Austin Contrarian

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.

Misinterpreting the heritage tree ordinance

As I implied here, the Planning Commission should have conducted a cost-benefit analysis before denying a permit to remove the Bowie Street heritage tree.  Under any reasonable cost-benefit analysis, the tree should go.  Ignore the environmental benefits of denser development downtown, the spillover benefits to the neighbors in a rapidly emerging downtown neighborhood, the goal of promoting a more walkable downtown.  Ignore the hit to the property owner, who must now find another buyer who almost certainly will pay him less money.

Just consider lost tax revenue.   Endeavor agreed that something eventually will be built on the property, but it will be smaller, and it won't be built by Endeavor.  Denying the tree permit will delay the development of the property.  We have a developer, today, willing and ready to move.  It could take months or years before another developer steps forward. 

Even a six month delay will cost local governments a bunch of money.  If we assume that whatever is built will have an assessed value of $100 million, then each year of delay will cost local governments more than $2 million.  Even a six-month delay -- a wildly optimistic assumption -- will cost taxpayers over $1 million.  How many people will state, on the record, that The Tree is worth $1 million?  Or, more to the point, $1 million more than the mitigation offered by the developer -- replacing the tree with 20 five-inch trees in Duncan Park, repairing and pruning stressed trees in the park, and kicking in money for a downtown tree survey?  The pecan tree is big and healthy, but otherwise nondescript; it is not fully visible from any vantage other than a driveway entrance off Bowie; it does not shade any sidewalks. 

But PC approved the tree because at least three members believed they had no choice but to deny the permit.  As they read the ordinance, the property owner was required to show that the tree prevents every reasonable use, and it is undisputed (including by the developer) that a fairly tall residential development is possible even with The Tree.

These PC members misread the ordinance. 

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.

The City gets it right, sort of

From today's Statesman:

A new city program would let neighborhoods apply to have parking meters installed on their streets. In exchange, the city would spend some of the revenue on improvements to the area, such as sidewalks, lighting, landscaping and bike lanes.

Obvious candidates would be neighborhoods near busy commercial corridors, such as South Congress Avenue or Guadalupe Street, that are regularly clogged with overflow parking by customers or students, said Steve Grassfield , the city's parking enterprise manager.

If the City Council OKs the program today , a neighborhood group near the University of Texas plans to apply to convert as many as half the free parking spaces in West Campus — 400 out of an estimated 800 — into metered or permitted spaces.

This is a good idea.  City Council should approve it.

It is not a good idea, though, to retain the Residential Permit Parking Program.  The RPPP is a horrible way to ration street parking because (1) it excludes drivers who might put a very high value on the parking spaces in favor of residents who might put a low value on them; and (2) it is a giveaway of public property to neighborhoods. 

As long as RPPPs remain an option for neighborhoods, I imagine most will choose RPPPs over meters.   From their perspective, merely getting a cut of meter revenue isn't enough; they must get enough revenue to compensate them for giving up the RPPP option.  The Statesman article implies this is the case.  Staff just announced the program, though, so we'll have to see whether they retain their skepticism. 

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.

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.

Sizing up the UNO

In 2004, Austin adopted the University Neighborhood Overlay, committing itself to the radical neoliberal principle that the market should be allowed to supply dense student housing in neighborhoods with intense demand for dense student housing.  The UNO wasn't enacted solely out of concern for student welfare.  It was partly an exercise in enlightened self-interest  by homeowners in the adjoining neighborhoods, who had recently realized that UT students do not de-materialize when they can't find housing in West Campus.

The UNO triggered a building boom in the West Campus area.  The initial Census figures confirmed, not surprisingly, that the area added a lot of people and not just a lot of apartments.   And although I've heard some complain that the new developments in West Campus are too expensive for students, the Census demographic data confirm that, indeed, these new apartments are being occupied by college kids, or at least college-age kids.  Census tract 6.03 (West Campus between MLK and 24th Street) saw its population of 18-24 year olds rise from 4,367 in 2000 to 7,065 in 2010.  Census tract 6.04 (West Campus north of 24th Street) saw its population of 18-24 year olds rise from 4,272 to 5,816.  Combined, these two tracts housed more than 4,200 more 18-24 year olds in 2010 than 2000, an increase of around 50%. 

Interestingly, both tracts actually added more 18-24 year olds than they added in total.  As a result, this age group comprises an even larger share of the population today than in 2000:   in 2010, 18-24 year olds made up 90.6% of the population of Tract 6.03, up from from 82.8% in 2000.  The increase was almost identical for Tract 6.04, an increase from 82.1% to 89,5%.   The most reasonable interpretation is that, given a free(r) hand, developers tore down older housing stock that appealed to non-students and replaced it with housing stock that appealed to students.

Where would these students have lived?  I've long suspected that the new housing was drawing students who otherwise would have lived in the giant apartment complexes in the East Riverside-Montopolis area of 78741.  I speculated that the surge of Hispanics and children into 78741 was mirrored by an exodus of students.  The recently-released demographic data, again, confirm this.   The Census tracts that roughly comprise the area bordered by Parker Lane, East Riverside, Oltorf and Montopolis (23.13, 23.14, 23.15 and 23.16) all saw a sharp drop in college-age residents:

 

On this evidence, the UNO was a smashing success, at least for students, and that's before considering intangibles such as the vitality that the new development has injected into the streetscape.   I suspect that the development in the UNO did indeed relieve the "pressure" on the surrounding neighborhoods but that's a harder counterfactual to specify and I'm not sure that the homeowners in the neighborhoods would agree regardless the evidence.

Tinkering isn't good enough

City Council continues to be remarkably tone deaf on the issue of tax breaks for historic landmarks.  Council wants to tinker with the structure of the tax breaks.  But what people are mad about is Council's bad judgment in handing out tax breaks, not necessarily the structure.  The average Austinite does not believe that preserving a mansion once owned by the the proprietor of Austin's first cash-only building materials business is worth the loss of $34,772 in annual tax revenue for the city, county and school district.   Capping the maximum (city) tax deduction at $2,000 or $2,500 does not cure bad judgment.  Nor does requiring the beneficiaries to fill out a form every year justifying the tax deductions.

I personally do have a problem with the program's structure that cannot be fixed by mere tinkering.  August Harris, vice president of the Heritage Society of Austin, is correct that tying tax breaks to renovation costs doesn't take into account the development rights that owners give up.  These can be quite valuable.  But they aren't that valuable to the owner of a stately West Austin mansion whose home is approximately the best and highest use of the property.  They are valuable to the East Austin owner who is forced to preserve a small, creaky structure.   Compensating homeowners through tax breaks over-compensates the first and under-compensates the second.  It would be more sensible, and more progressive, to collect taxes from everyone and make straight cash payments to owners based on the actual burden imposed by the landmark designation.