Urban Returns

Demand for suburbs vs demand for central cities

Americans overwhelmingly prefer suburbs.   We know this because most Americans  choose to settle in suburbs.

No, wait.  Demand for suburbs and exurbs is collapsing; they are on their way to becoming the next slums.

Both memes are wrong, I think.  The "suburbs are dying" meme is wrong because most metropolitan growth will continue to occur in the suburbs -- at least in rapidly growing metropolitan areas -- regardless of shifts in preferences.  The first is wrong because rapid suburban growth doesn't tell us anything about the relative demand for suburbs and central cities.  

First, rapid growth in a metropolitan area is synonymous with rapid growth in the suburbs.  And it will always be that way.  (The form of suburban development is a separate issue.)  It is harder to add new housing in a built-out environment.  Denser construction is more expensive and takes a lot longer to get built.  

Take Austin.  Austin's urban core had about 170,000 residents in 2000.  Austin's metropolitan area added about 390,000 residents between 2000 and 2008.  Even if Austin's urban core had doubled in population between 2000 and 2008, most growth had to and did occur at the metropolitan area's fringes.  Of course, Austin's urban core did not double in population.  It is not possible to double the density of a built-out urban core in just eight years.  I'd be surprised if Austin's urban core grew by 20% between 2000 and 2008.  So its suburbs necessarily have boomed, even though Austin's core is healthy and experiencing steady growth.

Ditto with cities like Dallas, Houston and Atlanta, which each added one million residents between 2000 and 2008.  It would have been impossible for their central cities to add more than a small fraction of the newcomers.

But because most growth must occur in the suburbs, this growth does not alone tell us whether demand for the suburbs is growing faster than demand for the central city.  

We know that demand is higher for the suburbs when the central city is losing population while the suburbs are adding population.  But in thriving cities, both suburbs and central cities are adding population.  The central city is simply adding population at a slower rate.

To figure out relative demand, we also have to consider prices.  Because the housing supply in the central city is relatively inelastic, higher demand mainly shows up as higher prices.  Because the housing supply in the suburbs is relatively elastic, higher demand mainly shows up as more subdivisions.  To determine whether demand is rising more rapidly for one than the other, we have to weigh both the rate of new construction and the change in prices.  And, to complicate things, we have to factor in shocks like rising gas prices and recessions; these have different impacts on the relative demand.  

So determining whether demand for one is growing faster than demand for another means disentangling a complicated knot.  That is a hard thing to do.  A lot harder than focusing on just rising supply or rising prices.

SH 130 vs I-35: early returns

Ben Wear and a colleague have run another experiment comparing SH 130 to I-35.  The trip around Austin on SH 130 was 22 minutes faster than the trip straight through town on I-35.  This even though I-35 was not particularly congested during their experiment.  Wear averaged 70 mph on SH 130; his colleague, 50 mph.  (I-35 was nine minutes faster in the first experiment, but this was before SH 130 had been linked to I-35 via a limited-access highway.) 

I admit I'm surprised SH 130 was so much faster.  But I am not surprised by this:

Texas 130, so far, is falling short, revenue-wise, of what were already modest expectations from TxDOT.  For the six months ending Feb. 28 , revenue for the road was $1.6 million.  That's about 12 percent under expectations.  Traffic, however, is nearly 18 percent above projections.

The relative absence of 18-wheelers, which pay four times what a car does, could partially explain that anomaly.  I have seen very few of them on my three rush-hour trips on Texas 130.  I-35, on the other hand, as anyone who drives it knows, remains choked with big rigs.  Andrea's passenger counted more than 225 on I-35 during their drive; I saw less than a dozen.

Most truckers apparently don't think the time-versus-money tradeoff is worth it.

TxDOT is charging truckers too much money to save too little time.  Truckers have to pay $25 in tolls and an extra $12 or so in diesel to save 22 minutes, which means truckers must value their time at more than $100 per hour to make the switch.  They obviously do not.  And so I-35 continues to be clogged with big rigs while SH 130's faster lanes remain virtually truck-free.

