Austin Contrarian

Height limits protect; incentive bonuses restore

I expect the Austin City Council tomorrow to adopt "new" height limits for the Lady Bird Lake Waterfront Overlay.   The "new" limits are actually those adopted in a 1986 ordinance but eliminated in a 1999 rewrite of the code.

The height limits were the subject of ferocious (and, in my opinion, often misleading) debate during the battle over CWS's proposed development on Riverside Drive. Prodded by Save Town Lake, Council appointed a Waterfront Overlay Task Force to revisit the height limits after the battle had crested.

The Waterfront Overlay Task Force has recommended that Council adopt (or restore) the 1986 limits.

I quibble with some of the height limits. They are too restrictive for some subdistricts given the development over the last quarter century or so.

But my main concern is the one raised by the Task Force's minority report   (pdf): the Task Force has recommended that Council restore the height limits without addressing the incentive bonuses provided by the 1986 ordinance.  

The 1986 ordinance included a well-defined set of bonuses.  Developers could earn additional height or FAR by providing public benefits, such as public access to the hike-and-bike trail, dedicated easements or pedestrian-oriented uses.  These bonuses could not be used to exceed the WO height restrictions.  But they could be used to exceed -- as a matter of right -- the rather arbitrary height limits of base zoning districts (e.g., 35 feet for Neighborhood Office Districts, 40 feet for Light Office Districts and MF-3, etc.).

The bonuses were a quid pro quo.  The city imposed a hard cap on height in return for flexibility on base district heights and FAR, which in turn was conditioned on  property owners providing a public benefit.  The incentive bonuses were part and parcel of the waterfront overlay scheme.  By omitting this flexibility, the Waterfront Overlay Task Force has actually proposed a set of regulations more restrictive than the 1986 ordinance.

While height limits are critical to protecting Lady Bird Lake, flexible incentive bonuses are crucial for restoring Lady Bird Lake.  Large swaths of the lake front are cluttered by dilapidated developments or, worse, developments obstructing  public access and use of the lake.  The CWS property was a case in point.  While it is reasonable (to a point) to limit the maximum height of development around the lake, it is equally important, in my opinion, to encourage property owners to fix some of bad developments.  That requires incentives.  After all, if a property owner must comply with stringent site regulations no matter what, why let the public traipse through its property? 

Although the Task Force majority report (pdf) endorses some type of bonus system, it criticized the 1986 bonus provisions because they "did not have a means to allocate fairly additional height or increased floor area ratios in response to community benefits provided by proposed new development."  (p.2).   (Somewhat confusingly, though, it recommends that City Council  "reinstated [sic] the bonus provisions previously outlined in the 1986 ordinance.")

The proposed ordinance does not address incentive bonuses at all.  City Council thus is being asked to adopt hard height limits now and leave the incentive bonuses for future debate.  And that's the real problem.  Any proposal will draw opposition from some quarters of town.  Furious opposition.  Opposition from people who care less about restoring access to the lake than limiting the size or density of new developments -- even developments that would comply with the WO height limits.

If we want to incentivize property owners to fix bad developments, restore access to the lake, or dedicate green space for public use, we need to work out the incentives now, before the height limits are adopted.  Otherwise, expect some of those now paying lip service to bonuses to quickly lose their enthusiam.  

Market Urbanism on congestion pricing

Market Urbanism has posted a fairly technical explanation why the congestion price that maximizes throughput also maximizes total revenue. I'm not sure his explanation is correct because he ignores drivers' sensitivity to price.  If they are relatively insensitive, then the revenue-maximizing toll will be higher than the through-put maximizing toll. We have plenty of real-life examples. TxDOT charges tolls for SH45 even when traffic is light. Total revenue from these tolls exceeds the revenue that the optimal toll ($0) would generate.

That's a debate for a different day.

What I want to point out here is that Market Urbanism's argument does not affect my transit-subsidy hypothetical.  (To be fair, I'm not sure that he's offering a rebuttal to my hypothetical.)

