Preserving the Ideal of a Property Owning Democracy: The 8th Annual Demographia International Housing Affordability Survey
Rating Housing Affordability
The 8th Annual Demographia International Housing Affordability Survey covers 325 metropolitan markets in Australia, Canada, Hong Kong, Ireland, New Zealand, the United Kingdom and the United States. The Demographia International Housing Affordability Survey employs the “Median Multiple” (median house price divided by gross [before tax] annual median household income) to rate housing affordability (Table ES-1). The Median Multiple is widely used for evaluating urban markets, and has been recommended by the World Bank and the United Nations and is used by the Harvard University Joint Center on Housing.
Demographia Housing Affordability Rating Categories
Rating Median Multiple
Affordable 3.0 & Under
Moderately Unaffordable 3.1 to 4.0
Seriously Unaffordable 4.1 to 5.0
Severely Unaffordable 5.1 & Over
More elaborate indicators, which mix housing affordability and mortgage affordability can mask the structural elements of house pricing are often not well understood outside the financial sector. Moreover, they provide only a "snapshot," because interest rates can vary over the term of a mortgage; however the price paid for the house does not. The reality is that, if house prices double or triple relative to incomes, as has occurred in many severely unaffordable markets, mortgage payments will also be double or triple, whatever the interest rate.
Historically, the Median Multiple has been remarkably similar in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, with median house prices having generally been from 2.0 to 3.0 times median household incomes (historical data has not been identified for Hong Kong), with 3.0 being the outer bound of affordability. This affordability relationship continues in many housing markets of the United States and Canada. However, the Median Multiple has escalated sharply in the past decade in Australia, Ireland, New Zealand, and the United Kingdom and in some markets of Canada and the United States.
The Demographia International Housing Affordability Survey is produced to contrast the deterioration in housing affordability in some metropolitan markets with the preservation of affordability in other metropolitan areas. It is dedicated to younger generations who have right to expect they will live as well or better than their parents, but may not, in large part due to the higher cost of housing.
Housing Affordability in 2011
Housing affordability was little changed in 2011, with the most affordable markets being in the United States, Canada and Ireland. The United Kingdom, Australia and New Zealand continue to experience pervasive unaffordability.
Major Metropolitan Markets: The 325 markets include 81 major metropolitan markets (those with more than 1,000,000 population).
Among these major metropolitan markets, there were 24 affordable major markets, 20 moderately unaffordable major markets, 13 seriously unaffordable major markets and 24 severely unaffordable major markets. All of the affordable major markets were in the United States while three of the moderately unaffordable markets were in Canada and one in Ireland with the other 16 in the United States. The severely unaffordable major markets were principally in the United Kingdom (8), the United States (6), and Australia (5). Hong Kong was severely unaffordable and there were three severely unaffordable major markets in Canada and one in New Zealand (Table ES-2).
Housing Affordability Ratings by Nation: Major Markets (Over 1,000,000 Population)
(3.0 & Under) Moderately
Unaffordable (3.1-4.0) Seriously Unaffordable (4.1-5.0) Severely Unaffordable (5.1 & Over)
Australia 0 0 0 5 5 6.7
Canada 0 3 0 3 6 4.5
China (Hong Kong) 0 0 0 1 1 12.6
Ireland 0 1 0 0 1 3.4
New Zealand 0 0 0 1 1 6.4
United Kingdom 0 0 8 8 16 5.0
United States 24 16 5 6 51 3.1
TOTAL 24 20 13 24 81
The most affordable major market was Detroit, with a Median Multiple of 1.4, below the historic range of 2.0 to 3.0. Atlanta had a Median Multiple of 1.9. The other 22 affordable major markets had Median Multiples of from 2.0 to 3.0, with the most affordable being Phoenix, Rochester, Cincinnati, Cleveland and Las Vegas. The strong growth markets of Dallas-Fort Worth, Houston, Orlando, Jacksonville, Nashville, Oklahoma City, Sacramento and Indianapolis also achieved affordable ratings.
All major markets in Australia and New Zealand, as well as Hong Kong were severely unaffordable.
Hong Kong was the least affordable major market (ranked 81st), with a median multiple of 12.6. Vancouver was second most unaffordable, at a Median Multiple of 10.6 (ranked 80th), which is even more severely unaffordable than last year. Sydney was the third most unaffordable, at 9.2 (ranked 79th). Melbourne and Plymouth & Devon all had Median Multiples of more than 7.0.
All Markets: Among all 325 markets surveyed, there were 128 affordable markets, 117 in the United States, 9 in Canada and 2 in Ireland. There were 87 moderately unaffordable markets, 64 in the United States, 19 in Canada, 3 in Ireland and 1 in the United Kingdom. There were 39 seriously unaffordable markets and 71 severely unaffordable markets. Australia had 25 severely unaffordable markets, followed by the United Kingdom with 20 and the United States with 14. Canada had 6 severely unaffordable markets, while New Zealand had 5. China's one included market, Hong Kong, was also severely unaffordable (Table ES-3). Honolulu and Bournemouth & Dorsett were the most unaffordable markets outside the major metropolitan markets, with a Median Multiple of 8.7.
Housing Affordability Ratings by Nation: All Markets
(3.0 & Under) Moderately
Unaffordable (3.1-4.0) Seriously Unaffordable (4.1-5.0) Severely Unaffordable (5.1 & Over)
Australia 0 0 7 25 32 5.6
Canada 9 19 1 6 35 3.5
China (Hong Kong) 0 0 0 1 1 12.6
Ireland 2 3 0 0 5 3.3
New Zealand 0 0 3 5 8 5.2
United Kingdom 0 1 12 20 33 5.1
United States 117 64 16 14 211 3.0
TOTAL 128 87 39 71 325
Housing Affordability: Incompatible with Restrictive Regulation
The deterioration of housing affordability in many of the markets rated in the Demographia International Housing Affordability Survey is unprecedented based upon the available historical data. Australia and New Zealand, for example, which had legendary housing affordability from after World War II to the 1980s and 1990s have seen house prices reach levels that are nearly double even nearly triple their historic ratio to household incomes.
The economic evidence indicates that this trend is strongly related to the implementation of more restrictive land use regulations, especially measures that create scarcity in land for housing. In creating scarcity, more restrictive land regulation increases land prices, which increases house prices. In considering this process, economist Anthony Downs, of The Brookings Institution in Washington. D.C., has indicated the importance of maintaining the "principle of competitive land supply." This is particularly important because one of the most favored more restrictive land use policies is the "urban growth boundary," which prohibits development on considerable amounts of land that would otherwise be developable, resulting in artificial and unnecessary scarcity values. The escalation of house prices relative to incomes, from Sydney and Vancouver to London and across California testify to the failure of planning to maintain a competitive land supply. The record shows that smart growth (urban consolidation and compact cities policies) is incompatible with housing affordability.
More restrictive regulation has led to situations where "across the road" values per hectare of raw, developable land vary by more than 10 times in Auckland and Portland, based upon whether they are inside or outside the urban growth boundary. And these “urban echo values” at these locations (pricing in anticipation of future urban zoning) are generally substantially higher than the true rural values, further out from the urban growth boundary. Even larger differences have been documented in the United Kingdom's Barker Report and researchers at the London School of Economics.
Further, economic analyses have indicated that metropolitan areas with more restrictive land use regulation tend to perform less well economically than would have been otherwise expected.
Preserving the "Ideal of a Property Owning Democracy"
One of the principal accomplishments of high-income world societies has been the expansion of property ownership and home ownership to the majority of the population. At the same time, there are dark economic clouds on the horizon. Governments in high income nations are faced with some of the most challenging times in their history. In this environment, the property owning middle-class seems likely to have to face significant challenges in the longer run. Housing represents the largest share of household budgets and thus, housing affordability is a major determinant of both the cost of living and the standard of living.
There are important positive signs. The state of Florida repealed its more restrictive regulations ("smart growth" law) in 2011. A major report released in December 2011 in New Zealand documented the importance of a competitive land supply in restoring housing affordability to that nation.
These are important first steps. There are serious social risks to more restrictive regulation and unnecessarily denying households the opportunity to own their own homes. In writing on the issue 40 years ago, urbanologist Peter Hall expressed concern about the effect of such policies on the "ideal of a property owning democracy."
Consolidating local governments makes sense only in ivory towers, not in the real world.
In the last few years, Pennsylvania and New York started initiatives to consolidate their governmental structure. They took to heart the usual mantra that there are hundreds, even thousands of governments in the state and that they must be consolidated to save money. In both states, the efforts were clothed in promises that local government consolidation would improve competitiveness relative to other states.
However, the proponents never bothered to look at the data.
