Austin Contrarian

Congestion tolls vs. revenue tolls

I think one thing that confuses people about my support for congestion pricing is that they're not clear what I mean by "congestion pricing."   

There are two kinds of road tolls.  One is a flat rate or flat charge per mile or some variation thereon.  This is the kind of toll TxDOT levies.  I've called these "revenue tolls" in the past, just to distinguish them from congestion pricing.

Revenue tolls are inefficient.  If environmental costs, wear-and-tear, and accident risks are handled through gas taxes and insurance, as they should be, a motorist driving down a deserted MoPac at 3 a.m. inflicts exactly zero cost on the rest of us.  Zip.  This means that any toll we charge him exceeds the marginal cost of his trip to the rest of us.  Charging more than marginal cost causes some people to forgo trips even though the benefit to them exceeds the harm they do to the rest of us.  That's a dead-weight loss.  (That loss might be behind some of the opposition to toll roads.)

But revenue tolls can also be too low.  When a road becomes congested, each driver entering the highway imposes a very slight cost on everyone else by increasing congestion.  The marginal cost of each trip is a positive number.  A revenue toll may or may not be high enough to cause the driver to internalize that cost.  If the revenue toll is too low, there will be too much congestion.

Revenue tolls simply aren't a good way to handle the costs that drivers impose on one another.  Thus, tolled roads like Highway 45 in north Austin are not priced right.

Optimal congestion pricing, on the other hand, is efficient.  Congestion pricing forces drivers to internalize the cost they impose on everyone else.  The optimal congestion price equals the incremental cost of congestion each driver inflicts on other drivers.  It so happens that the optimal congestion price is also the lowest price that will eliminate congestion.

In an ideal world, the congestion charge would vary continuously with the demand for the road.  The charge would rise at peak hours.  At off-peak hours, when demand is light, the optimal congestion price would be zero.  But the charge would always be just enough to keep traffic moving.  For I-35, that price would be zero at 2 a.m., but it might be $10 at 4:45 on a Friday afternoon.  Some places are now experimenting with continuously variable congestion tolls.

Congestion pricing monetizes economic waste.  Without congestion pricing, the cost of sitting in traffic or delaying a trip is lost for good.  Congestion pricing turns this loss into money, money that can be used to increase road capacity or build sidewalks or fund better schools.  Congestion pricing also gives us clear signals about the adequacy of road capacity.  When congestion tolls yield "too much" revenue, we know that we need more capacity.  

As I noted in a comment to an earlier post, there are only a few things that virtually all economists agree on.  One is that rent control degrades the quality and quantity of housing in the long run.  Another is that congestion pricing is good policy. 

One other point on rail

I should have made this point, too:  Our failure to congestion price our roads really screws up our decisions on increasing capacity.

When roads are congestion-priced, the revenue tells us when we need more capacity.  On this, see this (pdf):

One important feature of congestion prices is that they not only discourage usage when congestion is present, but they also generate revenue for capacity expansion.  Indeed, it has long been recognized that under certain conditions the optimal congestion prices for a fixed amount of capacity will automatically generate the appropriate amount of revenue to finance capacity expansion.

This means that when optimally priced road generates a stream of surplus revenue, it is time to add more capacity -- and the "right" amount of new capacity (assuming constant cost per unit of capacity) will be whatever the surplus revenue pays for.

If we priced things right, we'd know when to invest in rail.  Take I-35 through central Austin.  If congestion pricing produced a huge surplus (and it would), we could invest that money in additional capacity.  We could then decide whether new roads or rail would give us the best return on our investment.  Since increasing road capacity on I-35 would require tearing down neighborhoods or building a triple-decked highway -- both prohibitively expensive -- I'm confident that commuter rail would be the way to go.  In either case, we would have a firm understanding of the economic return from the investment.

Rail

If you haven't noticed, I mostly blog about urban economics and Austin development.  I rarely blog about transportation issues, though, and when I do I mostly write about congestion pricing of roads.

So where are my posts on light rail?  That ought to be within my bailiwick. 

The short answer is "comparative advantage."  There are lots of other people who know more about this stuff and who write about it regularly.  MIEK and the Overhead Wire cover light rail all the time (the latter multiple times a day), and they both know far more than I about the technical details -- stuff like acceleration rates and track widths and catenaries.  I could try to learn that stuff, but why? 

