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Monday, September 05, 2011

The Big City as Gated Community: Is an unholy and unwitting alliance between big developers and neighborhood activists strangling our cities?

Ryan Avent's op-ed this Sunday and The Gated City, his e-book that was published this Fall, both highlight a regulatory trend that any New Yorker can watch first-hand just by hanging out at the City Planning Commission -- the destruction of the City's housing supply through zoning restrictions.

As Avent notes, the problem with these zoning restrictions is that, by making cities unaffordable, they drive out people who are most economically productive in high-density urban areas where the exchange of information and ideas is most rapid. Aspiring actors, fashion designers, architects, law profs, and other owners of educational capital, as Edward Glaeser has most meticulously documented, do their best work when they live and labor in a dense city. But supply restrictions coupled with high demand make such cities unaffordable, exiling the human capitalists to cities where their labor is less valuable.

So why do not cities loosen up their zoning? David Schleicher and I explore the following hypothesis in a recent paper entitled "Balancing the 'Zoning Budget.: Two groups with the most intense interest in real estate have unwittingly colluded to strangle the city's housing supply. Neighborhood activists who lobby to preserve historic buildings and the character of brownstone rowhouses are unconsciously serving the interests of big developers who tend to build gigantic housing developments on patches of industrial land. Neither has any stake in loosening up the zoning envelope to insure that there is a net gain in number of potential permitted units.

Neighborhood activists' destruction of housing expansion in existing residential neighborhoods is a familiar story. Here's the drill. The owner of a building in a neighborhood with a lot of existing homeowners --say, a "brownstone" rowhouse in Carroll Gardens, Brooklyn -- builds an extra story on top of her structure, disrupting the pattern to which the existing neighbors have become accustomed. The neighbors respond by pressuring the City to ban any construction that is "incompatible" with -- meaning, larger than -- existing structures in the rowhouse area. The City obliges with what it calls "contextual zoning" -- essentially zoning that shrinks the zoning envelope to fit exactly what is in the neighborhood already. This June, the City "contextually rezoned" (i.e., shrink-wrapped) 130 blocks of Sunnyside-Woodside, repeating this pattern of residential exclusion once more. In this manner, fine-grained increases in housing supply (granny flats, pop-up additions to single buildings, etc) are eradicated in the name of "contextual" development.

Meanwhile, the big developer massages the city into rezoning or assembling parcels of industrial land for some very large residential development -- Bruce Ratner's Atlantic Yards, for instance, or Jeffrey Levine's "The Edge" in Williamsburg. Securing the re-zoning is a major undertaking, involving years of prep work -- scoping hearings for environmental assessment, ULURP for city rezonings, etc. No developer wants this investment in the city's political process undercut by competition from housing in existing neighborhoods. So the neighborhood activists' suppression of "pop-up" housing in brownstone neighborhoods is a blessing for the big developer. Jeffrey Levine, developer of "The Edge" puts the matter succinctly in explaining why he expects his units to sell despite the downturn:

I do believe that we will also be the first to come out. The barriers for creating residential units are what protect values, and nothing has changed that. New York City is a very tightly traded market. Even when we were experiencing the boom, we only built 25,000 to 30,000 new units in a city of eight million.

In short, despite their denunciations of big developers, the neighborhood activists are doing the Lord's work as far as the big developer is concerned, by maintaining those "barriers" to competition from small-scale expansions of housing in existing residential neighborhoods, thereby insuring that the City continues to be (in Levine's words) "tightly traded".

The problem with this unwitting alliance is that the new housing in former industrial zones does not seem to provide an adequate offset for the loss of the old housing in existing neighborhoods. Initial evidence from NYU's Furman Center suggests that the City's rezonings are barely breaking even in number of new units permitted. Given that NYC is expecting close to a million new residents, this failure to enlarge the zoning envelope is setting the stage for a housing crisis. In any case, the new skyscrapers erected in old industrial zones tend -- unsurprisingly -- to be located in places where it will do the least good -- distant from parks, for instance. If one is forced to build away from existing residences, of course, this mal-location of housing is only to be expected.

So what is to be done? David and I urge the city planners to keep score by counting the potential units lost in the contextual rezonings. (Incredibly, the city does not do so already). It might also help for more neighborhood activists to be a bit more self-conscious of the ways in which they are transforming vibrant cities into gated enclaves for the well-heeled. Only a handful of landuse lefties -- Matt Yglesias, for instance -- makes the case for enlarging the housing supply. Perhaps getting urban activists to become aware that they are serving the interests of the "FIRE" (finance, insurance, & real estate) establishment that they claim to loathe might get them to relent on the shrink-wrapping of the city.

Posted by Rick Hills on September 5, 2011 at 02:34 PM | Permalink


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A decision to buy a home is generally seriously made with many considerations, as it is a major investment. One of the factors in making the decision relates to the neighborhood, including existing zoning. Perhaps there should be a mandatory disclosure warning such a purchaser that the neighborhood may change in the future in many ways, including by means of zoning (upzoning in particular), that may impact the purchaser's investment. There is of course the "greater good" argument to be made. But that may mean that the purchaser bears much of the price for the "greater good." Perhaps the alternative is to Houstonize or to compensate the purchaser for investment loss (although the 5th and 14th Amendments may not afford protection regarding zoning "takings'). Perhaps this post needs more balance.

Posted by: Shag from Brookline | Sep 6, 2011 7:41:51 AM

Bootleggers and Baptists!

Posted by: Stuart Buck | Sep 5, 2011 4:56:12 PM

Great post. Chicago seems to have done a better job of allowing new development.

Posted by: GU | Sep 5, 2011 3:16:29 PM

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