NewGeography.com blogs

The opposition Liberal-National Coalition, locked in a close battle with the ruling Labor Party in Australia's Saturday elections, has adopted a housing policy to improve the nation's housing affordability. The policy would require states to monitor housing affordability and to release more land for development. There would also be a review of the efficacy of development charges.

Australia suffers from some of the most unaffordable housing in the world, with a Median Multiple (median house price divided by median household income) of 6.8, which is more than double the historic norm of 3.0. With recent interest rate increases, the median household would have to pay more than 50% of its gross income to service a mortgage on the median priced house. Little more than 15 years ago, house prices were affordable in Australia, which had seen home ownership rise from approximately 40% before World War II to approximately 70%. The principal cause of the loss of housing affordability has been the virtual universal adoption of "smart growth" ("urban consolidation") land use restrictions, which have (among other things) made it virtually impossible to develop inexpensive housing on the urban fringes, with the price of rationed land driven up many times.

The Coalition's housing policy includes the following provisions that are directly related to removing the urban consolidation barriers to affordable housing:

In order to continue to receive federal funds, States and Territories will need to increase land supply and reform their planning and approval systems under the National Affordable Housing Agreement (NAHA).
States and Territories will need to set affordability targets to guide land releases and dwelling approvals. In order to receive federal funds States and Territories would need to demonstrate that they had a plan for delivering these targets and those approvals and land releases occurred consistent with the targets established.
The Coalition will review of State, Territory and local developer charges, which have been contributing an increasing component to the cost of development. State and local governments that build higher charges into the cost of housing will be less able to meet their home affordability obligations under the Compact.

Housing affordability has been an issue of substantial concern in Australia for years and has emerged as the top concern among voters in this election. State governments have talked about housing affordability, but have done little. Over the past five years, house prices have continued to rise relative to incomes. Just in the last nine months, a mortgage payment on the median priced house has risen from $500 in Adelaide to more than $800 in Sydney.

The Coalition policy, however, represents the second significant development in recent weeks (Note). The first was an expansion of the Melbourne urban growth boundary by 440 square kilometers. All of this may signal an overdue attention to housing affordability in Australia.

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Note: Performance Urban Planning statement on the Coalition housing policy.

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Photograph: Adelaide: Urban fringe land (no houses allowed). Photograph by author

Get a glass of wine. Then click on this link, which plays a video called Community Growth, created in 1959.

Once you've seen the video, read on…

You're probably sitting with a puzzled look – 1959? Aren’t these the exact same issues that are plaguing us today? Don’t those 1959 developments look like many of today’s latest developments? Even the way they bulldozed through the land and stick-built the homes looks just like the methods used today!

When I was 7 year old, my mother bought a new white 1959 Chevrolet Impala convertible with a red vinyl interior. This was one of the best designs with those wonderful curved wing-like fins and oblong tail lights. I remember sitting in the front when my mother slammed on the brakes as a child ran in front of the car. Since they did not have seat belts back then, my head flew into the steel dashboard (your probably thinking; ah ha! so that’s why he writes for New Geography). That beautiful Chevy was a coffin in a crash, as witnessed by the following video showing 50 years of safety advances between the 1959 Chevy vs. 2009 Chevy.

Back then, a 1959 Chevy with 50,000 miles on it was on its last legs, just about broken down, whereas today, a 2009 Chevy with 50,000 miles would be considered just about broken in.

If a 1959 land development subdivision layout were to crash into (OK, be overlayed upon) a 2009 land development subdivision layout there would be little difference.

We have written about this in the past, but it bears repeating: Designers look to the ordinances for guidance, and these regulations have been stagnant for about 5 decades (1959. Developers hire designers assuming they will get the best possible layout. Designers look to the six decade old ordinances and assume the minimum dimensions are the optimum ones to maximize density (their clients profits). The layout by minimums will result in cookie cutter monotonous designs. The council and planning commissions admonish the developer for submitting plans that lack character and imagination, yet the developer just followed the regulations that promote such development. And the cycle repeats, and repeats, and repeats for generations upon generations.

You are reading this article on a computer that is more powerful than any that existed in 1959, or 1969, or possibly even in 1979. If you are older than 60 years old, chances are if this was 1959, you would be dead by now. Advances in health as well as an awareness of what we eat and how we live allow us to live longer happier and more productive lives.

Technological advancements have touched virtually every product and aspect of our lives – except the neighborhoods we live, work and play within.

There is something very wrong with this situation, and solving these problems through over densification and forcing a nation into public transportation is taking giant leaps backwards, not towards 1959, but more towards 1859. We posses innovation and technology for the design and building of sustainable future cities without sacrificing the desire for space and personal transportation freedom. This however takes more effort. But isn’t about time we leave 1959 behind?

An opinion piece in the Sacramento Bee by Sean Wirth of the Environmental Council of Sacramento could not have been more wrong in its characterization of the causes of the housing bubble in Sacramento.

