Market Urbanism

Liberalizing cities | From the bottom up

“Market Urbanism” refers to the synthesis of classical liberal economics and ethics (market), with an appreciation of the urban way of life and its benefits to society (urbanism). We advocate for the emergence of bottom up solutions to urban issues, as opposed to ones imposed from the top down.

“Upzoning means up yours!” Links

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1. The title quote comes from this gem of an LA Weekly article about proposed changes to Hollywood’s zoning code which would allow for taller buildings and denser development. According to the Weekly, “For decades, zoning that governs height and size has preserved thousands of affordable, low-slung, older apartments, bungalows and commercial buildings in Hollywood.” The words “preserve” and “affordable” rarely belong in the same sentence.

2. Once again in New York upzoning is linked with affordable housing. Expanding student housing at NYU also depends on the university providing land and potentially a building for a public school.

3. In San Francisco, an activist is working with developers to achieve upzoning approval for waterfront property. Despite the positive upzoning, on the surface this deal wreaks of crony capitalism. But the real kicker comes from the proposed funding:

First up, the plan to build a high-rise residential tower near the waterfront at 8 Washington St. with funding from the state teachers’ retirement fund.

The plan is being backed by Pak’s business allies, developer Simon Snellgrove and lobbyist Marcia Smolens. The project spokesman is P.J. Johnston, former spokesman for Brown.

Approval of the deal could yield millions of dollars in affordable-housing money to help fund one of Pak’s pet projects, a $32 million apartment complex being built on Stockton Street by the nonprofit Chinatown Community Development Center.

In my job I do a lot of work with pension reform, and this project would be an egregious abuse of CalSTRS, one of the most underfunded public pension plans in the country. Public pension funds should be managed to minimize risks for retirees, employees, and taxpayers, not to provide kickbacks to business interests.

4. Last note on special interests in upzoning: At least some property owners must hope to sell in the future rather than hold on to their real estate forever. In upzoning cases, why don’t we see these groups coming out as loudly in favor of the change as those who oppose increased density in their neighborhoods? Since upzoning in a place like Hollywood will unambiguously make land more valuable, why don’t these stakeholders lobby in favor of the change? If it’s a matter of their financially-driven motive sounding too crass compared to NIMBYs with lofty goals like preserving Hollywood, these bootleggers just need to find themselves some Baptists in the form of density-loving environmentalists.

  • Anonymous

    If you upzone a small piece of land, it makes the land more valuable because you can build more units but not so many more that you put real downward pressure on prices. If you upzone large chunks of land, you can make it less valuable by allowing the equilibrium price to fall so far that it overrides the ability to sell additional units.

    Demand for Manhattan real estate is huge, but if you doubled the amount of permissible development, prices would almost certainly fall by more than half, making land owners far worse off than they are now.

    In general, it is landowners who are the biggest supporters for zoning laws because they are the only thing that make land worth much of anything. The first zoning laws in the nation, passed in New York after the construction of the Equitable Building in 1916, had far less to do with popular outrage over lack of light then landholder terror over the idea that — with new technology for building up — one acre provided office space for something like 30,000 people (See “Form Follows Finance”). At that rate, less than 100 Manhattan acres, in the most prime locations, could provide all the needed office space and another few hundred acres most of the housing. The rest of the land in the city would be worth very little.

    Landowners hate major upzoning.

  • The difference is who the owner is:

    If you own land in an area that is upzoned, you are generally happy. Only unless you have a less desirable piece of land among an area that is not yet undergoing development – thus it will take longer for competitors land to absorb.

    If you own land that is already improved, you don’t want upzoning in the short run. It brings more competiting space to the market, and there is little opportunity to capitalize on the loosening. Think of a large building in Manhattan. The owner is aware that he cannot economically tear down his building and build a bigger one, yet now his neighbor can build twice as big.

    Of course, these stakeholders rarely consider the Jacobsian outlook that bringing more density makes the location more vibrant and may actually boost value….

  • Anonymous

    There are very few situations in which you, as a landowner, want any upzoning that is anything other than tiny when compared to overall demand for built space in the area.

    If you own 200 acres of 1000 undeveloped acres that are upzoned from 1 to four homes per acre in a growing region with 120,000 people, you’re happy.

    If you own 200 acres out of 100,000 undeveloped acres that are upzoned from 1 to 100 houses per acre in that same region, you’re furious.

    (Of course, the first scenario is infinitely more common than the second because the overwhelming majority of upzoning is about political payoff rather than urbanism.)

    Still, the simple fact is that we live in a massive country with not all that many people. Without extreme restraints on development, land in all but the most desirable parts of the most desirable areas would be worth very, very little.

