Tag Archives: private developers

Boom towns and bust policies

Stephen Walters, Professor of Economics at Loyola University Maryland, has written a new book called Boom Towns. I’ve written a review for the Library of Law and Liberty. Here is the beginning:

Capital, in the 21st century, has a bad rap. Many say that because it is the source of “passive income,” it does nothing but pad the pockets of the idle rich, driving a wedge between the haves and the have-nots. It’s helpful, then, to be reminded that capital in all its forms is the source of human betterment. Capital is the accumulated stock of stuff (financial assets, physical equipment, human knowhow, even social connections) that helps us make and do more stuff. So policies that drain capital from a community or discourage its formation in the first place are likely to leave a trail of destruction. This is the central lesson of Stephen J.K. Walters’ Boom Towns: Restoring the Urban American Dream.

Here is another excerpt:

In some cases, reformers’ cures for urban decay have been worse than the disease. Title I of the Housing Act of 1949 is a case in point. It made federal dollars available to cities that bulldozed property in blighted areas and turned it over to private developers. While earlier reforms had sought to replace tenements with public housing, Title I allowed funds to be used for “shiny new office towers, upscale apartments, convention centers, or hotels.” By 1967, some 400,000 housing units had been razed, but only 10,760 low-rent dwellings had been built to replace them. The result was “an intra-urban diaspora” as about two million, mostly Black, residents were displaced. Though it is impossible to quantify precisely, Walters rightly emphasizes the significance of this unfathomable loss in social capital as people were driven from the communities that had sustained them for generations.

After I wrote this, a friend pointed me to this moving Reason video, written and produced by Jim Epstein and narrated by Nick Gillespie:

Where is the coercion in land use?

On Wednesday, The Wall Street Journal published an article about Denver’s light rail expansion plan. Two Cato analysts came down on different sides of the issue. Randall O’Toole, writing at Cato-at-Liberty, says that the expansion is a waste of money. He writes:

Under RTD’s latest “rethink,” transit will no longer take people from where they are to where they want to go. Instead, planners will try to coerce and entice people to live in places served by rail transit and go where those rail lines go.

The expansion comes with a steep $7.4 billion price tag, and O’Toole is likely correct that this is too much to spend; light rails across the country lose money, and the 122-mile above-ground expansion has experienced a cost overrun from $4.7 billion in 2004. The United States is notorious for unreasonably high transit construction costs compared to other countries. Additionally, the light rail is an airport connector, an often poor use of tax dollars, particularly when the airport is located far from downtown, as in Denver.

However, O’Toole’s judgment that the new plan amounts to coercion seems to be based not primarily on the light rail’s cost, but rather on zoning rules that will distinguish the new light rail stations from some of Denver’s existing light rail stations. The land around the new stations will not be dedicated to government-owned parking lots; instead developers will have the freedom to put housing or commercial uses adjacent to the stations with parking garages as far away as 1000 feet.

Timothy Lee, a Cato adjunct scholar writes at Forbes:

If the plan is to dump government-owned parking garages and instead sell the land to private developers, that’s a clear win from a free-market perspective. And if planners liberalize zoning rules to allow high-density construction that’s illegal in most suburbs, so much the better. On the other hand, if the plan is to actively subsidize or even require dense development, that is worth criticizing. But it’s important to be clear that the problem is coercive means, not the goal of providing more walkable neighborhoods.

Lee makes a key point here. The suburban style development that we see in many parts of Denver is not the free market at work, as O’Toole assumes. Rather, more dense, urban development is outlawed in many parts of Denver and cities across the country. Both O’Toole and Lee make some good points on the plan, but if a city is going to spend too much on transit, that doesn’t mean the transit should be strangled with liberty-limiting suburban zoning laws.

Edward Glaeser on Cities

Make Entrepreneurship Easy: Regulations are a direct deterrent to new business, and as cities age, they acquire layer after layer of regulation like the grime that can rest on older structures. Like those structures, local restrictions, on everything from construction to taxicabs, need a good cleaning every few years, and I would urge every older city to set up a task force charged with making sure that their town is about the easiest place in the world to open a new start-up. Better rules don’t just empower Detroit’s existing entrepreneurs; they also attract other entrepreneurial people.

