4.12.2022
Last Week
Order Without Design
By Alain Bertaud
Every major civilization in history has had a city at its center. But compared to country living, living in the city has often been worse. Even today, modern cities tend to be cramped, unhygienic, and unsafe, not to mention unaffordable. Attempts to build affordable housing are often stymied by a Kafkaesque legal framework that might as well be engineered to waste time, and housing developments are becoming concerningly uniform. But despite these shortcomings, cities are more popular than ever. So why are people living in cities, and why are there so many problems with urban life?
Bertaud, a former principal urban planner for the World Bank, believes that answers can be found in viewing cities as labor markets. Having designed third-world cities from scratch while also consulting for the world's largest metropolises, he sees At the end of the day, Bertaud argues that people end up in cities simply because they offer the greatest concentration of potential employers and employees. When this fundamental need is ignored by central planners, the result is counterproductive to the original goals. Planners and economists need to talk with each other in order to design effective cities that people enjoy living in.
We are facing a strangely paradoxical situation in the way cities are managed: the professionals in charge of modifying market outcomes through regulations (planners) know very little about markets, and the professionals who understand markets (urban economists) are seldom involved in the design of regulations aimed at restraining these markets. It is not surprising that the lack of interaction between the two professions causes serious dysfunction in the development of cities. It is the story of the blind and the paralytic going their own ways: The planners are blind; they act without seeing. The economists are paralyzed; they see but do not act.
Form Without Function
No utopian city gets built precisely as designed by its prophet-architect. Just as the scientific forester is foiled by the vagaries of unpredictable nature and by the divergent purposes of both his employers and those who have access to the forest, so the urban planner must contend with the tastes and financial means of his patrons as well as the resistance of builders, workers, and residents.
James C. Scott, Seeing Like a State
The great technological upheavals of the 20th century brought a sort of arrogance when it came to designing structural and political objects. Authorities decided that they knew better than the market when it came to organizing cities, leading to suboptimal results. In Paris, Le Corbusier, one of the main architects behind the UN Headquarters, devised a repetitive "Plan Voisin" housing complex where each inhabitant would receive an optimal amount of sunlight. Under a similar assumption of "rational human needs," the Chinese government established a rule where at least one room per apartment had to receive an hour of sunlight on the winter solstice. Whereas this seems egalitarian, the results were counterproductive—it effectively tied the floor-area ratio (FAR) to latitude. Packed northern cities such as Beijing were required to have a lower density in comparison to all southern ones regardless of what people really wanted.
Ultimately, these plans failed or were never implemented. The command economies of China and Russia gave way to market ones with the advent of reforms. Yet these rare instances where the state exerted complete control over city layouts also provided a pathological example. Or, as Bertaud snarkily puts it:
Brain surgeons greatly improved their understanding of the functioning of the brain when they had to treat victims of accidents and wars who had severe brain injuries. In the same way, planners and economists, familiar with the functioning of market economies, who worked in China in the 1980s and Russia in the 1990s, improved their understanding of markets by observing on the ground the spatial outcome of this gigantic social experiment.
Top-down plans and regulations often fail because cities are not static structures. A good labor market effectively reacts to changes in technology, demographics, and society. Regulations, Bertaud argues, are like a "drug" that cities gradually become addicted to—although they might offer short-term benefits, time quickly renders most regulations outdated. Because it is much easier to add than to remove restrictions, cities end up being locked up by ancient zoning restrictions and space constraints that no longer make sense.
Unfortunately, well-intentioned regulations often prevent the poor from making these trade-offs between floor space consumption and location. Urban regulations typically require a “generous” minimum floor space standard for housing. These well-intentioned regulations exclude the poor because the high price of floor area makes it too expensive for them to afford the minimum standard. In Paris, chambres de bonne exist only in housing built before 1930; they are prohibited in apartment buildings that are more recent. These unfortunate regulations reduce the mobility of the poor. As a consequence, their participation in the full labor market is also restricted. In chapter 4, I describe in more detail other urban regulations that reduce the mobility of the poor.
The case of Mumbai's cotton mills in Mumbai offers a glimpse at this kind of problem. The American Civil War created a high demand for Indian cotton cloth, providing an economic boost that continued until the 1930s. But as Mumbai later developed into a major city, the cotton mills found themselves in the middle of an expensive and congested population center. With pressure from workers' unions, the government enacted zoning regulations that froze the redevelopment of nearly 280 hectares of prime real estate for 40 years. Even though many of the mills were completely vacant, an estimated $6 billion of unused land was left for an outdated industry.
Planners too often transform their land use projections into regulations. For instance, often projections for industrial land, based on past demand, become zoning laws, fixing the boundaries and the area of future industrial land. Projections are just that—they are always a guess, even if based on past trends. Planners should therefore constantly monitor demand through the evolution of land prices and rent, and adjust their projections accordingly. Zoning plans often misallocate land despite obvious demand change, because erroneous demand projections morphed into zoning laws. The contrast between the attitudes of the planners in Mumbai and Hong Kong (described earlier in the chapter) illustrates the advantages of monitoring demand to allow land use change.
