Non-gentrification is never a story

A gentrification story from the Statesman:

For the past 3 1/2 years, Kerry Arrant has lived in the Cactus Rose Mobile Home Park in East Austin. His dwelling is a 1954 Spartan — a “stripped-out” mobile home he describes as “post-apocalypse-looking.”

In the mobile home park — off U.S. 183 near Vargas Street in the Montopolis area — Arrant is surrounded by residents who have lived there much longer. They are mostly Hispanic and non-English speaking — and they might not be living there much longer.

The Cactus Rose Mobile Home Park case is the latest battleground in Austin’s ongoing wave of development — a tide that has sometimes led to residents being forced to move from older residences to make way for new projects.

The owner of the 23 acres where the mobile home park now sits has filed for a zoning change with the city of Austin that, if approved, would allow developer Oden Hughes to build Lenox Oaks, a project with 356 apartments and 20,500 square feet of commercial space. Oden Hughes has a contract to buy the land from 500 Bastrop Highway Ltd., whose owners include Jimmy Nassour, an Austin lawyer and real estate investor.

The new development would displace more than 50 households — many families with children — who pay on average between $400 and $700 a month, not including utilities, to rent a space in the mobile home park, said Susana Almanza, a community activist who, as president of the Montopolis Neighborhood Association, has been working to help the residents.

Gentrification stories like these, unfortunately, are common. They are usually pitched as battles between developers and residents (which is understandable), but the broader land-use context is rarely reported.

For example, left unsaid in this article is that very little land in the vicinity of this trailer park is zoned for multi-family. (The tract in question is zoned commercial, so the existing trailer park is a non-conforming use.) There is a vast amount of undeveloped land in the area, but it is all reserved for commercial, industrial or civic uses.  And that’s evidently how the neighborhood likes it, because the future land use map continues to reserve all that land for non-residential use. (The arrow points to mobile home site.)

Montopolies flum

Trailer parks are a particularly disfavored use in Austin. They are permitted in only one of Austin’s 38 or so base zoning districts — the  “MH” district. And because virtually every use other than mobile homes is prohibited in the MH district, a property owner who wants to build a new mobile home park must accept a drastic down-zoning for the privilege.

Needless to say, the neighborhood FLUM sets aside no land at all for mobile homes.

As I noted last time, there is evidence that high-demand places see less displacement of low-income residents if they have a lot of development than if they have a little bit of development. This is counter-intuitive, but there are a couple of explanations. One is that a lot of new housing means there is less pressure on the cheaper existing housing to filter up to a higher rent class. A second explanation is that places with a lot of development tend to be generously zoned, which makes under-used commercial properties the attractive, low-hanging fruit.

Take South Lamar Boulevard in south Austin. Approximately 2,700 multi-family units are under construction or have been completed recently along this two-mile corridor, and that’s just counting the large vertical mixed use projects. Exactly one of these projects — Post South Lamar — involved the displacement of existing residents, and that project was initiated before a massive upzoning in 2008 allowed VMU development on commercial properties. Since that upzoning, developers have contented themselves with converting under-used commercial properties to multi-family, shying away from existing multi-family complexes.

For the sake of reference, there were only 23,000 housing units in the 78704 zip code in 2010. The upzonings along South Lamar have allowed this one street to accommodate a 12% increase in 78704’s entire housing stock, with minimal displacement of existing, cheaper housing.

That’s a great story. But no reporter wakes up in the morning and says, “I think I’m gonna write a story about why this apartment complex is still standing.” So the absence of gentrification tends to go unreported.

Market Rate Housing and Displacement

California’s nonpartisan Legislative Analyst’s Office has published a report pleading for more market-rate housing in California, especially in its coastal urban communities. Daniel Hertz has a good summary. The gist is that California cannot subsidize its way to affordability through either rental assistance programs or inclusionary zoning. 2.5 million low-income households in California spend more than 30 percent of their income on rent, which is a common “affordability” benchmark. Providing housing vouchers to these households would cost $20 billion annually — and that ignores the sharp increase in rents that a massive increase in subsidies would cause.

