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Affordable Housing Is a Symptom of Sound Urban Policy

Editor’s Note: These few paragraphs by “anti-planner” Randal O’Toole say everything that needs to be said about how flawed policies artificially inflate the price of housing, making it unaffordable to any middle class family. California provides perhaps the most egregious example of this misanthropic bias towards “smart growth,” and “urban service boundaries,” the practical effect of which is to destroy the ambiance of existing suburbs through absurdly high-density “infill,” create gridlock on boulevards and freeways, and artificially elevate housing prices into the stratosphere. The irony, if you can call something so cruel mere irony, is that wealthy elites who can afford to live in unsullied, low-density enclaves reap fantastic returns on investment as these asset bubbles are relentlessly inflated, simultaneously patting themselves on the back for “saving the planet.” But as prime, and very abundant, lands for new towns and cities lie fallow – such as the east slopes of the Mount Hamilton range, thousands of square miles of open space within a short drive of Silicon Valley – young working families are one paycheck away from defaulting on mortgages they cannot possibly hope to ever pay off.

Paul Krugman argues that housing costs, not taxes, are what is drawing people to Georgia and Texas and away from California and New York. He’s partly right, but he’s mostly wrong.

What he fails to see is that the same impulse that attempts to control land uses in California, making housing expensive, also makes unduly regulates California businesses and boosts taxes to make California undesirable. The same impulse the attempts to control rents in New York City also leads to nanny-state rules and excessive bureaucracy that makes that city undesirable to many businesses.

Contrary to what Krugman says, housing prices in California and New York are high not because they’ve run out of land. California especially has plenty of land available while a good share of the New York and Connecticut counties bordering New York City are rural open space. Nor are prices high because cities won’t allow higher densities: if California cities didn’t have urban-growth boundaries, few people would want to live in higher densities.

The real problem is a government-knows-best mentality that puts the desires of a few above the needs of the many. That same mentality leads California to impose the most restrictive rules on greenhouse gas emissions and leads New York to spend more than $2 billion a mile on subway tunnels. Until regulations like this and the taxes needed to support them change, California and New York will remain undesirable places to expand businesses, which is why they grow so slow.

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About the Author:  Randal O’Toole is an American public policy analyst. The majority of O’Toole’s work has focused on private land rights, particularly against public land use regulations and light rail. Since 1995, he has been associated with the Cato Institute as an adjunct scholar and frequent anti-light rail campaigner. O’Toole was the McCluskey Visiting Fellowship for Conservation at Yale University in 1998, and has served as a visiting scholar at the University of California, Berkeley and Utah State University. O’Toole studied economics at the University of Oregon. This post was originally published on O’Toole’s blog, The Antiplanner, and appears here with permission.

Land Use Facts vs. Land Use Ideology

Editor’s Note:  The median price of a home in San Francisco has just topped $1.0 million. The median price for homes throughout California, measured at $466,000 in June 2014, edges close to a half-million. Nobody, apart from the very wealthy, can really afford homes at these prices. Yet these outrageous prices are entirely the result of restrictive land use policies, relentlessly promoted by ideologues and exploited by vested interests who benefit from artificial scarcity. Some of the articles where we have already covered this are “California’s Green Bantustans,” as well as “Anti-Sprawl Policies Threaten America’s Future.” This new article by Randal O’Toole expands on the topic with a list of reasons the arguments of the high-density advocates are not supported by facts and research. O’Toole doesn’t differentiate between “smart-growth,” which invariably advocates high-density, and “new urbanism,” a movement that had its origins in a desire to restore aesthetic quality to urban architecture and was co-opted by the smart growth crowd, but that’s splitting hairs. If you want to know why California’s finest are migrating to more affordable pastures, read on.

Debates over smart growth–sometimes known as new urbanism, compact cities, or sustainable urban planning, but always meaning higher urban densities and a higher share of people in multifamily housing–boil down to factual questions. But smart-growth supporters keep trying to twist the arguments into ideological issues.

