Urban Returns

Aragon

Mueller gets a lot of criticism -- see the grouchy comments to this entry -- much of it unfair.  I like Mueller.  I do agree, though, that it is not a model mixed-use, New Urbanist development.  Among other things, there is  too much segregation of single-family and multi-family/commercial.

So let me offer an example of a model New Urbanist development.   Aragon is an infill development in Pensacola designed by Michelle MacNeil (who happens to be my cousin).   It's several years old, but I got my first tour in August when we visited her during a trip to the Gulf Coast.

One of the most significant features of Aragon is its location.  Many New Urbanist developments are suburban greenfield developments or massive redevelopments of abandoned industrial land or airports (Mueller and Stapleton, for example).

Is it really necessary for the federal government to introduce new market distortions?

For the reasons I just gave, I don't believe that our past subsidies to suburban development justify maintaining those investments.  End them and let the chips fall where they may.

But even if reasonable people can disagree about that, I see no argument for creating new subsidies.  But that is exactly what our federal government is about to do.

The FHA is a major player in the mortgage business.  It insures mortgages for home buyers who otherwise would not be able to get credit or scrape together a down payment; this allows some to buy homes with as little as 3.5% down.  Without the FHA guarantees, the mortgage market would be much smaller.  A few years ago, its share of the market was 2.7%.  This seemingly small share had an outsized effect by scooping up the biggest credit risks and reducing the risk for private mortgage insurers.  In any event, its share of the market has ballooned recently:  according to Friday's WSJ, its market share reached 23% in the second quarter of this year.

And now the FHA is about to adopt new rules explicitly encouraging home buyers to purchase single-family, detached housing in the suburbs rather than attached (condos) in urban cores:

Until now, almost any condo development could apply to FHA for “approved” status, therefore making FHA financing available in that development.  In addition, in developments that were not approved, “spot approvals” were sometimes available for individual units.  (The lender applied for an approval for the unit you wanted to buy, in spite of the development not being approved).

Following are the new guidelines:  (This is not pretty, so prepare yourself)

1. There will be NO more spot approvals.

2. All development not considered primarily residential are out.  For instance, a development with more than 25% of the total floor area dedicated to commercial business use is out.

3. Noise issues is a new concern, so any development within 1,000 feet of a highway, freeway, or heavily travelled road, 3,000 feet of a railroad, 1 mile of an airport, or 5 miles of a military airfield will become ineligible for approval.

4. If the property has an “unobstructed view , or is located within 2000 feet of any facility handling or storing explosive or fire prone materials, it is not insurable - we're not talking just fireworks factories here.  A gas station 2 blocks away can disqualify this development.

5. Any property located within 3000 feet of a dump, landfill, or superfund site, is ineligible.

6. No more than 10% of the properties can be owned by a single investor, including builders or developers who are renting out or have not yet sold vacant units.  For 2-3 unit developments, no one can own more than one unit.

7. No more than 15% of the homeowners can be more than 30 days late on their homeowner dues.

8. For new developments, at least 50% of the units must be sold prior to applying for FHA approval (valid presales include those with purchase agreement and lender validation of an approved loan in process)

9. A minimum of 50% of the units must be owner occupied or sold to owners who intend to occupy as their principal residence.

10. Projects in designated wetland and flood zones will not qualify.

11. All current condominium project approvals will be invalid (with the exception of projects approved on or after October 1, 2008) and projects must be re-approved under the new options available.  Going forward, all projects will require recertification every two years.

Perhaps most insidiously, the FHA will no longer insure more than 30% of the units in a single condominium development.

I understand that the FHA has been taking large losses on its guarantees.  I also understand that condominiums are riskier to insure than single-family homes.  Some of these new regulations seem reasonable -- it's probably a bad idea to invest in a condominium when the condo association lacks the resources to pay for upkeep.  Higher risks justify higher premiums, too.

But these new regulations seem purposely designed to push new homeowners out of dense, urban areas to the suburbs.  They exclude many mixed-use developments (#2).  In a central city, it is hard to find a condominium not within 1,000 feet of a highway, freeway, or heavily travelled road, 3,000 feet of a railroad, or one mile from an airport (#3).  Allowing developers to tap into FHA guarantees for entire single-family subdivisions but only 30% of condominium units naturally will encourage developers to shift to single-family subdivisions.  These new regulations are fundamentally anti-urban.  

