Development Option Theory

The real option theory of land development was a hot topic in the mid 2000′s, as the volatility of the real estate market peaked. Now that we have a break from the U.S. housing bubble and financial crisis, it’s worth talking about how we might decrease the volatility of the development market over time.

Urbanism by right is achieved with tools such as form-based codes, which allow walkable, compact, mixed-use, sustainable development, at the scale of the lot, block, neighbourhood, and region. Changing the law to allow urbanism by right makes walkable communities go “in the money” for several reasons, including decreased uncertainty, shortened planning and approval processes, increased flexibility, and increased long term asset value.

Snow falls on The Waters, a traditional neighborhood development in
Montgomery, Alabama, governed by the form-based SmartCode.

One of the best ways to decrease volatility is to decrease uncertainty. You change what developments pencil when you decrease the uncertainty of what is developable. Uncertainty is “beta” from the option theory perspective. As beta decreases, the required rate of return also decreases, because people don’t need to be paid so handsomely if they aren’t taking as much risk when they “buy” their option to develop.

The time value of money is less of a factor when the playing field is levelled to allow urbanism by right, because the development process is drastically shortened. If the developer isn’t owning a call option on a property as long, her interest fees decrease. The reason that form-based codes shorten the timeline is because a prerequisite is consensus on the community vision. By agreeing in advance about the sort of development that locals want, developers have both shorter plan approval times, and increased certainty about what their options are. Less emphasis is put on individual mojo and political connections that allow discretionary power over development decisions. Community NIMBYs have already spoken to what is and isn’t allowed in their back yards.

As flexibility increases, the option value increases. Form-based codes are inherently flexible, and nimble in their responsiveness to adapt to changing conditions. The mixture of compatible uses allows one building or block to respond to market demands, changing from a townhouse, to a live-work, to a storefront, and back again, all as a matter of right. Higher densities encourage more compact development patterns, allowing narrow lots that can provide a range of price points. Blocks within form-based codes are easily re-platted to move up or down the Transect, because the basics of the urban form and street grid are honoured. Conversely, in suburban bedroom communities, along strip retail, or within other auto-centric patterns, sprawl repair is expensive and time consuming. Once a developer commits to one of these uses, they’re locked in.

Increased long term asset value is enjoyed by walkable neighbourhoods, which are healthier for the economy, society, and environment. This is from myriad reasons, including increased walkscore, decreased vehicle miles traveled, increased housing value, decreased carbon emissions, decreased auto costs, increased personal fitness, decreased infrastructure cost, increased hours available, real community, and the list goes on.

All of this is captured in the intrinsic and extrinsic value of the development option. Intrinsic just marks the asset to market once the land is developed, while extrinsic is the value of the volatility around which a developer can bet or trade. Too much of the latter builds your house of cards, and bubble bursts. The extrinsic value decreases and intrinsic value increases when physical and policy planning reforms are undertaken.

A recent NY Times article discusses several market factors of the development landscape over the next two years, as we recover from recession. These include the current scarcity of construction financing, the lowering price points of residential demand along with increasing housing types to include condos, town homes, and flats, and that in many places, conversion is less expensive than new construction. All these items, with the exception of financing, find solutions within the flexibility, certainty, and timeliness of form-based codes. In fact, in places that have adopted optional form-based codes, locals indicate that most of the recessionary development is occurring under these optional form-based codes instead of under the auto-centric laws.

“One of the economic conundrums of the past year has been the great divergence in the Canadian and U.S. housing markets. While American home prices swooned in 2009, the Canadian market only stumbled before resuming its inexorable climb upward,” according to the Globe & Mail last week. Some economists say this is the result of Canada’s fiscally sound banking practices, while others argue that the Canadian housing market is 15 to 35% overvalued. If the latter is true, a careful look at the predominance of Euclidean bylaws in Canada that increase market volatility via destabilizing uncertainty is worth consideration. Indeed, western provinces are leading with bylaw reform, with 12 out of the current 14 Canadian form-based bylaw initiatives being based in the west.

