In this new report from the Cato Institute, Randal O'Toole writes that regional growth management plans make housing unaffordable and that states with these laws should repeal them.
"Growth-management tools such as urban-growth boundaries, adequate-public-facilities ordinances, and growth limits all drive up the cost of housing by artificially restricting the amount of land available or the number of permits granted for home construction. On average, homebuyers in 2006 had to pay $130,000 more for every home sold in states with mandatory growth-management planning than they would have had to pay if home price-to-income ratios were less than 3. This is, in effect, a planning tax that increases the costs of retail, commercial, and industrial developments as well as housing."
"The key to keeping housing affordable is the presence of large amounts of relatively unregulated vacant land that can be developed for housing and other purposes. The availability of such low-cost land encourages cities to keep housing affordable within their boundaries."
Comments
Spatial Form and Land Use Planning Restrictions
Recently I was looking at research that analyzed spatial form as a factor in public agency priorities, and one of the interesting things about planning theory (which like it or not this report is part of) is that for all of its focus on land use, it doesn't often measure geographic factors.
This relates to O'Toole's general project because he is often making a direct comparison between places like Phoenix and Houston, and cities in California and the East Coast. States like Arizona and Texas which have flat urban areas can afford to sprawl as far as they want. (Whether that is a good or bad thing can be debated by reasonable people). However in places like California, and along the east coast, what one person consider's developable land another would consider a natural resource. Hillsides, and coastal front property are unique, and society can and does decide through political and economic means whether they should be protected. Politically most Californians support planning efforts, and economically people choose to spend more to live in places with rigorous planning.
O'Toole seems to constantly be making this argument that expensive housing is a bad thing, and that the unregulated market should determine housing costs. But if these places, and their fascist planning regimes, are so terrible why do people want to pay so much to live there?
Biased Analysis from O'Toole
Notice also that O'Toole et al. always blame high prices on regional planning laws that preserve open space, never on suburban zoning laws that keep densities low. Both of these limit supply of housing, both have similar effects on housing price, and both are contrary to the Cato Institute's free market ideology, but O'Toole only blames the laws that are contrary to his suburban bias.
And O'Toole should get an award for flakiest statistics after making this statement:
On average, homebuyers in 2006 had to pay $130,000 more for every home sold in states with mandatory growth-management planning than they would have had to pay if home price-to-income ratios were less than 3.
This says nothing about what the price would be in those states if they didn't have growth-management planning, just what the price would be if home price-to-income ratios were less than 3.
By similar reasoning, I can prove that:
On average, homebuyers in 2006 had to pay $260,000 more for every home sold in states with mandatory growth-management planning than they would have had to pay if home price-to-income ratios were less than 1.5.
Charles Siegel
Fair point
You bring up some good points, Marcotico. I have spent a lot of time thinking about this subject so I thought I would respond.
Land regulation, local economic strength, incomes, and physical geography, as well as other factors all contribute to housing/real estate prices. Physical barriers do create restrictions in some places that are simply not present in others, as you say. But, many places that have these physical barriers have available developable land (non hillsides, wetland, etc.) that is non-developable due to regulation. I think Cervero (or someone at UC Berkeley) did a study about how many developable, non-fragile acres were left in Contra Costa County (east SF Bay area). He found a pretty significant number. So, while topography does play a role, few cities really have all reasonable development areas developed. Also, I think Rob Lang did a study about how Western metros sprawl less than Eastern metros, in general, due to these physical geographic constraints. You might find that study interesting.
In terms of why expensive housing is bad...it is a philosophical question to some degree. I think at some point it is bad because you get to the point where only the privileged few newcomers can afford to buy a house. Thus, the region gets treated "like a rental car". Few people can pay to live in some of these places like SF or LA as you are suggesting. What is happening is that we have a generation of people who live there that would not be able to buy the home they are in at today's prices. They live there based on 1970s or 1980s pricing.
The other problem created by such high for-sale housing costs is that the middle class moves to either distant suburbs or to other metro areas. One issue that presents is that you get a metro area with mostly upper and lower classes and very little middle class. This, to me describes the California coastal areas. The other issue is that you have exacerbated urban sprawl and the problems that come with it with people commuting from distant bedroom communities. This is also evident in California with people commuting from the Central Valley to the SF Bay area.
