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In a Daily Telegraph commentary, London Mayor Boris Johnson expects the proposed high-speed rail line from London to Birmingham (HS2) to cost £70 billion (approximately $105 billion). This is two thirds more than the most recent estimate of £42 billion (approximately $63 billion), which includes a recent increase in costs from £32 billion (approximately $48 billion) for the 140 mile long first segment. Johnson wrote:

“This thing isn’t going to cost £42 billion, my friends. The real cost is going to be way north of that (keep going till you reach £70 billion, and then keep going). 

He concludes:

“So there is one really critical question, and that is why on earth do these schemes cost so much?”

A possible answer comes from Oxford University, 60 miles from London. Oxford professor Bent Flyvbjerg, along with Nils Bruzelius (a Swedish transport consultant) and Werner Rottenberg (University of Karlsruhe and former president of the World Conference on Transport Research) reviewed 80 years of infrastructure projects found and low-balling of cost estimates routine (Megaprojects and Risk: An Anatomy of Ambition). They characterize the process as "strategic misrepresentation," which they shorten to "lying," in unusually frank language.

It is not just the apparent dishonesty of the process --- it is that unreasonably low cost estimates entice governments into approving projects that have been marketed on false pretences. Once committed to such a project, public officials, find it nearly impossible to “jump off the train,” as it were. The loss of face could well be followed by a loss at the next election. Flyvbjerg, et al characterize “strategic misrepresentation” as “lying.”

There could be other difficulties. The government claims that trains will peak at 225 miles per hour (360 kilometers per hour), considerably higher than the 199 mile per hour (320 kilometer per hour) maximum speed. High speed rail in China, Spain, France and Korea also promised faster operation, but not delivered. Safety may be a reason, as suggested in a Wall Street Journal article:

“An executive at a non-Chinese high-speed train manufacturer said running trains above speeds of 330 kilometers an hour poses safety concerns and higher costs. At that speed threshold, wheels slip so much that you need bigger motors and significantly more electricity to operate. There is also so much wear on the tracks that costs for daily inspections, maintenance and repairs go up sharply. That's why in Europe, Japan and Korea no operators run trains above 320 kilometers an hour, the executive said…”

HS2 seems to be on track to follow California in its unprecedented high speed rail cost escalation. The last cost estimate for the 400 mile plus high-speed line from Los Angeles to San Francisco was three times the cost (inflation adjusted) projected in 1999 (midpoint, see the Reason Foundation’s California High Speed Rail: An Updated Due Diligence Report, by Joseph Vranich and Wendell Cox). Public outcry over the escalating costs forced approval of an alternative “blended” system that would use conventional tracks and non-high speed rail speeds at the northern and southern ends. Even so, the scaled back version is estimated to cost $60 billion, inflation adjusted (£40 billion), 150 percent more than the 1999 projection for a genuine high speed rail line.

Mayor Johnson may be optimistic in his £70 billion prediction. Procurement expert Stephen Ashcroft, of Brian Farringdon, Ltd. says: “We confidently predict that the final project outturn actual cost will exceed £80 billion” (emphasis in original). There is, of course risk in such projections. Joseph Vranich and I found that out when our maximum cost escalation prediction in The California High Speed Rail Project: A Due Diligence Report, (2008) turned out to be way low. It was exceeded by more than one-half and in just four years.

Also see: The High Speed Rail Battle of Britain

The great North Dakota boom, driven by oil development and strong agricultural markets, has continued to put the state at the top of economic growth rankings. The state can now add "housing growth" to the list.

As the region's oil industry expands and matures, the market for more permanent housing solutions has heated up. According to recently released Census data, North Dakota led the nation in housing growth in 2012, increasing its supply of housing by 2.3% in just one year. Overall national growth was 0.3%.

While much of this growth has been focused on the oil patch, the entire state has seen strong economic growth, job creation, and accompanying strength in the housing market. Cities located hours outside the oilfield are reporting shortages of housing and tight markets for existing housing. Shortages of housing have also been reported in small towns throughout the state, as job-seekers move to the region looking to find work in the state's growing oil and ag industries. A review of the new Census data bears out such reports. North Dakota is home to 8 of the top 100 counties nationwide for housing growth, including 4 of the top 10. Williams and McKenzie County, in the heart of the Bakken development, placed number one and two nationally, respectively, but counties far outside the oil patch also showed strong rates of growth.

