A Quarter Floor in a High-Rise Block? The Dreadful State of Australian Housing Affordability

A Quarter Floor in a High-Rise Block?
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.

Sound Transit Horror Stories: Letter from Seattle

Sound Transit's Rail Projects
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

The American Dream: For 300 Million

The American Dream: For 300 Million

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

Serious Questions About “A Heavy Load” Report

Serious Questions About “A Heavy Load” Report

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

Australian Analysts Sells Oranges as Apples

Re: http://www.businessspectator.com.au/bs.nsf/Article/House-price-to-income-ratios-pd20090421-RAV6W?OpenDocument

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.

Publication Announcement Demographia World Urban Areas & Population Projections

This 5th comprehensive edition includes:

• 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)

• Documentation

Demographia World Urban Areas & Population Projections: 5th Comprehensive Edition

Phoenix:Smart Growth & State Destroy Housing Affordability

The Phoenix metropolitan area is sometimes erroneously characterized as having a responsive (traditional or liberal) land use market. In fact, the Phoenix market is highly prescriptive, as a result of the combination of strong land use regulations (“smart growth”) and the large share of developable fringe land by the state of Arizona, which has been restricting sales to maximize revenues.

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.

http://www.demographia.com.db-phxland.pdf

2009.02.09

2007 Consumer Expenditures on Transportation & Housing: US Metropolitan Areas

It is popular for analysts to use the US Consumer Expenditures data to make points about the costs of living between metropolitan areas, especially with respect to transportation and housing. This is not a completely valid exercise, because the Consumer Expenditure report does not principally measure the cost of living. The Consumer Expenditure report is more a measure of preferences.

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.


Sources:
Data
United States Department of Labor, Bureau of Labor Statistics, http://www.bls.gov/cex/ .
Metropolitan data: http://www.bls.gov/cex/#data

5th International Housing Affordability Survey Released

5th Annual Demographia International Housing Affordability Survey
265 Markets in 6 Nations

Dr. Shlomo Angel, of Princeton University and New York University, one of the world's leading experts in urban planning writes in the preface to this 5th Annual Demographia International Housing Affordability Survey that ...the current efforts to contain the pace of the outward expansion of cities for one reason or another are, at the very least, open to serious question. Referring to land use regulation, he continues: The more stringent the restrictions, the less is the housing market able to respond to increased demand, and the more likely house prices are to increase. And when residential land is very difficult to come by, housing becomes unaffordable., This report describes the economic connection between that "smart growth"/"urban consoldiation" policies (prescriptive land use policies) and the unprecedented house price escalation that has occured in recent years in some markets. Moreover, the consequences have expanded well beyond housing. Without prescriptive land use regulation, the housing bubble in the United States would have been less severe; without a severe housing bubble, the US mortgage meltdown would not have occurred and without the US mortgage meltdown, the international financial crisis might not have occurred. It will be important to reform land use policies to prevent similar damage from occuring in the future

Report:
http://www.demographia.com/dhi.pdf

INITIAL MONDAY PRESS COVERAGE FROM “DOWN UNDER” NEWSPAPERS

SYDNEY
http://www.smh.com.au/news/national/housing-severely-unaffordable/2009/01/25/1232818248039.html
PERTH
http://www.watoday.com.au/national/housing-prices-its-all-relative-20090125-7pgu.html
MELBOURNE
http://www.theage.com.au/national/housing-prices-its-all-relative-20090125-7pgu.html
AUCKLAND
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10553540



Demographia International Housing Affordability Survey

Melbourne 2030 Plan: Good Riddance

Note

This piece was originally posted in March 2005 as an issue of “The Public Purpose,” at http://www.publicpurpose.com/pp86-m2030.pdf.

It is republished here today on the occasion of the virtual abandonment of the plan by the state of Victoria as reported in The Age. This was written before my extensive direct involvement in the issue in Australia, and when the piece talks about having new home owners pay for infrastructure, it was not envisioning the kind of confiscatory and intellectually dishonest infrastructure fees charged by some Australian jurisdictions, the best example of which is the state of New South Wales (Sydney, etc).