Rail sparks ferocious arguments, and I don't particularly want these to hijack my blog.  But for the pro side, see MIEK and the Overhead Wire.  Also check out Ryan Avent, who writes about the economics of rail almost daily.  Tory Gattis writes more skeptically, although I don't think he's dogmatic.  For hard-core opposition, there is the Antiplanner.  There are many others, of course, and I don't mean to sleight slight anyone.

My big-picture thoughts: 

1.  One "duh":  Rail should only be built when a cost-benefit analysis warrants.  (It's warranted in New York City, not warranted in McComb, Mississippi; the hard cases are the cities in between.)  This doesn't mean that rail should be required to pay its own way.  Since highways are underpriced, pricing rail at marginal cost would be inefficient.  Since there are subsidies all around, I don't think it's helpful to argue about which mode of transportation gets the most subsidy.

2.  Mobility is a good thing.  Cars provide more mobility than rail --  unless, that is, the roads are overly congested and cannot feasibly be widened or congestion priced.  When estimating the demand for rail along a congested route, it is important to count not only the actual vehicle trips, but the vehicle trips never taken because of the congestion.  The trips lost due to congestion are the main deadweight loss from congestion.

3.  Rail really does foster dense development along routes because, unlike buses, it represents a more or less permanent commitment by the city.  For this reason, it increases property values along the route.  One could argue that if the net increase in property value exceeds the cost of construction, the rail ought to be built.

4.  High-speed rail.  I suspect it's cost-justified in the northeast (especially if airport landing rights were priced properly), and probably along the congested San Diego-San Francisco corridor.  I don't know about Texas.  I would benefit tremendously from high-speed rail; I fly to Dallas or Houston several times a month and rail would make me much more productive.  I just don't know whether that marginal increase in productivity would offset the billions and billions in cost.

5.  Austin.  I don't think light rail from downtown to the airport is worth much.  I won't take it because when I get back to Austin after a day-long deposition in Houston, I want to drive directly home.  I think most other business travelers will be like me.  Tourists:  perhaps not, although I think they'll have to get a car anyway.

I think Cap Metro's commuter rail will be a bust for the reasons MIEK has been arguing for years.

Light rail.  I imagine a light rail line from South Congress to downtown, past the state government complex, and up Guadalupe to the Triangle would work.  South Congress, downtown, and West Campus are rapidly densifying.  The congestion will get much worse, or, more precisely, reach an equilibrium in which lots of trips are forsaken.  Getting from downtown to UT is already a big hassle; I'm regularly deterred from making the trip.  (I voted for the 2000 light rail plan.  If I'm going to shell out for a light rail line, though, I'd want it to go down South Lamar, too.)

Buses.  I like them.  And I ride them.  I get a little bit of exercise, plus I don't like to drive.  I think Cap Metro needs to increase frequency of service on the busy routes.

Those are my big-picture thoughts, for what they're worth.

The social function of NIMBYs

Matthew Kiefer is a Boston real estate and land use lawyer who obviously has spent a lot of time in the trenches of the development wars.  The man knows NIMBYs.  Newgeography has published his piece on the social function of NIMBYism, and it contains one of the best clinical descriptions of NIMBYs that I've read.  Read the whole thing, but here is a sample:

There are good reasons why NIMBYism is so pervasive (more about that later), but it is hard to witness firsthand, say at a neighborhood meeting about a proposed condominium project. First, people complain that they did not get notice of the meeting – yet they are in attendance, so what are we to make of that? Others voice complaints that seem embarrassingly trivial to air in public in a voice quivering with outrage: the developer’s trucks are muddy or the project description misspells the name of their street. General complaints emerge about neighborhood-wide conditions that are somehow now the developer’s responsibility to address. These throat-clearing denunciations are a way to limber up for the main event, which is to dismantle the actual proposal and its proponent in any way possible.

The project-specific complaints follow familiar patterns too. The traffic in every neighborhood is, apparently, already intolerable, no matter what the transportation consultants say about “level of service.” The project will only worsen it, infringing upon residents’ inalienable right to uncongested streets.

For large-scale urban projects, the second most prevalent objection is against building height, which often becomes the currency in which trades are made. For the neighbors, height is a signifier of all other impacts. For the developer, height is directly proportional to financial feasibility. So it rapidly becomes a zero sum game, which in turn leads to gamesmanship. The developer leads with a proposal which is taller than needed, to have something to trade with; the neighbors come to understand and even expect this and accuse the developer of duplicity. Sometimes the developer overplays the opening hand by asking for a height which is deemed scandalous, thereby lighting a fire that can never be extinguished.

