Rail tax advocates are at it again in a number of US metropolitan areas, including Seattle. A recent story in the Seattle Post-Intelligencer caught our attention because of claims being made proposed rail expansions that would be financed by a proposed tax increase. Two issues stand out:
Greenhouse Gas Emissions: According to the article, the proposed plan will reduce greenhouse gas emissions (GHG) in the Seattle area by nearly 100,000 metric tons annually. Sounds like a big number. It isn’t. Based upon previously announced Sound Transit spending announcements (an equivalent increase of $1.1 billion annually, including capital and operations costs), the cost of this reduction would be about $11,000 per metric ton. That is 220 times the United Nations International Panel on Climate Change ceiling of from $20 to $50 per ton (the amount of spending per ton is the maximum amount necessary to accomplish deep reversal of GHG concentrations between 2030 and 2050). The Sound Transit plan is not only expensive in general terms, it is profligate in the amount of spending required to reduce GHG emissions. This is illustrated by the fact that at $11,000 per metric ton, it would cost more than double the Gross Domestic Product each year to reduce US GHG emissions by 50 percent --- an often cited goal.
Traffic Reduction: The article also cites a Sound Transit report indicating that the expanded rail system could reduce driving by 30 percent. Never before has there been a forecast of such a reduction in traffic in any urban area in the world and surely it won’t happen in Seattle. Indeed, it would be charitable to call the 30 percent reduction prediction “laughable.” In other rail projections, the expected traffic reduction rarely exceeds 1 percent, and even then is not achieved. Despite having studied transportation investments for decades, never before have we seen such absurdity. If Sound Transit were subject to the same regulations as apply to used car salesmen, heavy fines and even jail terms might be in the offing.
Wendell Cox is principal of Demographia (St. Louis) and a visiting professor at the Conservatoire National des Arts et Metiers in Paris. He was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley.
2008/10/17
This Bubble was Easy to See
Re: http://online.wsj.com/article/SB122420268681343047.html?mod=djemITP
Fed Rethinks Stance on Popping Bubbles (October 17)
Dear Mr. Lahart (The Wall Street Journal):
A very useful article. You are right that identifying bubbles is difficult. However, this is hardly the case with the housing market. The bubble was obvious and completely predictable.
We have (at least) six decades of good data on the relationship between household incomes and housing prices. The historic norm has generally been 3 --- a median price at 3 or fewer times that of median household incomes. That ratio was greatly exceeded --- for the first time --- over the past decade. Moreover, its increase was very geographically focused. As Paul Krugman has pointed out... there was not housing bubble in much of the country. If the Fed and others had bothered to look at the geographical distribution of the bubble and then asked questions about why, the answer would have been very obvious. Areas with very strong land use regulation were unable to accomodate the increased demand, and the regulation constrained supply worked to explode housing prices --- a tripling of the ratio for example in the Los Angeles area and at least a doubling in most of the other highly regulated markets. Meanwhile, where the more traditional, liberal land use regulation that had characterized virtually all parts of the country until about 20 years ago, there was little change in the ratio. These markets include Atlanta, Dallas-Fort Worth, and Houston, which are the three fastest growing metropolitan areas over 5m population in the developed world.
It is not as if people were not watching the inflating bubble. Real estate and market analysts were falling all over themselves, cheerleading the "performance" of the housing market. tt should have been obvious. One of the lessons of this affair is that to simply look at the economy (or specifically the housing market) from a macro-economic perspective is not enough. All of this could have been predicted (and perhaps avoided) if those whose job it is to encourage economic stability had simply been watching.
We have dealt with these issues in four annual editions of the "Demographia International Housing Affordabilty Survey," the fifth edition of which will be published early in 2009. The current edition is available at http://www.demographia.com/dhi.pdf.
