Archive for April, 2008

how does economics work?

April 22, 2008

There was a great symposium Saturday at the Chicago Architecture Foundation, one of several in conjunction with their exhibit on the history of Chicago preservation: “Do We Dare Squander Chicago’s Great Architectural Heritage?” that runs through May 9 (See it now!). Prof. Bob Bruegmann opened it up with an excellent history of teardowns and the inquisitive, expectation-overturning perspective he brings to everything. Prof. Richard Dye, an economist, explained the economics of teardowns. Both men suggested that an upside of teardowns was that they shouldered a bigger portion of the tax base, a fact that neighbors of teardowns are perhaps loath to admit. Bob did note that increased values could mean higher taxes for the teardown-adjacent in their little historic houses as well, and he also sagely discussed the new penchant for small houses, which are of course greener and thus more chic and popular with the wealthy.

Which is part of the objection to teardowns – lots of people hate them not for what is lost but what replaces them – ersatz castles with turrets and lions and gargoyles and balustrades that scream “I just got a lot of money and I don’t know how to use it!” (That is of course an Obamaesque elitist opinion).

Anyway, back to the economist Dye, who talked about how markets work to maximize value in good locations, which lead to teardowns, and markets fail because houses are durable goods built for current fashion but last longer than those fashions. Cathedral ceilings, great rooms, bathrooms that would make a Saudi prince blush, and other trappings of 1999 are popular examples of the fashionista excesses of McMansions and Lollapalazzos.

So I was suddenly struck – as a historian – by the fact that the teardown phenomenon emerged at the same time as the TIF phenomenon, and mindful of the big fight in Oak Park over extension of the downtown TIF, I asked whether there was a connection between these things, since teardowns occur largely in inner-ring residential suburbs that rely on a residential tax base, and since (I presumed) TIF districts limit the amount these places can rely on commercial taxes, hence teardowns – by increasing the tax base – might be related.

This got Dye’s hackles up. His short answer was no but his long answer – which came first – was that I had an understanding of TIFs that was much clearer than his and he has studied them. Zing! TIFs are simply a financing mechanism he said. Fair enough, but I told him later it was an honest question – I noticed a cohort and asked if there was a correlation. In my neighborhood the school district negotiated carve-outs to the TIF district and blamed it for their reduced income. The first TIF happened at the same time as the first teardown. That doesn’t mean they are related but you can see where the question comes from.

And my hackles get up when people describe any development – commercial or residential – as shouldering more of the tax burden. The suggestion is that I would be paying more taxes if the development didn’t happen. I hope someone at the various land institutes is studying this, because it counters both intuition and experience. Consumers have a hard time with this argument basically because taxes are historically unidirectional, and the conceptual leap “But your taxes would have gone up 200% if we hadn’t spent $25 million of public money on that shopping center” is hard for the average guy to make.

If there is a new development, property values go up and so do my taxes. If I oppose a new development and granted some queer quirk of history, stop it, values presumably are depressed, and so are my taxes. This seems to me related to Bruegmann’s argument – shared by a whole lot of economists – that regulations add costs to real estate and thus reduce affordability.

But of course real estate economics is about location, not cathedral ceilings or giant master bathrooms or high end appliances or Frank Lloyd Wright, as Dye and so many others noted. Teardowns occur in choice locations near transportation, amenities and where zoning suggests it.

Oh – there it is. A stick in the eye of the free market. Zoning. Seems government controls that, and it seems to have an oversized influence on the teardown market. My town downzoned a bunch of areas – to their actual size – recently because of outrage over teardowns of small houses just outside the historic district. Interestingly, inside the historic district there are loads of cases where they simply add lots of units on the rear, thus capturing more of their land value. Land value that comes from zoning.