20140721_OToole-1The choice should be the consumers, not the “planners.” A suburban home…

For example, in response to my Minneapolis Star Tribune article about future housing demand, Thomas Fisher, the dean of the College of Design at the University of Minnesota, writes, “O’Toole, like many conservatives, equates low-density development with personal freedom.” In fact, I equate personal freedom with personal freedom.

20140721_OToole-2…or a “smart growth,” high density neighborhood. 

Fisher adds, “we [meaning government] should promote density where it makes sense and prohibit it where it doesn’t”; in other words, restrict personal freedom whenever planners’ ideas of what “makes sense” differ from yours. Why? As long as people pay the costs of their choices, they should be allowed to choose high or low densities without interference from planners like Fisher.

Another writer who makes this ideological is Daily Caller contributor Matt Lewis, who believesthat conservatives should endorse new urbanism. His weird logic is conservatives want people to love their country, high-density neighborhoods are prettier than low-density suburbs, and people who don’t have pretty places to live will stop loving their country. Nevermind that more than a century of suburbanization hasn’t caused people to stop loving their country; the truth is there are many beautiful suburbs and many ugly new urban developments.

Lewis adds, “Nobody I know is suggesting that big government–or the U.N.!–ought to mandate or impose these sorts of development policies.” He apparently doesn’t know many urban planners, and certainly none in Denver, Portland, San Francisco, Seattle, the Twin Cities, or other metropolitan areas where big government in the form of regional planning agencies (though not the U.N.) are doing just that. If new urbanism were simply a matter of personal choice, no one would criticize it.

The real issues are factual, not ideological.

Fact #1: Contrary to University of Utah planning professor Arthur Nelson, most people everywhere prefer low-density housing as soon as they have transport that is faster than walking. While a minority does prefer higher densities, the market will provide both as long as there is demand for them.

Fact #2: Contrary to Matt Lewis, American suburbanization did not result from a “post-World War II push for sprawl” coming from “the tax code, zoning, a federally financed highway system, and so on.” Suburbanization began before the Civil War when steam trains could move people faster than walking speed. Most American families abandoned transit and bought cars long before interstate highways–which, by the way, more than paid for themselves with the gas taxes collected from the people who drove on them. Nor did the tax code promote sprawl: Australians build bigger houses with higher homeownership ratesin suburbs just as dispersed as America’s without a mortgage interest deduction.

Fact #3: Contrary to Thomas Fisher, low-density housing costs less, not more, than high-density. Without urban-growth boundaries or other artificial restraints, there is almost no urban area in America short of land for housing. Multifamily housing costs more to build, per square foot, than single-family, and compact development is expensive because the planners tend to locate it in areas with the highest land prices.

The relative prices I gave in my article–$375,000 for a 1,400-square-foot home in a New Urban neighborhood vs. $295,000 for a 2,400-square-foot home on a large suburban lot–are typical for many smart-growth cities: compare these eastside Portland condos with these single-family homes in a nearby Portland suburb.

Fact #4: Contrary to Fisher, the so-called costs of sprawl are nowhere near as high as the costs of density. Rutgers University’s Costs of Sprawl 2000 estimates that urban services to low-density development cost about $11,000 more per house than services to high-density development. This is trivial compared with the tens to hundreds of thousands of dollarsadded to home prices in regions whose policies promote compact development.

Fact #5: Contrary to University of Minnesota planning professor Richard Bolan, the best way to reduce externalities such as pollution and greenhouse gases is to treat the source, not try to change people’s lifestyles. For example, since 1970, pollution controls reduced total air pollution from cars by more than 80 percent, while efforts to entice people out of their cars and onto transit reduced pollution by 0 percent.

Fact #6: Contrary to Lewis, suburbs are not sterile, boring places. Suburbanites have astrong sense of community and are actually more likely to engage in community affairs than city dwellers.

