San Jose is one of the greatest urban planning disasters in the country. As the heart of Silicon Valley, the region’s economy should be booming. Instead, growth was extremely slow in the 1990s–less than 0.7 percent per year–and the 2001 recession caused it to lose 17 percent of its jobs.
San Jose was probably the fastest-growing region in the country in the 1950s and 1960s, gaining 40,000 people per year. But in 1974 a new city council decided to “save” San Jose from becoming like Los Angeles, which they thought was a sprawling, low-density region with too many freeways. So they drew an urban-growth boundary around San Jose, thus “saving” thousands of acres of marginal pasturelands from development. But the results turned out to be a disaster.
The region’s leaders also decided to focus on rail transit instead of highways. Regional plans projected that spending 80 percent of the region’s transportation funds on transit would increase transit’s share of travel from 1 percent to a whopping 2 percent. But this, too, turned out to be a disaster.
Initially, transit ridership did grow in fits and starts, though it actually grew faster before rail construction began. The region encouraged developers to build high-density developments along the rail lines, but the main encouragement came from the rigid urban-growth boundary that dramatically increased land prices.
In 1969, before this planning began, San Jose housing was no more expensive than anywhere else in the country. A median home cost a little more than twice median family income, which was about the national average. By 1979, a median home was four times median income, which meant few families could afford to buy a home. By 1989, it was more than five times median income, and in 2005 it had increased to 7.5 times median income.
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Ironically, planners never realized (or at least never told the public) that in trying to save San Jose from becoming like Los Angeles, they were turning San Jose into Los Angeles. L.A. is the densest urban area in the U.S. and has the fewest miles of freeway per capita of any major U.S. urban area. Between 1970 and 2000, San Jose nearly doubled its population density, making it the third densest urban area after Los Angeles and San Francisco.
Meanwhile, rail transit proved spectacularly unsuccessful. As my rail transit spreadsheet shows, between 1984 (which is about when rail construction began) and 2004, San Jose driving increased by 45 percent, while total transit ridership increased by just 2 percent. Actually, transit was doing a little better (though not growing as fast as driving) until 2001, when the high costs of rail construction forced San Jose’s transit agency to make drastic service cuts, which caused it to lose a third of its transit riders. Meanwhile the Texas Transportation Institute says that the cost of congestion tripled in the past twenty years.
Unaffordable housing and congestion have led to a migration of jobs away from San Jose. Between 2001 and 2004, office vacancies increased from 3 percent to 30 percent, and many of those jobs are not coming back.
On November 10-12, 2007, the American Dream Coalition will hold the fifth annual Preserving the American Dream conference in San Jose. The conference theme will be “Recovering from Smart Growth,” and many of the 40 or so speakers will suggest ways that cities like San Jose can deregulate land uses and increase mobility. Following tradition, we will spend the first day on a bus tour of the San Jose area and the first evening will include several San Jose leaders debating the region’s future.
I hope to see you there.
“As the heart of Silicon Valley, the region’s economy should be booming. Instead, growth was extremely slow in the 1990s–less than 0.7 percent per year–and the 2001 recession caused it to lose 17 percent of its jobs.â€Â
THIS IS TO BE EXPECED SINCE MOST OF THE EMPLOYMENT WAS TECHNOLOGY, AS WITH THE REST OF SILICON VALLEY AND OTHER TECH-CENTRIC AREAS (DOT-COM BUST). WHERE DOES THE .7% NUMBER COME FROM, AND HOW DOES THIS COMPARE WITH OTHER CITIES?
“but the main encouragement came from the rigid urban-growth boundary that dramatically increased land prices.â€Â
DID THE POPULATION GROWTH FROM 459,913 PEOPLE IN 1970 TO 941,116 PEOPLE IN 2005 HAVE ANYTHING TO DO WITH THE INCREASE IN LAND PRICES, AS WELL AS WITH THE INCREASE IN POPULATION THROUGHOUT THE BAY AREA? I’M NOT ARGUING THAT PRICES WON’T INCREASE WITH UGB’S, BUT I THINK PRESENTING ONLY SOME OF THE VARIABLES INSTEAD OF ALL (OR AT LEAST NOTING OTHER INFLUENCES) IS A LITTLE MISLEADING.
“In 1969, before this planning began, San Jose housing was no more expensive than anywhere else in the country. A median home cost a little more than twice median family income, which was about the national average. By 1979, a median home was four times median income, which meant few families could afford to buy a home.”