The new shift towards more permanent housing construction will probably come as a relief to communities and officials throughout the state, who have been scrambling to find solutions to shortages. While temporary housing for oil workers has boomed throughout the oilfield, local officials have begun to explore limits on such "man camps", citing their negative effects on local communities, impact on permanent development, strain on infrastructure, and safety concerns. The state has also seen rising rates of homelessness, and faced challenges finding enough workers to fill job openings- often due to lack of places for those interested in moving to the region to work. As estimates of the amount of recoverable oil in the Bakken continue to climb, larger, out of state developers have begun to enter the region, looking to take advantage of what may be a longer, more sustained expansion. With 21,000 job openings currently unfilled statewide and the potential for tens of thousands of wells remaining to be drilled over the next three decades, the pressure for more housing growth to meet the needs of expanding businesses is likely to continue.

Despite panning Texas Governor Rick Perry’s initiative to draw businesses from New York, Slate’s business and economics correspondent, Matt Yglesias offers sobering thoughts to growth starved states along on the West Coast and in the Northeast.

“…the Texas gestalt is growth-friendly because, quite literally, it welcomes growth while coastal cities have become exceptionally small-c conservative and change averse. But if New York and New Jersey and California and Maryland and Massachusetts don't want to allow the construction of lots of housing units, then it won't matter that Brooklyn, N.Y.; and Palo Alto, Calif.; and Somerville, Mass.; are great places to live—people are going to live in Texas, where there are also great places to live, great places that actually welcome new residents and new building.”

The entire country would benefit if states like California, New York, Massachusetts and New Jersey were to enact policies to compete with Texas, as Yglesias suggests.

For years, some justified high pay for college educated professionals because they served as a data base for certain types of knowledge – medicine, dentistry, pharmacy, law, accounting or any number of other disciplines taught at the college level. But with the advances in information technology and robotics, those salaries might not be justified in the near future. Information technology is currently forcing downsizing in the law sector, as fewer lawyers are needed to research cases or produce wills, trusts and divorce decrees. And robots will eventually do the jobs of dentists and surgeons and pharmacists.

But technology encroaching on the jobs of college educated professionals doesn’t mean an end to the relevance of institutions of higher learning. Our country’s technology hubs are based around universities, as they provide the necessary research and development for the formation of such companies. However, it must be added that military research and procurement also play a role in our technology sector. In addition, academics in the humanities produce knowledge that enhances our communities, cities and country.

We must also look at the burden that student loan debt on our economy, as the more young people owe on student loans the less they spend on the consumer economy. Cities and suburban municipalities could and should charter universities for city residents, and a university education should be free to all residents. This would help combat the problem.

Reform could help our country build on its past. Doctors, lawyers and college professors didn’t always spend years in school to learn their trade. A Midwestern lawyer named Abraham Lincoln studied for the bar on his own before becoming a successful railroad lawyer and President of the United States. And in the late 1800s, the country was dotted with medical schools that would train doctors. In fact, there were more medical students back then than today, and this put the downward pressure on prices for the consumer.

There have been numerous press reports about the expansion of micro housing, and expectations that Americans will be reducing the size of their houses. As the nation trepidatiously seeks to emerge from the deepest economic decline since the 1930s, normalcy seems to be returning to US house sizes.

According to the latest new single-family house size data from the US Census Bureau, the median house size rose to an all-time record of 2306 square feet in 2012. This is slightly above the 2277 square feet median that was reached at the height of the housing bubble in 2007 (Figure). The average new house size (2,505 square feet) remains slightly below the 2007 peak of 2,521 square feet.

There was little coverage in the media, with the notable exception of Atlantic Cities, in which Emily Badger repeated the expectation of many:

“It appeared after the housing crash that the American appetite for ever-larger homes was finally waning. And this would seem a logical lesson learned from a recession when hundreds of thousands of households found themselves stuck in cavernous houses they neither needed nor could afford.”

But she concluded “Perhaps we have not changed our minds after all.” Well stated.

The New York Times restates basic economics in a June 9 editorial that should be required reading for planners and public officials who fail to comprehend how restrictions on housing raise prices. The Times expressed concern about the extent to which investor involvement in some markets has raised the price of houses for new homebuyers and others who actually plan to live in the houses that they purchase. The price increasing impact of excess demand on housing markets from institutional investors is no different what occurs when urban planning policies restrict housing supply, as occurs with urban containment policy.

Referring to the recent house price increases, The Times said “Those gains, in turn, have propelled rising home prices nationwide, in part by reducing supply and in part by fostering a shift in perceptions about the housing market that has drawn some potential home buyers off the sidelines.” In this, The Times simply expresses the economic reality that when demand exceeds supply, house prices (or any other prices), other things being equal, will tend to rise. The cause of the imbalance is of no account.

But The Times did not limit its analysis to economics. Venturing into the social dimension, The Times went so far as to endorse home ownership: “Given the traditional role of homeownership in building wealth, fostering communities and driving the economy forward, a lower rate of homeownership is a troubling development.”