    Any serious upzoning — permitting real density (30k residents per square mile or more) over any real area (1 square mile or more) that had been suburban or undeveloped — is terrible for land owners, unless the area in question is held by one person or a small number of people.

    But of course, landowners do not allow any such upzoning to occur, anywhere, ever, which is why no one has built anything resembling a real city since landowners passed that law in 1916 and figured out that they could use political power to generate value for themselves by making an abundant resource seem scarce.

  • If you own 200 acres out of 100,000 undeveloped acres that are upzoned from 1 to 100 houses per acre in that same region, you’re furious.

    I don’t agree with what you are saying. As a developer, I can’t think of many scenarios where I would be furious that I am now permitted to do more with my raw land. I can easily think of scenarios where I would be elated. All I can think of is that I would be disappointed if I have a little crappy piece of land among a large undeveloped (and less crappy) area where I’ll now have to wait longer before my land is desirable.

    Also, see my post on how zoning doesn’t force developers to build densely – developers simply build to a density that is most economical: http://www.marketurbanism.com/2008/06/28/urbanism-legend-zoning-creates-density/

  • Evan Gould

    Hey, Scoop. Developers want to maximize every single square foot of their property. Any change in zoning that allows them to do so is gladly welcomed.

  • Benjamin Hemric

    Emily Washington wrote:

    Once again in New York upszoning is linked with affordable housing.  Expanding student housing at NYU also depends on the university providing land and potentially a building for a public school.

    Benjamin Hemric writes:

    This doesn’t really accurately describe an admittedly somewhat complicated situation.  If I remember correctly from my attendance at Community Board meetings, etc., NYU’s plans — in essence — don’t really involve true upzoning (i.e., changing the rules to allow a greater floor area ratio [FAR]) but rather they involve an effort to maximize the amount of FAR that already exists.  This FAR is not, by the way, particularly high for Manhattan and is, more or less, similar to the areas around it: Greenwich Village to the west, SoHo to the south and NoHo to the east and north.  

    To better understand the controversy it’s important to remember that the blocks that NYU wants to build upon were once almost entirely built up with pre-zoning (i.e., pre-1916) loft buildings, similar to those that still exist today in SoHo to the south and NoHo to the east and north.  As part of the 1950s urban “renewal,” these buildings were demolished for, essentially, tower-in-the-park apartment houses that do not fully utilize the existing allowable FAR.  However, given other elements of the zoning laws (e.g., required amounts of open space for buildings that are used for residential purposes), and given various urban renewal regulations and city actions (e.g., city ownership of open space along the eastern and western edges of the superblocks), it is difficult for NYU to maximize the site’s existing FAR (at least in the near future, and especially in a way that wouldn’t be “ugly” and unpopular) without relaxing or changing government rules and regulations and ownership that currently helps “preserve” the site’s anti-city, low-density, “tower-in-the-park” form.

    The provision of open space and a building for a public school are meant meant as inducements to gain community approval of NYU’s proposed changes.

    Benjamin Hemric
    Friday, January 20, 2012, 7:45 p.m.

  • Anon256

    This seems like a good point.  But given that municipalities often zone new greenfield developments however the initial developer asks, why don’t developers more often ask to have it zoned as unrestrictively as possible?

  • Emily Washington

    Benjamin, thanks for clarifying what’s going on with the NYU plans. The plans include space for 1,000 more students, right?

  • Scott Johnson

    However, your neighbors–your competitors in the real estate market–are also so permitted.

    Many trades LIKE regulatory regimes, especially ones that limit competition.

  • Emily Washington

    This is a great point Scott — it’s not as if industry lobbyists are alwayslooking for the free market solutions. However in this case, it seems to me that anyone who wants to sell property to be redeveloped in the neighborhood with proposed upzonings would benefit by being able to get a higher sale price. I would imagine that many owners of old apartment buildings and single family homes would fall into this group.

  • awp

    It seems to be a classic cartel/prisoner’s dilemma.

    The excess “rent” comes from having a part of a limited SUPPLY. Any one individual would be able to increase their portion of the “rent” by being the only one allowed to increase their supply, while lowering the total “rent” through the increase in SUPPLY.  If the zoning is removed there will be no remaining excess “rent”.  It would take some serious analyses that I have never seen to figure who would benefit the by moving from a zoning regime to a free market regime.  My guess would be those whose real estate’s spatial properties(i.e. proximity to the amenity) had the greatest value that was underutilized.  So that those closest to the park or downtown would see a marked increase in their land values and would increase the density of the built environment on their real estate, while those the farthest away (who before had valuable buildings on their land because of the restrictions on the built environment closer in) could see their property values fall drastically.  

  • Right. Those with more desirable locations will benefit. Those with undesirable land will no longer be able to compete, and those who own already-improved property will have more competition.

