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A Pragmatist's Take

By Douglas Moran

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About this blog: Real power doesn't reside with those who make the final decision, but with those who decide what qualifies as the viable choices. I stumbled across this insight as a teenager (in the 1960s). As a grad student, I belonged to an org...  (More)

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The Law of Supply and XXXXXX

Uploaded: Jun 10, 2014
Palo Alto's development policy is littered with bad economic analysis. The most patently absurd one is that the way to reduce the infamous Jobs-Housing Imbalance is to allow developers to build much larger commercial projects in exchange for a few housing units. Over the many years, many of us have pointed out that these deals are counterproductive--they increase the Jobs-Housing Imbalance because the number of new jobs being moved into the area by the larger project is far greater than the housing provided.

This simple, obvious observation falls on deaf ears. Some of the policy makers are bureaucrats--although the purported goal is to reduce the Jobs-Housing Imbalance, the metrics are increases in housing units, irrespective of increases in jobs, and thus their incentives are in conflict with the goal.(foot#1) Others are single-issue advocates and other ideologues--their attitude is that having good intentions obviates the need for analysis (a human inclination so strong as to have its own admonition: "The road to Hell is paved with good intentions."(foot#2) ) And then there are some for which Upton Sinclair's quote seems appropriate: "It is difficult to get a man to understand something, when his salary depends on his not understanding it."

My most memorable instance of this occurred in the early 2000s after a forum on affordable housing and development policy which had been dominated by faulty analysis and economic illiteracy. Several of us were trying to talk about this to the then-chair of Palo Alto's Planning and Transportation Commission (who was also an affordable-housing advocate), but she insisted that increasing the number (supply) of housing units would force down the cost of housing in the region, and adamantly rejected the notion that demand had any effect on that pricing.

Price vs. Value
Economic illiteracy in discussion of housing is routinely displayed when price and value are treated as the same. And this distinction has a long history in many other disciplines (literature, engineering...).(foot#3) Housing is discussed as if housing units are fungible.(foot#4) This leads to the claim by housing advocates that if Palo Alto just built more apartments and condos next to the Caltrain tracks and other transit centers, people wouldn't be forced to buy houses in the East Bay. They refuse to consider that those owners consider that 4- or 5-bedroom house to be a much better value than a 2-bedroom apartment or condo, and that the price they pay in terms of longer commute times is more than offset by the lower price to get the value of housing they want.

There is a similar failure in the City's approach to retail, essentially treating all such square footage as fungible. In this approach, yet another high-end restaurant or coffee shop is no different from the stores that provide the daily needs of ordinary families. But I will defer discussion of this until later--it is a big enough topic to deserve its own discussion.

Ignored costs
In most discussions of development policy, costs are considered only for explicit, direct financial transactions. This excludes many factors which have high value to actual people, for example, their personal and family times. I would hate to have to count the number of times I have heard advocates dismiss the cost of a commute by public transit that is 3-4 times as long as by car. To hear them tell it, having an hour added each way to one's commute is an insignificant "inconvenience", and people are simply "selfish" not to do so.

Many of these advocates also seem to have jobs where work can be postponed, and otherwise rescheduled, to fit transit schedules, and they seem clueless that many jobs don't have this flexibility. I have had colleagues who had to resign because they often needed to stay a bit beyond the peak-hours transit schedule, and those few minutes could add an hour or more to their commute, which in turn would cause them to miss dinner with their families. They reluctantly recognized that they were in a lose-lose situation, having to make too big a sacrifice in both their career and family.

Incentives and penalties
A major component of economics involves the effectiveness of incentives, both positive and negative (penalties). Although I am not a professional economist, as an engineer and as a manager, I routinely had to deal with those very issues (for example, good engineering design encourages the user to do the right thing). In discussions of development policy, I have been constantly amazed at how "unsophisticated" they are about such issues, although there has been some improvement recently. For example, there has been an over-reliance on penalties, ignoring the vast experience that people are very good at getting around penalties, especially ones they view as unfair. The recent scandals at the Veterans Administration hospitals are an excellent example: Managers were penalized financially for not meeting level-of-service targets, but were not given the resources to met those targets, so they developed methods to hid their "failures" (Surprise! Surprise! Surprise!). In a local example, the City of Palo Alto allows developers to provide too little parking under the rationalization that a shortage of on-site parking will force people to use public transit, but without asking whether there is viable public transit for those employees. When there isn't, the penalty of using lousy public transit is far larger than parking offsite (in adjoining neighborhoods) and walking a few blocks to work.