We did and the results were stunning. In both states, an equivalent “market basket” of spending was compared. In Pennsylvania, the largest local jurisdictions spent (including a per capita allocation of county expenditures, so that Philadelphia could be included. Social service spending was excluded) 150 percent more per capita than jurisdictions with between 5,000 and 10,000 population. The largest jurisdictions — those over 250,000 people — spent 200 percent more than jurisdictions with under 2,500 residents.
Moreover, it is not a matter of urban versus rural. Our work for the Pennsylvania Association of Township Supervisors showed that in both the Philadelphia and Pittsburgh areas, there are literally hundreds of suburban jurisdictions that spent at less than one-half the per capita rate of the central cities.
The story was little different in New York. Our report for the Association of Towns of the State of New York indicated that the largest jurisdictions (those over 100,000) spent nearly double per capita as jurisdictions with between 5,000 and 10,000 population (this would have been even greater if it had been possible to include New York City). The big governments spent even more (more than 150 percent) compared to jurisdictions with between 1,000 and 2,500 population. The differences were even greater within metropolitan areas, where smaller jurisdictions were even more efficient relative to the largest jurisdictions.
The reality is that there are few, if any economies of scale in local governments, except for the special interests that can influence them more readily, for less cost, as the town hall is moved farther away from citizens.
CNT has developed an impressive website, with "tons" of data and maps that are both impressive and attractive. But for all of its superficial impressiveness, the H&T Index is subject to serious misinterpretation and suffers from methodological flaws that neutralize the usefulness of its affordability indices.
The Age (Melbourne)
Land banking is a normal market reaction to a regulatory regime in which
land for new housing is severely rationed. Like any business, developers
must ensure that they have sufficient inventory to operate. With arbitrary
planning policies that ration land, it would be easy for a developer to be
driven out of business because competitors have cornered the market (for
land). Yes, it is outrageous that a block of land for a house costs
$180,000, but do not blame the land bankers, blame the government policies
that have unnecessarily made housing unaffordable for the average
In Atlanta and Dallas-Fort Worth, the high-income world's fastest growing
metropolitan areas, finished (serviced) land for new housing is at least 75%
lower than in Melbourne. This is because these metropolitan areas have not
implemented the destructive urban consolidation (smart growth) policies that
have been imposed in all of Australia's largest cities.
The result, of course, is that residents of Dallas-Fort Worth and Atlanta
spend far less on housing and have more discretionary income to spend on
other goods and services.
CARS: THE ALTERNATIVE TO POVERTY
Of course, traffic deaths are regrettable and great progress has been made in their reduction. Traffic deaths in the United States today are about the same as in the late 1950s, despite the fact that driving has increased to 5x the rate at that time.
Virtually everyone who uses a car recognizes the risks. The connection between the superior personal mobility provided by cars and the eradication of poverty could not be more clear. That is why car ownership expands as fast as people can afford cars, whether in the United States, Europe, China or the Democratic Republic of the Congo.
A more revealing and relevant graphic would show traffic deaths compared to gross domestic product.
The Dreadful State of Australian Housing Affordability
By Wendell Cox
A new report by Bankwest shows that housing affordability for the nation’s “key workers” (nurses, teachers, police officers, fire fighters and ambulance operators) has become worse than desperate. The Bankwest report, BankWest_Key_Worker_Housing_Affordability/index.aspx> Key Worker Housing Affordability Report compares 2007 median house prices in the 8 capital cities to average annual earnings, using a standard that requires house prices to be 5 times or less the average (mean) annual earnings for each of the key worker classifications.
Rampant Unaffordability: In seven of the eight capital cities, the median house price was unaffordable for all of the five key worker classifications. The situation was only marginally better in the remaining capital city, Adelaide, where housing was deemed to be affordable for police officers. But even that sliver of light may have been extinguished, since house prices have rose so much Adelaide between 2007 and 2008 that police officer affordability may be a thing of the past.
Unaffordability by Local Government Area: The lack of housing affordability is pervasive down to the local government area (LGA) level.
• In Sydney, 100% of LGAs are unaffordable to nurses, teachers, fire fighters and ambulance operators. Things are not much better for police officers, with 93 percent of LGAs unaffordable.
• In Melbourne, 100% of LGAs are unaffordable to nurses. Other key workers face unaffordability in 71% and 84% of LGAs.
• In Brisbane, 100% of LGAs are unaffordable to nurses and ambulance operators. From 67% to 89% of LGAs are unaffordable to other key workers.
• In Adelaide, between 63% and 89% of LGAs are unaffordable to key workers.
• In Perth, 100% of LGAs are unaffordable to nurses, teachers, fire fighters and ambulance operators. For police officers, 93% of LGAs being unaffordable.
• In Hobart, between 50% and 83% of LGAs are unaffordable to key workers.
• In Darwin, 100% of LGAs are unaffordable to fire fighters and ambulance operators. Other key workers face unaffordability in 67% of LGAs.
• In Canberra, all LGAs are unaffordable to all key worker categories.
In all of the capital cities combined, housing is unaffordable for nurses in 96% of LGAs, for teachers and firefighters in 91% of LGAs, for ambulande operators in 90% of LGAs and for police officers in 81% of LGAs.
Unnecessary House Price Escalation: It was not always this way. Bankwest reports that since 2002, median house prices have increased at double the rate of key worker average earnings. Similar trends have been shown and concerns raised in our Demographia International Housing Affordability Survey, now in its fifth year of publication (Reference: http://www.demographia.com/dhi.pdf).
The problem, which has been increasingly acknowledged by economists in Australia and abroad is the stingy land use policies that have driven residential land prices through the roof in virtually all of the capital cities. At least one government understands. In its welcome relaxation of these destructive regulations, the Victorian government cites housing affordability as a principal justification. Often going under the name of “urban consolidation,” intention of these policies is to stop the expansion further into the plentiful land of the nation and force people to live closer to the urban cores --- this in a nation with less than 0.3 percent of its land area under urban development.
Other Workers are Key Too: The problem goes well beyond key workers. While the nation needs key workers living closeby to provide quality service to life, limb and mind, their salaries depend on the taxes and fees paid by other workers, many of whom have even lower earnings. Thus, as devastating as the affordability problem is to key workers, the crisis goes much deeper. An Australian household purchasing a house will pay, on average 70 percent more today relative to income than in the early 1990s. Virtually all of the difference can be attributed to the regulations that seek to remake cities to match a radical vision that is already well on its way to the Hong Kongization of some Sydney neighborhoods.
Giving Up on the Great Australian Dream? The Bankwest report notes that key worker housing affordabilty is somewhat less dire with respect to units. Police officers cannot afford units in 41% of capital city LGAs, while other key workers cannot afford units in from 59% to 78% of LGAs.
That is precious little comfort. The Great Australian Dream is about a house on a quarter acre block, not a quarter floor in a high-rise block.
I canceled the account more than a year ago and switched my website to another firm. Now, more than a year after cancelation, I have been billed $95.40 for a years service that I did not received.
The billing agent insisted that I send a copy of my credit card bill to her before she refunds me, despite the fact that they knows have wrongly billed me.
The problem has not been resolved and I remain on the phone with this company as this blog is finished.
I have never had such a bad experience with a company.
Sounder Commuter Rail and Link light Rail as of 2008
12 years into its Sound Move Ten Year Plan (1996-2006)
By Emory Bundy
Sounder commuter rail
Sounder commuter rail
Although it absorbs the smaller portion of Sound Transit's funds--which mostly are allocated to Link light rail--Sounder commuter rail has the merit of having actually been put into operation. So there's a functioning entity to measure and evaluate. Its performance anticipates that of Link light rail.
Sound Transit's promises for Sounder commuter rail in the Sound Move Ten Year Plan tax package of 1996:
*82 miles in length, Everett to Lakewood
*Completed and fully operating in 2002, with 15 daily trains, 9 between Lakewood and Seattle, 6 Everett to Seattle
*Capital cost, $650 million
*Annual operating cost as of the benchmark year 2010, $10 million
*Ridership in 2010, 3.8 million boardings
*Farebox recovery, 27.5% of operating costs.
The record to date:
*75 miles of track completed
*10 of the15 daily trains are in operation , 7 from Tacoma to Seattle, 3 from Everett to Seattle
*Capital cost: $1.25 billion projected through 2010, with $1.1 billion more to follow via Phase 2 funds (second tax package, adopted 2008). The components to complete the Phase 1 $650 million capital development plan will cost approximately $1.8 billion, a $1.15 billion, 177% cost overrun.
*Completion of the 82 miles, promised by 2002, now is targeted for 2012-13.
*Operating costs exceed $30 million, triple the original projections--absorbed by only two-thirds of the promised daily trains.
