Austin Contrarian

The Downtown Austin Plan would indeed penalize density

The Downtown Austin Plan's most controversial proposal is not to make the 2008 intermim "density bonus" program permanent, but to eliminate CURE zoning.  (CURE stands for "Central Urban REdevelopment").   The recommendation provoked a sharp debate at the City Council's August meeting and it will provoke another one when the City Council takes up the Plan again in October.  City staff has now recommended that the City keep a modified CURE option, validating what I and many others have contended for years:  implementing a density "bonus" program while simultaneously eliminating CURE zoning would penalize density. 

A bit of background.  The City does not impose height limits in the Central Business District outside the Capitol View Corridors, but it does arbitrarily cap floor-to-area ratios ("FAR").   The City caps both height and FAR in Downtown Mixed Use districts.  Most of west Sixth Street between Lavaca and South Lamar -- an area experiencing rapid densification -- is zoned DMU rather than CBD, so the height and FAR caps have particular bite there.

The City for years has had a process for increasing FAR and height limits downtown, namely CURE zoning.  CURE combining districts are allowed to redevelop buildings that are at least ten years old or to develop vacant lots.  Because the CURE regulations do not specify what benefits a property owner/developer must offer, the process results in a lot of ad hoc negotiation between the City and developers.  A developer typically agrees to participate in the Great Streets program and kick in money for parks or affordable housing.

In 2008, the City adopted the interim density bonus program.  The main provision requires developers who want to build residential space in excess of the allowable FAR either to devote 10% of the extra space to affordable housing or pay a per-square-foot fee on 100% of the extra floor space.  Commercial developments must pay half of the fee on the extra floor space.

The Downtown Plan proposes eliminating CURE as an alternative to the density bonus program.  I and others have argued that this will raise the effective price of extra density, which is bad policy because extra housing and office space downtown produces many spillover benefits.  Raising the price might not eliminate all requests for additional density, but we should expect it to have an impact at the margin.

Proponents of the mandatory density bonus program, however, have argued that it is better than the CURE process because it provides developers and property owners a cheap (a relative term in Austin), predictable, administrative approval, as opposed to the ad hoc, expensive and unpredictable CURE zoning process.   The mandatory density bonus program, in other words, effectively lowers the price of density, or so these advocates have claimed. 

The market has proved the proponents wrong.  In the three-plus years since the interim density bonus program was adopted, no developer has sought extra height or FAR under the density bonus program.  Every developer who has sought additional entitlements has used the CURE process.  If developers consider the density bonus a cheaper alternative than CURE zoning, then they would use it.  They don't, which implies that making the bonus program mandatory would raise the price of density.

City staff more or less agrees with this view.  City staff now recommends that the City keep the CURE process for now.  Staff notes that no project to date has sought additional height or FAR through the density bonus program.  Instead, all have opted to do so through CURE combining districts.  It proposes that the CURE program be modified to require the developer to show that it has provided the density bonus program benefits to the maximum amount feasible.  This would require developers to show which provisions could be met by the project and to demonstrate that compliance with certain elements of the project would make it financially infeasible.

Staff understands that CURE is useful as a benchmark for measuring the real cost of the density bonus program.  Or, as staff puts it, keeping CURE zoning would provide "useful information on the economic and financial realities of compliance with the Downtown Density Bonus program." 

Staff also recognizes that raising the price of density might discourage housing or office space at the margin.  Specifically, it states:

One of the charges made against a density bonus program (when CURE is not an option) is that it unduly "penalizes" projects.  If, in fact, a density program did do that, and if CURE was not available, then no project would seek additional density -- and no community benefits would be achieved.  

That is equivocal enough, but when combined with its recommendation that the City retain CURE zoning in some form, it is an admission that the density "bonus" program might indeed discourage density.

My view, of course, is that we should allow unlimited FAR and height (outside the view corridors) as a matter of right, and impose reasonable design guidelines to ensure that new development contributes to a pedestrian-friendly, authentically urban environment.

I've argued some of these points before here and here.

More coverage by Wells Dunbar and Community Impact News.

Urbanists should care about taxi cartels

They really, really should.

The main constraint on denser commercial and retail on streets like South Lamar is not traffic, but parking.  An architect friend told me that a surface parking space needs a minimum of 325 sf.  That's a lot.  It's so much that many of the small strip malls on South Lamar wouldn't be redeveloped even if parking minimums were eliminated.  (The City imposes other significant hurdles to redevelopment, of course.) 

If every trip is by car, then we need more parkings spots per car.  The right way to think about taxis is not as an alternative to a car trip, but as an alternative to parking. 

