Highways And Labor Markets II

Todd Litman's picture
One accurate measurement can be more insightful than a thousand expert opinions.

In a recent blog titled, Livability and All That, highway expert Alan Pisarski argues that highway-oriented transport systems are necessary for efficient consumer and labor markets. In Highways and Labor Markets, fellow Planetizen blogger Michael Lewyn challenged Pisarski's assumptions by pointing out that residents of walkable and transit-oriented neighborhoods generally have better overall access to goods, services and jobs than in automobile-dependent spawl, and that Atlanta (Pisarski's example of an automobile-dependent city) is no more economically successful than more multi-modal cities.

Let me add some hard data to this debate. The figure below shows the relationship between per capita vehicle travel and GDP for major U.S. urban regions. It indicates that regions where people drive less tend to be more economically productive.


Figure 1 Per Capita GDP and VMT For U.S. States

Per capita economic productivity increases as vehicle travel declines. (Each dot is a U.S. state.)



Figure 2 shows the relationship between roadway lane miles and GDP. It indicates that regions with less roadway supply tend to be more economically productive.


Figure 2          Per Capita Road Lane Miles and GDP

Economic productivity declines with more roadway supply, an indicator of automobile-oriented transport and land use patterns. (Each dot is a U.S. urban region.)


Figure 3 shows the relationship between per capita transit ridership and GDP. It indicates that regions with higher transit ridership tend to be more economically productive.

 Figure 3          Per Capita GDP and Transit Ridership

GDP tends to increase with per capita transit travel. (Each dot is a U.S. urban region.)


There is plenty of econmic theory to support the conclusion that multi-modal transportation systems support economic development more than automobile dependent transport systems. Travel demands are diverse: some goods and activities are accessed most efficiently by automobile, but others are most efficiently accessed by walking, cycling or public transit. As a result, an efficient transport system supports diverse mobility options and gives travelers incentives to use the most efficient mode for each trip, through efficient pricing of roads, parking, insurance and fuel.

Like most economic imputs, roadway investments can have deminishing marginal benefits. Although the first highways built in a region tend to provide large productivity benefits, once the basic roadway system exists, further expansion provides less incremental benefit. Figure 4 illustrates the result of a U.S. Federal Highway Administration study which indicates that, although highway construction provided very high return on investment during the 1950s and 60s, when the Interstate Highway System was connecting regions, economic returns subsequently declined, because the most productive projects (those linking regions) had been completed, leaving less productive links to be added.

Although that analysis did not continue to the following decades, it is likely that economic returns from highway expansion continued to decline.


Figure 4          Annual Highway Rate of Return (Nadri and Mamuneas 1996)

Highway investment economic returns were high during the 1950s and 60s when the U.S. Interstate was first developed, but have since declined, and are now probably below the returns on private capital, suggesting that highway expansion is generally a poor investment.


Automobile transportation is costly to governments (for roads), businesses (for parkling subsidies), consumers (to own and operate automobiles), and economies (to import vehicles and fuel). These are true resource costs which burden an economy. Automobile-dependent transport systems are particularly harmful to physically, economically and socially disadvantaged people who either cannot drive, or are significantly burdened by the financial costs of driving.

This is not to suggest that automobile transportation should be eliminated altogether, but it does indicate that transport policies that create more diverse and resource efficient transport systems do more to support economic development, provide more consumer benefit, and provide more economic opportunity to disadvantaged people than further highway expansion.


For More Information

Marlon Boarnet (1997), "New Highways & Economic Productivity: Interpreting Recent Evidence," Journal of Planning Literature, Vol. 11, No. 4, May 1997, pp. 476-486; also available as Working Paper 291, University of California Transportation Center, www.uctc.net/papers/291.pdf.

David J. Forkenbrock and Glen E. Weisbrod (2001), Guidebook for Assessing the Social and Economic Effects of Transportation Projects, NCHRP Report 456, Transportation Research Board, National Academy Press (www.trb.org).

Piyapong Jiwattanakulpaisarn, Robert B. Noland, Daniel J. Graham and John W. Polak (2009), "Highway Infrastructure And State-Level Employment: A Causal Spatial Analysis," Papers in Regional Science, Volume 88 Number 1, pp. 133 – 159; at http://ideas.repec.org/a/eee/transa/v44y2010i4p265-280.html.

