “dynamic inelastic” metros. These are the metros that have strong job markets—and therefore heavy population demands—but that (thanks to the regulatory climates mentioned above) don’t expand their housing supply to meet this demand.

Readers likely know the usual suspects, such as San Francisco, where median metro home prices are $957,000. But among my 30 stops, I would peg ten of them as dynamic inelastic metros. They are on the East and West coasts, except for metro Denver, which has a $405,000 median.

Some of these metros build more housing than others. New York City has perennially been, along with Houston and Dallas, among the national leaders in housing permits, with 50,000 in 2017. This has helped it stabilize prices – but it is still not building enough, especially relative to population. San Francisco, Portland, Boston and San Diego are notoriously NIMBY, permitting 17k, 16k, 14k and 10k housing permits, respectively, in 2017.

For this reason, I’ve come to believe that sending affordable housing subsidies to these areas is irrational, at least if taxpayers want their money to stretch far. Various programs at city, state and federal levels have produced units at exorbitant costs, due to the high land prices, convoluted bureaucracy and obstructionism in these areas. An example is California’s now-shuttered redevelopment agencies, or specific LIHTC projects, such as The Beverly, a building I covered in January. Because of its prime location in downtown Boston, it produced affordable units at $400,000 apiece.

A second housing market type is “stagnant inelastic” metros. These are metros that have relatively slower growth, weaker job markets, high poverty rates and sometimes declining core cities. They have limited new housing in the pipeline, and a lot of old excess inventory in need of repair. They also have the tight regulations and politicized processes found in the coastal cities, but it matters less because of their low demand.

Baltimore is an example of a declining core city that’s still part of a growing metro. (Scott Beyer)

Stagnant inelastic metros, which encompassed nine of my 30 stops, were mostly in the Rustbelt, but include New Orleans and Memphis. One challenge they will have— particularly in the core—is remaining affordable if they do ever revitalize. This is where their existing regulatory climates will hurt.

Take Philadelphia, a city I covered in the November 2018 issue. It embodies this slow-growth, Rustbelt-style metro. But it is increasingly getting transplants from pricier East Coast cities, because it offers their charming urban form at lower cost. Some interior neighborhoods, like Fishtown and Fairmount, have already gentrified, and speculation is rampant throughout South and West Philly.

Yet the city is overwhelmingly zoned for low-density, and there is severe resistance to changing this. It wouldn’t surprise me if, a decade from now, this confluence of demand and restriction makes Philly another exclusive coastal metro, and other stagnant inelastic metros could follow.

The third type of metro is “dynamic elastic” ones. These are true affordable housing success stories, and rebut the idea that supply-side economics don’t apply to the housing market. Dynamic elastic metros are, like the dynamic inelastic ones, growing in population, wealth and jobs. In fact, they often receive the exiles priced out of the latter. But they have lighter regulations and faster approval times – and thus build a lot more housing.

Dynamic elastic metros are spread across the South and Southwest, although Minneapolis, which maintains cheap housing, and recently upzoned its infill neighborhoods, would roughly fit this category. While the dynamic inelastic list has metros that permit housing between the 10k to 17k range annually, the dynamic elastic ones permit much more. In 2017, these included Dallas (62k), Houston (42k), Atlanta (34k), Phoenix (29k), Austin (27k), Charlotte (23k), and Nashville (20k). Because of all the construction—and the fact that these metros developed later—they have a newer and better-quality housing stock. In New York City and San Francisco, around two-thirds of the housing was built before 1960. In Austin and Phoenix, it’s well under 20 percent.

This doesn’t mean everyone in dynamic elastic metros has a perfect housing situation. In the June 2018 issue of TCA, I wrote about how Atlanta, while cheaper than coastal competitors, still has affordability problems, with the working class often settling for the suburbs. My piece bolstered the argument that more liberalized housing policy, while needed, won’t be a panacea that adequately houses every last person. America still needs subsidies, like Section 8, LIHTC and “housing first” stipends for the homeless.

