Housing Unaffordability and Regulation in California

The following is from a reply to correspondence from a California reader of the 4th Annual Demographia International Housing Affordability Survey

Thank you for your email. You ask all manner of questions that probably deserve a good bit of discussion, and to which there are not easy answers.

It is important, I believe, to understand that the house cost inflation that has occurred in prescriptive (smart growth) markets… many of them on the coasts… is new. A decade ago there was nothing like the differences in housing prices between the prescriptive markets and what we refer to as the "responsive markets," where there is more traditional regulation. California had been perhaps 25 percent more costly than average, relative to incomes for some time (it is now more than double). I would argue that this was not so much the life style as it was the much stronger regulatory environment that arose in the 1970s (William Fischel of Dartmouth has published on this).

As for the pent up demand for coastal property, I would argue that this is a micro-issue. It does not explain why, for example, housing prices have exploded in the I-680 corridor or the Inland Empire. They have exploded there due to the regulations. There is plenty of land that can be developed in those areas, but it is largely forbidden or made so expensive with fees and regualtions that it is unaffordable.

There is no doubt that housing has become more attractive as an investment (shall we say, speculation, as all investment is to a degree). However, anyone speculating on housing in Atlanta, Dallas-Fort Worth or Indianapolis (or a host of other metropolitan areas) would have little, if anything to show for it. Those markets, where the restrictions are not so severe, have managed to avoid the cost escalation.

In my California presentations I frequently hear the attitude you indicate, that places like, for example, Dallas-Fort Worth are not at all attractive for one living in California. This is an understandable view, though mine is the opposite, having left Los Angeles for the Midwest 20 years ago.

I believe, however, this "California resident" view needs some perspective. In fact, since 2000, the Dallas-Fort Worth area has grown at a rate 8 times that of the SF Bay area (including the SJ area)… If current rates hold, DFW would exceed SFSJ in population before 2020. SD is losing domestic migrants at more than double the rate of Pittsburgh. The demand "equation" has shifted markedly. Kansas City and Indianapolis are growing at 3-4 times the rate of SFSJ. All of this is to say that your view is quite understandable and appropriate, but that the tide of demographics, at least at the moment, is nearly the opposite. There seems to be broad agreement that housing affordability is the issue.

The commuting issue is also important. While some people commute to the city centers (like downtown SF or LA), it is by no means the majority. In the SFSJ area, downtown SF represents little more than 10 percent of jobs (http://www.publicpurpose.com/ut-cprof-sf.htm). Downtown LA has a far smaller share. This is not unusual. Manhattan south of 59 Street has only 20 percent of metropolitan employment, central London about 20 percent of metropolitan employment and central Paris under 20 and dropping rapidly.

From a commuting perspective, this is not bad. Overall, commute times have generally stayed the same or even improved (though in some places where highway investment has been avoided, like SFSJ, times have gotten worse). One way commutes average 25 minutes in the US and the median is closer to 20. All of this is because the jobs follow the residents (some might argue the other way around), with employment spread throughout the urban area. The largest business centre in SFSJ is Silicon Valley. You are right on with respect to the problem of transit and employment corridors. In fact, transit is able to effectively serve only concentrated downtown areas, which is indicated by the strong share to SF, the strong, but weaker share to downtown Oakland and the nearly non-existent share to the "sprawling" Silicon Valley employment center. It is no different in Europe. As cities have expanded, suburb to suburb commuting has expanded, nearly all of it is by car, and it is generally faster than cars or transit to the city.

Meanwhile, in jest, I wonder where there is a $500,000 beach house in Calif. It can be difficult to find a 1500 square foot GI in the San Fernando Valley for that. Median price in SFSJ is far higher.

My sense is that California (and some other places) prices have risen to an unsustainable level, at least at historic economic growth rates. It would take a drop of 50 percent from peak to bring everything back into alignment with historic California norms. Failing something like that (the necessary drop might be higher or lower), historic economic growth could be difficult to sustain.

It is probably fair to say that all things being equal, people would rather live in California that what has been called "flyover country" --- the non-coastal Midwest, South and Mountain states. However all things are not equal (and, indeed, more people live in "flyover country").

Best regards,
Wendell Cox
4th Annual Demographia International Housing Affordability Survey


Unaffordable Housing In Belfast

The Belfast Telegraph covered the 4th Annual Demographia International Housing Affordability Survey on January 25, noting that Belfast was rated the 10th least affordable market in the six surveyed nations (United Kingdom, Ireland, United States, Canada, New Zealand and Australia). The Telegraph quoted co-author Wendell Cox as saying

    What it really comes down to is the prescriptive planning policies of the UK. After the war it took 10 years for the UK to be able to feed itself, right now it can't even house itself.

