The Economist Indicts Urban Containment "Fat Cats"

"Free Exchange" in The Economist has come down strongly on the side of economics in a review of housing affordability.

According to The Economist, the unusually high cost of housing in San Francisco (and other places) is principally the result of tight land use regulation, which makes it expensive or impossible to build. If "local regulations did not do much to discourage creation of new housing supply, then the market for San Francisco would be pretty competitive." Add to that Vancouver, Sydney, Melbourne, Toronto, Portland and a host of additional metropolitan areas, where urban containment policy has driven house prices well above the 3.0 median multiple indicated by historic market fundamentals.

The Economist explains the issue in greater detail: "We therefore get highly restrictive building regulations. Tight supply limits mean that the gap between the marginal cost of a unit of San Francisco and the value to the marginal resident of San Francisco (and the market price of the unit) is enormous. That difference is pocketed by the rent-seeking NIMBYs of San Francisco. However altruistic they perceive their mission to be, the result is similar to what you'd get if fat cat industrialists lobbied the government to drive their competition out of business." (Our emphasis).

Of course urban planning interests have long denied that that rationing land is associated with higher housing prices (read greater poverty and a lower standard of living). Nonetheless urban containment policies not only drive up the price of land, but do so even as they reduce the amount of land used for each new residence, driving prices per square foot of land up as well.

The Economist notes that unless the direction is changed, housing policy will continue to be "an instrument of oligarchy. Who knows. But however one imagines this playing out, we should be clear about what is happening, and what its effects have been."

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Mason Gaffney, 1964

Mason Gaffney, as a Professor at the University of Missouri, wrote the below as long ago as 1964, in a book chapter entitled "Containment Policies for Urban Sprawl":

".....Economists discovered monopoly, it seems, about thirty years ago, or resurrected it and went on a marathon kick. Under Chamberlain they found it in every hitherto innocent jar and tube on our shelves, and nowadays it is even becoming safe to whisper that labor unions and
organized farmers might warrant the pejorative term. Yet, somehow amid this universal imputation of sin, no one has impugned the city fathers, that community of interest of important urban landowners known as municipal government, organized as a cartel in broad daylight and with the force of law at its disposal. No Gary Dinners are needed to administer this cartel, no clandestine machinations, no secret files concealed from the Federal Trade Commission and the Anti-Trust Division. The city fathers are simply engaged in protecting property values and promoting sound planning, which everyone has always known are good and desirable things.

The German Historical School of economic thought was not so obtuse on this matter. Their observations of the Hanseatic city-states exploiting their hinterlands afford us great insight into the motivations of city fathers, and every city planner should study Schmoller on Mercantilism before he goes forth to offer himself as the mercenary of modem municipal mercantilism. As the German historians relate, the monopolistic city can exploit its customers. The city exploits its customers by stunting its own development, limiting the number of creaking doors and sagging gates through which its customers may go for supplies and services.

There is also exploitation within the city. Employers, merchants, and assorted rent-collectors are generally happy with policies that keep out untrained interlopers who might have alien ideas about competing for labor, tenants, and customers, and in general keeping the natives restful in their compounds. Negative growth containment policies have an instinctive fascination for anyone whose interest is to limit competition.

There are many groups which would like to limit competition, of course. But cities tend to fall most strongly under the sway of those who stand to gain or lose most by municipal decisions, and those whose assets are irrevocably committed to the city, that is, the landowners. The rest of the citizens are 'by comparison mere transients, outsiders and climbers whose organization and influence is seldom commensurate with their numbers.

To the dominant landowning oligarchy, few limitations on competition commend themselves with quite the same force of logic as limitations on the entry of new lands into urban use. It is therefore no accident that negative growth containment is the most respectable and salable kind of planning in many quarters. It harmonizes all too mellifluously with the interest of a dominant class. But from the viewpoint of social economy, of other interest groups, of the general welfare, of the region, state, and nation, and even of most urban landowners in their roles as workers and capitalists, negative growth containment is an instrument of monopoly exploitation......"

Let Them Eat Cake

The elite are intent on destroying housing affordability for the working bloke much as they are saddling him/her with fuel poverty.

All with the purest of intentions, doncha know.

Diabolical land rentier gouging rackets

I have always been skeptical of conspiracy theories about Illuminati/Freemasons/Rothschilds/Rockefellers wanting to take over the world.

The abundant evidence of Rockefeller/Soros etc involvement in Agenda 21 and the like is very easily explained with a much simpler motive than "world domination": zero sum gains in property portfolios.

These people understand how urban property markets work and how regulations distort them, far better than the economics profession is daring to state, if they have worked out the truth. We get distinguished economists propagating the nonsense that upzoning enhances affordability. It sounds plausible to the ordinary person, but the reality is that all it does is increases site rents.

Of course a significant site owner would like to have 1000 households stacked up on his site paying $300 per week rent instead of 30 households paying $300 per week. It is absolute nonsense; worse, lies; that upzoning to allow 1000 households on a site instead of 30, will significantly lower rents. I am going by real life observation. Any theory on this that does not fit real life is probably driven by corrupt motives.

Where higher intensity DOES lower floor rents, is in cities with no fringe growth constraints, and hence systemically low urban land prices from urban fringe to urban centre. But what advocates are promoting "no fringe growth constraints plus upzoning", to provide housing affordability? They are all promoting "UGB's plus upzoning", which does nothing but increase housing costs at the same time as shrinking living space per household, delivering massive capital gains per site to the land rentiers.