MELBOURNE 2030: A VISION FAR TOO TIMID

Premier Bracks Swallows L.A. Fish Story

March 2005

By Wendell Cox

The State of Victoria’s Melbourne 2030 plan is a vision far too timid. Over the next 25 years, it is projected that another 1,000,000 residents will be added to this urban area of approximately 3,500,000. In times past, the urban area would have been permitted to expand to provide the next generation with a better lifestyle.

But not now. Across Australia, and to a lesser extent in urban areas outside, there is a rush to make the city more compact --- urban consolidation it is called in Australia. The plan is simple. Instead of allowing the city to continue to expand geographically, the government intends that more people should be piled into the same space already occupied by those who already live
there. Why, one might ask, does a country as large as Australia need urban (consolidation) densification? Is there a fear that without it, some day, as much as a total of 0.5 percent of the land might ultimately become developed? Is it that the food supply is threatened as land is taken for urban development? Or is it that public officials have heard the siren call to the effect that suburban development costs more --- so much more that we can no longer afford to live as we have? Or is it, as some suggest, that Australian cities might begin to sprawl like Los Angeles? Premier Steve Bracks even talks about Los Angeles as having “house after house without any
services provided.”

The facts demonstrate that positive answers to any of these questions would be absurd. Australia has plenty of land, and even if future growth were permitted to take up as much space as past, little of the nation’s plentiful supply of land would be used. As for the food supply, agriculture has become so productive that over the past quarter century an area the size of Victoria has been taken out of farming production. Indeed, all of the urban land that has been developed or might be in the future could be fit into an area the size of Victoria many times over. As for the suburban cost myth --- and it is a myth --- even if it were true, the answer would be simple. Make
the people who move into the new areas pay for their services. If it costs too much, they won’t move there. If doesn’t, then those who want will move there. But to the high priests of urban planning, letting people do what they want would be far too radical. Who knows better what is good for people and families than the university based planners thousands of kilometers distant?

As for Los Angeles, that’s where it really gets hilarious. If Australian cities sprawled like Los Angeles, they would be more compact, not less. The secret is that the most densely settled urban area in the former colonies (Australia, New Zealand, Canada and the United States) is Los Angeles. This inconvenient fact is often either missed or even ignored. Los Angeles also has the worst traffic congestion and probably the worst air pollution. But it is the Premier who has proven the most gullible. Somehow, despite living 20 years in Los Angeles serving more than eight in public office, the service-less houses that Premier Bracks talks about escaped me. In fact,
public services in the Los Angeles area are among the best in the nation, or for that matter in the high-income world. Indeed, across the United States the least costly and highest quality municipal services are to be found (to the horror of urban planners) in the suburbs. But that does not keep the urban planning fundamentalists from making up stories.

And, as for the higher density of Los Angeles, at least planners there had the good sense to allow the city to continue to expand. Never did they come back, as the Victorian planners have, and try to force higher density onto lower.

And that’s where it will probably all fall down, along with the Bracks government. Melbourne is not alone. Other urban areas have headed down this dead end. Portland, Oregon is the best example. It is in Portland that one finds the most fundamentalist urban consolidation rhetoric, yet its plans were never as radical as Melbourne’s. Nonetheless, when densities began to increase, as authorities forced high density development into low density neighborhoods, the people said “enough.” Under an initiative passed 2-1, densification of Portland neighborhoods is now prohibited. As a result, Portland expanded its urban growth boundary in two years more than it had planned for 2040. But all of this occurred after things had already gotten worse. Portland lost housing affordability at a greater rate than any other major US urban area during the 1990s, according to US Census data.