The Times editorial board has taken a position challenging the agendas of some of the most prominent retro-urbanist theorists, who favor more renting and less home ownership, clinging to the fantasy that, somehow housing markets constrained by excessive planning regulations are exempt from the laws of supply and demand.

For a few years, concern has been expressed about house price increases in Canada, which have been disproportionate compared to household incomes.

In this regard, the latest, semi-annual Bank of Canada Financial System Review points to the overbuilt multi-unit market, especially the Toronto condominium market, as having the potential to inflict serious harm on the economy (see A Toronto Condo Bubble?), including “reduced household net worth.” In its report, Canada’s central bank said:

“…the total number of housing units under construction remains significantly above its historical average relative to the population. This development is almost entirely attributable to multiple-unit dwellings (which include condominium units). In the Toronto condominium market, the number of unsold high-rise units in the pre-construction and under-construction stages has remained near the high levels observed since early 2012. If the investor component of demand has boosted construction in the condominium market beyond demographic requirements, this market may be more susceptible to shifts in buyer sentiment. Furthermore, if the upcoming supply of units is not absorbed by demand as they are completed over the next 12 to 30 months, the supply-demand discrepancy would become more apparent, increasing the risk of an abrupt correction in prices and residential construction activity.

Any correction in condominium prices could spread to other segments of the housing market as buyers and sellers adjust their expectations. Such a correction would reduce household net worth, confidence and consumption spending, with negative spillovers to income and employment. These adverse effects would weaken the credit quality of banks’ loan portfolios and could lead to tighter lending conditions for households and businesses. This chain of events could then feed back into the housing market, causing the drop in house prices to overshoot.”

(Emphasis by author)

Canadian analysts have long been concerned about the potential for its rising house prices to collapse, as occurred in the overheated US markets. Just as the housing bust in California, Florida, Arizona and Nevada threw the US economy and that of the world into the worst economic decline since the Great Depression, a housing price bust could inflict serious damage to the Canadian economy, which has performed strongly in recent years.

In the United States, the housing bust led to a nearly 20 percent reduction in household net worth, while recent reports show that the loss has been recovered. However, this recovery has been anything but equal. Many households who suffered losses, such as in investments intended to finance retirement, have not seen their wealth restored.

There is plenty about housing market distortion for Canada to be concerned about.

Most Americans take it as an article of faith that there’s a strong connection and relationship between the major cities of the East and West coasts.  Indeed, there may be 3,000 miles separating New York from Los Angeles, or San Francisco from Washington, but psychologically the cities each seem to be more connected to each other than, say, Dallas to New York or Atlanta to San Francisco.  Of course, in the minds of the coastal crowd, the rest of the nation has become “flyover” country.  That wasn’t always the case.  How exactly did that happen?

Lots of factors helped to develop America’s west coast.  Certainly the pioneer spirit that initially brought settlers west led to a strong sense of individualism and entrepreneurism that pushed development forward.  The allure of the weather brought many transplants west.  But I think the West Coast benefitted much more from the kinds of connections identified by Jim Russell at Burgh Diaspora (and now at Pacific Standard) – the West Coast had an effective talent attraction strategy, created strong bonds with the East Coast, and never let them go.  It’s a lesson that the shrinking cities of the Rust Belt should heed and practice.

I’m no historian, nor am I the ultimate authority on the development of cities.  But it’s clear West Coast cities did some things that Rust Belt cities did not.  As we all know, the settlement of California was kicked off with the Gold Rush of 1849.  Prior to that California was a sparsely-settled former Mexican territory with no physical or institutional infrastructure.  The Gold Rush propelled Eastern financiers to provide the money to develop San Francisco as the financial center that would open up the west, and give it the physical and institutional resources to deliver its goods to the rest of the nation.  San Francisco never relinquished those ties.

Further south, Los Angeles used its fabulous and consistent weather as a means to attract parts of a budding film industry previously based on the East Coast.  The growth of the film industry ultimately led to the growth of the media industry in Southern California, and voila – the economic underpinnings of a major metropolis are established.  Like San Francisco, LA never relinquished those ties.  (Side note: I don’t think you can understate the importance of the Rose Bowl in luring Midwesterners in particular to Southern California.  The “Granddaddy of Them All”, started in 1902, annually brought the Big Ten’s best and brightest for a few weeks of sun and fun in winter.  The strategy paid off.)

The lesson here for the Rust Belt is talent attraction, and maintaining the connections over time.  San Francisco was able to parlay its Eastern financial connections into the development of a strong financial center, which later served as the financial apparatus for the tech industry.  Los Angeles was able to do the same with the film industry and media, and it could be argued that the city’s ties to Midwestern interests led to the growth of the defense industry there.