Fact #7: Smart growth doesn’t even work. It doesn’t reduce driving: After taking self-selection into account, its effects on driving are “too small to be useful.” It doesn’t save money or energy: multifamily housing not only costs more, it uses more energy per square foot than single-family, while transit costs more and uses as much or more energy per passenger mile as driving. When planners say smart growth saves energy, what they mean is you’ll live in a smaller house and have less mobility.

Fact #8: If we end all subsidies and land-use regulation, I’ll happily accept whatever housing and transport outcomes result from people expressing their personal preferences. Too many planners want to control population densities and transport choices through prescriptive land-use regulation and huge subsidies to their preferred forms of transportation and housing.

These planners think only government can know what is truly right for other people. Even if you believe that, government failure is worse than market failure and results in subsidies to special interest groups for projects that produce negligible social or environmental benefits.

If urban planners have a role to play, it is to ensure people pay the costs of their choices. Instead, it is planners, rather than economists such as myself, who have become ideological, insisting density is the solution to all problems despite the preferences of 80 percent of Americans for low-density lifestyles.

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About the Author:  Randal O’Toole is an American public policy analyst. The majority of O’Toole’s work has focused on private land rights, particularly against public land use regulations and light rail. Since 1995, he has been associated with the Cato Institute as an adjunct scholar and frequent anti-light rail campaigner. O’Toole was the McCluskey Visiting Fellowship for Conservation at Yale University in 1998, and has served as a visiting scholar at the University of California, Berkeley and Utah State University. O’Toole studied economics at the University of Oregon. This post was originally published on O’Toole’s blog, The Antiplanner, and appears here with permission.

California's Green Bantustans

One of the core barriers to economic prosperity in California is the price of housing. But it doesn’t have to be this way. Policies designed to stifle the ability to develop land are based on flawed premises. These policies prevail because they are backed by environmentalists, and, most importantly, because they have played into the agenda of crony capitalists, Wall Street financiers, and public sector unions. But while the elites have benefit, ordinary working families have been condemned to pay extreme prices in mortgages, property taxes, or rents, to live in confined, unhealthy, ultra high-density neighborhoods. It is reminiscent of apartheid South Africa, but instead of racial superiority as the supposed moral justification, environmentalism is the religion of the day. The result is identical.

Earlier this month an economist writing for the American Enterprise Institute, Mark J. Perry, published a chart proving that over the past four years, more new homes were built in one city, Houston Texas, than in the entire state of California. We republished Perry’s article earlier this week, “California vs. Texas in one chart.” The population of greater Houston is 6.3 million people. The population of California is 38.4 million people. California, with six times as many people as Houston, built fewer homes.

And when there’s a shortage, prices rise. The median home price in Houston is $184,000. The median price of a home in Los Angeles is $530,000, nearly three times as much as a home in Houston. The median price of a home in San Francisco is $843,000, nearly five times as much as home in Houston. What is the reason for this? There may be a shortage of homes, but there is no shortage of land in California, a state of 163,000 square miles containing vast expanses of open space. What happened?

You can argue that San Francisco and Los Angeles are hemmed in by ocean and mountains, respectively, but that really doesn’t answer the question. In most cases, these cities can expand along endless freeway corridors to the north, south, and east, if not west, and new urban centers can arise along these corridors to attract jobs. But they don’t, and the reason for this are the so-called “smart growth” policies. In an interesting report entitled “America’s Emerging Housing Crisis,” Joel Kotkin calls this policy “urban containment.” And along with urban containment, comes downsizing. From another critic of smart growth/urban containment, economist Thomas Sowell, here’s a description of what downsizing means in the San Francisco Bay Area suburb Palo Alto:

“The house is for sale at $1,498,000. It is a 1,010 square foot bungalow with two bedrooms, one bath and a garage. Although the announcement does not mention it, this bungalow is located near a commuter railroad line, with trains passing regularly throughout the day. The second house has 1,200 square feet and was listed for $1.3 million. Intense competition for the house drove the sale price to $1.7 million. The third, with 1,292 square feet (120 square meters) and built in 1895 is on the market for $2.3 million.”

And as Sowell points out, there are vast rolling foothills immediately west of Palo Alto that are completely empty – the beneficiaries of urban containment.