An interesting metro area to study if you are fascinated by this stuff like I am is Sacramento. Flat, lots of room to grow with some flood isuues, granted. But, look at its meteoric rise in house prices from about 1999-2005. It has taken a hit recently, but had an unbelievable run with few physcial barriers.
Let me know your thoughts.
What is a reasonable
What is a reasonable development area? Not sure why all land must be considered reasonable to develop. Is the goal to develop all land without a building on it? Streets...that land isn't developed...should we develop it?
Sure, if you plow down all the forests and place homes on them all the way up to the foothills of the surrounding mountains, housing prices might start to drop. But that would probably have something to do with the feigning desire to live in the region.
I recently moved to Seattle. Apparently all the people love the environment around here: proximity to wilderness and forests and lakes and what-not. Maybe the housing market would start to slow around here if only we bull-dozed all that environment desired by the public...that's good right?
So, should we (the collective we) desire to provide cheap spacious homes for every single person at the expense of a quality environment or attempt to provide quality environments for everyone and let people choose where they wish to live? Starting to get into repeating moral theme in planning (gentrification anyone?).
It's not about one straw man
It's not about one straw man argument versus another. It's about costs, benefits and tradeoffs. Growth management policies drive up the costs of housing (to what degree is debateable...O'Toole feels alot, others feel it has no effect...I personally lean towards the "a lot" end). So the real question is are the benefits worth the cost? Expensive housing eviscerates the middle class, drives sprawl and will lead to an unsustainable/uncompetitive economy in the long-term (which is bad for us and the environment)....those are the costs (wow, that sounds a bit dramatic). Do the benefits of growth management outweigh those costs? Could we achieve the same benefits of growth management through some other, more efficient means? Is growth management really responsible for all those costs and to what degree, if any? What are the tradeoffs we as a society are willing to accept between growth and control...and do we know the true costs and benefits needed to reach a decision?
To your last question, if the tools you use to provide a "quality environment" do so, but at the expense that only the afffluent can afford to choose to live in a "quality environment", is that worth it? Is that truly sustainable? I would say no.
It's about no straw man.
Growth management policies drive up the costs of housing (to what degree is debateable...O'Toole feels alot, others feel it has no effect...I personally lean towards the "a lot" end).
You must "lean" because you have no empirical evidence to draw upon for your argument. Please, then, don't "lean" and instead buttress your argument with calculations of estimated restrictions resulting in upward trends in Ricardian rent. Let us know what the new rents would be in, say, the Bay Area absent these restrictions (enacted purposely to restrict supply to conserve land and water). Oh, what's the new cost of engineering for the added eutrophication with the increased impervious too.
And wrt your 'are benefits worth costs' argument, now that you've provided us with new Bay Area rents, tell us how much the open space amenity adds to the hedonic value of rents and whether that justifies building on, say, hillsides in the Bay Area, and the purchased-on-the-market open space. Tell us how many more units, how much this would lower costs of all housing (bet the homeowners will love that drop in value!) - you'll provide us with new costs - and surely Cato or Heritage or CEI have run these numbers to help you out. Don't forget the added engineering costs on slopes in seismic zones (you'll provide those costs, too, we presume). So tell us how many more houses, new housing values, and what institutions will step in to prop up existing homeowners' mortgages with the resultant drop in value from loss of visual amenity.
But let us not lose sight of the root cause of the issue: human population increases. Next would be our societies' elevating to a good the doctrine of possessive individualism, which consumes lots of land. Nah. Far better to talk about how planning makes things bad for po' and reg'lur folk.
Best,
D
Sure it's not.
I purposely said lean beacause it's an opinion I have formed after reading papers such as the one's below (all by Glaser and Gyourko, favorites of mine... the bottom one's from a Canadian government entity that hired a professor to review the first paper's methods, which were found to be "robust") and seeing it in my personal life (formerly as a planner and now working on the financial side) (apologies to not being able to link to free versions of these papers).
http://www.nber.org/papers/w8835
http://www.manhattan-institute.org/html/cr_39.htm
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=658324
https://www03.cmhc-schl.gc.ca/b2c/b2c/init.do?language=en&shop=Z01EN&are...