The LAO argues that any additional subsidies must be accompanied by an increase in the supply of market-rate housing. Many believe that market-rate construction makes neighborhoods less affordable rather than more affordable. The LAO explains why this is wrong. (Answer: Econ 101 supply and demand and housing filtering.)

But the LAO’s clincher is its empirical analysis of low-income “displacement” patterns in the Bay Area between 2000 and 2013. The LAO deemed a census tract (i.e., neighborhood) to have experienced displacement if (i) its overall population increased and its population of low-income households decreased or (ii) its overall population decreased and its low-income population declined faster than the overall population. Using a sophisticated regression technique on data on Bay area census tracts, the LAO concluded that more market-rate construction was associated with less displacement. High-construction census tracts had a 26% chance of experiencing displacement, compared to a 46% chance for low-construction census tracts.

LAO Brief - displacement

The LAO’s report doesn’t explain precisely how lots of market rate construction prevents displacement. We can speculate. “High construction” census tracts likely have a lot of underdeveloped land zoned for multi-family or mixed-use development. Developers want to redevelop this land first. Older, fully amortized apartment buildings, even low-income ones, throw off a lot of cash. Demolishing them has a high opportunity cost.  They accordingly are more expensive to redevelop than, say, an aging, low-intensity retail or commercial property. Austin’s South Lamar is a good illustration. 2,700 or so apartments along the corridor have either been completed recently or are under construction. Exactly one of these developments involved the demolition of existing apartment units. And that one development was planned and permitted before much of the street was upzoned for vertical mixed-use development. The other projects have “displaced” low-intensity commercial uses. 2008’s VMU upzoning perhaps saved hundreds of cheaper apartment units.

That’s not the only possible explanation. We tend to think of a city’s housing market as one big market. For example, the press reports average home prices and price increases on a citywide basis. It might be more accurate to think of a city’s housing market as a bunch of neighborhood housing markets. They are linked together, of course, but if they function somewhat independently, then neighborhood rents will be quite sensitive to local increases in supply. The above chart certainly suggests this is the case.

If housing markets vary from neighborhood to neighborhood, then homeowners in a given neighborhood will be disproportionately concerned with development in their neighborhood. And homeowners in expensive, exclusive neighborhoods will be disproportionately concerned with minimizing new supply in the neighborhood, thereby keeping neighborhood membership low.

Econ 101 and the Missing Middle

HUD has released 2015 building permit tallies. Austin’s tallies for 2015:

  • Single Family Units: 2,846
  • Duplex units: 326
  • Units in 3-4 unit buildings: 30
  • Units in 5+ unit buildings: 6,890

This bipolar split is typical of American cities. Some cities build more single-family than multi-family. Some build more multi-family than single-family. But the fourplex is dead. We build very little small-scale multi-family these days, which is why the “missing middle” is a focus of zoning code rewrites and a meme among the New Urbanist crowd.

Although “missing middle” housing could easily be added to established single-family neighborhoods while preserving “neighborhood character,” it is mostly illegal in Austin and most other American cities, at least within the single-family districts, and it is often staunchly resisted by homeowners in older neighborhoods, where the form of housing makes most sense. Some homeowners, in fact, seem to dislike “missing middle” housing more than any other kind of housing. It is worth thinking about why.

It is useful to first think about building technologies After manufactured housing, the simplest, cheapest housing technology is the low-rise, wood-frame construction used in  detached single-family homes. Small apartment buildings can be built using essentially the same techniques. Most large suburban apartment projects, in fact, are developed as a cluster of two-three story buildings containing 8-12 units each. These buildings would actually form nice low-rise, urban neighborhoods if they were arranged around a public street grid, but instead they are arranged around parking lots, private drives and landscaped common areas in garden-style developments.

The next step up from low-rise, wood-frame technology is the mid-rise apartment building of four to seven stories. This type of development requires elevators (and thus a concrete elevator core) and usually consists of “stick and brick” construction over a concrete podium. It is at least twice as expensive per square foot as similar quality single-family housing — more if it includes structured parking.

