Love, Money, or Desperation
This article is part five in a five-part series on small-scale, incremental development. You can read part four here, and sign up here to receive the e-book for this series when it’s available.
Image via Johnny Sanphillippo.
I began putting together this series by posing the question, “What would have to happen to really scale up the impact of small-scale development on our cities? How do we get there to be 10 or 100 times more small developers than there are now?”
I’m not going to lie: I still want a satisfying answer to that. It’s nice to imagine that there is some miraculous policy blueprint. But that’s not how a movement premised on incrementalism is going to grow. It will need to be nurtured, encouraged, nudged along by many people in many places. We’re going to have to plant a lot of seeds. That messy, bottom-up work is likely to bear more fruit, ultimately, than any attainable tweaks to public policy will in the absence of that work.
Gracen Johnson worked for years as the “R&D Department” at the Incremental Development Alliance; she is now with Canada’s national housing finance agency, CMHC. So she has done a lot of thinking about the most important question with incremental development: Who is actually going to do the work?
“My personal conviction, which has been validated by on the ground experience, is that people have three reasons,” says Johnson. “Love—of place, of community, of a business, or of the people they’re trying to provide shelter for. Enterprise—the desire to make money. Or desperation. And I think most of the incremental scale stuff going forward is going to come from desperation. There’s just very few people who have any incentive to do this otherwise.”
That isn’t the rosy conclusion we might wish for, but nor does it have to be as depressing a conclusion as it sounds.
Who Will Do It for Money?
The likely answer is, under current economic conditions, not a tidal wave of people.
We can learn a ton from the beloved, resilient, scalable incremental development forms I discussed in Part 1: the triple-deckers, brownstones, row homes, cottage courts, etc. that formed the backbone of North America’s pre-automobile cities. We can admire that they were built by entrepreneurs following a path of least resistance to making money in real estate while delivering something their community needed.
But we also have to recognize that those patterns were products of an economy that is gone and will not return. It was one in which labor was much cheaper than today, and capital much less mobile and more rooted in specific communities. It was also one in which far more people built things with their hands; today, we have a generational shortage of workers in the skilled trades. It was also one in which cities genuinely needed to grow their borders; today, almost every city is far too large, geographically, and the messier challenge we face in growing is to thicken up and make better use of what we’ve built.
What happened to all the people who used to make money building missing-middle housing and small business space? One answer I’ve heard more than a couple times is, “They’re house flippers now.” The ones who are in real estate at all, that is. Flipping creates no net new housing or other space for the community; it just raises the price of an existing home. But it’s one sort of path of least resistance, because the regulatory burden is light and financing is easy.
Another path of least resistance is simply the passive ownership of real estate. In San Jose, California, a homeowner collects $100 in equity for each hour spent at the office. There are a lot of reasons for this, but suffice it to say that, in the words of Alan Durning of the Sightline Institute, U.S. housing policy is about real estate, not housing. (Canadian too, though the specifics are different.) Owner-occupied homes enjoy preferential tax benefits that drive up the price and encourage households to treat them as investment vehicles. Exclusionary zoning, by design, locks places in amber and creates artificial scarcity (and price inflation) of homes in desirable locations. Everything about the system is geared to assure property owners that, if values ever do fall, they won’t be allowed to fall for long.
Case-Shiller Index of U.S. single-family home prices over time.
Under these conditions, says Johnson, why be a landlord? “Property management is miserable, a horrible job, and on a small project you can’t afford to hire it out.” Among those who want to do it anyway, an increasing number of small-time profit-motivated landlords opt for AirBnB, while the big players, including corporate investment funds, provide rental housing for the growing share of the population that is shut out of any prospect of buying a house.
The Crippling Effect of High Land Costs
Land values are so high in many parts of the U.S. and Canada that incremental developers cannot profitably acquire a property and do any project at all. The only way to do it is to partner with an existing landowner, and relatively few of them have any strong incentive to become redevelopers of their own land. If, for example, California’s statewide legalization of residential lot splits and ADUs fails to produce much incremental development, this—not financing or zoning difficulties—will be the reason why. Because most California homeowners simply don’t have any need to build an extra home on their lot, and won’t want to.
The exception to this rule is in the most deeply disinvested neighborhoods, where owners do have compelling incentives to redevelop their own property—a rental income stream, a decent home for a relative, a space for their business—but rarely have the means.
Where the “means” can be worked out, small-scale development often works best in those marginal places, like the poorer side of South Bend. When the small developers in a place get too successful, they tend to put themselves out of business. This, says Monte Anderson, is exactly what happened in the Oak Cliff area of Dallas, Texas, where Anderson worked as part of a crop of early revitalizers. Once the area became trendy, the city zoned it for seven stories, causing a speculative feeding frenzy among big developers who assembled whole blocks for large developments. Dallas got growth in Oak Cliff, but it lost much of the ecosystem of committed locals who had made it possible.