A third leitmotif is view. Virtually all residents believe that the Constitution protects the view from every window of their homes. Sometimes the developer (or a public official in attendance) will note that views generally are not protected as a matter of property law or by zoning ordinance, but this only further inflames the aggrieved party. The neighbors often elevate their personal views and lifestyle preferences to universal policy imperatives and are incensed if public agencies do not vindicate them. They view public officials as complicit if they express support for the developer’s position, so the officials retreat to the sidelines until the combat subsides.

Length of tenure in the neighborhood often shapes the neighbors’ advocacy. Longer-term residents will recite their credentials: “I was born and raised on _______Street” or “I’ve lived here since____.” to give their views more weight. Their opposition is often poignant: they seem to want to preserve their immediate surroundings in the condition in which they first encountered them, maybe in childhood. Newcomers, with the zeal of recent converts, are often the most vocal in resisting change to the neighborhood they have just discovered.

Some projects attract attention from advocacy groups concerned about affordable housing, historic preservation, open space, waterfront access, or sustainable design, but most opposition comes from those with a close geographic interest. While issue-oriented advocates tend to be progressive in their politics, NIMBYs come in every political stripe. Some are progressives who see their advocacy as a form of environmental protection they are bestowing on their unempowered neighbors. Some are middle-class burghers protecting the safety and stability of the neighborhood. Even libertarians justify opposing development as an infringement on their right to be left alone. It is rare to encounter vocal neighbors whose political views or personal values counteract the visceral sense that their very way of life is being threatened. Nobody, it seems, is precluded from principled opposition, no matter what their principles are.

But Kiefer ultimately concludes that, despite its ugliness, NIMBYism serves an important social function by mediating between new and old development:

In an improvised and very democratic way, it forces mitigation measures to be considered, distributes project impacts, protects property values, and helps people adjust to change in their surroundings. It is a corrective mechanism that, if allowed to function properly, can even help to preserve a constituency for development.

He argues that giving neighbors some control (where feasible) of project design, in order to mitigate the worst impacts, and requiring developers to provide neighbors in-kind compensation (e.g., park improvements) is the best way to assuage NIMBYs' fears.  

This is where Kiefer and I part ways.  NIMBYism would be efficient in a world where developers enjoyed all the benefits and neighbors bore all the costs of new development.  In such a world, bargains between developers and neighbors would ensure that only projects with a net benefit got built.  When a project's benefits to the developer exceeded the cost to the neighbors, the developer would modify the design as necessary and offer compensation to the neighborhood.  When the project's costs to the neighbors exceeded its benefits to the developer, the neighbors would reject all offers, and the project would not get built. 

We don't live in that world.  New development often has important social benefits that are not captured in the developer's pro formas.  A steady supply of new housing keeps homes cheap, or at least keeps home prices from spiraling upward.  New development means more room for more people.  More people means a larger, deeper market that permits more specialized retail, restaurants, music and arts.  More office space means more room for firms and workers to cluster together; these cluster make both firms and workers more productive.  A software developer will be more productive in Austin or San Jose than in San Angelo because a lot of learning takes place just by hanging around with other people in the same trade.

There are increasing returns to growth.  This isn't to say that all growth is good.  But there is good evidence that some cities are much smaller than they ought to be, thanks to the limits on growth imposed by institutionalized NIMBYism.

Developers worry about their bottom line.  That bottom line does not include the spillover benefits to the city of an additional office building, warehouse or housing development.   If we rely soely on bargaining between developers and neighbors to decide what gets built, we guarantee that too little gets built.  This is how a city like San Francisco ends up with a median home price of $750,000 (even in 2008's market).  Cities like San Francisco and New York (and probably Austin) are too small, and institutionalized NIMBYism is mostly to blame.  

Palin

I was prepping for and then in a hearing all day in Dallas today, so I didn't hear until late that McCain had picked Palin.

My first thought was, "Sure, he's funny, but don't you have to be a U.S. citizen?"

I'll be honest.  I've got real qualms with some of Obama's economic policy proposals.  (I've got real qualms with McCain's economic instincts, which are horrible.  But Congress won't be enacting McCain's bad instincts.)

