Smart Growth And Housing Affordability

Todd Litman's picture
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In a recent blog I emphasized the value of using smart growth policies to increase household affordability and support regional economic development. In his blog, "Planning Foreclosures," Samuel Staley reaches a very different conclusion. He claims that smart growth reduces housing affordability, causes housing foreclosures and is therefore the source of the GFC (global financial crisis). Let's look at these issues more closely.

Staley cites his study, and those by planning critics Wendell Cox and Randal O'Toole which he claims prove that urban growth boundaries (and therefore smart growth in general) significantly increase housing costs (he claims by 20%). Although such studies show a correlation between growth management policies, increased housing prices, reduced housing affordability and higher rates of housing foreclosures, these links are muddled. Correlation does not prove causation. There is plenty of evidence suggesting that smart growth can deliver true affordability. Here are my arguments. First, it is wrong to claim that urban growth control policies significantly reduce housing affordability. This would be true if housing had a fixed land requirement, but this is not so. Urban region housing densities typically range from less than two per acre, for large-lot single-family, to more than twenty per acre for small-lot, mixed single-family and multi-family. Growth management reduces large lot housing supply, but not total housing provided that a region has smart growth policies that encourage more compact development.  

Evidence presented by researchers such as Staley, Cox and O'Toole to "prove" that urban growth boundaries cause housing prices to increase is confounded because communities tend to implement growth control policies when they are experiencing rapid population growth which also drives up home prices. As Stanley points out, foreclosures are concentrated in regions such as Southern California, Las Vegas, Phoenix, South Florida and Washington, but that is because these are desirable, dynamic, high-growth areas.

Yes, regulations in general increase housing costs, but it is minimum parking requirements and various density restrictions (such as limits on multi-family housing, building setbacks and height limits) which most reduce housing affordability, not urban growth boundaries or environmental regulations. Restrictions on growing outward do not reduce affordability if there are no restrictions on growing upward: it is the combination of the two that drives up housing prices. 

People who claim that urban growth boundaries automatically reduce housing supply and affordability are looking backwards at a time when most households had a strong preference for single-family housing and average home sizes were increasing. But the market is changing. The average size of new homes peaked during the housing bubble and is likely to decline somewhat, and demographic and economic changes, including aging population, changing preferences (particularly by the younger people who generally seem to prefer urban to suburban lifestyles) and rising fuel prices are shifting the market away from larger-lot, automobile-dependent, single-family homes toward smaller, more urban housing.  

The demographic that most demands single-family housing, families with young children, will grow little in the future, while groups more amenable to more compact housing, young adults, childless couples and seniors, will grow a lot. This is not to suggest that everybody will live in dense urban housing in the future, but it does indicate that an increasing portion of households either strongly prefer, or given modest incentives will accept, more compact housing. 

Second, it is foolish to evaluate housing affordability separately from transportation affordability, or we curse lower-income households with cheaper homes in automobile dependent locations, so each dollar saved in mortgage payments is offset by two additional dollars spent on transportation, plus additional time spent stuck in traffic and additional accident risk (residents of automobile-dependent communities have about four times the per capita traffic fatality rate as residents of smart growth communities). According to analysis by Barbara Lipman, lower-income households spend about the same portion of total income on housing in both central and suburban locations, but their transportation costs increase significantly as they move further away from city centers: 

Portion of Lower-Income Household Budgets Devoted To Housing and Transportation By Geographic Location

                                 Central City: Housing: 32%, Transportation: 22% = Total 54%

     Near Other Employment Center: Housing: 35%, Transportation: 31% = Total 66%

     Away From Employment Center: Housing: 33%, Transportation: 37% = Total 70% 

 

Third, a number of recent studies show that automobile-dependent locations are more vulnerable to foreclosures than smart growth locations, as summarized in a recent column by Kaid Benfield. This occurs because the high transportation costs of these locations make households vulnerable to increases in fuel prices (which is what apparently started the mortgage collapse in the first place), higher mortgage rates (when the initial low rates used by lenders to lure customers expire) or reduced incomes (for example, from a job loss). A home in a more accessible, multi-modal location is more affordable and a better investment overall. 

