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Las Vegas Train 10 Times Solyndra Taxpayer Loss? (Report Announcement)

The Reason Foundation has released our “Xpress West” (formerly “DesertXpress”) analysis. This high speed rail train would run from Victorville (90 miles from downtown Los Angeles) to Las Vegas. Promoters predict high ridership and profits. They are seeking a subsidized federal loan of more than $5.5 billion, which is within the discretionary authority of the US Department of Transportation to fund.

Our analysis concludes the following:

1. There is serious question whether there is a market for Las Vegas travel that would require driving one-third of the way and transferring to the train. If there is no such market, as seems likely from the international experience, ridership could be as low as 97 percent below projections. The reality can be known only after the line is running.

The balance of the report is based upon the assumption that there is a market for driving to Victorville and boarding a train to Las Vegas.

2. The ridership and revenue projections (by URS Corporation) are based upon data that is more than 7 years old and predates the Great Financial Crisis. There have been significant downward demand trends in the travel market and Las Vegas tourist market since that time, especially in the share of the market from the Los Angeles Basin. It is inappropriate to use such old data in projecting system performance (Certainly no private company would rely on such old data in a due diligence analysis).

3. Even after adjusting the obsolete data (which our report does), the ridership projections are implausibly high — at four times the Amtrak Acela ridership between Washington, Baltimore, Philadelphia and New York.

4. Over 24 years (the forecast period in the project document), we project that expenditures will exceed revenues by between $4 billion and $10 billion. This would mean that there would be insufficient revenues to pay the federal loan. This could result in a taxpayer loss approximately 10 times that of the Solyndra federal loan guarantee.

5. The free use by the private Xpress West project of the Interstate 15 median could preclude cost effective expansion of this roadway. Even assuming the implausible Xpress West assumptions on diversion of drivers to the train, the overwhelming majority of growth in the corridor would be on the highway, not on the train. This includes not only the heavy truck traffic, but also car traffic.

Related: The Las Vegas Monorail

Wendell Cox was also author of  “Analysis of the Proposed Las Vegas LLC Monorail,” which indicated that ridership and revenue projections were extremely optimistic and that the project was likely to fail  financially. Subsequently the project filed bankruptcy and defaulted on bonds. The actual ridership on the Monorail was within the range predicted in “Analysis of the proposed Las Vegas LLC Monorail,” and far below the level forecast by project consultant URS Greiner Woodward Clyde.

Also see this letter from other consultants reviewing the project (Thomas A. Rubin, Jon Twichell Associates, Professor Bernard Malamud  and Wendell Cox).

The Las Vegas Monorail case is described in the Reason Foundation report.

 

Aug 16, 2012 | 7 comments | by

The London Green Belt Racket

Paul Miner, Senior planning officer for the Campaign to Protect Rural England took exception to The Economist’s liberal view that it might be time to open up London’s Green Belt to housing development, at least in part to improve housing affordability. We had commended The Economist for allowing a view that average households in the London area deserved decent housing for a price not skewed upward by the planning created land use oligopoly.

Kate Barker, former member of the Monetary Policy Committee of the Bank of England produced two seminal reports documenting the extent to which housing prices are unnecessarily elevated by the planning regime in the United Kingdom. The Demographia International Housing Affordability Survey (which I co-author with Hugh Paveletich of Performance Urban Planning in Christchurch) annually shows housing to be severely unaffordable from Kent to Liverpool (yes, you read right, Liverpool).

I was pleased when my friend Fidelis (not my friend’s real name) penned a letter in response to The Economist, which was not published. This is not surprising, because demand for letter space in The Economist exceeds the supply by nearly as much as the demand for decent housing exceeds the supply of affordable stock in the United Kingdom.