Under a rational congestion-pricing system, drivers are charged for causing congestion, not for avoiding congestion.  TxDOT's pricing system is the precise opposite.

  

Hutchison misses the point

Frequent commenter trza pointed me to this op-ed by Kay Bailey Hutchison in Thursday's San Antonio Express-News.

Tolls are unpopular, I know, and she's running for governor, but this is particularly discouraging:

Recently, there have been renewed calls for tolls on highways that have already been built and paid for with federal tax dollars. I believe taxing Americans twice for the same asset is fundamentally unfair, and I oppose any effort to place tolls on existing interstate highways.

Gas taxes do not cover the cost of roads. But I understand the fairness argument.  Suburbanites invested in their homes on the assumption they'd have a free ride (or drive); charging tolls changes the rules.  Perhaps worse, the state doesn't want to toll all existing roads, only some of them.  Tolling my road but not yours seems arbitrary.

Parking caps

I don't like parking minimums. They usually waste space and money by forcing developers to build more parking than their customers need or want.

I'm not a big fan of parking maximums, either.  The standard argument for them is that unrestricted parking encourages car-dependency and discourages walking, mass transit and pedestrian-friendly streets.  A city cannot force people to use a particular mode of transportation, though.  It can try, but when its fiat doesn't match market demand, people simply go elsewhere and the city does more harm than good.  It's better to let rising density and property values and good mass transit gradually and organically evict low-value uses like parking.  Reasonable design standards, like mandating ground-floor uses, can prevent parking from destroying the public space.

But I've recently heard an enticing argument for parking caps in downtown Austin.  It runs along these lines:

Downtown Austin has "too much" parking -- there are far more parking spots than cars, far more supply than peak demand.   Yet developers continue to build more on-site parking than their own projects need, even ignoring the ample supply of parking within walking distance.

All of this unnecessary parking is wasteful.  Developers waste hundreds of thousands or millions of dollars on parking spots that will never be occupied.  And practical problems with providing more than eight or nine stories of parking limit the height, scale and habitable space of new buildings.   

So why do developers do it?

Developers do it because their lenders make them do it.  Developers typically put up only 20% of the money for a project.  Equity partners front a second tranche of 20% or so, and lenders finance the remaining 60%.  This means that lenders have the greatest exposure.  Which makes them extremely risk averse.  They don't want a project to fail just because it lacks enough parking.

Lenders can read a parking study like anyone else.  Lenders know perfectly well that there is already ample parking in downtown Austin.  But they worry that if their project does not have plenty of on-site parking, it will be undercut by the next project that does.  So they require lots of parking -- even though the project might be cheaper and more profitable with less parking.

Excess parking downtown is thus the result of a sort of prisoner's dilemma.  Each  lender would be better off if all lenders required less parking, but without an ironclad assurance that they will do so, each lender must assume that the others will require extra on-site parking.  And then it must do so, too.  

The argument for a parking cap, then, is that it would resolve this dilemma by giving lenders the assurance they need to require less parking.  Then developers could build less parking, and new developments would be cheaper to build and provide more capacity to boot.

It's a neat argument.  I don't know whether lenders really would be as willing to put of money for projects with code-mandated maximums.  But that seems to me to be a discrete, empirical question that ought to have a definite answer.

Wasted opportunity

Stassney between South Congress and I-35 is apartment-complex city.  Perhaps a half-dozen giant apartment complexes line one half-mile stretch.  None is older than four or five years.

These are the standard suburban set up.  A collection of three-story walk-ups with open breezeways, a pool, a one-story welcome center, and parking sandwiched between the buildings.  All "protected" by a fence and gate.  The private streets are essentially just long, skinny parking lots.  The premium parking spots are sheltered by tin roofs.  (Fancy complexes offer a garage option.)

I've lived in complexes like these.  Renters like them because they know the units will be nice,  safe and professionally managed.  They are especially attractive to newcomers who aren't familiar with Austin's neighborhoods.  But they are walled off from the rest of the world and and far retail and restaurants and convenience stores.