*Annual ridership is 2.67 million, 70% that projected
.*Farebox recovery is 13% of operating costs, half the target
Most of the additional capital cost for Phase 2 is allocated to develop parking facilities added since the original Sound Move Ten Year Plan. Whereas much was made of "transit oriented development" at the outset--with images of people strolling, or perhaps biking to their handy train stop--virtually all Sounder's patronage is dependent on free, handy parking. People are enabled to live hither and yon, drive their SUVs and pickups to Sound Transit's far-flung parking lots and structures, and park free, in order to benefit from an enormously subsidized rail trip. Doug MacDonald, former Washington State Secretary of Transportation, and former Sound Transit board member, aptly dubbed Sounder, "Sprawl Rail."
"Transit-oriented development," doesn't mean live near your rail transit stop and get rid of your automobile. Were that the case, huge sums for parking facilities would be unnecessary. Rather, it means subsidies for commercial development near the stations, in addition to subsidies for the train system and its operations. E.g., there's a "transit-oriented development" in Kent, Kent Station. The municipality purchased the real estate for $15 million, spent $2 million for environmental remediation, and sold it to the developer for $5 million. Sound Transit then relocated its planned 800-stall parking garage to the opposite side of the tracks--where it brings traffic closer to downtown Kent--so the Kent Station developer could use the parking garage, free, for its customers.
The arrangement works because the clientele of Kent Station has virtually no relationship to that of Sounder. This is dramatized by the anchor tenant, a 13-screen cineplex. Since Sounder operates only during work day commuting hours, and people go to the movies evenings and weekends, Sounder patrons and movie-goers drive to and from the garage servicing Sounder's station and Kent Station without competing for parking spaces. Kent Station has almost nothing to do with transit, save the coming of Sounder provided a rationale for subsidizing the mall developer.
Central Link light rail
The vision of Link light rail was that of a 125-mile network linking all the major centers in the Central Puget Sound region (Snohomish, King, and Pierce counties). After several losses at the polls, a scaled-back 21-mile ten year "starter rail" plan was proposed, and the taxing authority was approved by public vote in 1996.
Central Link light rail was to run from the University District in north Seattle to South 200th, a short distance south of Seattle-Tacoma International Airport, at a cost of $2.3 billion. It was to be completed and operating in ten years, 2006, and demonstrate how well Sound Transit could build and operate a rail line. With this "test drive," the public could kick the tires and have confidence in approving additional, Phase 2 taxes for the rest of the 125-mile network, to completed and operating in 2020.
With great fanfare and bragging, a so-called Initial Segment of Central Link light rail (i.e. the "initial segment" of the "starter rail"), from downtown Seattle to Tukwila, will go into service in the summer of 2009, and be extended a short distance to the Sea-Tac Airport in 2010. Sound Transit then hurried to obtain its Phase 2 taxing authority, negating the public's opportunity to evaluate its Phase 1 performance. Initial Segment covers the cheapest, easiest portion of the promised Central Link segment, will cost as much as the proffered price of all Central Link, and is projected to have one-quarter the ridership promised in 2010. Also, four stations have been eliminated, and only 12 will be completed--four of them stations in the Downtown Seattle Transit Tunnel, originally built and financed nearly two decades ago.
For an additional $1.9 billion, Sound Transit plans to add two more of the Central Link stations by 2016, and reach the University of Washington's football stadium. At that point the $2.3 billion project, to be completed in 2006, will have reached neither end of the Central Link line (NE 45th in the U District and South 200th, south of Sea-Tac), it will have cost $4.4 billion, and be missing 7 promised stations. That will have exhausted the Sound Move Phase 1 taxes, even though extended for 10 years in addition to the original 10 years. Reaching the NE 45th and South 200th termini, now targeted for 2020, will add well over $1 billion, supplemented by Phase 2 taxes. As of 2020, for roughly $6 billion, Sound Transit's Central Link light rail is now scheduled for completion, 14 years late, absent 5 of the promised 21 stations, with a $3.7 billion cost overrun.
The Central Link ridership promised in 2010, 32 million boardings, won't be approached by 2020, with a system that will cost at least 2.6 times as much. Operating costs will be multiples of those projected, and the share covered by the farebox--forecast at 53%--will be but a small fraction.
As for the Phase 2 additions, which was supposed to complete the 125-mile light rail network by 2020, if all goes according to the current plan, only 50 miles will be completed by 2030. The cost per-station for that Phase 2 is projected at $650 million. For Phase 1, Central Link, the cost-per-station will be roughly $300 million, versus an original estimate a tad higher than $100 million.
In sum, the introduction of the two rail systems in the Central Puget Sound counties, is a slow, disruptive process, costing huge sums to build and operate. The bottom-line effect will be to degrade the already inadequate productivity of the public transit system. The time, money, effort, and distraction will add so little to transit ridership that the effect on the region's mobility will be indiscernible--save for the immense "opportunity costs," the resulting inability to make productive use the financial resources.
The attached graphs illustrate the trajectory of transit ridership, and the share of the region's entire transportation funding allocated to transit from local, state, and federal sources. Forty years ago transit received 29% of the funding, and delivered 6% of the transportation market share. If Sound Transit performs as well as it hopes to, and if the idealized smart growth land uses are fully adopted, by 2030 transit will serve 4% of the transportation market share, and absorb more than two-thirds of the region's transportation dollars.
Seattle Three County Transportation Tax Revenues
Seattle Transit Market Share: 1965-2040
This apparently impending financial embarrassment was predicted in our 2000 Public Purpose report on the Las Vegas Monorailbefore the bonds were issued. The problem, as we predicted, is that ridership has fallen far short of projections, which is a fairly standard occurance with respect to large transit infrastructure projects.
Las Vegas Review Journal Article
I don’t watch many movies, but Slumdog Millionaire was well worth the time. When I got home I ordered the book. It was written by Vikas Swarup and was originally published under the name Q and A. The book was as different from the movie as the difference in titles.
Only the broadest outline of movie’s story resembles the book. Jamel is not Jamel, he is Ram and he has no brother. His love, Latika appears in the book but is not his love. She appears for the first time in the 11th of 12 chapters. The program is not Who Wants to be a Millionaire, but is rather Who Will win a Billion?. The top prize is not 20 million rupees, it is rather 1 billion rupees ($20 million).
There are the murders, but none of them resemble those in the book. Finally, there is some consistency in geography. Mumbai is the scene of most action in both, Agra appears, but Delhi, which is important in the book does not appear in the movie.
Finally, in the greatest inconsistency of all, Jamel/Ram is not a lifelong slum dweller. He actually lives in lower middle class housing, above that of the shantytowns. He does spend part of his time, however, in Dharavi.
However, there is much to be gained from reading the book. It provides another, almost completely different perspective on urban living in India. Both the movie and the book are highly recommended.
Note: Dharavi is often called the world's largest slum, with 1,000,000 people in approximately one square mile (2.5 square kilometers). However, I believe that another area, to the north of Dharavi, bordering on the east side of Mumbai International Airport is larger. This “airport east slum” covers about twice as much land area as Dharavi and may have 2,000,000 residents. For more information see Rental Car Tour of Mumbai.
United States Data and Comparisons: GHG Emissions per Passenger Mile/Passenger KM are indicated below (From power plants - variation is due to mix of fuel sources used in producing electricity)
Average United States: 61 grams/37 grams
Lowest (Vermont): 1.4 grams/0,7 grams
Highest (North Dakota): 102 grams/62 grams
The average GHG reduction compared to the current US automobile and sport utility vehicle fleet average would be 83 percent.
European Union Comparison The MIEV would be 40 percent less GHG intensive that is required by the newly adopted European Union fuel economy requirements for 2020 (the equivalent of 101 grams per passenger mile or 62 grams per passenger kilometer).
The above calculations assume the US national vehicle occupancy rate of 1.6. The comparison to the present fleet includes upstream production and transport activities.
Mitsubishi MIEV Site
Originally Posted March 7, 2007 (On the Heartland)
Much has been written about the housing industry slowdown in the United States and the “housing bubble” evident in overvalued house prices. In fact, only part of the US market is experiencing overvalued housing prices, with the rest of the nation enjoying historic housing affordability ratios in what has become a two-speed housing market. National Association of Realtors data indicates substantial reductions in existing house sales year-to-year in a number of states, most of which are characterized by highly regulated land markets (principally so-called “smart growth” policies). These policies ration the land available for residential development and, not surprisingly inflate land and housing prices. The costs are substantial, with many years of housing expense (including mortgage interest) being added to the budgets of households now purchasing homes. In the longer run, it seems likely the “bubble” will deflate or even “burst” in the highly regulated markets. This could occur in various ways. Until the necessary correction occurs, the highly regulated markets can be expected to experience laggard population and economic growth (as is already occurring).
The Housing Slowdown
Perhaps the most covered economic story in the nation in recent months has been the housing slowdown. National Association of Realtors data indicates that in 2006, existing house sales fell 8.5 percent in the United States compared to 2005.
