planning

Satellite Cities for Beijing? Yes, But....

Wendell Cox — Fri, 15 Oct 2010 12:40:28 -0400

China Daily ran an article on the continuing urbanization of Beijing. In Build upward or outward: City’s growth dilemma, Daniel Garst notes that Beijing is not as centralized as other urban areas, with its multiple business districts and comparatively low density in its inner areas. He indicates a preference for the urbanization of Shanghai, with its stronger center (both Pudong and Puxi), but suggests that it would be a mistake to replace the historic low density development with the high rises that would be necessary to change Beijing's urban form.

Actually, Beijing's form is not that unusual for Asian urban areas. Tokyo has multiple office centers rather than a single dominant center and has comparatively low residential densities, even within the Yamanote Loop. Bangkok, Manila and Jakarta are similarly multi-centric. Chinese urban areas like Shenyang, Xi'an, Wuhan, Suzhou and Changsha are closer (but smaller) replicas of Beijing than Shanghai. Garst also misunderstands the dynamics of traffic congestion in his belief that roads and metros (subways) would be less congested with a more centralized form. In fact, higher densities routinely produce more intense congestion, not only on the roads but also on the rails and buses, a point recently made by Michael Matusik on this site.

However, Garst may be onto something with respect to a suggestion that Beijing's growth should be directed to new satellite towns, in which residents work rather than commuting to Beijing. This is good theory, but there is an important caveat, which we outlined in a comment at China Daily on the article.

Satellite cities are not a reasonable answer unless they are so far from the Beijing urban area that commuting to Beijing is not possible. The idea of self-contained satellite cities, where people live and work in them has not worked anywhere. There are good examples of failure in London, Cairo, Stockholm, etc. So long as the large urban area can be reached, people will commute there.

Cairo provides a useful example. Egyptian planners have long decried the continuing commute pattern into the urban area from the new towns of 6th of October and 10th of Ramadan, which are within commuting distance. On the other hand, the new town of Anwar Sadat, more remote from the urban area, has been more successful in keeping its residents in its labor market.

Locating new satellite towns far enough to make commuting infeasible will be a real problem for Beijing. There just is not enough territory in the provincial level municipality. That means the new towns would have to be in the province Hebei, which along with the province level municipality of Tianjin surrounds Beijing.

Short of remote new towns and forcing population and economic growth away from Beijing, the key to minimizing traffic congestion will be to minimize work trip distances by achieving a dispersion of comparatively lower density employment to match the lower density suburban dispersion. Economists Peter Gordon and Harry W. Richardson have found that "suburbanization has been the dominant and successful mechanism for reducing congestion." in the United States. This applies no less to Beijing.

Photograph: Forbidden City, Beijing (by author)

Property Values 11 Times Higher Across Portland's Urban Growth Boundary

Wendell Cox — Tue, 12 Oct 2010 10:09:52 -0400

One of the starkest impacts of smart growth policies is the huge differentials in property prices that occur on virtually adjacent properties on either side of an urban growth boundary.

The extent to which regulatory restrictions can drive up prices is illustrated by the differences between the values of undeveloped lands just a few steps from each other, but across the urban growth boundary. Research from more than a decade ago in Portland indicated that land on which development is permitted inside the urban growth boundary tended to be 10 times as valuable per acre as land immediately outside the urban growth boundary, on which development was not permitted. In Auckland, New Zealand, recent research found virtually adjoining undeveloped land value differences at 10 times or more as well. Research in the London area by Dr. Timothy Leunig of the London School of Economics indicates that this difference can be as much as 500 times.

Recently (February), I examined tax assessment records for all parcels in Portland's Washington County that abut the urban growth boundary to see if value differences exist. The properties had to be 5 or more acres and be undeveloped. Research was conducted based upon Internet information in February 2010. Property along 25 miles of the urban growth boundary from Cedar Hills to Hillsboro to southwest Beaverton was included in the analysis.

The land adjacent to, but outside the urban growth boundary (on which development is prohibited) was assessed at approximately $16,000 per acre.
The land adjacent to, but inside the urban growth boundary (on which development is permitted) was assessed at approximately $180,000 per acre, approximately 11 times the price of land that is virtually across the street (across the urban growth boundary)

A sample was also taken of more remote developable parcels of more than 5 acres, on which development would not be permitted. These parcels, which were from one to five miles outside the urban growth boundary, had a value of approximately $8,500. Thus, the developable land inside the urban growth boundary was 21 times as expensive as the more remote land.

