Austin Contrarian

When all else fails, plead for affordable housing

Here's an example of a neighborhood group misappropriating the cause of affordable housing in order to obstruct a dense multi-family development.

Jeff Jack, the president of the Zilker Neighborhood Association, has urged Austin's coalition of affordable housing advocates to oppose a redevelopment project on South Lamar.  (Download ZNA_letter.pdf

The owner/developer wants to tear down the apartment complexes at 1500 and 1418 S. Lamar and replace them with a new mixed-use development.  The existing complexes have 141 units.  They would be replaced by approximately 300 units, doubling the density.  (City council approval is necessary because the property is not zoned for multi-family; the existing apartments are a grandfathered nonconforming use.)

Not surprisingly, ZNA opposes this project.  City staff and the Planning Commission have bucked ZNA (and bully for them).  Having failed to persuade Staff and the PC, ZNA is trying to rope the affordable housing advocates into doing its dirty work.

According to Jack, the 141 existing units rent for $405-$600 per month.  The new apartments will start at $890 per month, except for 30 units reserved for affordable housing.  Since it seems unlikely that Council will kill the project, Jack wants the developer to reserve 141 units as affordable housing:  "[W]e should be getting a 1 for 1 replacement for the existing affordable units in the new project." 

Here's my back-of-the-envelope calculation, taking Jack's proposal at face value.  We'll assume that the existing units rent for an average of $600 per month (the top end of the current rent), and that the new units would rent for an average of $890 per month (the starting rent for the new units).  Jack is proposing that an additional 111 of the new units (141 less the 30 planned affordable units) be rented at the current rate, a discount of $290 per month.  That's $32,190 less rent per month (gross) for the project as a whole.

Let's discount that $32,190 by 10% for the expected vacancy rate and another 10% for management fees and property taxes.  (We don't have to discount for maintenance, repairs, utilities, etc. because these costs don't depend on the amount of rent.)

This gives an expected decrease in monthly operating income of $25,752, or $309,024 per year.  Using a 6% capitalization rate (very reasonable for this market), that works out to a $5,150,400 decrease in market value.  Using a more conservative 8% capitalization rate, the loss of market value is $3,862,800.  (These properties are on TCAD's books at $3,204,000 -- certainly low, but this gives you a sense of the magnitudes involved.)

Thoughts:

1.  Council should approve this project outright and unconditionally. The developer's proposal will double the density of housing on a property abutting a key transit corridor.  It is exactly the kind of mixed-use development the City has been pushing.  ZNA's plea to save affordable housing should fall flat for this reason alone.

2.  The affordable housing bonds should make it easier for Council to brush aside Jack's appeal to affordability.  The City will soon be offering a lot more help to low-income families; it does not need to preserve affordability one development at a time.

3.  It is unfair to tax a single owner/developer between $3.8 and $5.1 million for 141 affordable units.  Affordability should be a shared burden.  That's the premise of the affordable bond package.

4.  Jack may genuinely care about affordable housing.  But volunteering to spend someone else's money doesn't prove anything. 

Why I'm not grinching out on the affordable housing bonds

M1EK has come out against the affordable housing bonds, as have others with whom I normally agree.  They argue that the city and neighborhood groups have created the affordability crisis through absurdly restrictive zoning; it's wrong to saddle innocent property owners with the cost of that policy, particularly when the problem could be cheaply fixed with an amendment or two to the land development code. 

Anyone who's read this blog knows that I fervently agree that Austin's zoning policies are the root of our "affordability crisis."   Still, I support the affordable bond proposition for a couple of reasons.

First, it will do some good.  The bond money will go for rental assistance, down payment assistance, and other badly needed programs.

Second, and more importantly, the affordable bond program will give the City Council the cover it needs to do the right thing on housing. 

Council will be asked to approve a lot of dense infill projects over the next few years.  Infill development means something's got to be torn down, and that something will often be cheap housing.  To the knee-jerk "progressives" out there, this is bad redevelopment.  You'll never convince them that the only way to keep prices down in the long run is to let supply keep up with demand.  Council members will be under enormous pressure to do something about affordability.  You can count on the neighborhood groups, who hijack the affordability cause whenever it suits their purpose, to keep affordability front and center.  (To my knowledge, ANC has not endorsed Proposition 5, which is significant considering its public handwringing over affordable housing.) 