The Two-Speed Housing Economy
Much has been written in recent years about the “housing bubble.” However, national data mask some very significant differences. Others are doing just fine. New York Times economic columnist Paul Krugman noted more than a year ago, that the “bubble” is concentrated --- in what he called the “zoned-zone” The “zoned-zone” is the highly regulated states in what has developed as a two-speed housing market. There is not a national housing slowdown, so much as there is a slowdown in some areas.
Sales volumes have generally plummeted in markets where land use regulation is strongest, where zoning and restrictions are the most severe. Conversely, where land use regulation is less stringent, sales volumes are steady or even increasing.
Market Seizure in Highly Regulated Markets
Housing market seizure --- akin to heart seizure --- has hit the most regulated markets in the United States according to an analysis the state data by Demographia. The strong land use regulations include land rationing policies, such as so-called smart growth, large-lot zoning and insufficiently rapid government land sales where there is insufficient privately owned land left for development. All 19 states with strong land use regulations experienced sales declines, with a minimum loss of 4.5 percent between 2005 and 2006. The largest losses were in Nevada (minus 28.9 percent), Arizona (minus 28.2 percent), Florida (minus 27.6 percent) California (minus 23.5 percent and Virginia (minus 22.9 percent), all states where government policies have stood in the way of sufficient land supply. Overall, the highly regulated states experienced a housing sales decline of more than 17 percent from 2005 to 2006.
At the same time, median house prices in the metropolitan markets of the highly regulated states held steady. This is to be expected, given the artificial shortage of supply that land use policies have created in these states.
Market Strength in Liberally Regulated Markets
Conversely, in the states without excessive land use regulation, annual existing house sales rose nearly one percent. Gains of more than six percent were posted in Alaska, Arkansas, North Carolina, Texas, and Indiana. Existing house sales rose three percent in fast growing Georgia, home of the high-income world’s fastest growing large metropolitan area, Atlanta.
It is the Law of Supply and Demand
Some analysts have blamed low interest rates and high demand for the bloated housing prices in some markets. This view is disproven, however, by the fact that the same interest rates have been available in markets that have experienced housing cost escalation and those that have not. Moreover, the unaffordable markets do not have the greatest demand. The fastest growing metropolitan areas with more than 4,000,000 in the high-income world are Atlanta, Dallas-Fort Worth and Houston, and each of these has remained affordable --- with Median Multiple (median house price relative to median household income) below 3.0. Economics is governed by the “law of supply and demand,” not the “law of demand.”
Uncharted Unaffordability Territory
Finally, virtually all of the unaffordable markets were nearly as affordable as the liberally regulated markets just a decade ago. In recent years, government policies have driven housing prices to unprecedented unaffordability in many highly regulated markets. In a number of highly regulated metropolitan areas, such as San Diego, Los Angeles and San Francisco, housing costs have escalated so rapidly in recent years that the Median Multiple is more than three times the historic standard of 3.0.
In highly regulated San Diego, the escalation in the median house price housing and financing (at today’s low rates of interest) relative to incomes in just 10 years has been the equivalent of 14 years of median household income. This has imposed $800,000 more in costs for each household buying a median priced house and is making San Diego extraordinarily uncompetitive. The same is true, to a greater or lesser degree in other highly regulated markets.
These unnecessarily higher prices are likely to translate into lower rates of home ownership. This will disproportionately affect lower income households, which are minority to a larger degree. Today, African-American and Hispanic home ownership rates hover at or below 50 percent compared to the half-again higher 75 percent among White-Non-Hispanic households. The gap has been narrowing in recent years, but smart growth is likely to reverse that.
There is no point in proposing the conventional housing affordability programs to solve the problem. “Inclusionary zoning” and home buyer give politicians the appearance of doing something, but their impact reaches little beyond headlines. Such programs are simply irrelevant to housing affordability. The depth of the housing affordability crisis in California, the Northeast and other highly regulated markets is far beyond the ability of any conventional housing affordability program to correct. The problem is that smart growth, urban planning and regional planning have manipulated the price of land so high that nothing short of a structural correction will solve the problem.
Regulation Associated with Less Economic Growth
However, the price of regulation is being paid in a housing market seizure that has seen sales volumes plummet. This is not surprising. United States Federal Reserve Board research indicates that metropolitan areas with more stringent land use regulation can expect to grow less quickly than would otherwise be expected.
This research is validated by US Bureau of the Census migration data. The excessive over valuation of residential property appears to be a major factor in driving more than 2,500,000 residents from the high cost coastal markets to more affordable inland markets since 2000. This represents virtually a complete reversal from the demographic trends from World War II to the early 1990s. There is no reason for it to have occurred other than that housing affordability has been destroyed in the formerly strong but now highly regulated markets. Shockingly, previously fast growing San Diego is now losing domestic migrants at twice the rate of Pittsburgh.
Deflating the Housing Bubble in the Highly Regulated Markets
Housing prices have reached uncharted territory relative to incomes. Some analysts have suggested that housing affordability was nearly as bad when interest rates were high, especially in the late 1980s. But those interest rates passed and nearly all high-interest rate mortgages were replaced with lower-rate loans. Thus, the affordability crisis was “transitional.” This housing affordability crisis is “structural.” Buyers are stuck with the high prices they paid and the costly mortgages. It seems likely that, in the longer run, the bloated prices in highly regulated markets will be subject to correction. This could occur in various ways. For example:
(1) Slower Economic Growth: Overvalued markets could experience stagnant population and economic growth (already evident in the domestic migration data, especially in California and the Northeast) as household incomes rise over a period of many years or decades in relation to housing prices. For example, San Francisco-San Jose, which had been one of the nation’s fastest growing metropolitan areas from World War II to the early 1990s, is now growing at one-third the rate of rust belt St. Louis.
(2) Inflating Away Windfall Profits from Bloated House Prices: The overvalued prices could fuel higher inflation, which would in the longer run negate the higher house prices as the rise in overall prices in the economy discounts the bloated house prices. This may be unlikely in the United States, because liberal regulation remains in so much of the nation, including some of the fastest growing markets. However, inflation may well be the easiest way out for economies that have nearly lost the housing affordability battle, such as Australia and New Zealand (where smart growth is called “urban consolidation”). They do not have the outlet of affordable markets that allow US households to find reasonable prices outside of smart growth areas. In Australia and New Zealand, political pressure could build on central banks to allow higher inflation both to minimize foreclosures on households overburdened by high debt, principally in excessively large mortgages. (Already, major political parties in Australia are treating central bank interest rate decisions as a political matter.)
(3) The Bubble Bursts: The current housing market seizure in over-regulated markets could turn into a “bust” as the already weakening demand could be converted into a massive decline in demand, precipitating huge losses in the overvalued markets.
A correction could occur by other means as well and the future is always impossible to foresee. However, the overvalued prices in over-regulated markets are not likely to be sustainable. The price of smart growth and excessive regulation is already being paid by some households. The next question is the extent of damage that the increasingly expensive mortgages created by smart growth will inflict upon regional economies, if not the national economy.
US Existing House Sales: 2005-2006.
This week the United States celebrates its 300 millionth resident. Never in human history has one nation achieved such a high standard of living for so many people. Today, American average incomes are a third higher than that of the EU-15, the European Union before expansion to Eastern Europe.
All of this has been achieved as our people have pursued the American Dream of homeownership and personal mobility. Since World War II, home ownership rates have increased 75 percent and now more than 90 percent of households have access to cars. Home ownership has made it possible to build up capital, through equity, that funds new business start ups and finances university for the kids.
The car has made it possible to work nearly anywhere in our now larger urban areas and still spend a minimum of time traveling to and from work. Despite the frequent publicity accorded traffic congestion, American urban areas are the least congested in the world. Even in the most congested urban area, Los Angeles, average work trip travel times are a quarter less than in Paris or London, despite the clear superiority of their mass transit systems. It is not surprising that virtually every first-world nation has followed a suburbanization model similar to that of the United States (though it is not obvious to tourists whose foreign visits tend to be limited to historic cores)
Moreover, the American Dream is spreading throughout the population. African-American and Hispanic home ownership rates are growing faster than the White-non-hispanic rate and there is the potential that they will continue to converge. A Swedish research institute found that average African-American incomes are as high as average Swedish incomes.
Once smog ridden urban areas have seen massive improvements in air quality --- so much so that mountains hidden for much of the year by pollution before can be seen much of the time in Los Angeles. American urban areas are among the cleanest in the world, and will continue to get cleaner as more efficient air pollution reduction technology plays a greater role.
In short, the modern American urban area is an “open city” in which individuals, communities and the nation have prospered as households have been permitted to live and work where and how they like.