Much of the current focus on providing "incentives" involves financial subsidies, in large part because those are easy to measure and administer. What I don't hear is any sophisticated assessment of what the actual problems are, and how effective such subsidies are. Admittedly this can be hard to do. Time and again such assessments have revealed unrecognized impediments to the desired behaviors, and removing those impediments has been much cheaper and more effective than bribing people to put up with them.

Shifting costs is not a savings
The ongoing attempts to convert traffic lanes on El Camino to dedicated bus lanes is a good example of cost-shifting that is potentially counterproductive. The advocates for this have admitted that this lane reduction will force traffic onto the parallel arterials--arterials that are already badly congested. Traffic engineering has long recognized that small changes in traffic on congested roads has an outsized impact on congestion.(foot#5) But the dogma of "Smart Growth", as it is practiced here, is that increasing congestion is desirable because it penalizes people (costs them valuable time) and may cause them to use public transit. Because this is ideology, there is no room to consider whether the gains offset the costs (the gain of some people switching to public transit versus the cost of increased Greenhouse Gases and wasted time from the increased congestion).

What rate of growth?
The advocates of high rates of growth in jobs in Palo Alto routinely claim that there are many companies that want to locate here, and that Palo Alto's continued economic health is crucially dependent on satisfying those desires. However, don't ask for an actual economic explanation--I have, and not gotten one.

And don't ask why it is so utterly important to accommodate companies that wish to locate here, but so utterly unimportant for companies that are here that decide to leave because it has become too expensive. Over the years, I have had too many friends and colleagues in high tech decide that the costs of living here exceeded the very substantial benefits. A common summary statement was "We realized that we could afford a house or a child, but not both."

Similarly, don't ask what happens when such future growth destroys what currently makes Palo Alto a desirable location. Whoops, I forgot what I said in the blog entry introducing this series: Being "smart" avoids all negative consequences of such growth (said with dripping sarcasm).

Invitation to contribute comments
In the City's development policy and approaches, what do you see it doing wrong, or too little of, in terms of economic analysis? Please remember that the key word in this blog's title is "Pragmatist"--this is not a forum for ideology or rants.

Related blog entries (past and planned)
1.(Introduction) Stupid Growth: So-called "Smart Growth" is a cancer on the community

1.Shills and Charlatans of "Smart Growth" (now available)
2. Should Palo Alto really aspire to be more like a Chinese factory city?
3. Public Transit Follies
4.Who Profits, Who Sacrifices?

---- Footnotes ----
1.A cynic would observe that a long-lived, counter-productive metric is not in fact a mistake, but rather evidence of an agenda other than the purported policy.
2.I discussed this in an earlier blog post Palo Alto's Culture War: Analytics vs. Aspirationals (2013 Nov 10)
3.My favorite is from Oscar Wilde: "What is a cynic? A man who knows the price of everything and the value of nothing. And a sentimentalist ... is a man who sees an absurd value in everything, and doesn't know the market place of any single thing."
4.The classic example of fungibility is currency: If I lend you a dollar, I do not expect to be repaid with that exact same bill. More (Wikipedia)
5.Metering lights on freeways is an example of this. Although it is incredibly counter-intuitive, delaying the typical vehicle at the on-ramp results in a reduction of overall travel time.

The Guidelines for comments on this blog are different from those on Town Square Forums. I am attempting to foster more civility and substantive comments by deleting violations of the guidelines.
What is it worth to you?


Posted by Marie, a resident of Midtown,
on Jun 10, 2014 at 1:05 pm

Marie is a registered user.

Great post! I hope our city council reads it.

Posted by curmudgeon, a resident of Downtown North,
on Jun 10, 2014 at 2:58 pm

"...she insisted that increasing the number (supply) of housing units would force down the cost of housing in the region..."

Of course. "The rain follows the plow," right? Good intentions modulate the universe to their laudable goals.

She is actually correct. Overbuilding Palo Alto will make it a less pleasant place to live; housing prices will drop as people move to more desirable places. Think of an 800 High Street and an 801 Alma on every block.

Every boom town that became a ghost town (Detroit is a spectacular modern example) believed the good times had to last forever, that the laws of the ordinary universe do not apply to (momentarily) extraordinary places. Palo Alto exceptionalism notwithstanding, Palo Alto is no exception.

If you build them, prices will fall.

Posted by Norman Beamer, a resident of Crescent Park,
on Jun 10, 2014 at 4:16 pm

As I have said before, and admittedly this is somewhat over simplistic: the city does not need any more office space. The jobs-to-housing ratio is already very high. Any discretionary application for more office space should be denied for the foreseeable future -- i.e., unless a lot is already zoned for office, the owner should not be allowed to build an office building there, and no extra office space should be allowed no matter what incentives or benefits are offered. Likewise, no exceptions to parking requirements, and those requirements should be made more realistic given current office usage practices.