These data indicate the impact of urban growth boundaries on the price of raw land, which is inevitably passed on to buyers of new housing. Without an urban growth boundary, it would be expected that land on both sides of an urban growth boundary would have similar values. Further, land would be expected to drop in value beyond the urban fringe, but not by the drastic amounts indicated in Portland, Auckland and London.

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Photograph: (By Author)

City of Austin Approves Big Greenfield Development

Wendell Cox — Tue, 31 Aug 2010 17:32:55 -0400

Despite its smart growth policies, the city of Austin has approved a new development on the urban fringe that will include new detached housing starting at $115,000.

Austin is the third fastest growing metropolitan area with more than 1,000,000 residents in the United States, following Raleigh, North Carolina and Las Vegas. The city of Austin accounted for 53% (672,000) of the metropolitan area's 1.27 million population in 2000, but has seen more than 70% of the growth since that time go to the suburbs. Now the metropolitan area has 1.65 million people, and the city has 785,000.

The Austin metropolitan area managed to experience only modest house price increases during the housing bubble, though other metropolitan areas in Texas (Dallas-Fort Worth, Houston and San Antonio) did even better (see the Demographia International Housing Affordability Survey). Austin's Median Multiple (median house price divided by median household income) peaked at 3.3, slightly above the historic maximum norm of 3.0. Like other Texas markets, there has been little price decline during the housing bust, illustrating the lower level of price volatility and speculation identified by Glaeser and Gyourko with less restrictive land use regulation. This stability has helped Texas weather the Great Recession better than its principal competition, the more intensely regulated states of California and Florida.

The city of Austin, however, is rare in Texas for generally favoring the more restrictive (smart growth) land use policy devices that have been associated with the extreme house price escalation in California, Florida, Portland, and many other metropolitan areas. The city's freedom, however, to implement the most draconian policies and drive house prices up is severely limited by far less restrictive land use policies in the balance of its home county (Travis), neighboring Williamson County (usually among the fastest growing in the nation), Hayes County and the other counties in the metropolitan area.

Austin is competing. This is illustrated by the recent Austin city council action to approve a new "mega" development on the urban area's eastern fringe that could eventually add 5,000 new houses, town houses and apartments. The first phase will be 350 detached houses that the developer indicates will be priced from $115,000 to $120,000 (including land), an amount less than a building lot San Diego, Los Angeles, Vancouver and Australia.

By comparison with other developments in the Austin area, however, these houses may be expensive. One home builder is currently advertising new detached houses, only 7 miles from downtown Austin for $90,000. These are not the least expensive in Texas. Detached houses in Houston are being advertised for $79,000.

A case study in the 3rd Annual Demographia International Housing Affordability Survey showed that the median income Austin household could purchase the median priced house for 11 years less income than in Perth, Australia (this includes mortgage interest). While both Austin and Perth have been growing rapidly, Austin's faster growth is evidence of stronger demand, which, all things being equal, would have been expected to drive house prices up more than in Perth. But, with more restrictive land use regulation, all things are never equal.

Year 1959

Rick Harrison — Mon, 16 Aug 2010 18:51:22 -0400

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?

$300,000-$400,000 for a Levittowner?

Wendell Cox — Wed, 19 May 2010 23:55:17 -0400

An article in The Wall Street Journal details the difficulties that were faced by home owners caught in the Goldman Sachs/John Paulson finance scheme ("The Busted Homes Behind a Big Bet"). The article calls the situation a "dizzyingly complex transaction, involving 90 bonds and a 65-page deal sheet. But it all boiled down to whether people ... could pay their mortgages." There is plenty of blame to go around, but surely there were both big winners and big losers is these deals. The big winners were Goldman Sachs and John Paulson. The big losers were the homeowners, though they were not without blame, since they were not forced to take out the excessively large mortgages.

The striking thing about this story, however, is the photograph of a Levittown style house in Aberdeen township, New Jersey, a distant suburb nearly 40 miles from New York City. The picture in the article cannot be directly linked, and the best view is on an interactive slide show linked to the article. We have provided a photograph of a near somewhat smaller house in Levittown (see photo).

