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Smart Growth And Housing Affordability

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.

Todd Litman | March 23, 2009, 12pm PDT
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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). 

 

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