The Limits (and potential) of Land Use Policy

The City of Austin has enjoyed steady growth both economically and demographically since the turn of the millennium, swelling from a sleepy college town into a major American metro in a fairly short period. There have been some growing pains along the way, as Austin now faces many of the same challenges as prestige cities such as Los Angeles and New York, particularly regarding housing costs and traffic congestion.

source: U.S. Census Bureau

In June 2014, the Austin City Council adopted an ordinance that sought to address these problems by increasing population density around mass transit routes. The council hoped this would reduce dependence on cars, thereby easing congestion and freeing up extra income for people to deal with pricier rents.

How did the ordinance aim to encourage such density? Primarily through relaxing municipal code restrictions on construction of new apartments. The ordinance targeted two kinds of code regulations: The first are parking space requirements, which require a certain number of parking spaces to be built for each new housing unit. The ordinance reduced this requirement in order to encourage the use of land for residential purposes, as opposed to yet more parking space in a city trying to kick its car habit. The ordinance also reduced what are called site-area requirements for units smaller than five hundred square feet. This means that tiny units would not need to use any more space than what is necessary to serve the basic needs of housing.

It has been two and a half years since the ordinance passed and Austin has experienced a healthy amount of apartment development in that time, but I was interested in discovering whether the ordinance succeeded in its specific goal of spurring development near major transit corridors. The ordinance does not apply to the City of Austin as a whole, but rather to what are called transit-oriented districts within Austin, which are special zoning districts created around major transit routes. One such district is pictured below.

source: AustinTexas.gov

Both the ordinance itself and the transit-oriented zones have a very clear objective: get more people living in dense housing developments near major transit routes.

To see whether this occurred in practice, I searched the city’s online permit database for every housing development approved and completed in the past 7 years within the Plaza Saltillo, MLK, and Lamar transit-oriented development zones. There are six TOD districts total, but due to the prohibitively time-consuming nature of combing through every relevant housing permit approved in the past 7 years, of which there are thousands, I decided to narrow my focus. I found every approved multifamily (apartment) development approved and completed in these three TOD districts over the past seven years. I recorded the amount of housing units and the permit numbers associated with each so that anyone can double check my work on the city’s interactive online database.

source: AustinTexas.gov
source: AustinTexas.gov

I chose this time frame in order to minimize any effects the recession may have had on apartment development in Austin. 2010–2016 is a time frame in which the city’s population and wage growth remained steadily positive.

source: DepartmentofNumbers.com

We can therefore safely assume that if the ordinance failed, it was not because of a slump in housing demand (rising rents demonstrate this as well). Furthermore, a wider time frame would not provide much useful information because apartment development within these TODs began truly booming only within the past decade or so. Second, I assigned units a year based on when the permit was applied for, not based on when it was issued or when the project was completed. I did this to avoid any confusion over whether a project completed in 2015 was already underway or in advanced planning stages before the ordinance took effect. This would not tell us much about the effectiveness of changing land use regulations for encouraging smart urban development.

Surprisingly, we see a clear downward trend in the number of multifamily units in these three TODs. I doubt that the slump occurs because of the ordinance, but it does suggest ineffective public policy. Perhaps we should lower our expectations for what changes in municipal regulations can accomplish. Or perhaps the ordinance was not ambitious enough, applying to only some parts of Austin when a wider deregulatory push would have been more appropriate. I am inclined to believe the latter is true. Consider the following data from the landmark study by University of Washington economist Theo Eicher on housing prices and land use regulations (measured by the Wharton Index. A higher Wharton score denotes a more regulatory environment.)

source: Theo Eicher, University of Washington

Of the four explanatory variables above, a better (by which I mean lower) Wharton Score is the lowest hanging fruit. Unless for some bazaar reason cities are interested in stemming population and wage growth or cracking down on density, deregulation is probably the best way to tackle housing prices. The 2014 Austin ordinance probably failed because it didn’t do enough, not because it was based on false assumptions.