All of this is the result of urban planning fundamentalism --- a view that we are running out of land (wrong) and that we use cars too much. The solution is a philosophy that densifies and seeks to get people out of their cars. But the problem is that the urban planning fundamentalist have never “penciled” out the costs. Why does one need analysis when there is ideology. In fact it all
simply does not add up.

Already the Portland style housing affordability losses, and more, are being experienced in Australia’s “consolidating” urban areas, urban planning fundamentalism makes land scarce and when land becomes scarce housing prices rise. That part of Economics 101 is not required for urban planners. And with Portland’s neglect of, and indeed hostility toward automobile capacity improvements, traffic congestion has increased to become the worst of any similar sized urban area in the nation, according to data from the standard source for such information, the Texas Transportation Institute.

Like Portland, Melbourne’s housing affordability has tanked --- even worse. Now, according to the Demographia international rankings, Melbourne has a “severely” unaffordable housing market, ranking ninth worst out of 88 urban areas in the four former colonies. Much of this appears to be the result of the urban growth boundary and the attendant fundamentalist policies.
There are those who claim that there is a housing “bubble” caused by low interest rates. If that were true, then one would expect Melbourne’s nearly 6.9 to 1.0 median household inc ome to median house price multiple to be repeated in other places where interest rates are low, such as Atlanta, Dallas-Fort Worth and Houston. These urban areas rank first, third and fourth in the
high-income world among urban areas with more than 3,000,000. Yet, the combination of very strong growth and low interest rates have produced a housing affordability multiple not of 6.9, but rather 2.6, 2.6 and 2.7 respectively. What is missing? The gospel of the urban planning fundamentalists has thus far been rejected in Atlanta, Dallas-Fort Worth and Houston.

Fortunately some are watching. Monash University’s Bob Birrell, Kevin O'Connor, Virginia Rapson, and Ernest Healy have evaluated the 2030 plan in their book Melbourne 2030: Planning Rhetoric versus Urban Reality and found it severely wanting. Because I am in Paris for two months and have not yet been able to arrange for my own copy, I don’t know the criticisms. But, if Birrell et al have managed to cram a complete critique of the Melbourne 2030 plan into just a couple of hundred pages, then it is quite an accomplishment.

One of the intentions of the 2030 plan is to get people to give up their cars and ride public transport. The problem, of course, is that public transport is not a viable alternative to the automobile, except for trips to downtown. Even the public transport improvements proposed by the government would not begin to change that. What is needed is a public transport system that is as convenient as the car and takes people from their origins to their destinations when they want and at a speed as fast or nearly so. It is indeed possible to construct such a public transport system in Melbourne. All that’s needed is money, and a populace prepared to live through
construction disruptions that would make US urban freeway construction in the 1960s look like a Sunday afternoon picnic. To achieve the automobile competitive public transport service specification --- and attract a material share of trips from automobiles would cost more than the annual income of the Melbourne area --- every year.

The government’s objective, could, however, be met by another means. All it takes is a bit more strident commitment to densification. If the government could force everyone --- all 4.5 million people in 2030 to live within five kilometers of Flinders Street Station. This would achieve the density necessary (at least as high as Hong Kong) to afford the public transport system that could make the automobile a viable option for most trips. But the government is too timid for that.

The modest densification proposed by the government will only make things worse. Traffic congestion will get worse. Air pollution will be more intense, because traffic will be slower and more subject to stop and go conditions. Even so, traffic congestion will never get so bad that the less than adequate improvements the government intends to make in public transport would make it more convenient to switch from cars except for a small number of trips.

It can be expected that the urban consolidation policies will keep housing prices well beyond the ability of young households and others that have not yet purchased their own homes. Melbourne, which has long been a place where most people own their own homes is poised to become a city of renters. This will not be a fairer or more prosperous city. Unless the government plans are
reversed, Melbourne is poised for a yesterday of less affluence and greater social division.

But there is hope, and it is inherent in the government policies themselves. Densification may well be the sword on which the Bracks government falls. When serious densification begins and neighborhoods start to be ruined, the people are likely to forget other issues and vote to throw the urban planning fundamentalists out.

