Austin Contrarian

Sprawl

In this post (a response to one of my posts), M1EK writes:

Sprawl isn't the natural result of free-market processes; it's what the market gets forced into providing when regulations require fairly large minimum lot sizes and a ton of parking and subsidize single occupant automobile travel over other modes. Otherwise, we would have seen a lot more modern-style sprawl before the advent of zoning codes, parking minimums, lot size requirements, and government-subsidized freeways - all of which occurred long after most households had access to at least one automobile.

Although I rant about zoning as much as anyone, I actually disagree with this statement.  I think the free market would still produce some sprawl even without zoning or subsidized roads.  A city's land-use regulations cause sprawl only when the city has pricing power; i.e., the ability to use regulation to raise housing prices.  That's true in San Francisco, Boston, to a lesser extent Austin.  But it's not the case in a lot of places with sprawl.

Zoning and sprawl

By "zoning" I mean all restrictive land-use, development and building code regulations:  lot size minimums, height limitations, FAR limits, minimum parking requirements, electrical codes, exaction fees, permitting requirements, etc.

Zoning looks like an obvious culprit for sprawl.  Sprawl means large lots, lots of parking, and low-slung buildings, all the stuff that zoning mandates.

This correlation does not necessarily imply causation, however.  Just because regulations are on the book does not mean they are "binding"; they might require people to do things they were already going to do.  For example, federal regulations require that all cars sold in the United States be equipped with a seat belt for each seating position.  Those regulations could be repealed tomorrow and nothing would change; automakers would continue to supply cars with seat belts.

Zoning regulations could, in some cases, merely dictate the same land use patterns we would see in a free market system.  A good way to tell whether zoning regulations are binding is to see whether they're screwing with the market prices.  (See the Glaeser & Gyorko papers in the sidebar.)

Let's suppose that in a given city, the free market would produce denser development if the city did not have zoning.  This is just another way of saying that the market would supply more housing units than the city's zoning code permits.  The zoning code thus creates a shortage of housing (relative to the market).  Housing prices must rise to compensate.  Binding zoning imposes a price premium. 

But houses, in general, are pretty cheap in most places, even though virtually every city has strict zoning regulations on the books.  In fact, Glaeser and Gyorko have shown that in most parts of the country, homes are sold at roughly the cost of construction plus a small fraction for the lot.  The market cannot supply housing any more cheaply.  Whatever zoning's effect in these jurisdictions, it is not to curtail the supply of housing.  This means no effect on density.

I don't think it's hard to believe that the free market would still produce sprawl.  All else being equal, on average people prefer larger lots to smaller lots.  (Individual demand will vary, of course.)  If a 20,000 square foot  suburban lot costs the same as a 10,000 square foot city lot, then the average city dweller "pays" a 10,000 square-foot premium to live in the city.   As average city lot sizes shrink (an inevitable consequence of densification), the "price" of city living goes up.  More new buyers will choose the suburban lots.

All of this is just a complicated way of saying that some people prefer suburban living to city living.

When will zoning cause sprawl?  When the suburbs are not a perfect substitute for the city.  This will happen only when there is a particular reason to live in the city, such as when the city offers special amenities that can't be duplicated in the suburbs.  Central Austin is like this.  Zilker Park, Town Lake, downtown's bars and restaurants, and UT all make central Austin a unique draw.  Austin's zoning regulations artificially restrict the supply of housing in central Austin (and add to sprawl), essentially transferring wealth to incumbent homeowners.

In most of middle America, there's no particular reason to live in the central city rather than the suburbs.  Jackson, Mississippi has sprawl, and Jackson has typical restrictive zoning.  Jackson wouldn't be denser if it repealed its zoning regulations, however.  There is plenty of housing for people who want to live within the city limits.  The 200,000 or so who live in Jackson's sprawling suburbs just don't want to live in Jackson.   

Road subsidies and sprawl

I'm also skeptical of the road-subsidy argument.  Sure, expanding highways to accommodate suburban traffic is expensive, as is maintaining the highways with the extra traffic.  And these highways have historically been provided free to the suburbanites (well, not free, but suburbanites' taxes cover only a small fraction of the cost).

But it's a leap from "Suburbanites' highways are subsidized" to "Subsidies are a significant cause of sprawl."

I'm skeptical that the subsidy is worth that much.  Suppose we convert a free highway from Suburb to City to a toll road and charge enough to cover the construction, operation and maintenance costs.  Let's say a round trip toll is $5/day, $25 per week, $1,250 per year.  Capitalized, that $1,250 per year is worth around $16,000, assuming a reasonable capitalization rate.  When the toll is adopted, every home in Suburb will immediately drop a maximum of $16,000 (less, if the toll reduces congestion.)

If I'm a new home builder, I will still build new homes in Suburb as long as I can get cost plus $16,000.  If City has no zoning, then people won't substitute to Suburb as quickly.  I might have to wait a little longer to start building new homes.  But $16,000 is a relatively small premium.  City won't have to become much denser before people start substituting to Suburb because of its bigger lots.  Suburb will begin to grow.  We'll still have sprawl.