Finally, several smart growth policies can increase household affordability by reducing construction costs, improving compact neighborhood quality of life, and by increasing transportation affordability. These include more compact housing types (apartments, condominiums, townhouses, small-lot single-family), reduced and more flexible parking requirements and parking management, location-efficient planning (so affordable housing is located in accessible locations), redeveloping existing urban neighborhoods so they become more attractive places to live, and shifting resources from expanding roads and parking facilities to improving affordable transportation options, including walking, cycling, public transit, ridesharing, carsharing, taxi, delivery services and telecommunications. These are the truly smart solutions to unaffordability. 

Conclusions:

  • Growth management does not cause housing inaffordability if implemented with policies to encourage development of more compact, land-efficient housing.  
  • A growing portion of consumers prefer (or at least will accept with modest incentives) compact housing if implemented with appropriate urban development policies that create attractive urban neighborhoods with amenities such as good walking and cycling conditions, attractive public realm and relatively low cost of living.
  • Affordability analysis should always consider both housing and transportation costs together so we avoid cursing lower-income households with cheap housing but excessive transportation costs.
  • A number of smart growth strategies can increase total household affordability. This is the smart way to help lower-income households and support regional economic stability.

 

 For more information see: 

Scott Bernstein, Carrie Makarewicz, Kara Heffernan, Albert Benedict and Ben Helphand (2004), Increasing Affordability Through Reducing the Transportation and Infrastructure Cost Burdens of Housing, Atlanta Neighborhood Development Partnerships (www.andpi.org); at www.andpi.org/uploadedFiles/pdf/03MICI%20MTC%20Report_CNT.pdf.

CTOD and CNT (2006), The Affordability Index: A New Tool for Measuring the True Affordability of a Housing Choice, Center for Transit-Oriented Development and the Center for Neighborhood Technology, Brookings Institute (www.brookings.edu); at www.brookings.edu/metro/umi/20060127_affindex.pdf.

CTOD (2009), Mixed-Income Housing TOD Action Guide, Center for Transit Oriented Development (CTOD) for Reconnecting America, the Center for Neighborhood Technology (www.reconnectingamerica.org); at www.reconnectingamerica.org/assets/Uploads/090304mitodag0109.pdf.

Peter M. Haas, Carrie Makarewicz, Albert Benedict, Thomas W. Sanchez and Casey J. Dawkins (2006), Housing & Transportation Cost Trade-offs and Burdens of Working Households in 28 Metros, Center for Neighborhood Technology (www.cnt.org); at www.cnt.org/repository/H-T-Tradeoffs-for-Working-Families-n-28-Metros-FULL.pdf.

HUD (2008), "Parking Regulations and Housing Affordability," Regulatory Barriers Clearinghouse, Volume 7, Issue 2, US Department of Housing and Urban Development, (www.huduser.org); at www.huduser.org/rbc/newsletter/vol7iss2more.html.

Barbara Lipman (2006), A Heavy Load: The Combined Housing and Transportation Burdens of Working Families, Center for Housing Policy (www.nhc.org/pdf/pub_heavy_load_10_06.pdf).

Todd Litman (2003), Parking Requirement Impacts on Housing Affordability, VTPI (www.vtpi.org); at www.vtpi.org/park-hou.pdf.

Todd Litman (2005), Understanding Smart Growth Saving, VTPI (www.vtpi.org); at www.vtpi.org/sg_save.pdf.

Todd Litman (2007), Transportation Affordability: Evaluation and Improvement Strategies, VTPI (www.vtpi.org); at www.vtpi.org/affordability.pdf.

Arthur C. Nelson, Rolf Pendall, Casy Dawkins and Gerrit Knaap (2002), The Link Between Growth Management and Housing Affordability: The Academic Evidence, Brookings Institution Center on Urban and Metropolitan Policy (www.brook.edu); at www.brookings.edu/es/urban/publications/growthmanagexsum.htm.

Robert W. Wassmer and Michelle C. Baass (2005), Does a More Centralized Urban Form Raise Housing Prices, APPAM "Suburbanization and its Discontents" conference; Journal of Policy Analysis and Management; California State University Sacramento (www.csus.edu/indiv/w/wassmerr/WassmerBaassSprawlHousing.pdf). 

