Austin Contrarian

What's for sale in central Austin? (1/07 edition)

We all know central Austin is getting more expensive.  If you want confirmation, check out average home prices here or here. 

Here's a less scientific but perhaps more meaningful measure.  If you're looking for a house, what's out there for sale?

My search results (run on 1/29/07) are below.  Here are the parameters I used:  1400+ square-foot; single-family; active MLS listing; $300,000 or less.

Rationale:  1400 sq. ft. is a completely arbitrary dividing line, I admit.  I use it because it's the low end of what I think of as the "medium-size" house.  Certainly, singles, couples, and empty nesters may all be comfortable with a smaller house.  Households with, say, 4 or more members tend to prefer more space than this, though, so I use it as a rough measure of affordability for families. (Before I get flamed by all of you who are raising two or more kids in less than 1400 square feet -- I'm talking about typical preferences, not what is "necessary" or "appropriate" or "optimal.")

I know that $300,000 is not "affordable" under any conventional definition of that word.  On the contrary, I use that figure because it is roughly the upper bound for homes within the reach of even "upper-middle income" households -- those making $100,000 or so, which is approximately 80th percentile in the Austin metropolitan area.  This gives us a good sense of how little there is for the truly moderate income.

Here are the results:

South Austin (MLS areas 6 & 7):  There are three 1400+ square foot, single-family homes listed for sale for under $300,000.  None is larger than 1600 square feet.

North Austin (MLS areas 1B, 2 & 4):  Better.  There are 23 such houses (four between $179,000 and $200,000), most in the Crestview, Wooten and Highland neighborhoods.  One of these is a veritable McMansion at 2300 square feet.  Everything else is under 2250 square feet.

East Austin (MLS areas 3 and 5):  Best.  There are 53 such houses.  (This total includes a number of homes from the subdivisions bordering 183, though, which some people may not consider "central Austin.")

I intend to update these searches periodically to track supply.  Needless to say, I expect these numbers to get smaller.

The two Austins

From the conclusion to Job Creation and Housing Construction: Constraints on Metropolitan Area Employment Growth, by a Federal Reserve Board of Governors economist:

Housing supply regulations have a substantial impact on housing and labor market dynamics in metropolitan areas across the United States.  By raising the marginal cost of construction, land use restrictions and other government regulations lower the elasticity of housing supply.  Thus, these regulations change the geographic distribution of relative housing prices and alter the pattern of labor migration.  As a result, employment growth is lower in places where the housing supply is more constrained.

Indeed, metropolitan areas with constrained housing markets respond differently to a labor demand shock than less restricted locations.  Raising the degree of housing supply regulation by one standard deviation results in 17 percent less residential construction and twice as large growth in housing prices in response to an increase in labor demand.  Moreover, housing supply regulations have a lasting effect on metropolitan area employment.  In the long run, an increase in labor demand results in 20 percent less employment in metropolitan areas with a low elasticity of housing supply.  These results demonstrate that the interaction between the housing supply and local labor markets is an important determinant of regional patterns of employment growth.

Put simply, job growth requires low-cost housing.  Here's more:

As places with a large degree of regulation experience rising housing prices, these restrictions may also have an impact on the composition of the population within metropolitan areas.  Because young people and minorities have a higher propensity to move, areas with many housing supply constraints may end up with a smaller fraction of people in these groups.  Furthermore, high housing prices may mean that only rich people can afford to move into an area and that poorer people are forced out, leading to higher income inequality within the area.  As housing prices influence the types of people who live in a location, changes in the availability of workers with different levels of skills may also lead to changes in the industrial composition of local firms.

I don't think the first two paragraphs apply to Austin, at least not yet.  Metropolitan Austin is still affordable by conventional measures.  For example, the median home price in the metropolitan area was only 2.8 times the median family income in 2005.  (By comparison, it was 11.2 in LA.)  Austin can house new workers.

The last paragraph certainly applies to central Austin.  Austin really is two towns.  There is central Austin, increasingly dominated by homeowners with a taste for California-style regulation.  They import our regulations from places like Palo Alto (see the McMansion ordinance) and relegate dense development to high-cost projects on transit corridors.  Because new multi-family housing has slowed to a trickle, Austin's "urban" core is now out of the reach of the low- to moderate-income.

Then there is everywhere else.  Outside of central Austin, development is tolerated or even welcomed.  As a result, there are still relatively inexpensive homes in suburbs like Round Rock, Pflugerville, Cedar Park, Hutto and Manor.  There is cheap single-family and multi-family housing even in Austin -- mainly in neighborhoods on the other side of 183 or south of Stassney.  These are the places we count on to absorb job growth.