So, what G&G call the "zoning tax" is about $600,000 per quarter acre developable lot in the Bay Area (it's something like $20,000 in Kansas) (and everyone wonders why only luxury housing gets built in expensive areas?...it's the only product that will cover these type of costs). There's your cost. Do the benefits outweight it? I doubt it. Is it truly sustainable (and for whom)? I doubt it.
Keep assuming away.
Sure it's not the same in all places.
I've read the first two papers (2nd link is a report) & I'm a fan of them as well.
Important to Glaeser's work is his (their) assertion that the reason for the large-lot zoning is the homeowners pressuring the electeds to ensure their property values don't decline, and that resulte in no affordable housing. He discusses this many times in the popular press (I'll see if I can find something out of a Boston paper about this), and this is reflected in your last link where they explicitly discuss G&G's statement:
“If policy advocates are interested in reducing housing costs, they would do well to start with zoning reform.”
Meaning NU-type development or at least more compact development, which requires community buy-in. Tough in areas in the NE that would have to be brought on sewer, and who pays?
Again, many places in CA explicitly enacted a particular type of supply constraint on purpose, as the ecosystem services are stretched to the maximum and delivering more water & clean air -- as well as Prop 13-ed services to a faster-growing population than current -- requires a hard re-ordering of society. Other places cannot be equated to CA, obviating blanket assertions, as the Wu & Cho discuss.
Best,
D
Glaeser and homeowner exclusion.
''There's no question that at the local level, the zoning boards and town planners are doing exactly what their citizens want them to do," said Glaeser, who recently moved to Weston. ''I'm not suggesting that there is anything unethical or morally wrong about what they're doing. But the region needs to find out how it's going to accommodate new housing, and it also has to realize that citizens of Lincoln or Weston, or homeowners in any community, don't have an incentive to create affordable housing."
Best,
D
Some other good quotes.
From the same article:
Glaeser said, ''the housing affordability crisis in Boston is manmade, created fundamentally by regulation."
And,
''I'm certainly not advocating the Houston solution -- I'm not advocating unfettered growth with no attention to the environment or to Boston's historic character," Glaeser said. But ''we're hurting the region, we're hurting the country, by not letting the region develop to its economic potential."
You can pretty much sum up my opinion with these two quotes (and apply them to CA of course).
Quotations and context.
Right.
In context, with the passage from the Boston Globe I provided, is that the type of development that reg'lur folk demand - the regulation that they want passed, explained in the article - is not allowing affordable housing to be built.
That is: the entire context of the article must be understood to understand the quotes you provided. Glaeser thinks th' regalayshun is needed too.
"I'm not in any sense trying to suggest that we want a developer's paradise where you can build anything, anywhere," he says. "But I sure as heck think the current situation happened by happenstance, happened by changing the legal norms, which in no sense is guaranteed to yield a socially desirable outcome." Homeowners, he points out, have a strong incentive to stop new development, both because it can be an inconvenience and also because, like any monopolist, stopping supply drives up the price of their own homes. "Lack of affordable housing isn't a problem to homeowners," Glaeser says; that's exactly what they want. "The thing you want most is to make sure that your home is not affordable if you own it. And for that reason, there's absolutely no reason to think that little suburban communities with no businesses that are run essentially by their homeowners will make the right decisions for the state as a whole, for the business in the area, for the country as a whole."
Best,
D
Context
I had a different take about the context. I felt that Glaeser was simply pointing out the effect of high housing prices through the cause of burdenssome regulation. I don't think the article indicated that he felt it was needed, just that it was there. And that or course, existing homeowners (not necessarily Glaeser himself) thought that these regulations were necessary because they drive up the value of their business. There was no moralistic judgement about NIMBYS or anything, just a statement alluding to the idea that homeowner's in suburban communities might not be making the best decisions for the rest of society (last sentence of your quote above).
I found the interesting thing to be Glaeser's solution to the problem; advocating a top-down approach whereby the state would basically force the hand of these communities to open up their towns to additional development through various mechnisms. not the approach I would advocate, but at least an attempt at a solution instead of the status quo.
Fair read of context
I certainly can see your read of the article. I thought I heard a moral judgement about individual homeowners in there, but there you go.
Anyway, this gets back to regulation, its source, why it happens and in which places, and the inherent thesis of O'Toole's argumentation (which IMHO is incorrect).
Best,
D
I hear your argument.