Best regards,
Wendell Cox
Co-Author, Demographia International Housing Affordabiltiy Survey
Principal, Demographia (St. Louis)
Visiting Professor, Conservatoire National des Arts et Metiers (Paris)
Fed Rethinks Stance on Popping Bubbles (October 17)
Dear Mr. Lahart (The Wall Street Journal):
A very useful article. You are right that identifying bubbles is difficult. However, this is hardly the case with the housing market. The bubble was obvious and completely predictable.
We have (at least) six decades of good data on the relationship between household incomes and housing prices. The historic norm has generally been 3 --- a median price at 3 or fewer times that of median household incomes. That ratio was greatly exceeded --- for the first time --- over the past decade. Moreover, its increase was very geographically focused. As Paul Krugman has pointed out... there was not housing bubble in much of the country. If the Fed and others had bothered to look at the geographical distribution of the bubble and then asked questions about why, the answer would have been very obvious. Areas with very strong land use regulation were unable to accomodate the increased demand, and the regulation constrained supply worked to explode housing prices --- a tripling of the ratio for example in the Los Angeles area and at least a doubling in most of the other highly regulated markets. Meanwhile, where the more traditional, liberal land use regulation that had characterized virtually all parts of the country until about 20 years ago, there was little change in the ratio. These markets include Atlanta, Dallas-Fort Worth, and Houston, which are the three fastest growing metropolitan areas over 5m population in the developed world.
It is not as if people were not watching the inflating bubble. Real estate and market analysts were falling all over themselves, cheerleading the "performance" of the housing market. tt should have been obvious. One of the lessons of this affair is that to simply look at the economy (or specifically the housing market) from a macro-economic perspective is not enough. All of this could have been predicted (and perhaps avoided) if those whose job it is to encourage economic stability had simply been watching.
We have dealt with these issues in four annual editions of the "Demographia International Housing Affordabilty Survey," the fifth edition of which will be published early in 2009. The current edition is available at http://www.demographia.com/dhi.pdf.
Best regards,
Wendell Cox
Co-Author, Demographia International Housing Affordabiltiy Survey
Principal, Demographia (St. Louis)
Visiting Professor, Conservatoire National des Arts et Metiers (Paris)
2008/10/09
Levittown & the American Dream: Still Alive Some Places
Re: Why We Can't Build an Affordable House, by Wytold Rybczynski
Rybczynski rightly points the finger at overly zealous regulation as a principal reason for the escalation in housing prices. Missing, however, is the fact that the American Dream as embodied in Levittown is still alive where regulatory excesses have been avoided. Rybczynski notes that Levittowners could be purchased for three times the average wage. The average wage in 1950 was virtually the average household income, since there was rarely more than one worker in a household.
In much of the country median house prices today remain at or below three times median household incomes. Notably, these are areas where smart growth style land restrictions have not taken hold and it includes metropolitan areas like Atlanta, Dallas-Fort Worth and Houston --- the three fastest growing metropolitan areas in the developed world over 5,000,000 population. In all, at the peak of the housing bubble, 46 of 129 US markets had house prices at or below the Levittown ratio (see 4th International Demographia Housing Affordability Survey, http://www.demographia.com/dhi.pdf) --- such as Kansas City, Columbus, Des Moines, Indianapolis, Louisville and other metropolitan areas that are generally recipients of domestic migrants from the more highly regulated and unaffordable markets. Moreover, the median sized house is at least double the size of the Levittowner. Finally, new starter homes can be found at or below the Levittown ratio in many of these markets.
Wendell Cox
Co-Author, Demographia International Housing Affordability Survey
Demographia, St. Louis &
Conservatoire National des Arts et Metiers, Paris
Rybczynski rightly points the finger at overly zealous regulation as a principal reason for the escalation in housing prices. Missing, however, is the fact that the American Dream as embodied in Levittown is still alive where regulatory excesses have been avoided. Rybczynski notes that Levittowners could be purchased for three times the average wage. The average wage in 1950 was virtually the average household income, since there was rarely more than one worker in a household.