Even if it is somehow possible to defend our existing scheme of suburban subsidies, is it really possible to defend introducing new market distortions?   

(Cross-posted at Austin Contrarian; comment there.)

Self-parody

Sometimes I think Randal O'Toole is putting us on.  He reacts to Frumination's calculation of the highway and parking capacity Manhattan would need to replace it's rush-hour subway capacity.  O'Toole's alternative?  Buses, of course:

Many 40-foot bus can carry 64 passengers (42 sitting, 22 standing, which means a higher proportion sitting than on a subway). Spaced five bus lengths apart, 11 buses per minute can cruise down a highway lane carrying more than 42,000 people per hour. That means fewer than 10 new lanes would be needed to carry the people now taking subways — and those 10 lanes would take up a lot less space than the 22 subway lines.

This can be further reduced by assuming that some people will time shift. During the 8 to 9 am hour, the average subway car carries 108 people, but in the afternoon peak hour the average subway car carries only 87 people. If some of the 108 people in that morning hour time shifted to the 7 or 9 am hour, then even fewer bus lanes would be needed to carry people into Manhattan.

Randal should have finished his calculations.  Forty-foot buses can cruise down a highway at 11 buses per minute only if they are averaging almost 30 mph.  But buses traveling into Manhattan could not approach that speed because once they got to Manhattan, they'd have to exit the freeway onto crowded local streets.  The ensuing bottleneck would back up bus traffic for miles.

Worse, Randal ignores the sheer amount of space his buses would occupy once they got to Manhattan.  It would take 6,250 buses to move 400,000 commuters.  At 40 feet per bus, 6,250 buses would take up 47 linear miles of street space -- if they were lined up nose-to-tail.  (94 miles if we allow one bus-length between buses.)  Manhattan is only 13.5 miles long.

And this ignores that commuters would need another bus network once they got to Manhattan, because express buses couldn't drop commuters at their final destination. 

This is absurd.  Randal must understand this, because he generously allows that buses might not be able to replace the entire subway capacity:

If there were no federal subsidies to New York City transit, it is possible that the subways would decline and not be entirely replaced by buses. If so, downtown Manhattan might lose some of its allure as a job center. Would that be so horrible? A lower-density Manhattan might have had less attraction as a terrorist target. It would save taxpayers money. And people would get to their work faster, as (thanks largely to its high proportion of transit commuters) New York has the longest average commuter times of any urban area in the nation.

It sounds to me like getting rid of the subway might benefit everyone except, of course, downtown property owners. And that is really what rail transit is all about: transferring wealth from millions of ordinary taxpayers to a few downtown property owners, rail contractors, and transit agency officials and employees.

Let's ignore that highways and bridges are also a subsidy to property owners.  (Is he factoring these capital and maintenance costs into his bus fares?)  Let's also ignore that all of the boroughs and suburbs served by the subway are much more valuable thanks to their accessibility to Manhattan. 

It's clear that Randal simply doesn't understand the concepts of increasing returns and agglomerations.  New York metropolitan residents are willing to endure longer commutes, pay higher commercial rents and housing costs, and fork over a good chunk of their income in taxes because they receive at least that much value from living in or close to the city.   New York City is a wealth-generating machine, and that is largely -- if not entirely -- due to a bunch of highly productive people crowding together.  Density begets productivity, and rising productivity is ultimately the source of rising wealth.   Turning Manhattan into Jacksonville or any other low-density city would destroy vast amounts of wealth.  Subway subsidies are trivial by comparison.  Most New Yorkers understand this, which is why you don't hear them argue for the elimination of the subway but instead leave that to an "economist" from Oregon.

(Cross-post at Austin Contrarian.)

Links

1.   Frumination works out the highway and parking capacity Manhattan would need to replace its morning rush hour subway capacity:

At best, it would take 167 inbound lanes, or 84 copies of the Queens Midtown Tunnel, to carry what the NYC Subway carries over 22 inbound tracks through 12 tunnels and 2 (partial) bridges. At worst, 200 new copies of 5th Avenue. Somewhere in the middle would be 67 West Side Highways or 76 Brooklyn Bridges. And this neglects the Long Island Railroad, Metro North, NJ Transit, and PATH systems entirely.