I suppose someone can up with some justification for this "two-Austin" policy other than enriching central Austin's incumbent homeowners.  I just haven't seen it yet. 

Congestion pricing, III

Continuing with the theme . . .

It occurred to me that another benefit of congestion pricing is that it lets us know when we ought to add new lanes to a road.

Take a congested highway like MoPac.  Traffic is routinely bogged down on both AM and PM commutes.  Will adding lanes help?  Without a toll, perhaps not.  The traffic jams on MoPac discourage some drivers from taking MoPac; the inevitable wait in traffic is a higher cost than they're willing to pay.  If a lane is added, increasing the traffic capacity, some of these deterred drivers will rejoin the traffic.  Depending on how many such drivers there are, an eight-lane MoPac quickly could become just as congested as the six-lane MoPac. 

Congestion pricing tells us when to add another lane.  As demand for travel on a particular road increases, the congestion-priced toll will have to increase in order to keep traffic flowing.  Perhaps the congestion toll starts at $3 during peak travel time.  As population increases and more commuters want to use the road during peak periods, the toll goes up to $5, then $6, and so on.  Building a new lane will increase the "supply" of road, allowing the congestion price to fall.  This gives us a way to balance the costs and benefits of a new lane:  Build a new lane if the saving in congestion charges exceeds the cost of construction.  (The cost of construction, of course, should be passed along to drivers in the form of a revenue toll.)

This might seem paradoxical -- Won't this guarantee that the state loses money? -- but the point of the congestion-price toll is not to raise money, it's to ration access to a scarce good.   

An example.  Let's say a congestion-priced MoPac can carry a total of 20,000 cars during the afternoon commute at a congestion charge of $5/car.  Suppose a new lane would increase the total throughput to 25,000 while lowering the congestion charge to $3/car. 

Should the new lane be built?

We can calculate the benefits. I think we ignore the 5,000 new drivers -- we don't know whether driving on MoPac is worth $3.01 or $4.99 to them.  (If they valued it at $5, presumably they'd already be taking MoPac.)  But we do count the benefit to the 20,000 drivers who were already paying the congestion price.  They valued driving on MoPac at a minimum of $5.  The new lane (and lower congestion price) is worth at least $40,000/day to them.

Assume an identical benefit to morning commuters.

If the pro rata cost per day of building and maintaining the new lane is less than $80,000, it should be built.  If it is more than $80,000, it should not be built. 

OK, this is over-simplified.  But I think it focuses on the right question.  I'm not sure how you even begin to make a cost/benefit analysis without congestion pricing.  What's the cost of congestion on a "free" road?  Someone's making that cost/benefit analysis, I realize -- roads are being widened all the time.  I just don't see how they have any confidence that the benefits exceed the costs. 

NB:  A draft version of this post was inadvertently published this morning.  My apologies if you waded through that gibberish before I de-published it. 

Congestion pricing II

Most of the comments to my post on congestion pricing were, "Good idea, but it won't sell here."

Here's a timely article from the New York Post that suggests they're right.  New Yorkers, whose traffic problems are much worse than ours, oppose congestion pricing 2-to-1.  They think of it as a "traffic tax."  If New Yorkers won't go for it, I suppose there's zero chance that we will.

It's probably a waste of time to make this distinction, but the point of congestion-price tolling is not to levy a tax, but to prevent overuse by charging admission.  Suppose Schlitterbahn defaulted on its property taxes and was seized by Comal County.  Schlitterbahn would then be owned by the "people."  Free admission for everyone, right?  Of course not.  The park would be so crowed that it would be unuseable.   Access has to be rationed somehow.  Any scarce good that has value must be rationed somehow.

Perhaps our highways at rush hour are not as congested as a free Schlitterbahn would be on July 4.  (I think this is debatable with IH 35.)  Still, hundreds of thousands of hours are wasted every year in traffic because we have a free-for-all rather than rationed access.  That's a deadweight loss.

They're tolling the wrong road

Sitting at a dead stop on MoPac at 7:15 on a Thursday night -- trying to get your son to the doctor's office at Far West -- tends to focus your thoughts on Austin's traffic problems.  Why does our traffic have to suck so bad?  IH 35 is just a parking lot for hours each day.  MoPac is just as bad in the morning and evenings.  Even in the middle of the day, you don't know what you're going to get.  Ditto with the bridges over Town Lake, and Ben White near William Cannon.  And so on.

The truth is, our traffic doesn't have to suck so bad.  There's a perfectly sensible solution:  congestion pricing.  Toll the road, but vary the charges by time of day.  The idea is to discourage enough drivers that traffic will flow freely.  If it takes a $3 dollar toll to get traffic moving from William Cannon to downtown in the mornings, then charge $3. 