–Hazel Borys

Easy Rider: David Byrne Unfolds Bike, Reviews Cities of the World

Over the holiday I experienced a very 21st century weekend. Upon downloading my new Kindle App on my iPhone, I read David Byrne’s Bicycle Diaries, 2009 Viking Penguin. The $14.99 book caught my attention at the local bookstore and became my first Amazon Kindle App purchase for $9.99. I know, I know… but I promise to never buy eBooks that have exclusive Wal-Mart deals.

David Byrne, artist, musician and now author, is this year’s CNU 18-Atlanta Keynote speaker. His Talking Heads music taught me to dance in early 1980′s High School proms and one of my partners was in a punk rock band on the same New York City club circuit. While traveling through Texas recently, I re-watched Mr. Bryne’s 1986 movie, ‘True Stories,’ which I found to be an enjoyably restrained criticism of suburban sprawl. So, I was connecting with the author on many levels and eagerly swiped through the e-book on my iPhone.

Still talking: David Byrne

The hook is that Mr. Byrne sees our townscape as New Urbanist do while writing down his observations from the perspective of his well-travelled folding bicycle. While traveling the world to perform, Mr. Bryne brings his bicycle with him to refresh his senses and understand the places he is visiting. Through his years of bicycling around the world, coupled with his musician point-of-view, the book’s hook on me was his chapters on experiencing cities in an intelligent and artistic manner. He poignantly captures the landscapes of Manila, Berlin, Istanbul, Detroit and Baltimore in political, social and cultural ways. His account of finding the visionary urban planner Jan Gehl, great New York urban theorist Jane Jacobs, and Transportation Innovator Enrique Penalosa, seemed illuminating for Mr. Byrne, and I look forward to hearing his reaction to meeting our Congress this spring.

My personal reaction to the book was that Bicycle Diaries is a more artistic version of James Howard Kunstler’s more caustic City in Mind. After an easy-to-agree-with suburban sprawl critique introduction, I began to feel like a NASCAR spectator awaiting the carnage! Blow up Las Vegas; put Detroit out of its misery; and, yes, San Diegans are rude! The fun part was Mr. Byrne’s unexpectedly sharp critique of European and foreign cities both culturally and while biking. Except for Melbourne, of course. It seems Melbourne has become the new Barcelona – the greatest city in the world – probably because it is located in the far corner of world and most of us can only imagine how great it is.

The ending of the book sort of drifted off for me as I was less interested in Greenwich Village bicycle rack design as I had been about a city of hookers in the Philippines (an unfortunate personal bias). The revelation that resonates with me is because of David Byrne’s desire to simply get out of the car to see and experience the world he has become a well-respected transportation advocate in his hometown of New York.

– Howard Blackson

Everything’s Connected: Health, Healthy Aging, Community Design

Among the most encouraging trends in Smart Growth is an emerging consensus that good community design can address a bunch of issues at once. Which makes for much more comprehensive, cost-effective strategies to match the complexity of challenges before policy-makers.

Take, for instance, the agendas of separate entities concentrating exclusively on topics such as public health, environmental protection, energy conservation, and aging issues. Just in the last few months:

Those of us who fall under the category of “aging Boomers” are going to be particularly interested in how this confluence affects both our personal and professional lives. Thankfully, healthy aging is becoming an increasingly hot topic and seems likely to offer some of the most immediate opportunities for unifying strategies.

In blog posts below, we’ve reported on how senior co-housing might fit into planning for New Urbanist TNDs and infill. And we talked about DPZ’s landmark Lifelong Communities Charrette for the Atlanta Regional Commission here and here.

The complete report from the DPZ/ARC effort in Atlanta is now up on the ARC’s website, and it’s a must-see for planners and municipalities concerned about how to work aging-in-place planning into other goals – such as retrofitting dead malls and creating infill TODs. Check it out here.

With this convergence of Big Ideas gaining momentum, what’s the next step? Scaling up. The bad news in this good news/bad news scenario is that the challenges of demographics, energy depletion, and climate change are bigger than any effort to confront them so far. Listen particularly to the ARC’s Kathryn Lawler in the video below, as she joins other presenters from a recent Healthy Aging conference in Chapel Hill, NC.