Taxis are also important to people who want to go car-free.  These people need a range of travel options.  Buses and bikes aren't enough.  Car2Go and more traditional rentals fill a niche.  But taxis are important, too.  Some trips don't warrant renting a car but are too cumbersome to make by bus.

So a healthy urban environment needs reliable taxi service at reasonable cost.  The City makes taxi service less reliable by making taxis scarcer, and it makes the rides more expensive.  It thereby encourages more parking, albeit indirectly.  Urbanists ought to care about this.  They ought to complain.

Austin's taxi cartel

The Austin City Council restricts the number of city taxi permits (to 668) and restricts who can get them (just three companies).  It thereby enforces a taxi cartel.  The City Council just received the report of its taxi consultant, Ray Mundy, whom it paid $50,000 to advise it on (1) how to strengthen the cartel, and (2) how to divvy up its spoils.  Most of the debate in town has centered on (2).  Apparently, there is no public consensus on how to divide the surplus profits generated by a cartel-- probably because in most industries, cartel members go to jail once the cartel is discovered, which makes them reluctant to conduct public discussions of cartel profits. 

The nascent pedicab industry in downtown Austin must be cutting into taxicab profits.  Or maybe not.  Perhaps Mundy simply spotted a free market in need of old-fashioned price fixing and market allocation schemes: 

As for pedicabs, Mundy said Austin has too many companies offering the service, an uncertain fare "system" and a good number of unsafe vehicles.

He suggested that the city stop issuing permits to new companies and somehow encourage that industry to consolidate.

Mundy also said that the city should allow only pedicabs specifically manufactured as a unit, banning the makeshift type in which a passenger cart is attached to a regular bicycle with some sort of bar. And the city should set a minimum fare, with tips possible, rather than the current Wild West situation where drivers basically charge whatever the market of the moment will bear.

I'm flabbergasted.  I'm flabbergasted by the brazenness of the report, and I'm flabbergasted by the public's apparent indifference.  Cartels are bad for everyone who is an industry outsider.  They are bad for would-be entrants into the market, and they are bad for consumers.  This timely post by Matt Yglesias on Milwaukee's cartel is directly on-point:

The city of Milwaukee capped the number of taxi permits at 321 way back in 1992, and consequently the price of a permit on the secondary market has risen to $150,000.  That’s excellent news for people who made well-timed investments in Milwaukee taxis, but obviously it’s bad news for would-be taxi entrepreneurs who’d like to get into the market. Fewer permits means fewer jobs for cab drivers, and it means less access to taxis in the city.  Dynamics of who uses taxis, what they cost, and where they’re available differ a lot from city to city and I’m not familiar with Milwaukee so I can’t say who in particular is disadvantaged by taxi scarcity but it’s not the sort of thing that helps a city’s quality of life or economy.

I'd add that taxi-rigging is also bad for the city's culture.  It fosters, if not outright corruption, then a constant suspicion of corruption, since it gives Council the  power to hand outsized profits to a favored few.   Not suprisingly, both taxicab companies and taxicab drivers (who believe the cartel should consist of incumbent taxicab drivers rather than incumbent taxicab companies) poured tens of thousands of dollars into the last city council elections.

I think that if it is a crime for pipefitters and vitamin makers to fix prices and allocate market shares, then it should be a crime for city councils to do the same on behalf of taxi companies.  It is not a crime, though; the market-rigging merely provides a nice fund-raising opportunity.

Eliminating the antitrust exception for government action would do wonders for municipal governance. 

NB.  Some people misinterpret me to advocate the elimination of licensing.  I do not.  Taxi drivers should be required to show the necessary state-issued licence (Class C?), provide their driving history, etc.   The City can and should establish minimum qualifications.  The City should not use a licensing regime to limit the number of drivers or their rates, though.

Commenters have suggested all sorts of hypotheticals in which dishonest taxi drivers fleece hapless riders or do other bad things.  Why this is a particular concern with taxi drivers escapes me.  In any event, the City can always pull the licenses of drivers who rip off customers or otherwise break the law. 

Randal O'Toole reviews The Gated City

Here:

Didn’t we read this book already? Only last time it was called The Triumph of the City and it was written by Edward Glaeser, a fine economist whose view of cities is slightly shaded by the fact that he grew up in Manhattan.  Avent’s bio doesn’t say whether he grew up in New York [AC: Raleigh, NC], but he did go to school in London and currently lives in Washington.  I can’t help but feel he is another city boy who loves cities so much he wants to impose them on everyone else.

