Do we need to think small to solve big problems like rising housing and transport costs?
Getting ‘bang for your buck’ is an important consideration when it comes to infrastructure. How many houses will be built, how many businesses will start, how many more customers will be served and how much employment will be created? These are the sort of beneficiary factors infrastructure providers want to maximise from their infrastructure spend.
Internationally there is a lot discussion of how very small public entities at the urban block or street level could provide benefits for cities.
This paper examines the question of whether these sort of micro-institutional arrangements at the street or urban block level are the fairest and best way to improve responsiveness of city housing supply and rapid transit ridership to rising demand for housing and transport services.
Renowned economist and Professor of Urban Planning at UCLA -Donald Shoup clearly articulates this question in an LA Times article titled- How L.A can gain housing (and transit ridership) without infuriating the neighbors.
In his paper Donald Shoup highlights the need for rapid transit to go hand in hand with a mechanism that allows the building of more housing in a way that isn’t a nuisance.
Should Los Angeles allow higher density housing in single-family neighborhoods near rail transit stations? Higher density will create more housing and increase transit ridership, but many homeowners view higher density as a bad neighbor. If a developer demolishes a single-family home to build a four-story box, the developer makes money, the new residents gain housing, and the transit system gets more riders, but the nearby homeowners get stuck with an outsized eyesore.
If all the neighbours affected, which depending on the width of the street and arrangement of plots within an urban block, could either be a street or a block, were beneficiary partners to the development scheme then the nuisance costs (factors like, loss of sunlight, privacy considerations, more competition for public car parking spaces etc.) could be internalised against development profits and benefits. Projects where the development gains are greater would be acceptable to the street or block and would therefore proceed.
International studies as documented by Robin Harding in the Financial Times in an article titled Planning rules are driving the global housing crisis shows that planning rules add significant costs to house building.
Careful economic studies try to compare the cost of building to the cost of existing homes, or the price of land with planning permission to that without it. For example, as of 2002, Edward Glaeser and colleagues attributed half the cost of Manhattan apartments to planning rules. Christian Hilber and Wouter Vermeulen found English house prices could also have been 35 per cent lower in 2008
Research in 2017 found similar results for New Zealand cities.
This means that if the costs and benefits of new housing were better internalised significant savings could be shared amongst the various parties. Existing landowners, new residents, developers and transit providers etc all could receive benefits. What is needed is a mechanism to achieve this.
Donald Shoup’s recommended mechanism is graduated density zoning.
Here is the description of how graduated density could work in Los Angeles;
The Expo Line station at Westwood/Rancho Park, for example, is in the middle of a single-family neighborhood. Apartment buildings nearby might anger the current residents, but some cities are using “graduated density zoning” to solve this problem: It allows higher density, subject to limits, but also protects homeowners from unwanted development.
In Monopoly, players must buy four houses before they can build a hotel. With graduated density zoning, developers must assemble a group of houses before they can build apartments. The land remains zoned for single-family housing on sites of less than a given size, such as one acre. Only if enough homeowners agree to sell their adjacent properties for land assembly will the zoning allow multifamily housing on the newly formed site.
Homeowners can prevent land assembly by refusing to sell. Nevertheless, graduated density zoning encourages homeowners to join a land assembly because more units per lot means higher prices for their property, perhaps triple the value of a single-family house.
My concern about Donald Shoup’s proposal is that it gives ‘holdouts’ site assembly monopoly pricing power i.e. the last neighbour agreeing to sell for site assembly needed to trigger the increased graduated density zoning, which makes the development scheme profitable, will increase their asking price so they receive all the development profits.
I think graduated density would eventually lead to more houses being built near rapid transit compared to the alternative where site assembly doesn’t occur and intensification is much smaller scale. Graduated density though will be prone to delays and price hikes from holdouts so its ability to quickly produce more affordable housing (and more transit riders) would be limited in my opinion.