Cities can and should push back on this destructive status quo, using their power to shape the market through control of land use and public investment. They can change zoning to allow every neighborhood to grow to the next increment of development intensity. They can intentionally spread public investment around to “small bet” initiatives in the marginalized neighborhoods that need the most help, instead of undertaking the kinds of transformative infrastructure investments that create a localized development Gold Rush. They can make life harder for idle property speculators by taxing them: Many should consider switching to a land value tax instead of a conventional property tax, which penalizes building improvements.
Local authorities can also tap into an often underutilized source of public wealth: the land they own. When municipal governments acquire land for reasons such as condemnation or tax forfeiture, this becomes an asset they can dedicate to small developers for the pursuit of public policy goals such as affordable housing, or targeted revitalization. Charles Marohn of Strong Towns has proposed that such a policy could be a form of locally-led reparations for decades of redlining and disinvestment in poor and often nonwhite communities.
Image via Johnny Sanphillippo.
Who Will Be Desperate?
We don’t need imagination to ask who will be desperate in the future. Just look at who already is.
You can’t build a triplex in most American suburbs, but you can find “stealth triplexes” in hundreds of them, where large collections of people—often multigenerational immigrant families—crowd together in a single-family home not designed for it, as the only way to afford rent. It’s no surprise that California, the state with the most out-of-control housing costs, has the third-highest average household size. People adapt the ways they can.
I’ve spoken positively of the Near Northwest neighborhood in South Bend, Indiana, earlier in this series, but the good things happening there are born of desperation. The area has the state’s highest levels of childhood lead exposure. Lead paint, mold, poor plumbing: Millions of Americans live in unhealthy homes for lack of a better option. Desperation.
When people do become desperate, they can have better or worse options in front of them. A lot of the point of mainstreaming incremental development is to put “better” on the table, by creating options where the prevailing system won’t. An accessory unit to create more housing in a prohibitively expensive place; a decent renovation with some room for a neighborhood-serving business in a place where the big money won’t go.
The best thing we can do for the desperate is decriminalize better options. Including better versions of the ones people are already doing—the stealth triplex, the illegal basement unit, the unlicensed home-based business. Change zoning codes, financing rules, even building codes, so that people can hack their way to the built environment that works for their needs instead of the one that has been handed down to them.
“Decriminalize” here is a less ambitious goal than “institutionalize,” if a less satisfying one to those who believe that the right public policy can sculpt a better future. It is exceedingly unlikely that our status quo systems of development will execute a wholesale shift away from the suburban monoculture and toward incremental infill. There just aren’t enough people with power invested in that change, and the change is a hell of a Gordian knot of vested interests and interlocking rules.
Instead, what we can do is work to make incremental development more and more viable in places that are under the radar of institutional capital. Where capital-D developers don’t or won’t work. Places where the most meddlesome rules cannot practically be enforced anymore, because there are simply bigger problems.
Who Will Do It for Love?
Much of the advice I’ve catalogued in this series is aimed at those doing small-scale development for love of a place, community, or even building. That’s who dominates the incremental development world right now—but it’s maybe the group with the least potential to scale exponentially, inasmuch as it requires a rare combination of personal traits to be that person.
Incremental development is full of people with a do-gooder zeal who see it as one (patchy) way that less desperate people, motivated by love of a community, can serve the desperate. Monte Anderson explains with a hypothetical. “If I’ve got two apartments in the back of my business, I can rent them out. I’m not trying to report to a board of directors, so I can rent to the bus boy down the street, who I like because he mows my yard. The lady’s daughter, my friend down the street, who’s come back to her hometown and is a single mom. I can rent it to the kid down the street with schizophrenia who drinks too much but he’s not dangerous. The adult with Down syndrome.”
What the “love” crowd can do, in addition to directly providing space by building it, is be catalysts and leaders. They can seek to bring others along with them and grow a community. That community may not reach the point where it accounts for more than a small fraction of the buildings going up in a city. But they can have a transformative impact in specific neighborhoods. And they can create a body of know-how and wisdom that ports to other places—the “DNA” Mike Keen in South Bend talks about. The incremental development model translates from one community to another: it’s the individual developer’s reasons that don’t. You can’t give someone their “why.”
But the “love” crowd can be ready to lead the much larger “desperation” crowd to solutions, as those solutions become more broadly available because the existing systems that prevented them have simply cracked under their own weight.
That need not be as depressing a conclusion as it may sound. Desperation is, historically, how great places have usually started. A row of pioneer shacks; a business run out of somebody’s garage. Desperation is the grasses colonizing the lava field after a volcanic eruption. Desperation has forever been the thing in the air and the water that gives birth to innovation in art and music: the blues came from sharecroppers, hip-hop from young men on street corners in the Bronx. Comfortable success comes later, complacency after that.
Desperation is motivation. Marty Mechtenberg at the City of South Bend told me, “I have to be in neighborhoods full of people of color who don’t think the city has done anything for them in decades. Generations. And I always tell people they’re here for me, for the city. I’m not here for them. I flip it around, ‘We’re desperate for you. We need you, so badly, to be successful.’”
If you loved this series, we encourage you to share the e-book we’ve put together for it, which you can download for free!
Who is actually going to do the work of incremental development, and what will their motivations be?