Now, I’m not an economist but I am an historian and I know that Justice Sutherland was a fierce advocate of property rights and I know that the reason he upheld zoning in 1926 (I mean gee whiz he could have gotten someone else to write the opinion – he wanted his fingerprints on this one) was that it upheld property rights in the abstract and property values in specific. Location makes the big differences in price, but zoning creates the demand for teardowns in all sorts of markets – which is where teardowns are occurring. Teardowns have ripped across this country in the last 15 years with unprecedented speed affecting all sorts of communities.

Correct that – there is a precedent and it is zoning. Between 1916 and 1926, 591 zoning ordinances were enacted regulating the properties of 30 million people. Talk about a fad – that is like the iPod. Don’t tell me it didn’t have to do with property values. But somehow this topic – government granting value through zoning – doesn’t have much place in the discussion, which is queer. The whole point of Chicago’s 1957 zoning ordinance – which doubled downtown density – was to get downtown development going. TIF is a form of financing yes, but it is also a government subsidy to stimulate development in the same way zoning is a government subsidy. They are both clever in the sense that they are subsidies where you don’t have to write a check.

Now before the numbers crunchers get their knickers in a twist, look at the history. We zoned in the 1920s and then we rezoned in the 1950s, so we should have zoned again in the 1980s, but we didn’t. We didn’t rezone until the aughty-aughts (2003) and then zoning had so many damn community activist inputs raising costs that it wasn’t much good at granting value.

Oh wait, I thought of another precedent for teardowns – blockbusting. The Austin neighborhood in Chicago – about three square miles – went from all white to all black in 5-6 years. Now blockbusting was a technique whereby a speculator offered one or two white homeowners on a block a lot double what their house was worth and then sold it to a black family at a slightly inflated price, because they were buying in a white neighborhood. The speculator could afford to lose money on the transaction, because once it was complete, thanks to racism, they would be able to buy all of the other houses on the block for half price and sell them for full price.

Teardowns are different of course. Speculators find a nice neighborhood location with good amenities, offer someone a good price for their house, knock it and build a newer bigger better house. The neighbors see that and often decide they would like to cash in as well, so they get the same good price for their house, right?

The trick here – as far as an amateur like me can understand – is that real estate is all about externalities. I was taught that real estate is a commodity and an asset whose value is not intrinsic but based entirely on its surroundings. I had a real experience of this in the early 1990s when I bought two Frank Lloyd Wright houses for a dollar. As we priced out the rehab, it became clear that these houses – despite their pedigree – had a negative value of at least $40,000 apiece. Why? Location. I should share this story with Dye and Dan McMillen, since it underscores their contention that location outweighs all other factors. Even regulations, I suppose, since those are generally advocated by residents who want to maintain their property values, just as they did in 1926. I agree with the economists who say that regulations increase prices (by increasing costs) but there is a massive “D-OH” here: that is the economic expression of what the people wanted.

But the real stick in the number-crunching eye is this: people aren’t rational consumers. The majority of our economy is a consumer economy and the biggest consumer item is the personal home. There are economists who study consumer rationality, and maybe they should look at the uber-tacky McMansions and dissect some of that consumer irrationality (I suspect it is simply the absence of a visual sense).

I have studied some economists who look at land value and regulation like Glaser and William Fischel, whose most brilliant insight (related in the Homevoter Hypothesis) came at a zoning meeting when a neighbor he knew and respected opposed a development that was obviously going to be good for the neighborhood. Fischel’s eureka moment came when he realized the property owner was motivated by a simple principle: uncertainty. You can tell me it is going to be good, you can tell me I will bear less of the tax burden, but all of that is in the future and I want to keep what I have now. I am not certain how that development will turn out and I am not certain what will happen to my taxes.

Zoning arose in response to what Fischel terms “the radical uncertainty created by the truck and the automobile” and all of the various regulations from historic districts and moratoriums in response to teardowns arise from the same motivation. Some people hate what is lost and some hate what replaces them. But everyone hates uncertainty.


getting drunk in grant park

April 19, 2008

History lurks behind every current issue and it is fascinating to see how it is used and abused by the pros and the cons. The current debate over locating the Children’s Museum in Grant Park is a great example. Half a year ago when this issue first came up, I blogged about the irony of how a little basement museum in a 1924 Lincoln Park administration building had become a $100 million juggernaut. I also opined about the future since I seriously doubt the 1990s children’s museum fad will reappear after the 2010 baby bust.