The next step up from the mid-rise technology, of course, is the high-rise which requires concrete or steel framing to the top, structured or subterranean parking, and compliance with stringent fire and building codes. High-rise construction is at least twice as expensive as mid-rise construction.

Housing supply is “lumpy” because of these abrupt changes in construction costs as the market moves from one type of housing to the next. Because it is much more expensive, on a per square foot basis, to build mid-rise housing than single-family housing, and much more expensive to build high-rise housing than mid-rise housing, the supply curve for housing within a neighborhood looks something like the stair-stepped red line:

Gentrification Supply-Demand chart

To grossly oversimplify things, once a neighborhood is built out with one type of housing, it becomes impossible to build new housing without switching to an abruptly more expensive technology. The supply curve remains vertical until the break-even price point at which the new technology becomes feasible. Once the break point is reached, it is possible to add many new units at roughly the same per-unit cost.

The graph above illustrates this: between prices P1 and P2, housing supply is perfectly inelastic. An increase in demand from D1 to D2 translates into a sharp increase in prices without any increase in supply. The new price P2 is still too low to spur new supply. But at P3, there is a sharp kink in the supply curve where the next technology becomes feasible. An increase in demand from D2 to D3 triggers a sudden burst of new construction. And the neighborhood (or at least the choice lots zoned for it) rapidly fills up with the next housing type.

(Note that not even vulgar Econ 101 predicts that housing prices will drop after a switch to a more expensive technology. The switch merely prevents prices from continuing to rise because new supply can continue to be added at the same cost.)

As noted, this model is a gross oversimplification. Supply curves are never perfectly horizontal because land costs increase as lots fill up with new development, even if per square foot construction costs remain flat. There is also a substantial lag between a spike in demand and the actual delivery of new supply, since the new supply takes a long time, perhaps years, to plan, permit and build. The surge in new supply thus tends to coincide with a peak in housing prices. Neighborhood residents (particularly those being priced out) infer that rising density is the cause of the high prices. They forget that prices were spiking when the market was static

Although supply curves are never perfectly horizontal, they are, unfortunately, often almost perfectly vertical due to zoning. If zoning limits housing within a neighborhood to detached single-family on a minimum lot size, then housing supply within that neighborhood becomes perfectly inelastic once the lots are built out. Any increase in supply must come from the conversion of low-intensity commercial tracts or older multi-family tracts to mid-rise apartment buildings, which will happen only after a sharp spike in single-family home prices. These commercial and multi-family tracts tend to be on the neighborhood’s periphery, which explains the pattern of low-intensity single-family housing ringed by abruptly larger multi-family development that prevails in Austin and many other sunbelt cities. This is just the stair-stepped supply curve stamped into the built environment.

Neighborhood supply curves are not vertical due to technological constraints. Switching from detached single family to duplexes does not require a change in technology: the same low-rise, wood-frame construction will do just fine. Likewise, going from the duplex to the four-plex does not require a change in technology, even if the four-plex is slightly more expensive per square foot to build. It is in fact possible to use low-rise, wood-frame construction to build accessory dwelling units, duplexes, three-plexes and four-plexes, row homes, courtyard homes, manor homes, dingbats and other low-scale housing types. Most of these cost more to build per square foot than detached single-family homes, but they are cheaper than mid-rise construction with concrete elevator cores. If we legalized the missing middle, the supply curve would not have the odd stair-step shape, but would be more smoothly curved. Neighborhoods would display a continuum of housing types rather than sharp transitions from single-family to mid-rise construction. Five-story apartment buildings would seem like a natural progression of existing density (as they do in Austin’s West Campus) rather than an abrupt shift. More housing could be built at lower cost, and fewer people would suffer sudden price shocks.

Liberalizing the code to allow more low-rise housing seems like it should be an easy sell politically. After all, opponents of zoning liberalization usually claim that they are trying to preserve “neighborhood character,” and it is possible to sprinkle single-family neighborhood with low-rise, wood-frame buildings that look like single-family homes even if they harbor multiple units. What could be more respectful of neighborhood character?