In 2006, the owner had refinanced the house with a $308,750 loan, indicating a value more than triple that of comparable housing in much of metropolitan America.

Levittown, of course, was the late 1940s housing development on Long Island that set the stage for the automobile oriented suburban expansion that did so much to create the largest and most affluent middle class in the world. The Levittown houses were very small, starting at about 750 square feet, though many have been expanded. It was not long before suburban housing became larger, eventually rising to the present 2,250 square foot median. The Wall Street Journal's Aberdeen township house is under 1,500 square feet, according to Zillow and was built in 1953.

The Wall Street Journal article misses a significant point. How could such a modest (and doubtless comfortable) house have become so valuable that it could justify refinancing for more than $300,000? The answer is simple. During the real estate bubble, house prices in New Jersey exploded. The state's restrictive land use regulation largely prohibit new housing on the suburban fringe, leaving prices nowhere to go but up and up strongly. Between 2000 and 2006, the median house value in Monmouth County, where Aberdeen Township is located, rose 125% (according to US Bureau of the Census data). 2006 data for Aberdeen township is not readily available.

By the peak of the bubble, the median value house in Monmouth County was 5.8 times the median household income, up from 3.0 times in 2000. In 2000, prices were even lower in Aberdeen township, at 2.3 times incomes – well within the 3.0 standard that defined housing affordability for at least one-half century.

While owners were borrowing $300,000 or more on their modest early 1950s houses in Aberdeen township, households were buying brand new houses of the same size for under $120,000 in Dallas-Fort Worth, Atlanta, Houston, Indianapolis and a host of other metropolitan areas where the American Dream had not been outlawed. Expansion of the housing supply was allowed, and prices stayed within historic norms. For example, in Indianapolis, house prices were less than one-half that of Monmouth County, after adjusting for income levels.

Meanwhile, a judgment of $370,000 has been entered against the owner of the Aberdeen township Levittowner. The auction in late April by the Monmouth County Sheriff for a price that is probably closer to its real value if it had been in a rationally regulated jurisdiction: $100.

Drew Carey and John Stossel Tell Cleveland to Learn From Houston

Tory Gattis — Wed, 28 Apr 2010 01:14:43 -0400

What started as a humble video segment for Reason TV has mushroomed into a lot of positive PR for Houston (and less than positive for Cleveland). It started with famous actor and comedian Drew Carey working with the libertarian Reason Foundation on a video series about saving Cleveland, his hometown. Houston is held up as a "best practice" example for land use regulation. There are lots of suggestions and positive comparisons to Houston on red tape (minutes 29:20 thru 32), zoning (37:30), and opportunity (47:50). Yours truly has a short cameo at 38:55. (If you want to be able to jump around, the trick is to start playing it, then hit Pause. You'll see the grey loading indicator continue to download the video. Come back later after it's fully loaded and you'll be able to jump to any point you like.)

After the series was released to the internet and Forbes declared Cleveland the Most Miserable City in America, John Stossel at FOX Business News picked it up. A friend of mine loaned me a DVD of the 45 minute show (thanks Nolte), but I haven't been able to find it online. There are shorter segments about it here and here. The first one jumps right into talking about Houston 16 seconds in, and the second one jumps into Houston around 40 seconds and 58 seconds in. The Cleveland newspaper writes about the show here.

Unfortunately, one of the professors he has on the show to present the other side brings up another one of those Houston myths that just won't die: that you can build anything next to anything, including a strip club next to a day care center or school. No, we have narrow nuisance and SOB regulations to prevent that. We also have private deed restrictions. You don't have to prescriptively control everything to prevent the worst-case scenarios.

Then Bill O'Reilly picks up the story in an interview with Stossel (hat tip to Jessie):

STOSSEL: People go to where the weather is good. We already have...

O'REILLY: Well, you can't blame the city for the weather. I mean, look at Chicago. Great city, bad weather. Boston, come on. You can't blame the city for the weather.

STOSSEL: You can rank them for that. And you can blame the politicians for saying we're going to raise taxes to build our wonderful projects, and that's going to make things better. The cities that prosper like Houston are the cities that have fewer rules and lower taxes.

O'REILLY: But remember Houston used to be the crime capital? They cleaned that place up pretty well.

STOSSEL: But Cleveland has 22 zoning categories. Houston has none.