I have a similar concern for Auckland. Recent Unitary Plan zoning changes were an improvement as they are more permissive. The Unitary Plan did not though provide a mechanism for neighbours and neighbourhoods to balance the nuisance costs of more housing bulk versus development gains from building more residential space. Arbitrary restrictions favouring stand alone homes remains the Unitary Plan default setting, even for areas zoned for apartment and terrace housing. Overseas in places like Tokyo and the inner suburbs of Houston (an area 20 km across) the default setting in zoning provisions are missing middle or apartment housing (and mixed commercial).
The Unitary Plan does not provide the sea change that unlocks the potential of existing Auckland suburbs to become transit oriented walkable neighbourhoods with an influx of highly desirable ‘missing middle’ housing forms. The Unitary Plan is a hard constraint on more housing, more businesses, more customers and more employment for many parts of Auckland where there is strong demand to provide this activity.
Previously I have described Tokyo’s responsive housing supply and impressive rapid transit ridership numbers that allows commercial transit companies to profitably provide rapid transit services. First in an article titled- What is the secret to Tokyo’s affordable housing? Second in an article titled -Tokyo does not subsidise its transport system!
Here is a summary of how the Act works;
Basic Operation Policy of Urban Renaissance Act in Tokyo
1. Project should be proposed by the private sector (take the full advantage of business ingenuity of private sector, the private sector shall hold the ability to conduct the proposal),
2. Obligation of rapid process of the urban planning procedure (shortened from two years to six months),
3. Proposal shall be individually examined, not by the uniform criteria,
4. Accountability of the private developer for the residents and neighbours, obligation to obtain the consent of at least two thirds of landowners.
The selection criteria of URED Area is as follows;
1. Whether the economical potential of the area is high enough,
2. If there are enough investors to fund the project,
3. If the proposal has enough potential to be realized,
4. If the program has high enough quality (first grade program) to meet the international standards.
Interestingly the Urban Renaissance Act only requires the consent of two thirds of the landowners for a development project to go ahead. So there is a mechanism to address the monopoly site assembly issue.
I have my doubts that the Urban Renaissance Act is the only factor behind Tokyo’s impressive build statistics. Japan’s planning system in general is much more permissive than Anglo-world cities as can be seen in this article. Another factor is Japan did not have a slum clearance or a garden city period where local and central government encouraged the movement of city dwellers out into suburbs and satellite towns. Japan instead had a institutional response of improving ‘slums’. Culturally this means the Japanese do not have hang-ups and prejudices against density that many Anglo-world residents have.
There are other variations for solving the problem of how to build more housing around rapid transit stations.
In California there is a Bill going through legislature that would allow transit provider Bay Area Rapid Transit (BART) to ignore many local zoning regulations when it builds on its own land.
It is a good idea to allow transit providers to capture some of the economic activity generated around its transit stations by being property developers. This can align the rapid transit interests with the communities it serves. It also can provide a useful amount of revenue to the transit provider. Tokyo does this well with its competing passenger train companies. These transit infrastructure providing companies in effect ‘price in’ more housing and business activity.
Hong Kong’s MTR is also heavily involved in property development but without the competition seen in Tokyo, as it is a monopoly transit and transit focused property provider. MTR’s rapid transit system though is highly efficient with the world’s highest fare recovery rate of 185%.
The concern I have about BART gaining planning rights and Hong Kong’s MTR transit/property development system is the monopoly pricing issue again. BART and MTR are public or government owned entities, but that provides no guarantee this will stop them from exploiting their monopoly position. Hong Kong unlike Tokyo is notorious for its unaffordable housing.
Hong Kong’s highly profitable MTR could be a modern extension of the colony’s previous land banking practices. Professor Alan Evans writes about these historical land banking practices in his book Economics Real Estate & the Supply of Land (2004, P.185).
Hong Kong, as a Crown Colony, had a system under which all the land started off in the hands of the government of the colony. The sale of this land for development was integrated into the planning system, since the sale of a site was controlled by a contract which laid down how it should be developed, controls which would elsewhere be part of the planning system (Bristow 1984, Staley 1994). The example of Hong Kong, however, illustrates also that public land banking need not result in low land prices. Land prices in Hong Kong were notoriously high, and the government derived a considerable part of its income from land sales.