 

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

Comments

Comments

Great post, but the whole

Great post, but the whole premise underlying your serious engagement of the issues is wrong: that Cox and O'Toole actually care about the quality of their own arguments. You can prove them wrong all day long, but I'm afraid that they will continue to repeat their flimsy claims regardless. There are enough interest groups out there that need a pretense of intellectual cover, and enough guys like Cox and O'Toole willing to provide it.

speaking of interest groups

with a "pretense of intellectual cover" and agenda, you just read another opinion from one. Don't be naive enough to think because they might get their money from the Natural Resources Defense Council or its equivalent instead of ExxonMobil that they are somehow more interested in finding the "truth" or being "objective". Their interest is in advocating for these types of regulations just as it is in Cato's interest in advocating against them. Clearly, the typical Planetizen reader is convinced of some good vs. evil argument, but the reality is that there are good and bad points of each and the authors of both do their best to cherry pick data, make specious arguments, "debunk" the other guy, make fun of their opinions and motives, etc.

While it is silly to think that growth management, with all of its regulations and controls, caused a bubble in housing prices and subsequent collapse, it is equally silly to think it has no impact. The better question is "is it worth it?". That answer, of course, depends on your politics and way of thinking. My view is that there are far better ways to accomplish the goals while minimizing the collateral damage.

housing bubble, interest groups, etc.

The one who espoused the idea that the fuel price surge somehow caused the housing bubble to burst must be on loco weed or has never left the state of California. Hotel California.

Some planners seem to think that THEIR solution fits all. Yeah, what's good for NYC or MIA or even ATL is good for mid town America. Sure. Sorry guys, we dont want to live at densities of 20 units per acre. period. causes severe stress and distress.

This degree of false logic is exceeded only by the mortgage banking industry, former Pres Geo Bush the lesser and the NAHB, They think everyone should be a home owner. sure.

Louisiana Governor Huey Long promised everyone "a chicken in every pot". He was a lot smarter than bankers, Bush, or the NAHB.

As far as the whole range of interest groups,
The contrarian planner gets it.
I get it.
Sadly, others, many of which are planners, just dont get it.
May I introduce special interest groups to some of you...
If you scratch a bicycle planner, you will get a bicycle planners' solution.
transit-a transit planners solution.
city planner, a city planner's solution
new urbanism, ...

Comprenden?

Special Interest Groups

It seems to me that there is a difference between a special interest group that has a direct pecuniary stake in an issue and one that doesn't.

For example, Exxon funded research to discredit the idea of global warming, and Exxon has a direct financial stake in selling oil that causes CO2 emissions. This is not the same as the Natural Resources Defense Council funding research that shows global warming is a threat, and it is certainly not the same as University professors doing research that shows global warming is a threat.

Charles Siegel

No direct pecuniary stake

I assure you the "researchers" have no direct pecuniary stake. Staley and O'toole or whomever could give a ratsa$$ about Exxon or any other company. Sure, Exxon may have a stake, but I'm not so sure about NRDC in your example. They need donations like anyone else. Kind of hard to raise cash if your studies don't show threats. The bottom line is that most funding sources use scare tactics, strongly or gently, to try to sway donations from their most likely allys.

The bigger issue is that doing something like this - applied or even academic policy research/analyis/editorial is simply not done for the money. Nobody says "I'll go get a PHD in economics or public policy, work for a non-profit, beg for donations, so I can get rich." Staley could work in the development industry and make oodles more cash. Just as I am sure that Litman or Dudley with this group are very smart guys and could make much better cash elsewhere. They all do it because it falls in line with their particular view of the world (their philosophy) and it's something they like and believe in. Put it this way, if it was that easy, why couldn't we just give Litman a $10,000/year raise to start producing studies that show regulation is more harmful than beneficial. Would he do it? Not likely. Likewise, could we bribe Staley or O'Toole with a little extra money - no? And, believe me, they don't make that much. These people are not bribed to come up with conclusions as some suggest. They have a pre-exisiting paradigm and find work that accomodates that paradigm - not the other way around.