Regrettably, many urban planners are threatened by this success --- out of a misguided fear for the future or perhaps a compelling urge for control. The result is imposition of authoritarian planning policies and practices (mislabeled “smart growth”) that would circumscribe the growth of urban areas into carefully confined spaces, so as not to occupy any more of the more than 97 percent of the nation’s land that is not in urban development.
But there is a bigger reality than a compulsion to hem in the growth of urban areas. The result is clear from places where authoritarian policies have been imposed with the greatest vigor. It all has to do with a simple economic concept --- that rationing raises prices. And so, in places like Portland (Oregon), San Francisco and San Diego, authoritarian planning policies have severely rationed land for development, driven the price of land through the roof and seriously retarded housing affordability. For example, in the San Francisco area, the cost of a median priced house has gone up so much that the average household would have to pay an additional $600,000 over a 30 year mortgage. Not even Hugo Chavez or OPEC can compete with this --- their price increases over the past five years would add little more than $10,000 to the average household’s budget over 30 years.
Authoritarian planning policies and practices are robbing many households, present and future of the potential for home ownership and joining the economic mainstream. Because of their disproportionately lower incomes, this burden will be born most by African-American and Hispanic households.
Fortunately, most of the nation has not opted to destroy home ownership through short sighted authoritarian planning. In places like Kansas City, Indianapolis, Atlanta, Dallas-Fort Worth, Houston, Cincinnati and many others, the open city prevails and housing remains affordable. Thus, for most, the American Dream remains alive and well. It is not surprising that recent census data shows a strong out-migration from metropolitan areas with authoritarian planning and high housing costs to metropolitan areas with lower prices. The American Dream is still alive, though not as widely available as before.
Census Bureau projections indicate that sometime around 2025, the nation will celebrate its 350 millionth resident. The nation will be far stronger and more socially cohesive if most of those new residents live in suburban houses they own and have the mobility only the car can provide to employment, shopping and other destinations they find make their lives more rewarding.
Originally posted to On the Heartland 2006.10
A report by the Center for Housing Policy relies on data that is at odds with consumer expenditure data as reported by the US Department of Labor, Bureau of Labor Statistics. The report modeled transportation data that was readily available in consumer expenditure reports. The Center’s report generally puts the cost of transportation at more than double the figures reported by the Department of Labor. As a result, it would appear that the report, A Heavy Load is of dubious value.
Recently, the Center for Housing Policy issued a report on the costs of housing and transportation to American households in metropolitan areas (A Heavy Load: The Combined Housing and Transportation Burdens of Working Families. The report found, among other things, that transportation represents a larger share of household income in a number of metropolitan areas. Moreover, a thesis of the report seems to be that people who move farther away from their jobs to obtain less expensive housing end up spending most of the savings on additional transportation costs.
It is worthy of note that the figures developed by the Center for Housing Policy are considerably at odds with the Consumer Expenditure reports of the U.S. Department of Labor Bureau of Labor Statistics. For example, among the seven metropolitan areas that the Center singles out for detailed analysis, the share of household income committed to housing averages 28 percent, while the share committed to transportation amounts to 31 percent. Data from the 2004 Consumer Expenditure report indicates rather more moderate figures --- 22 percent for housing and 12 percent for transportation.
What is the difference. To start, the Center used 2000 Census information (1999 data) for consumer expenditures on transportation. It is fair to suggest, however, that the authoritative source for consumer expenditures is the Consumer Expenditures report and its data is five years more current. The Center used a modeling technique to estimate the transportation expenditures, which it notes was “peer reviewed.” This was a wholly unnecessary exercise, since 1999 transportation expenditure data was directly available from the Consumer Expenditure report for that year.
Moreover, the Center notes that lower income households spend a larger share of their incomes on housing and transportation. True enough. The Center estimates that households with incomes from $20,000 to $35,000 spend from 54 percent to 70 percent of their income on housing and transportation. The 2004 Consumer Expenditures report shows that households with incomes of $20,000 to $30,000 (the closest approximation to the Center’s $30,000 to $35,000 classification) have total household and transportation expenditures of 49 percent --- below the low range estimate in the Center’s report.
None of this is to dispute the fact that housing and transportation costs are a burden for lower income households. It is simply to point out that the data in A Heavy Load is at considerable odds with the Consumer Expenditure report and may not be appropriate for serious consideration.
A Heavy Load makes a very useful recommendation: “Policies to encourage car sharing or make car ownership more accessible and affordable (through subsidized loans or insurance, for example) could go a long way to reducing the transportation cost burdens of Working Families.” Amen to that. Research by the Brookings Institution and the Progressive Policy Institute has come to similar conclusions.
However, A Heavy Load slips into the usual hopeless rhetoric about improving mass transit for commutes to suburban areas. If mass transit could be made competitive with the automobile for employment locations outside downtown areas, then people would use it for such commutes. Nearly three years ago, we issued a challenge to the transit industry to propose an automobile competitive transit service design for an entire urban area. Not a a single serious reply has been received. There is good reason for the silence. Automobile competitive mass transit service cannot be provided for a price that can be afforded, except to downtown. Even the Center’s report finds average transit commutes to approach or even double average car travel times. Working households choose cars because they minimize their transportation burden, by providing far more time for household activities and leisure.
However, whatever the reality, the fact is that people often move farther away from their jobs to obtain better housing at a lower cost. They do so in the full knowledge that their commuting costs will be higher. In the longer run, many may change jobs and restore lower commuting costs by working closer to home, a choice made possible by the dispersal of employment locations. This factor is an important reason why American urban areas have such short average commute times by international standards.
Finally, A Heavy Load uses 1999 data that does not reflect the huge runup in housing prices that have occurred, principally in areas that have adopted authoritarian planning practices, such as the more draconian “smart growth” measures. Perhaps the greatest threat to the future expenditures of lower and middle income households is the escalating housing prices that have been generated by these opportunity destroying policies. For example, the average household buying the median priced house in 2004 in the San Francisco area will pay, at least $600,000 more in mortgage payments and capital costs than if the house had been bought in 1999. This is a price not even Hugo Chavez or OPEC can match. Over the same 30 years, the average household can be expected to pay less than $11,000 more on gasoline due to the gasoline price increases over the same 1999-2004 period.
Originally posted to On the Heartland: 2006.10.14
However, the demand side is never addressed. When densities are intensified, more intense roadway systems are required. Failing to expand the roadways means that traffic congestion gets worse and that transport and land use have demonstrably not been coordinated. The planners may try to address the heightened demand by adding transit service or rail lines, but that is like attempting to reduce traffic congestion by increasing the frequency of garbage collection --- one has nothing to do with the other. The reality of the modern, large urban area is that people need to travel throughout to undertake their activities and to spur the economic growth that has produced an unprecedented expansion of jobs and affluence, while making poverty less of an issue than ever before. That cannot be done on transit.
Coordination of land use and transportation requires that sufficient practical transportation capacity be provided to support the land uses. If an area, such as Portland, seeks to densify, then it had better be prepared to expand and intensify its roadway system to maintain or improve reasonable traffic flows. Of course, Portland has failed to do that, has some of the worst traffic congestion among urban areas of its size and is losing businesses because of it.
Before today’s planners set about trying to coordinate land use and transport, they need to understand what it means.
In a Winnipeg Free Press commentary today, I argue that the city of Winnipeg’s slow development approval processes have the potential to do as much damage to housing affordability as radical smart growth policies. Our Demographia Second Annual International Housing Affordability Survey had ranked Winnipeg as one of the most affordable housing markets out of 100 in six nations in 2005. The bottlenecks now occurring at Winnipeg city hall could, if not corrected, destroy housing affordability just as surely as the anti-suburban policies that have been adopted in places like Vancouver, BC and Portland, Oregon.
It’s time to stop pretending about transit. That is the message of the new Statistics Canada data that shows the average transit commuter spends three hours more time weekly traveling between home and work than the average automobile driver or rider. The complete story is outlined in my National Post oped Travel Times Prove Transit a Non-Starter. The National Post is Canada’s second largest national newspaper.
Of course, many school buses are operating in rural areas. Yet, even in urban areas, school buses carry a huge volume of travel. On school days, school buses operating in the nation’s urban areas carry 85 percent as much travel as all transit bus and rail services combined.
Sometimes it is suggested that school buses services should be merged into transit agencies, to save money. However, that would hardly do, since transit expenditures per passenger mile are approaching three times that of school buses. Transfering transit services to school districts would make more sense.
Originally posted to On the Heartland: 2006.07.15
Eskew notes that the nation’s freight transportation system --- its highway, navigable waterway freight rail and air system --- has received poor or even failing grades in an American Society of Civil Engineers 2005 review. This is just the beginning of his concern. China, increasingly America’s most dynamic competitor, is building new seaports, expanding its rail system and is in the process of developing an interstate standard highway system more extensive than our own Eisenhower system.
