Tuesday, February 06, 2007

Envy is making houses unaffordable

Sprawl is good. Sprawl is choice. The opponents of sprawl are not just against sprawl, they're against choice -- the proof of this is that if people wanted to live in the way the enemies of choice wanted, they wouldn't need to be forced into it, they'd be doing it anyway.

The enemies of sprawl are the enemies of choice -- they simply use the power of government and the powers that the Resource Management Act gives local government to force people to live in the way that they prefer, rather than the way the people themselves wish to live. They're just another brand of interfering busybody who want to force their own predilections upon others.

The result in New Zealand is severe restrictions on building and development, and the result of that is some of the most unaffordable housing in the world.

The enmity of the anti-sprawlers is expressed in restrictions on building and development -- on where and how and how many houses, shops, offices, studios and workshops people can build on their own land -- and is is expressed in severe restrictions on the growth and expansion of New Zealand's cities -- including ring-fencing cities and prohibiting urban development beyond an artificially imposed 'urban fence.'

The result of all the planners' restrictions has been a severe dampening of housing supply at the very time that demand for those houses is going through the roof, so much so that New Zealand's cities now rank amongst the most unaffordable cities in the world in which to buy a home: as you might have heard, in a recent report released by Wendell Cox's Demographia and Hugh Pavletich [blogged here many times], Auckland was shown as the twenty-first most unaffordable city in the world in which to buy a home (as measured by the income of people in those cities) with NZ's other cities not far behind.

There are dickheads about who either don't think that it's restrictions on sprawl that raises costs, or they simply ignore the evidence; dickheads like Colin James for example who, writing in Tuesday's Herald, suggests the reason for the unaffordability of housing is due solely to lending policies.

But this just ignores the reality. The evidence is clear enough that where lending policies are equal -- across the continental US for example -- that the most unaffordable cities are those that have applied the so-called 'sustainable' solutions to growth; and it is the cities that have applied most restrictions on people's choices that are the most unaffordable in which to live. (The chart at left shows the western world's most unaffordable cities; the chart at right shows the cities following the anti-sprawlers' nostrums; this post discusses the correlation) It's no surprise that cities ranking highly in one chart generally rank rather highly in the other chart as well.

The difference between affordable cities and unaffordable cities is not in lending policies, which are the same across whole countries, it is in the level of restrictions placed on building new houses, which differ from city to city. This should not be rocket science. Restrict supply, and you increase prices. Thinking you can do otherwise is trying to refute a basic law of economics -- and even dictators can't do that, however much they like to try.

Notes a recent article in the Washington Post: sprawl, suburban living, and the cars that make the sprawling suburbs possible have been demonised in all sorts of ways.
They don't rate up there with cancer and al-Qaeda -- at least not yet -- but suburban sprawl and automobiles are rapidly acquiring a reputation as scourges of modern American society. Sprawl, goes the typical indictment, devours open space, exacerbates global warming and causes pollution, social alienation and even obesity. And cars are the evil co-conspirator -- the driving force, so to speak, behind sprawl.
In objecting to sprawl and to the evidence adduced by Pavletich and Cox for the unaffordablility of cities with more restrictions on development, blogger and 'Smart Growth' advocate Tom Beard demonstrates the sneering mixture of envy and myth on which restrictions on turning bare land into new housing are based:
In reality, what actually concerns [Hugh Pavletich] and right-wing American lobby group Demographia is the ability of suburban property developers to make a quick profit from subdivisions while externalising the cost of infrastructure...

The price of a house is only part of the story: how "affordable" will it be to live in his sprawling, car-dependent suburbs when oil prices soar even higher? Meanwhile, the entire city shares the costs of roading, sewerage and water, as well as having to put up with increased pollution, road deaths and having motorways driven through our neighbourhoods.