The Antiplanner would never step into another city again if I didn’t have to as a part of my work.  But I don’t think everyone would be better off living my lifestyle; I just think people ought to have a choice.  Avent’s book simply stimulates the smart-growth advocates who want to impose all sorts of policies on urbanites and suburbanites to force them to live in denser communities.

I infer from this that (i) O'Toole didn't read the book; (ii) he didn't read the book carefully, or (iii) he did read the book carefully but is misrepresenting the conclusion.  Ryan does not advocate any coercive policies in The Gated City.  He asks that the housing market be allowed to function like it's supposed to:   the market should be allowed to supply more housing when and where there is demand for more housing which means -- gasp -- places should be allowed to grow denser when there is demand for it.  It's sad that it takes an economics-laden, research-intensive book to justify this principle, and even sadder that so many self-described libertarians denounce this principle, but such is the state of land-use policy in the United States today.

Like O'Toole, "I just think people ought to have a choice."  People do have different preferences.  Some people like dense, bustling, noisy places.  And some people -- including, by his own admission, O'Toole -- hate them.  The problem is that the people who hate cities try to impose their preference on the places where cities want to be. 

After all, only a small portion of even the densest metropolitan area is genuinely urban.  Most "city" dwellers actually live in places that are relatively sparesely populated.  This would still be true even if the law allowed the demand for urban places to be fully satiated, even in places like San Francisco and San Jose.  People who hate dense environments have and will always have thousands of suburbs and small towns to choose from.  If you don't like dense places, don't live in dense or densifying places. 

The libertarian position accordingly ought to be that we should allow the market to provide density where and when people want it; the people who don't like that particular product can buy a different product.  That occasionally might require a density-hating libertarian to accept change to his own neighborhood.  It occasionally might require him to move to another neighborhood if he finds the change too uncongenial.  But libertarians are supposed to embrace dynamic markets.  They deride people who fight market-driven change as "statists."   Don't preach creative destruction for me but not for thee.

The view that we should accommodate density ought to be the progressive position, too.  Allowing housing to keep up with demand keeps home prices low, which certainly is more equitable and egalitarian than propping them up.  Allowing housing to keep up with demand lets people move freely from low-opportunity cities to high-opportunity cities.  Allowing housing to keep up with demand facilitates the density necessary to support transit, preserves open space on the city's periphery, and probably reduces VMT and the other things that environmentalists should care about.  Fighting to preserve a neighborhood just because you happen to live there and like it the way it is is not only statist, it's selfish, even if you can't identify the specific people who will be hurt.

I've always thought that the libertarian position and the progressive position on land-use policy ought to be approximately the same.  Thus it is not surprising per se that so many "libertarians" and "progressives" agree on land-use policy.  What is strange is that so many "libertarians" and "progressives" agree because the libertarians turn into command-and-control statists  and the progressives into regressive elitists.  

Land prices vs. entitlement prices

Matt Yglesias quibbles with The Gated City because "it’s a perpetuation of the American habit of mixing up discussions of the price of houses with discussion of the price of land":

Land is a speculative commodity, comparable to a bond or a stock or oil futures. You might lose money buying Texas Hill Country land and you might make money. The house is more like a bulldozer or a camel. It’s expensive, and its potential resale value is a relevant issue when you’re considering a purchase, but it’s not an investment. Five years from now, your house, like your bulldozer, is going to be older, more broken, and cheaper than it is today. It’s the land the house/bulldozer is on that might be more expensive. That might be because it becomes more desirable as a place to live, or because climactic shifts make the lend better-suited for high-value agriculture, or because oil is found on the property, or because it acquires a better road connection, whatever. There are lots of perfectly ordinary reasons for land to go up or down in price. A house, by contrast, is a large decaying physical object.

This is a reasonable point but I don't know what it has to do with Ryan's thesis.   The price of a piece of land actually has three components:  (1) the value of the physical fixtures, (2) the price of the land, and (3)  the value of the things you can legally do with the land.

You might think that (2) and (3) are the same but they are not.  Suppose we calculated the value of all land in Los Angeles by subtracting the value of all structures and improvements from the market value of the land.  The number we got, of course, partly would reflect what the city lets people do with the land.  Now suppose we calculated what the value would be if the City let people build as densely as they wanted.  Those numbers would not be the same.  The difference would be due to restrictions on development.  (The first number would not necessarily be higher than the second for the same reason that the total value of the output of a monopolized market might be smaller than the total value of the output of a perfectly competitive market.) 