Wendell Cox is principal of Wendell Cox Consultancy, an urban policy firm that sponsors www.demographia.com. He also serves as a visiting professor at the Conservatoire National des Arts et Metiers in Paris. He was a three-term member of the Los Angeles County Transportation Commission.

Ways to Work Program: A Nobel Prize?

Ways to Work Program: A Nobel Prize?

The national Ways to Work program has improved the employment and education opportunities of low-income households across the United States. The model is similar to that used Mohammed Unus, who recently won the Nobel Prize for his small loan program in Bengladesh.

WAYS TO WORK PROGRAM

Economist Mohammed Yunus recently won the Nobel Prize for his groundbreaking project that makes small loans available to the low-income residents of Bengladesh. In making the award, the Nobel Committee noted the importance of finding ways for people to break out of poverty. Unus’ Grameen Bank has developed an impressive record of assisting poor households to enter the mainstream of economic life in Bangladesh.

The applicability of the Unus model is not limited to low-income nations. The national Ways to Work program has been working for more than 20 years to bring low-income households across the United States into the economic mainstream. A principal strategy has been to provide loans, like Unus, to low-income households. Ways to Work helps households buy cars.

Why cars? Simply because in modern urban areas, whether in the United States, Western Europe or the low-income world, cars expand exponentially the geographical area in which people can search for employment. Research at the University of California, the Brookings Institution and the Progressive Policy Institute demonstrates that cars are crucial to obtaining better employment. The problem is, of course, that despite the romantic affection for transit, it is simply unable to provide mobility to much more than the downtown area, and that’s not where most of the jobs are.

A recent evaluation report looked at a representative sample of Ways to Work borrowers, and found the following:

Working families who have received Ways to Work loans have, on average, increased their incomes more than 40 percent in the first year.

More than 80 percent of the borrowers who were previously on cash grant public assistance programs saw their incomes rise so much that they were able to leave the public assistance programs.

Many of the borrowers indicated that having the car made it possible for them to complete education and training programs.

Demonstrating how success breeds success, one-third of borrowers have since been able to obtain new loans through conventional sources.

Finally, nearly all of the borrowers said that having a car increased the time they could spend with their families and improved their quality of life.

It may be time for the Nobel Committee to honor the model Ways to Work program.

(Originally published 20061130)

Tata's One Lakh Car

A growing body of research indicates a strong relationship between mobility and household income. Throughout the high-income world, the automobile and other motorized forms of personal mobility (such as the motorcycle or the auto-rickshaw) provide the greatest mobility, making it possible for their users to travel from their residences to jobs throughout the urban area. This works best in high-income world urban areas where there motorized personal mobility are much more widely available. Non-motorized transport (such as walking and bicycles), despite its romantic appeal to some, simply cannot provide mobility throughout the modern urban area because it is too slow.

Medium-income and low-income urban areas will need much better mobility for their incomes to increase (along with the even more important issues of rule of law and property rights). It thus comes as good news that India’s Tata Motors is developing a “1 lakh” ($2,200) car. “Lakh” is an Indian term meaning 100,000. Thus a 1 lakh car is a 100,000 rupee car. This translates into approximately $2,200. Currently, Tata’s lowest price car is approximately $7,000.

Obviously the 1 lakh car will not have all of the features that would be expected of a Japanese, American or European economy car. However, it will provide the same basic need --- mobility throughout the urban area. It is expected that the 1 lakh car will be on the market by 2008. This revolutionary development has great potential to facilitate the economic advance of millions of households in India and in low-income and middle-income export markets.

Seattle’s Expensive and Ineffective Rail Tax Proposal

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.

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

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

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

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

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

California High Speed Rail: The Exorbitant Cost of Greenhouse Gas Reduction

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 inconsequential contribution of high speed rail (HSR) to the California greenhouse gas (GHG) reduction goal would be achieved at great cost.