Driving past them yesterday, it occurred to me that this vast stretch of apartment buildings was a tremendous missed opportunity.  With just a little rearranging, these apartments could have been transformed into a pleasant urban neighborhood of 20 or 30 blocks.  

The complexes contain literally scores of individual buildings.  It would have been easy to arrange them in a grid fronting public streets with alleys in the back.  The only significant architectural modification would have been closing in the breezeways/stairwells to create common entrances.   

I doubt this arrangement would have been more expensive for developers.  Certainly, they would have had to build proper streets with sidewalks and streetlights.  Closing in the breezeways would have cost more.   But they would have saved money in lots of other ways.  By building and dedicating public streets, they could have shifted the responsibility for street maintenance to the city.  They could have saved the hefty expense of thousands of feet of wrought-iron fences and gates.  They could have joined other developers to provide a single, decent public park and pool, rather than six.  And I don't think this arrangement would have cost them units.  There is a lot of wasted space in complexes like these -- useless strips of greenery,  too narrow to walk a dog, and pointless spacing between buildings.  

Tenants could have parked on the streets, which is essentially what they do now.  The premium, sheltered spots could have been put in the alleys behind the buildings.     

I have to believe that lots of prospective tenants would have preferred an urban layout.  They would have gotten  pleasant, proper neighborhoods, with a store or two nearby -- the complexes are dense enough to support a couple of small retail uses were they not walled off from one another.

The only drawback -- and I acknowledge it could be a big one -- is safety.  Those tall fences and gates provide a sense of security.  Now, they don't make it difficult  to get into the complex.  In large complexes with hundreds of residents, the gates are constantly opening or closing.  (I freely wandered in and out of one yesterday.)  But the fences and gates do make it harder to get out, which deters criminals.  Complexes like these of course experience assaults and car break-ins, but I'm sure they're safer than similar complexes that lack fences and gates.

Proper urban neighborhoods provide their own deterrents, though.  A short block lined with dense walk-ups has lots of eyes and ears on the street.  Good lighting is another deterrent.  As is steady traffic.

But even if gated complexes are marginally safer, that doesn't automatically mean that prospective tenants prefer them.  Everything involves trade offs.  Urban neighborhoods enjoy high demand all over the country, and often command premiums.  And I'm not sure developers really know what trade-offs tenants are willing to make -- how could they, if they never build this type of neighborhood?  Let's not forget that creating a true grid requires developers to coordinate their actions, a tricky obstacle even in the best circumstances.  

So it seems to me we wasted a great opportunity to add to Austin's paltry stock of urban neighborhoods.  Perhaps the next time Council zones a half-square mile area  of vacant land for dense multi-family, the city could wok with property owners and developers to develop a common grid and modest design standards.  Perhaps the property owners and developers would resist.  But perhaps not.  

Night parking

I'm on firm ground when I say that downtown Austin already has plenty of parking.  In 2000, 42% of all downtown garage spaces sat empty during peak hours.  That developers continue to build more parking than they need for their own developments suggests the parking market is broken.  Or that demand for self-contained parking is driven by lenders and tenants.  A developer has no incentive to build expensive structured parking it does not need.

A robust market for monthly parking contracts or daily spot parking might convince developers they can get by with less parking.

I'm not sure exactly what is blocking the development of this market, but part of the problem has to be free parking on nights and weekends.

Because the city charges for parking during the day, you can almost always find an open street spot.  But these are impossible to find at night (especially Thursdays through Saturdays), unless you are lucky enough for someone to vacate a spot as you drive by.  Charging for parking on nights and weekends would result in a better allocation of parking.  It would provide predictability for downtown visitors.  It would eliminate the extra traffic caused by drivers circling the block to find an empty space.  And, yes, it would also raise extra revenue for the city.

But charging for street parking would also encourage parking garages to open their spots to the public.  Some garages and the surface lots do open at night.  Many do  not, though, and who can blame them?  It's hard to compete with free parking.