Fidelis also sent me a copy, which is published below:

“The Green Belt Racket”

Dear Economist:

Paul Miner may well argue for the utility value of “Green Belts”. The basic question that needs to be asked about these, is whether greater benefit at much lower cost would be provided by Green enclaves that remain off-limits to development within a region otherwise open to development. The imposition of a Green Belt, including in Mr Miner’s examples of Seoul and Toronto, has always been followed by relentless declines in housing affordability. The same applies to an urban growth boundary.

The crucial factor in housing affordability everywhere, is the freedom to convert rural land to urban. This does not require the abandonment of a “green and pleasant land” to developers; as long as there is a broader “freedom to convert land”, any amount of land may be placed in “preservation” enclaves without inflating urban land rents in the way that a continuous boundary or belt does. And a multitude of “enclaves” are likely to be accessible to a greater number of people, and command lower “premiums” of price for adjacent properties, making proximity to them affordable to a greater proportion of the population.

Paul Cheshire and Edwin S. Mills, in their Introduction to the 1999 “Handbook of Urban Economics, Volume 3”, mention an estimate that the most expensive land (usually CBD land) in the most expensive growth-contained cities is 100,000 times more expensive than equivalent land in typical non-growth-constrained cities. It is not the advocates of “freedom to develop” who have a case to answer regarding whose pocket they are in, it is the advocates of constraint. The profits made by developers of Greenfield land under true conditions of “competitive land supply” (as in many US cities) are modest and honest. The capital gains made by “big property” through urban growth controls are massive and completely unearned.

Paul Miner argues, as many of his type do, that there is “enough brownfields land” available in London and the surrounds, for 400,000 new homes. But what is the asking price for these brownfields sites? Ironically, Shlomo Angel et al find in “Making Room for  Planet Full of Cities” (2010), that the rate of “infill” of “fragmented” land is higher in low-land-cost, unplanned Houston, than in growth-constrained, high-land-cost Portland. Empty buildings, unrenewed old structures, undeveloped brownfields sites, and speculative properties without tenants due to holdout price expectations on the part of the “greater sucker” current owner – all running along with a severe overhang of massive numbers of “excluded” potential buyers and renters – are all features of supply-distorted property markets such as the UK’s and China’s.

Sincerely,

Fidelis

 

 

Aug 05, 2012 | Leave a Comment | by

Atlanta’s Transit Tax Rejection: Saying No to a Dead End Agenda

Atlanta area voters said “no” to a proposed $7 billion transportation tax that was promoted as a solution to the metropolitan area’s legendary traffic congestion, despite a campaign in which supporters outspent opponents by more than 500 to one.

The Atlanta Journal Constitution reported that the measure lost 63% to 37%. This 26% margin of loss was nearly three times the margin shown in most recent poll by the Journal-Constitution. Proponents had claimed that the measure was “dead even” three days before the election. Supporters spent up to $8.5 million on the campaign. Opponents raised less than $15,000.

The tax issue failed in all 10 counties. The defeats were modest in Fulton County (the core county, which includes most of the city of Atlanta) and DeKalb County (which contains the rest of Atlanta). Huge “no” vote margins were recorded in the largest suburban counties. In Gwinnett County, the no votes prevailed by a margin of 71% to 29%. In adjacent Cobb County, the margin was 69% to 31%.

On election morning, the Atlanta-Journal Constitution featured opposing commentaries by regional planning agency (Atlanta Regional Commission) Chairman Tad Leithead and me. Chairman Leithead stressed the view that the tax would lead to reduced traffic congestion, job creation and economic development. My column stressed the view that the disproportionate spending on transit (53 percent of the money for one percent of the travel market) would not reduce traffic congestion.

Observation on the Result

 Voters were asked for $7 billion to not reduce traffic congestion. The electorate was wise enough to know that spending more than 50 times as much per transit rider as per car passenger could not reduce traffic congestion in a city where transit moves only one percent of travel. The result was thus a genuine blow for rational public policy. Atlanta needs transportation that builds the economy by minimizing travel times and reducing traffic congestion. That means getting the traffic moving, not politically correct dead-end strategies out of an anti-economic growth (and ideological) playbook.