There is no doubt that globalization is going to make the world a richer place. That does not mean, however, that nations, like the United States, that are on top now will continue to occupy such positions. Continued investment is required. Traffic in urban areas is frequently congested. This means that it takes longer to move freight, which means it is more costly. It also impedes productivity. Studies in Portland and Vancouver, where public officials have systematically discouraged highway expansion, demonstrate the importance of expanding urban highways and keeping the traffic moving.
A University of Paris study showed that as urban travel improves --- as people are able to access more jobs in a fixed period of time (such as 30 minutes) --- there is an increase in economic output.
Texas Transportation Institute data shows that the share of urban travel in congested conditions has risen from 20 percent to over 50 percent in just 20 years. This has occurred principally because urban highways have not been expanded sufficiently to meet the demand. As a result, the nation loses more than $60 billion in congestion costs every year. However, that will only get worse. Many urban areas intend to spend few of their resources on the highway capacity improvements that are the only hope for addressing traffic congestion.
There is an important exception, however, The state of Texas, at the direction of Governor Rick Perry, is undertaking the nation’s first serious program to reduce traffic congestion. The program, arising out of the Governor’s Business Council plan of 2003, is to reduce traffic congestion by up to one-half in the state’s metropolitan areas. Metropolitan planning organizations have developed traffic congestion reduction objectives and the necessary strategies. With Dallas-Fort Worth and Houston being among the fastest growing large metropolitan areas in the high-income world, this will not be easy. Amazingly, however, the modeling is showing that the goals are achievable and that they will not break the bank. Atlanta, the high-income world’s fastest growing metropolitan area has now followed suit, under the direction of Governor Sonny Perdue.
The Texas and Georgia programs represent a first --- transportation agencies actually implementing traffic congestion reduction objectives. It is astonishing that such objectives were not already the rule throughout the country. If the nation is to respond to the need for a sustainable, competitive transport infrastructure, no less than the Texas and Atlanta programs will be require in every metropolitan area in the nation. Such a beginning needs to be expanded to include all segments of the freight transportation system, from air cargo to navigable waterways and freight railroads.
Wendell Cox is a public policy consultant in St. Louis, a Senior Fellow at the Heartland Institute, and a visiting professor at the Conservatoire National des Arts et Metiers in Paris.
Originally posted to On the Heartland 2006.07.13
It is probably too much to expect The Economist to make sense in assessing suburbanization, which it and those inclined toward fashionable urban planning dogma call “urban sprawl.” In an article on page 53 of the 8-14 July issue (“Growing Pains”), the magazine characterizes Vancouver as having had “relative success in containing sprawl.”
Of course, like the urban planning priesthood so quick to damn suburbanization from their academic pulpits, The Economist does not bother to justify its assessment with anything remotely resembling quantitative analysis. Like the proverbial US Supreme Court Justice Potter Stewart who could not define obscenity, but knew it when he saw itThe Economist apparently “knows sprawl when it sees it.”
In fact, by various measures, Vancouver has suburbanized as much as many other urban areas. For example, by the ultimate indicator of suburbanization, urban population density, Vancouver trails Los Angeles by 40 percent (1,650 persons per square kilometer, compared to 2,350). True enough, Vancouver is more dense Portland, but then so is Phoenix (1,300 and 1,400 respectively).
The anti-suburban dogma claims that urban areas with less suburbanization have less traffic congestion, which is predictably untrue. In the case of Vancouver, the intensity of road traffic (kilometers driven per square kilometer) is more than Atlanta, which is by many accounts the most suburbanized major urban area in the world (700 per square kilometer).
The Economist bemoans the fact that Vancouver has been slow to build urban railways. Actually, Vancouver is one of the better served urban areas in North America in this regard. The problem is that urban railways feed little beyond downtown. Downtown in Vancouver represents less than 15 percent of employment and most employment growth is in the suburbs.
The anti-suburban movement speaks with platitudes about housing affordability, yet housing affordability tends to be the worst in urban areas that adopt its policies. This is because anti-suburban policies tend to ration land, raise its price and thereby make housing less affordable. Vancouver has been, like Portland, among the world leaders in anti-suburban policy. Like Portland, its housing affordability has paid the price. Vancouver has, by far, the worst housing affordability of any large urban area in Canada and ranked 86th out of 100 international urban areas in housing affordability in the Second Annual Demographia International Housing Affordability Survey.”.
Anti-suburbanites claim that air pollution is less intense in urban areas that adopt their policies. Again, no one ever bothers to consult the data. Yet, an international database indicates that the intensity of air pollution emissions in Vancouver is similar to that of Houston, Phoenix and Atlanta, which are considered to be highly suburbanized (and have lower densities).
None of this is to discount Vancouver’s attractiveness. However, much of what makes Vancouver attractive is not due to urban policy. Its downtown area has been invigorated by unprecedented immigration by highly affluent residents of Hong Kong in recent decades. It has an incomparable physical setting. Yet, its suburbs extend far into the countryside, just like in any American or Western European urban area.
Perhaps it is that The Economist is blinded, like the priesthood, by Vancouver’s “chic” core. Cutesy cores do not negate suburbanization. They occur with and without it. It also helps that Vancouver, unlike Phoenix and other younger urban areas, had a strong pre-automobile core to work with. No one builds them anymore, though they can expand and be converted into residential areas (as is occurring throughout North America, regardless of anti-suburban policy). Nonetheless, most growth continues in suburban areas, whether in Vancouver or Phoenix.
The fact is that, by the criteria that can be deduced from the anti-suburban literature, virtually all urban areas sprawl. Some are more suburban than others. But those that are more compact and less suburban are not necessarily better places to live. Just ask the young people no longer able to afford to live in Vancouver, Portland or Sydney, who are being driven away by housing prices that force them to choose a less favored urban area as the price of achieving and maintaining middle income status.
Thus, The Economist would have been more accurate to have noted Vancouver’s “relative success” in preserving and improving downtown. However, Vancouver’s “relative success” has been in containing opportunity.
Originally posted to On the Heartland 2006.07.10
There are few public policy issues more driven my myth than land use and the currently fashionable strategies of “smart growth” or “urban consolidation.” Virtually all of the arguments made in support of smart growth’s densification and land restriction policies melt away when subjected to the light of scrutiny.
Further evidence of this is provided by an analysis of Western European work trip travel times. The anti-suburban smart growth theorists often suggest that cities should artificially constrained in their expansion because suburban areas put people farther away from their jobs and thus force people to spend more time traveling to work.
Estimates based upon data from the European Union Urban Audit indicates that commutes by suburban residents are faster than commutes by city (core) residents. that the average work trip travel time for suburban residents is 23 minutes, one-way. This is five minutes less each way that the central city estimate of 28 minutes. Of course, the reasons that suburbanites can get to their jobs more quickly are that lower densities mean less traffic congestion (contrary to smart growth claims) and that jobs have followed people to the suburbs. Doubtless, urban planners who are more inclined to believe their conceptions than the data will be surprised that this improved jobs-housing balance has occurred with little or no direction from the planning profession.
Land use policy needs to be based upon fact, rather than the myopic perceptions of a small urban elite. The data could not be more clear. Smart growth --- the compact city --- means more traffic congestion, more intense air pollution and longer travel times. This, of course, is just the beginning. Smart growth also means significantly reduced housing affordability, a redistribution of wealth from lower and middle income households to the more affluent and, as a result, the likelihood of future greater poverty and less economic growth.
Note on the methodology: The Urban Audit provides commute time estimates for central cities and metropolitan areas (Larger Urban Zones). The suburban estimate has been developed using a population based ratio supplied by the Urban Audit. This must be considered an estimate. A more precise figure could have been calculated with employment data, which is not available.
If central city labor participation rates are higher proportionally in the central cities than in the suburbs, then the extend to which suburban commute times are shorter than central city commute times has been somewhat underestimated.. If central city labor participation rates are lower proportionately, then the reverse would be true.
Nonetheless, the data shows that, generally, metropolitan area travel times are less than central city travel times, which means that suburban travel times are lower yet, which is indicated by the estimates above.
Originally posted at On the Heartland 2006.10.04
By Wendell Cox
Recent national economic news has focused on the softness in the housing market. Last month, downward price pressures in new housing were noted as having contributed to less than expected economic growth. This week, the National Association of Realtors issued its third quarter report showing a 12.7 percent decline in existing house sales compared to last year.
All of this, of course, will refuel the debate on the “housing bubble.” Is there one? If there is, will it burst? Columnist and economist Paul Krugman of The New York Times has it right --- there is a bubble, but it is geographical. The Krugman thesis is that the “zoned-zone” is the home of artificially inflated housing costs.
The zoned-zone is the areas of the nation that have embraced land-rationing policies, usually under the misleading title of “smart growth.” These policies include restrictions on suburban development, such as Portland’s urban growth boundary and requirements for excessively large lots, which reduces the supply of land for residential development. There is little argument in economics about this dynamic --- rationing raises prices.