That’s Harvard economist Ed Glaeser in an Economix interview with David Leonhardt. He also recommends that cities make it easier for private developers to remake urban spaces, straighten out their books (especially with regards to public sector pensions and health care), and—most importantly, he says—get serious about improving schools. 

His new book, Triumph of the City can be found here.

Not In My Back Yard?

Richard Epstein has a great new article in Forbes detailing his New Year’s resolutions for public policy. Despite the scuttlebutt on a second stimulus, health care, and all the other looming federal issues, he takes time to examine the local and regional policy problems that have proliferated recently; a sort of death-by-a-thousand-cuts:

On real estate, change the culture so that getting permits for yourself and blocking them for everyone else is no longer the preeminent developer’s skill. The government can still prevent buildings from falling down and fund infrastructure through general taxation. But don’t let entrenched landowners and businesses raise NIMBY politics to a fine art. Today our dysfunctional land-use processes too often build thousands of dollars and years of delay into the price of every square foot of new construction. The instructive requirements on aesthetics and handicap access should be junked, along with the crazy-quilt system of real estate exactions that asks new developments to fund improvements whose benefit largely belongs to incumbent landowners. And for heaven’s sake, learn the lesson of Kelo and stop using the state’s power of condemnation for the benefit or private developers.

On labor, state and local governments have to junk the progressive mindset in both the public and the private sector. State and local governments should never, repeat never, be forced to negotiate with local unions. The huge pensions garnered by prison guards in California or transportation workers in New York present the intolerable spectacle of requiring ordinary citizens to pay huge subsidies to union workers far richer than themselves. On the private side, don’t force developers to hire union workers on construction sites or to block the construction of new facilities that hire nonunion labor. If unions are really efficient–and they aren’t–let them compete like everyone else.

(H/T Matt Welch at Reason)

We’ve recently covered the real estate problem. Eileen and I have a forthcoming paper paper on just how monumentally screwed up public pension systems are.

Incentives for Mixed-Use Developments

Followers of the New Urbanism movement in city planning believe policies should be undertaken to encourage people to move into city centers and discourage sprawl. A New York Times article reports:

Urban-style development may be the brightest spot in a generally gloomy market. A recent survey of developers and investors by the Urban Land Institute for its annual Emerging Trends in Real Estate report found that urban redevelopment had the best prospects among all types of housing, while urban mixed-use properties and town centers scored high among niche property types. “These are the places that will be creating and holding value,” Ms. [Shelley] Poticha [the president of a transit-oriented nonprofit] said. She said proximity to public transit could raise property values significantly.

[. . .]

That often requires collaboration between local governments and private developers. Local governments might invest in transit, parks and infrastructure, revise zoning laws and offer financial incentives in return for a developer taking the risk of building in an unproven area.

If in fact consumer preferences are changing, shifting demand toward higher density, mixed-use housing and away from suburban single-family homes, of course it makes sense for developers to cater to these desires.  Some urban planning scholars see benefits in these types of residences such as increased quality of life or a more ecologically sound lifestyle. Home buyers likely see these same benefits, which may explain why some people are wanting to leave the suburbs for areas that they see as having superior amenities.

When consumers’ tastes in housing change, developers do not need incentives from any level of government to create housing products that satisfy their customers; in fact, they will have to build houses that meet changing demand conditions in order to stay in business.

Relaxing zoning code in order to allow for more mixed-use development in some cities may allow builders to better provide housing of the sort people want and may make cities that allow for mixed-use development more desirable places to live. However, proposed government incentives for specific types of developments, whether enacted at the local, state, or federal level, will move the market equilibrium away from optimal variety and quantity of housing which is demanded, making the politically-supported new developments cheaper relative to existing housing stock than they otherwise would be.

Particularly now, as many analysts think that the current housing stock is still in excess of what consumers want to buy at prevailing prices, it seems bad policy to create incentives that will allow builders to profit off of new housing in a way unsupported by market demand. The fallout of the mortgage market should have made it abundantly clear to everyone, especially urban planners, that incentivizing home building is not without risk.