Archive for the ‘development and planning’ Category

Progressive proposal from Kenya

detail from photo by Jennifer Wu via flickr (cc)

detail from photo by Jennifer Wu via flickr (cc)

Writing in Standard Digital, Charles Kanjama proposes that “If government was clever, it would include a value-capture approach in project financing.”  He’s writing about big infrastructure projects, which in his time (2014) and place (Kenya) include railway and port improvements. He suggests that perhaps half the cost should come from land value tax, without explaining why it would be appropriate for landowners to receive half the benefit of improvements paid for by the general community.  (Kanjama is an attorney and accountant who was rated among the top 100 legal minds in Kenya as well as one of the 100 most influential people in that country.)

The same edition (January 4 2014) carries another article showing a problem resulting from failure of the community to collect all the rent.  It seems that the government wanted to remove a large number of squatters who had settled in a protected forest.  Ordered to vacate, they each received 400,000 shillings ($4604.67 US, according to Wolfram Alpha) to purchase land elsewhere.  Now the time for relocation has expired, and many spent the money on things other than land.  Of course I don’t know these people, don’t know what land was available, don’t know their needs, but very clearly if land were nearly free (as results from a high land value tax) they would almost certainly be better off.

Location remains critical, even as the criteria change

image credit: xeni via flickr (cc)

image credit: xeni via flickr (cc)

The Internet doesn’t make the earth economically flat.  Some locations are still worth many times as much as others.  But technology can affect the criteria for “most valuable site,” as most recently illustrated by the sale of One Wilshire Blvd in Los Angeles for more than twice the price per square foot of a mostly similar office building nearby. It also commands about twice the rent, per square foot.

The difference: One Wilshire is ” the primary terminus for major fiber-optic cable routes between Asia and North America,” and is therefore is a location prized by telecommunications firms.

“You can’t reproduce the connectivity,” said real estate broker Kevin Shannon of CBRE Group Inc. “It’s telecom gold.”

Of course the buyer thinks it’s a fine investment that will only become more valuable in the future.  Presumably the seller thinks different.  The only thing certain is that technology will change, and the pattern of valuable sites will likely be affected.

Economists theorizing about Detroit

Hazen Pingree statue in Detroit. Photo by Dave Hogg via Flickr (cc)

Hazen Pingree statue in Detroit. Photo by Dave Hogg via Flickr (cc)

Econ Talk is at it again, applying economic theory to real problems, not getting hung up on matters historical or spatial. In the most recent episode, Edward Glaeser of Harvard talks with regular host Russ Roberts about the problems of Detroit.  They do make some valid points about economic development, such as the need for adequate basic services rather than flashy new projects, and that a city which has lost a lot of population probably doesn’t need additional infrastructure (but reluctantly agreeing that perhaps some repair or modernization might be good.)

But the main theme seems to be privatize, privatize, and privatize, which includes giving public money and public assets to private operators (such as charter schools), and funding infrastructure and services from direct user fees, exemplified by toll roads.  Curiously they don’t say much about taxes, not even asserting that lower taxes are needed, and certainly they betray no knowledge of the value of taxing land.

It’s interesting, if disconcerting, to compare this to “quite possibly Detroit’s finest mayor,” Hazen Pingree. This January 6 2013 Detroit News article tells the story. Having built a successful shoe-manufacturing business, Pingree found himself drafted by Republicans in 1889 to run for mayor against the dominant Democrats. He won, and started working to improve the city.  Republicans, having a fair share of the monopolies and sweetheart deals that Pingree wanted to eliminate, were not pleased.  But he turned out to be a skilled politician, was elected three more times as Mayor, then twice as Governor of Michigan.

Detroit at the time of Pingree’s election had few paved streets, mainly because paving had to be paid by the owners of adjacent property (and was done by politically-connected contractors).  Pingree’s solution was to use the City’s general tax revenues, not only for streets but also for sewers and other infrastructure needs.  His remedy for a failing public school system was to arrest the school board. His preferred tax policy: A single tax on land value, no special deals  (one of his important reforms as Governor was to bring about proper taxation of railroad property.) More about Pingree at Wikipedia, with additional links there.

None of this means that the interview isn’t worth listening to, but let’s remember, everything takes place at a location, every useful urban location has value, and the value rightly belongs to the community who creates it.

Housing bubbles, a Misesian view

Photo credit: Christian Berl via flickr (cc)

Photo credit: Christian Berl via flickr (cc)

Finally I’ve stumbled over a simple explanation by an Austrian of what causes housing bubbles.  According to data cited in Mark Thornton’s article, Oslo’s housing prices continue to rise even as other places have slowed or tumbled.

What explains the large increase in prices is an increase in the demand for housing. Part of this increased demand takes the form of people simply being unwilling to put homes on the market in the face of persistently rising home prices….[Also] Oslo, the capital city with almost 1/5th of the nation’s population, has land-use restrictions that keep much land unavailable for construction. This is the same fundamental case that was given for the severe housing bubble in Las Vegas: the government prevented land from being developed. Housing prices in Oslo, however, have not risen much more than the average increase. The largest increases have occurred in areas associated with the oil and oil exploration business…. Norway’s rosy economy is not the result of good policy, but of oil revenues that subsidize their socialist government.