Rationing raises prices with a vengeance. Take “smart growth” San Diego, where today the median house price is more than 10 times the median household income (a measure called the “median multiple”). The historic median multiple norm has been 3.0 or less. In San Diego, the median multiple was 3.6 times in 1995. Over just 10 years, the total cost ---including interest --- of the median priced house in San Diego has risen more than $900,000. It is no wonder that nearly 100,000 domestic migrants --- people who move from one metropolitan area to another --- have left San Diego in just the first half of the decade. Huge housing cost increases and outward domestic migration has generally occurred in the metropolitan areas that have adopted “smart growth” land rationing policies.
Meanwhile, in the metropolitan areas that have generally allowed the supply of land for development to keep up with the demand for housing, prices have remained fairly constant relative to incomes. Atlanta, Dallas-Fort Worth and Houston, which as three of the high-income world’s fastest growing large urban areas, have managed to maintain a median multiple of 3.0 or less. Midwestern metropolitan areas, long losers of residents to the two coasts, have generally resisted the temptation to ration land and are now gaining domestic migrants. This includes places like Kansas City, Indianapolis and Columbus.
The state level existing house sales tell a stark story. In the states with stronger smart growth or other land rationing policies, the fall off in existing house sales has been by far the greatest. Over the last year, existing house sales have fallen an average of 20 percent in the highly regulated states. All 18 highly regulated states experienced declines, such as historically fast growing California, Oregon, Washington, Florida, Nevada and Arizona. By contrast, in the less regulated states, the annual loss was just 4.0 percent, while one-third of these states experienced sales increases, such as Texas and Georgia.
It is too early to tell for sure, but the signs are worrying. The housing bubble may be bursting in those areas where it was inflated by urban planning policies that took no account of their economic consequences. The nation could be headed toward a “smart growth” induced recession.
The economic and social consequences are ominous. The hundreds of thousands of additional dollars that must be paid to own a home in California, Oregon, Florida or other smart growth states will mean less money for other needs. Fewer consumer products will be purchased. Fewer jobs will be created. However, worst of all, there will be fewer homeowners. Lower income and many middle-income households will find their way to the mainstream of economic life blocked by artificially high prices that are the result of naïve urban planning policies. The cost of this urban design extravagance will fall most significantly on minority households, whose income is generally lower and whose home ownership rate remains a full one-third below that of White-Non-Hispanics. In the longer run, none of this is good for the economy or the people on whose enterprise and wealth creation the economy relies.
Wendell Cox is a Senior Fellow with the Heartland Institute and co-author of the “Demographia International Housing Affordability Survey,” which analyses housing affordability in 100 markets in six nations.
Originally posted on On the Heartland 2006.11.21
For any who perceive that “urban sprawl” (a pejorative term for suburbanization) is an American phenomenon, the new European Environmental Agency report Urban Sprawl in Europe: The Ignored Challenge provides a radically new perspective. Yes, there is suburbanization in Europe, and plenty of it. Regrettably, Urban Sprawl in Europe is far from an objective, comprehensive review of urban trends. It blindly repeats dogma and, most importantly, fails to consider the momentous advantages that the land use developments of the last one-half century have provided in Europe.
The Positive: Hysteria is Absent
Starting with the positive, Urban Sprawl in Europe generally uses muted language and is devoid of the hysterical theology so often found in anti-suburbanization reports in the United States, Canada and Australia.
Repeating the Dogma
Nonetheless, there are serious problems with Urban Sprawl in Europe. Predictably, the report finds all manner of problems with suburbanization and no benefits. The report repeats the dogma that has misled planners and public officials in the United States, Canada and Australia. For example:
• The report ways that traffic congestion is greater is less compact (more sprawling) urban areas. The international data, some of the of which is cited by Urban Sprawl in Europe says the opposite. More compact urban areas --- what the European Environmental Agency would like, have more traffic congestion.
• The report says that air pollution exposure “may” be at higher levels in suburban areas because of higher volume and slower traffic. There is no “may” about it. Air pollution levels in suburban areas tend to be lower in suburban areas because traffic is less dense and it flows more quickly. While city versus suburban traffic data is difficult to obtain, San Francisco illustrates the greater traffic congestion that is evident in central cities compared to suburbs.
• The report claims that less compact urban areas are more costly, claiming higher transportation and infrastructure costs. The higher transportation costs are more than offset by much lower housing costs, a matter the report does not address. Infrastructure costs are not necessarily lower in more suburbanized areas, as Joshua Utt and I found in a report published by the Heritage Foundation .
The European Model: Los Angeles
The report applauds Munich and Bilbao for being the only two urban areas studied that since 1950 increased their populations than their land areas. In effect, this means that Munich and Bilbao “sprawl” less in relation to their populations than they did in 1950.
The European Environmental Agency might be surprised to find out which urban area is the champion in that regard. It is Los Angeles, which managed to increase its population at more than double the rate of its increase in land area from 1950 to 2000. Moreover, during that period, urban development in Los Angeles was largely market, rather than planning driven.
The European Environmental Agency acknowledges that suburban low-density lifestyles are more attractive to people (so much for the theory that Europeans like high rise city living, while Americans, Canadians and Australians like the suburbs). Nonetheless, the report implies that it would be better for bureaucrats to make lifestyle decisions, not the people who are living the lives.
The Usual Absent Public Transport Vision
Predictably, the report complains about Europe’s automobile oriented culture. Just as predictably, the European Environmental Agency offers no vision that would get people out of their cars without seriously hobbling their mobility and quality of life. There is, of course, good reason for this. No such vision could be financed by any economy in the world (see The Illusion of Transit Choice).
However, the most serious problem with Urban Sprawl in Europe is not what it says. The principal problem is rather what the report ignores.
Somehow, over the past 60 years, the Western European (and other high-income world nations) have suburbanized as never before and have embraced the personal mobility of the automobile. These developments that anti-suburbanites and the European Environmental Agency view as negative have in fact been associated with the greatest expansion of affluence in history --- what I call the democratization of prosperity.
Urban Sprawl in Europe simply ignores the important issues of economics. Research indicates that personal mobility is associated with greater economic growth and the reduction of poverty. There is plenty of evidence that development of housing on less expensive land on the urban fringe has created wealth and played a major role in producing a comfortable middle class. These are issues that an intellectually honest and comprehensive discussion would include.
The Risks of Ignoring Economics
The failure to consider these issues is already taking a toll in urban areas that have blindly followed the anti-suburban pied pipers. Some urban areas have consciously sought to limit personal mobility and seen businesses locate to other urban areas. The urban areas of Australia and New Zealand, along with Portland and a number in California have so strangled their land markets by development controls that the (see Second Annual Demographia International Housing Affordability Surveyhistoric relationship to incomes has been shattered. The result is that millions of future households will not be able to own their own homes or will have to pay hundreds of thousands of dollars more. This translates, at least in part, into consumer spending that will not occur, jobs that will not be created. United States Federal Reserve Board has published research showing that metropolitan areas with more stringent land use control experience less economic growth than would have been expected.
Revisions are Needed
Urban Sprawl in Europe would best be thought of as a preliminary working draft. Serious revision is required. The dogma needs to be replaced with objective research. Most importantly, the missing elements of economic impact need to be added.
Note: These issues are dealt with in greater detail in War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life, a new book by Wendell Cox.
Christopher Joye of Australia's Business Spectator blog objects to comparisons of international house price indexes in his zeal to deny that Australian house prices are over-valued. He goes on to use what he refers to as an OECD international comparison of “house price to income” ratio. In so doing, he violates his own dictum.
That is just the beginning. What Joye calls a “house price to income” ratio is no such thing. As the OECD source document indicates (Reference: http://titania.sourceoecd.org/upload/1208051etemp.pdf, Table 1.2), the cited index measures the latest level “price-to-income ratio” relative to the “long-term average,” and that in comparison to the United States. This is not remotely the same thing as a price-to-income ratio, such as the Median Multiple (median house price divided by the median household income), which we use in the Demographia International Housing Affordability Survey. Calling something an apple does not make it an orange.
Researchers at the University of Toronto estimated differences in GHG emissions between a typical low density detached house in the suburbs and a 15-story high rise apartment or condominium building in the central city. The study covered the impact of GHG emissions from “embodied energy” in the construction materials and day to day operations. The conclusion was that, on a per capita basis, the detached house produced 75% higher GHG emissions than the high-rise unit. Conversely, measured on a square footage basis, the detached house produced 6% less in GHG emissions than the high-rise unit. This research does not include energy used in construction.