– Ben Brown

On this Earth Day Anniversary: Hints of Convergence

Green meets Smart Growth meets Healthy Communities 

earthdayAs 21st century crises and concerns began stacking up, it had begun to look as if Smart Growth priorities were going to have to compete for attention and resources with other burning issues. Such as: Climate change, peak oil, community affordability, health care costs, and now the struggling global economy. But on the 40th anniversary of Earth Day, April 22, it was impossible not to notice how these apparently parallel concerns are beginning to overlap. Which is good news for a movement like New Urbanism that assumes the interdependence of challenges and opportunities and promotes comprehensive solutions.

Thanks to the work of organizations like the Center for Neighborhood Technology and the T4America initiative from Smart Growth America and its partners, connections between transportation planning, community affordability, and healthy communities were already getting more attention. Now, as the frenzy for all things green increases, coupled with the reawakening of the Environmental Protection Agency under a new presidential administration and a similar invigoration of public health policy, we’re seeing a dramatic convergence of strategies with broad implications for community planning. Here are three key components of that convergence:

The increasing interest among environmental scientists in the advantages of compact, walkable, communities. For instance: Yale’s School of Forestry and Environmental Studies recently included on its website an analysis by Bruce Stutz called “The New Urbanists: Tackling Europe’s Sprawl”. Here’s the blurb associated with the post: “In the last few decades, urban sprawl, once regarded as largely a U.S. phenomenon, has spread across Europe. Now an emerging group of planners is promoting a new kind of development — mixed-use, low-carbon communities that are pedestrian-friendly and mass-transit-oriented.”

The explosion of green building interest in the private sector. Best example: The ever-multiplying territory of Greener World Media, Inc., which operates www.greenbiz.com and other sites linking business with green building, climate change,  and other environmental issues once considered the domain of environmental wonks. Because they’re aimed at the ROI crowd, the company’s websites, surveys, research, and newsletters have a no nonsense feel that is likely to significantly advance the green discussion with economic development types and others who aren’t sympathetic to warm and fuzzy arguments for environmental responsibility.

The intersection of public health policy, environmental concerns, and urban planning. The overlap was always clear to many professionals working in the field,  but now it’s beginning to feel embedded in the thinking of policy makers. By far the biggest stride towards connecting the dots is the EPA’s just-announced intention to consider regulating greenhouse gas emissions because of their threat to public health. The move is considered a nudge to Congress to act before the Executive Branch writes the regs. So the battle is joined.

Also: Consider this video of Dr. Howard Frumkin, national director of the Centers for Disease Control’s National Center for Environmental Health, Agency for Toxic Substances and Disease Registry. Dr. Frumkin appeared before architects and planners at the National Building Museum, using part of his time to caution them against making scientific-like claims for community design without the backing of sound scientific research. Yet most of the presentation feels like a New Urbanist guide to creating and sustaining compact, walkable communities.

For more specific references to community design and public health, take a look at:

A recent study from the University of British Columbia on a correlation between riding transit and fitness. (Thanks to Laurence Aurbach for this tip.)

A source for research into opportunities for addressing obesity with neighborhood design.

And a recent New York Times column on social netwoks and community health.

– Ben Brown

Atlanta, AARP, DPZ Attack Challenges of Aging in Place

The New Urbanist mantra for neighborhood planning is to go for compact, connected, and complete. Well, one critical component of completeness, that of making communities comfortable – and practical – for residents of all ages, has been sort of assumed by NU planners. Yet it’s taken an effort by the nation’s primary advocacy group for seniors, AARP, to make the idea of “Livable Communities” for aging in place a planning priority.

Can community design impact one's ability to age in place? The ARC is examining how.

Can community design impact one's ability to age in place? The ARC is examining how.

Integrating that priority into master planning for real places is getting its first major test with a Lifelong Communities Charrette in Atlanta, Feb. 9-17. The Atlanta Regional Commission (ARC), which coordinates planning for the 10-county metro region, is behind the project, with AARP as one of its partners. Duany Plater-Zyberk & Co. (DPZ), led by Andres Duany, will provide the design and planning expertise. Together they hope to make solid headway on an issue that will only loom larger moving forward.

