Australian Opposition to Loosen Land for Housing

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.


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


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

Year 1959

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?

Misunderstanding the Bubble and Burst in Sacramento

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:

  • The housing bubble spawned the Great Recession
  • Demand exceeded the inventory of houses in the Sacramento area
  • Sacramento prices "soared sky high"

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)

Cars, People & Carbon Neutrality: A Symbiosis

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

Supporting Small Business in NYC: The Harlem Metro Market Project

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.

Vancouver: Moving to the Suburbs

A few weeks ago, The New York Times touted purported savings that a household would save by living in the core city of New York (in Brooklyn) instead of the suburbs (South Orange, New Jersey). The article downplayed the 1,000 fewer square feet the money bought in Brooklyn and did not consider the 40% higher cost of living.

The Province in Vancouver has now followed with a near identical story, except that the urban household in will make do with even less space. The city of Vancouver household will live in 800 square feet, or 1,200 fewer square feet in the high rise condominium than in a suburban Coquitlam detached house used in the comparison. Like The Times, The Province is little concerned with the smaller size of the house and misses the fact that the cost of living is from 10% to 20% less in the suburbs and exurbs than it is in the city of Vancouver.

Nonetheless, according to Tsur Somerville, director of the University of British Columbia UBC Centre for Urban Economics and Real Estate, who assisted in developing the figures for The Province, "If all they cared about were the dollars, they wanted to have $600,000 worth of real estate and then minimize their out-of-pocket costs, all else being considered, then being in the city is better," A commenter appropriately notes the volatility of strata (condominium association) fees, which suggests that out-of-pocket costs could rise significantly.

Canadians are not listening to "their betters" any more than Americans. US Census data indicates a continuing strong migration of people from the central cities and strong migration to the suburbs, despite heroic efforts on the part of the media and others to mask the reality.

"Being in the city" may be preferable to some in the Vancouver area, however not to the majority of the age group (25 to 44 years) most likely to move is voting for the suburbs, according to a recent Statistics Canada report. According to the report:

"... there continues to be a migration of many young adults and families from central municipalities to surrounding municipalities, while few move in the opposite direction."

For every one person who moved from the suburbs to the city of Vancouver between 2001 and 2006 (in the age group):

  • Among all in the age group, 1.8 people moved to the suburbs from the city for every person moving to city from the suburbs.
  • Among those in the age group with advanced degrees, 1.7 people moved to the suburbs for every person moving to the city.
  • Among those earning $100,000 to $150,000, 3.4 people moved to the suburbs for every person moving to the city. The ratio fell to 2.0 times for those making over $150,000.
  • More than 25% of the age group population who had their first children between 2001 and 2006 moved to the suburbs from the city, more than five times as many as moved to the city from the suburbs.

A table in the Statistics Canada report shows people in "creative class" occupations moving in greater numbers to the suburbs than to the city.

However, not everyone is moving in larger numbers to the suburbs.

  • More of the lowest income people are moving to the city than to the suburbs.
  • Artists have moved in greater numbers to the city than to the suburbs.
  • University professors and other university personnel have moved in greater numbers to the city than to the suburbs, perhaps explaining why so many in these groups misunderstand the direction of the migration.

The Statistics Canada report provided a similar analysis for Canada's two larger metropolitan areas, Toronto and Montreal. In Toronto, moves to the suburbs were 3.5 times moves to the city, while in Montreal 2.7 central city dwellers moved to the suburbs for every suburbanite moving to the city. This does not, however, necessarily indicate that the exodus to the suburbs is stronger in Toronto and Montreal. It is rather an indication of the fact that these two central cities represent a larger share of their metropolitan population than Vancouver. This means that more of the core out-migration is captured in Toronto and Montreal.

So, the media continues the "drumbeat" and the people keep marching --- in the opposite direction.

Evangelicals: Preventing and Causing the Housing Bubble

The International Monetary Fund has published some of the most peculiar econometric research in recent history in Irrational Exuberance in the US Housing Market: Were Evangelicals Left Behind? In it, Christopher Crowe associates the financial behavior of Evangelical Protestant Christians with more stable US markets during the housing bubble. It is well known that the housing bubble was concentrated in some metropolitan areas and largely missed others, such as Dallas-Fort Worth, Atlanta, Houston, Indianapolis and many others, most of them with stronger underlying demand than in the metropolitan areas with huge house price increases. Crowe's research raises the possibility that Evangelicals kept house prices down by not speculating, due to their religious beliefs.

