Tag Archives: renting

Parallels between Zoning and Airline Deregulation

Pacific Southwest Airlines post-deregulation ad (1985), showing their expansion beyond California. Image from Airbus777 on flickr.

Pacific Southwest Airlines post-deregulation ad (1985), showing their expansion beyond California. Image from Airbus777 on flickr.

Last week, Ilya Somin published a piece in the Washington Post’s Volokh Conspiracy blog entitled “the emerging cross-ideological consensus on zoning.” The lede:

In recent years, and especially over the last few months, economists and other public policy experts across the political spectrum have come to realize that zoning rules are a major obstacle to affordable housing and economic opportunity for the poor and lower middle class. By artificially restricting new construction, zoning and other similar land-use restrictions greatly increase the price of housing, and prevents the market from adjusting to increasing demand. This emerging consensus is a good sign, though it may be difficult to translate it into effective policy initiatives.

The issue isn’t zoning per se, but zoning (in practice) as a constraint against matching housing supply with demand. Somin notes that arguments about negative impacts from overly strict zoning come from across the political spectrum, ranging from the kinds of libertarian, free-market scholars you might expect, to Paul Krugman (noted previously here), writing “this is an issue on which you don’t have to be a conservative to believe that we have too much regulation.”

Somin draws the parallel to a past cross-ideological consensus in favor of deregulation: Airlines.

Airline deregulation is a bit of a misnomer. The Airline Deregulation Act of 1978 only removed government regulation of the airline business model; air travel is still highly regulated, particularly for safety purposes.  Here, the parallel with zoning is useful: zoning is just one set of regulations that govern development in cities. Building codes still apply; just as airlines are still subject to safety regulations.

Before deregulation, the Civil Aeronautics Board (CAB) controlled all of the key elements of the airline business: what routes could be flown (and by which airlines), the schedules of those services, and the fares airlines could charge. The market for air travel was completely controlled by the regulators.

Airlines couldn’t compete based on price, nor could they easily add new routes or serve new markets. With this tremendous constraint on capacity, they had no choice but to compete by offering luxurious service. Perhaps this sounds familiar to anyone who’s recently apartment-shopped in a tight housing market.

However, despite the conceptual similarities, there is one key difference: airline regulation was centralized in the federal government. Reforming things was relatively simple. Zoning is ubiquitous in American cities, but control over zoning is decentralized. There’s no national zoning office, no obvious equivalent of the Civil Aeronautics Board.

Because the Federal government can only regulate interstate commerce, the controls of the CAB did not apply within states. In big states that could support commercial air traffic wholly within their boundaries, there was already a preview of deregulation: Pacific Southwest Airlines (within California) and Southwest (within Texas). However, this intra-state experimentation in airline business models didn’t have the large impact on the industry until taken to scale nationwide. Likewise, because of the regional nature of housing markets, there’s not sure to be a benefit to a single city in a region to be the first mover on looser zoning.

Because of the decentralized nature of legal control over zoning, even an emerging consensus among legislators and policy-makers would have to be much deeper than the kind of consensus that deregulated the airlines. And even with a broad and deep consensus, the sheer number of jurisdictions that would need to take action is enormous.

For that reason, it’s hard to imagine action to change zoning on a scale akin to airline deregulation without some kind of intervention from the courts. Charlie Gardner covers the history of the jurisprudence of single-family-only zones and notes how long it’s been since these issues have been before the court – and how some of these issues have never been directly addressed:

Ninety years after the Euclid decision, land use debates in the United States continue to be distorted by this same dichotomy between “single-family zoning” and “multifamily” areas. Rather than talking about housing in terms of units/acre, or total floor area, or some other similar metric, we tend to use purported building types — whether single-family, duplex, triplex, ADU or other such classification. Yet these classifications are in a sense illusory. Whether a builder puts up three detached homes on a lot, three stacked units in a triplex, or three side-by-side units in rowhouse form really shouldn’t matter a great deal to the regulator.