But those subsidies ought to be directed into the dynamic elastic metros. That is where land is cheaper, approvals faster and labor cheaper, because construction workers haven’t been driven away by high home costs. And unlike stagnant inelastic metros, this area of the country is also where jobs are always available. This means that the housing subsidies not only stretch further, but place people in markets where they can actually be self-sustaining.

To give a concrete example: Houston recently ended veteran homelessness in a mere three years. It did this by building a number of large, cost-effective projects, such as Travis Street Plaza, where 192 units went up for $18.2 million (including $11.1 million in LIHTC equity), or $95,000/unit. By comparison, the estimated cost of building affordable housing in California is $425,000/unit.

What’s next for me?

Hopefully this breakdown of metro America’s different building costs and regulatory climates has been helpful. It certainly has for me, since I may be in a similar situation as some TCA readers.

About midway through my cross-country trip, l launched a media organization called the Market Urbanism Report. It advocates for urban policy reform in America, and is inspired by the info I was gathering while traveling. Now that the trip is done, I will be fundraising full-time, which means I’ll soon move from Virginia to a big city. The one I choose will be inspired by a lot of what I’ve covered above: where can I find affordable, centrally-located housing? If I hire staff, will the city have affordable office space? And will these facilities have modern design and amenities, or creaky floors and old utilities?

The urbanist in me wants to settle for New York or Philly. But the pragmatist in me says that a second-tier metro, like Charlotte or Atlanta, will likely provide these things more affordably, which is crucial in my startup phase. Not coincidentally, many other Americans have recognized this, and moved to such metros to find work or start a business. It’s something that the affordable housing industry—including builders, investors and administrators—should take note of.

The post 3 Years Around America: My 30-City Cross-Country Tour appeared first on The Market Urbanism Report.

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A transit center in downtown Charlottesville, VA. The facility could’ve paid for itself – and added to transit ridership – by selling the air rights above. / Scott Beyer

MARTA, the regional transit service in Atlanta, Georgia, would not be anyone’s initial idea of a solvent government agency. Operating without state funding, it runs four rail lines and numerous buses across a sprawling, automobile-oriented region, carrying with it a reputation for tardiness and mismanagement. Just several years ago, it was running $25-30 million annual deficits but has turned around its finances under new leadership, and is expected to produce future surpluses. How? The new-found money will come partly because of changes like digitizing some services and lessening the use of outside consultants. But the real money will come from applying an esoteric practice onto its transit stations: selling air rights.

The agency plans in the next few years to sell the spaces above five existing transit centers to developers. Presently, high-rises in Atlanta neighborhoods like Midtown and Buckhead—where some projects are planned—are valued well into the hundreds of millions of dollars, and allowing similar growth above MARTA’s facilities could produce huge windfalls. The idea that a struggling agency could reverse its fortunes through such common sense deals begs the question of why more don’t do it, especially in this era of service cuts and increased public debt.

Air rights deals are a way that governments maximize the value of their land, representing a “value capture financing mechanism in which a public agency is compensated by a private company for the cost of an investment,” writes transportation specialist Pamela Friedman. They typically occur when public authorities, looking either to build new ground-level facilities or renovate old ones, deregulate and sell the space above for new housing or office construction. Developers then bid for the right to build atop those spaces, generally with cash, or by funding public improvements.

Such deals in the United States are sometimes allowed, like in Atlanta, above transit centers. Perhaps the most famous example occurred in New York City in 1962, when the Pan Am building went over Grand Central Terminal. Buildings have also been constructed over Chicago’s numerous railways. A 1980s land sale around one of Dallas’ proposed new rail lines produced $450,000 in revenue for the regional transportation agency DART. And since the 1980s, the Massachusetts Bay Transportation Authority has negotiated sales for space above several Boston terminals, earning $20 million, for example, on a North Station project.

Allowing high-rise construction above transit facilities makes particular sense both because of the new revenue, and because it concentrates people near a service that thrives on urban density. Building five structures above Atlanta’s stations, for example, will offer thousands of people immediate access to MARTA, bolstering a system whose ridership declined over the previous decade.