Evangelicals generally believe in missionary and conversion activities and tend to hold to beliefs that were largely liberalized in large portions, but not universally in the "mainstream" Protestant churches (such as Episcopal, United Church of Christ, Lutheran, Presbyterian, Methodist, Baptist and Disciples of Christ churches) during the first half of the 20th century. In recent decades, Evangelical churches have grown strongly, Evangelical membership is now 50% greater than that of "mainstream" Protestantism (even with its Evangelical remnants), which has been relegated to "mainstream" in name only.

The Crowe thesis is generally that Evangelicals, allegedly with an "intense" belief in "end times" theology (such as the "imminent" return or the "second coming" of Jesus Christ) were less inclined to speculate in housing, which kept house prices from rising strongly in metropolitan areas with larger concentrations of Evangelicals.

There are some rather substantial difficulties with the thesis.

The first problem is relates to speculation. Rising prices are needed for there to be any incentive to speculate. If, for example, the numerous Evangelicals in Dallas-Fort Worth had undertaken a furious speculative frenzy, prices would not have gone up, instead more houses would have been built. This is because the liberal land use regime in Dallas-Fort Worth permits housing to be built in response to demand and nullifies any potential for speculative gain. Evangelicals, of course, like Catholics, Mainstream Protestants, Jews and Atheists are not stupid and were no more inclined to speculate on housing in the plentiful Dallas-Fort Worth market than they would have been climb over one another to offer higher prices for sand on the beach.

Another difficulty is that Crowe's characterization of Evangelical beliefs is a caricature. In fact, the nation's 40 million Evangelicals, including 15 million Southern Baptists more than 2 million Missouri Synod Lutherans, more than 1 million members of the African Methodist Episcopal Zion Church, non-denominational megachurch members and others behave similarly to other Americans in the economic sphere. Crowe hypothesizes that "that a belief in the end times reduces incentives to save simply because agents put a lower expectation on the future being realized." It would have been equally reliable to conjecture on the subsurface geology of an undiscovered planet.

Evangelicals like nice houses. They like nice cars. They like their children to be well clothed and to go to good schools. They do not refuse raises offered by their bosses because they expect shortly to be caught up into heaven like the prophet Elijah. True, some "end times" Christians have sold their property and trekked to mountaintops or otherwise awaited dates wrongly prophesied by their leaders. It happened in 1844 and in 1914, but these were not Evangelicals.

While Crowe’s research suggests an Evangelical stabilizing effect on housing markets, an opposite, but no less improbable thesis was advanced in an Atlantic Monthly article entitled "Did Christianity Cause the Housing Crash?" This article suggests that the "prosperity" gospel preached in some Evangelical churches led parishioners to take on obligations they could not afford, leading to the bursting of the bubble, though it is mercifully devoid of spurious regressions. Author Hanna Rosin names names, such as Joel Osteen of Houston's Lakewood Church and Rick Warren, whose Saddleback Church in Southern California hosted President Obama as a candidate. It would not be surprising if a future article in The Atlantic pontificated about abandoned suburban megachurches.

One can only wonder what the other nearly 90 percent of Americans were doing while Evangelicals were simultaneously causing and preventing the housing bubble.

Wendell Cox a contributing editor of is the son of an Evangelical clergyman (Pentecostal), became Presbyterian and later an Episcopalian.

Photo: Hollywood Presbyterian Church: An Evangelical Church in a Mainstream Protestant Denomination (by the author).

In the Hunt for a Red October

California's precarious budget situation appears to be driving the state closer to potential fiscal ruin. The state is now 28 days into a new fiscal year, operating without a budget, and the deadlocked legislature in Sacramento appears unable and/or unwilling to strike a deal on a new budget able to cover the state's massive $19 billion deficit.

With no fix on the immediate horizon, California faces a cash shortage. State Controller John Chiang claims that at current burn rates, the state will find itself out of cash by October if the budget impasse continues. In order to sustain the state's remaining reserves for as long as possible, Chiang plans to start issuing IOUs to contractors "in August or September to preserve cash".

Today, in another effort to defer the date the state will run out of funds, Gov. Schwarzenegger issued an executive order requiring state employees to "take three unpaid days off per month." This move comes in the wake of the Governor's proposal to impose minimum wage pay on state workers to save money, currently stuck in the courts.

If the state legislature is unable to find a solution to the deficit, and creditors prove unwilling to accept more IOU's, California may be forced to effectively default on its debts. According to Newgeography contributor Bill Watkins, under such a scenario bond issues could fail, state operations grind to a halt, and the "mother of all financial crises" might be unleashed. Even if California is able to find ways to juggle debt load and convince creditors to accept IOU's while the budget impasse drags on, such stop-gap actions may place its already shaky credit rating at risk of being slashed further towards junk status. The state, legally unable to declare bankruptcy, must find some solution to its budget dilemma or it will become the first state to default since the Great Depression.