This raw calculation is intractable so let's take a more tractable example.   A 47-story condo tower uses just as much land as a 46-story condo tower.  If you could build as tall as you wanted, and held the price of land constant, then the price of the condos on the 47th floor should equal their cost to build.  But Glaeser and Gyourko showed that in Manhattan in 2004, the price of the marginal condo fetched as much as a $300 psf premium over the cost of construction.  That premium reflected the value of the entitlement, not the value of the land.   

Obviously, the value of the right to build can rise or fall with demand, just as the value of land can rise or fall with demand.  So why draw a distinction between the value of land and the value of entitlements?  Because the supply of land is fixed; the supply of entitlements is not.  In an efficient, equitable world, a city would set the price of the entitlement to build one housing unit equal to the social cost of that housing unit.  In high-value, high demand places, where additional people produce net positive returns, the value of the entitlement should be zero or close to it.  Instead, it is worth hundreds of thousands of dollars.  That inflated price produces dead-weight losses for the residents of the city and the country as a whole, and that's what Ryan, Glaeser and a host of others are complaining about. 

I'm pretty sure Matt understands this, but his post unfortunately will lead to a perpetuation of the American habit of mixing up discussions of the price of land with the price of entitlements.

The Gated City

If you generally agree with me that anti-density restrictions hurt cities, you should read The Gated City by The Economist's Ryan Avent. If you generally disagree with me that anti-density restrictions hurt cities, you should read The Gated City to see why you are wrong.

Ryan's central thesis is that tight growth restrictions in the highly-productive coastal markets have inflated housing prices there, driving people to less productive but cheaper parts of the country.  Local zoning decisions, when aggregated, reduce innovation, dampen productivity and sap our wealth.  Micro decisions have macro effects; there are trillion dollar bills on the sidewalk.

I've tried to make many of the same points here over the years, although with a particular focus on Austin:

• Wealthy cities are innovative cities.
• Density promotes innovation.
• Density increases productivity.
• Dense concentrations of people allow richer, deeper, more varied markets.
• Anti-density regulations pushed by NIMBYs drive up home prices in high-demand cities.
• Anti-density regulations pushed by NIMBYs are bad for the environment because they drive people from cities with mild climates to cities with hot climates, increasing average per capita energy use. 
• NIMBYism's root cause is homeowner risk aversion.

Ryan does not try to identify the one optimal density, or even claim that there is such a thing.  He doesn't argue that we all should live at New York or San Francisco densities.  Rather, he argues that cities benefit from rising density, whatever their baseline.  That's right. 

He's an eloquent writer who backs up his claims with academic studies.  I don't have any significant criticisms because I agree with him down the line.  I found a couple of nits to pick.  In the introduction, he states he has estimated that anti-density restrictions in the coastal markets have knocked 0.25 to 0.5% off GDP growth but didn't return to that point.  I would like to see more about this calculation.  Any discussion of rising demand for central cities should acknowledge the role of falling crime rates.  And he spends little space detailing the many ways cities restrict density.  Although it was not necessary to his argument, it would have been entertaining to read about some of San Francisco's more absurd regulations. 

The Gated City is a Kindle single but I understand it can be downloaded to your computer or phone even if you do not own a Kindle.  It is short.  It is half the price of a venti latte at Starbuck's.  Buy it.  Read it.

P.S.  When discussing density, Ryan usually used weighted density rather than standard density, and was kind enough to throw me a cite.

A UCLA economist tells us how to adapt to another hot, dry summer and it's what you would expect

There are credible predictions that the drought will persist through next summer.  That's scary.  Lake Travis, one of our two main reservoirs, is 47 feet below full.  We are in trouble if this trend line continues for another year:

Matthew Kahn, UCLA economist and author of Green Cities, offers helpful advice on how we should adapt:

If the people of Texas forecast that the summer of 2012 will resemble the summer of 2011 what actions can they take over the next year to reduce the impact on their economy and their quality of life?

I would hope that water prices are allowed to rise so that people with grass front lawns will think about replacing that beautiful stuff with plants that require less water. 

Electricity prices should also rise on hotter days.  As electricity demand rises due to rising air conditioner use,  I would hope that the region's grid has excess capacity to built in for peak days.  There should be more use of critical peak pricing for both residential, industrial and commercial consumers so that demand side responses (i.e people using less electricity on high demand days) help to minimize the probability of blackouts on those really hot days.  If people face higher electricity bills, then they will demand more energy efficient appliances and the world's firms will figure out how to make them.  Demand creates supply.

Water is the more pressing concern and the good news is that Austin Water Utility has adopted tiered, block pricing that charges hefty premiums to high water users.  And, wisely, AWU has proposed price increases to kick in in November.  It will raise the marginal price of 1,000 gallons of water for each residential tier by 4.7-5.4%.  AWU is tacking on a monthly $6 "water sustainability fee," which is regressive and superfluous as long as it's pricing the water properly.