Of course, at 325 square feet per parking space, all these cars would need over 3.8 square miles of space to park, about 3 times the size of Central Park. At that point, who would want to go to Manhattan anyway?

See the neat map at the bottom of his entry showing how much land Manhattan would have to devote to parking.  Commuters of course would abandon Manhattan long before things reached this state.  But Manhattan would not be Manhattan in either case.  

Pointer from a reader.

(NB: Tyler Cowen thought this was interesting enough for a link . . . to Kottke, who merely quoted a snippet of Frumination's entry.  Jerk.  (Cowen, not Kottke.))

2.  A Detroit neighborhood reverts to prairie (images from DetroitYES):

(H/t the Urbanophile.)

3.  Professor Chris Nelson, Director of the Metropolitan Research Center at the University of Utah, projects  that the homeownership rate will fall to 63.5% by 2020, sparking intense demand for rban infill and redevelopment.   (Via Calculated Risk; no link to paper available.)

I think our homeownership rate is too high, a result of tax subsidies and land-use policies.  It ought to drop.  But it won't drop by several percent.   Richard Green, a professor at the Marshall School of Business at the University of Southern California (and no conservative), fisks Nelson's study. 

Sorting

I've written recently about Glaeser and Resseger's research showing that workers in skilled cities tend to become more productive as their cities grow while workers in unskilled cities do not.   I've also written about Abel et al.'s paper showing that while workers in all cities tend to become more productive as their cities grow denser, workers in skilled cities are especially likely to benefit.  The latter  receive, on average, three times the productivity gains of workers in the least skilled cities.  Growth and densification are good if yours is a highly skilled city.  

But the Glaeser and Abel papers also raise another possibility:  perhaps skilled cities are better off keeping out the unskilled than growing without bound.   

This is arguably an implication of their work. (And one I don't like, by the way.)   Both Glaeser and Abel define highly skilled cities to be those with high percentages of college-educated workers.  The higher the ratio of B.A.s to high school grads, the more skilled the city under their definition -- and the more the workers benefit as the city grows.

One way to keep a high ratio of skilled to unskilled is to price out the unskilled.  The most effective way to price unskilled workers out of a city is to keep the cost of housing high.  And, indeed, the highly-skilled cities on the coasts are adept at (and notorious for) using rigid land-use regulations to inflate home prices.  (Or were until recently; more on that later.)   The incumbent homeowners in these cities of course benefit from a tight housing supply since it raises the value of their properties.  But perhaps their skilled workers benefit too.

I speculated about this  last October without the benefit of Glaeser ir Abel's research:

Perhaps the elites in the superstar cities sense it is better to surround themselves with a uniformly high-quality workforce.  They want to spend their time with other elites; letting in lots of less-skilled workers would introduce so much static, just as if Harvard were to throw open its doors to anyone with a half-decent high school transcript.  In other words, an influx of less-skilled workers might dilute the experience for the high-skilled.

I got my undergraduate degree from Ole Miss and my law degree from Yale.   I studied harder at Ole Miss, took harder classes and spent a lot more time with my professors.  I thought law school was mostly boring and had a suburban home and the premium cable channels by my third year.  But I probably got a better education at Yale than Ole Miss merely by hanging around a bunch of people who were smarter than me.  There were economists, physicians, mathematicians, political scientists, a Broadway actor, an Olympic miler  and, of course, a bunch of smart new college graduates  from all over the country (but mostly from the Ivy League, Standford and Berkeley.).  It was a small class of 175.  It was impossible not to keep up with new ideas or trends because someone you bumped into would know about them.  I wasn't paying a gazillion dollars for the law school classes, I was paying for the spillovers.  It was a fair price.

The housing markets in  LA, San Francisco and New York function as giant sorting machines.  By setting home prices so high, they weed out all but the most skilled -- except for the class of relatively unskilled who are supported by price controls or subsidies.  They're using the  Ivy League model.

So are they better off?  Yes, clearly, if they can shunt the less skilled elsewhere and  continue to grow and densify.  But it's hard to do both.  High prices, in fact, require that the housing supply be kept tight  in order for prices to stay high.  Otherwise, the new supply of housing would drop home prices and the riff-raff (from their perspective) would come flooding back in.  But perhaps merely increasing the density of skilled workers will yield the productivity gains yielded by  growth and densification.  Their motto could be, "We get smarter, not bigger."