Posted by resident, a resident of Another Palo Alto neighborhood,
on Jun 10, 2014 at 10:35 pm

Downtown office projects currently under construction are relying on parking
lifts in underground garages. One after the other these projects were approved. For example 611 Cowper is going to use lifts to provide 62 spaces using exemptions and TDR's where 115 spaces would be required. Access to the two level underground garage is off of Lane 39 which is also access to the new mixed used underparked building at 524 Hamilton which has 8 surface parking spaces.

So on top of an underparked situation we have no practical experience in Downtown Palo Alto with these lift systems in this kind of situation as far as noise, time involved to park, possible back-up as cars wait, acceptance by drivers. This experiment is holding the neighborhood and surrounding properties hostage as this plays out. This is where our City government has put us. And this is in the context of more office projects in the pipeline flooding the whole area with more cars, more congestion, more
construction zones, along with more bicyclists. City Hall is not just
transforming the City without a cost/benefit analysis. That was stage one.
Now we are in stage two, rolling the dice on the future of the City just figuring it will work out.

Posted by contrarian, a resident of Midtown,
on Jun 10, 2014 at 10:54 pm

Stage 3: Build lots of high density housing near transit corridors.

Because a transit corridor can be defined as anywhere a bus can possibly drive, virtually all of Palo Alto is eligible for mandatory high density housing.

Bye-bye R-1 and R-2 zones.

801 Alma next door, anyone?

Posted by Joe, a resident of Another Palo Alto neighborhood,
on Jun 11, 2014 at 10:07 am

> Because a transit corridor can be defined as anywhere a bus can
> possibly drive, virtually all of Palo Alto is eligible for
> mandatory high density housing.

Actually, the City proposed this about five years ago, when they unveiled some of their ideas about "Transit Zones". The City had hired a group from Berkeley (if memory serves) to do the preliminary work for a revamp of the zoning codes. This group suggested that a "Transit Zone" be all of the area 1000 feet on both sides of an "arterial"--Middlefield, San Antonio, Charleston/Arastradero, Embarcadero, El Camino Real and University Ave. It didn't take a map to realize that almost all of Palo Alto would be rezoned as "Transit".

Posted by Justin, a resident of Mountain View,
on Jun 11, 2014 at 9:46 pm

"This group suggested that a "Transit Zone" be all of the area 1000 feet on both sides of an "arterial"--Middlefield, San Antonio, Charleston/Arastradero, Embarcadero, El Camino Real and University Ave."

That's ridiculous if true. I support building around Caltrain (and BART) but let's not get carried away and pretend that VTA is decent transit.

Posted by Joe, a resident of Another Palo Alto neighborhood,
on Jun 12, 2014 at 10:55 am

> Source?
> That's ridiculous if true.

Several years ago the City offered the public a peek at its on-going rezoning work via a joint meeting of the City Council and the Planning Commission on Saturday morning at Cubberley Center in the auditorium. The group under contract was pretty much in control of the meeting. The had flip-boards that provided artists renditions of their ideas. One of the ideas revolved around the rezoning of almost all of Palo Alto so that multi-family housing could be built in the "Transit Zones". Their pictures only showed 4-unit housing, but it didn't take much imagination to believe that sooner, or later, there would be even larger multi-family housing built in these transit zones.

Don't remember the name of the group, but the meeting is a matter of public record. Don't remember that there were any handouts at the meeting, so you'll have to take it on faith that what I'm posting is true. On the other hand, if you were interested, you could inquire with the Planning Department to see if they can provide any details.

After this meeting, the work on rezoning seemed to drop off the horizon, and this particular set of ideas has not actually been proposed lately. It's hard to believe that the City would not re-propose them in the future, however.

Posted by Douglas Moran, a resident of Barron Park,
on Jun 12, 2014 at 2:12 pm

Douglas Moran is a registered user.

RE: Joe on transit corridors

I can confirm his recollections in general: I have been in *many* meetings where this is viewpoint expressed by Staff and by the consultants. In fact, this very problem is mentioned in my next blog entry (written, waiting its turn). The various meetings differ in their exact details: corridors vs nodes, exact distances (1000ft, half-mile,...).