Today, central planners create other problems when they optimize for qualitative outcomes in "liveability," "equity," and "sustainability." Because these traits are hard to measure, accountability is difficult, if not impossible. Planners shouldn't seek to devise sweeping top-down reforms, but rather to understand cities as fundamentally market-based entities. Each city has its peculiarities—from geography to socially acceptable standards of living—and ignoring these will only create inefficiencies. Instead, planners need to work with the market rather than against it, balancing higher-level social and environmental concerns with the reality of the population.
If we agree that consumption is a market issue, then planners could consider several possible solutions based on market mechanisms that would increase consumption. For instance, planners could increase the supply of developed land by increasing the speed of transport so that more land could be opened for development; they could lower the cost of construction by increasing the productivity of the building industry or by decreasing the transactions costs linked to building permits and land acquisition. Planners could also use a demand side approach, stimulating demand by increasing access to mortgage credit or even by indirectly causing an increase in salaries by opening the city to outside investments in manufacturing or services. All these measures are likely to contribute to an increase in housing consumption per household. Incidentally, the Chinese government took all these steps in the period of reform starting in the late 1990s, resulting in a nine-fold increase in urban housing consumption from 1978 to 2015!!
Street Smarts
Bertaud claims that the real concerns of cities are mobility and affordability. This leaves a lot of room for all sorts of cool designs and technologies, but at the end of the day, urban planners need to keep these goals in mind. From an economic perspective, these claims are pretty sound.
Mobility matters because the whole purpose of a city is to mediate access between employers and employees. The huge labor markets that cities host are the foundation of their economic might, and historically, we can tie revolutions in transportation to gradual changes in city layout. The cramped conditions of premodern London, Tokyo, and New York were the result of limited transportation, as laborers could only walk so far on foot. Trains and cars both dramatically increased reachability for commuters, enabling the modern expansion of the city to its extent today.
Affordability is perhaps the most popular issue in several US cities. Bertaud is generally critical of heavy-handed government approaches here, as at the end of the day there isn't a free lunch. Lotteries for subsidized housing, as was attempted in New York, will lock people into housing that may not be ideal in terms of size, but leaves them with no other choice. In New York, the winners of the subsidy have a strong incentive to sublease their apartments out, which in some cases offers them the possibility of a six-figure income.
In many ways, New York is a very successful city. It remains one of the world leaders in art, culture, fashion, finance, engineering, and technology. However, its housing policy, which in the past has been mainly based on supply side subsidies, remains a failure. In 2015, 42 percent of all dwelling units in New York (or 1.3 million housing units) were subsidized and rented below market price. In addition, a total of 405,000 households are currently on various waiting lists for rent assistance. There is nothing wrong with subsidizing the housing of the poorest households, but when the number of households being subsidized is coming close to half the city’s households, it might be time to look for different solutions. Subsidies imply the transfer from the majority to the poorest. But when the recipients of subsidies are close to becoming the majority, it is evident that in the end their city taxes are paying largely for their own subsidies.
When cities enact regulations that raise the minimum standard of housing, the effect is not elevated living standards. Instead, the poor, who cannot afford formal housing, are pushed towards informal developments where they are denied access to necessities. Bertaud believes that such regulations, though with good intentions, ultimately deprive the poor of their basic rights. Slums are not merely the consequence of a broken market; they result from the poor being blocked from living where the jobs are. The solution, Bertaud argues, is for cities to relax regulations and integrate lower-quality housing into urban infrastructure while a longer-term solution is made.
The socially accepted minimum housing standards in each city do not correspond to a scientifically accepted universal norm. In this it differs from many other norms. For instance, minimum nutritional daily intake is a universal norm defined for all human beings. Most air pollution norms are established by the World Health Organization and are accepted as universal. By contrast, minimum acceptable housing standards are related to the prevailing standards in the city where they are applied.
Though with a strong libertarian bent, Bertaud admits that the market does not offer all solutions. The oldest areas of many modern cities, such as Wall Street in New York or Marais in Paris, all consist of roads that were originally private. In both cases, the roads have persisted over centuries, a testament to the difficulty of changing such networks once they are laid in place. In contrast, the grids that characterize the outer edges of such cities are far more efficient at facilitating transport. Street layouts, like many modern standards, have the awkward combination of being arbitrary in origin yet also exceptionally resistant to change. In general, the government is often the only entity able to carry out large public work projects to improve the overall state of transportation.