I think this is probably wrong, though.  What matters is being close to other people with the same skill set; that's where the knowledge and productivity spills occur.  A software developer benefits from having a lot of other smart software developers around; a musician benefits from having a lot of other good musicians around.  Adding more software developers or musicians who aren't quite as skilled shouldn't dilute this benefit because we city-dwellers largely control whom we interact with.  Firms, in fact, segregate themselves by quality all the time.  Deepening the labor pool simply can't hurt.  I think cities like San Francisco and New York would be even more productive if they loosened their growth restrictions and allowed in more people.

And even if were true that the San Francisco model can achieve greater productivity without growth, there's always the risk that its  sorting machine might break. To wit, a housing market collapse.  Skilled workers cash out what they can and move elsewhere.  Lower home prices attract the less-skilled who had been priced out of the market.  A political and regulatory climate makes the city less hospitable entrepreneurs, who benefit from cheap space and light regulation.

It will be interesting to see what happens to productivity in these wealthy, slow-growth cities as the recession wears on.  My guess is that they will have to begin growing vigorously again if they want to recapture the productivity they had at the peak of the housing boom.

Skilled cities II

While I'm in this nerdy mood, let me point to this paper by Jaison Abel, Ishita Dey and Todd Gabe:

We estimate a model of urban productivity in which the agglomeration effect of density is enhanced by a metropolitan area’s stock of human capital. Using new measures of output per worker for U.S. metropolitan areas along with two measures of density that account for different aspects of the spatial distribution of population, we find that a doubling of density increases productivity by 10 to 20 percent. Consistent with theories of learning and knowledge spillovers in cities, we demonstrate that the elasticity of average labor productivity with respect to density increases with human capital. Metropolitan areas with a human capital stock that is one standard deviation below the mean level realize around half of the average productivity gain, while doubling density in metropolitan areas with a human capital stock that is one standard deviation above the mean level yields productivity benefits that are about 1.5 times larger than average.

This is a little technical, so let me translate:   Cities tend to become more productive as they grow denser.   On average, a city's workforce becomes 10% more productive when the city doubles in density.   But that average obscures the importance of skills.   Less skilled cities benefit a lot less than skilled cities from densification.   In fact, skilled cities, on average, enjoy three times the productivity gain from denser growth than less skilled cities.   This is yet more evidence of the increasing returns and agglomeration benefits from density.

This is a nice complement to the Glaeser and Resseger paper.  Glaeser and Resseger found that workers in skilled cities become more productive as the city grows, while workers in unskilled cities do not.   Abel et al find that workers in skilled cities become more productive as the city grows denser; workers in unskilled cities, less so.

The authors also test their conclusions using a variant of weighted density. They find even greater productivity gains (20% on average) when a city doubles its weighted density.

The authors use a coarse form of weighted density.  They weight urbanized area density by county subdivisions.  But how you chop up a city matters when calculating weighted density.  In order to calculate weighted density, you first divide the city into a bunch of smaller regions.  You then assign each region's density a weight equal to its share of the populations.  In general, weighted density increases as you chop up the city into smaller regions.

I used census tracts for my weighted densities.  There are many more census tracts than county subdivisions.  I thus got a lot more stratification than they did -- e.g., their top weighted density was 19,000 ppsm, while mine was 33,000.  How you divide a city for calculating weighted density is somewhat arbitrary, but I think using census tracts makes more sense than county subdivisions, which are more or less arbitrary.  I suspect the authors would have found even greater returns to density had they weighted density by census tracts rather than by county subdivisions.  

H/t Richard Florida.

Plazas

The national Episcopal church has purchased the block bounded by Seventh, Eighth, Trinity and Neches, where it intends to build its national archives.   The building might be five stories tall, with 70,000 square feet of archive space, a garage and "limited" ground-floor retail.  This would be a big improvement over the surface parking lot there now.

But is it necessary to waste space on a plaza?

This part of town doesn't have enough pedestrian traffic to support a plaza.  These things sit empty most of the time; they're dead space.  (Walk by the "plaza" at the JPMorgan-whatever building at 7th and Lavaca sometime.)

It would be nice to see property owners sell off corner parcels like this for separate development.  Most new developments downtown occupy entire city blocks, giving them a squat, blocky look.  Breaking blocks into smaller parcels would yield more attractive buildings.  It also would be nice to get a new alley every now and then.  (Note that the Austonian and Ashton are welcome exceptions.)