All of the Difference is in House Size
The differences in house size were substantial, with the detached house being approximately 2,600 square feet and the high rise unit less than approximately 825 square feet. The square footage per capita in the detached house was approximately double that of the high-rise unit. Again, the apparent differences in energy consumption are a function of the size of the house. To achieve the apparent energy savings would require households to “downsize” their living space and standards of living.
Study Excludes Common Energy
Again, more importantly, the Canadian government data source cited in this research does not include common energy consumption, as in the case of the US RCES (See Below: Common Energy Consumption), which would be typical for a high-rise building. Thus, based upon the Sydney research (below), it is possible that the much smaller high-rise apartment produces more GHG emissions per capita than the detached house.
Common Energy Consumption
Residential energy surveys often fail to allocate common energy usage to housing units in multi-unit buildings, especially high-rise condominium or apartment buildings. Common energy includes living unit and building usage that that does not appear on energy bills, but rather is charged to buildings and included, in rents, mortgages or management fees.
According to the Sydney Water study, common energy consumption includes:
• Lighting (exterior, lobbies, stairs, hallways, parking lots)
• Centralized hot water supply including circulation pumps
• Centralized heating and air conditioning.
• Parking lot ventilation
• Common exhaust fans
• Pool and spa areas (including water heating, pumps, heating, ventilation, air conditional and lighting)
• Cooling tower pumps and fans
The Sydney Water research cited indicates that common energy consumption in multi-family buildings exceeds the amount used per capita in single family residences.
Research covering residential buildings in Sydney indicated that GHG emissions per capita are higher in multi-unit condominium buildings (high-rise, mid-rise and low-rise) than in single family detached or townhouses (attached houses). Unlike the US and Canadian data cited above, the Sydney study includes common energy use, which is shown to equal approximately two-thirds of direct household consumption in high rise condominium buildings (Box: Common Energy Consumption). These estimates do not include GHG emissions from construction of buildings or the embodied energy in building materials (Figure 1).
The Sydney research, which includes both energy on residential bills and common energy, indicates that lower density housing (detached and townhouses) tends to have less in GHG emission that multi-unit housing, both low rise and high rise.
Residences: Missing data on common energy consumption makes it impossible to draw any reliable conclusions on GHG emissions based upon residential building type from the Canadian research. Even with the incomplete data, the energy consumption advantages reported for the US and Canadian multiple-unit housing simply reflects smaller housing unit sizes. On the other hand, the Australian research, which includes common energy consumption, indicates that multiple unit buildings have greater GHG emissions per capita than the lower density detached houses and townhouses. The Canadian findings on embodied energy and the Sydney findings on common energy consumption suggest that, generally, high rise condominium living produces more in GHG emissions than single-family suburban residences.
There are, however, research gaps. There is only incomplete information on embodied energy in construction materials and virtually no information on the GHG emissions produced in constructing the various kinds of housing. Any definitive research would need to include these issues.
Additional Discussion on Common Energy
• Ranking of the largest world urban areas (over 2,000,000 population).
• Population, urban land area and density estimates for all 763 identified urban areas with more than 500,000 population, comprising 49 percent of the world urban population.
• Population, urban land area and density estimates for 1,370 urban areas of all sizes, comprising 53 percent of the world urban population.
• Population projections for the world’s largest urban areas in 2025 & 2030 (over 2,000,000 population).
• Summary of United Nations world population projections and summary by gross domestic product, purchasing power parity (from 4th Edition)
• Charts on urban density and prosperity (from 2nd Edition)
Demographia World Urban Areas & Population Projections: 5th Comprehensive Edition
The state of Arizona owns a large share of the developable urban fringe land in the Phoenix urban area. The state has been auctioning land at a rate well below what the market could accommodate. This is illustrated by the large increase in prices per acre and in a comparison with agricultural land values.
In 2002, the average auction price of urban land was $32.600. By 2006, which was the peak of the Phoenix housing bubble, urban land sales reached an average auction price of $190,800. Rising land prices are the principal element of house price escalation in the Phoenix area over the period. As median house prices have declined in Phoenix (median house prices declined 39 percent in the year ended November 2008), average auction prices fell back to $68,600 in 2008.
Agricultural land in Maricopa County (the core county of the Phoenix metropolitan area) had a value per acre of approximately $8,500 according to the 2007 United States Census of Agriculture. Further, there was plenty of agricultural land, an amount in Maricopa County alone nearly equal to the entire urbanized land area of Phoenix in 2000. At the 2006 peak state auction prices, “raw” land was being sold at more than 20 times the value of agricultural land per acre. Moreover, the land ownership was highly decentralized, with nearly 1,800 farms. If “raw” agricultural land had been freely available for development, purchasers would not have paid such high prices for the land sold by the state.
Brookings Institution Land Use Planning Rating: In addition, the Phoenix metropolitan area is rated as “growth management” by the Brookings Institution in From Traditional to Reformed: A Review of the Land Use Regulations in the Nation’s 50 largest Metropolitan Areas. This is further indication that the metropolitan area has converted from responsive (traditional or liberal) land use regulation to prescriptive land use regulation.
Prescriptive Land Use Regulation and Price Volatility: Not only does prescriptive land use regulation artificially increase house prices, but it also makes prices more volatile. Prescriptive land use regulation brings more chaotic “boom and bust” cycles to housing markets. They convert what would have otherwise been modest price bubbles into extreme price bubbles. This is noted by Glaeser and Gyourko, who summarize the findings of a number of studies:
Recent research also indicates that house prices are more volatile, not just higher, in tightly regulated markets.
…price bubbles are more likely to form in tightly regulated places, because the inelastic supply conditions that are created in part from strict local land-use regulation are an important factor in supporting ever larger price increases whenever demand is increasing.
The mortgage meltdown has hit the Phoenix area about as hard as any in the country. Prices have reached approximately $163,000, down approximately 40 percent from the peak of $268,000. But, given the insufficient land sales rate and the excessive exurban land preservation provisions, it is likely that house prices in the Phoenix metropolitan area will again escalate once the economy recovers.
Phoenix provides an example of how land rationing, from both “smart growth” policies and insufficient government land sales can lead to far higher house prices and reduced housing affordability.
This is illustrated by considering the transportation sector. The Consumer Expenditure report divides transportation expenditures into four categories --- (1) vehicle purchases, (2) gasoline and motor oil, (3) other vehicle expenses and (4) public transportation.
The vehicle purchases category is reflective of the problem. This category reports the net cost of new and used vehicle purchases. The price a household pays, however, is not necessarily reflective of the cost of living with respect to vehicles. Some households might be happy with a new economy car with a base price of $10,000. Others may want a mid-sized car that may have a base price over $20,000, while still others may want a luxury car costing over $50,000 or even $200,000. All of these purchases are recorded as consumer expenditures. The $10,000 purchase may be reflective of the cost of living, the $20,000 to $200,000 purchase is reflective of a preference that exceeds the base cost of living. The same argument can be made with respect to houses. Many people buy houses that are more expensive, which skews the housing figure upward.
The only transportation expenses that are generally reflective of reflective of the cost of living are gasoline and motor oil and other vehicle expenses.
The following discussion outlines the situation with respect to Consumer Expenditures in Houston, which has often been the target of discrediting efforts by organizations hostile to the suburban lifestyles that now prevail throughout all metropolitan areas in the United States. The following data is calculated from the 2006-2007 Consumer Expenditures report, which is the latest and which contains information for 18 metropolitan areas.
1. Houston ranks 2nd in total transportation expense per household, following Phoenix. A major component of this expense is vehicle purchases, with a considerable portion being “discretionary” as people buy cars that are more expensive than required for basic transportation (above). It also includes public transportation expense, principally airline fares.
2. Houston ranks 3rd in automobile operating costs (gasoline and motor oil and other vehicle expense) per household, behind #1 San Francisco and #2 Los Angeles.
3. Houston has a higher number of workers per household than most of the other metropolitan areas. This requires more vehicle travel. Houston’s automobile operating costs per worker rank 5th, behind #1 San Francisco, #2 Detroit, #3 Los Angeles and #4 New York.
4. There is a well-known trade-off between house prices and driving distance, as many households live farther from employment locations so that they can afford better homes. Houston’s consumer expenditures per household on shelter (mortgages and rents) ranks 15th out of the 18 metropolitan areas. Only Dallas-Fort Worth, Cleveland and Detroit have lower combined housing and vehicle operations costs.
5. When housing and vehicle operations are combined, Houston ranks 11th. The Houston figure is below both the average (mean) and the median for the 18 metropolitan areas.
Finally, the public transportation category is also misleading, because it includes airline travel and is not limited to local transit use. For example, in Houston, Federal Transit Administration data indicates that transit fares are at a level that would correspond to about $30 annually per household, leaving more than $450 for other expenses, principally airline fares.
United States Department of Labor, Bureau of Labor Statistics, http://www.bls.gov/cex/ .
Metropolitan data: http://www.bls.gov/cex/#data