Besides, wasn’t the Museum of Science and Industry the 1933 example of a children’s museum? It was for this child. But enough ancient history.

This week the Children’s Museum applied for a liquor license for their largely underground facility planned for the northern edge of Grant Park and my mind went back 25 years, to 1983. I was first working downtown and I was volunteering for the Chicago Coalition for the Homeless, surveying homeless men in Grant Park. They were living there, and drinking in various underground hideaways. So of course I was struck by the irony that now, a quarter-century later, us respectable middle- class types will be able to drink underground in Grant Park. I suppose the liquor license is ancillary to the Children’s Museum, but again the whole idea of a children’s museum – and I wrote up the ones in Madison and Indianapolis for Michelin – is a thin concept that I seriously suspect won’t bridge the 2010 bust. In that case, the liquor license is a very smart move, since a restaurant and pub multiplex under the northern edge of Grant Park could be a multi-year moneymaker for the city.

Is this evidence of the privatization of the parks we have been hearing about so much with Toyota renting the Bean for three days and Latin School building facilities in what once was a public park? Actually, reclaiming the parks for respectable middle-class people is the theme of this 25-year story. In 1983 the parks were still hanging on to their 1978 scariness, and the 1980s launched the Reagan era public-private partnership which helped privatize and middle-classify so much of what was once a wide-open public realm. An underground drinking establishment in Grant Park – at $100 million – is the icing on that 25-year old cake. It is a natural evolution of a trend which has created wonderful things for respectable people, and those people deserve a drink. I’m not saying it is a good thing or a bad thing. I’m just sayin’.

more teardowns

April 16, 2008

820 park st408s

Originally uploaded by vincusses

Well, it is spring and as usual that means there is a lot happening in preservation. I have some long wordy blogs in the works analyzing heritage and so forth, but for now we need a quick update. First, our class has been surveying River Forest to offer suggestions for updating their survey and we have already found what looks like a significant teardown about to happen, this lovely Prairie School gem on Park Avenue by Tallmadge & Watson. Yes, the same Tallmadge who coined the term “Prairie School” and started preservation in Chicago. This is considered a minor Prairie School house in Jeannette Field’s Architecture of River Forest book, but it is still a perfectly good building wrapped in fencing and porta-potties awaiting the Scraper for some new Lollapalazzo.

The Spindle in Berwyn is up on eBay, at $50K with no bids.

This Thursday I am doing the Snapshots Lecture at the Chicago Cultural Center at lunchtime with the provocative title “A City Cannot Be a Work of Art” which is a quote from the late great Jane Jacobs. It is a history of historic preservation looking only at historic districts. That evening I am moderating a panel at Chicago Architecture Foundation with representatives from various Chicago historic districts to hear about how they created their districts, their hopes, fears, failures and successes.

Then Saturday CAF is offering a series of sessions on Teardowns, including the always provocative Bob Bruegmann on the history of teardowns. I’ll be there!

