Earlier this year I was in Sarasota, Florida. There was some lament that it was really difficult for people to undertake the kind of small-scale, incremental development we recommend because land costs were so expensive. When one has to pay so much for land, a Jimmy’s Pizza is just not a viable business. As we stepped outside of the venue and onto the street, right there was a development configuration typical of Sarasota, one that was at the center of their problems.
One story strip mall. Vacant lot. Sixteen story tower.
Now this kind of thing can be found everywhere to one degree or another. Planners, obsessed with density, join with developers and politicians to skip over multiple generations of maturing in a single project. Even here in my small town in Central Minnesota, we have four story apartment buildings in neighborhoods surrounded by small single-family homes.
So what’s the problem with this? Isn’t density good? How can there be a problem with letting developers meet the market demand? If the land costs so much, doesn’t this force developers to build at scale? This is how things are done, Chuck. It’s the market.
Today our cities are starved for growth. At the same time, there are scores of people wanting to do small projects – incremental development – that are stifled by the artificially high cost of land. How can I say “artificially”?
You have a one story strip mall, a vacant lot and a sixteen story tower next to each other. What is the value of the vacant lot?
Let’s say the local code allows that vacant lot to be developed as a one story strip mall, but nothing higher. If the strip mall is worth $500,000, then the vacant lot is going to be somewhere around $75,000.
Okay, but what if the development code allows that vacant lot to be developed as a sixteen story tower? If the tower is worth $20,000,000, then that vacant lot is going to fetch a much higher price, maybe as much $2.5 million.
You own that vacant lot. I come to you with an offer to buy it for $75,000. What are the odds you are going to sell it at that price when you look to the other side and see the same piece of property going for millions? Not very good.
Now pause here because I know some of you are not following me. Surely, Chuck, you are not suggesting that the market price of $2.5 million is wrong? If someone can get that kind of money for the lot, shouldn’t they? Isn’t that good for the property owner, the city and the taxpayer? Aren’t you all about increasing the productivity of our places and isn’t $2.5 million more financially productive than $75,000?
Follow that line of thinking to its conclusion. Let’s say the lot is sold for $2.5 million creating a market price throughout the area for vacant lots. How many vacant lots can be sold at this price? Not many. If we are looking at the city of Sarasota developing every vacant lot with a sixteen story tower, then in order for everyone with a vacant lot to sell it to a developer, the population would need to go from 53,000 to five or six million to absorb all of that growth. Sarasota is a nice place, but it’s not that nice.
What will happen instead is clear. A small number of people will sell their vacant lots at a premium. The development on these lots will absorb the latent demand. Everyone else with a vacant lot will wind up with nothing – no demand, no sale – and, in the interim, any incremental development will be stifled, along with any naturally-occurring redevelopment (non-subsidized).
The key functional feature of the traditional development pattern was incrementalism. Cities matured by moving to the next plateau of financial value, growing incrementally up, incrementally out and becoming incrementally more intense. The core of the city – or the core of the neighborhood – contained the greatest value. The speculative development was on the edge. In all places, the market pressure was to move to that next increment of development.
Single family homes added a carriage house. It would eventually become a duplex or multi-family home. As the underlying land value increased – as the city continue to grow incrementally up and incrementally out – the improvement on that land would no longer be worthy of the site and – without any subsidies – redevelopment pressure would prompt a teardown and rebuild. Study any part of a city that matured before World War II and this is the pattern that emerges over and over.
Our suburban experiment short-changed this incremental process by introducing three things to the equation. First, the access to capital, and the inducement to borrow sums, meant that we no longer needed to develop incrementally. Our financing approach actually requires this. We could build the dream and then pay it off, which was really fun and good for GDP (genuflect to Keynes). Second, we found ourselves with machines that weren’t previously available and now we could build way more stuff, way bigger and way faster than ever.
Third, as the automobile become more ubiquitous, we completely transformed the way land was valued. Instead of a slow, incremental building of wealth from the center out, land become a somewhat random, hit-and-miss kind of prospect. Some sell for $2.5 million. Others wait and get nothing. A lot would depend on where the latest highway project was, what city would give the subsidy and where and – of course – who you knew and what you could get passed. The savvy developer today is less of a visionary designer or builder and more someone good at navigating bureaucracy.
This is why I’ve advocated for throwing out most of our zoning codes, but there is one simple provision I would keep: a height limitation. I would allow the next increment of development, but nothing more. Years ago I experimented writing a vertical building envelope based on the heights of adjacent buildings, but it doesn’t even need to be that complex. Something simple: The maximum building height shall be two stories or 1.5 times the average height of the directly adjacent buildings, whichever is greater. That would do the trick.
Of course, everyone who thinks their vacant lot is worth $2.5 million is going to be really angry when they discover that they can only get $75,000 for it. The fact that the higher value was a random lottery, not a real value, likely won’t be realized. Still, if we are going to turn our cities into Strong Towns, we need to get the incremental growth process back. As counter-intuitive as it might seem, a building height restriction is one simple, elegant way to help bring that about.