The Economist reports that housing in China is “cheaper than you think.” The magazine-that-calls-itself-a-newspaper’s measure of affordability is the average price of a 100-square-meter (1,076-square-foot) home divided by average household income.
Older mid-rise homes in Shanghai are torn down and replaced with high rises. Flickr photo by Paolo Vasta.
In megacities such as Beijing and Shanghai, such a house costs nearly 15 times the average incomes of those cities. Not to worry, says the Economist: in medium and small cities, housing is only about 8 times average incomes. As of November, the national average is 8.9 times.
The Oregon Office of Economic Analysis recently published a four-part economic assessment of the “Portland housing bubble.” Written by an economist named Josh Lehner, the assessment looks at a lot of data but misses the elephant in the room, which is how land-use regulation has affected Portland housing.
Housing prices have risen to pre-financial-crisis levels, says Lehner, and Portland’s rental market has an inordinately low vacancy rate. New construction of both single- and multi-family homes is mostly at the high end. Lehner looks at these facts with alarm, but it never occurs to him that there is a simple remedy: end all of the land-use restrictions.
Land-use regulation not only makes housing more expensive, it makes housing prices more volatile, that is, more prone to bubbles. This is because, when supply is limited, a small increase in demand translates to a large increase in price rather than an increase in supply. Conversely, a small decrease in demand translates into a large decrease in price.
As the Antiplanner noted yesterday, the Washington Post has observed that unaffordable housing markets tend to be in liberal metropolitan areas while conservative metropolitan areas tend to be affordable. This is based on a comparison by Trulia economist Jed Kolko of housing prices (in dollars per square foot) vs. voting for Obama or Romney in the 2012 election.
Note that not all liberal metropolitan areas are expensive while not all inexpensive markets are conservative. But nearly all expensive markets are liberal and nearly all conservative markets are inexpensive. (The one exception, Orange County, California, is partly land-locked by other, more liberal communities.)
New Zealand economist Mish Shedlock asks if this is merely a correlation or does one factor cause the other? His weak conclusion is that “Union work rules, land availability, and building restrictions (or lack thereof) are all likely in play.” In fact, there is plenty of land available in all of the expensive regions; it is just rendered off limits to development by state or local land-use rules.
Unless you live in a neighborhood or town that has a perfect balance of all racial minorities, you are a racist. At least, that’s the view of the Department of Housing and Urban Development and of the plaintiffs in a new lawsuit against the Twin Cities Metropolitan Council. According to the cities of Brooklyn Center and Brooklyn Park, which have a lot of low-income minorities, the Met Council’s housing plans perpetuate segregation by assigning more low-income housing to the plaintiff cities and not enough to wealthier suburbs such as Edina and Mendota Heights.
The notion that every suburb should have a perfect balance of minorities and those that don’t are de facto racist is absurd. Different people have different needs, and the things that low-income people need–access to public transport, social services, and family support–are not the same as the things that moderate- to high-income people need.
The solution of advocates of “affirmatively furthering fair housing” is to require that cities with racial imbalances build new, high-density housing and require the developers of that housing to set aside a share of those homes for low-income families. But, even if that were a good idea, that wouldn’t solve the problem that low-income people would rather live in areas where they can get the support they need than in wealthy suburbs.
Paul Krugman argues that housing costs, not taxes, are what is drawing people to Georgia and Texas and away from California and New York. He’s partly right, but he’s mostly wrong.
What he fails to see is that the same impulse that attempts to control land uses in California, making housing expensive, also makes unduly regulates California businesses and boosts taxes to make California undesirable. The same impulse the attempts to control rents in New York City also leads to nanny-state rules and excessive bureaucracy that makes that city undesirable to many businesses.
Contrary to what Krugman says, housing prices in California and New York are high not because they’ve run out of land. California especially has plenty of land available while a good share of the New York and Connecticut counties bordering New York City are rural open space. Nor are prices high because cities won’t allow higher densities: if California cities didn’t have urban-growth boundaries, few people would want to live in higher densities.