• Assuming the most optimistic figures (Scenario 1), the HSR cost per ton of CO2 removal is nearly 40 times the IPCC ceiling of $50 per ton and nearly 200 times the price of carbon offsets now for sale and being purchased by leading California political officials.

• Assuming the least optimistic figures (Scenario 4), if the HSR cost per ton of CO2 removal were used for the entire 169,000,000 metric ton California objective, the total cost would be more than the current California gross state product ($1.8 trillion). If the nation were to reduce CO2 emissions by 3,000,000 tons (consistent with the McKinsey report) at the same cost per ton as HSR, the total annual cost would be 2.5 times the present gross domestic product of the United States ($33 trillion). Obviously, reducing CO2 emissions at this cost would decimate the economy and increase both unemployment and poverty.

• HSR’s impact on CO2 emissions is so inconsequential that a similar reduction would be achieved by a statewide 0.5 mile per gallon improvement in car and SUV fuel economy in 2030. This is less than the apparent improvement in national new auto and SUV fuel efficiency between the first six months of 2008 and 2007, based upon an analysis of the 20 leading vehicle models (10 autos and 10 SUVs).

Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich

Additional information

California High Speed Rail: Only Gilroy to Palmdale May be Affordable

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 Should insufficient funding be available, the Phase I San Francisco-Los Angeles line could be scaled back to new HSR infrastructure limited to the section between Gilroy and Palmdale (a skeletal system). This would make it possible for high-speed trains to complete the downtown San Francisco to downtown Los Angeles route by operating at lower speeds over the existing-but-upgraded commuter rail and freight tracks between San Francisco and Gilroy and between Palmdale and Los Angeles (and perhaps to Anaheim).

Given the difficult financing situation, and considering how HSR construction costs vary for different segments, such a skeletal system could well emerge. For example, it appears that approximately one-half of Phase I construction costs are attributable to the San Francisco–Gilroy and Anaheim–Los Angeles–Palmdale segments. Hence, it is possible that the Gilroy–Palmdale section of the line could be built for between $15 billion and $22 billion, depending on the extent of capital cost overruns. It would be possible to fund such a truncated line from the currently hoped-for financing sources (state bond, matching federal funding and private investment). However, as indicated in Due Diligence Financial Projections obtaining this even this amount of funding is likely to be difficult.

Further, the Authority has indicated that the earliest segments to be built will be in the San Joaquin Valley. The first segment includes “development of a test track from Bakersfield to Merced, regardless of whether the Altamont or Pacheco Alignment is selected. Thus, the Central Valley is served between Bakersfield and Merced for either alternative.”

Consequently, events could develop in such a way that genuine HSR service would operate only between the peripheries of the Los Angeles and Bay Areas, namely Gilroy and Palmdale, meaning that California would have the form but not the substance of high-speed rail. The speeds on such a skeletal system would be faster than current rail services, but would fall far short of HSR standards and would provide little or no competition to airlines between the two major markets.

Because the existing Bay Area and Los Angeles rail lines are heavily utilized, the CHSRA would need to add track capacity, electrify the lines, and enhance grade-crossing protections. Even with such upgrading the HSR trains would need to mesh with the operating schedules and travel times of the commuter trains.

The skeletal system would be able to provide service between San Francisco and Los Angeles on a non-stop schedule of up to 5 hours and 30 minutes and between San Francisco and Anaheim with a stop in Los Angeles on a schedule of up to 6 hours and 15 minutes.

Another factor relevant to the Palmdale–Los Angeles segment is that the Southern California Association of Governments (SCAG) envisages construction of a maglev train system. Plans include maglev lines from the Los Angeles International Airport to the Palmdale airport. Such a development could exacerbate financial challenges for the HSR line, resulting in truncating even the Phase I operation into Los Angeles. This could result in Palmdale being the southern terminus for the HSR system with passengers transferring between it and the maglev system.

Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich

Additional information