It is impossible for a resident to determine whether what is presented at these meetings has any impact:
1. Since the City doesn't follow its own policies on development, it is irrelevant whether this is part of policy. The City cherry-picks the portions of policy that support what it wants to do and adds justifications that are contrary to purported policy.
2. The factors given as the rationalization for a project are simply a laundry list. You can't tell what are the priorities/major factors, and what are asides, or even the factors that had no bearing at all on the decision to approve the project.

Real-world examples:
Alma Village (formerly Alma Plaza): The claim was made that it is in a transit corridor because it is on a VTA bus line. However, if you look at details (focus of this blog), that bus line is the 104 (route map: Web Link Notice that this is an Express bus and doesn't actually stop anywhere near this site (schedule: Web Link The closest transit stop to this site is the 22/522 bus on El Camino, which is just beyond the 0.5 miles distance that planners cite as the outer edge of what people find acceptable.

SummerWinds Nursery (725 San Antonio Rd (at Middlefield), map: Web Link has been a constant target by Staff and "Smart Growth" advocates for conversion to high-density housing. Again, the claim is that it is on a transit corridor and is served by 3 VTA bus lines. But look at details. One line is the 104 Express whose closest stop is just over 0.5 miles away. Two other lines, the 32 and 35 run too infrequently during most of the day to have acceptable usability: Transit planners cite 6-10 minute gaps as the target for usability, but the schedules for these lines are dominated by gaps on the order of 30 minutes or worse. For those interested in the fine-grain details, GoogleMaps (link above for SummerWinds location) shows locations of bus stops and maps+schedules can be found on the website.

Then there is the issue of whether the destinations served by these lines are useful enough to enough of the residents of such housing. This is too complex and speculative to discuss here. But experience with similar sites indicates that it is not.

Posted by resident, a resident of Another Palo Alto neighborhood,
on Jun 12, 2014 at 6:14 pm

The City should be targeting Summerwinds for "retention" as an important
community resource as other nurseries in the area have recently closed.
The staff doesn't appreciate or understand the importance of landscaping,
beauty, etc -that is painfully obvious- but many residents do care about these things. This is an important use, and part of the fabric of the community.

Posted by Douglas Moran, a resident of Barron Park,
on Jun 12, 2014 at 7:41 pm

Douglas Moran is a registered user.

> The City should be targeting Summerwinds for "retention"...

Couldn't agree more.*

> The staff doesn't appreciate or understand the importance of landscaping,...

Aside: I would explicitly add edible gardening (rather than buried in the "etc").

A basic tenet of "Smart Growth" as it is practiced here is a hostility to the "suburban lifestyle" and the denunciation of a yard of any size as a wasteful use of land. This is a common statement by "Smart Growth" advocates at public meetings, and I have no recollection of any "Smart Growth" advocate disavowing that position.

Their attitude is 5hat those people who want a vegie garden should do so in a community garden. And since the advocates abhor people driving to such destinations, I have to presume that they envision us gardeners getting on a bus with multiple sacks of chicken manure, ... OK, they don't envision that, but that is partly because they can't be bothered to think through the implications of what they advocate, and partly because their thinking is based on "That is not how the young people that I happen to know live today" as justification for dismissing gardening as being irrelevant to the future.

* I served on one tedious Housing Element advisory panel (2 year duration), and made comments on other recommended revisions. Keeping SummerWinds from being officially listed as targeted for housing is probably my biggest (only?) accomplishment from those many hours. Probably only a temporary one.

Posted by Cheryl Lilienstein, a resident of Barron Park,
on Jun 16, 2014 at 3:29 pm

How Marin was Ruined:
I recently became aware of this elegantly graphic video that zeroes in on the future of Marin County should Plan Bay Area have its way. Everybody concerned should watch this and pass it on.

Web Link

And also please check out the excellent website...which is so aligned with the issues Doug raises here. It uses facts (wow!) to question the assumptions made by the "new urbanists."

Web Link

Posted by resident a, a resident of Another Palo Alto neighborhood,
on Jun 24, 2014 at 5:35 pm

"I have heard advocates dismiss the cost of a commute by public transit that is 3-4 times as long as by car. To hear them tell it, having an hour added each way to one's commute is an insignificant "inconvenience","

As usual, you have hit the nail on the head.

Which causes me to wonder why it is that our City Council has their own parking spaces under City Hall. Shouldn't they be walking the walk (literally)? We should ask them to take a no-car pledge for a few months and see if that helps them understand a little better. When Michael Dukakis took the subway to work in Boston, it changed everything. The subway system went from sewer to newer. Making things harder for cars doesn't change anything - providing better alternatives does. But "better" includes time and effort. When people can take comfortable, safe transit that allows them to do work (like Google buses), they'll use it.

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