The reason for all of this ostensibly is to preserve open space. This is a worthy goal when kept in perspective. But in California, NO open space is considered immediately acceptable for development. There are hundreds of square miles of rolling foothills on the east slopes of the Mt. Hamilton range that are virtually empty. With reasonable freeway improvements, residents there could commute to points throughout the Silicon Valley in 30-60 minutes. But entrepreneurs have spent millions of dollars and decades of efforts to develop this land, and there is always a reason their projects are held up.

The misanthropic cruelty of these polices can be illustrated by the following two photographs. The first one is from Soweto, a notorious shantytown that was once one of the most chilling warehouses for human beings in the world, during the era of apartheid in South Africa. The second one is from a suburb in North Sacramento. The scale is identical. Needless to say, the quality of the homes in Sacramento is better, but isn’t it telling that the environmentally enlightened planners in this California city didn’t think a homeowner needed any more dirt to call their own than the Afrikaners deigned to allocate to the oppressed blacks of South Africa?

The Racist Bantustan

201402_Soweto-500px

Soweto, South Africa  –  40′ x 80′ lots, single family dwellings

When you view these two studies in urban containment, consider what a person who wants to install a toilet, or add a window, or remodel their kitchen may have to go through, today in South Africa, vs. today in Sacramento. Rest assured the ability to improve one’s circumstances in Soweto would be a lot easier than in Sacramento. In Sacramento, just acquiring the permits would probably cost more time and money than doing the entire job in Soweto. And the price of these lovely, environmentally correct, smart-growth havens in Sacramento? According to Zillow, they are currently selling for right around $250,000, more than five times the median household income in that city.

The Environmentalist Bantustan

201402_Sacramento-500px

Sacramento, California  –  40′ x 80′ lots, single family dwellings

When you increase supply you lower prices, and homes are no exception. The idea that there isn’t enough land in California to develop abundant and competitively priced housing is preposterous. According to the American Farmland Trust, of California’s 163,000 square miles, there are 25,000 square miles of grazing land and 42,000 square miles of agricultural land; of that, 14,000 square miles are prime agricultural land. Think about this. You could put 10 million new residents into homes, four per household, on half-acre lots, and you would only consume 1,953 square miles. If you built those homes on the best prime agricultural land California’s got, you would only use up 14% of it. If you scattered those homes among all of California’s farmland and grazing land – which is far more likely – you would only use up 3% of it. Three percent loss of agricultural land, to allow ten million people to live on half-acre lots!

And what of these lots in North Sacramento? What of these homes that cost a quarter-million each, five times the median household income? They sit thirteen per acre. Not even enough room in the yard for a trampoline.

There is a reason to belabor these points, this simple algebra. Because the notion that we have to engage in urban containment is a cruel, entirely unfounded, self-serving lie. You may examine this question of development in any context you wish, and the lie remains intact. If there is an energy shortage, then develop California’s shale reserves. If fracking shale is unacceptable, then drill for natural gas in the Santa Barbara channel. If all fossil fuel is unacceptable, then build nuclear power stations in the geologically stable areas in California’s interior. If there is a water shortage, than build high dams. If high dams are forbidden, then develop aquifer storage to collect runoff. Or desalinate seawater off the Southern California coast. Or recycle sewage. Or let rice farmers sell their allotments. There are answers to every question.

Environmentalists generate an avalanche of studies, however, that in effect demonize all development, everywhere. The values of environmentalism are important, but if it weren’t for the trillions to be made by trial lawyers, academic careerists, government bureaucrats and their union patrons, crony green capitalist oligarchs, and government pension fund managers and their partners in the hedge funds whose portfolio asset appreciation depends on artificially elevated prices, environmentalism would be reined in. If it weren’t for opportunists following this trillion dollar opportunity, environmentalist values would be kept in their proper perspective.