The court’s confusion on this point may have stemmed in part from the lack of a concrete controversy. The respondent, Ambler Realty, was seeking to use its property for industrial purposes, and had no intention of constructing any residential buildings, much less apartments. The dispute was an abstract one which only pertained to the value of the land. Had the court been confronted with a scenario in which an individual builder sought to construct a two-unit building conforming to height and bulk regulations within a single-family zone, it could not have evaded the question so easily.

Charlie also cites Sonia Hirt’s excellent book Zoned in the USA, which documents America’s unique and ubiquitous single-family only zoning and how much of an outlier these regulations are in the world. In other words, outside of the consensus.

Would a challenge in the courts bring the US in alignment with the kinds of regulations used elsewhere in the world? Would posing the question to the courts embrace decades of regulatory momentum – or look to academics and policymakers for a new emerging consensus?

Links: The new American Dream

House for rent. CC image from Sean Dreilinger

Foreclosed sprawl – the next frontier of renting?  The New York Times looks at the practice of firms buying up foreclosed, cookie cutter sprawl housing at relatively low prices with the idea of renting these houses out to tenants.

As an inspector for the Waypoint Real Estate Group, Mr. Hladik takes about 20 minutes to walk through each home, noting worn kitchen cabinets or missing roof tiles. The blistering pace is necessary to keep up with Waypoint’s appetite: the company, which has bought about 1,200 homes since 2008 — and is now buying five to seven a day — is an early entrant in a business that some deep-pocketed investors are betting is poised to explode.

With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants. Nobody has ever tried this on such a large scale, and critics worry these new investors could face big challenges managing large portfolios of dispersed rental houses. Typically, landlords tend to be individuals or small firms that own just a handful of homes.

Cities usually have more rentals, and for good reason.  Apartments have common structural elements and provide for economies of scale in managing multiple units.  Applying this to large-scale single family detached homes is a different and challenging model, but a seemingly inevitable result of the decline in home prices in these areas once built on speculation.

It’s also an example of housing market filtering in action.

This isn’t quite what the concept of filtering is about… Cap’n Transit disputes the concept of filtering, noting that such shifts are not permanent.  However, I don’t think anyone was asserting they were.  Filtering is a process, a description of the market responding to shifting demand.  It is not a description of an end state.

It’s true that most of those buildings were not well-maintained, but the causation is more likely the other way around: the landlords didn’t put a lot of money into them because they didn’t bring in much rent. So why were the rents so cheap? I’m guessing that there were several related factors: racism, city services, crime, noise, fads and the suburban ponzi scheme.

I don’t think any of those really disproves the filtering concept.  Filtering doesn’t really describe causation, just the correlation – as demand drops (and therefore the potential rent income), so to does maintenance, and the units on the margins will filter down to more “affordable” prices. Each of those factors listed at the end could be construed, one way or another, as an influence on demand.

The rest of the Cap’ns post on the politics and emotions of gentrification and filtering up are spot on, however.

The fiscal benefits of density: While renting out old McMansions might be a challenge due to diseconomies of scale, Emily Badger looks at Asheville, NC and makes the fiscal case for density and urban infill development.

The whole idea is pretty simple. But it’s sort of baffling that we haven’t been looking at our land this way for years. Cities, Minicozzi laments, are woefully ignorant about exactly which types of neighborhoods and development put the most financial strain on public coffers and which kick in the most money. This is why Minicozzi has been deploying every metaphor he can think of – cash crops, gas tanks, french fries! – to beat home the math.

Fundamentally, this is the same concept as the Geoffrey West observation of urban agglomeration and the inherent efficiency it offers.