Pavletich... can't wait to convert the country into a debased landscape of McMansions, megamalls and motorways, pocketing the profit while the rest of us pay for the physical and civic infrastructure required to turn it into some semblance of a city
Beard is representative of many anti-sprawlers; people who want to force others to live by the anti-sprawlers' own envy-ridden sensibilities. But ignoring the envy-ridden barbs, let's boil down his real objections to sprawl, the claim that suburbs are "unsustainable."
  • Anti-sprawlers argue that roads, sewage, water and "the physical and civic infrastructure required to turn it into some semblance of a city" are paid for by "the rest of us," so therefore the extension of infrastructure must be restricted. But what is their reaction when someone suggests that roads, sewage, water and "the physical and civic infrastructure required to turn it into some semblance of a city" are provided privately, and the real costs sheeted home to buyers? Apoplexy. Let infrastructure be provided privately, however, with costs sheeted home to users, and this objection dissolves.
  • And "how affordable will it be to live in his sprawling, car-dependent suburbs when oil prices soar even higher?" Well, isn't the future affordability or unaffordability up to those who choose to live in these sprawling, car-dependent suburbs, and to invest in their own future?
    After all, neither Tom Beard nor Dick Hubbard nor Al Bore nor any planner anywhere in the world has a direct line to the future. Freedom means we're each allowed to plan our own futures, with the full knowledge of our own context, our own lives, and our own hopes and dreams, and -- provided we don't initiate force against anyone else -- we should all be free to do so. In fact, when people have been left free to plan their own lives, and to react freely to price signals that indicate resources and lifestyles are or should be changing, the results have been vastly superior to those achieved in the planned societies and planned economies so beloved of Beard and Hubbard and Bore.
As Joel Schwartz at the American Institute summarises, in a related context:
I suspect these people and others like them must at bottom believe that businesses don't deliver what's best for consumers unless the government forces them to. They hold this belief, or at least fail to examine it, even as businesses continue to supply them with what they actually want, as revealed by their purchase choices, rather than with what they say they want.

Perhaps we need to define a new type of 'market failure.' Market failure occurs when businesses supply what people actually choose to buy, rather than what people claim they want to buy.
As I've suggested, the idea that that sprawl is bad is essentially one of envy; what gets anti-sprawlers apoplectic is the idea that someone, somewhere, is being allowed to live their life in the way that they want too, rather than the way the anti-sprawler wants them to. Economic ignorance allows them to think they can get away with it.

Ted Balaker and Sam Staley discuss five other envy-ridden myths of the anti-sprawlers in that Washington Post article mentioned above, myths they explode in the American context, and which are equally mythical here in NZ.
  • Myth #1. Americans are addicted to driving.
    Fact is, Americans are no more addicted to driving than Europeans. Europeans -- who live in the European cities that are so often cited by planners as being our ideal (that's a suburb near Paris on the right, by the way) -- they drive almost as much as we do. As Balaker and Staley point out: "The key factor that affects driving habits isn't population density, public transit availability, gasoline taxes or even different attitudes. It's wealth. Europe and the United States are relatively wealthy, but American incomes are 15 to 40 percent higher than those in Western Europe. And as nations such as China and India become wealthier, the portion of their populations that drive cars will grow."

  • Myth #2. Public transit can reduce traffic congestion.
    Public transportation still has an important role, concede the authors, but they say, "We have to be realistic about what transit can accomplish."
    Suppose we could not only reverse transit's long slide but also triple the size of the nation's transit system and fill it with riders. Transportation guru Anthony Downs of the Brookings Institution notes that this enormous feat would be "extremely costly" and, even if it could be done, would not "notably reduce" rush-hour congestion, primarily because transit would continue to account for only a small percentage of commuting trips.
    In any case, public transportation use itself is generally declining, but like auto use, suburbanisation itself is driven not by use or non-use of public transportation, but by wealth. "Workers once left the fields to find better lives in the cities. Today more and more have decided that they can do so in the suburbs."

  • Myth #3. We can cut air pollution only if we stop driving.
    "Although driving is increasing by 1 to 3 percent each year, average vehicle emissions are dropping about 10 percent annually. Pollution will wane even more as motorists continue to replace older, dirtier cars with newer, cleaner models." Cleaner cars and better roads -- so those cars aren't sitting around in traffic jams all day -- between them, that's going to do more for pollution and greenhouse gas emissions than raising the price of houses by restricting growth.

  • Myth #4. We're paving over America.
    "How much of the United States is developed? Twenty-five percent? Fifty? Seventy-five? How about 5.4 percent? That's the Census Bureau's figure... In truth, housing in this country takes up less space than most people realize. If the nation were divided into four-person households and each household had an acre, everyone would fit in an area half the size of Texas."
    The same sort of figures apply here in New Zealand, except even less so. According to the Landcover Database of Terralink, urban areas and urban open space in New Zealand account for less than 1 percent of total area, one quarter of that in the Auckland region. If all of NZ's 1,471,476 existing households were to be rebuilt on an acre of land (which was the sort of thing proposed by Frank Lloyd Wright in his Broadacre project, right), we'd all fit in an area less than one-quarter the size of the Waikato -- and think how easy it'd be to thumb a lift out to Raglan!