But some of the most ferocious neighborhood resistance comes to exactly these sorts of small-bore proposals. Austin just went through a knock-down fight over liberalization of the accessory dwelling unit rules.  I’ve been following Austin land-use politics for 15 years, and was still surprised by the ferocity of the opposition to small backyard cottages.

This is where the “club goods” view is useful. Homeowners in pricey, established neighborhoods have an incentive to oppose zoning liberalizations that threaten to enlarge the potential size of neighborhood membership and increase others’ access to neighborhood amenities.  They’re motivated less by concerns with traffic, noise, or “neighborhood character” than with minimizing the neighborhood’s carrying capacity. Patiently lecturing them about the virtues of “missing middle” housing will get you nowhere. Garage apartments, duplexes, four-plexes and other missing-middle types are not innocuous additions to the neighborhood housing stock, from their perspective; they are a realistic threat to grow neighborhood membership quickly and inexpensively. That’s a bad thing, not a good thing, if you’re seeking to to minimize club membership.

In fact, some homeowners in older, pricier neighborhoods, if forced to allow more housing, prefer to upzone peripheral  tracts for mid-rise developments rather than to loosen the restrictions against the missing middle in the neighborhood core. The mid-rise’s high construction cost provides some protection against new housing supply. (And many lots on the periphery will have poor access to the neighborhood amenities anyway — again, a feature, not a bug.) In Econ 101 terms, homeowners in these neighborhoods want a stair-stepped supply curve. Not surprisingly, that’s what our zoning codes tend to allow.

 

 

NIMBYism: the Incentives Approach

Very few homeowners have written a letter to the planning commission to object to a real estate development. Very few have signed a petition calling for the down-zoning or historic designation of their neighborhood. Even fewer have taken the time to show up at a zoning hearing to oppose a particular development project. Vocal opposition by a homeowner to a particular development — much less the organized, institutionalized opposition that prevails in some places — is the exception, not the rule.  I’ll wager this is the case even in those cities dominated by especially truculent homeowners.

Any explanation why some homeowners seem to oppose every new development project thus has to account for the fact that most homeowners don’t.

I think the right way to approach this is to look at homeowner incentives. The incentives approach requires us to assume that people are rational, that they understand and act to further their own interests. Assuming that homeowners act rationally, however, does not mean that homeowners always say rational things. And it certainly does not mean that homeowners are being honest about why they are objecting. Someone might object to development because it threatens a firefly habitat (i.e., a “field”), but odds are it’s not her concern for wee fireflies that is impelling her to spend a couple of hours at a zoning hearing.

I’ve been interested in land-use issues since I took a course on it in law school 25 years ago. I’ve closely followed zoning disputes in Austin for the last 15 or so years, and have followed zoning disputes somewhat less closely in a handful of other cities for almost as long. I continually see homeowners advance objections that are less ludicrous than a concern for firefly habitats but that nevertheless lack any basis in fact. That 12-unit apartment building down the street will not really generate enough traffic to congest your street. (It probably won’t generate enough extra traffic for you to detect without a traffic counter.) The shadows from that 40-foot tall building will not destroy your herb garden. That new apartment complex will not trigger a crime wave in your neighborhood.

The fundamental problem is that homeowners tend to settle on their opposition first and back-fill the reasons for it later. This doesn’t mean they’re lying or deliberately advancing flimsy arguments. They’re just dead set against the development, and people who are dead set against something can be extraordinarily creative in coming up with reasons to justify their opposition to themselves and to others. This is one reason people who routinely oppose new development don’t have a sense of humor about it, not even a little bit. (Just look at the comments on this lighthearted post. Who gets mad over lolcats?)

This is not to suggest that all objections to development are fabricated. Homeowners are sometimes quite frank about their real reasons for opposing development. But sorting frank objections from fabrications is just too hard. The incentives approach helps us cut through the chatter, freeing us to think about why homeowners act the way they do.