Andreas Kopp (2006), Macroeconomic Productivity Effects of Road Investment: A Reassessment for Western Europe, Transportation Research Board 85th Annual Meeting (www.trb.org); available at www.mdt.mt.gov/research/docs/trb_cd/Files/06-2210.pdf.

Todd Litman (2009), Are Vehicle Travel Reduction Targets Justified? Evaluating Mobility Management Policy Objectives Such As Targets To Reduce VMT And Increase Use Of Alternative Modes, VTPI (www.vtpi.org); at www.vtpi.org/vmt_red.pdf.

Todd Litman (2010), Evaluating Transportation Economic Development Impacts, VTPI (www.vtpi.org); at www.vtpi.org/econ_dev.pdf.

SACTRA (1999), A Framework for Assessing Studies of the Impact of Transport Infrastructure Projects on Economic Activity, Standing Advisory Committee on Trunk Road Assessment, Dept. of Environment, Transport and Regions (www.roads.detr.gov.uk); available at www.dft.gov.uk/stellent/groups/dft_transstrat/documents/page/dft_transstrat_504940.pdf.










Todd Litman is the executive director of the Victoria Transport Policy Institute.



Michael Lewyn's picture

Just to play devil's advocate...

It seems to me one could argue that the high-GNP cities are also high-cost-of-living, expensive-land cities (which means that they are less affluent than GNP alone suggests). Is there any way to run these numbers while controlling for cost of living?

Todd Litman's picture

Just to play devil's advocate...

Dear Michael,

Your point would be appropriate for analysis of incomes or wealth, in which case it is important to consider whether the higher incomes in multi-modal regions are offset by higher living costs. That is why, when I evaluate affordability (http://www.vtpi.org/affordability.pdf ) I often measure costs (such as housing and transport expenditures) as a portion of income, rather than in absolute dollars.

However, this analysis concerns economic productivity, measured as Gross Domestic Product, a very different indicator than income. Productivity indicates the value of goods and services produced in the economy, not what individuals earn or consume. Certainly, there are many reasons to criticize GDP as an performance indicator, I've done my share, since GDP considers any increase in market transactions desirable. For example, if transport policies degrade walking and cycling conditions, forcing more moms to return to work and put their children in daycare in order to purchase a car for chauffeuring the children around, this is assumed to be beneficial (more work, income and consumption) even if everybody involved is actually worse off overall because moms and children are stressed and have less time together, and everybody gets less exercise. However, GDP is the main indicator used by mainstream economists and policy makers to define economic progress. My research show that even using this very conventional indicator, policies that increase per capita vehicle travel do not support economic development.

Todd Alexander Litman
Victoria Transport Policy Institute
"Efficiency - Equity - Clarity"

Dis-aggregating complexity


The dis-aggregation I would like to see, is according to FIRSTLY, monocentricity; and SECONDLY, according to median multiple house prices. I would then like to see the TRENDS.

I would expect to see the metros with rising median multiple house prices relating to planning-imposed monocentricity and fringe growth limits, to have the VMT's NEGATIVELY correlated with economic growth; and the metros with steady house price median multiples and low overall land values due to low monocentricity, to have the VMT's POSITIVELY correlated with economic growth.

William Wheaton's Paper
"Commuting, Ricardian Rent and HousingAppreciation in Cities with Dispersed Employment and Mixed Land-Use"
was like a revelation to me when I discovered it, building some more pillars into my understanding of urban economics to fit with what I already knew from Alain Bertaud and Colin Clark.


Here is a paper from Paul Cheshire of the LSE that should also interest you:


".......Policies of containment and densification limit the supply of land (and also space), not just for housing but for all non-agricultural land use in Britain. Our system of designated land use categories and development control imposes considerable costs. Where a full net welfare evaluation has been possible – for a tightly constrained urban
area in South East England – it shows that the increased costs of space for housing substantially exceed the value of planning amenities generated, imposing a net welfare loss equivalent to a tax of 3.9% on incomes.
Eliminating that welfare loss by substantially relaxing the constraint on land supply policy was estimated to increase the urban land take by 70%. Given that the total area of greenbelt land alone is 1.5 times the total urbanised area, even such a strong relaxation of containment policy as this would leave very substantial areas of greenbelt, and even if all additional urban land was taken from existing greenbelt areas.
This evidence is now quite old. But given what has happened to prices for housing land relative to agricultural land over the intervening period, and the evidence that the valuation of greenbelt amenities has fallen rather than risen, it is almost certain that the net welfare cost today would exceed the earlier value. There is also evidence that the planning system is imposing higher costs on productive uses of land. The costs of regulation imposed on office space in Britain substantially exceed those in Continental Europe......"

