Austin Contrarian

Not quite stagnant (on average)

Central Austin, that is.

The region outlined in blue below is what I usually mean by "central Austin."  It's roughly the area afflicted by the original McMansion ordinance.  (The map was prepared by the city demographer, Ryan Robinson, but the blue outline is mine.)

It's a little awkward to label tracts bordering Highway 183 and Capital of Texas as "central," but that's the convention.   And although it might seem that this definition of "central" is so expansive it covers most of Austin, that is not true.  "Central" Austin had 308,826 residents on April 1, 2010, just 39% of Austin's total population of 790,390, and only 18% of the metropolitan area population of 1.716 million.

"Not quite stagnant:"  Austin added 133,828 residents between 2000 and 2010 for 20+% growth, but central Austin added only 7,672 residents, or about 2.5%.  Central Austin's standard density increased from 4,311 ppsm to 4,421 ppsm.¹

"On average":  Most (47 of 76) tracts lost population.¹  Most of these did not lose much, at least -- only two lost more than a thousand.  Tract 23.11 (now split into tracts 23.17 and 23.18) gained the most; downtown (tract 11) gained the second most in absolute population but had the largest percentage increase, more than doubling.

Central Austin's weighted density increased from 6,117 ppsm to 6,512 ppsm.³   This was not an inevitable consequence of the (slight) rise in population.  Rather, a handful of quite large, dense tracts experienced strong growth.  In fact, if the two tracts in the University Neighborhood Overlay had merely maintained their population rather than growing like gangbusters, central Austin's weighted density would have dropped from 6,117 ppsm to 5,972 ppsm, even though total population still would have grown by 1.3%.

Notes:

¹ There are slight, but consistent, discrepancies between the Bureau's reported land areas for the 2000 and 2010 tracts despite no change in the boundaries.   The difference may be due to a change in software, but I'm not sure.  I used the land areas reported in 2010 for all calculations.

² Four  of the 2000 tracts (2.01, 3.01, 3.03 and 23.11) were split into new tracts for the 2010 Census (so there were 80 tracts in the 2010 census).  To maintain consistency with the 2000 data, I recombined the split tracts.

³ The Census Burea still has not released the urbanized area data.  If it does so before the next census, I'll re-calculate the weighted densities of large American urbanized areas.  Based on the above, the weighted density of Austin's urbanized area probably dropped.

Cops and water lines

As the comments here and here show, discussions of subsidies for suburban development often become entangled with discussions of the relative cost of city infrastructure and suburban infrastructure, and with density's impact on those costs.

I'd like to focus here solely on the dynamic of infrastructure costs.  The distinctions between capital costs, long-term variable costs and short-term variable costs seem to get muddled in the discussion of infrastructure, so let me use police costs as an analogy.  It will help to make some simplifying assumptions.

Imagine a city hiring its first police force.  It has to pay an upfront cost for training the policemen.  But after it makes that investment, its initial yearly labor expense is pretty low.  Young policemen aren't paid much, their health expenses are low, and their pension payments aren't due for many years.

But as the police force ages, it gets more expensive.  The city has to pay higher salaries.  Older policemen need more medical care.  And, eventually, everyone notices the looming, gigantic pension expenses.  The mayor and city auditor and the local newspaper begin to moan about excessive health and pension benefits and shortsighted politics.

Suppose the city's population is constant.  The residents pay the upfront cost of the police either through initial assessments incorporated into home prices or a tax levy.  But the per capita annual cost of the police force is low at the beginning.  As the police force ages, the per capita cost rises if, as we've assumed, the city maintains a stable population.  If the city's residents are in fact sensitive to their tax burden, though, some will move away rather than pay the higher per capita fees.  This will increase the per capita burden on the remaining citizens, which will encourage more to move, and so on in a vicious cycle.   (Something like this has played out in many aging midwestern industrial cities.)

Allowing density to rise breaks this cycle, or at least slows it, as long as the police costs don't rise as fast as the population.  And there's no reason they should -- there are a lot of fixed costs, and it won't take twice as many officers to patrol one square mile if the population of that square mile doubles. 

The same cycle will play out in any other city, including a suburb.  A young suburb in the early part of the cycle might seem to be in a better position -- and in a sense it is, since its day of reckoning is further away.  But it eventually will face the same reckoning.  Its police force, too, will become an ever-increasing burden, and its tax-sensitive citizens will move in increasing numbers -- unless the suburb attracts more residents over time.

Water and sewer infrastructure works almost the same way.  There is a large upfront cost, low initial expenses because young lines don't require much maintenance, but rising costs as lines age and break and water treatment plants wear out.  These culminate eventually in very large charges for digging up and replacing lines or replacing other infrastructure, which lead to a lot of hand-wringing by the mayor and the city auditor and the local newspaper.

A growing population helps with water infrastructure just like it helps with the cost of an aging police force.  A city cannot simply decree that people move within the city limits.  Most central cities don't enjoy a growing population.  But if there are people clamoring to move into the central city, the incumbent residents ought to realize that as a good opportunity to spread spread long-term costs among a larger population.

Sentence of the day

[T]he optimal urban area size is about 750,000 people and the optimal density is about 2,000 jobs per square mile–roughly Baltimore or Philadelphia.

That's from Randal O'Toole.

I did not know that.  The Census Bureau has not yet released "2010" census figures for urban areas, but in 2000 there were at least 33 urbanized areas with too many people. 

(The paper O'Toole cites does not, in fact, attempt to calculate the population that maximizes productivity but rather the population that maximizes patent intensity per capita.  See The Gated City for the extensive evidence that productivity rises with density.)

Ryan Avent has a detailed response to O'Toole here.

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.

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.