 

Aug 04, 2012 | 2 comments | by

Driverless Cars: Trading the Future for the Past

Economist Clifford Winston of the Brookings Institution outlines the surface transportation system of the future in a Wall Street Journal commentary, “Paving the Way for Driverless Cars.” Winston notes that driverless cars are a much better technological solution than high speed rail.

The Obama administration in Washington and the Brown administration in Sacramento claim high speed rail will reduce traffic congestion and air pollution. California’s high speed rail cost escalation and technical appendices from the planning documents for virtually all high speed rail system show that hope to be in the category with the proverbial used-car salesman claims that, today, would attract the attention of a state attorney general.

Like that hanger-on technology, magnetic levitation, high speed rail might well have been able to make a significant mark in US transportation if the airplane had never been invented. If there were no airplanes, high speed rail might even be able to pay for itself. But it is 2012, not 1890 and the airplane is here to stay.

So are cars. Automobiles provide far less expensive transportation that is far more convenient, leaves it leaves you in the garage, not at a station 20 miles away where you have to wait for a bus, find a taxi or rent a car). Besides being available for the trip to Fresno, Cherry Hill or Bloomington-Normal, the car gets people around these places better than anything ever invented.

Mass transit is beyond competition when it comes to getting to work south of 59th Street in New York or the Chicago Loop, but little of America (or anywhere else) looks like that. Mass transit is in the minor leagues compared to the car in terms of its access around the modern urban area. Approximately 85 percent of driver are able to get to work in 45 minutes. In contrast, data from the Brookings Institution indicates that the average metropolitan area resident is within only six percent of jobs in 45 minutes by mass transit. As a result, spending tax money to attract people out of their cars to mass transit has about as much hope for success as trying to get people to replace their modern refrigerators with mid-19th century ice-boxes.

In the final analysis, attempts to restore an over-romanticized past or to lure people into accepting greater inconvenience despite having better and less expensive options is futile. That’s why the driverless car makes so much sense.

Already Google has conducted experiments with the automated car that have been so successful that they are now permitted in Nevada. Winston suggests that by automating cars, it will be necessary to separate automobile traffic from truck traffic, which will make it possible to provide additional traffic lanes within the existing road footprint. Non-automated cars and trucks would continue to operate in conventional, wider lanes on the same right-of-way. Another advantage would be that with the automated control, more cars could be accommodated in each lane. The need for highway expansion would be largely displaced by substantially improving capacity by upgrading highways with 21st century technology.

Winston has been a critic of overly expensive urban rail systems and transit subsidies. Driverless cars were also the subject of a Wall Street Journal commentary by Randal O’Toole in 2010.

 

 

Jul 21, 2012 | 3 comments | by

The Atlanta Transit Tax: For the 1 Percent


 

Voters in Atlanta, with some of the worst traffic congestion in the nation, are being asked to approve a new tax that would spend more than 50% on transit, in an urban area where transit carries only 1% of travel (Figure). No one is naive enough to think that the new billions for transit would improve traffic congestion. Worse, the distorted program would contribute to worse congestion by spending on billions on transit, which cannot reduce traffic congestion, instead of on roadways, which is the only way that traffic congestion can be reduced.

The July 31 vote is in 10 counties of the 28 county Atlanta metropolitan area. The measure would raise the sales tax by one cent, for $8 billion in transit and highway projects over 10 years.

In a metropolitan area in which barely one percent of travel is by transit, the tax measure would devote more than one-half of the funding to transit (see Figure).  As we wrote in an Atlanta Journal-Constitution commentary, the focus of any transportation revenue issue should be on reducing travel times, whether by transit or highways. This is how transportation improves an urban economy. The reality is that with nearly all travel by highways and transit’s inherently slower travel times, much of the tax money would be spent on strategies that have virtually no hope of reducing travel times or traffic congestion.