seeing the world and the floor

April 10, 2008

One of the best things about my job is that I get to tour wonderful old buildings regularly. Monday I was with my class in River Forest where we are doing a quick survey on behalf of the Village’s new Historic Preservation Commission. Thanks to the astute research of Nicola Spasoff, we identified a several-block section of homes by local builders Buurma Brothers, which have a wonderful aesthetic and planning unity – they are sort of between styles – kind of Four Square but always with tile roofs, porte cocheres and red wirecut brick, a little too big for four squares and bearing a collection of ornamental details from Prairie to Renaissance. But there are several blocks of them, which creates a unity (and of course an economic value) that is rare.
Buurma section of River Forest
Then Tuesday I joined Drea Howenstein’s and Patrick Rivers’ class at the South Side Community Arts Center, where we got a top-to-bottom tour from Director Faheem Majheed and consulted with Lisa Stone on their archive, for which they got a Partners in Preservation Grant. This place – a Victorian mansion redone in the “new Bauhaus” of 1941 on the inside – is dripping with history – a huge old kiln in the basement, darkrooms that once housed Gordon Parks, and stacks of artwork from the Center’s 68 years of history.
new bauhaus sscac
I also liked the cool linoleum floor in the basement.
ccol floor sscac
Wednesday by bicycle to Cicero to see Mary Queen of Heaven Church, a 1929 Colonial Revival treasure by Joseph McCarthy, Cardinal Mundelein’s “court architect” and what a treasure it was,being protected by the incredibly astute Fr. Esequiel Sanchez. This was one of those places where they never screwed it up – it seemed like the narthex ceiling still had the original paint…
narthex ceiling MQOH
The design was a stunning testament to the Americanization of the Catholic Church – just look at this interior and you would think you were a New England Protestant…
Interior, Mary Queen of Heaven
We also dug the linoleum floor, which I have to admit might not be saved in either place, but how often do you get to see this?
linoleum c. 1929, MQOH
It is easy to get people interested in stained glass and even bauhaus design. Linoleum floors are mostly for the geeks…

okay wordpress, you get kudos if these images work out. Fnewsmagazine is on its own now, and somewhere there is a legal hound who needs a new task….

10 most 2008

April 2, 2008

wrgfld fldvw

Originally uploaded by vincusses.

Today Landmarks Illinois released its 10 Most Endangered Landmarks list for the state, which includes two iconic sports stadia from two eras: Wrigley Field from 1914 and the U of I’s flying-saucer-like Assembly Hall from 1963. Wrigley has been in the news because of the endless string of trial balloons being floated by Tribune owner and 1980s real estate baron Sam Zell, who wants to sell the park and thus floated a balloon saying “Relax landmark status” which got a cold shudder from Mayor Daley and today’s listing.

The idea that you need to relax landmark status must be born of ignorance: WITH landmark status Wrigley just expanded its bleachers onto the sidewalk and it could easily dig out the dugouts, which are comically small. They could probably even wedge more skyboxes in. Has Zell seen all the Chicago Landmarks façade projects underweay? Did they think this one through or do any homework?

I don’t go to sporting events much anymore, partly because I’m old but partly because they used to be about the sweaty reality of sport and the stadiums reflected that: cold, dingy forests of I-beams rank with bodily excretions and excitement. Now they are high-style, quiet penthouse suites with dessert carts, wall-to-wall carpeting and anime athletes on Jumbotrons, adopting comic book superhero poses until the ACLs pop. In contrast, I think of Lou Gehrig’s hands, a jumble of dozens of untreated fractures and a paycheck that couldn’t keep him from summer barnstorming.

There. I got romantic and nostalgic. But I know that world is long gone. So, switch to hard-nosed economics: Modern sports are segregated by class. The rich watch from suites in the park while the punters watch on TV. Stadium revenue consists of these two streams: skyboxes and TV rights. The grandstands and bleachers that defined historic sports stadiums are basically obsolete, unnecessary and perhaps uneconomic features that require monetization through devices like Soldier Field’s seat licenses.

Assembly Hall is another story all together, what with its Jetsonian modernity. Yet it is also obsolete. Yesterday we heard about Lake Meadows from the Draper and Kramer group, and those 1950s buildings are obsolete as well. This should not surprise us, since obsolescence was in fact a GOAL of all industrial production in the 1950s and 1960s, as it is today.

Preservation, the sweet science of sustainability, rejects that goal. It is our challenge to find new uses for old buildings because they give us knowledge, identity, and free materials. That old 1914 fossil is essentially the same challenge as that 1963 fossil: to beat back built-in obsolescence and craft communities with continuity.