O'REILLY: Twenty-two zoning categories? Very hard.

STOSSEL: In Cleveland, to start a business, a politician bragged, "We could get you in there in just 18 months." In Houston, one day.

O'REILLY: One day? The problem with no zoning is you can have, you know, the No-Tell Motel right next to you. And...

STOSSEL: You could. But that rarely happens. And it's not an ugly city, Houston.

O'REILLY: No, I didn't say it was ugly. Who said it was ugly?

STOSSEL: Lots of people. No zoning. The city planner said it will be ugly. You will have...

O'REILLY: We have a lot of Houstonians watching "The Factor," and I love going to Houston. All right. There you are, the Forbes magazine list, and Stossel laying it down.

We've come a long way. Five or ten years ago, you couldn't find many people - including libertarians - that were willing to hold Houston up as a land-use model in public because our reputation was so bad. But now they do, and it's (slowly) changing our national reputation for the better.

This post originally appeared at HoustonStrategies.com

Queensland: Housing Relief on the Horizon?

Wendell Cox — Tue, 13 Apr 2010 00:13:21 -0400

Queensland might be thought of as the Florida of Australia. Like Florida, Queensland is the "Sunshine state." For years, Queensland has been the fastest growing state in the nation, just as Florida has been the fastest growing large state in the United States. The Gold Coast in Southeast Queensland might be characterized as Miami Beach on steroids.

Both states have also faced housing difficulties. With its smart growth land rationing policies, house prices escalated wildly in Florida and then collapsed as America's "drunken sailor" lending policies came home to roost. Queensland has had similar "urban consolidation" land rationing policies and the same house price escalation has occurred. However, the price bust did not follow, because lending standards were more strict. This is because adults were in charge of finance in Australia instead of the cartoon characters that drove policy in the United States. Australian lenders at least asked borrowers if they had a job and checked their pulse.

But there are still housing problems in Queensland. The Urban Development Institute of Australia Queensland has just released its two Richardson reports that, among other things, suggest that restrictions on housing are increasing household sizes. In recent years, only one new house has been produced for each new resident, which compares to an average household size of 2.5. Presumably younger people are living longer with their parents and perhaps, with the strong foreign immigration to Australia, there is substantial "doubling up," as houses are shared by people who would not otherwise live together, such as multiple families (internationally, census authorities define a household as all of the people living in a single house).

Median lot prices and median house prices have risen strongly in Queensland, which has led to a decline in housing construction and a loss of construction jobs. The report recommends allowing more housing development on greenfield sites and developing additional infrastructure on the urban fringe where more housing would be developed. Finally, the report urges that the state establish benchmarks for the time it takes to approve and build greenfield developments.

The Richardson reports are just another indication that the severity of the housing crisis and its causes is more broadly understood in Australia. Queensland would do well to follow its recommendations.

Photo: Gold Coast

Avoiding Housing Bubbles: Regulating the (Land Use) Regulators

Wendell Cox — Mon, 04 Jan 2010 19:37:12 -0500

Federal Reserve Chairman Ben Bernacke called for stronger regulation to avoid future asset bubbles, such as the housing bubble that precipitated the international financial crisis (the Great Recession) in an Atlanta speech.

The Chairman appears to miss the fact that regulation itself was a principal cause of the Great Recession. The culprit, however, was not financial regulation, but rather land use regulation, which drove house prices so high in highly regulated markets. When households that could not afford their mortgages defaulted, the losses were far too intense for the mortgage industry to sustain, and thus the Great Recession.

This is not to ignore the role of Congress and others, which fueled more liberal mortgage credit, and created the excess and credit-unworthy
additional demand for home ownership.

This higher demand, however, was only a necessary, but not a sufficient condition for creating the bubble, which when burst, precipitated the worst economic crisis since the Great Depression. In many markets, there was relatively little increase in house prices relative to incomes, as prices remained at or below the historic Median Multiple (median house price divided by median household income) standard of 3.0. In other markets, however, prices reached from 5 to 11 times incomes.

Already, a new bubble may be on the way to developing. Even after the huge losses, house prices in California were only beginning to return to sustainable historic levels (3.0 Median Multiple). Since bottoming out, however, prices in California have risen 20%, at an annualized rate greater than that of any bubble year.