Unaffordable Housing in Townsville, Queensland

To: Mr. Chris Quagliata
Townsville Bulletin
Townsville, Queensland

Dear Mr. Quagliata:

Re: Your 23 January Column

There is nothing inconsistent about our housing affordability survey, which ranks the Townsville urban centre as one of the least affordable markets in six nations and the Collier study, which finds Townsville to be among the most affordable in Australia. Both are true. Indeed, our housing affordability calculator shows that the purchasing and paying the mortgage on the median priced house in Townsville costs $500,000 less than in Sydney (http://www.demographia.com/dhi-aus.XLS). This is the equivalent of 8.5 years of median household income in Sydney. It is not surprising, therefore that many Sydneysiders are moving to Queensland.

However, Townsville should take no more than modest satisfaction in this. House prices across Australia have generally doubled relative to incomes and even tripled in some markets in the last decade. This means that future home owners will pay much larger mortgage payments and will have less discretionary income than they would have if housing prices had not exploded. This is neither good for Townsville, nor for Australia.

The tragedy is that all of this was unnecessary. The excessive house price inflation resulted from the naïve "urban consolidation" land use regulations of state and local governments. Too little land has been released for new housing and not surprisingly, land prices have exploded. Excessive infrastructure levies have raised the price of housing even further.

It will be important for governments to begin to dismantle these destructive policies and to implement programs that permit people to buy inexpensive housing on the urban fringe. The Great Australian Dream of a owning a home on quarter acre is not yet dead, though it is, at best, on "life support." It needs to be fully restored.

Best regards,

Wendell Cox

Principal, Demographia

Metropolitan St. Louis (USA)

Visiting Professor, Conservatoire National des Arts et Metiers, Paris

Co-author, Demographia International Housing Affordability Survey


Lowering the Toll on the Road to Prosperity

Congratulations to Tata of India and its chairman Ratan Tata on the unveiling of their new $2,500 Nano, a small car aimed at reducing the poverty of India and elsewhere by expanding personal mobility. Their important step forward has brought competitive responses from other auto makers, which intend to develop lower cost vehicles.

The connection between affluence and personal mobility is well established. Those who would stand in the way of Indians getting cars (or Chinese, Indonesians or Nigerians) may as well take to the streets to demonstrate for expanding poverty.

The Nano will get 50 miles to the gallon, meaning that it will produce lower greenhouse gas emissions than public transport (transit) per passenger mile in the United States.

U.N. climate scientist Rajendra Pachauri, who shared last year's Nobel Peace Prize, indicated that he was “having nightmares" about the car. One wonders if his nightmares might be different if he lived in Mumbai’s Dharavi slum or one of the many other slums or substandard residential areas that are all too numerous in the developing world.

There is a good reason that it is called the ROAD to prosperity.

College Football: A Championship of the Willing?

Diverting for a moment to popular culture….

This has been a particularly frustrating season for US college football fans, except for followers of LSU or Ohio State. The current Bowl Championship Series (BCS) pits two teams, selected by votes and computers out of more than 100, to play in the national championship game. Even more than in previous years, there has been wide agreement that a number of deserving teams were left out.

The problem, of course, is that any selection of two teams out of the three to five or ten that are most deserving is unnecessarily subjective. But no year has been worse than this. A Chicago WBBM news radio station commentary put it something like this. USC (University of Southern California) and Georgia were eliminated by a formula. In a proper playoff system they would have had to be beaten on the field, which WBBM opined, would not have happened. Comforting words for a USC fan (and Georgia fans as well).

WBBM went on to criticize the disingenuous argument that a playoff would make it impossible for athletes to conduct their studies, noting that the college basketball games continue throughout the period and that much of the time that playoffs would be held is already university vacation time.

Half of the problem is the very conference that USC plays in. The Pacific-10, with its co-conspirator the Big-10 oppose any playoff system because of its potential to diminish the importance of the Rose Bowl, where the two conferences have played one-another since long before there was a two-point touchdown conversion. The horse is out of the barn, however, The Rose Bowl has already been diminished and this year saw television ratings drop 20 percent from last year. This year’s USC-Illinois match up is generally considered to have been a joke, with Illinois being greatly improved, but far below the caliber that would make a Rose Bowl viable.

Before the BCS, USC would have played Ohio State, which was losing for the second time in a row in the national championship game against LSU. Again, the Rose Bowl as it was known in 1949 or 1999 is a thing of the past.

