WSJ on Cars and Japan: Myth and Reality

The sky will open, the light will come down, celestial choirs will be singing and everyone will know we should do the right thing and the world will be perfect. By this time, everyone knows that these are the words of US presidential candidate Hillary Clinton mocking the rhetoric of her rival, Senator Barack Obama.

But the words might as well have been in this morning’s Wall Street Journal article on the demise of the car in Japan Japan’s Young Won’t Rally Round the Car. Doubtless the smart growth, anti-automobile and anti-mobility choirs are already in rehearsal. We will soon hear that, if Japan can travel less by car, only a simple attitude change will be required to end the fabled “love affair” with the automobile in the United States (and Western Europe, where the love is even greater, given the cost of using cars there).

The Journal reports that car sales are down in Japan and implies that more people are riding public transport. The article makes the all-too-frequent mistake of using a couple of facts and combining them with out of context ad hoc cases to develop a story line. The result is a fairy tale.

Let’s look at the facts. From 1990 to 2004, according to data published by the Japan Statistics Bureau, per capita car travel in Japan rose 26 percent, almost as much as the 29 percent gain in the United States. By no means has there been an abandonment of the car in Japan. The overall car travel market share rose 22 percent from 1990 to 2004. At the same time, the public transport modes of rail and bus both loss approximately one-quarter of their market share. One public transport mode did very well --- the airlines increased their market share by nearly half. This data is posted on the Demographia website.

Choir practice has been cancelled.


New Study: Virtually all Housing Price Escalation Associated With Regulation

Dr. Theo Eicher of the University of Washington has produced the most comprehensive econometric analysis yet of regulation and its association with housing prices. The conclusion will not surprise those familiar with the law of supply and demand. His analysis of approximately United States 250 municipalities indicates that, on average ALL of the increase in average house prices between 1989 and 2006 was associated with regulation. On average 110 percent of the increase in housing prices is attributed to regulation. Other examined factors had a generally negative impact on house price increases.

One of the inescapable conclusions from this work is that regulation associated house price increases are pervasive. In both the most affordable and least affordable markets, the cost increases associated with regulation virtually equal or exceed the overall price increases. The big difference, however, is that in more affordable markets, regulation has taken a far smaller toll (by virtue of smaller price increases). Today, there is an unprecedented gap between the most affordable and least affordable markets, with purchase and financing differences exceeding $1,000,000 (and not surprisingly, strong outward migration from more expensive metropolitan areas).

Eicher uses the Wharton School database, which is by far the most comprehensive in the nation. The Eicher data is produced in real terms (inflation adjusted). Other variables include change in household income, population change, population density and general market conditions.

It is important to understand what the Eicher study does and what it does not do. The most important point is that the study does not examine housing at the market level --- the metropolitan area. Instead, Eicher reviews sub-markets, at the municipal (local authority). This is a useful methodology, since, in the final analysis, regulation tends to be applied at the municipal level. Even where state or regional bodies regulate land use, their dictates are normally executed at the municipal level.

It is possible that the cost of regulation is even higher, since the Eicher study does not appear to take into consideration strong regulation in urban fringe municipalities, which could have the effect of increasing prices in municipalities that are not on the fringe. For example, it seems plausible that the strong agricultural preserve regulation in Ventura County, on the Los Angeles fringe, could be a factor in increasing housing prices in other municipalities in the Los Angeles area.

The market versus sub-market distinction, however, does not take anything away from this groundbreaking analysis. It is to be hoped that Dr. Eicher’s will soon find a way to take his analysis to metropolitan markets.