In much of the country median house prices today remain at or below three times median household incomes. Notably, these are areas where smart growth style land restrictions have not taken hold and it includes metropolitan areas like Atlanta, Dallas-Fort Worth and Houston --- the three fastest growing metropolitan areas in the developed world over 5,000,000 population. In all, at the peak of the housing bubble, 46 of 129 US markets had house prices at or below the Levittown ratio (see 4th International Demographia Housing Affordability Survey, http://www.demographia.com/dhi.pdf) --- such as Kansas City, Columbus, Des Moines, Indianapolis, Louisville and other metropolitan areas that are generally recipients of domestic migrants from the more highly regulated and unaffordable markets. Moreover, the median sized house is at least double the size of the Levittowner. Finally, new starter homes can be found at or below the Levittown ratio in many of these markets.
Wendell Cox
Co-Author, Demographia International Housing Affordability Survey
Demographia, St. Louis &
Conservatoire National des Arts et Metiers, Paris
2008/10/01
California High Speed Rail: Service Unlikely to Livermore-Pleasanton-Dublin
The Project California voters will be asked to approve a nearly $10 billion bond issue in the November election as the beginning of funding for the a high-speed rail system intended to serve San Francisco, Los Angeles, San Diego, Sacramento, Fresno, Riverside-San Bernardino and points between. Promoters claim that the remaining necessary funding (from $45 billion to $71 billion, depending upon who you believe) would come from the federal government and private investors. There is no federal program to provide such massive funding and private investment seems highly unlikely given the overwhelming prospects for financial failure.
The Issue The CHSRA lacks a comprehensive financing plan. The proposed state bonds would be insufficient to build Phase I, much less the rest of the system. Little appears firm about potential matching funds from federal and local governments and from potential investors. The state Senate Transportation and Housing committee has issued cautionary statements about the availability of matching federal funds. Also, CHSRA advisor Lehman Brothers has outlined risks that can be a barrier to private investment, including cost overruns, failure to reach ridership and revenue projections and political meddling. Meanwhile, the cost of the project continues to grow.
In the final analysis, it will be most difficult for CHSRA to obtain sufficient financing to complete the Phase I San Francisco–Los Angeles–Anaheim route. This Due Diligence report concludes that commercial revenues from that route are unlikely to be sufficient to pay operating costs and debt service, much less finance Phase II and other extensions. As a result, it seems highly unlikely that the Inland Empire-San Diego, Sacramento, East Bay San Jose to Oakland and Altamont Pass routes will be built. Further, in the worst case, funding shortfalls could require greater use of modestly improved conventional rail infrastructure in Phase I, which could add hours to the promised travel times.
All of this could lead to negative financial consequences, such as substantial additional taxpayer subsidies, private investment losses, and commercial bond defaults.
Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich
Additional information
The Issue The CHSRA lacks a comprehensive financing plan. The proposed state bonds would be insufficient to build Phase I, much less the rest of the system. Little appears firm about potential matching funds from federal and local governments and from potential investors. The state Senate Transportation and Housing committee has issued cautionary statements about the availability of matching federal funds. Also, CHSRA advisor Lehman Brothers has outlined risks that can be a barrier to private investment, including cost overruns, failure to reach ridership and revenue projections and political meddling. Meanwhile, the cost of the project continues to grow.
In the final analysis, it will be most difficult for CHSRA to obtain sufficient financing to complete the Phase I San Francisco–Los Angeles–Anaheim route. This Due Diligence report concludes that commercial revenues from that route are unlikely to be sufficient to pay operating costs and debt service, much less finance Phase II and other extensions. As a result, it seems highly unlikely that the Inland Empire-San Diego, Sacramento, East Bay San Jose to Oakland and Altamont Pass routes will be built. Further, in the worst case, funding shortfalls could require greater use of modestly improved conventional rail infrastructure in Phase I, which could add hours to the promised travel times.