Beyond transportation, the government also has an important role in managing public spaces. In the city, these often take the form of parks, preserving historical landmarks, and managing the externalities that result in dense environments. But in this place, there is much opportunity for overreach. Not all historical buildings should be kept, as otherwise improvements would be impossible. In Hanoi, planners devised a "master plan" that would preserve an enormous section of farmland adjacent to the city center, arguing that this would improve the city's access to local foods. But in practice, Bertaud argues that this would simply create strong incentives for farmers to rent their highly desirable plots as the city grows. The ensuing clash between rigid plans and market forces would be far worse economically than if the city expanded naturally.
In general, Bertaud sees urban sprawl as a rational consequence of economic factors such as the cost of transportation. For most working-class families, cheap gasoline enables them to live further in the suburbs, which might explain the style of cities in oil-rich countries. Although Bertaud published this book in pre-COVID 2018, he argues that the impact of remote work on cities will be limited—his main argument is that price distributions relative to city centers have remained steep. So far, the most popular cities have continued to climb in price. But if remote work ends up being a serious option for even a small part of the population, then the shapes of cities could be seriously altered.
Concerns about the overconsumption of land by cities (“sprawl”) are best addressed by identifying possible distortions in the land market, caused by abusing the use of eminent domain, underpricing agricultural land, and subsidizing gasoline. Setting arbitrary spatial barriers to urban expansion, such as green-belts and UGBs, however, results in higher land and housing prices, longer commute times, and other negative outcomes as demonstrated in Hanoi’s master plan.
Towards Tomorrow
With a focus on affordability and mobility, Bertaud's recommendations are relatively straightforward. Rather than acting as shapers of cities, governments should seek to facilitate the growth of cities. The movements of economies can't be planned, but they can be anticipated to a certain degree. Bertaud is critical of the "visions" of municipal governments, which amount to long-term plans that won't be responsive to the real economic needs of residents. In some cases, broad limitations, such as the height limitations in the center of Paris, accomplish valuable purposes, such as retaining the aesthetic appeal of the city. For the most part, reforms without an economic basis tend to go against the grain and end up doing more harm than good.
The role of mayors and their municipal staff, including urban planners and economists, is therefore rather like the role of a well-coordinated team of competent managers and janitors. The mayor, with his team of municipal managers, is not the city’s ruler, nor is he the city’s designer. A city is entirely created by its citizens’ initiatives. These citizens are required to act within a set of “good neighbor” rules, and to be supported in their endeavors by a network of physical and social infrastructure managed by a mayor and a city council.
Instead, the operations of urban governments should have three major focuses:
Monitoring: A city is a massive organism that is hard to understand. But there are health indicators, such as commuting times, rent prices, and mortgage rates that can serve as valuable heuristics. Planners need to pay attention to these "blinking red lights" to catch trends before it's too late.
Development: To meet objectives, projects need to be laid out and executed.
Design: New regulations need to be drawn up to respond to trends. But more importantly, design is often more about removal than it is about addition. Regulators should constantly audit existing regulations to see if they still fit.
Among developed countries, one of the biggest obstacles to development is NIMBYism (an acronym for "not-in-my-backyard"). These vocal constituencies seek to stop reform, typically to preserve property prices and certain qualitative aspects of a neighborhood. Though these kinds of concerns are sometimes warranted, Bretaud sees them as part of a larger pattern of entrenched interests. But every reform comes with a cost, and change is always uncomfortable. Cities like New York have arrived at an uncomfortable balance where the complexity of zoning buffers against rapid change.
Obviously, owners of properties whose price will decrease because of the regulatory reforms will see a decrease in the capital value of their land assets. Banks that have used land as collateral for making equity loans might even be in jeopardy. While the overall welfare of society would improve (in particular the welfare of low-income households), land use reforms will create winners and losers. In the long run, there will be more winners than losers, but in the short run, the losers will be very vocal to prevent reforms, often in the name of saving the environment or preserving agricultural land.
Bertaud's thought process is quite thorough and engaging, although there are a few sections that felt kind of dry. Cities are quite complicated to manage, and there will always be tradeoffs with change. Bertaud recognizes that the 21st century is going to bring yet more opportunities and challenges for cities—self-driving cars, if they ever come around, will completely change the economics of transport for the working class. At the same time, the challenges of an aging population are already being felt in countries like Japan, where opportunities are becoming concentrated in the largest cities. With smaller cities rapidly diminishing in size, the scenario at hand will be unprecedented given the universal rural-urban migration seen so far. To meet these challenges, there is no single plan that will work for all cities—instead, the best citizens can hope for is a greater sense of responsibility, transparency, and rationality in the design of their cities.
This Week
The Structure of Scientific Revolutions
By Thomas S. Kuhn
Scientific progress is driven by the creation and propagation of new theories, inventions, and methods. But how these advancements accumulate is not always predictably linear. In The Structure of Scientific Revolutions, Kuhn argues that transformative progress is almost never gradual. Rather, the real breakthroughs are so unanticipated that they encounter intense psychological resistance and irrationality.