The Californians who are hurt by urban containment are not the wealthy elites who find it comforting to believe and lucrative to propagate the enabling big lie. The victims are the underprivileged, the immigrants, the minority communities, retirees who collect Social Security, low wage earners and the disappearing middle class. Anyone who aspires to improve their circumstances can move to Houston and buy a home with relative ease, but in California, they have to struggle for shelter, endlessly, needlessly – contained and allegedly environmentally correct.

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Ed Ring is the executive director of the California Policy Center

Anti-Sprawl Policies Threaten America's Future

Among university professors, government planners and mainstream pundits there is little doubt that the best city is the densest one. This notion is also supported by a wide number of politically connected developers, who see in the cramming of Americans into ever smaller spaces an opportunity for vast, often taxpayer-subsidized, profiteering.

More recently density advocates cite a much-discussed study of geographic variations in upward mobility as suggesting that living in a spread-out city hurts children’s prospects in life. “Sprawl may be killing Horatio Alger,” quipped economist and New York Times columnist Paul Krugman.

Yet the study actually found the highest rates of upward mobility not in dense cities, but in relatively spread-out places like Salt Lake City, small cities of the Great Plains such as Bismarck, N.D.; Yankton, S.D.; and Pecos, Texas — all showed bottom to top mobility rates more than double New York City. And we shouldn’t forget the success story of Bakersfield, Calif., a cityColumbia University urban planning professor David King wryly labeled “a poster child for sprawl.” Rather than an ode to bigness, notes demographer Wendell Cox, the study found that commuting zones (similar to metropolitan areas) with populations under 100,000 — smaller cities that tend to be sprawled by nature  —  have the highest average upward income mobility.

“Sprawl” did not kill Detroit, as Krugman suggests in his previously mentioned column, the city did that largely to itself. Another like-minded critic, historian Steven Conn,  blames the auto industry for the city’s problems, perhaps not recognizing Detroit would be little more than a more southerly Duluth without it.

There are at least three major problems with the thesis that density is an unabashed good. First, and foremost, Census and survey data reveal that most people do not want to live cheek to jowl if they can avoid it. Second, most of the attractive highest-density areas also have impossibly high home prices relative to incomes and low levels of homeownership. And third, and perhaps most important, dense places tend to be regarded as poor places for raising families. In simple terms, a dense future is likely to be a largely childless one.

Let’s start with something few density advocates consider: what people want and what they would choose if they could. Roughly four in five buyers, according to a 2011 study commissioned by the National Association of Realtors, prefer a single-family home. This preference can be seen in the vastly greater construction of single-family houses in the past decade: Between 2000 and 2011, detached houses accounted for 83% of the net additions to the occupied U.S. housing stock.  The percentage of single-family homes in the total housing mix last decade was more than one-fifth higher than in the 1960s, 1970s and 1980s.

Contrary to the conventional wisdom, the pattern is not likely to end, barring a longer-term recession or government edict. As the number of households once again begins to rise and birthrates tick up, single-family homes are once again leading housing growth.

Buyers of single-family homes are not necessarily embracing exurban lifestyles so much as reacting to basic economic factors. In many cases the nicest single-family districts closest to work and amenities are prohibitively expensive — think Beverly Hills or Studio City in the L.A. area, Bethesda near Washington, or Evanston outside Chicago. People move further out in order to afford something better than an apartment.

The last decennial Census shows us definitively that people tend to head toward the periphery. Barely 6% of Americans live in densities of over 10,000 per square mile, and the fastest-growing central cities between 2000 and 2010 — such as Raleigh, Charlotte and Austin — have average densities less than a third as intense as places like New York, Chicago, Or Los Angeles.

Overall, domestic migrants tend to be moving away from these denser metropolitan areas. Between 2000 and 2010, a net 1.9 million people left New York, 1.3 million left Los Angeles, 340,000 left San Francisco, while 230,000 left San Jose and Boston. In contrast, some of the largest in-migration has taken place over the past decade, as well as since 2010, in relatively sprawling cities, including Houston, Dallas, Ft. Worth, Tampa-St. Petersburg and Nashville.

