Monday, 19 September 2011

The Gated City

I've just finished reading Ryan Avent's book The Gated City, which UK readers can download for Kindle or PC/Mac reading here. Anyone interested in why we've got cities in the first place, how we ended up with the ones we have, or what's going to happen to them in future should read it. In an appealingly concise ninety or so pages, you get a very clear explanation of the economic advantages of density, a compelling argument that restricting density leads to significant damage to economic growth prospects as well as social costs, and a critique of the ethics of NIMBYism which is all the more persuasive because it is so even-handed.

For a short book it raises a lot of issues, but I'm going to focus on just one or two. Firstly - and maybe this isn't a particularly fair comment on a deliberately brief tome - at some point I'd like to see a deeper exploration of why so many people have come to oppose development so much. After all, it was only as recently as the mid-1970s that Harvey Molotch was writing about how American cities were controlled by 'local growth machines', mostly driven by real estate developers, that rode roughshod over the interests of ordinary residents.

In a way, it's these growth machines that seem hard to explain now. You can see why residents wanted more control, even leaving aside some of the crimes committed in the name of urban redevelopment. It is natural to want to influence what happens to our neighbourhood, since it affects our quality of life so deeply. It is all the more natural if we are particularly attached to our neighbourhood, if it is particularly unique and attractive, or if our major asset's value is intimately tied to it (in practice, these different factors may be difficult to disentangle). Perhaps NIMBYism, like cleaner environments and longer holidays, is something that we choose to have more of as we become more affluent, even if it comes at the cost of lower overall economic growth (I say 'we', but of course as Ryan says there are real clashes of interest and distributional consequences involved).

And the thing is, falling urban densities over the course of the 20th century did seem to be accompanied by real improvements in quality of life. Present day San Francisco is an extraordinarily pleasant place. So why should those who have paid so much for the pleasure of living there have to accept it being changed, perhaps destroyed?

The Gated City is about answering that question from the perspective of society at large, and it answers it very well. But as persuasive as this rootless technocrat found it I don't think it will win over your average NIMBY in San Jose or Chelsea. So what would work? Ryan mainly suggests radically narrowing the scope of planning rules and respecting the right of people to do what they like with their property, and 'zoning budgets' so that local authorities can't restrict development in one place without freeing it up elsewhere.

I'm not sure about these. One problem with trying to radically limit the role of planning is that restrictive rules are typically extremely popular with local people, so removing them implies some sort of top-down direction that, however beneficial in the aggregate, is likely to cause a good deal of strife. Secondly, I think there is a role for planning in that there really are large potential social costs involved with development which good planning can address. There's a danger that removing the system's ability to address these externalities would just lead to more development with high social costs. The problem is that the role of planning has been left open to addressing any kind of 'impact', so people complain on purely private grounds, albeit sometimes dressed up in social terms. Perhaps I'm naive or just speaking my class interests as a sometime-planner (by the way, see the disclosure at the end of the post), but I'd like to see more of an effort to make it clearer which external costs planning can and should address and what the evidential thresholds for complaints should be before we chuck out planning altogether. As for zoning budgets, unless I'm missing something they don't seem to me to really address the legacy of existing constraints.

So what's left? I do think we could look at ways of ensuring that expensive and restrictive neighbourhoods bear more of the costs of their restrictions, which at the moment are mainly borne by others. In this country the new government has introduced a New Homes Bonus which pays local authorities for each new home completed in their area by matching the council tax income for the new home for the first six years. This will provide some additional incentive to increase supply, but the problem is that if supply increases to anything like the levels we need, much of the funding for the NHB will come from top-slicing central government grant to councils in proportion to the amount they currently receive. This means that those councils most dependent on government grant (i.e. those in deprived areas) will pay more for the NHB (if it ever takes off), unless they can get a lot of homes built themselves. In effect therefore, the strongest incentives tend to apply in the areas with lowest market demand.

I've argued that you could redesign the NHB so that it is paid for by top-slicing grant to councils in proportion to the extent of the affordability problem in each area. That would mean that the areas with highest prices relative to incomes will not just earn no NHB if they don't allow new supply, but would lose out the most in proportionate terms to those councils that are building. At the right rates this could be a sharp incentive indeed, perhaps enough to concentrate minds in some expensive areas places (this is also not a million miles from Glaeser & Gyourko's proposal of a few years back).

Now, that's obviously fairly top-down too. And anything that challenges the status quo enough to really make a change is going to be controversial and hard to implement for precisely that reason. The first step has to be to face up to the real magnitude of the costs we impose on ourselves by unduly limiting densities, and for that reason The Gated City deserves to be read very widely.

Disclosure: This post, like everything else on this blog, is informed by my work at the Greater London Authority on housing and planning policy - as a fairly minor functionary rather than someone with much decision-making power. The big decisions are naturally made by the Mayor and his advisors, taking into account a range of factors which I have the luxury of not having to deal with. Just in case it isn't clear, I'm writing in a completely personal capacity here.

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