Why think about NIMBYism?

Anyone who follows zoning has witnessed this drama:

A developer requests a zoning change to allow a modest apartment building next to a mostly single-family neighborhood. The request prompts howls of protest from the neighborhood’s homeowners. At the zoning hearing, one homeowner after another trudges to the microphone to urge, earnestly and sincerely, that the development threatens his neighborhood’s character, the quiet and peaceful enjoyment of his home, and the lives of his children and small pets. If the neighbors think the hearing will go against them, they also will decry the lack of public process (regardless of how much process has taken place), and level accusations of gentrification or nefarious devotion to profit. Nothing has the potential to turn the bourgeoisie into revolutionaries quite like a zoning fight.

NIMBYism would be comical if it weren’t so damned effective.

But, unfortunately, NIMBYism is effective indeed. It has become increasingly difficult to build new housing in our most productive cities and our nicest neighborhoods. Over the past three or four decades, homeowners objecting to development have systematically curtailed the supply of housing where we need it most. The consensus among economists, on both the right and the left, is that zoning has driven up home prices, exacerbated economic segregation, and created a drag on the national economy by redirecting migration away from rich, high-productivity regions to poorer, low-productivity regions.

Although there is gads of research on the effect of strict development regulations, there has been surprisingly little analysis of its root cause. Strict development regulations do not materialize out of thin air, after all: they are the result of sustained, consistent political pressure by homeowners who object to development near their homes.

This background political pressure is taken as a fixture of the political environment of modern American cities. We have coined a term — “NIMBY” (for “Not In My Back Yard”) — to describe it.

The term, alas, has become trite. We can agree that “NIMBYism” is a bad thing (despite occasional attempts by homeowners to claim otherwise). It signifies, vaguely, opposition to development made for selfish reasons. Beyond that, the term lacks clear content. After all, it can’t be the case that any objection to any sort of proposed development constitutes “NIMBYism.” Was Jane Jacobs a NIMBY for battling Robert Moses’ plan to plow a superhighway through Greenwich Village? Is a homeowner a NIMBY for objecting to a paper plant, smoky barbecue pit, or some other plainly objectionable use next to her home? Nothing prevents us from labeling either a “NIMBY”, but, as the term is commonly used, neither arguably qualifies. Both Jacobs and the hypothetical homeowner could make a straightforward case that the proposed uses, whatever their public benefit, would inflict significant costs upon them personally. Objecting to development merely because it imposes disproportionate environmental costs on the objector is not the kind of selfishness we mean by “NIMBY”.

I contend that it is a useful exercise to think methodically about NIMBYism. Developing a sound theory of NIMBYism will, of course, enable us to define NIMBYism. The working definition used by most today is little more sophisticated than, “I know it when I see it”.

But if a “theory of NIMBYism” is to be useful, it must explain NIMBYism as well as define it. We lack a theory that explains why homeowners object when they do. To be clear, the central puzzle is not why homeowners object to development, but why only some homeowners object. Homeowners in some places seem to object to every garden-variety proposal while homeowners in other places exhibit only indifference. On average, California homeowners tend to object to development more often and more vigorously than Texas homeowners (and have more tools to do so). But there is plenty of variation within each state — Austin homeowners are more reliably “NIMBY” than Houston homeowners — and, perhaps most significantly, plenty of variation even within cities. Within Austin, Hyde Park homeowners are more likely to object to development than homeowners in Dove Springs. A useful theory of NIMBYism explains why some homeowners have an incentive to object to development while others do not.

There are other puzzles that any sound theory of homeowner obstructionism ought to solve. For example, why do homeowner objections to development seem to end at their neighborhood’s boundary? If NIMBYism is an attempt to cartelize the supply of new housing, homeowners ought to systematically object to development anywhere, or at least nearby, rather than just within their neighborhood. But homeowners tend to show little interest in development proposals one or two neighborhoods over.

Why are homeowners more likely to engage in NIMBYism than renters? And why do the exceptions to this rule tend to occur in rent-controlled cities?