The only way to settle things is to look at the data (or have someone who knows what he's doing look at the data).  How do home prices in suburbs linked by toll roads compare with home prices in suburbs linked by free roads?  If free roads are a significant cause of sprawl, the "toll road" homes should not only be cheaper than the "free road" homes, they should sell for a large enough discount to discourage new home construction.  I haven't seen any research one way or the other on this.  I'd probably have to see something alone these lines to believe that road subsidies are a significant cause of sprawl.

The Wall Street Journal's take on Houston's housing market

The Wall Street Journal has a piece on Houston's relatively laissez-faire approach to land-use regulation. (via Planetizen; link good for seven days). Particularly interesting is the article's comparison of Houston to California and the Northeast:

Houston's model is in stark contrast to cities such as Boston and San Francisco, which have strict zoning, exacting building codes and laws governing historic preservation.  Some economists, including Edward Glaeser of Harvard University, say excessive regulation in such cities has slowed construction to the point where demand has outstripped supply, fueling a run-up in home prices.

In the once-sizzling markets where home prices are falling, housing costs are double, triple or even quadruple those of Houston.  The danger, says Dr. Glaeser, is such places have priced out today's highly skilled "knowledge workers," forcing them to live in a more affordable locale where their contribution to the economy might not be as great.  "These are places where only the elite can live," Dr. Glaeser says.

Houston's also paid a price, of course, as the article notes.  It has lots of sprawl and lots of what most people would consider an incompatible mingling of commercial, retail and residential.

I'm not endorsing Houston as a role model for Austin.  But I think we can let housing supply keep up with demand without resorting to Houston's laissez-faire mismash.  The formula's pretty simple:  (1) allow smaller lots; (2) allow more multi-family; (3) allow row houses and other land-minimizing, single-family development; (3) allow greater height and density on principal corridors (without resorting to the gimmick of calling it a "bonus"); (4) allow more large houses, garage aparments and duplexes; and (5) eliminate costly micromanagement.  We can do all that without putting a skyscraper or strip mall in the middle of a residential neighborhood.

Glaeser's observation about the "creative class" is particularly pertinent to Austin.  Its weirdness -- its bohemian culture -- eventually will be a casualty of spiraling housing costs.  The over-regulation pushed by neighborhood groups is the main threat to Austin's vibrant alternative culture, not a means for preserving it. 

The comparison to California is especially apt because many of our neighborhood advocates believe that California-style regulation should be the model for Austin.  The McMansion ordinance, for example, is based on Palo Alto's, a city which, by strangling the housing supply, has managed to push its median home value to well above $1 million.  I personally think that permitting a few homeowners to cartelize the housing supply is a pretty crappy strategy for creating wealth.

Another campaign against East Austin lofts

From today's Statesman, an article on a new push to fight condos and lofts in East Austin by a group calling itself El Concilio:

The group wants city leaders to establish a 90-day moratorium on new construction of trendy lofts and shops that would increase home values and taxes and could price residents out of their single-family homes.  During that time, they want officials to investigate establishing an affordable housing district, new homestead exemptions, and a 15-year tax freeze.

My thoughts:

1. Market demand is funny; squeeze it one place, and it pops up somewhere else.  That "somewhere else" is East Austin for now.  It's the pressure-relief valve for central Austin's housing market.
2. Neighborhood activists west of I-35 are aware of #1.  El Concilio can expect tepid support from them.  (I'd agree with the NAs for once.)
3. A 15-year freeze on property taxes is worth a lot of money in a rapidly appreciating market.  If the freeze transfers with the property, then it enriches current owners by tens of thousands of dollars.  Even if the freeze cannot transfer with the property in a legal sense (a more likely alternative), there are lots of ways around that (subleases, life estates, etc.); in any event, a freeze encourages property owners to hold onto property longer than they otherwise would. 
4. Regardless of the incentives it creates, a tax freeze requires other taxpayers to subsidize those sitting on rapidly appreciating property.
5. Here's a better idea:  Continue to assess property tax increases based on the market rate, but defer payment of the increases until sale or transfer, with amounts owed secured by a lien on the property.  Charge market interest on the deferred taxes.  The city solves the owner's liquidity problem without giving the owner a windfall or an incentive to hold onto the property longer than otherwise.  (Reverse mortgages are market products that do the same thing.)

More evidence the McMansion ordinance is anti-family

I've argued before that the McMansion ordinance is anti-family.  By making large homes in central Austin more scarce and therefore more expensive, it will drive families with children -- households that put a premium on living space -- to the suburbs in search of affordable housing. 

This very cool map prepared by the City's demographer backs me up, at least indirectly.  It graphically confirms what I've always suspected:  The neighborhoods that generated the most noxious support for the McMansion ordinance are disproportionately populated by singles and DINKs.  The outer neighborhoods, the ones heavily populated by married couples with children, showed little interest in the McMansion ordinance and are not covered by the McMansion ban. 

This map color codes individual neighborhood blocks by the percentage of married couples with children. Here's the key:

Now take a look at the Bouldin/Travis Heights neighborhoods (the area bounded by blue), both bastions of rabid support for the McMansion ordinance:

Those swaths of yellow and pink are city blocks where MWCs make up less than 20% of the households.  Note there are very few areas where MWCs make up even 30% of the households.