But really, these deals benefit other public facilities—and the urbanization process in general. Many facilities, including libraries, city halls, recreation centers, schools, and convention halls, are located in downtown areas, where increasing density and walkability are common goals. Such goals would be advanced if these typically low-slung, single-use facilities were instead incorporated into mixed-use projects.

Unfortunately, air rights deals remain rare, as municipalities nationwide often make inefficient use of even prime real estate. Recently, in my 48,000-person hometown of Charlottesville, Virginia, several new public works were built downtown, including a homeless shelter and transit hub. Combined, the two projects cost $12 million in local, state, and federal money. Both were built as single-use facilities of only a few stories, despite being located near taller private condos that rose in response to citywide growth. The condos’ units often sell in the mid six figures, and $4.15 million was recently offered for a downtown lot that would house a new six-story building. These market trends suggest that if Charlottesville’s government had organized air rights sales above its public structures, it would have substantially helped with funding. Yet Charlottesville’s redevelopment approach reflects that of other cities, where public buildings are funded with large upfront payments and long-term debt, but without thought on how expenses could be radically reduced.

Selling air rights creates financial windfalls for city governments, and encourages more efficient land use.

Of course, in small towns like Charlottesville, the debate about air rights sales revolves not only around money, but building scale, traffic impacts, and other quality-of-life matters. However, there are several big cities—and probably numerous smaller ones—where the added construction should not be an issue. Cities like Seattle, Los Angeles, San Francisco, Boston, and New York are already dense, with advanced infrastructure and services in place. Because of high demand, they suffer from housing shortages and could use the added units. And their complex governments are prone to accruing debt, making handy the potential revenue. Moreover, because these cities are some of America’s hottest real estate markets, their air rights sales would earn massive sums. The net worth of condo projects in Charlottesville, or even Atlanta, are miniscule compared to, say, the 61-story, $1-billion Transbay Tower in San Francisco.

Considering all this, there is little reason that public facilities built within dense downtown areas should not be part of larger projects. But they seldom are: over the last decade, fancy central libraries, for example, were built in Seattle, Phoenix, Memphis, and other cities. All of them are expensive, stand-alone structures of under a dozen stories—just like countless other public works.

Ultimately, the forces that prevent better use of public properties are the same as those that prevent this for private ones. NIMBY resistance has discouraged large-scale construction around the U.S., from little Charlottesville to high-rise Manhattan. Zoning regulations are also prohibitive, and difficult to overturn. But the main barrier is philosophical: local governments aren’t typically run like businesses, and there is a stigma against doing this. Thus, there is little pressure for officials to maximize the value of public assets, even if it would mean lower taxes and debt. Making air rights sales a mainstream practice would be one step toward a more pragmatic approach to municipal finances.

[This article was originally published by Pacific Standard.]

The post Why Cities Should Sell Air Rights appeared first on The Market Urbanism Report.

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Cars and cities don’t mix. But relinquishing car ownership has proven hard for some. I witnessed this firsthand while staying recently in Brooklyn’s Park Slope, an urban version of Mister Rogers’ Neighborhood where sidewalks are teeming with parents pushing strollers and kids riding scooters or walking home from one of the many nearby public schools.

Yet the neighborhood is overwhelmingly designed for cars. On-street parking and traffic lanes consume much of the space. Cars dominate other supposedly pedestrian-oriented parts of New York City, too, from the Holland Tunnel backlogs that spill into Lower Manhattan to the high-speed roads cutting through Midtown.

Of course, this problem is hardly new. In 1961, the Goodman brothers – Percival, an architect and urban theorist, and Paul, a writer and sociologist – wrote an essay calling for a ban on all privately owned cars in New York City. Many of the auto-related externalities they described still exist; in fact, the city has made little progress on the issue. They called for improving public transit, but that and many of the suggested fixes since, such as congestion pricing or raising bridge tolls or parking fees, have proven politically difficult.

Assuming that remains the case, reducing New York City’s car dependency will depend on more incremental, localized measures. This includes encouraging behavioral shifts for those who live in the city’s residential neighborhoods and fuel the problem by owning cars.