It may be time for a college football championship of the willing. The rest of college football should proceed with a genuine bowl playoff system and let the Pacific-10 and Big-10 sit on the sidelines and play in their once great but diminished Rose Bowl to smaller and smaller television audiences.

At a minimum, an eight team playoff should be established. WBBM suggested that a 16-team playoff would be feasible. However, care needs to be taken not to follow the example of college basketball, where my impression is that all teams are included in the playoffs, plus a smattering of high school teams. That’s why I stopped following college basketball some years ago. It would be useful to limit any playoff to conference championships. There is no logic in allowing a national champion to be crowned that was incapable of winning its own conference.

The Pacific-10 and Big-10 are not likely to be left out in the cold too long. They would soon find it preferable to be a part of the solution rather than trying to put Humpty Dumpty together again.


Lagos Urban Area Population Estimate

Lagos Urban Area Population Estimate

The current Demographia estimate (2006) of the population of the Lagos urban area (urban agglomeration) is 8,100,000, covering an area of approximately 775 square kilometers (300 square miles) for a density of 10,400 per square km or 27,000 per square mile.

This estimate is based upon data from the 2006 Nigerian census, which is disputed by many, including the state of Lagos. Right or wrong, however, the census has become the international authority for population in Nigeria.

Our estimate includes most of the population of each of the following local government areas:

Lagos Island
Lagos Mainland


Note that this is an urban agglomeration or urban area population. The population is for the area of continuous urbanization. It is not a metropolitan area (labor market) population. There is no standardized international definition for metropolitan areas, though if the imprecise approach used in many nations were followed in the case of Lagos, it is likely that the metropolitan area would include the entire states of Lagos and Ogun, for a total population of 12.7 million.

The land area and population data for the urban agglomeration has been developed from inspection of satellite maps and comparison with local government area boundaries.


On St. Louis, Light Rail & Highway 40 Temporary Closure

Guest Blog by Tom Sullivan
On St. Louis, Light Rail & Highway 40 Temporary Closure

Goooo, Metro . . .
"Metro can play a huge role."

March 9, 2006

"The Highway 40 project offers a golden opportunity for Metro to prove its value. People might even forgive the $126 million cost overrun on the Cross County line if Metro can keep traffic moving."
-- St. Louis Post-Dispatch editorial

December, 2006

Metro president Larry Salci asks the Missouri Legislature for $20 million, saying the transit agency could be of great help when part of Highway 40 is shut down -- but it needs additional funding to do so. The Legislature did not act on the request.

April, 2007

The East-West Gateway Council of Governments gives Metro $6 million in federal funds to add buses, mostly in west St. Louis County, to help during the Highway 40 project.

October, 2007

MoDOT says it will give Metro up to $3 million for additional riders that use Metro. "This is a key component in getting one third of vehicle trips during peak hours off our highway system during those peak hours," said MoDOT director Pete Rahn.
* * *
Metro launches a new website, www.dontgetstuck.org, devoted to providing tips and avoiding traffic jams during the Highway 40 reconstruction. "We know the I-64 reconstruction project and its ripple effect on other nearby roads and interstates are a major concern for the whole region, and we believe Metro can play a huge role in helping to address those concerns," said Patrick McLean, Metro Vice President of Marketing and Customer Service.

December 29, 2007

"Representatives of the Metro transportation agency will be at the center court of Chesterfield Mall from 11 a.m. to 3 p.m. today to provide information on using buses and MetroLink trains when part of Highway 40 closes."
-- St. Louis Post-Dispatch

January 3, 2008

"EMPTY SEATS: On one early morning bus, only a reporter was aboard."

"MetroLink trains run smoothly as a few passengers file on at the Clayton station on a frigid Wednesday morning. Transit traffic was light amid the closing of Highway 40 for reconstruction." (photo caption)

"But trains departing the Shrewsbury station were one-quarter full and appeared emptier than usual." (Note: A MetroLink train has 144 seats, so a quarter-full train is around 35 passengers.)

"Some Metro buses showed no signs that the shutdown was having an impact. On a 6:05 a.m. bus that left the Chesterfield Mall, going east to the Maplewood Metro station, only one passenger -- a Post-Dispatch reporter -- was on board."

-- St. Louis Post-Dispatch

(Note: The Shrewsbury MetroLink line will cost taxpayers about $1.1 billion when finance charges are figured in. Larry Salci said the extension "exceeded all expectations" for ridership.)

-- from Tom Sullivan, 1/03/08