Todd Litman's picture

Dis-aggregating complexity - Barking Up Wrong Tree

Thank you for your comments. You made similar arguements concerning some of my previous blogs: that land use regulation significantly raises housing costs and therefore harms consumers. I think you are wrong to raise this argument now for two reasons.

First, although you cite literature which highlights land use regulation costs, there is a larger body of literature which highlights the economic, social and environmental costs of sprawl, or put differently, the benefits of smart growth. See for example, "The Costs of Sprawl," TCRP Report 39, (http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_rpt_74-a.pdf) and my report "Understanding Smart Growth Savings" (www.vtpi.org/sg_save.pdf ). Also see the extensive literature on agglomeration efficiencies (see www.pnas.org/content/104/17/7301.abstract and http://jpe.sagepub.com/content/28/1/86.abstract ) which indicate that more compact development tends to increase economic productivity.

There is also extensive literature pointing out that many current regulations favor sprawl, such as Jonathan Levine's book "Zoned Out: Regulation, Markets, and Choices in Transportation and Metropolitan Land-Use" and Pamela Blais's recent book "Perverse Cities: Hidden Subsidies, Wonky Policy and Urban Sprawl" which point out the many existing planning practices and market distortions (minimum parking and setback requirements, transport funding favoring highways, utility fees that fail to reflect the higher costs of providing services in dispersed locations, etc.) that result in economically excessive sprawl. If sprawl-restricting regulations harm consumers, so do sprawl-inducing regulations.

It is also worth noting that the literature you cite is based on the assumpiton that everybody (or at least, the vast majority of households) want to live in large-lot, single-family housing, and are happy to bear the additional transport costs involved. However, recent market trends challenge that assumption, as discussed in my review of this issue, "Where We Want To Be" (http://www.vtpi.org/sgcp.pdf ). It points out that a growing portion of households prefer more compact, accessible, multi-modal home locations (i.e., smart growth), reducing the welfare losses associated with restrictions on sprawl. According to a number of recent studies (see "Drivers Of Apartment Living In Canada For The Twenty-First Century," (http://www.gwlrealtyadvisors.com/gwlra/CNTAsset/Drivers_of_21st_century_... and "Smart Money in Real Estate Is on Smart Growth," ABC News ( http://abcnews.go.com/Business/wireStory?id=11311919 ). As a result, at best, your arguments are outdated and would only apply to a few urban regions, those where regulations are a major factor in land use development patterns.

The other reason I believe you are wrong to raise the regulations-raise-housing-costs issue is that it only reflects consumer welfare. My blog concerns economic development: productivity, employment, income, property values and tax revenues. These are totally different issues. Many decisions by individuals and communities involve trade-offs between direct consumer benefits (such as larger homes) and economic productivity gains (due to more efficient transport and land use). If you are correct, that everybody wants to live in automobile-dependent sprawl, then those who choose to locate in dense but high-productivity cities such as New York, San Francisco, Boston and Chicago must be willing to make the trade-off between their lifestyle and income. If I am correct, that many people actually prefer living in more compact, multi-modal urban areas, then we have a real win-win: a desirable home location AND an increase in economic productivity for those people.

Todd Alexander Litman
Victoria Transport Policy Institute
"Efficiency - Equity - Clarity"

Substantial body, recieved wisdom; I realise this

Dear Todd,

I will make a further effort to convince you because I am driven with urgency at what I see, that almost no-one else does so far. You are an influential person in this discipline, and I believe that you are honest about wanting "good" outcomes than evil.

Firstly, please understand that I agree with "Smart Growth" in so far as it REMOVES regulatory obstacles to market-driven densification, churn, agglomerations, and decentralisation and so on. Where I use "Smart Growth" as a term that I am criticizing, I am referring to regulations that force up the price of land by 1) limits to fringe development and zoning that leads to severe "price discontinuities" across legal boundaries and 2) imposing arbitrary MONOcentricity on a metro.