IT SHOULD BE NOTED THAT THIS WAS ALSO AT AT THE CONCLUSION OF THE TIME OF GREATEST POPULATION GROWTH IN SAN JOSE (http://www.sanjoseca.gov/planning/data/population/)
Between 1970 and 2000, San Jose nearly doubled its population density, making it the third densest urban area after Los Angeles and San Francisco. (SO UGB’S HELPED TO REDISTRIBUTE PEOPLE INTO A MORE DENSE ENVIRONMENT?)
Between 2001 and 2004, office vacancies increased from 3 percent to 30 percent, and many of those jobs are not coming back. (ALSO INCIDENTALLY THE TIME OF THE DOT-COM BUST)
“where does the 0.7% come from?” — 1990 and 2000 census data. By comparison, many urban areas grew by 2 percent per year in the 1990s and Las Vegas grew by nearly 6 percent per year. In the 1950s, San Jose urban area grew by 13 percent per year. So 0.7 percent is pitiful for what was supposed to be the biggest boom town in the nation.
“Did population growth increase land prices” — I address this question in detail in The Planning Penalty. San Jose grew far more rapidly in the 1950s and 1960s than later, yet remained affordable. Houston, Atlanta, Raleigh, and other fast-growth cities in the 1990s remained affordable. The cities that were or became unaffordable had strict land-use regulation. Many other economists, including Harvard Professor Edward Glaeser, have reached the same conclusion.
“It was also at the conclusion of the greatest population growth” — Yes, that is my point: the UGB led to the CONCLUSION of population growth because it made housing unaffordable.
“So UGBs help make cities denser?” — San Jose’s did. But that is not a good thing if it means an ordinary house now costs $750,000 or more.
“The dot-com bust” — If San Jose were affordable, other industries could move in to replace busted companies. But who wants to open an office or factory in a city where you have to pay people $150,000 a year just so they can afford to buy a mediocre home? Today, jobs are moving to places like Omaha and Kansas City, which are still affordable because they haven’t passed all kinds of land-use laws.
I would argue that one of the reasons for high housing prices in Santa Clara County is that the nature of the “Silicon Valley” economy put an awful lot of extremely cash-rich people chasing that limited amount of housing. Prices would not be as high without the whole technology boom – for instance if the economic base was a more prosaic industry, or one which didn’t give a lot of employees stock options that ended up being worth millions.
I think the key mistake San Jose may have made was not setting an urban growth boundary, but then not providing for the housing opportunities in terms of infill development and redevelopment. That’s a problem the Portland metro area is trying to address thorugh the mandatory 20-year housing supply requirement (bitterly hated by slow-growth and no-growthers in Portland).
And, just out of curiosity, why are Seattle’s housing prices higher than Portland’s, when the Seattle Metro Area didn’t even adopt urban growth boundaries until the late 1990’s (and those prices were higher well before then)?
Urban Planning Overlord:
In most urban areas around the country, the median home costs a little more than twice median family incomes. In cities with very little land-use regulation, such as Houston, it can cost even less than twice median family incomes. But in San Jose, the median home costs more than 7.5 times median family incomes.
Homebuilders don’t build homes for the richest people. They build homes for everyone. While San Jose home prices should be a little higher than elsewhere because incomes there are higher, they should not be nine times higher than Houston.
Portland’s infill development program does not make up for a land shortage or an onerous permitting process. If you have visited San Jose lately, you will see they have a tremendous amount of infill. One difference between Portland and San Jose is that the former suffered a huge recession in the early 1980s. Portland and San Jose housing markets were both affordable in 1969, both lost affordability in the 1970s, but Portland’s affordability recovered (since its economy bombed) in the 1980s. San Jose has suffered recessions too, but nothing like the one Portland had in the early 1980s.
Seattle prices are high because the region, especially King County, has strict land-use regulation that dates back to the 1970s. That regulation may not have used an urban-growth boundary, but as detailed in my report, The Planning Penalty, there are many other ways to regulate land that drive up housing prices. Housing markets in eastern Washington, which are much less regulated, remain fairly affordable even though some of those cities are growing as fast or faster than Seattle.