Another factor is Norway’s central bank holding interest rates at an “artificial” low, because they don’t want their krone to appreciate too much (it is viewed as a “safe” currency in  a world of depreciating euros, dollars, yen, etc).  Low interest rates of course drive housing prices higher.

If the central bank did act and raised interest rates and simply allowed their currency to float, the krone would appreciate and Norwegian savers would get a windfall as the value of their savings increased. This would encourage them to work more, save more, and become wealthy. Every krone would buy more goods from around the world and would buy even more goods tomorrow than today. This appreciation would indeed hurt exporters, such as oil and cheese exporters, but most importantly it would stop and reverse the housing bubble before things get even worse and more distorted.

So, if you were to “get a windfall as the value of [your] savings increased,” would you “work more and save more?”  Or would you be inclined to work less, at least for money, and maybe spend some of the windfall?

Thornton doesn’t tell us much about the incomes of ordinary Norwegian working folks.  If exports drop, might unemployment increase?  How, if at all, does Norway’s sovereign wealth fund contribute to incomes? What proportion of personal income in Norway comprises economic rent, and how is it distributed?

A couple of other issues:  Thornton says that Norway looks good not because its citizens govern themselves intelligently, but because they have oil revenues.  If that’s true, how to explain Venezuela? They have oil too, but don’t seem to govern themselves so well.  Some other explanation?

Then there’s the assertion that land use restrictions exacerbate housing bubbles. A smart growth policy coordinates land development with provision of needed facilities such as roads and sewers, and allows some leeway to avoid worsening the land monopoly that exists everywhere, and in case forecasts don’t exactly come to pass.  Over time it makes development less expensive and the cost (monetary and nonmonetary) of living lower (which would increase land prices unless land rent is publicly-collected).  The example of Las Vegas is cited, but I always thought Portland had much stricter controls, yet much less of a bubble. Is there somewhere data about this?

 

Curious land tenure arrangement at Glencoe

photo detail of a former theater building on Belmont, by Terence Faircloth via flickr (cc)

As reported yesterday by Chris Jones of the Tribune, Writers’ Theater is planning a new $30 million home on the site of the Glencoe Women’s Library Club.  Being ignorant of things theatrical, I find the interesting part of Jones’ article to be

The building would rise on the Tudor Court site of the Glencoe Woman’s Library Club, which, unusually, would continue to own the land after its building was demolished. Writers’ Theatre would be granted a 99-year lease, with a rent of $1 a year.

Construction of buildings on leased land isn’t all that uncommon, and 99 years is a typical term. But at a rent of $1/year, this obviously isn’t an investment decision.  And as (presumably) a nonprofit association, neither the Club’s members nor their heirs can expect to benefit from an increase in the selling price of land by the year 2111.  The now-unborn who will be members of the club at that time might benefit, but it’s hard to imagine current members thinking that way.

So there must be something else involved.  Perhaps the Theater will be obligated to provide some space to the club, or perhaps the land title is encumbered so that it cannot be donated. Probably if we had all the information we’d find some implications for elaborate income tax trusts of some kind that were advantageous to someone in the past. Hopefully someone will come up with more information.

Jones also notes that the location is “not far from the Metra/Union Pacific train tracks,” which implies that theatergoers could ride Metra to and from performances.  Perhaps, if they’re lucky as to where they live and when the show ends, but the Metra service is sparse and nighttime connecting bus service essentially nil in the north suburbs. Patrons who dine in any restaurant or bar before or after the show will have the opportunity, however, to pay some of the costs of providing the uncoordinated, inconvenient service.

Dangers of China’s cities– and ours

photo credit: Beth Burdick via Flickr (cc)

China Daily’s article “Hidden Danger Hazards of Big City Living” is really an infrastructure and construction story.  Sinkholes open up and swallow people, sections of glass-walled buildings drop down and kill people, big cities flood.  Of course, pretty much the same things happen in Chicago:  The loop floods (tho the streets are spared); neighborhoods flood regularlywindows fall from buildings killing pedestrians; sinkholes swallow cars (tho not pedestrians, probably because we have so few pedestrians). Sure, it’s not an everyday occurrence, but China’s urban population is about 250 times Chicago’s, so it’s not surprising that more accidents happen.

The article quotes officials saying that coordination among infrastructure construction and maintenance actors is poor, as is the quality of construction and building inspection. Probably true, and surely in Chicago the inspectors are trustworthy and respected, and infrastructure work is usually well-coordinated.

What really does seem to be a difference is how long infrastructure is expected to last. The China Daily article says 1200 out of 5100 total km of Beijing sewers (possibly referring only to storm sewers) is “at least 30 years old, with some of it dating back six decades. This is typical for most cities, experts say.” One infers that Chinese sewers are expected to last only 30 years.  In Chicago by contrast, 1/4 of the water pipes is said to be over 100 years old,  apparently the age at which replacement is likely to be justified. Sewers are perhaps even older.  And I think this age profile is typical of mature American cities.