My Obama-qualm just shrank to a little bitty tiny speck. 

If McCain is so bent on pandering to demographics, then why not pick Condie Rice -- you know, someone who knows something about something?  She might even be able to talk that hothead out of starting a war.

(Sorry for the politics post.  This isn't a politics blog, and I don't intend to turn it into one.  I don't like the horse race.)

Apartment complex mentality

I've written about Zilker's Vertical Mixed Use opt-out application before, mainly to illustrate why Council made a mistake by amending the ordinanceto let neighborhoods gerrymander the VMU districts through opt-out requests.

Zilker's application is scheduled to go to Council on Thursday.  I imagine Council will approve it, perhaps with minor modifications.

The map below depicts Zilker's opt-out application, which the Planning Commission approved with only minor modifications.  Here's the code for your color wheel:  purple = "complete opt out"; yellow = "VMU but with no parking reductions"; light blue = "VMU with all incentives and parking reductions."

Zilker identified a number of concerns -- e.g., iconic business, lack of infrastructure, encroachment on single-family neighborhoods -- to justify its opt-out requests.  But I think one can get the gist quickly enough just by looking at the map:  (1) They are fine with VMU, as long as it is across South Lamar on the land backing up to the railroad track; (2) they will accept VMU on "their" side of South Lamar as long as it is a large parcel that does not intrude into the neighborhood and it doesn't get any parking reductions; and (3) otherwise, no.  (The one exception is to (2), where Zilker approved VMU for the Lamar Plaza/Alamo Drafthouse tract (#51) even though it abuts single--family homes.  Alamo already creates a lot of overflow parking for them, so I'm sure they believe a VMU development without parking reductions might improve the parking.)

I won't rehash my longstanding objections to this practice of gerrymandering VMU districts on busy commercial arterials.  I'll limit myself to two observations:

1.  The "apartment-complex" mentality.  Zilker is still stuck in it.  Vertical Mixed Use developments are supposed to be an alternative to hulking apartment complexes, cut off from the street and sidewalk grids and surrounded by moats of parking.  They are supposed to be a sensitive method for reintegrating commercial and multi-family into traditional neighborhoods.  The Zilker Neighborhood Association has relegated Vertical Mixed Use to large commercial lots isolated from the rest of the neighborhood, at least on the west side of South Lamar.  They have foreclosed the option of small-scale developments; we'll be stuck with the large "pocket" multi-family development.

2.   Protecting iconic businesses.  It's crap, and it's the most offensive part of their application.  Why does the Horseshoe Lounge deserve "iconic" protection while the Saxon Pub does not?  Who says La Feria is more beloved than Maudie's?  Personally, I care a whole lot more about my pharmacy (South Lamar Plaza Drugs), Suzy's Chinese Kitchen, and the Alamo Drafthouse than any of the businesses they've slated for protection.  I didn't get a say because I live on the other side of the street.  (It wouldn't have mattered anyway -- what matters is not how "iconic" they are; what matters is how close they sit to a single-family home.)

For now, my criticism is largely academic.  Zilker has out-waited this building cycle; I doubt there will be any new VMU developments (or significant developments of any other kind) for the next few years until the credit crunch has resolved and the Austin market absorbs the current inventory. But Zilker's VMU map has likely set up some fierce battles when the market recovers.

An unintended consequence of the Stop Domain Subsidies' Charter amendment?

Stop Domain Subsidies' proposed Charter amendment to ban retail subsidies is fraught with unintended consequences.

Here's one:  The Charter amendment likely will shunt low-income residents away from mixed-use developments and into stand-alone residential developments.  Why?  Because the proposed amendment bars subsidies to developments that merely include a retail use, even if the retail use itself receives no subsidy.  The City thus will be unable to "buy down" the affordability of units in mixed-use developments that include a retail use.

A concrete example:

Back in 2006, the City gave Ardent Residential a zoning change to redevelop the Stoneridge Apartments on South Lamar into a 300-unit mixed-use development.  The developer agreed to make 10% of the units affordable at 80% MFI.  But the units being replaced rented for a lot less.  To quell the furor over the rezoning, Betty Dunkerly proposed using some of the City's affordable housing bond money to "buy down" 10% of the units to 50% MFI, a genuinely affordable level.  The developer and the City are squabbling over the "buy down's" price tag, but the City appears ready to honor its pledge.  (It has to spend its $50 million in affordable housing bond money somehow.)