In the UK London YIMBY has a Better Streets proposal that if enacted would create a street level improvement district. Participating streets would be empowered to make their own building design codes. London YIMBY believes many city streets could be more beautiful with more homes.
These new houses would have a package of community amenities, environmental considerations, economic value and aesthetics that are desirable benefits to neighbours who are most affected by building more housing spaces in their street. The Sunday Times reported on the Better Streets proposal with an article titled -Are you a Yimby: Would you band together with your neighbours to transform your street?
I have written about a Master Planned Block proposal that I believe could improve New Zealand’s housing supply responsiveness in situations where rapid transit is being provided. This proposal is also in the same micro-institutional community improvement district ilk. Because of the wider streets in New Zealand and the larger sized residential blocks that would benefit from having more through lanes I advocate for block level improvement districts.
I believe Master Planned Blocks have some advantages over graduated density and giving monopoly transit providers planning permission status because it addresses the monopoly issue as well as balancing development gains against nuisance costs for neighbourhood communities. The intent is to increase competitive tensions in the same way that Japan/Tokyo does, which I believe will result in better and fairer outcomes.
There is some academic support for these various micro-institutional arrangements. Professor Robert Ellickson in 1998 wrote New Institutions for Old Neighborhoods in the Duke Law Journal [Vol. 48:75] where he advocated for the creation of a legal framework for Block Improvement Districts. The key paragraph being on pages 98 and 99.
Should a BLID (block level improvement district) also have regulatory powers? As Liebmann and Nelson both contend, there is a compelling case for empowering a block association to relax many of its city’s zoning restrictions. Nelson plausibly anticipates that a grass-roots organization would be more likely than a municipality to bargain to lift an inefficient land use restriction, such as a legal barrier to opening a daycare center. As a long-time proponent of the decentralization of land use regulation, I applaud experimentation on this front. Most zoning regulations mainly govern use allocations, building bulks, lot shapes and sizes, parking requirements, and other land uses whose spillover effects are limited. A BLID should be empowered to grant variances from these sorts of regulations, although perhaps not from the few zoning provisions (such as limits on extraordinary heights) that are aimed at preventing neighborhood-wide negative externalities.
This discussion may seem arcane and convoluted but transport and housing provision are hugely important problems in many modern cities. Any potential remedy should be fully investigated.
Housing and transport costs have become an increasing burden for consumers in the US over the past century. This means it has become increasingly important that policy settings ensure housing and transport supply is responsive to demand.
A similar problem of rising transport and housing costs exists in New Zealand too.
For example recently David Chaston at the New Zealand business sector website Interest.co.nz analysed median household consumption patterns in New Zealand. This showed that increases in housing and transport costs were negating wage increases for renters in particular. There was concern this reduction in discretionary spending is a factor behind the loss of business confidence in New Zealand in 2018.
In conclusion a remedy for the big society-wide problem of rising housing and transport costs would be for policy makers to look at how the smallest units of public cooperation can help.
This proposed remedy would work best as part of a wider urban growth agenda that addresses issues like urban and spatial planning, infrastructure funding, congestion pricing and legislative reform.
New Zealand’s main opposition party -the National Party has said that its RMA Reform Spokeswoman Judith Collins is working on an RMA bill to reform planning rules for the country. This policy work will be publicly released in 2019 as proposed legislation which the National Party will take to the 2020 general election.
We are really clear that if you want to deal with land supply, you need to have significant RMA reform.
Collins says National is still in the early stages of drafting the legislation but has promised the bill will “return the concept of property rights to owners of the land.”
Empowered micro-institutional communities that maximise benefits to existing residents and newcomers in response to infrastructure investment would be consistent with these broad reform approaches. Especially if that allows enabling infrastructure to be more efficiently provided.
Republished at NZ’s business website Interest.co.nz with good feedback in the comment section.