Proposition 5 will allow Council members to say they support both dense redevelopment and affordable housing.  It will be easier for them to approve infill projects without being accused of hurting the low-income.  It will be particularly useful in turning back challenges by neighborhood groups to dense redevelopments.  It won't affect the outcome in every case, but I think we'll be a lot better off with it than without it.

Update on the big-box ordinance

At last night's hearing, the Planning Commission approved the big-box ordinance.  Two significant modifications:  (1) it raised the "big-box" threshold from 50,000 to 100,000 square feet; and (2) it recommended that the city create a new "big-box" zoning classification that would have big boxes as a permitted use.

It didn't give serious consideration to the calls for economic impact statements.

The ordinance now goes to Council.

Another in-depth analysis by the Chronicle

The Chronicle has a piece about the towers proposed for the south side of Town Lake (300 E. Riverside).

The opening sentence:

How committed should the city of Austin be to protecting the Town Lake waterfront as open space for all citizens to enjoy?

("Very," of course.)  You'd think that in a piece about preserving the public's use of the waterfront, the Chronicle would note that the public can't use this stretch of waterfront.  The current occupants --two low-rise apartment complexes -- crowd right up to Town Lake's banks.  I won't rehash my post on this topic, except to point out that in order for the public to enjoy this stretch of waterfront, someone's got to have an incentive to tear these old apartments down.   

The existing apartments' encroachment is irrelevant if you figure the developer will build no matter what.  I don't have a clue whether it will.  But here's the TCAD plat (click to enlarge and for scale):

A and B are the lots at issue.  I'm not sure how much usable lot will be left if the developer must comply with 200-foot setbacks.   Or even 150-foot setbacks.

As far as I know, the developer hasn't threatened to walk away from the project if it doesn't get its variance.  That may because it intends to develop no matter what.  Or it may be because the developer figures its opponents don't want any redevelopment at all; to them, a promise to walk away is not a threat, it's a victory.

I don't know whether this project is a good one or not.  I do think that in any debate over this development, we should consider how the "public" will benefit if nothing happens with this property.

Get it while you can

I monitor the MLS listings for central Austin (MLS areas 1A, 1B, 2, 3, 4, 5, 6, 7 and 9), the area covered by the McMansion ordinance.  I track 2500+ sq. ft. single-family homes listed for less than $300,000.  (I explain why here.)

As of today (October 20, 2006), there is exactly one such house.  It's on Saucedo, near Springdale and Airport.  That's not really even central Austin.

There are no longer any "large" houses in central Austin affordable to families making $100,000 or less per year. 

Don't ban big-box retail

On October 24, the Planning Commission will consider the proposed "big-box" ordinance.  This ordinance will require all new big-box retail stores (over 50,000 sq. ft.) to get a conditional use permit.  The permit application will require an "economic impact" statement and notification of surrounding neighbors and NAs.  In other words, it's a ban.

This has nothing to do with aesthetics.  The new commercial design standards are supposed to protect us from big ugly boxes.  This ordinance aims to "protect" us from their economic impact.

Local merchants pushed the City to commission a study of big-box retail back in 2004.  I think it's pretty shoddy; no serious study would rely so heavily on clippings from Shopping Center World and BusinessWeek.  Surprisingly, though, the authors didn't follow script.  They found that big-box stores save consumers money; that they do not directly compete with local merchants; that their supposedly negative impact on wages can be addressed only at the national level; and that their other externalities can be eliminated through design standards. 

Upset over this conclusion, the locals asked two UT professors (neither an economist) and a Houston consultant for a do over.  These authors found -- surprise! -- that big-box retail has a net negative economic impact.  They avoided the mistakes of the previous study by holding down citations to supporting studies and data.

I assume that the Planning Commission is being asked to take the second study at face value since the original study did not recommend conditional use permits. 