Your posts and responses regarding the inadvisability of URGs and other larger-scale land-use regulatory policies raises the question: Do you think that there are built-in political & economic incentives
that encourage local jurisdictions to engage in fiscallly-motivated zoning/land-use controls? In other words, can we really blame local governments for doing what they are doing, given the realities of homeowner demands (Fischel would term these “home voters”), fiscal realities, interjurisdictional competition, etc.? How do we encourage land use policies more in keeping with free market principles if such policies might “hang out to dry”
local governments?
Oh, look: you’re wrong. Politicians step in and ruin plans far more often than bad plans are made. Practicing planners know this.
Houston has low housing prices because few with money live there to bid up the copious amenities there: the lovely weather, the forests, the terrain, the silky sand beaches, all the knowledge spillovers like the Silicon Valley, etc.
As you well know but don’t tell Reason’s readership, amenities such as climate, things to do, smart people (knowledge workers), well-paying jobs, etc. are factors that bid up land rents. The literature is tepid on whether UGBs contribute the majority of land rent increases, and you know it.
DS
Wow. These are scary:
“there is nothing inherent about sprawl that is any more or less environmentally friendly than cities.â€Â
I read his polemic. It is almost totally wrong and poor Bob didn’t bother to transfer the information he gained from the environmental health people to the pages of his book.
Why should government planners get to dictate whether someone gets to build a house on their own land? Why should governments try to force people to live in compact cities? There are no good answers to these questions,
Sure there are. They’re called ‘externalities’, and people ask planners to minimize them. Oh, and to provision public goods, which the Free Market (TM) doesn’t provision well. But you knew that, because your house, sited adjacent to open space, is more valuable. There’s a wide hedonic literature on it.
DS
Buckeye asks, ” Do you think that there are built-in political & economic incentives
that encourage local jurisdictions to engage in fiscallly-motivated zoning/land-use controls?”
That’s a good question. Zoning began as a way for neighborhoods to protect themselves from intrusions from lower-valued uses. For example, someone who built an apartment in a neighborhood of fine, single-family homes could charge a premium to renters, but could bring down the value of the rest of the homes. In the 1926 Euclid decision, the Supreme Court specifically cited this possibility as a justification for zoning.
As you accurately relate, zoning now goes much further. Today, people don’t just use zoning to try to control what happens in their neighborhoods but in other neighborhoods, neighborhoods across town, neighborhoods outside of town, and greenfields well outside of town.
But planners can’t say that this isn’t their fault. The Oregon planning process, designed by planners, explicitly gives every Oregonian the right to challenge any land-use decision made anywhere in Oregon. (All they have to do is argue that they sometimes visit and enjoy, say, the visual quality of the area under dispute and they have standing to challenge.) This not only slows down development, it creates at least an attitude an entitlement: I am entitled to have your land remain undeveloped simply because I like the looks of it, no matter how much it costs you.
This is why I prefer protective covenants. They help neighborhoods protect themselves the same as early zoning but they do not create any sense of entitlements to anything beyond the neighborhood boundaries.
Dan,
“Politicians step in and ruin plans far more often than bad plans are made.” Politics are a part of planning. Any planners who think otherwise are deluding themselves.
“Houston has low housing prices because few with money live there to bid up the copious amenities there.” The median family in Houston can buy a median house for only a little more than twice their annual income. In San Jose, the median family has to pay well over seven times their annual income to buy a median home. Income has nothing to do with it.
“The literature is tepid on whether UGBs contribute the majority of land rent increases.” UGBs are only one form of growth management. There is plenty of literature, including papers by Glaeser, Kahn, and others, showing that land-use regulation of various sorts is the main cause of high housing prices.
“Bob didn’t bother to transfer the information he gained from the environmental health people.” You mean their junk science? I am going to address this more in a future post, but so far the environmental health people have only proven that they are willing to twist data until it screams in order to get it to conform to their preconceived notions.
As just one example, a paper that claimed that suburbs cause obesity found that people living in the lowest density county in America would weigh 2.5 pounds more than people living in San Francisco, America’s second-densest city. That is not enough to get excited about and almost certainly not statistically significant.
It also ignores the possibility that overweight people choose to live in the suburbs, not that suburbs cause obesity, a possibility explored in this paper which concludes that the “current interest in changing the built environment to counter the rise in obesity is misguided.”
Politics are a part of planning. Any planners who think otherwise are deluding themselves.
And the sun rose in the east, news at 11.
All planners know politicians may change the plans. You rail against plans (unspecified, of course) that likely have been compromised by politicians, yet you want your agenda to go forward and blame it on planners (planners who restrict your Free Market (TM).