Part of Park Slope’s appeal is that residents don’t, theoretically, need to own a car. It has good transit connections and incredible retail offerings within walking distance. Still, 48 percent of residents there and in nearby neighborhoods own cars, which is why parking consumes so much space. This keeps rights-of-way from being used for other things that would make the neighborhood safer and more pleasant.

Imagine, for example, if parking spaces were removed and the sidewalks widened. Park Slope residents would have shorter intersection crossings, more room to push their strollers and bigger de facto “front yards” for their kids to play in. If on-street parking were removed from main retail thoroughfares like Seventh Avenue, that would create drop-off space for delivery trucks and mitigate the scourge of double-parking that leads to horns blaring and traffic backups. Or, instead of parking, medians could be added that feature landscaping, public art or midway standing points for crossing pedestrians.

If streets weren’t dedicated to parking, they could be used for other things.

In fact, there are many improvements to Park Slope’s streets that every resident could enjoy if a minority of them weren’t granted free, 24/7 car storage. Mayor Bill de Blasio faced this challenge head-on last June when his administration introduced a carshare pilot in Park Slope and other neighborhoods. He removed 100 on-street parking spots to make room for vehicles from carshare companies such as Zipcar. His hope is that Park Slope residents will forgo car ownership – which in New York City is arguably more burdensome than convenient – if they’re near a network of on-demand rentals.

Ridesharing could also help reduce car ownership. Therein lies the irony of the city’s car situation: The growth of sharing industries may put more vehicles on the street. Ultimately, though, relinquishing car ownership is something people will need to accept at an individual level if they want more livable neighborhoods.

[This article was originally printed in Governing.]

The post New York City’s Car Ownership Decline Must Start From Within appeared first on The Market Urbanism Report.

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California’s redevelopment agency idea just won’t go away.

In 2011, the state’s 400 agencies (RDA) were shuttered by then-Governor Jerry Brown following negative press and budgetary shortfalls caused by the recession. But as public coffers refilled again due to California’s economic boom, legislators have explored ways to bring RDAs back. Assemblymember David Chiu, who represents the eastern half of San Francisco, has proposed multiple bills that would allow an alternative version of RDAs. And in his latest proposed budget, newly-elected governor Gavin Newsom called to expand Enhanced Infrastructure Financing Districts (EIFD), which are a close cousin. If these alternative RDAs gain traction, it is important that they avoid the mistakes of previous ones, which were riddled with waste and eminent domain abuse.

California’s RDAs were first founded in 1945 as an effort to combat urban blight. They functioned through tax increment financing: after designating a certain area as blighted, the agency issued debt and gave that money to developers to build within the area. As property-tax revenues rose, the RDAs got that increase – aka the “increment” – to pay off the bonds. The idea behind the program was that, because the redevelopment generated more property tax receipts, it deserved this increment. Meanwhile, the rates designated for core services would remain frozen.

After decades of operation, this funding model proved to be a pipedream, as projects under-performed and these agencies wound up consuming 12% of property taxes statewide.

One of the main failings was with affordable housing, which consumed one-fifth of RDAs’ budgets. Like many affordable housing programs, this money wound up getting spent inefficiently. According to a 2010 Los Angeles Times report, at least 120 municipalities combined to spend $700 million in housing funds without producing a single unit, as many instead spent 6-figure sums on “planning and administration.” In other cases, cities spent over $800,000 per affordable unit. The Times found that “many projects face inexplicable delays…Land ostensibly set aside for affordable housing was in some cases turned over to commercial developers, raising questions about whether cities ever intended to build the housing in the first place.”

The RDAs’ commercial development side had similar problems. Money was often spent for projects that were slow to develop, and made little sense anyway: $17 million to refurbish a municipal golf course in Palm Desert; $2 million on land confiscation for a museum on Catalina Island; $5.4 million to renovate part of a restaurant and bar complex in Sacramento.

But the worst thing about RDAs was the eminent domain. Using the blight designation, which could be determined seemingly at whim, RDAs used “extraordinary powers”, in the words of a state senate committee, to confiscate property. The practice got further legal justification in 2005, when the U.S. Supreme Court ruled in Kelo v. City of New London that private property could, in fact, be seized and transferred for private uses.