Garages have to incur high fixed costs to provide spot parking -- e.g., an attendant or credit-card friendly gates.  They won't make this investment unless they believe they can get a return on this investment.  Increasing the demand for garage parking at night would lead more garages to make that investment.

This would increase the supply of parking when condo developments need it most.  Residents are home.  Ground-floor restaurants and bars are generating demand.  If there were enough public spots within easy walking distance, a developer might not need to cover peak demand.  That, in turn, would increase the demand for spot parking, which would encourage more garages to open, and so forth, creating a virtuous cycle and ultimately better use of existing parking.

Do roads pay for themselves?

A major feature in the public debate about toll roads has been the issue of when or whether a road has been “paid for.” To better understand this discussion, it is helpful to ask two questions:

1. What is a traveler paying for when he or she pays state gas tax at the pump?

State motor fuel tax is collected from all over the state and goes into a single pool of revenue—about one quarter of which goes to fund education, and about three-quarters of which goes to the state’s highway fund, where it is spent on transportation uses and some non-transportation functions of government.

Then the state receives federal funds as the state’s share of the federal fuel tax; about 70 cents of every gas tax dollar Texans send to Washington comes back for road use.

The significant point here is that historically the fuel tax paid in any locality of the state is unrelated to the road projects in that locality. Every fuel taxpayer in the state paid something for any given road—which leads to the next issue.

2. When is a given road actually “paid for?”

Just like your car, it never is. You may have paid the note, but maintenance and fuel costs go on as long as you own the vehicle. Once a road is built, maintenance and rehabilitation costs last its entire life, generally about 40 years.

The decision to build a road is a permanent commitment to the traveling public. Not only will a road be built, but it must also be routinely maintained and reconstructed when necessary, meaning no road is ever truly “paid for.”

Until recently, when TxDOT built or expanded a road, no methodology existed to determine the extent to which this work would be paid off through revenues.

The Asset Value Index, was developed to compare the full 40-year life-cycle costs to the revenues attributable to a given road corridor or section. The shorthand version calculates how much gasoline is consumed on a roadway and how much gas tax revenue that generates.
The Asset Value Index is the ratio of the total expected revenues divided by the total expected costs. If the ratio is 0.60, the road will produce revenues to meet 60 percent of its costs; it would be “paid for” only if the ratio were 1.00, when the revenues met 100 percent of costs. Another way of describing this is to do a “tax gap” analysis, which shows how much the state fuel tax would have to be on that given corridor for the ratio for revenues to match costs.

Applying this methodology, revealed that no road pays for itself in gas taxes and fees. For example, in Houston, the 15 miles of SH 99 from I-10 to US 290 will cost $1 billion to build and maintain over its lifetime, while only generating $162 million in gas taxes. That gives a tax gap ratio of .16, which means that the real gas tax rate people would need to pay on this segment of road to completely pay for it would be $2.22 per gallon.

This is just one example, but there is not one road in Texas that pays for itself based on the tax system of today. Some roads pay for about half their true cost, but most roads we have analyzed pay for considerably less.

To conclude, in the SH 99 example, since the traffic volume for that road doesn't generate enough fuel tax revenue to pay for it, revenues from other parts of the state must be used to build and maintain this corridor segment. The same is true across the state, meaning that, as revealed by the tax gap analysis, overall revenues are not sufficient to meet the state’s transportation needs.

That's from TxDOT itself.  Since few Texas drivers are willing to pay $2.22 in taxes per gallon, this begets the question, Why does TxDOT continue to build roads that no one is willing to pay for?

TxDOT is pushing tolls, of course; its implicit contention is that drivers are willing to pay for roads through tolls.  

A large chunk of the population hates tolls and believes TxDOT consists of a bunch of rotten, dirty liers.  They will dismiss this analysis out of hand.

But if it's wrong, why?

More boosterism

While I'm still in this weird, rah-rah mood:  Joel Kotkin on Austin's secrets for economic success.