The charrette targets five sites in the region, selected for their potential to represent typical challenges to aging in place and for communities’ willingness to embrace walkable, mixed-use, mixed-generational solutions to those challenges. How DPZ approaches the project and the plans that emerge from it are likely to provide models for similar efforts in other places. Lots of other places. Here’s why:

In 2008, the oldest members of the Baby Boom Generation became eligible for Social Security. The whole generation, 76 million strong, will have turned 70 by 2034. And if we’re not able to reverse the dominant trend of suburban sprawl and its near exclusive reliance on automobiles for mobility, we will make aging gracefully at home in America difficult for even well-off seniors and all but impossible for the majority of older people.

Flunking the aging-in-place test not only means an increased burden for family care-givers and public programs (and therefore tax-payers); it also means the loss of good neighbors and productive citizens who could live independently longer in their own homes and neighborhoods if their communities planned for walkability, diverse housing choices, and mixed-use.

In addition to AARP, healthcare and public safety experts have been connecting the housing issue with aging in place challenges for most of the last decade. You can read working papers from Harvard’s Joint Center for Housing Studies here. Included among those papers is one on “Aging in Place: Coordinating Housing and Health Care Provision for America’s Growing Elderly Population” by Kathryn Lawler, who’s one of the planners of the Atlanta Regional Commission project.

We’ll follow the ARC/DPZ charrette in blog posts to follow. In the meantime, care to shake this story up a little?  Then share your comments below.

- Ben Brown

Will Economic Woes Stall the Green Movement?

When we got a note from colleagues in Chattanooga, Tennessee, letting us know that that their city had not only crafted a Climate Action Plan but was also set to create a new office of sustainability, it got us to thinking: Is the competition for funding in the deepening recession going to kill momentum for this sort of focused effort for green planning and building?

Not in Chattanooga, obviously. City forester Gene Hyde, who chaired the 14-person committee that crafted the Climate Action Plan, says momentum was easy to sustain, thanks to the participation of folks “representing a cross-section of viewpoints from the business, industrial, environmental, and academic communities. In addition, the opinions of more than 500 citizens and 100 subject-matter experts were factored into the final plan.”

When the Chattanooga mayor signed the U.S. Conference of Mayors Climate Protection Agreement in 2006, committing to planning for lower carbon emissions, there were 235 signatories to the Agreement. Now there are more than 800. That’s good news for keeping the green going, right?

So this would be a good place for a “Not so fast” interjection and a bulleted list of all the reasons we’re doomed anyway. And there will be room for a little of that in future posts. The sustainability of sustainability is going to be a recurring theme for us all. In the meantime, let’s give Chattanooga and other cities moving forward on green initiatives the bows they deserve. And let’s indulge ourselves with news with a positive green spin. To wit:

  • Designer/Planner Doug Farr’s Sustainable Urbanism: Urban Design with Nature has gone into multiple printings and is already used as a guiding text for design seminars. Doug has also developed a sustainability module for the form-based SmartCode.
  • Global Green Building Trends: Market Growth and Perspectives from Around the World,” a 2008 survey by McGraw-Hill Construction Analytics, reported high expectations for green from worldwide construction pros. A majority predicted that at least 60 percent of their projects over the next five years would focus on green building. Eighty-five percent of the firms said they expected rapid or steady growth in sales and profit levels associated with green building. Solar power, already in use by 52 percent of the firms, is expected to be used by more than 75 percent in five years, Wind power is expected to be in use by 57 percent of the firms by 2013, compared to 20 percent in 2008. And geothermal power is expected to double in use from 2008 levels to 45 percent in 2013.
  • Across the Atlantic, the Prince’s Foundation for the Built Environment hosted a November, 2008, summit that “brought together a cross section of industries that see ‘smart growth’ as the way to a sustainable future. A line up of leading figures from property investment, insurance and sustainable development industries guided the debate.” Their presentations have just been posted here.

- Ben Brown 

“Just Building Sprawl” is Over, But How?

When President Obama declared, before an audience in Ft. Myers, Florida, on Feb. 10, an end to “just building sprawl forever” (fast-forward to around 58:58 for the money quote), it may have signaled a change of venue in the battle over how the stimulus package is interpreted and applied.