Why is obstructionism concentrated among homeowners rather than other types of property owners? Apartment owners, for example, have a general interest in limiting the supply of competing product, but one rarely sees an apartment owner speak at a zoning hearing against new development.

Why has NIMBYism intensified over time? Zoning was widely adopted nearly a century ago. Homeowners, presumably, have always cared about their home values. If NIMBYism is simply about “protecting home value,” why is NIMBYism more prevalent today than in the 1930s, 1950s, or even 1970s? And why has it grown so much more sophisticated?

A good theory of NIMBYism will not only explain the phenomenon of homeowner obstructionism, but offer a basis for realistic policy proposals. Systematic, institutionalized NIMBYism, such as that pervading California and the northeastern megalopolis, imposes serious inefficiencies on the economy and exacerbates social inequality and segregation. As others have pointed out, though, the cure prescribed by “market urbanists” — “Loosen zoning restrictions!” — is little more than a pipe dream. A better understanding of NIMBYism might help us craft remedies that stand a chance of being implemented.

Thus, this blog, which is my attempt to lay out a theory of NIMBYism.

My central thesis is that NIMBYism is about monopolizing access to neighborhood amenities. In the absence of zoning restrictions on the number of housing units in a neighborhood, neighborhood amenities would be a public good. Zoning converts neighborhood amenities from a public good (a partially non-rivalrous, non-excludable good) into a “club” good (a partially non-rivalrous, excludable good). Because “club” membership is bundled with home ownership, zoning causes the value of neighborhood amenities to be capitalized into home prices. NIMBYism can be thought of as the practice of objecting to development in order to protect the value of “club” membership.

Homeowners will only spend the effort to object where there is something to preserve. And, in most neighborhoods, neighborhood amenities have no “club” value. The neighborhood may not be very nice, so that the value of the neighborhood’s amenities is zero or negative. The neighborhood may have many other close substitutes, so that no one is willing to pay a premium for its amenities.  Or the neighborhood may enjoy particularly attractive amenities, but the zoning allows practically unlimited  development, preventing homeowners from capturing the value of those amenities. (Downtown neighborhoods tend to be a specific example of the latter). Development in neighborhoods like these tends not to spur NIMBYism.

There are plenty of neighborhoods, however, in which the value of neighborhood amenities is capitalized into home prices. These are neighborhoods with valuable amenities that lack close substitutes and which are, for lack of a better word, “under-zoned.” Homeowners in these neighborhoods have strong incentives to obstruct increases in zoning entitlements and to agitate for down-zonings in order to protect the value of club membership. And they do.

The foregoing is is just a sketch. In coming posts,I will discuss congestion and overuse externalities, environmental and social amenities, the concept of “prestige,” and the difficulty homeowners face in credibly signaling the effect of development on neighborhood amenities. I will explain why prestigious neighborhoods like down-zonings, and why historic preservation, which can be thought of as the ultimate down-zoning, is particularly popular. I will discuss why “neighborhood planning” is one of homeowners’ best tools for propping up club value. And I will try to explain why NIMBYism tends to spread from neighborhood to neighborhood and to intensify over time.

I will also discuss other types of regulation that should be thought of as zoning’s close cousin. Regulations that restrict parking to neighborhood residents, for example, are, like zoning, attempts to limit outsiders’ access to neighborhood amenities. When a neighborhood enjoys particularly good access to downtown or another amenity, this proximity is itself an amenity. In such neighborhoods, homeowners can be expected to oppose street connectivity in order to monopolize the benefits of this proximity.

I hope to work in some policy proposals. The chief one is, “When you find yourself in a hole, stop digging.” It may be politically impossible to loosen (much less eliminate) restrictive single-family zoning in established neighborhoods. But we can stop the practice of automatically applying single-family zoning to large swaths of suburban and exurban greenfield tracts. There is no particular constituency for zoning fringe greenfields exclusively for single-family use, so cities ought to stop doing it. This practice merely begets the next generation of NIMBYs. Those greenfields are tomorrow’s opportunities for infill.