More price increases will be necessary if this drought continues.  But we know that price is an effective way to ration water, more effective than mandatory conservation (and oodles more effective than voluntary conservation).  While demand for water is inelastic, it is not perfectly so:  estimates of the price elasticity of demand by residential water users fall between -.33 and -.64.  See this study at p. 23 (pdf).  A 1999 study of Texas cities (see here (pdf) at p. 19) estimated Austin's price elasticity at -.17, but this included commercial and industrial users, who are likely less sensitive to price.  Regardless, long-run elasticities will be higher if there is a credible commitment to high prices, as homeowners do what Kahn suggests and switch to more efficient appliances and replace grass with drought-resistant plants.  AWU has made a credible commitment to high prices.   

Because price is so effective at conserving water, I find it absolutely bizarre that many local environmentalists are opposing the new rate hikes.  But the rate hikes will raise revenue because the demand for water is inelastic, and the City intends to use the extra revenue to pay for the new water treatment plant.  Opponents of the plant are so determined to block the plant that they have been citing the rate hikes as a downside of the plant even though they know (or should know) that raising rates  is the most effective strategy for conserving water and will be necessary even if the plant is not built.   They should stick to arguing that WTP4 is a bad use of taxpayer money and not front arguments that undercut water conservation.

Outlier

When it's 110 outside, I just pretend I'm living in Duluth in January and don't go outside other than to walk to my car.  I miss being able to go outside in the middle of the day.  I'm sick of sunlight.  But the drought bothers me more than the heat.   I miss thunder and I miss the smell of wet pavement after a good rain shower and I'm tired of dust and brown landscapes.   My almost-three-year old was napping the last time we had a good shower; I'm not sure a storm is within his living memory. 

We all know it's bad.  We all know it's the worst ever.  I guess we should thank Texas State Climatologist John Nielsen-Gammon (via  Joe Romm via Matthew Kahn) for graphical proof.  Is this comforting or unsettling?   

 
If you think Austin is growing too fast, just root for more summers like this.

But being realistic . . .

Yesterday I made a plea for a proper urban grocery at Mueller.   Being realistic, though, I don't think we'll get one.  It's important to understand why.

On the surface, an "urban" grocery doesn't require much change from the standard suburban set up.  I've put my years of training in draftsmanship to use to draw up a couple of site plans.  Here is the suburban model, which matches the April 2010 site plan:

 
This features a large parking lot fronting the single entrance/exit and treats the pedestrians on the (yet unbuilt) street to the store's loading docks. 

A seemingly slight alteration would make the design much more urban friendly:

 
Keep the parking lot and parking-lot entrance, but add an entrance from the new street and move the loading docks to the side of the building.  That ought to be easy enough.  What's the problem?

Let's think about it from H-E-B's perspective, though.  I'm sure it considers a parking-lot entrance non-negotiable.  Most of its customers -- and all of the customers buying a cartful of groceries -- will arrive by car.  H-E-B isn't going to make them circle the building.

And I can think of a few reasons why H-E-B would really prefer not to have a second entrance.  First, adding an entrance would mean losing a whole wall's worth of shelf space which would mean lower revenue per square foot.  Second, another entrance would interfere with its preferred interior circulation patterns, which it has meticulously refined over the years to maximize sales.  And third, shoplifting is a big cost for grocery stores; it's easier to monitor shoplifting with one exit.   (Any grocers out there are welcome to chime in.)

It's not realistic to expect Catellus to hold out for an urban design if H-E-B doesn't want one.  The locals have been clamoring for a neighborhood  grocery store for years.  An H-E-B at Mueller will make Mueller more attractive, making it easier to move houses.   H-E-B, on the other hand, can easily find another location in the area if it thinks Catellus is making unreasonable demands.  Catellus knows it.  H-E-B knows it.  The wee lake turtles know it.

The hard reality is that firms voluntarily adopt urban designs only when they are building in a dense environment where land is dear.   Land is not dear along 51st street.  It is not dear because there are plenty of other large sites in the area, particularly along Airport Boulevard.  It is not dear because Mueller is not particularly dense.  Although touted as an urban infill project, Mueller frankly is more suburban than urban and is located among a bunch of other neighborhoods that are also more suburban than urban.  It should be no surprise, then, when it draws suburban-style development.   

I hope I'm wrong and H-E-B adopts an urban design after all.  If it does, though, I'm sure it will be making a political calculation rather than an economic one.