President Obama addresses residents of Ft. Myers, Florida, declaring "The days where we're just building sprawl forever, those days are over."

President Obama addresses residents of Ft. Myers, Florida, declaring "The days where we're just building sprawl forever, those days are over."

Up until Obama left Washington for town meetings in Florida and Indiana, the debate seemed paralyzed by partisan politics at the national level. Democrats and Republicans retreated to familiar corners, debating the effectiveness of tax cuts vs. spending initiatives as if the issues were purely academic. The national media, as usual, were captivated by the food fight. By changing the stage for the debate from the floors of Congress to communities already hard-hit by the recession, Obama was able to bring back into focus the sense of urgency for action and likely targets for effective stimulus funding.

The American Society of Civil Engineers had already done some of the homework for Obama, giving a grade of “D” to the nation’s infrastructure and calling for $2.2 trillion in repairs and upgrades over the next five years. And even if Obama had not taken to the road, bottom-up politics was likely to overwhelm Congress before long.  See this February 8 Chicago Tribune story suggesting a growing tension between conservative elected leaders and their constituents over the need for immediate investment in communities.

City, county, and state governments were not likely to sit on the sidelines for long, either (note Florida’s Republican Gov. Charlie Crist standing on the dais next to Obama in the Ft. Myers video). In the short term, government spending at all levels is likely to be the source of most new investment. So the faster funds begin moving out of Washington, the better.

A recent conference hosted by Governing magazine on the “Outlook in the States and Localities” was full of sobering presentations about spending cuts and lay-offs. According to a survey by the National Association of Counties, 91 percent of those polled said they were cutting spending, and 64 percent predicted lay-offs. A similar survey by the National Conference of State Legislatures suggested 40 states have budget gaps in the current fiscal year and 24 are already predicting shortfalls in 2010.

The signal Obama sent with his end-of-sprawl message in Ft. Meyers is likely to be welcomed by counties and municipalities, many of which have Smart Growth vision plans in place and have a pretty good idea how to use economic stimulus money. With transportation planning at the center of the infrastructure debate, here’s a good place to watch how the process plays out: www.t4america.org. Also, The Alliance for Innovation, a public-sector collaboration that includes the International City/County Management Association, is monitoring 11 municipalities and how they’re coping with the current economic environment. The group is producing a wiki report called Navigating the Fiscal Crisis: Strategies for Local Leaders. Much of the advice, taken from lessons learned in other downturns, is about resisting the temptation to sacrifice long-term strategic goals for short-term savings.

- Ben Brown

What We’re Reading: A Legal Guide to Urban and Sustainable Development

It probably won’t surprise most folks that the pursuit of more traditional (and sustainable) urban patterns is often thwarted by…  lawyers! But here’s a refreshing change: Two of them – Dan Slone and Doris Goldstein, with Andy Gowder – have just released A Legal Guide to Urban and Sustainable Development for Planners, Developers and Architects, a wellspring of practical solutions for beating them at their own game.

Put the power of lawyers to work for <em>you</em>.

Put the power of lawyers to work for you.

From planning and zoning to development and operations, this richly illustrated resource lays down the law on all aspects of smart growth and development: incorporating good urban design into local land regulations, overcoming impediments in subdivision and platting, structuring community associations for mixed-use projects, maneuvering the politics and, yes, surviving litigation.

In a solid nod of approval, it’s perhaps equally unsurprising that the book’s foreword is provided by Andres Duany, who’s spent a career running the gamut of these legal and political hurdles – some successfully, others not.

And in a not-too-shabby September 2008 review, The New Urban News says, “Immensely practical, this guidebook is loaded with techniques that can enable New Urbanism to jump hurdles erected by the legal system, the political apparatus, and the day-to-day difficulties of community life.” Finally, Law of the Land, in an October 2008 post, summarizes, “Justice Brennan: ‘If a policeman must know the Constitution, then why not a planner?’ is a perfect lead-in to a wonderful new book.”

We agree. Get your own copy here.

