There’s a very interesting interview with Chris Leinberger, a real estate developer and chair of the Center for Real Estate and Urban Analysis at the George Washington University School of Business, about the insufficient amount of ‘urban neighborhoods’ (boldface mine):
Yes, the housing prices may be higher as a percentage of their household income, but the transportation costs are much lower, and transportation is the second-highest household spending category. That offsets those higher housing prices. And they have accessibility to three, four, five times more jobs than they would have if they were in a low-income drivable suburb…
When you combine the pent-up demand for this kind of place—walkable urban, safe, lots of exciting things happening—with the fact that there’s not enough land that’s zoned for that kind of activity to take place, the land that is zoned for it gets bid up to ridiculous levels. And that’s the major reason for gentrification and making mixed-income development hard to do…
There are two ways to build a metropolitan region. One is “drivable suburban,” which is very low-density development that segregates land by type of use, meaning offices are separate from residential is separate from retail, and so on. It relies on one transportation system: cars and trucks. The other way is “walkable urban,” which is much more dense, mixed use, and historically more mixed income. We built only walkable urban cities for the 7,000 to 8,000 years we’ve been building cities, until drivable suburban was introduced in the mid-twentieth century…
The metropolitan Washington region is only 2 percent walkable urban land; the other 98 percent is low-density drivable suburban. The most important criterion in building walkable urban is higher density, but the other issue is, do you have multiple transportation options to get to work, shopping, school, so you’re not just forced to use the car?
…It is almost entirely the high land price in walkable urban places that causes gentrification. Increase the land in metro Washington that’s zoned for walkable urban development from 2 percent to 4 percent, and most of this price premium goes away.
…somewhere between 35 and 50 percent of us want to live and work in walkable urban areas. Whereas only 5 to 20 percent actually can, depending on the metro area. So there’s a gap, known as pent-up demand.
…drivable suburban development is the U.S.’s biggest contributor to climate change. The built environment—our buildings and the transportation system we use to move between them—represents about 73 percent of greenhouse gas emissions in this country. You move a household from Potomac or McLean [D.C. suburbs] to Dupont [a D.C. urban neighborhood], you’re going to cut your greenhouse gas emissions by 50 to 80 percent.
…The reason we are only building luxury walkable urban right now is because each unit has to justify between $300,000 and $1 million, maybe more, of land value. And that’s stupid. We have an artificial constraint on the market.
…Additional supply, even just at the top of the market, does mean rents will begin to fall. But it’s too slow. The better way is to build middle-income housing, which we know how to do. This is not rocket science. You don’t have to have gold-plated faucets. But you need land that costs $50,000 to $100,000 per unit, not $300,000 per unit.
…There is plenty of unused land, especially in the suburbs. The urbanization of the suburbs is where much of this market demand is being satisfied, though it requires great effort to change zoning.
…Transportation drives development…It will drive more development around those suburban stations, but only within walking distance. So now all of a sudden you can live in, say, New Carrollton [a Maryland suburb]. You’ll at least be able to get rid of one car in your household, which greatly increases your mortgage capacity. The average American family spends 18 percent of their household income on transportation, almost all for cars. Dropping one car out of a household budget on average increases the mortgage capacity by $150,000.
…We came up with an idea to set up a nonprofit development corporation and transfer some of the university land to it. We borrowed $2 million of working capital from the UC Board of Regents, which was paid back within three years. We built 1,500 housing units, most of them for sale. We sold them to the faculty and staff at 60 percent of market price. Today the price is still 60 percent of market because we set up resale controls. Households can’t sell at the market rate and have a windfall profit, because it would deprive the next generation of affordable housing. And it worked.
While I think Leinberger, like many is conflating bidding up with gentrification, and so, is far too pollyannish about its effect on housing prices, he is right that we need far more urban areas, if for no other reason that people want to live in them–a good start might be to not make urban areas illegal.
To his credit, he does realize that we need to aggressively create and then defend middle class housing in urban areas (something D.C.’s underfunded TOPA and DOPA programs attempt to do).
Anyway, this interview gave me a reason to put together some census data for D.C. from 2016, which I’ll be discussing over the next couple of weeks.