Or: “Municipal leaders fail to address structural problems, voters take matters into their own hands, and urban economists shudder”
Urban planner Alain Bertaud argues in Order without Design that municipal movers and shakers should listen to what the economists in the back have to say about city design. Urban planning, according to Bertaud, needs a healthy dose of the invisible hand. And the urban economists who are content to trade ideas in ivory towers need to climb down to the pedestrian positions of municipal governance and communicate their wisdom in layperson terms.
Bertaud makes convincing arguments that urban planners too often ignore basic economic concepts like land prices and labor markets. Bertaud cites the paradoxical design of Soviet cities where factories occupy central business districts and residential towers are scattered in the boonies. In a market economy, land in central business districts is in high demand and thus expensive. This leads to higher density development as it is more economical to build a tall building on a small plot of land than a sprawling one on a large plot. In the Soviet command economy model, there is no market for land. Even though the residential towers would be better suited for downtown and the factories for the outskirts, the lack of land market dynamics means it’s up to the central planners to make these changes. Evidently, the planners failed to do so.
Now, Soviet Russia is an extreme example. American cities are generally governed by market forces. But Bertaud argues that planners ignore these forces and focus on normative factors like “livability” and citizens’ “needs.” Planners will set arbitrary limits on population growth or urban development. And they will impose regulations like minimum setbacks, minimum road widths, minimum lot sizes, and maximum building height. These regulations distort urban land and housing markets to the detriment of urban dwellers, who, Bertaud repeatedly notes, will make up an ever increasing share of the global population.
I tend to cringe at calls for deregulation. Slashing red tape brings to mind white-haired, red-faced Republicans appearing on Fox News screaming about how we need to unleash American industry (which roughly translates to “we need let frackers frack wherever the hell they want, Oklahoman earthquakes, Pennsylvanian tap water fires, and PFAS proliferation be damned”). But Bertaud walks a finer line. He does not call for a libertarian utopia, but rather compares a regulation strategy to pruning a tree: trim, not cut, unruly branches to promote the healthy growth of the tree as a whole. For cities, this means getting rid of regulations that distort the housing and labor market to the detriment of urban dwellers, while keeping regulations that promote their wellbeing.
Some basic American urban history supports the pruning strategy. Minimum lot sizes and single-family zoning is a quite literal example of structural racism, a hinderance on economic mobility, and cause of inefficient sprawl. Minimum road widths have created cities where automobiles reign supreme and pedestrians and cyclists are (vulnerable) afterthoughts. And housing regulations often lead to housing shortages. Speaking of housing regulations…
My hometown of Portland, Maine is implementing a rent control ordinance passed last November by voters. The ordinance pegs rent at June 2020 levels. Increases can only happen once a year and may not exceed 10% of the 2020 price (so if your landlord increased rent by 15% this year, they will have to drop it roughly 4.3% to equal (1.10)x(2020 rent price)).
Also, rent increases must be tied to one of the following:
- An annual increase percentage, equal to the change in the Consumer Price Index for the
Greater Boston Metro Area and published by the City of Portland’s Housing Safety Office by
September 1 of each year. - Tax rate rent adjustment: if Portland’s property tax rate changes, a landlord may increase
rent by the same amount that the tax rate increased. - New tenancy: A landlord may increase the rent by 5% of their base rent when a new tenant
occupies a unit. - Banked rent: If a landlord could have increased rent in previous years but did not, they may
increase rent by this amount at a later date. - Additional Increases: A landlord may seek approval from the Rent Board to increase rent
to receive a fair rate of return.
Source: http://portlandmaine.gov/DocumentCenter/View/29758/Rent-Control-FAQs
This is a rent control ordinance in its infant stages of enforcement. And note that it is not the most draconian of rent caps–it still allows for up to a 10% annual increase in rent, which can be significant now that Portland rental prices are catching up to Boston’s. But I doubt it would pass Bertraud’s sniff test. It is a regulation on the housing market, one that will have distortionary effects and which Bertraud would argue is bad for renters and landlords alike. In the short term, renters may benefit from lower rents and more predictability in their rent increases. But longer term it may discourage the construction of new housing units and the maintenance of existing ones.
Basic economics tells us that as price increases, so does supply. Capping or restricting price increases tends to slow supply increases. Why would you increase supply if those marginal units of production do not net you any extra profit? But demand for housing in Portland is going nowhere but up. So any distortionary regulations will dampen supply growth and there will be a mismatch between housing demand and housing supply (or should I say, an exacerbated mismatch). It could also reduce density in Portland as developers may hold off on large multi-units if the ordinance reduces the profit margins on these projects.
This ordinance comes at a bad time in southern Maine’s development. Though (rightfully) thought of as serene and naturally beautiful, southern Maine has undergone sprawling development since the 1990s. The Portland metro can resemble Boston at rush hour where single occupancy cars cram onto roads to outlying bedroom communities. It lacks a comprehensive public transportation network. And non-motor vehicle travel infrastructure is patchwork at best–have a go at cycling over the Casco Bay Bridge in the “bike lane” and you’ll see what I mean, just be mindful of the flotsam and jetsam that seems to be forever present there.
This dismal regional transport situation leads to the Catch-22 of rent prices in Portland proper. As Portland grows as a tourist and “livability” destination, demand for housing increases and rent prices along with them. As a service industry hub, Portland requires a large supply of servers, bartenders, valets, and cooks, but these workers (and longtime residents) are being priced out of the city. And where do they go? More affordable areas like Westbrook and South Portland require a car to commute into a city where parking is sparse and, as noted, traffic is bad. So Portland voters took to the polls and put a cap on rent increases; it’s not the economical solution but it’s the only one that seemed feasible in the face of numerous structural problems.
To solve Portland’s housing problem, both municipal and regional issues must be addressed. Public transportation to surrounding towns must be greatly expanded. Rather than remain bedroom communities, surrounding towns like South Portland, Westbrook, and–gasp–Falmouth, Cape Elizabeth and Scarborough should develop into “Streetcar Suburbs” (see video below) served by reliable light rail or rapid bus (note that streetcar suburb of Riverdale, Ontario saw its property values greatly exceed surrounding areas in the last decade). In every community, urban planning regulations decried by Bertaud like minimum lot sizes and restrictions on multi-family housing should be rescinded. And Portland itself must increase its density, which it can do while improving its livability by repurposing streets for pedestrian and non-automotive usage, building out public transport within the city, and increasing green space and coverage.
Portland voters did what they thought was prudent to stem the economic forces that have caused rapidly rising rents in the city. But they should instead ride these tides by addressing the underlying structural problems that have distorted the housing market and led to drastic shortages in a highly desirable, if mismanaged, region. Portland could use some pruning, as Bertaud would say, to unleash its full growth potential.