All of this could lead to negative financial consequences, such as substantial additional taxpayer subsidies, private investment losses, and commercial bond defaults.
Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich
Additional information
California High Speed Rail: State Agency Misleads State Senate & Public
The Project California voters will be asked to approve a nearly $10 billion bond issue in the November election as the beginning of funding for the a high-speed rail system intended to serve San Francisco, Los Angeles, San Diego, Sacramento, Fresno, Riverside-San Bernardino and points between. Promoters claim that the remaining necessary funding (from $45 billion to $71 billion, depending upon who you believe) would come from the federal government and private investors. There is no federal program to provide such massive funding and private investment seems highly unlikely given the overwhelming prospects for financial failure.
The Issue Emerging public opposition will likely spread as site-specific urban, suburban and rural impacts become better understood. It is unlikely that the California HSR program will find smooth sailing among impacted communities. This finding is based in part on nascent opposition to the project. Opposition to prior HSR projects has been based on underestimated costs, overestimated ridership, eminent domain and environmental impacts. Also, the credibility of HSR promoters has waned as pledges of “no subsidy” or “only low subsidies” turned into calls for high subsidies. This Due Diligence Report identifies such factors as weaknesses in the CHSRA planning process.
In prior cases opponents have shown great resourcefulness in sustaining campaigns to oppose HSR construction. Opposition could spread, particularly in communities where train speeds and noise would be considered excessive, where massive elevated railways would create a “Berlin Wall” effect that divides communities—a prospect that has caused Menlo Park and Atherton to join in a lawsuit against the CHSRA’s environmental review process—or where a history of staunch opposition exists, such as in Tustin or San Diego County.
Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich
Additional information
The Issue Emerging public opposition will likely spread as site-specific urban, suburban and rural impacts become better understood. It is unlikely that the California HSR program will find smooth sailing among impacted communities. This finding is based in part on nascent opposition to the project. Opposition to prior HSR projects has been based on underestimated costs, overestimated ridership, eminent domain and environmental impacts. Also, the credibility of HSR promoters has waned as pledges of “no subsidy” or “only low subsidies” turned into calls for high subsidies. This Due Diligence Report identifies such factors as weaknesses in the CHSRA planning process.
In prior cases opponents have shown great resourcefulness in sustaining campaigns to oppose HSR construction. Opposition could spread, particularly in communities where train speeds and noise would be considered excessive, where massive elevated railways would create a “Berlin Wall” effect that divides communities—a prospect that has caused Menlo Park and Atherton to join in a lawsuit against the CHSRA’s environmental review process—or where a history of staunch opposition exists, such as in Tustin or San Diego County.
Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich
Additional information
California High Speed Rail: Big Losses & Huge Taxpayer Subsidies
The Project California voters will be asked to approve a nearly $10 billion bond issue in the November election as the beginning of funding for the a high-speed rail system intended to serve San Francisco, Los Angeles, San Diego, Sacramento, Fresno, Riverside-San Bernardino and points between. Promoters claim that the remaining necessary funding (from $45 billion to $71 billion, depending upon who you believe) would come from the federal government and private investors. There is no federal program to provide such massive funding and private investment seems highly unlikely given the overwhelming prospects for financial failure.
The Issue There is little likelihood that the passenger or revenue projections will be met, that the aggressive travel times will be achieved, that the service levels promised will be achieved, that the capital and operating costs will be contained consistent with present estimates, that sufficient funding will be found, or that the system will be profitable.
It is likely that these circumstances will represent an expensive and continuing drain on the state’s tax resources. Under three of the four scenarios outlined in this report, an early bond default, taxpayer bailout, and investment losses by private funding participants could occur.
To address a fiscal shortfall, past and present proposals to finance HSR’s construction and operation through general obligation state bonds and sales taxes—along with matching funds from the federal and local governments—could be futile. Hence, the HSR system is unlikely to be completed in any form consistent with the current plan and that even the delivery of a recognizable Phase I could be most difficult.