Thanks to California’s RDAs, there was plenty of money for this. For example, the city of Cypress took property owned by the Cottonwood Christian Center to use for retail development. After a prolonged legal battle, both the church and retail were allowed to coexist on the property. In Lancaster, Costco threatened to leave if the city didn’t condemn the 99 Cents Only store that competed with it in the same shopping center. Following a lawsuit, the city finally gave Costco land in a public park.

And other eminent domain examples abounded. Writing in City Journal, Steven Greenhut noted the irony of how the policy was used for housing, in particular. To build affordable housing, existing homes were often demolished. But because the construction process was so slow, this new housing wasn’t built, creating an even worse shortage than before.

“The RDAs’ diverted funds and failed promises are reason enough to get rid of them,” wrote Greenhut. “But their abuses of property rights are the last straw.”

In 2011, state controller John Chiang concurred after auditing 18 RDAs. He found that the agencies had stripped $40 billion from public education, causing a bailout from the state’s general fund; that every RDA audited was found to have reporting deficiencies; and that some weren’t appropriately tracking their debt.

For these reasons, Governor Brown ended them in 2011 – a decision that proved to be half-hearted. In 2014, he signed legislation to allow EIFDs, the entities that Governor Newsom wishes to increase funding for. The policy allows cities to continue issuing tax increment financing for projects, although it is more focused on core infrastructure than RDAs were.

The policies promoted by Chiu, however, are more like a Redevelopment Agency 2.0 effort. The assemblymember has jumped on California’s affordable housing crisis as a reason to bring them back, designating more of the revenue for affordable units. Early last year, he proposed a bill that died in committee. After Newsom’s election, he’s proposed a new bill – AB 11 – that, according to the fact sheet, “allows cities and counties to create affordable housing, and infrastructure agencies to fund affordable housing and infrastructure projects using tax increment financing.” To avoid the previous problems, the bill would mandate stronger oversight. As Chiu wrote by email:

The past abuses of redevelopment were substantial, but AB 11 is not a replica of the former redevelopment agencies.  Our bill requires that affordable housing funds be spent in a timely manner and has robust reporting requirements.  This new financing tool focuses on building sustainable, affordable communities and has safeguards in place to prevent fraud, abuse, and displacement.

Chiu’s optimism seems unfounded. The governments of California, at city and state level, remain riddled with waste and abuse. If the examples from the RDAs aren’t convincing enough, just consider two recent trends – the state has been unable to solve its pension crisis, despite these costs having driven several cities into bankruptcy; and it was unable to build high-speed rail (which itself spurred the condemnation of 300 homes) because of cost overruns resulting form poor oversight of contractors.

The state’s governing culture has been eroded by special interests, and the RDAs, said Greenhut, were no exception, fielding an army of lawyers, consultants and politically-connected developers. A new crop of RDAs that require additional oversight will – whether Chiu intends this or not – be a sop to the bureaucracy that performs the work.

Perhaps even worse is the notion that RDAs are needed to produce affordable housing in California. As housing analysts – including myself – have mentioned exhaustively by now, high home prices there result from a chronic, government-created housing shortage. Thanks to zoning, environmental review, and other regulations, there’s a limit on how much housing can be built, and significant expenses added to each new unit. The answer is not to redirect scarce property tax revenue into politicized agencies that require vast oversight just to perform their work. It’s to let developers build – including the state’s many affordable housing developers, who already have a variety of state and federal subsidies they can leverage.

No, the new RDAs appear to be a slightly less bad version of the old RDAs. They’re an idea that needs to remain just that.

[This article was originally published by Forbes.]

The post California’s Redevelopment Agencies: The Bad Idea That Won’t Die appeared first on The Market Urbanism Report.

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Governor Gavin Newsom shocked Californians and transportation pundits last week with his announcement that Sacramento might delay completing the state’s troubled high-speed rail line (HSR). The announcement does not delay the entire project; the segment underway in the Central Valley will still be completed. It’s the priciest undertakings that are in doubt: extension of high-speed trains to San Jose and San Francisco, and a rail connection between Bakersfield and Los Angeles.