If you are looking for truly independent thinkers/analysts...tough to come by. I always thought the General Accounting Office was pretty good, though they are less of a policy outfit - same with the Congressional Budget Office. Brookings is pretty sound, though some of their folks have a bit of a government interventionist bias, in my opinion (especially of late). I always liked and respected Anthony Downs' work, whether I completely agreed with his conclusions or not.

The Funders Have A Pecuniary Stake

Staley, O'Toole, Litman, and Dudley have no direct pecuniary stake, but how about the people who fund them? Where does Cato get its funding, and where does VTPI get its funding?

I suspect that if you did a general survey of funding for think tanks, you would find that conservative think tanks get more funding from corporations with a direct pecuniary stake in the results of their research. And I suspect you would find that environmental think tanks get more funding from foundations and the general public - who give funding because they are concerned about the issue, not because they want to make money from it.

You are probably right that the people who work for these think tanks, conservative and environmentalist, all do what they do because they believe in it, not because they want to earn lots of money. They could earn a better salary doing something else.

But I expect that most of the conservatives could not get these think-tank jobs, and could not get these ideas out into the world at all, if it weren't for donations from corporations who profit from these ideas. The money clearly affects which ideas get out there.

Charles Siegel

Samuel Staley's picture
Blogger

How Growth Management Reduces Housing Affordability

Thank you for engaging the debate Todd, but I think it would be more useful if you wouldn't create a strawman out of the arguments before responding. My blog post didn't say these studies "proved" that Smart Growth reduces housing affordability; on the contrary, I said that ththe contrarian evidence suggests planners need to take another look and re-evaluate the arguments.

More directly re: my study. Note that the planning variable used in our regression analysis with the *amount of time* that counties had been planning under Florida's growth management law. So, yes, my research strongly suggestst hat Smart Growth planning, as embodied in the Florida procedures, reduce housing affordability.

The housing price impact likely derives from 1) the delay in getting approvals, and 2) the mismatch created between supply of certain types of housing units and the demand for them in the market. Unfortunately, we were not able to test for that directly in our study.

When examining housing affordability, it's not just about overall prices. It's the price for the same type of housing.

On the other hand, I agree with you that conventional planning has similar distortations. That's why we think the land market needs to be opened up to more market-driven investments. I believe this woiuld greatly improve the quantity and affordability of a wide range of housing types, including (and perhaps most importantly), multifamily units.

Michael Lewyn's picture
Blogger

Having lived in Florida for almost three years now...

It seems to me to be really bizarre to describe Florida's policies as "smart growth" or even "growth management". Basically, Florida functions the same way most of America does: the developers ask to build sprawl housing, and the government not only says "yes", but even builds a few roads to help out. If "smart growth" means more compact-oriented development, I have never been anyplace where growth is less "smart" than in Jacksonville, and from what little I have seen the rest of the state is not much better.

Just because Florida requires planning does not make that planning "smart growth." Planning is a procedure; smart growth is a result. Or to put it another way, saying Florida and Oregon are alike because both have state-mandated comp plans is kind of like saying Miami and New York are alike because both have subways: the similarity conceals some pretty big differences.

which might be precisely the point

Growth management the process, in numerous forms and varieties, does not result in smart growth, the outcome. I've often made this argument. Most growth management focuses on your "where we grow" questions, but it doesn't get at the root problem which is your "how we grow" questions. Without addressing local zoning ordinances, we'll probably keep growing in much the same design sprawl way. Add growth management on top of that and you have just reduced the land supply and/or time to market for housing just driving up pricing for sprawl housing.

Yet Staley & Co.

Yet Staley & Co. consistently conflate Smart Growth with any growth management policy at all- no matter how ill-conceived or even antithetical it may be to smart growth principles. Here’s an egregious example from Cox’s article “Root Causes of the Financial Crisis: A Primer” (http://www.newgeography.com/content/00369-root-causes-financial-crisis-a...):

The bubble – the largest relative housing price increases – occurred in metropolitan markets that have strong restrictions on land use (called “smart growth,” “urban consolidation,” or “compact city” policy)

He is basically taking a collection of very different ideas and using them interchangeably, allowing him to unload on his ideological bete noires – environmentalists, cosmopolitan elites, transit advocates, New Urbanists, etc.