I hear your argument. Zoning can and does drive up housing costs. Like Charles keeps mentioning, suburban zoning artificially lowers the amount of people that would otherwise be living in an area. I think that's where these biased think-tanks drop the ball. They assign their assumption to all forms of land use control. I studied and now work in Washington under the Growth Management Act where an Urban Growth Area is mandated and each jurisdiction within the UGA is allotted an amount of growth that they must plan for in order to accommodate all growth within the UGA expected for the region. What I think we are seeing here are the suburbs with all their artificially lowered densities feeling pressure to lift some of those restrictions. However, just as our friends O'Toole and the bunch, my friends in development can only focus on the existence of the UGA which places a hard limit on the available land. But that doesn't necessarily mean it places a limit on development. There certainly aren't a shortage of cranes around here (even in the suburbs...construction cranes in the suburbs!).
Just another question for you and the research you presented: why compare a region that has only a third of the growth rate of the country as a whole (Kansas) versus a region that has a growth rate higher than that of the country (Bay area)? Seems more prudent to compare, say Kansas and Alabama (about equal growth rates) or Bay area and Seattle-Tacoma...
No reason, the low number in
No reason, the low number in Kansas was the just the first thing that popped into my head (and you're right, not the best comparison). As Contrarian Planner has pointed out above, there are areas with high growth rates (San Antonio, Dallas, Houston, Charlotte) that manage to grow (they actually have the most growth) and remain affordable. I can't remeber their "zoning tax" for those places (also remember that the "zoning tax" does include other methods of land use control). This would actually be a good point of study here, how much does each individual action (zoning vs. open space vs. growth managment vs. etc.) have on housing prices. The we could really have some fun dissecting the numbers for the costs and benefits of each one (well, maybe that would only be fun for some of us).
To your first point about the UGA. I see how it works in theory, but one can also point to examples in which it may not work in reality here in the Bay Area. Take ABAG (the Association of Bay Area Governments). ABAG forecasts growth estimates for the Bay Area and then allocates how much housing each city is supposed to produce to accomodate that growth. Also, each City is supposed to update it's general plan every X years to keep the current plan up with ABAG's estimates (I believe that's a state law as well). Well, most cities in the Bay Area don't update their general plans that frequently, nor do they always take ABAG's suggestions in account. Plus, there's no penalty for not producing the required amount of housing, so even when cities plan for it they often don't execute or allow that growth to happen. The same thing happens in MA with affordable housing. Towns like Wellesley (sp?), MA simply don't build the required amount of affordable housing mandated by the State. So the theory and reality are different. Plus, one then has to rely on top down forecasting and allocations (which are bound to be off somewhat because they are just estimates). All of the above factors work there way into prices and end up driving up the cost of housing and development. (Again, are these costs worth the benefits provided?). There's so much wiggle room in something like a UGA. You mentioned that there's no lack of development within the UGA...but what type of development is it? In the Bay Area there's also no lack of development, but it's almost all luxury, or high-end housing, because with such a high "zoning tax" the only thing that will pencil out from a financial standpoint is high-end product. I will tell you from my financial experience that building housing the for middle class is nearly economically impossible here (especially for the risk undertaken). So something like a UGA may allow for lots of development, but it could skew the type. I honestly can't speak for the Washington UGA, and as Dano has pointed out, and I know, that everyplace is different (which is why I use primarily Bay Area examples as I am familiar with similiar programs here and think they might be similiar enough to use as a comparison). Plus, again, all the UGBs, zoning, and other "regylations" have benefits as well, but I always ask myself if they are worth it.
NIMBYs Opposing Development
"one can also point to examples in which it may not work in reality here in the Bay Area."
I have fought many battles against NIMBYs who oppose infill development, so I know exactly what you mean.
But note that there are even worse political obstacles to development on open space. Infill is opposed by NIMBYs and supported by environmentalists. Development on open space is opposed by both NIMBYs and environmentalists.
So, if we want to pass more effective state laws to reduce the housing shortage in the Bay Area, we are more likely to pass laws requiring infill than laws requiring development of open space.
If pro-development conservatives would join with environmentalists in supporting infill development, we could get stronger laws through the legislature.
Charles Siegel
Bay Area open space.
Development on open space is opposed by both NIMBYs and environmentalists.
Much of the open space in the Bay Area has been purchased to retire development rights, so it can't be built upon anyway.