Newsom made the right call. The high-speed rail line, once thought to be revolutionary, was saddled with burdens from the beginning. One recent estimate projected a jaw-dropping final cost of $100 billion.

But Newsom’s announcement needn’t doom future rail expansion in the Golden State. Policymakers should seize the opportunity to reform transit construction. To that end, I offer this three-point plan to improve California’s approach to transit.

Control Construction Costs

Without getting a handle on construction costs, not much new infrastructure can be built. Improving existing transit is crucial to the viability of high-speed rail, because without it the impacts on traffic will be minimal. As such, local improvements need to be made cheaper.

This is a nationwide problem; identifying the reasons behind US cost bloat might be difficult for one state to achieve. However, Seattle has dug tunnels beneath its downtown for as low as $300 million per mile. While still high by international standards, progress can be made.

Consultants must be held to strict standards. Contracts should be assigned based on a comparative analysis of how high the provider’s costs have historically been, including in other countries. It may also be desirable to select contractors who will play a role in operating and maintaining the system, so concessionaires have incentive to deliver on time and at or under budget.

Implement Value Capture

Value capture – allowing private developers to build near transportation infrastructure in exchange for a financial contribution to the project – relieves the taxpayer burden. It also provides market feedback (as do other private financing measures) for the viability of a given project. If developers are willing to invest in a road or rail line, they’ll likely be willing to develop in the catchment area.

The pioneers of this method are in East Asia: Japan’s mostly privatized intercity railroads own the land near train stations and lines, and Hong Kong’s transit agency is partially owned by private shareholders who build large retail and housing developments at new stations.

Value capture in the United States is daunting. As market urbanist Stephen Smith points out, while government ownership of land in Hong Kong enables concurrent development with new extensions, mature cities like New York are already largely built out. If handled improperly, the investment scheme can lend itself to corruption. Yet with high speed rail, the intermediate segments tend to have minimal development. The closer-in suburbs of the East Bay and Inland Empire have increasingly high populations, but disperse development. Building near potential stations won’t cover the full costs of the project, but they could provide substantial added revenue. The recent decision to let BART preempt local zoning around its stations provides a framework for this approach.

Build High-Speed Rail Incrementally

The first segment of the upcoming HSR will be of limited use further south, because of the lack of a connection to Los Angeles. But it will improve existing train service from Bakersfield to Oakland. A similar incremental approach can be deployed on one of the urbanized segments – for example from Los Angles to San Diego.

The existing LA-San Diego line can be upgraded to allow for faster speeds. This can be achieved by electrifying the line and running modern, efficient equipment (which FRA regulatory reform will allow.) It would bring fast connections between California’s two largest cities far sooner than the high-speed rail plan proposed, on a route that, at 124 miles, is far shorter.

Such an incremental strategy won’t bring bullet trains to California soon, but it would greatly improve intercity passenger transit, while giving the state an ability to test whether there’s even a market for HSR

*

In summary, California’s HSR strategy should be judicious. The state needs to adopt policies that control for costs, deregulate around the line, and test the concept incrementally. HSR should not arbitrarily be deemed acceptable at all costs.    

The post California Went Backwards On High Speed Rail appeared first on The Market Urbanism Report.

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When people hear “crony capitalism,” they usually envision corporatist policy at the higher levels of government. It might be the federal Export-Import bank subsidizing Boeing, or Nevada granting Tesla tax breaks. But perhaps the most common form is the kind occurring in your own backyard. In many U.S. municipalities, zoning codes have evolved from reasonable public protections into regulatory cobwebs that benefit the rich over the poor. If a crony system is, according to Investopedia, one where “instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the ruling government,” then zoning is cronyism’s localized version.

Most readers are likely familiar with zoning’s practical purposes, such as separating incompatible uses or expelling nuisances. But they may not realize just how comprehensively it is now used to micromanage society, impose petty moralism and protect special interests. Are you a restaurant that doesn’t want competition from food carts? Just lobby for zoning that limits where they can open. Do you think fast food pollutes cities with unhealthy burgers and ugly signs? Pass an ordinance targeting them specifically in the language. Do you think big box stores are run by greedy corporations? Write laws that unfairly punish retail establishments above 75,000 square feet. These regulations are used most consequently, though, for housing—large developers desire complex zoning and building codes that create barriers to entry for smaller competitors, while homeowners aim to limit housing supply, inflating the price of their own property.