How to make use of the reverse commute: Perhaps someone should inform various secondary job centers along transit lines of their fiscal potential.  Alon Levy looks at what’s required to make for successful secondary CBDs along rail transit lines, and what’s wrong with our current land use around suburban stations:

But really, the kind of development that’s missing around suburban train stations in the US is twofold. First, the local development near the stations is not transit-oriented, in the sense that big job and retail centers may be inconvenient to walk to for the pedestrian. And second, the regional development does not follow the train lines, but rather arterial roads, or, in cities with rapid transit, rapid transit lines…

In both cases, what’s missing is transportation-development symbiosis. Whoever runs the trains has the most to gain from locating major office and retail development, without excessive parking, near the train stations. And whoever owns the buildings has the most to gain from running trains to them, to prop up property values. This leads to the private railroad conglomerates in Tokyo, and to the Hong Kong MTR.

Commenter Jim notes how the DC region has a decent track record in this regard with Metro, but not with commuter rail:

The experience in Washington has been that when a Metrorail station (either an extension or infill) is proposed, the planners tear up their existing plans and write new ones for the area immediately surrounding the new station. Metrorail-catalysed TOD is a well understood and appreciated phenomenon. But no-one cares about commuter rail. Planners don’t assume that commuter rail stations will change anything, so don’t change their existing plans to accommodate them.

That’s the disconnect you have to fix.

Indeed – creating that symbiosis requires solving a bit of a chicken-egg problem.  Still, some opportunities exist in the DC region.  New Carrollton jumps to mind, both for Metro access for DC reverse commutes, as well as its mid-line location on the MARC Penn line.  However, the challenge there is on the development side, not the transit service side.

Parking requirements matter: Downtown LA’s revival based on adaptive re-use might not have been possible without changes to LA’s minimum parking requirements.  Making a place built pre-requirement conform is unnecessary, and shows how influential and destructive the requirements can be.  It also speaks to the ability of changing regulations to make doing the right thing the path of least resistance:

Passed by the L.A. City Council in — yes — 1999 and at first applied only to Downtown, ARO gave the go-ahead for the conversion of historic and other older — and often under-used, under-appreciated or even abandoned — office buildings into residences. ARO was expanded in 2003 into various other parts of the city.

“[The Ordinance] provides for an expedited approval process and ensures that older and historic building are not subjected to the same zoning and code requirements that apply to new construction,” reads text on the city’s Office of Historic Resources site.

Fitting in with the econourbanist theory about reduced land use regulation allowing for the market to better address issues of supply, the response was impressive:

During an almost thirty-year period beginning in 1970, Downtown Los Angeles gained a grand total of 4,300 units in housing stock.

Then, between 1999 and 2008, Downtown gained at least 7,300 housing units just from long-term vacant buildings.

That said, it’s not like LA completely abandoned these regulations:

Shoup’s article notes that pre-ARO, developers were required per each housing unit to provide two or more parking spaces. Those spaces, Shoup emphasizes in his piece, were required to be on-site.

Post-ARO, Shoup’s piece says that the average number of on-site parking spaces fell to 0.9 in those converted, previously vacant buildings. Including off-site parking, the number was still 1.3 spaces per unit. That’s a 65% drop in required parking spaces in an area where many residents already self-select to reside in for reasons unrelated to having a multi-car garage.

Nearly one space per unit is still a lot of parking.  Granted, this is LA that we’re talking about.  The flexibility to meet that requirement off-site (flexibility likely required to make the adaptive reuse of historic buildings possible) speaks to the benefits of allowing such changes as a matter of right.

The point about residents self-selecting to live in such conditions is key, contrary to common NIMBY complaints – no one is forcing Angelenos to move in at gunpoint.

Different thoughts on transit service metrics: Jarrett Walker looks at San Francisco’s transit speed (same as it was 100 years ago, or slower) and offers thoughts on various metrics and the need to think about the reliability of the network as a whole.

My own work in this area has always advocated a stronger, more transit-specific approach that begins not with the single delayed line, but rather with the functioning of an entire network.  Don’t just ask “how fast should this line be?” which tends to degenerate into “What can we do to make those forlorn buses move a little faster without upsetting anyone?”  Instead, ask “What travel time outcomes do we need across this network?”  Or turn it around: How much of the city needs to be within 30 minutes of most people?  — a question that leads to those compelling Walkscore travel time maps, which are literally maps of individual freedom.