It'll come as no surprise, but I oppose this ordinance.  Some of the reasons, in no particular order:   

1. It will just encourage big-box retail to move to the suburbs; the suburbs will capture that sales tax revenue.  We'll be stuck with many of the same externalities.  Traffic may even get worse as more people drive out to the 'burbs to do their shopping. 
2. Some big-box chains will simply adapt to the ordinance. (Wal-Mart's already working on a 99,000 sq. ft prototype because of similar ordinances passed by other "progressive" cities.)
3. It's regressive.  Consumers who shop by price (generally the lower income) will have to drive for lower prices or pay higher local prices.  Consumers more interested in variety, better-quality goods, or better-quality service (generally the higher income consumers) will continue to shop as before.
4. It'll be less convenient.  These hyper-markets are big time savers for harried two-wage-earner couples. 
5. We all benefit when local shops are forced to compete with the big chains.  Since they can't compete on price, they must offer more variety, better quality or better service.
6. There probably are enough big-box stores in Austin already to do whatever damage they're going to do.

This isn't a separate reason, but no one asks what costs independent local stores impose.  A Sam's Club is a grocery, pharmacy, photo lab, nursery, electronics store, tire store, clothing store, book store, music store, snack shop, and probably a bunch more all rolled into one.  What's the cost of requiring consumers to make separate car trips to eight or nine independent shops?

I have nothing against locally-owned businesses.  I shop at locally owned businesses.  I think locally owned shops often offer more than the national chains.  I just don't think the City should run a protection racket for them.

Here's the link to the Planning Commission for those who are interested.

P.S. (October 24, 2006) Staff has recommended against requiring economic impact statements, according to the ordinance review sheet, and the draft ordinance does not require them.

The Peak Oilers

From an op-ed piece by John Tierney (NY Times), in today's Statesman, on overpopulation hysteria:

In 1968, the year after the U.S. population reached 200 million, Linus Pauling, Jonas Salk and other scientific luminaries signed their names to a full-page advertisement.  It pictured a beatific baby in diapers who was labeled, in large letters, "Threat to Peace."

"It is only being realistic," the scientists warned, "to say the skyrocketing population may doom the world we live in."  They shared the concerns of Paul Ehrlich, who was on the best-seller lists warning of unprecedented famines overseas in the 1970s and food riots on the streets of America in the 1980s.

On Tuesday morning, when the 300 millionth American was born, the parents weren't worrying about a national shortage of food.  If anything, they were worrying about their child becoming obese.  There is more food available per person -- in America and the rest of the world -- than ever imagined by the 1960s doomsayers, Malthus or the ancient Greek philosophers who discussed the need for population control.

Tierney goes on to compare the overpopulation hysteria to fears about global warming.   

The better comparison would be to the peak-oil panic; that's the direct descendant of the overpopulation doomsday predictions.  The Peak Oilers claim that:  (1) world-wide production of oil has peaked or is about to peak; (2) as a result, we'll soon face dwindling supplies of oil; (3) the decline will happen too rapidly for us to develop alternative fuels or technologies to compensate; (4) our industrial system for producing food -- from cropland to grocery store -- is so heavily dependent on oil that food prices will skyrocket or food supplies will dwindle to unsustainable levels; (5) only the prepared (those with access to food from their backyard garden or a community garden) will avoid hunger or even starvation.

Here's a typical peak-oil website.  Here's another.  Here's another, holding up Cuba's transition from an industrial to an agrarian economy as a model for all of us.  Here's the website for the Austin chapter of the Peak Oil Society (my term).  This Peak Oil blogger does a good job of conveying the sense of impending catastrophe:

Barring a sudden, massive shift to alternative energy or a different lifestyle, the world is about to experience an economic and social catastrophe unlike any other in history, followed by a reversion to some kind of pre-industrial life.  Given the amount of energy used to simply produce and transport food, a depression of this scale implies mass hunger and starvation.

I don't know whether oil production has peaked or not.  It's got to peak sometime because it can't keep going up forever.  But I don't believe that dwindling oil supplies will devastate the economy or our food supplies.  No matter what, the local supermarket will be a better bet than the backyard; that's what comparative advantage and specialization of labor are all about.