  • Myth #5. We can't deal with global warming unless we stop driving.
    Really? Does the myth-making of the anti-sprawlists depend solely on the myth-making of the warmists? Seems so.
    But as Dr Vincent Gray notes, even the alarmists on the IPCC only suggest it is "very likely" that between 0.3ºC and 0.5ºC of the last century's warming is due to us humans, and only one-tenth of New Zealand's greenhouse gas emissions are due to "household transport." In fact, and if you believe the threats are real, then you will know that livestock are a greater 'threat' to the planet than our cars. Are we going to 'save the planet' by ploughing under our livestock and paving all the farms? Or by bulldozing all our existing housing just so we can pack ourselves all in within walking distance of each other?
    And even if you take seriously the alarmism of the warmists, that's not going to stop everyone driving, particularly not the drivers in China and India who are just going to go right on getting rich and driving more -- the only thing to do is ensure that price signals here reflect the true realities, and leave people free to choose.
Such is the quality of the reasoning by which our houses are becoming unaffordable.

What the anti-sprawlists are doing with their restrictions on development is making housing unaffordable for every first-home buyer, and pushing up rent and mortage payments for everyone else.

And what they're also doing, ironically enough, by artificially ring-fencing our cities with restrictive zoning, is offering a great boon to the bigger developers they claim to despise -- the mega-developers who are the only ones to have the capacity and the political connections to buy up the ready-to-be-rezoned land that sits outside the ring-fence, encourage its rezoning, and then release it on to the market once the ring-fence is relaxed.

But that's another story ... one we'll talk about here very, very soon.

UPDATE: Tom Beard has responded here, to which I've responded briefly here.

LINK: Five myths about suburbia and our car-happy culture - Washington Post
Sustainable cities are unaffordable cities - (Peter Cresswell) Not PC

RELATED:
Urban Design, Politics-NZ, Housing

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12 Comments:

Blogger libertyscott said...

It gets driven by the following logic:
1. Congestion is because people drive too much (not because the government manages the roads as the commons)
2. People should drive less and use public transport, walk/cycle more.
3. Public transport is not viable in low density cities, except buses and they don't count because they are rail advocates almost exclusively.
4. People need to be packed in together so that there are enough to make rail possible.
5. Once that happens, they will use public transport like in London/Paris etc (in both cases public transport generally serves few people travelling in orbital rather than radial routes).

It takes a very long leap of faith to believe it, and it has never ever worked.

2/02/2007 12:53:00 am  
Anonymous Anonymous said...

I think taxation distorts the price (and unaffordability) as well. When you can invest in a company and get taxed versus investing in a house and not get taxed... well I think I know where I'd prefer to put my money.

2/02/2007 09:02:00 am  
Blogger Lucyna said...

The anti-sprawlers forget that if you cram too many houses into too small an area, the infrastructure may not be able to cope either, and then you can get flooding in properties that have been in an area for nearly a century and have only had problems with flooding recently. To solve that particular problem in Miramar, the council has paid for a number of houses to have their foundations lifted.

2/02/2007 12:39:00 pm  
Blogger Richard said...

PC, I seem to recall having this discussion before. In summary:

1. Given the present system, sprawl imposes significant costs on others. (As per the infrastructural and environmental externalities you note.)

2. One way to deal with those externalities would be through further privatization, to create the Libertarian Utopia.

Hence:

3. Sprawl is okay if we live in the Libertarian Utopia.

But we don't, in fact, live in the libertarian utopia.

So it's simply irresponsible to continue to advocate sprawl in the meantime. Due to existing flaws in the system, what you're effectively advocating is allowing individuals to "choose" to impose costs on others against their will. And what's so libertarian about that?

2/03/2007 12:26:00 pm  
Anonymous Anonymous said...

Property is unaffordable to whom, exactly?

Having faith in the future goes hand in hand with success. Fretting about unaffordability is for losers. Don't get sucked in.

Canterbury Property Investors Association magazine December 2006/January 2007

Steve Brooks is not old enough to go to the casino, but the 19 - year - old has been playing the property market since he was 14. Last week he signed up his biggest deal yet: a 3800m2 block of land on Buchanans Rd and now owns nine houses in Christchurch. He has recently set up his own business and is getting a book published, A Young Punter's Guide to Property Investing.

2/03/2007 05:18:00 pm  
Anonymous Anonymous said...

The problem is not in reality "unaffordability". the problem is what that means.

The root cause is the use of properties as no gains tax / tax deductable investments. And the relitive efficiency of the home loan industry compared to the business loan (etc) industry.

Anyway, PC's point that people who oppose sprawl decrease supply would be uneffected if we all becamse Steve Brooks and were willing to pay an arm and a leg to get into property.

Personally I prefer highrise to urban sprawl because why not keep the workers close to the working location? it reduces transaction costs and would probably be prefered anyway. But there would be lots of regulations preventing that also.

2/07/2007 06:42:00 pm  
Blogger PC said...