The outcome could mean investors in the project will see no financial returns and the HSR system as proposed could require significant subsidies from California taxpayers in perpetuity.
Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich
Additional information
The Issue There is little likelihood that the passenger or revenue projections will be met, that the aggressive travel times will be achieved, that the service levels promised will be achieved, that the capital and operating costs will be contained consistent with present estimates, that sufficient funding will be found, or that the system will be profitable.
It is likely that these circumstances will represent an expensive and continuing drain on the state’s tax resources. Under three of the four scenarios outlined in this report, an early bond default, taxpayer bailout, and investment losses by private funding participants could occur.
To address a fiscal shortfall, past and present proposals to finance HSR’s construction and operation through general obligation state bonds and sales taxes—along with matching funds from the federal and local governments—could be futile. Hence, the HSR system is unlikely to be completed in any form consistent with the current plan and that even the delivery of a recognizable Phase I could be most difficult.
The outcome could mean investors in the project will see no financial returns and the HSR system as proposed could require significant subsidies from California taxpayers in perpetuity.
Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich
Additional information
California High Speed Rail: Projections Attacked by Senator Mills & UC Berkeley Professor
The Project California voters will be asked to approve a nearly $10 billion bond issue in the November election as the beginning of funding for the a high-speed rail system intended to serve San Francisco, Los Angeles, San Diego, Sacramento, Fresno, Riverside-San Bernardino and points between. Promoters claim that the remaining necessary funding (from $45 billion to $71 billion, depending upon who you believe) would come from the federal government and private investors. There is no federal program to provide such massive funding and private investment seems highly unlikely given the overwhelming prospects for financial failure.
The Issue Even before the much higher 2030 ridership projections were released, the CHSRA’s forecasts had come under unusually provocative criticism. University of California professor and transportation textbook author William Garrison characterized claims of massive ridership and low fares as “outrageous statements and lies,” which echoed the evaluation of the world infrastructure research previously cited.
Additionally, Former State Senate President James Mills, who is also considered the “father” of the San Diego Trolley, served on the CHSRA board. He expressed similar views. It is reported that Mills resigned from CHSRA at least partially because he “couldn’t get the truth” out of staff. He is reported to have “described the entire project as ‘based on a fallacy’ of wildly exaggerated ridership projections. It stems, he said, ‘from hiring a consulting firm (and) letting them know what you want them to say.” This is an extraordinary statement from a long-time and continuing rail supporter, who nonetheless, points to a significantly flawed planning process.
Both of these statements were made on the basis of earlier ridership projections, which were far less aggressive than are being currently used by CHSRA.
There are multiple indications that the CHSRA ridership projections appear to be absurdly high. Ridership inflation is consistent with the experience of demand exaggeration that has been identified in the world infrastructure research. As a result, it can be expected that CHSRA fare revenue will be far less than anticipated, leading to financial difficulties.
Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich
Additional information
The Project California voters will be asked to approve a nearly $10 billion bond issue in the November election as the beginning of funding for the a high-speed rail system intended to serve San Francisco, Los Angeles, San Diego, Sacramento, Fresno, Riverside-San Bernardino and points between. Promoters claim that the remaining necessary funding (from $45 billion to $71 billion, depending upon who you believe) would come from the federal government and private investors. There is no federal program to provide such massive funding and private investment seems highly unlikely given the overwhelming prospects for financial failure.
The Issue Even before the much higher 2030 ridership projections were released, the CHSRA’s forecasts had come under unusually provocative criticism. University of California professor and transportation textbook author William Garrison characterized claims of massive ridership and low fares as “outrageous statements and lies,” which echoed the evaluation of the world infrastructure research previously cited.