If you think this is good clean fun, here's the resolution the local chapter presented to the City Council.  Lots of the proposals are just sensible energy-saving tips.  But some would do serious damage if adopted.  They want a "Task Force" (shudder) to assess ways to "mitigate the risk" (shudder) of peak oil.  And they want the City to mandate community gardens in every neighborhood (that's 67 or so by my count) and convert arable land within the city limits to agriculture.  The cost of the land alone would easily run into the tens of millions, if not hundreds of millions, of dollars.  Add to that the labor and resources squandered.

A few months ago, I wouldn't have given this loony proposal a chance.  But I've learned that if you put the issue to a task force controlled by the wrong people, anything can happen.   

When the tail wags the dog (or parking, the concert hall)

From a piece by Manville and Shoup, a couple of urban planners at UCLA:

Disney Hall's six-level, 2,188-space underground garage cost $110 million to build (about $50,000 per space).  Financially troubled Los Angeles County, which built the garage, went into debt to finance it, expecting that parking revenues would repay the borrowed money.  But the garage was completed in 1996, and Disney Hall -- which suffered from a budget less grand than its vision -- became knotted in delays and didn't open until late 2003.  During the seven years in between, parking revenue fell far short of debt payments (few people park in an underground structure if there is nothing above it) and the county, by that point nearly bankrupt, had to subsidize the garage even as it laid off employees.

The county owns the land beneath Disney Hall, and its lease for the site specifies that Disney Hall must schedule at least 128 concerts each winter season.  Why 128?  That's the minimum number of concerts that will generate the parking revenue necessary to pay the debt service on the garage.  And in its first year, Disney Hall scheduled exactly 128 concerts.  The parking garage, ostensibly designed to serve the Philharmonic, now has the Philharmonic serving it; the minimum parking requirements have led to a minimum concert requirement.

I guess the first lesson is that a city should never build the parking for a privately funded performing arts center until it's actually broken ground.  (I'm glad Austin won't make that mistake . . . )

The second is that public auditoriums and concert halls should be built near other centers of activity, so people can walk to them.  They will, if there are other things to do nearby.

I'll bet Hooters is gearing up for the grand opening of the Long Center.

Why do some small-lot owners support the McMansion ordinance?

As I've argued elsewhere , the McMansion ordinance can only hurt the market value of a small home on a small lot.  I'd expect small-lot owners to know this.  That some support the ordinance anyway has always puzzled me. 

This recent economics papermight clear things up.  It claims the typical person's well-being depends on how he stacks up against his neighbors.  The author matches individual subjective ratings of well-being to earnings information, and finds: 

• Between spouses, "higher neighbors' earnings are significantly associated with more frequent open disagreements about money, but not significantly with the frequency of disagreements about household tasks, the children, sex, in-laws or spending time together."
• "Neighbors' earnings significantly reduce satisfaction with the amount of leisure time . . . and satisfaction with one's friendships."
• "The size of the effect [of neighbors' earnings] is meaningful.  An increase in neighbors' earnings and a similarly sized decrease in own income each have roughly about the same negative effect on well-being."
• "[T]he effect of neighbors' earnings is significantly stronger for those who socialize more frequently with neighbors but not for those who socialize more frequently with relatives, friends outside the neighborhood or people they work with."

  No one disputes that people compare themselves to their neighbors; the dispute, I think, is whether these comparisons have such a strong and systematic effect on happiness.  (Some argue the government should not intervene in either case.)

If taken at face value, though, these findings could explain why some small-lot owners support the ordinance.  And why neighborhood association officers -- who probably socialize frequently with other neigbors -- are the fiercest McMansionists.

I realize that other justifications have been offered for the McMansion ordinance, such as preserving privacy, backyard gardens, and sunlight.  Some people simply hate change (including change to "neighborhood character").  And I concede that there are McMansions out there that will make you flinch.

I don't dispute that people support the ordinance for some or all of these reasons.  I've just never believed that these reasons account for all of the support, especially among the small-lot owners who will likely take the biggest hit.   

A great summary of current downtown projects

here.  Includes renderings of some of the buildings going up dowtown.

Also check out the City's summary of downtown projects.  It's from August, and is just a little out of date.  It is nonetheless very good.