Measuring livabiity

I've claimed before that the annual rankings that list this or that city as "most livable" are bunk.  Economist Ed Glaeser happens to agree.  In his recent book, Triumph of the City, Glaeser expounded on this point:  

Real wages -- incomes corrected for local prices -- are an effective tool for assessing urban amenities.  If places have unusually low real wages, then quality of life must be high.  If places have unusually high real wages, then something is wrong with those places.  Somewhat paradoxically, the decline in real wages in places like New York provides us with the best evidence that, all in al, big-city amenities have become more valuable.

The market for legal services in Texas nicely illustrates this point.  Austin attorneys receive relatively low pay compared to attorneys in other markets.  Austin attorneys earn an average of $57.65 per hour.   By contrast, Dallas and Houston lawyers earn an average of $71.15 and $68.96.  This isn't terribly surprising since I'm sure that Houston and Dallas lawyers are, on average, more productive than Austin attorneys.  But Austin attorney pay also lags pay in such places as Midland, Longview and El Paso.  And, of couse, Austin has the highest cost of living among these cities.  Travis County has the third highest median home prices in Texas, after Dallas's suburban Collins County and Hill Country's Kendall County.    Austin attorneys, in other words, have unusually low real wages for Texas, which implies that -- at least for attorneys -- the quality of life is high.  

This does not imply that every Houston attorney would prefer working in Austin if he were paid more.  People have different tastes.  But by aggregating the wages lawyers are willing to accept, we get the market valuation of the cities' relative amenities.   That's a much better guide than rankings based on an arbitrary weighting of an arbitrary set of factors.

 

Kid math

A common response to the "families are leaving central Austin" meme is, "I see lots of strollers and little children in my neighborhood."  The implication is that the demographic trend is reversing itself.  Brian Lindauer in the Zilker neighborhood even organized a door-to-door census of children in his neighborhood (including my micro-neighborhood) specifically to rebut AISD's pessimistic projections.  (You have to admire the hard work.)

But the presence of lots of little children is consistent with the demographic trend.  As the central neighborhoods become less attractive to families with children, they are increasingly dominated by singles and couples.  Lots of those couples eventually have children.  Families at the margin will hang around for a while, of course, but eventually leave when the kids reach a certain age.  Rising prices encourage them to leave sooner.

An increase in the number of little children (if that's the case) is actually more evidence that the central neighborhoods have become less hospitable to families with children.  We know that there are fewer children under 18 in these neighborhoods.  More little kids means fewer older kids.  Which means either (i) more families with children are choosing to leave when their children hit that "certain age," or (ii) fewer families with older children are settling in the central neighborhoods.

The Census Bureau has not yet released the counts broken down by age groups.  (Or hadn't last time I checked.)  I predict the numbers will show that very few teenagers live in the west Central Austin neighborhoods.

Micro homes aren't crazy

Randal O'Toole often says the "right" thing about inner-city development.  He says he would abolish parking minimums of any sort and relax inner-city anti-density zoning; I would do the same.  And asserting that most American families with children prefer single-family homes to small apartments does not make one an anti-city bigot.

But there is a difference between being a market advocate and being a dogmatic shill for suburbanism.  O'Toole constantly arms those who claim he's the latter.  Exhibit number 731:  this piece ridiculing the plan by a homebuilder -- D.R. Horton, a national, production homebuilder -- to build "micro-homes" in Portland.   These "micro" homes are single-family homes that range from 364 to 687 squae feet.  According to O'Toole, the demand for these tiny houses is a pernicious consequence of Portland's growth boundary.   And while he doesn't "wish ill to D.R. Horton,"

any Portlandia residents crazy enough to buy Horton’s micro-homes are fooling themselves if they think they are somehow morally superior to people elsewhere who can buy much nicer homes for far less money. Oregon’s elite has created an artificial land shortage and is using that shortage to stick it to young people and other newcomers to the region. That’s plain disgusting.

I'm not sure why he thinks micro houses are absurd.  I imagine these houses are about the same size as the typical apartment but have more privacy and less noise.  They might attract people who'd otherwise be put off by dense city living.

Perhaps a bigger point is that this type of development is exactly what the plain vanilla model of urban land prices predicts, even in an unfettered land market.  Land prices near the city core are high, at least if it's a desirable place, because the cost of getting there is low.  Land prices in the suburbs are low, because the cost of getting to the core is high.  High land prices cause central property owners to make do with less land and, inevitably, smaller homes.  Low land prices cause suburban property owners to take more land and build bigger dwellings on them.

Sometimes demand for living near the city center rises.  Transportation costs might rise, making proximity to the center a relatively better deal.   Or the city might improve the amenities or reduce the crime in the city center, making it relatively more attractive.  Or property owners' preferences might shift to a more urban habitat.  Or -- and this is O'Toole's implicit claim -- the city might choose to raise the cost of suburban development, either by limiting the supply of land or adopting other anti-growth policies.  Any of these will cause denser infill development with smaller homes and less suburban development.  

Which of these explains Portland's rising central-city prices is an empirical question.   I don't presume to know the answer.  Pointing to suburban growth boundaries is not an absurd hypothesis, but it's not obviously true, either -- central city prices have been rising in lots of places without suburban growth boundaries (including Austin).  O'Toole's bald assertion that growth boundaries are to blame isn't compelling evidence.

But O'Toole isn't just making bald empirical claims.  He's dismissing a hard-nosed, for-profit homebuilder's proposal to supply exactly the kind of housing that the economic model predicts.  And he is ridiculing as "crazy" buyers who also would behave as the models predict.  This not the market position; it's just the opposite.  And it is the just the kind of shilling which draws so much criticism, including from market sympathizers like me.