As for the Rust Belt?  It seems that what sets it apart from the West Coast is that it remained content to be the industrial hearth of the nation, instead of seeking other avenues to leverage its advantages for even more growth.  That, and the fact that West Coast cities understood the importance of maintaining strong connections with East Coast partners, and East Coast cities understood the financial upside – for their own cities – of staying close to those on the West Coast.  Can the Rust Belt do the same?

This piece first appeared at Corner Side Yard.

In the late sixties, India was the poster child of Third World poverty. In 1965, the monsoon rains failed to arrive, food production crashed, and much of the country was on the brink of starving. Asked for help, President Lyndon Johnson is reported to have told an aide, "I'm not going to piss away foreign aid in nations where they refuse to deal with their own population problems." Johnson came around, but by the end of the decade India was viewed in the West as, at best, a basket case and, at worst, a "population bomb" that threatened the entire planet.

Given this history, it's hard not to see the success India has had feeding its people and slowing population growth as the finale to a Bollywood movie — one most Americans stopped watching in 1970. "In a recent exercise," Stanford's Martin Lewis writes in a new article for The Breakthrough, "most of my students believed that India’s total fertility rate was twice that of the United States. Many of my colleagues believed the same. In actuality, it is only 2.5, barely above the estimated U.S. rate of 2.1 in 2011, and essentially the replacement level."

What did it? Lewis created a series of fascinating maps comparing Indian fertility rates to per capita wealth, female education level, electrification, access to TV, and other metrics to answer this question. His first map is one of the most striking. It shows the entire southern half of the country, plus the northern pan handle, as having fertility rates below replacement levels. 

Wealth, electricity, education, and moving to the city are all loosely correlated with lower fertility, but the strongest correlation is watching television. "The map of television ownership in India," writes Lewis, "does bear a particularly close resemblance to the fertility map." He notes that two Indian states with a low level of female education, which is traditionally inversely correlated with low fertility, still had low fertility rates, a fact that may be explained by its high levels of TV penetration. Lewis bolsters his argument by pointing to a study from India that found declining fertility after cable TV was introduced into poor neighborhoods.

How does TV act as a contraceptive? Lewis notes it may be because "many of its offerings provide a model of middle class families successfully grappling with the transition from tradition to modernity, helped by the fact that they have few children to support." It may not be TV generally, but rather soap operas specifically that paint a vision for poor women of how much better life with fewer kids might be.

Maybe the reason the West has been so slow to appreciate this Indian success story, Lewis speculates, is because it contradicts everything we've come to believe about overpopulation. Back in the late sixties, some prominent Western ecologists called for the sterilization of Indian men and the halting of food aid, so as to not prolong the suffering. A book called The Population Bomb that proposed these things sold four million copies. 

Hopefully now, anyone concerned about both human development and the environment will come to see electricity, rising wealth for the poor, and even TV not as anathema to human development but, at least in many parts of the world, essential to it.

Read the article at The Breakthrough: "Population Bomb? So Wrong, How Electricity, Development, and TV Reduce Fertility"

Toronto has experienced a virtual explosion in high rise condominium construction in recent years, especially in the downtown area. According to Bloomberg, Toronto has the largest number of high-rise condominium towers under construction in the world.

However concerns are being expressed that the market may be saturated and that a housing bubble is developing. The Toronto Starreports that new condominium sales declined 55 percent in the first quarter of 2013, compared to last year.

At the same time, a huge number of new condominium units is under construction in Toronto. According to The Star, 57,000 units were being built during the first quarter. The first quarter build rate is reported as the largest rate ever. For their part, builders have scaled back plans for new towers

Who is Buying?

In an article entitled, “Toronto Condo Investors Under Water,” the Toronto Condo Bubble|Toronto Housing Bubble website (subtitled Largest Housing Bubble Except for Vancouver of Course) asked:  “… if condo living is the way of the future, then why is it that the majority of people who buy condos never actually live in them?”

The question was in the context of a report by Scotiabank that between 45% and 60% of Toronto condominium purchasers were investors, rather than people who actually intended to live in the housing.

Single Family Housing in Toronto: The Holy Grail

At the same time, The Star points to indicators that the single family housing market retains considerable strength. Part of the reason is that this most desired type of housing is made far more difficult to build as a result of provincial land-use policies (urban containment, including the Toronto "greenbelt").According to The Star, "That’s made detached homes, in particular, the coveted Holy Grail of housing."

Despite the explosion in condominium units, Statistics Canada data indicates that 71 percent of net new occupied housing in the Toronto metropolitan area was detached between 2006 and 2011.

These market dynamics, rising detached house prices relative to incomes and heightened speculation are predictable outcomes of urban containment (land rationing) policies.