I realise that there is a substantial body of "received wisdom" to which advocates like yourself can refer. But like the run-up to the global financial crisis, there IS a small handful of highly credentialled experts who question this received wisdom on convincing theoretical and observational grounds. It is merely a question of HOW MANY people bother to read this questioning and whether they can understand it even then. If you listened to Robert Shiller or Steve Roach or Gary North or a few others I could name, you knew from 2003 onwards that there was a serious crash coming. The fact that the "received wisdom" was contrary and supported by the majority from Alan Greenspan down, did not make Robert Shiller wrong.

WHAT IS WRONG with all the received wisdom on Smart Growth that you refer to, is that ALL OF IT "assumes" the urban form it is analysing as a "given", WITHOUT discussing HOW land markets will co-operate or NOT co-operate in achieving that urban form.

The first insight I got that something was wrong with all this analysis, was from Alain Bertaud's papers on urban density profiles. Bertaud himself is 100% clear on this issue, like Shiller on the housing bubble in 2003. I have been searching and searching academic literature for months to find others who are similarly concerned. Peter Gordon is one of the best. William Wheaton provides extremely helpful theoretical frameworks but has not pursued the implications for "Smart Growth".

But Paul Cheshire and Stephen Sheppard are close to Bertaud in their clarity.

Besides the papers I referred to above, you MUST read the following 2 papers:

"The introduction of price signals into land use planning decision-making : a proposal"


I quote:

From the abstract:

"Although directed to the British system of Town and Country Planning this paper has relevance for many OECD countries, including some with systems of land use regulation which evolved entirely independently of the British. The paper starts by characterising the basic features of the British land use planning system, viewed from the resource allocation point of view of an economist. A conclusion is that the system explicitly excludes any use of price signals from its decisions. The paper then summarises the problems which the exclusion of price information has given rise to. Because the UK planning system has deliberately constrained the supply of space, and space is an attribute of housing which is income elastic in demand, rising incomes not only drive rising real house prices but also mean that land prices have risen considerably faster than house prices. Several housing attributes other than garden space are to a degree substitutes for land but the underlying cause of the inelastic supply of housing in the UK is the constraint on land supply........."

The last sentences of the conclusion:

"......Making the planning system responsive to price signals and less arbitrary in its impact on land supply may seem problematic. But doing nothing is in the long run even more problematic. House prices may not collapse from the 2004 boom; but they may. We do know that if land supply does not become more responsive to underlying demand, all the problems identified in section 2 of this paper will become cumulatively worse".



"The Welfare Economics of Land Use Planning"

"This paper presents an empirical methodology for the evaluation of the benefits and costs of land use planning. The technique is applied in the context of the Town and Country Planning System of the UK, and examines the gross and net benefits of land use regulation and their distribution across income groups. The results show that the welfare and distributional impacts can be large......"

And the last sentence of the paper:
"......Smart growth over 50 years of British experience appears to have imposed substantial net costs."

THAT was in 2001. More recently:


The "Net welfare LOSS effect" over 50 years, is equivalent to a "3.9% income tax".

Todd, I AM talking about economic growth as WELL as property prices and bubbles. Where I think Cheshire and Sheppard and everyone else with the exception of Alain Bertaud, have so far failed to look, is at the DECREASED CHOICES of "location efficient" options for households and businesses when land values are inflated. Yes, convenient locations go way, way up in price and the planners pat each other on the back and talk about the "utility value" they have created, when in reality what they have created, besides a property bubble, is like a large de facto gated community for the wealthiest people only, close to the CBD and actually NOT AS DENSE as it could have been had land values been kept lower and affordable to the bulk of people.
I keep saying this because it is important that it sinks in to planners heads: look at all the "Smart growth" cities and you will find unnaturally high density happening FURTHER AWAY from the urban centre, which has INCREASED average VMT's compared with "natural" free market cities where density curves have a consistent slope from centre to fringe. Worse still, you get "leapfrogging" commutes from distant lower-cost areas outside the metro altogether. I have no doubt that this force has more than negated the "benefit" of "Smart Growth", and explains partly at least, the Cheshire and Sheppard findings. That is, that over 50 years, the net welfare effect is similar to that of a 3.9% tax on incomes.

This is also WHY most "Smart Growth" cities, and cities with longer experience of similar policies in Britain and Europe, have achieved LITTLE in terms of "Smart Growth" stated objectives. Even with gas taxes at the level they are in Britain and Europe, there is surprisingly little difference in VMT's between Europe and the USA. The high gas taxes have changed people's choices of automobiles significantly, but the high gas taxes and tougher urban planning have had surprisingly LITTLE effect on VMT and "location efficiency" of households and businesses.