I suppose providing joint parking is too much of a hassle . . . 

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.  

Intersection density is the wrong metric for connectivity

One last point about CNU's proposal to encourage street connectivity.  CNU proposes using a metric of 150 intersections per square mile.  This is the wrong metric.  If we want to mandate connectivity, we should use a metric that guarantees connectivity; requiring a certain number of intersections per square mile doesn't do the trick.

The street plan below illustrates how a developer could meet CNU's intersection-density standard without providing even minimal connectivity.  The box is one mile by one mile. The black lines are streets and the white spaces in between are for houses and green belts.

It's crude, I know, but it makes the point.  A developer could simply cut the interior of the subdivision into disjoint pods and cover each pod with a dense grid. I've drawn in the local streets for the pod in the lower left-hand corner. The blocks are supposed to be roughly 400-feet long, with one half-block. It has 26 intersections, which would scale up to 156 intersections for the entire subdivision.  Even this density doesn't guarantee connectivity within the pod. This pod is divided into four quarters, which are mutually accessible only along the pod's perimeter road.

In this example, there are neither east-west nor north-south routes through the subdivision interior. The only through routes lie one mile apart along the subdivision's perimeter. I don't think is what CNU has in mind when it talks about connectivity.

If we are after connectivity we should use a metric that guarantees connectivity. We could do this by requiring a minimal number of independent routes -- that is, routes without common streets -- between any two nonadjacent intersections.*  (For intersections interior to a street grid, that number is four.)   By also requiring a minimal number of subdivision entrances per mile (say every 400 or 600 feet), we would get the desired through connectivity and internal connectivity without having to worry about creative subdivision street layouts.  On the contrary, developers would get a bit more flexibility in laying out their subdivisions while providing the public benefit that is the point of this exercise.

*It isn't hard to determine the number of independent routes between two non-adjacent intersections.  It's equal to the minimal number of separating intersections -- i.e., the minimal number of intersections you'd have to eliminate to disconnect the original intersections.  This means it's enough to look for choke points.  For example, the intersections interior to the pod sketched above would be disconnected from the rest of the subdivision by eliminating the intersections at the pod entrance.  Hence they wouldn't satisfy a standard requiring more than two independent paths.

Flip flop

A couple of weeks ago, I suggested that cities give developers incentives to build dense, connected, local street networks rather than simply mandate them.  After thinking a bit harder about it, though, I'm not sure that's the best solution.

Cities should refuse to maintain subdivision streets that do not provide a minimal level of connectivity for other city residents (as Virginia will now do).  But should a city or state go one step further and mandate connectivity?  Should it pay developers to provide connectivity?  Or should it do nothing, other than leave the maintenance costs on subdivisions with functionally private streets?

Using incentive payments is sound in theory.  Connectivity provides a spillover benefit to residents outside the subdivision because it lowers congestion on major arteries, gives them more alternatives for getting around, and solves a collective action problem.  If bans on mixed-use development were also relaxed, connectivity could also shorten net trip length.  (Connectivity alone won't do the trick.)  The disconnected, cul-de-sac pattern is less expensive than a dense street grid.  But if a city offered developers incentives equal to the value of connectivity to the city, then developers would build dense, connected grids when it made economic sense to do so. 

There are a couple of practical problems with this, though.  One is that no city could afford to do it, at least not for enough subdivisions to make a difference.  The second is that it would be hard for the city to figure out what to pay.  A city could pay for all subdivision streets.  But see objection no. 1 (and cities shouldn't be subsidizing subdivision streets anyway).  A city, in theory, should pay only for the extra street length needed to get up to a minimal level of connectivity.  But that depends on what the developer would have built in the first place, and the city wouldn't be able to determine that. 

That leaves regulation (mandating connectivity) or doing nothing.

Simply mandating connectivity eliminates the drain on the city fisc.  It is more feasible, politically, than simply dumping money on developers, as Virginia has demonstrated.  Regulation is a tricky thing, though.  The cost-benefit analysis does not change merely because the city is no longer paying its share.  And, again, connectivity can be very expensive.    

Perhaps the best solution is a hybrid approach.  Cities could mandate a certain minimal level of connectivity but let developers buy their way out of it.  That might provide enough of a nudge to solve the collective action problem without mandating street designs that cost more than they are worth.