- Scott Doyon

Preservation Through Beauty

A recent New York Times article, examining struggling efforts to preserve the architecture of the New Deal, raises an interesting question: Why do some attempts at preservation capture broad-based attention and support while others wither away as fringe acts of desperation?

The answer might have a lot to do with beauty. Because, while we’ve come to accept as truth that beauty lies in the eye of the beholder, it really doesn’t.

The dimensions and proportions of "beauty" reflect far more agreement than we'd like to admit.

The dimensions and proportions of "beauty" reflect far more agreement than we'd like to admit.

In a 2003 paper, V. Patnaik and others examine the human face and demonstrate how we culturally establish a shared understanding of beauty, concluding it’s the “relational proportion of our physical features that is the primary factor in determining the perception, conscious or subconscious, of beauty.”

More simply, certain proportions and arrangements are more pleasing than others. Not as a matter of personal opinion but as a collective, cultural agreement. We may not, as a nation of individuals, want to admit that we essentially view beauty in the same light, but tough luck. We do.

That’s why it’s not such a leap to conclude that our buildings and infrastructure work the same way. Most would agree that, at some point, our built environment stopped responding to a shared, cultural understanding of what’s beautiful and started expressing – at the upper end – the personal artistic ambitions of its designers and – at the lower end – the need to cut costs.

Either way, the result has been buildings and places that often lack the one thing most likely to ensure their preservation – the ability to be loved and valued by the everyman. As architect Steve Mouzon says often, “Any serious conversation about sustainable buildings must begin with the issue of Lovability.”

We can agree on what’s beautiful. We have met the beholder and it is us. The big question moving forward, especially as the financial floodgates of the stimulus package begin to open, is what are we going to do about it?

- Scott Doyon

Gluttony and Glut: Finding the New Normal

An evening cross section of Atlanta's Atlantic Station.

An evening cross section of Atlanta's Atlantic Station.

How serious is the implosion of the once-booming urban condo market? And what does the downturn say about the prospects for housing in urban centers?

A piece in the business section of the Atlanta Journal-Constitution seems to say it all. Desperate to unload some units in “a stagnant market,” says the sub-headline, an Atlantic Station  developer will auction off some 40 units, with bids starting at 56 percent off list price. A similar story about the stalled condo market in Chicago appeared in a Feb. 3 New York Times story.

Well, welcome to the New, New Normal. Just don’t read too much into implications for the future of multi-family housing in these places.

To be sure, fire sales aren’t great news for developers caught in the current pinch, or for investors, including condo owners who bought into a project at the old list price. But it seems to us that the only environment in which this sort of mark down is seen as a disaster is one in which folks deny the realities of the real estate marketplace. It’s not a marketplace unless prices go up and down depending upon what buyers are willing to pay, right?

For what we now recognize as an unsustainable period of speculator insanity, prices of detached single-family homes and condos soared, particularly in desirable cities and desirable climates. The period lasted long enough for a lot of folks – buyers, builders, developers, and real estate brokers, to name just a few – to believe the aberration was the New Normal. For a look at how a misguided sense of entitlement played out in the lives of real people on Florida’s southwest coast, check out George Packer’s story in the Feb. 9/16 New Yorker – it’s called “Ponzi State,” and for good reason – and then take a look at his video. And for a west coast take, watch this video from the Associated Press.

The remnants of that sense of entitlement persist in many of the conversations about “stabilizing” home values by artificially propping up prices in a market still seeking a bottom. New Urbanist developer Vince Graham explained how it’s time for a get-real approach to home values in one of our previous posts.

But it’s just as dangerous to assume an opposite marketplace trend, that advocates for downtown mixed-use development got it all wrong.  The current shakeout is not about whether or not there’s a market for condos and rental apartment options in downtowns; it’s about the nature of that market, particularly about how diverse the housing choices have to be and how well integrated is the planning for truly mixed use opportunities.

One of the best overviews of demographic and marketplace trends is the 2008 report from Harvard’s Joint Center for Housing Studies. And for a glimpse at how Americans rank places they’d like to move to – including places like Atlanta and Tampa that have experienced the greatest housing market downturns – see this recent survey from Pew Research. 

- Ben Brown