Transit in Los Angeles: Celebrating the Wrong Thing

Los Angeles area transit officials celebrated 20 years of urban rail at a Staples Center event on July 23. Over the past 20 years, Los Angeles has opened 2 metro (subway) lines, 4 light rail lines and two exclusive busways (though apparently busways aren't worth celebrating). Surely, there is no question but that Los Angeles has been successful in opening a lot of new transit infrastructure.

At the same time, however, The Los Angeles Times reported that Professor James Moore of the University of Southern California, blames the disproportionate financial attention paid to rail projects reduced transit ridership by 1.5 billion (with a "b") over the same period. The reason is, as Tom Rubin put it, is that many more people can be carried for the same money on buses, "Had they run a lot of buses at low fares, they could have doubled the number of riders." Rubin was chief financial officer of the Southern California Rapid Transit District, one of the two predecessors of the present transit agency (MTA). The other was the Los Angeles County Transportation Commission, to which I was appointed to three terms.

Transportation experts were also quoted to the effect that the rail system has done little to reduce traffic congestion or increase the use of mass transit much beyond the level in 1985, when planning for the Metro Blue Line began. Indeed. Traffic congestion has gotten much worse, and traffic volumes have increased materially. Our recent article showed that transit market shares had declined.

These results are in stark contrast to Houston, which in 1984 had the worst traffic congestion in the nation. Houston set about to solve the problem by expanding its roadway capacity. Since 1984, Houston's traffic grew twice as fast as that of Los Angeles, and population grew three times as fast (at least in part because many Californians were moving to Texas). Houston also added freeway mileage at double the percentage rate of Los Angeles. The reward was an increase in traffic congestion less than one-third that of Los Angeles (Figure). The most recent INRIX Scorecard shows Los Angeles traffic congestion to be more than 2.5 times as intense as Houston's.

Spending money on the right things makes a big difference. One can only wonder how different things might have been if Los Angeles had invested in the capacity people need (more roads) rather than in politically correct transit facilities that have no potential to reduce traffic congestion or to improve mobility and economic performance.

There is a lesson from Los Angeles experience both for other areas and other government functions. The test of government performance is outputs, not inputs. Thus, it is appropriate to celebrate large transit market share increases or significant improvements in student achievement, not how many miles of rail are built or how much money is spent on education.

Photograph: Los Angeles and the San Fernando Valley (by the author)

The Fifth Estate Clarifies US Driving and Transit Figures

Late on July 26 (Washington time), The Fifth Estate corrected the attribution by Professor Peter Newman of Curtain University to the effect that driving was down 43% and transit up 65% in the United States. This issue had been the subject of my column on the same morning. It was a simple decimal error (in the reporting) and has now been corrected on the site. Driving is now reported as being down 4.3% and transit up 6.5%. Professor Newman provided slides with the data to Ms. Tina Perinotti, who forwarded them to me.

While the new figures are less inconsistent with the official figures than the former, there are still material inconsistencies.

Driving Trend: Official Data: The slides provided simply refer to the two figures as relating to the past year, without a source or specific period. The 4.3% driving decline is more than double the largest annual decline reported by the official source for such information, the Federal Highway Administration (Figure 1).

Transit Trend: Official Data: We reviewed the data published from the official sources for transit data (the American Public Transportation Association and the Federal Transit Administration) and found no recent annual data indicating a 6.5% increase in ridership (either in boardings or in passenger miles). Much of the transit ridership gain from 2007 to the peak year of 2008 was lost in 2009, according to data posted by APTA in early March (Figure 2). A later first quarter report by APTA indicates further losses. Moreover, as we indicated in our article, the percentage decline in transit use since the peak year of 2008 is many times that of the decline in driving.

Not All Percentages Are the Same: Care must also be used in comparing percentage changes between transit and driving, because so little travel is on transit. For example, a one percent increase in roadway urban travel converts to about one-third of a mile per person per day. A one percent increase in transit use converts to about 30 feet per person per day, about the same distance as walking from one side to the other of the average bedroom and back.



Note: It is possible that the 4.3% driving decline was taken from an interim Federal Highway Administration report indicating that driving declined 4.3% in March 2008 compared to March 2007 (a monthly comparison, not a year on year comparison). This FHWA report, however, is subject to annual revision based upon the more comprehensive Highway Performance Monitoring System, which in 2009 revised the March 2008 such that the annual change became 2.7%.