I am saying that the cutting edge of urban economic research today, would be taking account of the way inflated land prices DENY "choice" of location efficient decisions to households and businesses and REDUCE economic efficiency, and are a force for INCREASES in VMT's and resource consumption and emissions. Also, most of the theorists urban models CANNOT COPE with any "speculative" component to land prices - they all ASSUME values derived from economic rents and utility. But this is nonsense when property values treble in 7 years while incomes only go up 20%. Economic rents AND "median multiple" house prices SHARE a REAL LIFE CONNECTION between land prices and INCOMES. LEAVE this connection out, whether you are a Wall Street financial modeller or a Smart Growth modeller, both are equally culpable of causing an inevitable economic crunch.

Todd Litman's picture

Per Capita Vehicle Travel

I think we will need to agree to disagree on this. You have not addressed the issue raised in my blog, that per capita GDP increases significantly with development density and transit rideship, and declines with automobile travel and roadway supply. The arguements you raise are irrelevant, since they deal with consumer welfare, not economic development.

However, I do want to correct one incorrect statement you make, since it is often repeated by mobility management and smart growth critics: that transport and land use policy has little effect on per capita vehicle travel. In fact, residents of wealthy European and Asian countries have a quarter to half the per capita vehicle travel as in the U.S., due to differences in transport and land use development policies. For the latest evidence see, "Are We Reaching Peak Travel? Trends in Passenger Transport in Eight Industrialized Countries" published in "Transport Reviews" (http://dx.doi.org/10.1080/01441647.2010.518291); a summary of which is available at www.stanford.edu/~adammb/Publications/Millard-Ball%20Schipper%202010%20P.... My paper, "Land Use Impacts on Transport" (http://www.vtpi.org/landtravel.pdf ) shows that similar effects occur within the U.S.; commuters who pay directly for parking, and residents of areas that are more accessible, mixed, multi-modal, drive far less (20-60% less) than the U.S. average due to such differences in transport and land use policies.

Todd Alexander Litman
Victoria Transport Policy Institute
"Efficiency - Equity - Clarity"

VMT in Europe and US

Thanks for that information, which I searched for after reading Wodehouse's post but had trouble finding.

Per capita VMT is about twice as great in the US as in Sweden and the UK: almost 14,000 km in the US vs. about 7,000 km in Sweden and the UK.

Charles Siegel

Still not ONE MENTION of how land markets work

I will try and engage further. Replying to Todd here, too.

Firstly, per capita VMT are not at all a measure of "location efficiency". At least the Millard-Ball-Schipper paper suggests that other factors like Demographics are important.

The USA's figures are pushed up by such obvious things as low gas taxes, teenagers using autos, higher employment rates, fewer retirees, more retirees using autos, more low income earners using autos, and more “short trips” being made because of superior rates of CONVENIENT location of households.

In Europe, teenagers and retirees are far less mobile and lower income earners are far less mobile. The USA is simply more “democratic” in the way it prices auto use. Europe “prices out” the poorest groups in society via gas taxes and congestion charges, AND in Japan and Britain especially, by inflating the price of land. This results in the effect I am trying to get across to you, that they are forced into the LEAST CONVENIENT locations with long commutes as well as having to accept smaller homes.

Europe's famous collapsing demographics – and Japan's - have been driven in large measure by the sheer impossibility of lower income groups who traditionally have the most children, to afford a home plus the total living costs involved in being “priced out” of convenient locations and mobility. This is like a vicious circle. Then analysts like Todd Litman interpret the statistics in favour of yet more de facto Eugenics.

Looking at some of your own papers, Todd, and the papers you refer to, I can see where a lot of your confusion stems from.

Firstly, the results you think can be planned (let alone think to be the result of planning), are mostly the result of 100 years plus, of economic history. Who planned Manhattan's high density, high GDP, and high transit ridership? These things are results of the free market, not planning. It is IMPOSSIBLE, Todd, to “PLAN” replicas of Manhattan. Manhattan would not exist at its current density and GDP without the hundreds of square kilometers of sprawl surrounding it. This amount of sprawl COULD have been lower to the extent that REGULATIONS and Planning have distorted the free market in the direction of sprawl – I certainly agree that that could be the case. But a stand-alone Manhattan surrounded by countryside is the stuff of arrant fantasizing. Urban planners in “free” countries today differ only from the planners of the former USSR, in the amount of suffering they are proceeding to inflict on humanity. Their ignorance and hubris are identical.