'Anonymous,' you said: "The problem is not in reality "unaffordability"."

The problem is in reality unaffordability -- unaffordability of houses in New Zealand cities.

The chief reason we are having this conversation is because the Demographia study showed that where houses in some other cities, and in NZ in the past, are approximately three times the average income earned in those cities, the average price in NZ's cities currently (and in the more restrictive western cities) is about six to seven times the average income.

That is unaffordability. And that is what we're talking about.

Nice stories about people who've done well in that market are irrelevant to the evidence.

And the root cause is clear enough, as argued above. Interestingly, even the Planners Council recognises this in a recent press release, when they says:

"The New Zealand Planning Institute® strongly supports Demographia’s call for planners, local councils and developers to collaborate more proactively and effectively on the provision of an adequate supply of affordable new residential housing...."

'Anonymous,' you also said: "Personally I prefer highrise to urban sprawl..."

Personally, I prefer choices. A market in which all choices were allowed and in which the restrictions on supply for ALL densities were many fewer would be far more likely to be affordable -- and far more exciting -- than one in which everyone is forced to use the planners' cookie-cutters, as they are now.

The best thing the members of the Planning Council could do to "collaborate more proactively and effectively on the provision of an adequate supply of affordable new residential housing" would be to get the hell out of the way.

2/08/2007 09:01:00 am  
Blogger Tom said...

I'm not quite sure of whom I'm supposed to be envious: people in the suburbs at the mercy of fluctuating petrol prices; or the developers busily lobbying to help their profits?

Anyway, my response is here.

2/08/2007 11:11:00 am  
Blogger PC said...

Richard, you say "the present system, sprawl imposes significant costs on others," yet you resist removing the imposition of those costs.

Go figure.

2/09/2007 12:05:00 pm  
Blogger PC said...

Tom, you said: "I'm not quite sure of whom I'm supposed to be envious?"

I'm using the word envy -- in contrast to the word "jealousy" -- to mean "hatred of the good for being the good."

After all, in one short letter you manage to demonstrate a hatred of developers, "quick profits" -- you prefer slow profits? -- shopping malls, cars, large houses and motorways, all of which help make the world a better place.

Perhaps I should ask you the same question I asked of Richard: If you truly object to "[developers] pocketing the profit while the rest of us pay for the physical and civic infrastructure required to turn it into some semblance of a city," would you feel any different if you weren't forced to pay for "physical and civic infrastructure"?

Would you? Or is this objection just a red herring?

2/09/2007 12:13:00 pm  
Blogger PC said...

Tom and Richard, as you're both opposed to sprawl, I'd be interested in hearing your views on the the following description of how Metropolitan Urban Limits, as imposed by a number of NZ councils, actually encourage the "carpet sprawl" to which you're opposed:
WHY SMART GROWTH DELIVERS CARPET SPRAWL.
Smart Growth delivers Carpet-Sprawl because even the most rigorous Smart Growth city
eventually has to extend its Metropolitan Urban Limit to provide more land for residential,
commercial and industrial use.
In recent weeks the Mayors of both Waitakere City and Manukau City have pleaded for
extensions to their MULs.
Even Smart Growth planners acknowledge these “adjustments” will be necessary from time
to time.
The sequence of events is as follows:
• The MUL is initially set to allow for the next period of growth to take place
within the existing “urban form”.
• Eventually this enclosed area fills to the point where there is essentially no
zoned land left for further growth or it has become so expensive that no one can
afford to use it.
• In the meantime many activities have simply leap-frogged into territory outside
the Smart Growth planners’ jurisdiction, which is why Northland Region is now
growing so rapidly.
• Open space inside the MUL is sacrificed to high density carpet development to
“save” open space outside the MUL.
• At some point the situation becomes intolerable and the people and their
representatives demand an extension of the MUL to enclose some piece of
surrounding rural land.
• Once this “bulge” is made legal then development and intensification begins
again until the new “bulge” is also full of high density carpet development and
some relief is allowed in some other part of the city.
Obviously, as this process is repeated the city expands into the rural area as medium or high
density “carpet sprawl.” The only difference from the post-war sprawl is that there will be a
greater variety of housing types because the market demand is more varied and regulations
covering section sizes and housing types have been relaxed since the sixties, and the overall
density will be higher.



[The argument coms from an online paper by Owen McShane. You can find it here.]

2/09/2007 12:44:00 pm  
Blogger PC said...

Sorry to bang on, but just to clarify for Tom what I mean by envy, it's what author Robert Bruegmamm characterised as 'The Attack of the Snobs.'

I talk about it here.

2/09/2007 04:55:00 pm  

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