Michael Lewyn's picture
Blogger

And in Florida...

Growth statutes don't even do THAT- that is, they don't really limit "where we grow" - all they do is tell government: "Grow as far out as you like, just make sure its mentioned in the comprehensive plan and that you had the roads to support it."

Growth Management And Affordability

"I agree with you that conventional planning has similar distortations. That's why we think the land market needs to be opened up to more market-driven investments."

If both conventional (suburban) planning and smart growth planning push up the cost of housing, it doesn't necessarily follow that we should eliminate both types of planning and leave things to the market.

Smart growth planning is needed because the market does not take account of external costs. Sprawl has much greater external costs than more compact housing, and we need some sort of government action to correct for the market's failure to deal with this fact.

By contrast, conventional suburban zoning pushes up housing prices with no justification at all. This government regulation makes the external costs worse than they would be without it.

When you take into account the full costs, including external costs, it is clear that the best response to higher housing prices is not to allow more low-density sprawl. The best response is to increase allowed densities in already urbanized areas and perhaps also in compact greenfield development designed like streetcar suburbs (just as smart growth advocates say).

Staley's argument is essentially the following: a combination of beneficial government regulations and unnecessary government regulations is driving up housing prices. Therefore we should eliminate both the beneficial and the unnecessary government regulations.

Charles Siegel

Todd Litman's picture
Blogger

Smart Growth and Housing Affordability

Let me express my appreciation to Mr. Staley for bringing this discussion back on track. It concerns the degree to which smart growth policies reduce housing affordability. I find the namecalling and uncritical thinking by “dscheltz” and “contrarianplanner” unhelpful and best ignored.

Mr. Staley is technically correct, his original blog (www.planetizen.com/node/37738) did not specifically claim to “prove” that smart growth causes housing unaffordability, but did claim to have evidence indicating that growth controls significantly increase housing costs (by up to 20%), which he implies caused the housing market collapse. I am not surprized that his research shows a positive correlation between growth controls and housing costs in rapidly growing regions such as coastal Florida and California, but that analysis is confounded by the fact that growth controls are generally implemented in areas with growing housing demand, so prices are increasing anyways.

I suggest that we shift the discussion somewhat. I am willing to agree that growth boundaries can reduce housing inaffordability if higher-density urban infill is restricted. We can then debate the following issues:

• Whether there are significant benefits to reducing sprawl. I believe there are, as discussed in my papers, “Evaluating Transportation Land Use Impacts” (www.vtpi.org/landuse.pdf) and “Understanding Smart Growth Savings” (www.vtpi.org/sg_save.pdf). What arguements suggest otherwise?

• Whether government policies that restrict density and support sprawled development patterns, such as restrictions on multi-family housing and building heights, and requirements for generous parking supply and setbacks, are really justified on economic or social grounds, or simply reflect outdated anti-urban and pro-automobile bias. To his credit, Mr. Staley has criticized current parking policies, so we may agree on this point.

• Whether future consumers will continue to demand larger-lot single-family homes. Research I’ve seen indicates that the market is shifting toward more compact, multi-modal neighborhoods, so smart growth reflects true consumer demands. Staley may have evidence showing otherwise.

• Whether housing affordability should be evaluated separately from transportation affordability (www.vtpi.org/affordability.pdf). I argue that they should always be considered together. Staley seems to focus on one at a time.

