Daniel, Aaron and I Create the City of the Future

4 03 2014
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ONLY TEN UNITS LEFT!!!

Daniel Kay Hertz has a great response to my post on density. Based on his response, I think that I overemphasized some disagreements of, at the expense of my agreement with, the idea of deregulating residential zoning in order to encourage more density. Part of this is because I excised two sections to keep the post under 8 pages, because I am a kind and merciful soul. The net effect of course is that some important stuff was left out.

Land use policy is a critically important element to developing a democratic and egalitarian society, particularly as more and more people move to our biggest cities. It’s worth spending a little more time considering what we want our cities to look like.

First, we absolutely want more density. either through deregulation (simply abrogating zoning designations) or upzoning. We want mid-rises and high-rises that can house lots of families. By increasing the supply of square footage, we bring down the cost per square foot. Density in turn attracts employment and creates opportunities for small business. Carbon emissions are cut, social services can be targeted and delivered more efficiently (because of the concentration of people), transit becomes self-sustaining because the demand curve is steep. Chicago in particular is criminally overzoned for single-family housing. It is ludicrous that there are vacant bungalows and homeless people. Razing four lots and building a three-story apartment block could accommodate as many as 16 families. It’s a no-brainer.

Second, in a place like Chicago that is so overzoned for single-family homes, Daniel is correct that a simple change to apartment blocks is all that is necessary in the short-term, particularly in those neighborhoods on the periphery of the city’s core. This is because, as Daniel points out, folks in these neighborhoods can still easily communicate to the “attractive” neighborhoods. However, in the medium-to-long term, mid-rise and high-rise housing will be necessary. The cost of land and the initial capital cost of construction makes the horizontal construction of lots of three-story apartment buildings unattractive. The cost analysis for a developer will be based primarily the cost of the land. Especially where the land has been upzoned (or deregulated), any square footage “left on the table,” is a lost profit opportunity.

Third, the reason for imposing exactions on developers is to prevent the problem of free riders. Each development imposes a quantifiable and fairly predictable cost–if you’re building 50 units, you are going to strain the public goods more than the person building 16 units. If the costs of infrastructure is distributed equally, the person building 16 units is subsidizing the bigger development. The property tax system, because of the way it is taken in gross and expended in gross, is too imprecise. Exactions ensure “fair share” payments that protect the public goods unique to a particular area.

Finally, speaking of precision, I was imprecise in saying that it is exclusivity itself that makes a neighborhood attractive. It isn’t that exclusivity is desirable (i.e., that people should want to live somewhere because it is exclusive) but rather, that because homogeneously high-income neighborhoods can exclude (via the zoning code), the public goods therein, rivalrous and non-rivalrous, are easier to cultivate. With greater density (and higher turnover of residents), these goods, particularly the rivalrous ones, will by definition diminish. More people equals crowded schools, over-run parks, congested streets, more crime, etc., etc. Making housing more affordable alone isn’t the end goal; making housing affordable in “good” neighborhoods is. Thus density has to be accompanied by some affirmative, ameliorative policy that compensates for that fact–that allows a neighborhood to “look” exclusive without actually being exclusive. Again, to me, exactions seem like the best way to achieve this; exactions consider the unique impact of each development and secure fees in “rough proportionality” to its impact.


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2 responses

5 03 2014
Jacob Lynn

IANAL. So, caveat emptor. But I don’t fully understand the distinction you’re drawing between the effects of property taxes and exactions.

I guess the logic is this: exactions can more closely match fees to the expected infrastructure/safety/etc costs of a given development. That seems sensible to me at face value.

What I don’t follow is the distinction on the expenditure side. Would we expect that exactions would really be spent in a more targeted way than property taxes?

Furthermore, the infrastructure/safety/etc costs are actually long-term, not short term. It seems to me that you’d really like to match tax revenues to those expected costs going forward year-by-year, rather than exact a lump sum payment for new development. This would consist of something like modifying the property tax structure to more directly reflect the costs imposed.

A legitimate practical problem is that the exaction calculation would actually be really difficult. For instance, if we wanted to match taxes to expected imposed costs, we would have to charge relatively more (on a per-unit basis) for units that are low-density, far from the city center, far from transit, etc. I imagine a formulaic approach would be almost uselessly inaccurate, and an ad hoc approach would constitute a bureaucratic nightmare at best and an inducement to fraud at worst.

6 03 2014
RamsinCanon

Jacob,

That’s a very good point, but fact-dependent. Impact fees for example typically are earmarked and spent for a specific purpose (because put in a particular fund); or they’re used to pay for a specific function (for example, they’re actually used to pay for expansions to a sewer line to accommodate increased discharge.

Other exactions–such as lump-sum payments to a school for more seats, or to a fire department for another ladder–are often made in-kind; that is, the developer will actually pay directly for these things (or act as a sort of surety).

Of course, property taxes will still go up and be assessed on a given property based on the appreciation of value; but exactions serve to make sure that developers can’t merely pass the cost of externalities off to the community as a whole. At the same time, they’re specific enough that the local government isn’t just using their police power to extort developers as a means of compensating for low taxes. (The Supreme Court has addressed this directly by composing a formula local governments must adhere to ensure that the exactions don’t amount to unconstitutional regulatory takings under the Fifth Amendment).

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