I do think Austin is nearly recession proof, despite the fact that we had a deep one just seven or eight years ago.  It took a ginormous high-tech bubble and crash to do much to our economy.  

One of the nice things about living in the state capital and hosting its largest university is that the rest of Texas works very hard to support us.

U-haul stat o' the day

I don't normally do the Austin booster thing, but courtesy of Mark Schill at Newgeography:

When comparing California with Texas, U-Haul says it all. To rent a 26-foot truck oneway from San Francisco to Austin, the charge is $3,236, and yet the one-way charge for that same truck from Austin to San Francisco is just $399. Clearly what is happening is that far more people want to move from San Francisco to Austin than vice versa, so U-Haul has to pay its own employees to drive the empty trucks back from Texas.

Schill also lists some net domestic migration numbers.  In 2008, Austin-Round Rock had the highest net domestic migration rate among all U.S. metropolitan areas with more than 1.5 million people.  Austin-RR had 22 net domestic migrants per 1,000 residents.  Comps:  Houston, 6.6; Dallas, 7.0; Washington DC, -3.4; Portland, 8.3; Denver, 7.3; Detroit, -13.9.

People sometimes take net domestic migration flows as evidence that one place is better than another.  This is wrong.  Flows instead show which cities are overvalued and which are undervalued.  That's why I don't put any stock in "best cities" lists.  You can figure out the "best cities" (whether for quality of life or jobs) by looking at property values.  You can figure out the "best bargains" by looking at  domestic migration flows.

PS.  Sorry to pick on Detroit again -- no schadenfreude here -- but these numbers show just how grim things are there.  Despite a low median home sales price -- $91,000 in April 2008 -- the Detroit metro area experienced a net outflow of 13.9 residents per 1,000 residents in 2008.  The metro area was grossly overpriced despite being very cheap.  Well overpriced:  the median sales price had dropped to a little under $45,000 by last April.  (Things are much worse in Detroit proper.)  

First, figure out how much parking you can build

Austin's consultants are turning out reports faster than I can digest them.

ROMA's proposal for a permanent density bonus program downtown is worth a read.  The ultimate recommendation -- make residential developments pay bonuses for extra floor space -- is a bad one.  But the report contains some interesting tidbits, including this description of how parking requirements dictate building size:

It will be difficult to take advantage of a density bonus if the subject site is less than one-quarter block, as incorporating structured parking becomes extremely inefficient (space consumed per parking space yield is very high) and therefore costly. Off-site parking provisions made possible through a parking management or enterprise may change this in the future.

Current market and financing-driven parking practices which lead to high numbers of on-site parking spaces being required and built limit the ability for projects to achieve densities significantly above what the existing zoning prescribes. This is due to a number of things. First, few developments will build more than nine or ten floors of parking, as beyond this, accessing parking becomes cumbersome and inconvenient for the building users. Second, providing suburban or near-suburban parking quantities can cause projects to reach their height maximums sooner, which has the effect of reducing the amount of habitable space possible. Third, at some point the sheer cost of providing onsite structured parking becomes a deterrent to providing more habitable space/density.

In other words, figure out how much parking you can build and then you'll know how much you can build of whatever it is you want to build.    

I worked in downtown Houston right out of law school in the third tallest skyscraper in the United States outside of New York City and Chicago.  It had a paltry amount of parking, all below grade.  We plebes schlepped through the tunnel to a parking garage a couple blocks away. 

Houston by any measure has tons of downtown parking, but I don't recall every tall building in downtown Houston being erected in a big bathtub of parking.   Downtown Houston developers have somehow managed to figure out how to share parking (or have relied on their tenants to figure it out).  In Austin, though, each new development is built as if there were not another parking garage around for miles in any direction.  We might have more parking spots downtown than workers. 

ROMA says the market or lenders are driving developers to build more than the city requires.  That's consistent with my three-project "survey."  Some bright entrepreneur ought to figure out how to help these developers share.