To help with this discussion I assembled a little spreadsheet which calculates densities for various types of housing (available at www.vtpi.org/density.xls). For example, holding home occupancy and floor area constant (2.5 residents in 1,500 square foot homes), I calculate the following gross densities per square mile:

Home Type Units Per Gross Acre (Residents Per Square Mile)
------------ -------------------------------------------
Conventional Single Family: 1.0 (1,585)
Small-lot Single-Family: 3.2 (5,164)
Townhouses: 2.4 (19,920)
Low-rise With Surface Parking: 27 (43,574)
Low-rise Without Surface Parking: 44 (69,718)
Highrise With Surface Parking: 51 (82,022)
Highrise Without Surface Parking: 174 (278,873)

To put this into perspective, typical U.S. urban regions (cities and suburbs together) typically have gross densities of 1,500 to 4,000 residents per square mile. This indicates to me that urban growth boundaries are not a significant constrain on housing affordability provided that most new housing consists of small-lot single-family, townhouses, apartments and condominiums (mostly low-rise). This makes sense for a number of additional reasons:

• Demographics and consumer preferences increasingly favour more compact, urban-type housing.
• Townhouses and low-rise apartments are the lowest unit cost structures, and so are the best way to provide affordable housing.
• These densities reduce the costs of providing public services (utilities, roads, policing and schooling) compared with urban fringe sprawl.
• These densities improve accessibility and multi-modalism, and so support increased transportation affordability.

Described differently, until we more efficiently price development and transportation (for example, charging higher development and utility fees for housing located where public services are more costly to provide, and efficient road and parking fees and emission fees), urban growth boundaries can be justified on second-best grounds, to reduce excessive social costs and support strategic planning objectives.

This is not to suggest that in the future, nobody will live in single-family, but for demographic, economic and environmental reasons, growth should shift toward higher density. This is not taking something away from consumers as many critics seem to assume, it is responding to growing consumer demands for urban living and the need to increasing housing and transportation affordability, rationalizing public services and reducing the excessive economic, social and environmental costs inherent in automobile dependency.

I appreciate comments on this analysis.

Todd Alexander Litman
Victoria Transport Policy Institute
www.vtpi.org
"Efficiency - Equity - Clarity"

So, in summary

what you are saying is that a) you write a planetizen op-ed bashing one of Staley's op-eds, b) he counters, c) you essentially admit that your suggestions are "second-best", but Staley's proposals really are great ideal solutions that we all pretty much agree on. And then of course d) nevertheless, we need mediocre solutions filled with unintended consequences in the absence of tough political will to price external and internal costs of development and transportation. And you are calling me "unhelpful". Wow. You might rethink your strategy here. If the only point of that 27 page combined dissertation was that, you could have just posted a comment on Staley's op-ed and just said "Sam, politicians can't make hard decisions, people can't acept the real trade-offs, therefore we prefer second rate solutions like the one you're criticizing in the absence of nothing." Done.

And, if I did name call, I sincerely apologize, but I can't see where I have done that.

Robert Goodspeed's picture
Blogger

This website's tone

You are proving the theory that civil debate online requires everyone to use their real names.

What you and many others are proving

is that some people of a certain philosophy sure can dish it out, but they have a hard time taking their medicine. Let me ask you this: where are you, Mr. Goodspeed, defender of civil discourse, when the masses of left-wing lemmings are on here bashing Mr. Staley, O'Toole, Cox, etc. There is name-calling, false accusations, assumptions about who is in which industry's pockets, etc. You don't seem to have a problem with it, then. I give you a terse, yet, I believe, accurate depiction of something and now I am not civil. Have I said something that is incorrect? Re-read the original blogs and counters and tell me my summary is in fact not really what just happened. I understand I am glazing over details, but it's a summary. I have nothing against you, Litman, or Staley. But, instead of trying to defend the ever-elusive concept of civil debate, why don't you just debate with me if you think I'm mistaken. What has Litman's blog counter accomplished?

Lemmings

"the masses of left-wing lemmings are on here bashing Mr. Staley, O'Toole, Cox, etc."

Lemmings are known for running with their group even though they are heading toward the edge of a cliff. That sounds like a good analogy for our current behavior. Staley, O'Toole, Cox, etc. are encouraging that sort of self-destructive behavior, and their critics are trying to prevent it.

For a picture of the real lemmings, see:
http://gregoire.seither.club.fr/chiche/andy_singer/SiteAndySingerPages/I...

Charles Siegel

Robert Goodspeed's picture
Blogger

A note on density and height

The gracious, four story 1930 apartment building I live in clocks out at 100 units per acre when calculated for the lot. The 8-story building down the street, which includes some surface parking, is 97 units per acre measured for the lot.

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