I don't know whether Ardent has filed a site plan yet, but it has talked all along about including retail as part of the mixed use.  That was part of the development's attraction. 

Assuming Ardent still intends to include a retail use, then, the Charter amendment will keep the City from honoring its pledge to buy "deep" affordability for these units.  The Charter amendment will keep the City from buying deep affordability in any mixed-use development that includes retail.  The City will be forced to spend its affordable housing dollars on stand-alone residential developments, or perhaps "live-work" developments.

I don't see how this protects local merchants.  The mixed-use development will still be built, and it will still have retail; the developer simply will rent the units at the market rate (or 80% or 60% of MFI if it takes advantage of the VMU incentives).

One could argue, perhaps, that purchasing affordability in mixed-use developments is an expensive, inefficient way to provide affordable housing.  (I'm ambivalent about it myself.)  But it doesn't seem wise to me to silence that debate by Charter amendment.

Second anniversary

Today is the second anniversary of my first post.  

For the curious, my most-viewed and most-linked entries were the weighted density stuff, thanks to links from Matthew Yglesias, the New Republic blog, Ryan Avent, Environmental Graffiti, the Overhead Wire, and a number of others.

Second and third were one of the Northcross posts and, believe it or not, my piece that started the Hyde Park pedestrian/bicyclist flap.  (I never know what will strike a nerve.)

Now I have an anniversary bleg:  What's the most irritating thing about this blog?  Formatting, length of posts (too long or too short), drab layout. Too much salmonella?  Or, nothing, really, it's just that I'm a jackass?   (I can count on Dahmus not to leave me hanging.)

Big-box experiments

Wendy Waters recounts Costco's attempt to break into the Manhattan market. A coalition of neighborhood activists, labor groups and (almost certainly) local businesses are trying to repel Costco's foray. While their agendas are transparent, the arguments they've trotted out are mostly of the, "It won't work here, so don't try" variety. Wendy does a nice job dissecting them.

I once thought that these fights in far-off cities didn't really affect me. I felt a little schadenfreude, but that was about it.

But now I think differently. And not just because Austin jumped on the bandwagon, or the Northcross Supercenter fight. As Tory Gattis has cogently argued, perhaps the real obstacle to New Urbanist development -- really, the development of a lower-case "u" urban city fabric that can attract a more diverse range of households -- is the lack of large-scale, big-box retail that offers people the variety and bargains they want. One doesn't even have to believe in the virtues of a denser urban environment.  Nor does one have to believe (wrongly) that people will walk or bike to them. No, it's simply a matter of "I want what the suburbanites got, but I don't want to move to the suburbs to get it." The city needs to offer the conveniences of the suburbs.

Costco and Wal-Mart and Home Depot don't know how to build urban stores -- yet. They need to experiment to get it right. They have to learn how to handle parking, how to build up rather than out, how to cater to the slightly different tastes of urban dwellers. They have to learn how to fit a big store in a dense city.

They are trying to experiment.   But they need to experiment in the right places.  Wal-Mart evidently pulled the plug on its Austin experiment, despite beating the neighborhood opposition, because it wasn't confident the urban model would work at Northcross.  It and the other big boxes first need to learn how to build urban stores in truly urban places.  So now, when I hear that San Francisco or Chicago or Manhattan has fought off another big box, I think, "Another experiment squelched before it hit the lab." If Costco or Sam's Club could get enough chances, in enough dense cities, they just might bee able to figure out what works. The cities that ought to be hosting the experiments, unfortunately, have closed the labs.

Photoblogging Guadalupe's parking lots

At the Congress for the New Urbanism in April, Stefanos Polyzoides described Austin's downtown as "scarred."  Austin's downtown is littered with parking lots and parking garages that have turned large swaths into dead space, hostile soil for a lively cityscape. 

I was reminded of Polyzoides's comment the other day driving down Guadalupe.  Guadalupe, one of downtown's principal corridors, has 11 parking lots between 3rd and 13th (and that's generous:  I didn't count two drive-through banks or another parking garage with office space above it).   

View Larger Map

Some glum photos below the jump.

What can we do about it?  Probably nothing (so maybe there's no real point to this entry).  There is only so much demand for retail and residential downtown.  They complement one another so, for now, it's good that they are clumping together along Second Street and Congress Avenue.