In my hypothetical, I assumed that both bridge users and transit riders are charged the optimal toll.  I'm happy to assume these tolls also maximize revenue.

My hypothetical was about transit subsidies.  The optimal transit fare might maximize revenue but still not cover the cost of the transit.  But that's OK, libertarians, as long as the bridge users generate excess revenue -- i.e., more than the cost of the bridge.  As long as everyone is charged the optimal fare, and the combined revenue covers the combined costs, the "network" -- bridge + transit -- is efficient, despite the transfer from drivers to riders.

That the optimal toll on one branch of the network maximizes revenue from that branch does not prove that the revenue will cover the cost of that branch.  Nor does it show that the optimal toll should cover the cost of that branch when the system as a whole is revenue neutral.

Me on KUT

A couple of brief quotes.  Around the 1:54 mark.  

Thanks, Nathan Bernier, for not making me sound like an idiot.

Connect the right dots

Dallas is the fourth most populous metropolitan area in the United States.  Houston will pass Philly for fifth any day now.  So why oh why is the Obama administration proposing a high-speed rail network that does not link Houston and Dallas?  Or at least Houston and Austin?

It is a strange vision indeed that sees a Dallas-Little Rock or Houston-Swamp Country-New Orleans line as a better investment of a few billion dollars than a line connecting two metropolitan areas with a combined population of 12 million.

Someone in DC evidently has been reading Richard Florida, so I guess he deserves the blame.

Now's as good a time as ever

Brewster McCracken has promised to oppose a bond election for light rail in 2010.  Leffingwell wants a bond election in 2010, but doesn't think the election should include any money for rail because it would cost too much.  

If you think light rail is a bad idea for Austin, then you will oppose a bond election next year whether the economy is good or bad.

But if you think Austin needs light rail — and both Brewster and Lee have said they do — then this seems incredibly shortsighted.

Light rail will never be cheaper to build than it is right now.  Labor and materials are cheaper than they have been in a long time, and much cheaper than they will be after the economy recovers. 

Austin will never have a better chance of getting a large chunk of federal money.  The Obama administration likes transit.  It is willing to fund transit.  But who knows whether Obama will still be in office on January 23, 2013.  Approval ratings are fleeting.  And even if he remains in office, gargantuan budget deficits might tie his hands.  Now is the time to act. 

A lot of people are having a tough time right now.  But which pinches more:  Paying 60 cents on the dollar during relatively tough times, or 100 cents on the dollar during relatively flush times?  The first is the better deal, in my opinion. 

And who’s to say things will be so dire in 2010, or in 2011, when the first bond payments would be due?  If the economy has improved, then we will have lost a great opportunity by not preparing for the bond election.  And if things are still bad, then Austin’s good citizens can vote down than the bonds.  That’s what democracy is all about. 

I do think the city could make a bond issue more palatable by scaling down the initial line.  Rather than building 19 miles all at once, the city should start with a more modest 5-mile line through the core of Austin.  I think a line connecting the dense employment centers, South Congress and UT would draw lots of riders.  It would be a rousing success, like Houston's Main Street line.  The starter line would then build support for later extensions.  See Houston's Main Street line.  And it would be much, much cheaper, which undoubtedly would make a bond election an easier sell.

Vision, fellows.  Vision.

Congestion pricing: practical problems

I've been pushing congestion pricing on this blog for a couple of years now.   I've argued ad nauseum that variable congestion pricing would get traffic flowing at the least cost, and would enhance general welfare better than the continual and counterproductive expansion of highways. 

To be honest, though, I need to disclose the practical problems with congestion pricing.

Economists first began lecturing traffic engineers about congestion pricing 40 or so years ago.   The conversation's gone something like this:

Economist:  "You guys need to stop building roads to alleviate congestion.  If you price the roads right, you can eliminate congestion and enhance overall welfare." 

Traffice engineer:  "I hear what you're saying, but we don't know how to implement congestion pricing."

Economist:  "It's easy.  Just charge a high enough price to get traffic flowing."

Traffic engineer:  "But we don't know how to do that."

Economist:  "What's not to understand?  Just charge a high enough price to get traffic flowing."