Let's go a little farther out, to the South Lamar area (bounded by blue):

More pink, bigger splotches of the darker colors, but MWC's are still relatively sparse.  Significantly, SLNA is also covered by the McMansion ban.

Now a little farther south, where the houses are a little cheaper and a little bigger.  This is roughly the Westgate/St. Elmo area:

Sharp increase in the percentage of MWC's.  Very little pale yellow (0-10%), unlike Bouldin/Travis Heights, which had huge swaths.  Westgate and St. Elmo are not covered by the McMansion ordinance (although they were covered by early proposals).

Last in the line:  The Slaughter/MoPac area, with even bigger houses:

Family city.  Needless to say, no McMansion ordinance here.

You will see a similar progression -- a gradual "thickening" of MWCs -- if you start north of downtown and work your way up to 183.

This distribution of families was not caused by the McMansion ordinance; this map is based on 2000 Census figures.  But the correlation between single/DINK density and support for the McMansion ordinance is obvious and dramatic.  And I think it largely explains the McMansion ordinance.  The most virulent activists came from the central neighborhoods grossly underpopulated by families with children. 

The neighborhoods populated by families were excluded from the discussion early on.  The activists pulled this off by defining the McMansion "danger" zone to be the central Austin neighborhoods dominated by singles and DINKs.  The Task Force was duly constituted with representatives from these neighborhoods. No one bothered to poll the outlying neighborhoods or give them representation on the Task Force.

We got what one would expect from looking at the demographer's map.  The central neighborhoods have been "fixed" so they will become increasingly inhospitable and unaffordable for families.  Many families that want to move closer to downtown will stay put. Austin will increasingly resemble places like San Francisco, where families with children have all but fled the central city.

Three other points:

1.  This map is based on 2000 Census figures.  My guess is that MWCs' share of the inner neighborhoods has decreased since 2000.

2.  MWCs aren't the only families with children.  There are lots of single-parent households and unmarried couples with children.  But I'd expect neighborhoods with sparse populations of MWCs also to have sparse populations of single-parent and unmarried couple households.  This map roughly corroborates this claim.  It shows that the census tracts with the lowest percentage of children under 5 were grouped in central Austin.

3.  The central Austin neighborhoods with the highest concentrations of married couples with children tend to be in East Austin.  East Austin, perhaps coincidentally, was poorly represented on the Task Force.

My icons

The Chronicle's running a contest to pick Austin's icons.

Here are my top ten (most iconic at the beginning).  I've excluded natural features like Barton Springs and Mount Bonnell, and landmarks like the Capitol, UT clocktower, and the Congress Street bridge.  I.e., my list is limited to privately-owned businesses or buildings.

1. The Driskill
2. The Salt Lick (does Driftwood count?)
3. The Broken Spoke
4. Alamo Drafthouse (all of them)
5. Maria's Taco Xpress
6. Saxon pub
7. Frost Bank Building
8. Hill's Cafe
9. The Paramount
10. Whole Foods

Las Manitas is not the public

Today's Statesman has another article on the Las Manitas flap.

LM's landlord (Marriott's agent) says it has made several offers to Las Manitas's owners, including help relocating to another property and an offer of free rent through next August.  According to the landlord, the owners have spurned all offers; their position, apparently, is that Las Manitas is entitled to stay where it is, Marriott be damned. 

Marriott will need a zoning variance or two to build its proposed hotels.  Brewster McCracken has issued not-so-subtle threats that Marriott had better accommodate Las Manitas's owners somehow.  (No word on whether he'll force LM's owners to agree to be accommodated.)  As McCracken puts it, a developer who asks for "lucrative development bonuses" must provide a "public benefit," such as "protecting longstanding local businesses."

My thoughts:

1.  It is unclear what "protection" McCracken has in mind for Las Manitas, but any accommodation by Marriott will be worth big bucks to LM's owners. 

2.  LM's owners are not the public.  There is no "public benefit" in forcing a transfer of wealth from one property owner to another property owner (or a lessee).  In fact, I think it's a pretty sordid thing to do. 

3.  If there is any public interest here, it is the interest of Las Manitas's customers.  By all accounts, they're devoted customers.  They presumably value lunch there far more than the price they're charged.  Saving Las Manitas will preserve this consumer surplus.  (That seems an odd use of the City's land-use powers, but I'll assume it's an appropriate use for argument's sake.)

4.  If the City forces a deal to "protect" Las Manitas's customers, it should ensure that the deal does not amount to a windfall for LM's owners.  I suggest imposing a tax equal to the value of Marriott's concessions.  This will discourage another "iconic" business from trying to use our zoning laws to hitch a free ride.  An iconic business instead will seek protection only if the expected benefit to it exceeds the expected cost to the other property owner.  (And the real "public" -- the rest of us -- will get cut in on the action too.)

Update.  The second-to-last sentence did read, "An icon instead will seek protection only if its value as a going concern is worth more than the value of the concessions."  I changed it to a sentence that makes sense.