Additionally, Former State Senate President James Mills, who is also considered the “father” of the San Diego Trolley, served on the CHSRA board. He expressed similar views. It is reported that Mills resigned from CHSRA at least partially because he “couldn’t get the truth” out of staff. He is reported to have “described the entire project as ‘based on a fallacy’ of wildly exaggerated ridership projections. It stems, he said, ‘from hiring a consulting firm (and) letting them know what you want them to say.” This is an extraordinary statement from a long-time and continuing rail supporter, who nonetheless, points to a significantly flawed planning process.
Both of these statements were made on the basis of earlier ridership projections, which were far less aggressive than are being currently used by CHSRA.
There are multiple indications that the CHSRA ridership projections appear to be absurdly high. Ridership inflation is consistent with the experience of demand exaggeration that has been identified in the world infrastructure research. As a result, it can be expected that CHSRA fare revenue will be far less than anticipated, leading to financial difficulties.
Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich
Additional information
California High Speed Rail: Projections Attacked by Senator Mills & UC Berkeley Professor
The Project California voters will be asked to approve a nearly $10 billion bond issue in the November election as the beginning of funding for the a high-speed rail system intended to serve San Francisco, Los Angeles, San Diego, Sacramento, Fresno, Riverside-San Bernardino and points between. Promoters claim that the remaining necessary funding (from $45 billion to $71 billion, depending upon who you believe) would come from the federal government and private investors. There is no federal program to provide such massive funding and private investment seems highly unlikely given the overwhelming prospects for financial failure.
The Issue Even before the much higher 2030 ridership projections were released, the CHSRA’s forecasts had come under unusually provocative criticism. University of California professor and transportation textbook author William Garrison characterized claims of massive ridership and low fares as “outrageous statements and lies,” which echoed the evaluation of the world infrastructure research previously cited.
Additionally, Former State Senate President James Mills, who is also considered the “father” of the San Diego Trolley, served on the CHSRA board. He expressed similar views. It is reported that Mills resigned from CHSRA at least partially because he “couldn’t get the truth” out of staff. He is reported to have “described the entire project as ‘based on a fallacy’ of wildly exaggerated ridership projections. It stems, he said, ‘from hiring a consulting firm (and) letting them know what you want them to say.” This is an extraordinary statement from a long-time and continuing rail supporter, who nonetheless, points to a significantly flawed planning process.
Both of these statements were made on the basis of earlier ridership projections, which were far less aggressive than are being currently used by CHSRA.
There are multiple indications that the CHSRA ridership projections appear to be absurdly high. Ridership inflation is consistent with the experience of demand exaggeration that has been identified in the world infrastructure research. As a result, it can be expected that CHSRA fare revenue will be far less than anticipated, leading to financial difficulties.
Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich
Additional information
The Issue Even before the much higher 2030 ridership projections were released, the CHSRA’s forecasts had come under unusually provocative criticism. University of California professor and transportation textbook author William Garrison characterized claims of massive ridership and low fares as “outrageous statements and lies,” which echoed the evaluation of the world infrastructure research previously cited.
Additionally, Former State Senate President James Mills, who is also considered the “father” of the San Diego Trolley, served on the CHSRA board. He expressed similar views. It is reported that Mills resigned from CHSRA at least partially because he “couldn’t get the truth” out of staff. He is reported to have “described the entire project as ‘based on a fallacy’ of wildly exaggerated ridership projections. It stems, he said, ‘from hiring a consulting firm (and) letting them know what you want them to say.” This is an extraordinary statement from a long-time and continuing rail supporter, who nonetheless, points to a significantly flawed planning process.
Both of these statements were made on the basis of earlier ridership projections, which were far less aggressive than are being currently used by CHSRA.
There are multiple indications that the CHSRA ridership projections appear to be absurdly high. Ridership inflation is consistent with the experience of demand exaggeration that has been identified in the world infrastructure research. As a result, it can be expected that CHSRA fare revenue will be far less than anticipated, leading to financial difficulties.
Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich
Additional information
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