And, as I'm sure you know Charles, many organizations exist to raise money to purchase much more threatened open space throughout the Bay Area.
Best,
D
haha. Just getting in a jab
haha. Just getting in a jab where I could with those stats.
That would be an interesting analysis, but isn't calculation for housing prices already really complex? Trying to throw in more variables sounds like it would start to muck up the results.
Ya, ABAG doesn't have much teeth...nor does the Puget Sound Regional Council (PSRC). Unfortunately, these regional governments never get much power. As you mentioned, there isn't any manner of enforcing that each jurisdiction meets its alloted growth numbers. But, the WA Growth Management Act mandates that jurisdictions have their plans and are updated regularly accommodating their fair share of the projected growth. Certainly there will be a disconnect between plans and reality...but hell, Bellevue (WA), a car oriented bed room community is actually planning for a dense neighborhood around streetcar stations. They will probably bellevue-ize it, meaning there will probably be multiple huge 6-lane roads in there, but what the heck...at least there is some manner of change.
And you are correct, luxury condos have been most of the construction for awhile now...but how many rich folk are out there? These developers are going to get slapped in the face when they realize there brand spankin' new condo building can't sell the last 25% of their units. We will see a turn around in that phenomenon soon, the rental market is itching for some new units (there's even new rental construction underway now in my neighborhood...imagine that, a new apartment building!).
Just as you always ask yourself if regulations are worth it, I always ask myself when people talk about affordability if they are talking strictly about a 4-bedroom house with 3 car ports and all sorts of goodies or if they include a quaint townhome (or even condo) in those discussions as well. Maybe condos in central neighborhoods are just for the ever rarer urban resident such as myself (just bought a condo...and I am far from rich and not so poor, which puts me somewhere in that elusive middle class).
Cheers.
Wes
Two Ways of Lifting Growth Restriction
As I have said before, there are two types of growth restrictions that have similar effects on housing prices: protection of open space (which conservatives always criticize) and suburban density limits (which conservatives always ignore).
That means we can reduce growth restrictions in two ways: allow more development on open space (= dumb growth) or allow higher density development near transit stations (= smart growth).
Smart growth has similar benefits in terms of making housing more affordable, but it obviously has less environmental cost.
So why don't Cato, O'Toole, Kotkin, and other conservatives criticize low-density suburban zoning - which is also a form of "growth management"?
Charles Siegel
Ideology? I'm definitely
Ideology? I'm definitely with you on protecting open space (depending on the financing mechanism of course) and I'm actually for lifting typical sprawl zoning. They definitely aren't mutually exclusive, but I can only speculate as to the reason the authors you cited above focus on one and not the other (well, it's most likely ideology, but maybe they really don't think the zoning portion of the equation has as much of an impact...I don't know)?
There are other reasons
Some people are from there. Some people have good jobs there. Some people are so rich they can live anywhere they want irregardless of cost. Some people like the political atmosphere. There are many reasons besides costs and economics alone that people want to live in CA or the East coast versus TX or AZ. For a Californian like myself I increasing have no choice but to pay up if I want to live near my family. So yeah, people "choose" to pay higher prices to live here, but in reality, I have no other choice if my non-economic decisions outweigh my purely economic ones (I can lower the costs by buying a smaller house or in a less desireable neighborhood or buying farther afield, but I still pay more than I otherwise would have to), the cost was more or less foisted upon me. So I really have to wonder about your statement that people choose to spend more and live in places with rigorous planning... is it really the rigorous planning that people are choosing or is it for other reasons and they have to contend with rigorous planning as the price of admission?
Plus, if you're over 50 and have owned property in CA, who wouldn't love something that has driven the value of your investment through the roof?
I don't think the data
I don't think the data proves that (suburban) growth restrictions lead to high housing prices, but there is pretty good evidence that growth restrictions could be a factor in the cost of housing. I think there are a lot of other factors that weigh pretty importantly as well, e.g. regional income and income distribution, geographic constraints, quality of life factors, etc.
Even if you could prove that growth management laws were the primary cause of high housing prices, I don't think that would change the way most residents of the regions and states with those laws feel about them. If being able to afford a 3,000 s.f. home on a 1/2 acre lot is more important to you than preserving the land, having access to public open space, and other quality of life issues, there are plenty of cheaper places to live outside of New York and California.