OF COURSE one of your papers “points out that a growing portion of households prefer more compact, accessible, multi-modal home locations”. We all dream about things we can't afford, or what “might have been” had we made different choices earlier in life. To the extent that “minimum lot sizes” have prevented this, I agree with you. But if you cannot see that driving the prices of inner suburb townhouses up to $1 million each through land price inflation will REMOVE choice for households compared to if they had been $300,000 each; I am wasting my time with you.

You are like bureacrats designing the Volkswagen for Hitler, only without "cost" being an object at all. After making it the most expensive vehicle on the market instead of the cheapest, and then wondering why it doesn't sell. And talking about EVERYTHING BUT THE PRICE and the price of its competitors. "Oh, but it's the most efficient. it's the safest. It's recyclable. It will save the planet". TOUGH. Nobody can AFFORD the thing, Todd. (Obviously bureaucrats did not design the VW for Hitler, what's more).

Your papers, and the ones you are relying on, ALL have this flaw: their analyses of the various cost inputs are too much based on PRE-BUBBLE DATA, AND have agglomerated data from both bubble and non-bubble metros.

I would like to refer to the chart on page 4 of your paper “Affordable-Accessible Housing In A Dynamic City”.

You have represented admirably, the trade-offs facing home buyers IN THE ABSENCE of bubble land values. The very point I am trying to get across, Todd, is that “bubble” land values push up the “Land Cost” component of your calculations. Your land cost component is completely unrepresentative of what it is IN BUBBLE markets, especially at their peak, and which markets all happen to be "Smart Growth" markets.

Your nice annualized expenses graphs slope up from left to right, which I agree is how things should be. Therefore, people who want space will have to pay more overall. Many of them are fine with that. But bubble land prices change the direction of the slope from right to left, as well as putting the “LOWEST” total cost column, on the RIGHT, HIGHER than what the HIGHEST one HAD been.

These effects I am describing affect FIRST HOME BUYERS. For a young first home buying couple in an inflated-land-price market today, your figures are so out of touch with reality as to be an insult of the “let them eat coke” variety. Everyone else who is already “in” on the market, is little affected. In fact, the closer they are to your urban core, the more loyal cheerleaders they will be for the capital gains you have provided them – and this is NOT “amenity” value, it is “bubble” value. This is what the Global Financial Crisis is all about, Todd. Half of those capital gains to incumbent owners end up cashed out in consumer credit spending. Then the crash comes......

But it takes a long time for the effect of forcing INCONVENIENT locations, long commutes, and small homes on first home buyers, to really affect urban form. Portland and Curitiba showed up in Alain Bertaud's studies, and British Metros show up in Cheshire and Sheppard's papers. Maybe it will take another half a century of grief with hundreds more metros all over the world, before the Todd Litmans of the world will admit anything? It took most of a century for the failure of "planning" whole economies to sink in, and obviously it is an easily forgotten lesson given the recent political trends in the West. Certain old Eastern European economists shake their heads in wonder.

Your analysis so far, Todd, by contrast, has missed all the vital pointers, just like the financial sector cheerleaders of the bubble did back in 2003 - 2007. “This time it's different”.

Cheshire and Sheppard say that in 50 years of Urban and Spatial Plans all over Britain, not one mentioned how land market functions were going to serve the progress of the “Plan” towards the desired objectives. Isn't this strange? The same goes for ALL your papers advocating “Smart Growth”, and those of ALL your colleagues.

You say things like:

“.....commuters who pay directly for parking, and residents of areas that are more accessible, mixed, multi-modal, drive far less (20-60% less) than the U.S. average due to such differences in transport and land use policies....”

without ever having asked yourself the question, obviously, “how is it possible for MOST of our citizens to afford the million-dollar townhouses that those wealthy elites and childless yuppies live in”? You are playing the role of another bubble cheerleader, along with all those banks and lending institutions that want the good times to go on for ever without any bill falling due, ever.

As for Japan, do you want to get me started? Why is Japan a model for progress? They are a dying society. Their demographics are unsustainable. They were the first to have a housing bubble, and for all the same reasons.