Traffic engineer:  "You don't understand.  We don't know how to figure out what that price is and we don't know how to communicate that information to drivers in time for it to do any good and we'd have to price other roads in order for the system to work and we don't know how to price networks.  Plus, everyone hates tolls and I like my job."

Economist:  "I'm sorry.  I wasn't listening.  I'm working on an interesting paper on the Herfindalh-Hirschman index and models of stochastic processes in hyperbolic discounting."

Traffic engineer:  "Whatever."

The traffic engineer goes back to work widening roads.

Here's the information problem:  The optimal congestion toll should be set just high enough to achieve free-flow (45 mph) traffic.  But if the toll is set too high, it will induce too many drivers to shift to other times, routes or modes of transportation.  That's bad, too (at least if you ignore other externalities like pollution.)

Traffic engineers can generally predict the high-demand days, but there's a fair amount of randomness in traffic patterns.  Some days an unusually large number of drivers just happen to drive to work at the same time.

The optimal toll therefore should be variable -- the greater the demand, the higher the toll.  But that's very hard to implement as a practical matter.  How do we get would-be drivers the information they need to make timely decisions?  There's no point in raising prices on drivers once they've entered the road; raising prices can no longer influence their behavior (except perhaps to launch them into a homicidal rampage). 

Price changes might affect the behavior of drivers who are about to enter the highway.  But they are just a fraction of the drivers targeted by congestion pricing.  Congestion prices are also intended to shift drivers' time of travel and mode of transportation.  That requires getting them the price in advance, in real time (via the internet, for example).  But that, in turn,  creates a real risk of herd behavior.  If the posted price is high, most drivers will respond by taking alternate routes or leaving too late.  If the posted price is low, drivers will rush to their cars to take advantage of the low tolls, creating a sudden surge in demand and unnecessary spikes in prices.  There's a sort of Heisenberg uncertainty principle at play.

There are other practical problems.  For example, charging tolls might hurt businesses that have based their investments on the assumption that roads would remain free.  Pricing's impact varies industry by industry, and consumer by consumer.  The Oregon Transportation Commission has commissioned several white papers examining some of the practical problems.

Most experts therefore assume that the best pricing system will be a second-best system, like cordon charges or charges fixed by time of day.  These systems erode some of the advantages of congestion pricing but, in my opinion, are still vastly superior to the unpriced alternative.  London, for example, has had good success with its cordon-pricing system.  (See VTPI's case study here.)

And congestion pricing is still very new.  We've had the technology for electronic toll collection for only a few years; congestion pricing isn't feasible with toll booths.  Let's experiment and get some data.  I'm confident the engineers will eventually develop effective models.  But there will be some glitches at first, and we'll need some patience.  

KUT

I was just interviewed by KUT about my support for Chris Riley in the Place 1 race. I managed to garble my piercing insights, of course. Perhaps the reporter will be kind.

If my interview isn't left on the cutting room floor, a snippet will air next Monday or Tuesday during the morning show.

"Historic" is not the right word

One of the points Miggy calls me to the mat on is my assertion that the Warehouse District is not "historic":

I would suggest that besides its industrial beginnings it also has a great history as Austin’s original red light district, Guytown (see also the April 1983 issue of Southwestern Historical Quarterly; “Prostitution and Public Policy in Austin, Texas, 1870-1915,” by David C. Humphrey). While most structures are not individually architecturally notable, and nor is warehousing as an activity culturally significant – the buildings as a cluster do represent a unique and authentic value that residents and visitors alike respond to and are attracted to in a city with sparingly few such touchstones – one of the reasons that this is the best case of adaptive re-use in the city today.

All old buildings were used for something once upon a time.  Merely because something happened there does not mean anything significant or noteworthy happened there.  For example (and upon information and belief), Austin has had a number of bordellos and red-light districts over the years.  They might seem quaint in hindsight, but the citizenry probably had a different view at the time.  I doubt the homeowners in the Lightsey area of South Congress in the 1990s thought the prostitution in their area was of historic significance  -- although they might have thought the amount of prostitution historic.