Of course, this isn’t the only reason why such interests—namely homeowners—want zoning, and it’s not the only reason the laws were formed. According to William Fischel, a Dartmouth College economist who specializes in land use, zoning’s initial purpose was to bring community stability at a time when this was being compromised by rising urbanization. Cities, still smack dab in the Industrial Era, had jumbled together residential and industrial uses, creating health hazards. And streetcars, followed by automobiles, made it easier to live in areas where these uses could be separated, causing the codification of this concept. The first zoning laws were written in the late 1800s, and New York City passed the first comprehensive code in 1916. In 1926, zoning was declared constitutional by the Supreme Court, and within a decade over 1,000 municipalities had it.

America’s most common crony capitalism occurs in our city neighborhoods.

Over time, zoning laws were strengthened thanks to what Fischel calls the “homevoter” block—home owners who wanted to protect their most valuable asset by excluding everything, including people of different races, that might compromise those values. The environmental movement of the 1970s further strengthened zoning’s legal reach.

“Municipal autonomy in zoning was undermined in the 1970s by several trends that have grown out of the environmental movement. The more universal was the empowerment of neighbors who were dissatisfied with the pro-development decisions of their own local government and its bodies.”

It was around then that zoning began escalating metro area housing prices. Now this phenomenon has spiraled out of control, with regulations first meant for public protection being used to form de facto legalized walls around some cities, as residents mistake their neighborhoods for members-only country clubs. It is particularly bad in metros where the job and population growth is fast outpacing new housing starts. The Bay Area is an extreme example—in 2015 it added 64,000 jobs but only 5,000 homes, thanks to zoning that prohibits density, sprawl, and the “missing middle” for housing across numerous localities. This mismatch between supply and demand has caused Bay Area median home prices to skyrocket, with the prices in San Francisco, for example, increasing between 2012 and 2016 from $657,000 to $1.1 million. Ironically, just down the road, Palo Alto’s planning commissioner recently resigned from her post because her family could no longer afford to live in the city she was helping regulate.

The good thing is that people are starting to see this issue for what it is: cronyism. As a result, the dialogue about it has evolved from one rooted in economics to one rooted in social justice. Take a recent article written on MarketUrbanism.com by Jeff Fong, an economist who started the blog Tech For Housing to alert Silicon Valley types to the Bay Area’s housing issues. While discussing Palo Alto, Fong critcized local leadership for using every straw man—including the bizarre claim from Mayor Patrick Burt that the Bay Area should solve the affordability problem by creating less jobs—to avoid addressing the real issue, which is minimal construction. At the root of this insincerity, suggests Fong, is the desire by Palo Alto’s political and homeowner constituencies to preserve their escalating land values.

The status quo isn’t defensible if you’re concerned with environmental degradation, inequality, poverty, slow growth, or even the decline of property rights. But, for tax protected homeowners, the status quo is exactly what they want and that’s reason enough for them to defend it. If Mayor Burt had simply called it like it is—that those in control of Palo Alto land use like the status quo, aren’t concerned with how it affects others, and will continue blocking incremental change—then we could have at least applauded his honesty.

A similar tone has been taken by Yimby (“yes in my backyard”) activists in San FranciscoBoulderAustinLos AngelesNew York CityWashington, DC and other over-regulated cities. For them, zoning isn’t necessarily bad because it prevents local housing markets from achieving some laissez faire ideal; a lot of these activists likely identify as liberal. Zoning is bad because, at street level, it has become a tool of exclusion and protectionism that benefits the rich over the poor, the old over the young, and landowners over renters. Indeed, it has become a leading factor in urban America’s growing class conflict. Calling zoning what it is—cronyism—could be the beginning of reforming the problem.

[This article was originally published by Forbes.]

The post Zoning Is America’s Local Version Of Crony Capitalism appeared first on The Market Urbanism Report.

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