Japan's experience, what has humanity learned?

Re. Japan's famous late 1980's property bubble.

I have just found THIS paper:


On Page 39, we have the following comment:

".......It is generally acknowledged that expensive land prices in Tokyo cannot be explained by the scarcity of urban land (ref4), or by economic fundamentals. Yet explanations of this striking feature are divergent. Scientists dealing with Japanese land issues can be
roughly divided up into two groups. The first group comprises American and Japanese economists using neo-classical approaches (Hatta, Miyao, Idee, Mera, and Elderstein among others). They argue that the current tax system and urban planning rules strongly
hamper urban development and therefore sustain inflated land values. Consequently, they advocate addressing the ‘land problem’ with a massive liberalization of town planning and tax regulations......."

Ref 4: Several authors have discussed the ‘land scarcity myth’ in Japan. See, among others, Calder (1986) and Noguchi (1992)."

From there to page 83, we find an in depth discussion of the arcane complexities of the Japanese land regulation system, and the various attempts of the government to rein in the expanding bubble, all of them fruitless. What a grevious saga. I won't attempt to summarize it here.

The "Calder (1986)" reference, is to a book:
Crisis and Compensation, Princeton University Press.

The "Noguchi (1992) reference, is to what appears to be a Japanese language book:

Baburu no keizaigaku (The Economics of Bubble), Tôkyô, Nihon-keizai-shinbunsha.

The following references look interesting too:

Haley, J.O. & Yamamura K., (1992) Land Issues in Japan : a Policy Failure ?, Seattle, Society for Japanese Studies.

Hatta, T. & T. Ohkawara (1994), Housing and the journey to work in the Tokyo

Metropolitan area, in Noguchi, Y. & Poterba, J., (eds) Housing Markets in the US and Japan, Chicago, Chicago University Press, 87-131.

Mera, K. & Renaud, B. (eds), (2000) Asia’s Financial Crisis and the Role of Real Estate, M.E. Sharpe, New-York.

Miyao, T. (1988) The danger of stiffer land controls, Economic Eye, vol.9, 4-8.

Nishimura, K., Yamazaki, F., Idee, T. & T. Watanabe (1998) The myth of land in the land of many myths : what brought Japanese land prices up so high in the 1980’s and made them nose-dive in the 1990s ?, mimeo

(The above authors also produced: Nishimura, K. G., F. Yamazaki, T. Idee, and T.Watanabe (1999): “Discretionary Taxation, Excessive Price Sensitivity, and Japanese Land Prices,” NBER Working Paper, No. 7254. - Found on Google)


curve fitting

I'm ususally impressed with Todd's analyses, but this one seems a bit off the mark. The scatter of data points indicate a complex, multivariate, relationship, so these curve fits don't seem to be very valid.

Todd Litman's picture

Curve Fitting

I agree that the relationships between transport policy and economic productivity are complex. However, the statistical relationships indicated in the graphs are relatively strong and are consistant with a considerable body of theoretical research which indicates that:

1. A diversified transportation system, in which non-motorized modes, public transit and automobile travel each plays a significant role, is likely to be most economically efficient because it allows each mode to be used for what it does best.

2. Once a region has a basic paved highway system, expanding that system provides declining marginal benefits, and the increased vehicle travel and sprawl that result increases economic costs. Demand management strategies that encourage more efficient use of existing roadway capacity (such as efficient road and parking pricing, and distance-based vehicle insurance) are more likely to support economic development than further highway expansion.

3. Market distortions, such as underpricing of roads, parking and crash risk, and planning distortions (such as dedicated funding for highways and parking facilities that cannot be used for alternative modes or demand management strategies even when they are more cost effective overall) result in economically excessive motor vehicle travel, which reduces productivity.

Considered in total, this research indicates that Pisarski and others are wrong to claim that further highway expansion and increased per capita VMT support economic development. There is no evidence that regions with more roads and vehicle travel are more productive than those that are more multi-modal, on the contrary, all available evidence indicates otherwise.

Todd Alexander Litman
Victoria Transport Policy Institute
"Efficiency - Equity - Clarity"

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Grids and Guides Notepad Set
Women's t-shirt with map of Los Angeles

City T-Shirts for the ladies!

Women's Supersoft CityFabric© Fashion Fit Tees. Now available in six different cities.