  • Emily Washington

    This is a great way of framing the problem, as a cartel. As you say, the analysis of which landowners would benefit or be harmed through upzoning is complex, and perhaps many individual property owners are unsure whether or not upzoning would raise their property values. 

  • awp

    If a cartel is the right way to think about it, then it is possible that upzoning a broad enough area would lower all owners’ total property value. Since the purpose of the cartel is too raise profits by limiting supply. 

    It would also help to be able to think more clearly about the divisions within property values. So that those owners closest to the amenity would most definitely see their land values rise they  might still see their total property value fall due to the fall in value of the “right” to have a building of certain size on their land.  

    If we expected everyone’s total property value to rise with upzoning of a large enough area, we would also expect Houston to have some of the highest property values in the world, ceteris paribus.  

  • If a cartel is the right way to think about it, then it is possible that upzoning a broad enough area would lower all owners’ total property value. Since the purpose of the cartel is too raise profits by limiting supply.

    Not exactly. You can consider vacant land as an option to build something of value upon it. Zoning inhibits what can be built on it, thus it limits the value of the option. In the usual cases of zoning, the vested interests (cartel) are the owners of already improved land. (perhaps the owners of poorly located land to some extent too) For the vested interests, their building value gets diminished by additional competition, although the land value goes up. Since demoliting their more valuable building would be the only way to execute on the higher land value, they are stuck and probably hurt by loosened zoning. So, to be more precise, the land value of the properties will certainly go up on a whole as the option is now more valuable. But this will possibly diminish the value of the already built buildings…

    If we expected everyone’s total property value to rise with upzoning of a large enough area, we would also expect Houston to have some of the highest property values in the world, ceteris paribus.

    I think we agree here. Zoning is not the variable that creates value, it only restricts it and pushes it further away from where it is optimal. Value of land is based upon what it could be used for, which is complex and
    unique for each site. Zoning only inhibits what can be used and thus
    overall inhibits value. One could take the Houston analogy even further,
    and say that “thus the most valuable land in the world is under the ocean”
    – or even on the moon, where there is no restriction whatsoever….

    So, since zoning restrictions serve to push value away from where it is
    optimal, loosening of zoning would indeed hurt the land values in locations
    where use was only optimal under a zoned regime. But on net, value would
    be “created”. (for lack of knowing a better word meaning “released from
    under the boot”)

  • Emily Washington

    It seems like some empirical study of this might not actually be too difficult (for someone better at math than I). Looking at the assessed values of properties in neighborhoods before and after they undergo upzonings compared to nearby areas with no zoning changes could be a way to start getting at the change in the overall value created by “releasing this land from under the boot.” However the sample of upzonings might be too small for this study to work.

  • Benjamin Hemric

    Emily, Hi!  Sorry for the delay in replying.

    It’s been a while since I’ve read NYU’s materials and attended the community board meetings and open houses — plus my attention has been focused on certain aspects of the plan.  So I’m not really familiar with all of the various particulars, including those for additional student dorms, etc.  But, in answer to your question, if I remember correctly, in NYU’s “current” plans there is a provision for additional dorms space along the eastern edge of the site in the so-called “zipper” building.  (It’s called the “zipper” building because in the current plans the building has a somewhat serrated shape.)

    However, NYU’s plans seem to be pretty flexible, and the main thing seems to be (as they readily admit) to come up with a “government approved” outline of a plan that will allow them to maximize their properties in a flexible way.

    Benjamin Hemric
    Friday, Jan. 27, 2012, 9:20 p.m.

  • Emily Washington

    Benjamin, thanks for providing these details. I’m sure the uncertainty regarding what they will be able to do with their own land has made it difficult for the university to plan for growth.

  • Benjamin Hemric

    Nicely put!

    It’s important to remember that their “Plan 2031” is a plan for all of their properties in New York City, including those outside the Greenwich Village.  So what they want to build on any given site, and even what they “want” to build in the first place, depends to a certain extent what they think will be “approvable” for a given site.

    Case in point is the guest hotel they were planning for the Silver Towers site.  It seems to me that the main reason they were planning for a guest hotel in the first place was because that use seemed to be one of the few things that could make sense for filling out (up to existing zoning) a site where they believed an approvable building would have to look like one of the three IM Pei tower-in-the-park buildings already on the site.  If they weren’t constrained by this requirement, I wonder if a guest hotel would have been such a high priority (in a city, and even an area, with plenty of hotel rooms).

    Ultimately, as people may be aware, the building was not approved by the Landmarks Preservation Commission.  So, the plan has sifted, if I remember correctly, to the construction of other buildings elsewhere on the superblock.  And, if I remember correctly, these buildings don’t lend themselves for use as a guest hotel.

    Benjamin Hemric
    Sat., Jan. 28, 2012 9:05 p.m.

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