Our perceptions of density are often distorted by media coverage, which tends to revolve around city centers. To be sure many downtown areas have experienced impressive growth, but this accounted for less than 1% of the 27 million expansion in the U.S. population between 2000 and 2010. In reality virtually all net population growth in the nation took place in counties with under 2,500 persons per square mile. The total population increase in counties with under 500 people per square mile was more than 30 times that of the growth in counties with densities of 10,000 and greater.

Some inner suburbs may be struggling adjacent to some hard-pressed cities, as is often highlighted by density advocates, but they are thriving in areas where prices are reasonable and the economy is strong. In Houston, arguably America’s most economically vibrant big metro area, over 80% of homes sales in 2012 were outside Beltway 8, the city’s second ring. The city’s inner ring, inside the 610 loop, has experienced an impressive revival, but still it only accounted for 6% of home sales last year.

There is clearly a growing chasm between affordable, family-friendly cities and those that, frankly, are not. Until the 1970s, in virtually all American metropolitan areas, a median-priced home cost roughly three years’ median income. This equilibrium was smashed by the imposition in some states of “smart” land-use policies that seek to limit or even prohibit suburban building, huge impact fees, as well as in some markets,  massive investment from speculators.

As a result, many of the metro areas beloved by density advocates, such as New York and San Francisco, now have median home price multiples well over 6 or 7; if current trends continue, they could, as occurred during the last housing boom, reach upward of 10. Not surprisingly, these areas all have low rates of homeownership compared to the national average.  For example, in New York and Los Angeles, the homeownership rate is half or less than the national figure of 65%. This is particularly true among working class and minority households. Atlanta’s African-American home ownership rate is approximately 40% above those of San Jose and Los Angeles, approximately 50% higher than Boston, San Francisco and Portland, and nearly 60%  higher than New York.

All these factors are particularly relevant to one group: families. Much of contemporary urban theory rests on the idea of weakening family connections: fewer marriages and lower birthrates will decrease the appetite for lower-density housing. Families do not make up the prime market for dense housing; married couples with children constitute barely 10% of apartment residents, less than half the percentage for the population overall.

Families also generally settle in less dense parts of cities, suburban or exurban areas;  the places with the lowest percentage of households with children include favored abodes of the  density lobby such as New York (particularly Manhattan), as well as Chicago, San Francisco and Seattle. In contrast the metropolitan areas with the strongest growth in their child populations — Raleigh, Austin, Charlotte, Dallas, Houston, Oklahoma City — have much lower densities and far smaller urban cores.

This flight from density among families is not merely an American phenomena. There are far higher percentages of families with children in the suburbs of Tokyo, London and Toronto than within the inner rings. The ultra dense cities of East Asia — Hong Kong, Singapore and Seoul — have among the lowest fertility rates on the planet. Tokyo and Seoul now have fertility rates around 1 while Shanghai’s has fallen to 0.7, among the lowest of any city ever recorded, well below China’s “one child” mandate and barely one-third the number required simply to replace the current population.

Some have suggested that the Obama administration is conspiring to turn American cities into high-rise forests. But the coalition favoring forced densification — greens, planners, architects, developers, land speculators — predates Obama. They have gained strength by selling densification, however dubiously, as what planner and architect Peter Calthorpe calls “a climate change antibiotic.” Not surprisingly, there’s less self interest in promoting more effective greenhouse gas reduction policies such as boosting  work at home and lower-emissions cars.

The density agenda need to be knocked off its perch as the summum bonum of planning policy. These policies may not hurt older Americans, like me, who bought their homes decades ago, but will weigh heavily on the already hard-pressed young adult population. Unless the drive for densification is relaxed in favor of a responsible but largely market-based approach open to diverse housing options, our children can look forward to a regime of ever-higher house prices, declining opportunities for ownership and, like young people in East Asia, an environment hostile to family formation. All for a policy that, for all its progressive allure, will make more Americans more unhappy, less familial, and likely poorer.

Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA. This article originally appeared in Forbes Magazine and is republished here with permission from the author.