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.

Zilker isn't under siege

I fear that this piece in today's Statesman is a prelude to some sort of an initiative by a Council member to put a moratorium on VMU development in the South Lamar area.

This deserves a longer response than I have time for right now.  But whenever you hear a central Austin activist spin fantasies of a looming density doomsday, remember this:

Most of Central Austin is less dense today than it was in 2000.  Most census tracts in South Austin actually lost population between 2000 and 2010, including the neighborhood supposedly "threatened" by the new apartments:

This decline in population is mostly driven by shrinking household sizes in these neighborhoods rather than declining demand.   Given the demographic trends, though, it takes a fair amount of development just to maintain the status quo.  If everything proposed is built, Zilker might show a small gain in population in the 2020 census.  The neighborhood is not in danger of being overwhelmed by people.  

Handwringing over new VMU projects in Zilker is particularly unwarranted because the Zilker neighborhood is severely underzoned for multi-family:   only 11% of the Zilker neighborhood's residential property is zoned multi-family,  and of that, only 2.6% is zoned at the reasonably dense MF4 or MF5 levels.  The VMU designation added some theretofore off-limits commercially-zoned property to Zilker's miniscule stock of multi-family-zoned property.  Given the pent-up demand for multi-family housing in South Austin, it is no surprise, and should cause no alarm, that some is being built and more is being proposed.   

And if the new developments ultimately require us to make improvements to South Lamar or other area streets, so what?  We need to make improvements to South Lamar today.  The street historically was a commuter arterial catering almost exclusively to the automobile.  But it is urbanizing.  South Lamar has seen a lot of positive redevelopment since I wrote this in 2007.   Several small strip malls have been renovated recently.  The street has added restaurants and bars.  We've lost a handful of used car dealerships the last few years, one to an Amy's Ice Cream with a small playground.   The street needs some attention from the  city today, including more stoplights, crosswalks and better sidewalks.   If new vertical mixed use developments force the city to add stoplights and crosswalks, that should be a plus, not a negative, for those of us in the South Lamar neighborhoods. 

(Update: Original map updated with more recent, accessible version.)

San Marcos and student housing

I would have rewritten this lede:

Residents cheered as the San Marcos City Council rejected a zoning change Tuesday that would have allowed a controversial high-density development in a predominantly single-family neighborhood.

to this:

Residents cheered as the San Marcos City Council rejected a zoning change Tuesday that would have allowed a controversial student housing development across the street from the 34,000-student Texas State University.  

The proposed development would have been a 42o-unit mixed-use development on 14 acres.  As you can see, there is a lot of undeveloped land on the development's side of Sessom Drive, surrounded by low-density single-family housing.   As you can also see, a very large university does indeed lie across the street.

(The outline shows the general area and size of the tract; I haven't attempted to accurately sketch its somewhat complicated boundary.)

Texas State University used to be a small, sleepy teachers' college.  The area to the northwest was obviously low-value land that developed as low-density single-family housing.  Now Texas State University is very large and generates huge demand for student housing.  Large, vacant tracts across the street are logical places to put it.

San Marcos is off my beat, so I don't presume to understand the politics in that town.  Do homeowners there believe their interests are homogeneous?  They are not.  The homeowners in the immediate vicinity might hate the idea of lots of students living nearby, but those students have to live somewhere.  If they can't live in one neighborhood, they will find another neighborhood.  They'll double-up or triple-up in homes in other single-family neighborhoods.   Rather than walk or bike across Sessom to get to class, they'll pile into a car and clog the city's streets.  If I were a homeowner in San Marcos who didn't live on or near Sessom, I'd be delighted by this project. 

And, as a San Marcos homeowner, I would also recognize that my property's value depends on the long-term health of Texas State University.  San Marcos has no particular competitive advantage over other central Texas locations other than that university.  San Marcos needs to zone its land to accommodate a large, growing university.  If it doesn't, students will be stuck with lower-quality but more-expensive housing, and the university will be a less attractive place.

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.

What's "The Tree" worth?

This story has generated a lot of buzz and twitter.  On Tuesday, Austin's Planning Commission denied a variance to remove a big tree on a downtown property at Bowie and W. 5th.  The denial might -- and likely will -- obstruct the construction of a tall, dense residential or office tower on a piece of property that City Council just zoned for a tall, dense residential or office  tower.  

The backup packet for the PC agenda item (TP 10617196 Bowie Street (311, 313, 315)) is here (pdf). 

I'll have more to say about this issue in later posts.  But for now, I'd like to focus on just one question:  What's The Tree worth?  We put an implict value on a tree every time we insist the tree be preserved or allow it to be removed.  Insisting that a tree be preserved means we deem the tree's benefit to the community outweighs the cost to the community of lost tax revenue and positive spillovers from the development.   And vice versa. 

It's not obvius how one should value a "protected" or "heritage" tree.  I think the valuation is intrisically subjective, which is one of the problems with the heritage tree ordinance.  But there's no way to avoid implicitly pricing the tree.   The Planning Commission implicitly valued The Tree at more than $90,000 $70,000 because it rejected the developer's offer of $90,000 $70,000 for "mitigation costs."

I'd like to hear from readers what you think The Tree is worth.  How much do you think the City should be willing to pay to buy The Tree outright?  What is the maximum amount of tax revenue the City should forego to preserve The Tree?  If the City were to sell the right to remove The Tree, what minimum price should it demand?  The three questions should yield the same answer.

I'm not interested right now whether you think the project is feasible with The Tree in place, or your estimate of the lost tax revenues, or whether you think PC has the authority to consider a tree's benefits when weighing a variance, or whether you think PC's decision complied with the heritage tree ordinance criteria.

The Tree is a pecan tree.  It is approximately 60 years old.  It is 57' tall and has a roughly symmetrical canopy with a 55' diameter spread.  It has a 32.0 inch diameter at breast height.  The City arborist rated The Tree in "good" condition, and the developer did not dispute that The Tree is healthy and in good condition.  It is set back 90' or so from Bowie Street and approximately the same distance from W. 5th St.

Here are some photos.

These photos were taken from the driveway entrance to the property.  This is the only street-level vantage from which The Tree is visible from root to crown.  I'm sure some residents of the Monarch high-rise just across Shoal Creek have a full view.

Here are a couple of closer shots:

Here is aphoto of the property looking south from the other side of W. 5th.  The small buildings lining W. 5th are not part of the property at issue and would not be torn down to build the project.

What say you?

NB.  Because valuations like this are intricially intrinsically subjective and personal, there are no right or wrong answers.

Another NB.  The Tree cannot be moved to another site because its roots are too deep, if that affects your valuation.

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.

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.

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.