A congestion-priced toll raises revenue, but that's not the point.  MoPac, for example, might be free 18 hours a day.  A toll would be collected only during the peak, congestion-plagued commutes.

Here's why there's no affordable housing in central Austin

It's simple:  No one has built multi-family rental housing in central Austin in years.

This isn't much of an exaggeration.  Outside of the Triangle, and some student housing in West Campus and on the periphery of UT, just a tiny number of units have come on line since the beginning of 2001.

Take all of south Austin, zip 78704.  The city demographer keeps stats on each multi-family project built in the city, dated by the date the site plan was filed.  (Open "Third Quarter 2006 Report" in the link; "multi-family" in this data means more than four units.) Let's count all of the multi-family projects that (1) had site plans filed after January 1, 2001, and (2) were actually built (since people can't live in site plans.)  There were only seven such projects in South Austin, with a total of only 167 units. 

This 167, though, includes condos as well as apartments.  Although the city data doesn't say whether a project is rental or condo, I know that four of these projects, with 135 units, are condos.  This means South Austin has had (at most) a measly 32 multi-family rental units site-planned and built since the end of 2000.

For the sake of comparison, south Austin had 9,811 multi-family units, mostly rental, in 2000 -- and that's excluding the student housing around St. Ed's.  (South Austin had 8,244 single family units.)  I'm not sure when apartment-building slowed down in South Austin, but by January 1, 2001, it had come to a dead stop.

NIMBYist neighborhood plans

There are two problems with Austin's neighborhood plans:  (1) Neighborhoods don't know what ought to go on a piece of property; and (2) they don't have an incentive to care.

What I mean by "ought" is, "What use will produce the most value for the City as a whole?"  NG's just ask, "What use will benefit us the most (or harm us the least?)"   Neighborhood plans naturally end up as obstructionist documents, tailored to satisfy the "stakeholders'" most trivial preferences and concerns.    

Take the recent battle over the Time Insurance property at the corner of East Riverside and IH-35.

My old four-plex

I lived in a medium-sized southern city for a few years after law school.  I couldn't afford a house back then -- massive student debt -- so I rented. 

I've lived in probably eight different rental properties (excluding dorms); this was by far the best.  It was an 80-year old Tudor-style house that had been converted into a four-plex.  It sat in the middle of a leafy Bouldin/Hyde Park-like neighborhood near downtown, with the park-like grounds of a small Presbyterian college across the street. 

The apartment was great.  It was large: two bedrooms with probably 1,000 square feet.  Plaster walls.  Retro bathroom, tiled with those little black and white tiles.  Wood-paned windows (beautiful, but bad at keeping out the roaches who insisted on dropping by every evening.) 

Parking?  There was none.  Well, there was a gravel area in the back, but we usually just parked out front on the street. 

A similar four-plex sat around the corner.  But we were flanked on the left and rear by single-family homes.  In fact, virtually all of the housing in the area was single family.  And I don't think they were one bit the worse for having our four-plex as a neighbor.  During my four years there, we never had a rowdy tenant, or a drug dealer, or fraternity keg party or whatever else people here worry over.  Mainly young professionals, just starting their careers.  Our landlord maintained his property because he wanted to keep us as tenants. 

This kind of housing, unfortunately, has been zoned out of most of inner Austin.  (For example, only 10% or so of Zilker's residential area is zoned for four-plexes or other multi-family.) 

Some people associate four-plexes with a certain seediness.  I don't think that's fair, though.  Very few four-plexes are built anymore.  The existing stock generally is old and deteriorating, certainly compared to newer rental property.

Others object because four-plexes attract students.  But we end up with four-plexes or five- or six-plexes anyway.  They're called "McDorms,"  large single-family homes with space for five or six students.

I'm not sure why this college town is so rabidly determined to restrict student housing.  By and large, the NGs want students to stay in their designated ghettos.  Ironically, McDorms are probably worse for neighborhoods than four-plexes.  The McDorm's cohabitants are more likely to be friends or at least acquaintances.  I don't have any scientific evidence to back me up, but I bet your chances of having a loud party are pretty good when you start with six frat brothers sharing a big house.  The four-plex's tenants don't even have to like each other, much less know each other.

Whatever the objections to four-plexes, they're not good enough in my opinion.  Austin needs a lot more of these.

NCAA, pay your players already

Nick Saban just signed an 8-10 year, $30-$40 million dollar deal with Alabama.  Even professional football doesn't offer contracts like that.  There are a number of other college coaches making $2-$3 million per year.  The price of a proven winner is spiraling rapidly upward. 

Why do college coaches make so much money?

This guy suggests that it is because college coaches are proxies for the players, who can't be paid.

That makes a lot of sense to me.