The sad events in Ferguson, Missouri are being used by urban planning advocates to popularize their latest cause: suburban poverty. Ferguson is “emblematic of growing suburban poverty,” says the Brookings Institution. “Hit by poverty,” says CBS News, “Ferguson reflects the new suburbs.” According to a Brookings info graphic, between 2000 and 2011 the numbers of central city poor grew by 29 percent while the numbers of suburban poor grew by 64 percent.
There was a time that the suburbs were demonized because only middle-class and wealthy people lived there, leaving poor people in the inner cities. Now that lower-income people are living in the suburbs, the suburbs are being demonized for having “concentrated poverty,” with a distinct implication that wealthy whites have moved back to the cities leaving the undesirable suburbs to the poor and minorities.
The reality is that all demographic classes–all ages, races, and income levels–are growing faster in the suburbs than the cities. The suburbs offer less congestion, lower-cost housing, and often better schools and other benefits over the cities. Instead of turning the movement of low-income people to the suburbs into some kind of crisis, this movement should be celebrated as a success.
Ever since the British parliament passed the Town & Country Planning Act in 1947, housing in that nation has gotten less and less affordable. As a result, the average size of new homes today is only 925 square feet, down 44 percent from the average size in 1920. Meanwhile, the average size of new home in the United States in 2013 was 2,598 square feet, up 56 percent from 1,660 square feet forty years before.
Eric Pickles, Britain’s community secretary, blames the problem on “Labour policy, which decreed that at least 30 homes had to be built on every hectare of land” (about 12 per acre). But we know the problems go back well before the previous government, and the Tories had plenty of chances to reverse the policies in the Town & Country Planning Act.
Although the Daily Mail published this article just a few days ago, it is based on reports from the Royal Institute of British Architects (RIBA) that go back to at least 2011. RIBA has started a campaign aimed at having the government set minimum requirements for space and light in new homes.
An article in the Financial Times points out that about $10 trillion worth of wealth in the United States is phony, created by restrictive land-use laws that have pushed up the price of housing. Unfortunately, the article is behind a paywall, so most people won’t see it, but the author, Robin Harding, makes several good points.
First, these planning laws contribute to income inequality by making people who already own homes richer while making those who don’t poorer. Harding misses the nuance that, in cities like Portland that have subsidized multifamily housing, renters aren’t as ripped off as they are in the Bay Area, where NIMBY planning has limited all kinds of housing. But it remains true, even in Portland, that the land-use restrictions contribute to an income divide.
“Wealth of this kind is far more destructive than the alleged sins of the top 1 per cent,” says Harding. “It is wealth created not by improving our living standards but by making them worse.” Thanks to planning restrictions, the average size of home in Britain today is not only less than half the size of an American home, it is far smaller than the average before passage of the Town & Country Planning Act of 1947. This is the law that so many planners want to emulate in America.
Those who want to reduce income inequality by taxing the rich, concludes Harding, should take another tack. “If we want to make society fairer and more equal, just let people build.”
University of Minnesota planning professor Richard Bolan has responded to the Antiplanner’s critique of the Twin Cities’ Metropolitan Council’s plan to emphasize high-density housing and discourage large-lot single-family homes. My op ed pointed out that planner Arthur Nelson’s predictions that the demand for single-family homes was declining were based on oversimplified surveys that asked people questions like would they want to live in a “walkable community.”
A lot more factors are at work in people’s housing choices. “Given a choice between a 1,400-square-foot home on a tiny lot in a congested part of town for $375,000 and a 2,400-square-foot home on a large lot in a quiet suburb for $295,000,” my op ed said, “most people would prefer the larger home.” My point was the issues were too complicated for planners to be able to see what people would want 26 years in the future, and since homebuilders can adequately respond to changes in demand, there was no need for central planners to try to predict the unpredictable.
Bolan admits that he’s “not a supporter of Arthur C. Nelson’s report” on future housing demand. But Professor Bolan has his own reasons why central planners should try to determine people’s housing choices in the future: externalities.
Here are some thoughts for your consideration this weekend.
1. Orange County Register: It’s time for Congress to get out of the transportation business.
2. Huffington Post: Five reasons not to raise the gas tax.
3. Minneapolis Star Tribune: Twin Cities housing report not credible.
Have a safe and happy weekend.