Perhaps the first principle of regulation is understanding what to regulate. In the case of the housing bubble, it was land use regulations themselves that needed to be regulated.
To avoid future housing bubbles, no more effective action could be taken than to repeal the restrictive land use regulations, without which the last bubble would have been, at most, only slight compared to the destructive reality that ensued.

A Threat To Home Owners Associations

Rick Harrison — Wed, 02 Dec 2009 21:52:39 -0500

In the 1990s, just about the only site amenity that most suburban developments offered was a fancy entrance monument. Usually, there were no other additions beyond ordinance minimums and even those weren’t generally elaborate. Some of these monuments did cost millions, but once past the gilded gates, the seduction ended, and residents were greeted by familiar monotonous cookie cutter subdivisions.

As neighborhood planners, we educate our developer clients regarding the virtues of building site amenities that improve Quality of Life (trails, gazebos, decorative ponds and fountains, etc). You would think these amenities were an easy sell to the cities approving the developments. After all, great developments create a great city, right? It’s not that simple, because all of these amenities require maintenance, and that places a burden on tax payers. No city wants to create a tax burden for all, when the likely benefit accrues to the few within the development.

The solution to that problem was simple: The Home Owners Association. We are not talking about the type of Stepford-like association where lifestyles and flower plantings are strictly dictated, but the more limited type that adds a small monthly fee to service the common outdoor site amenities. In other words, only those extra amenities are cared for. Private yards still remain the financial burden of the individual homeowners. In the North, with snow removal, these neighborhood association fees are likely to be higher if the trails and walks are cleared. Since these Associations do not have to maintain private yards or address maintenance of buildings typical of townhome projects, the monthly fees are minimal. Some associations were formed in the North that did give options for snow removal on private driveways, at a very reasonable cost (after all, why not clear a few extra driveways while you are out clearing the trails?).

The developer could now offer a much higher living standard and create more valuable lots that would be easier to sell. The majority of the neighborhoods we designed in the late 1990s through 2006 (the recession) offered the advantages that these minimal cost Associations could provide. We encouraged developers to spend less on elaborate entrance monuments and instead spread real value through the development where people lived.

How HOAs May Be At Risk The recession has not just brought about massive foreclosures and reduced home prices. It has escalated real-estate taxes (the home value may be 40% less but the tax remains at pre-recession rates) and put the very idea of a Home Owners Association at risk. With failed development, there are often also failed Associations. With little or no maintenance of a development that was once cared for by private funding, cities may have to take over the burden until the economy recovers, and in some areas, if it recovers. Comprehensive associations that maintain all of the grounds (where there are no privately maintained yards),including the building exteriors and rooftops, as well as the streets, are at the greatest risk. The limited Associations that were typical of the neighborhoods we designed are not as much of a problem, but could easily be lumped into “all Associations are bad news” category in the minds of those approving future developments, after the economy returns.

This affects all types of residential development.

Developments that exceed minimum standards typically offer site amenities to make the development more enticing. Someone must maintain these extras. Fear of HOA failures will certainly be more on the minds of cities after the recession, but without HOAs, who will maintain the amenities? A two million dollar entrance monument does not make a neighborhood sustainable. Spreading value through the neighborhood with features that enhance quality of life, is a better investment. The Homeowners Association must not fall victim to the recession.

Smart Growth Places 3rd in Houston Mayor's Race

Wendell Cox — Thu, 05 Nov 2009 18:01:52 -0500

Houston city councilman Peter Brown, unique as a devotee of smart growth (compact development) in this city of light land use regulation, placed third in the mayoral election yesterday. Brown had long advocated Portland-style smart growth land use and development policies for the city of Houston and looked likely to garner the most votes in the four-way race. Brown, an architect and urban planner, spent more than $3 million of his own money in the election.

The Houston metropolitan area distinguished itself by not experiencing the profligate credit and smart growth related house price bubble and, as a result experienced little decline in house prices and largely avoided the Great Recession. Houston is the largest municipality in the nation without zoning, however, with land regulation being principally limited to private covenants between land owners. Other Texas metropolitan areas also averted the housing bubble and the Great Recession, because their generally more liberal approaches to land regulation did not produce the price distortions that occurred in more highly regulated metropolitan areas as in California, Florida, Arizona, Nevada, the Pacific Northwest and the Northeast.