There is plenty of literature, including papers by Glaeser, Kahn, and others, showing that land-use regulation of various sorts is the main cause of high housing prices.
And as Glaeser is fond of pointing out, it is the homeowners themselves in the NE who wish to protect their property values and coerce politicians into making LU regs as protective zoning.
The median family in Houston can buy a median house for only a little more than twice their annual income. In San Jose, the median family has to pay well over seven times their annual income to buy a median home. Income has nothing to do with it.
Sure it does. Amenities bid up rents which raises equilibrium, which raises rents further. It is the presence of amenities that raise the land rent (Ricardian rent, esp). The weather in Houston s*cks. The weather in San Jose is wonderful. The knowledge spillovers from Stanford and Silicon Valley are exponentially greater in SJC than HOU, git er done. How long does it take to drive to the mountains from HOU? To Napa? To LA/SAN? What is the density of cultural amenities in HOU compared to SJC?
It also ignores the possibility that overweight people choose to live in the suburbs, not that suburbs cause obesity, a possibility explored in this paper
I like Matt Turner. And you misstate their conclusion.
The micro literature finds that the Tiebout sorting for lower land rents and schooling causes an increase in commute time, which agents choose to make up for by decreasing physical activity, see esp. the Plantinga and Bernell ref’d in the Eid et al. you linked.
Built environments are said to be enabling or disabling to physical activity, which is a causal factor in obesity.
Lastly,
As just one example, a paper that claimed that suburbs cause obesity found that people living in the lowest density county in America would weigh 2.5 pounds more than people living in San Francisco, America’s second-densest city. That is not enough to get excited about and almost certainly not statistically significant.
No. Not acceptable.
Reference please, so we can see for ourselves whether the authors tested for significance, not whether you say it is. Thank you in advance.
DS
Dan,
“it is the homeowners themselves in the NE who wish to protect their property values.” Homeowners in the NE are no different from homeowners in Houston. The difference is that in the NE (and West Coast and elsewhere) planners have created a process that allows people to interfere with other people’s property rights. Houston has not.
Planners argue that planning is “rational” and that it can look at the long run. But no one believes that politics is particularly rational (at least, not when viewed from the outside) or that it can look at the long run (at least, not beyond the next election). So as a political process planning cannot be rational. Instead, it merely creates opportuities for special interests to manipulate the process for their benefit. That’s why planning doesn’t work.
“The weather in Houston s*cks. The weather in San Jose is wonderful.” Between 1990 and 2000, the Houston urbanized area grew by nearly a million people or 2.8 percent per year. San Jose grew by about 100,000 people or 0.7 percent per year. Since 2000 Houston growth has been faster and San Jose slower. Yet Houston has been able to grow without becoming unaffordable. The climate is unimportant. What is important is that San Jose has limited home construction and driven up prices. Intentionally or not, this has limited growth.
I’ll address the obesity issue in a future post.
The difference is that in the NE (and West Coast and elsewhere) planners have created a process that allows people to interfere with other people’s property rights.
No.
This is true only if you ignore the fact that, in the above italicized areas, zoning has protected the majority’s property rights.
Wealthy aggrieved homeowners whose property values were suffering from neighboring nuisances created the process to protect their property rights. Read LU case law.
Second, your second para in 11 is hopelessly conflated and logically confused, and is practically unreadable due to its logical confusion.
Lastly, your last paragraph’s argumentation, if true, has completely overturned the micro- and urban economics literature.
Congratulations on your accomplishment – you have shown, here, that locational choice by Tiebout sorting is not driven by climate, amenity provision, presence of public goods or knowledge spillovers, and resultant equilibrium prices are unaffected by Ricardian rents being bid up to obtain amenities or goods, this this knowledge after today is obsolete: [ 1. , 2. , 3. , 4. , 5. , 6. , 7. ]. I knew I read this blog for a reason.
DS
“But no one believes that politics is particularly rational (at least, not when viewed from the outside) or that it can look at the long run (at least, not beyond the next election). So as a political process planning cannot be rational.â€Â
So if I gather your argument correctly:
1. Politics is not rational
2. Planning is a political
3. Therefore, planning is not rational
Are you sure of your two premises? I’m not convinced of either, feel free to elaborate.
Also look at the people the vote these politicians into power, that ain’t rational, even our so called free market is very political. Just look at China, who would have thought that communism would be so profitable?
Take care, Andrew