The evidence is on opposition to Cato's "analysis".
I don't think the data proves that (suburban) growth restrictions lead to high housing prices, but there is pretty good evidence that growth restrictions could be a factor in the cost of housing.
The data are in opposition to "O'Toole's" conclusions. This is well-known.
Best,
D
Biased Tripe
Gee, who would think that the Cato Institute would come to these conclusions? Never in a million years. This is what happens when you have a group that has a desired answer and then researches backwards, grasping at straws (in this case obviously flawed methodology) to make their point. Places that don't implement any sort of growth management strategy, in large part, don't have any growth and therefore are not surprisingly affordable...if you have a job. In Canton, Ohio you can buy a house $10,000. But who in the world is moving to Canton, Ohio these days? No one, there is no economy. Many people are willing to pay a premium to be in a place with a stable, if not advancing economy, and that has amenities such as a quality urban life (Boston), or easy access to nature (Portland). Growth management may be a factor in their expense, but it is not a cause. The cause is the self-determination of these places to be a certainly quality and not just wall to wall desolate suburbs. Good work Cato!
Pot, meet Kettle
You have some poorly researched, thus flawed conclusions. Have you ever heard of Houston, Atlanta, Dallas-Ft. Worth, San Antonio, Charlotte?
"Places that don't implement any sort of growth management strategy, in large part, don't have any growth and therefore are not surprisingly affordable"
You really need to rethink that statement and provide some evidence. See the list of metros above. Some of the fastest growing areas are the "most afforable" per the Housing Opportunity Index when incomes are considered.
On top of that, some of the slowest growing areas (in percentage population terms) are most expensive- San Jose, LA, Boston, Chicago. Yes, they are established and were once boomtowns, but not anymore.
The only thing you have accomplished is giving us your biased tripe in response to O'Toole's biased tripe. Housing prices have many determinants and are too nuanced - too much so to boil down to "O'Toole is biased and land regulation has no impact". I hope you can look past your own biases, regardless of anyone else's and try to understand what effect growth management might have as opposed to dismissing it immediately because it came from Cato.
True, but those places have
True, but those places have a form of land use control as well...
controlling growth makes housing more expensive
By all means, let's revoke any and all controls on growth in order to have cheap housing while our society crumbles and our environment is ruined because that would be a better ordering of priorities.
www.controlgrowth.ning.com
Missing the big error
O'Toole says: "Growth-management tools such as urban-growth boundaries, adequate-public-facilities ordinances, and growth limits all drive up the cost of housing by artificially restricting the amount of land available or the number of permits granted for home construction."
The proper rejoinder is; "Growth-management tools such as urban-growth boundaries, adequate-public-facilities ordinances, and growth limits all drive up the cost of housing by protecting the value of the existing housing stock. "
The increased certainty of ongoing property protections from encroachment has value for which people are willing to pay.
Another rejoinder
O'Toole says: "Growth-management tools such as urban-growth boundaries, adequate-public-facilities ordinances, and growth limits all drive up the cost of housing by artificially restricting the amount of land available or the number of permits granted for home construction."
-and/or-
"...drive up the cost housing by properly internalizing the full costs and secondary impacts of housing and its attendant infrastructure."
Well...
"...drive up the cost housing by properly internalizing the full costs and secondary impacts of housing and its attendant infrastructure."
But for whom? Even if I agreed to your statement (which I don't, well to some degree I do), who is actually paying for this and who is benefitting? Existing homeonwers don't have to pay diddly for the benefits of the regulations (in reality, the greater the cost of the regulations the greater the benefit to the existing homeowners in terms of asset appreciation). The entire cost is pushed onto new homeowners (even if they buy older homes at the inflated prices), who generally happen to be younger and poorer. So now, in effect, we have both regressive and double taxation (regressive because the burden is shared diproportionally by the worse off and double because new homeowners have to pay for their internalized costs plus the interalized costs of the existing homeowners). Is that equitable and good for the society as a whole?
well said
This is precisely one of the many problems with these policies. The other problem is that they really don't solve many of the problems they intend to, but rather just relocate them. Infrastructure costs should be charged according to use, in my opinion. External environmental costs can sometimes be charged to users and to the extent they can't be, they should be borne by society at large, not by new homebuyers.