The Warehouse District is something, though.  We just don't have a good word for  that something.  We need a word that means "old, authentic, rooted, gritty, connected to the past, familiar and beloved."  I'll throw the floor open to neologisms.  Something better than "nostalgi-rrific."

By worrying about whether something is "historic," we lose sight of what really matters -- that an area is "old, authentic, rooted, gritty, connected to the past, familiar and beloved." The history of the area will always have some small influence on that judgment, except when the area is genuinely historic, but we shouldn't let it divert us from the things we care about.  The term obfuscates more than it illuminates.

Avent

Ryan Avent, the best urban economics blogger around, is moving to Portfolio.com.

This is likely bad news for the rest of us who've enjoyed his thoughts on urban economics for the last couple of years.  Ryan promises to continue writing about urban issues, but given Portfolio's finance slant, I fear he will have less time for urban issues.

Bad for me.  Good for Ryan.  Congratulations to him, and the best of luck.  

Lifted from the comments: One case for preserving the Warehouse District

I will again draft Miggy as a guest poster by republishing this excellent comment on my Warehouse District post (lightly edited):

[I]n the argument with strict market dogmatism it is easy to quantify only one side of the equation on which one hopes to determine a course of action thus making it an unfair comparison. In other words, if each parcel in the proposed warehouse district were to be developed into just its current zoning allowance it would be X million square feet of rentable space with Y monetary value to the city in annual tax revenue. That has a value you can hang a hat on vs. a straw man argument of only ‘psychological’ or ‘community’ value. Alas many more things could be subject to this treatment than people would rightly be comfortable with. If the trail at Lady Bird Lake were to be developed into similar buildings the same quantifiable side would arise with nothing comparable on the opposite side of the equation. The second most visited site in our city - the capitol - could likewise be monetized – but why would you want to? For starters, neither even makes economic sense compared to the net loss to the city. Allow me to explain…

A couple of years ago, New York Magazine famously estimated the value of Central Park at $529 Billion or $627 Million an acre using the same sort of calculations (http://matrix.millersamuel.com/wp-content/cpval.jpg). The problem is that it didn’t account for the net overall loss of value to the city in losing Central Park. The Upper East Side maisonettes or the Upper West side pied-a-terres would all drop significantly in real and taxable value as would the isle of Manhattan and New York in general as a tourist destination and magnet for permanent talent and business relocation. That kind of value, and its subsequent tragedy of the commons, is far more subjective and far less convincingly quantified. Here in humble Austin we are subject to that same debate… but over just two small blocks in a city where many other parcels remain significantly underdeveloped with surface parking and drive through banks.

I’m very pro-density, much like yourself, but let us also remember that the trade-off we are being asked to make right now is not between a 1-2 story historical structure and a premiere high rise development. The most likely fate/threat for buildings in the foreseeable future is as surface parking lots – just like the last three that were torn down in the area.

I would also argue with your contention that the district has no historical significance. Your assertation was a relative statement to make just as it is for me to argue with it. For my case I would suggest that besides its industrial beginnings it also has a great history as Austin’s original red light district, Guytown (see also the April 1983 issue of Southwestern Historical Quarterly; “Prostitution and Public Policy in Austin, Texas, 1870-1915,” by David C. Humphrey). While most structures are not individually architecturally notable, and nor is warehousing as an activity culturally significant – the buildings as a cluster do represent a unique and authentic value that residents and visitors alike respond to and are attracted to in a city with sparingly few such touchstones – one of the reasons that this is the best case of adaptive re-use in the city today.

In short – there may be a day that the warehouse district, small as it is, becomes an anachronism or petting zoo of architecture – but for right now I see a great deal of value – economic and otherwise – for this city in preserving it. As this symposium you attended was a CNU event, it should also be pointed out that this position falls in line with general CNU guidelines (http://www.cnu.org/charter).

I very much encourage ROMA to explore the policy mechanisms in the DAP that would allow us as a city to preserve the Warehouse District.

I'll put my thoughts in a separate post.