The article starts out promisingly, correctly noting that:

But it is all downhill from there, with the suggestion that the extraordinary price increases in Sacramento were the result of too much suburbanization (the theological term in urban planning circles is "sprawl"). In fact, all things being equal, house prices tend to escalate where the supply is more constrained, not less. Where suburbanization is allowed, the market can supply enough housing to avoid inordinate house price increases. Where suburbanization is severely constrained, a legion of evidence indicates that house prices are prone to rise. It is all a matter of basic economics. George Mason University economist Daniel Klein puts it this way:

Basic economics acknowledges that whatever redeeming features a restriction may have, it increases the cost of production and exchange, making goods and services less affordable. There may be exceptions to the general case, but they would be atypical.

Housing is not atypical and Sacramento house prices soared in response to the tough use regulations. By the peak of the bubble, the Median Multiple (median house price divided by median household income) had risen to 6.8, well above the historic norm of 3.0. Many houses were built, but not enough to satisfy the demand, as Mr. Wirth indicates. Building many houses is not enough. There need to be enough houses to supply the demand, otherwise land prices soar, driving up house prices.

Unless a sufficient supply is allowed, speculators and flippers will "smell the blood" of windfall profits, which are there for the taking in excessively regulated markets.

During the housing bubble, house prices rose well above the historic Median Multiple norm only in metropolitan areas that had severe constraints land use constraints (called "smart growth" or "growth management"). This included Sacramento, other California markets, Miami, Portland, and Seattle and other markets around the country.

At the same time, more liberal development regulations allowed a sufficient inventory of housing to meet the demand in high growth areas like Atlanta, Dallas-Fort Worth, Houston and Austin. In each of these places (and many others), the Median Multiple remained near or below the historic norm of 3.0, even with the heightened demand generated by a finance sector that had lost interest in credit-worthiness. As would be expected, speculators and flippers avoided the traditionally regulated markets, where an adequate supply of affordably priced housing continued to be produced.

Wirth expresses understandable concern about the house price losses since the bust. From the peak to the trough, the drop in Sacramento median house prices was more than 55%. However, this is to be expected once a serious economic decline is precipitated, especially in the sector that precipitated the crash (in this case housing). Economists Ed Glaeser of Harvard and Joseph Gyourko of Wharton have shown that not only (1) are house prices higher in more restricted markets but also that (2) there is greater price volatility in more highly regulated markets. Indeed, it is likely that the housing bust would have been much less severe or even avoided altogether if constraints on land had not driven the prices and subsequent mortgage losses so high in California and a few other states that they could not be absorbed by financial institutions. At the time of the Lehman Brothers collapse, 11 "ground zero" markets (including Sacramento), all highly regulated, accounted for 75% of the mortgage losses in the nation, with a per house loss rate of 15 times that of traditionally regulated markets.

Wirth's article expresses opposition to a Sacramento County decision to allow more development to occur on the urban fringe. He would prefer to force development into the existing urban footprint. The economic consequences of such folly are well known. In Australia, such policies have driven led to a doubling or tripling of house costs relative to incomes. The annual mortgage cost of the median priced house has risen to 50% of the median pre-tax household income, in a country that defines mortgage stress at the 35% level. Before the adoption of smart growth policies, Australia's housing affordability was similar to that of liberally regulated markets in the United States.

Avoiding the next housing bubble requires not repeating the mistakes that led to the last. Sacramento's young and lower income households can only hope that the additional land approved by the Board of Supervisors will be enough of a safety valve to keep housing affordable so that they can become owners rather than renters.

Photograph: Sacramento (author)

The potential for a symbiotic relationship between the environment, cars and people may be about to take a giant leap forward. London's Daily Telegraph reports that a group of engineers from Genco have developed a bio-bug (Volkswagen bug) that runs on human waste. The car is powered for 10,000 miles from the excrement from 70 households (annually). The human waste bio-bug would be carbon neutral because it would not add any greenhouse gas to that already produced. The fuel would be produced at sewage plants, which already produce the necessary methane fuel from waste. While the technology, fully implemented, would not produce sufficient methane to power the entire fleet of cars, it would be a significant step forward and is further indication of the potential for technology to make substantial greenhouse gas emission reductions.

Bio-Bug Photo

The Harlem Community Development Corporation has come up with a rather unique plan to combat high real estate prices in the district. It proposes establishing an open-air market under the Metro North tracks spanning one mile, or 22 city blocks. This new market would accommodate about 900 vendors, helping to increase the now low number of local entrepreneurs and independent retail stores in Harlem.

The market would not only attract vendors, but tourist traffic as well, which would help rejuvenate a neighborhood hampered by soaring commercial real estate costs. It costs anywhere from $125 to $225 per square foot for commercial space in Harlem’s prime locations, resulting in only 42 stores for every 10,000 residents. The Metro market project would ease pressure on small, independent retailers and allow potential entrepreneurs the chance to create viable businesses in the city.

This need for such a project reflects the economic trends and challenges facing the larger New York urban area’s middle class. New York City has the nation’s highest cost of living, and like the rest of the nation, is still experiencing the effects of the recession. The middle class, including small business owners facing high rents, struggles to make the six-figure salaries needed to meet the city’s high cost of living.

Harlem’s Metro market project, which would encourage an independent entrepreneurial spirit, embodies the required plan of action for New York City. The city needs to find inventive ways to deal with its economic reality in order to reverse the recession and revitalize its appeal to the energetic and the ambitious.