Atlanta’s Traffic Congestion: Promoters of the tax claim that the highway projects will reduce traffic congestion. Atlanta is well known for its serious traffic congestion. There are two reasons for this:

(1) Atlanta has a sparse freeway system, which is limited to little more than a belt route (I-285) and three radial freeways (I-20, I-75 and I-85) that converge into two downtown. Seven years ago, we rated Atlanta as having the least effective freeway system among major US urban areas. Nothing has happened to change that rating, except for the addition of 750,000 people. This tax issue will do virtually nothing to improve roadway travel on the regional level.

(2) Perhaps even worse, Atlanta’s regional arterial (high capacity streets) system is virtually non-existent. For this reason, we proposed (in 2000) development of a one-mile terrain constrained grid of arterials . A local editorial writer found this so hard to deal with it that he misrepresented it as a mile grid of freeways to make it look extreme. Later, the Atlanta Regional Council (ARC), the local metropolitan planning organization, included a somewhat more modest (but useful) arterial grid in is regional plan.

The Transit Tax: Fixing What Should have Already Been Fixed: The transit projects have virtually no potential to reduce work trip travel times and thus no potential to reduce traffic congestion. Approximately one-fifth of the transit funding would be used to rehabilitate and upgrade the MARTA subway system, a need that should have been legitimately funded from the existing MARTA sales tax.

The Transit Tax: Subsidizing Land Speculation: Another nearly 20 percent of the transit funding would be spent on the “Belt-Line” streetcar project in central Atlanta. The Belt-Line is more “city building” (read “real estate speculating”) than it is transportation. It will do nothing to reduce work trip travel times. Further, it is exceedingly costly. The extravagance of this project is illustrated by an annualized capital cost alone (principally construction) high enough to pay the lease on a new mid-sized car for each new regular passenger.

The Transit Tax: Emulating Miami? The history of transit is fraught with cost increases and project cancellation and delay as transit agencies, unable to control their rising costs, can spend money for day-to-day operations that had been planned to build new transit lines. This has happened with a vengeance in Miami, where a 2002 transit tax to expand the rail system has largely been frittered away in higher operating costs. It could happen in Atlanta.

The Road Projects: In a metropolitan area in which personal mobility predominates, roadway improvements, such as expansions, an arterial grid in Atlanta’s case and completion of the GA-DOT HOT (high occupancy toll) system provide the greatest potential for reducing travel times. There is another significant benefit to highway investments. As traffic speeds increase fuel efficiency improves and both air pollution and greenhouse gas emissions are reduced.

With less than 50 percent of the funding going to roads, less than one-half the potential benefit of the $8 billion can be achieved. This ineffective return is felt by low income citizens almost to the same extent as everyone else. While 88 percent of all commuters in Atlanta travel by car, the figure is only slightly less (83 percent) among low income commuters (Figure 4).

What’s Right About Atlanta: For all its problems, Atlanta has much to be proud of. Former World Bank principal planner Alain Bertaud said of Atlanta in a 2002 study:

 While income and population were rising very fast, Atlanta managed to keep a very low cost of living. A worldwide cost of living survey conducted by the Economist Intelligence Unit in 2002 found that Atlanta had the lowest cost of living among major US cities and ranked 63rdamong major cities around the world. This achievement is remarkable in view of the rapid rate of growth of the metropolitan area over the last 20 years. It shows that while demographic and economic growth has certainly contributed to generate pollution and congestion, the various actors responsible for the management of metropolitan Atlanta must have done a lot of things right. High income growth and high demographic growth combined with a low cost of living suggests that labor markets are functioning well and that housing does not encounter important supply bottlenecks. (Note on Atlanta’s Superior Housing Affordabilitiy)

 Atlanta’s leadership should go back to the drawing board. A rational proposal is required to reduce Atlanta’s travel times (which are longer than its major US competitors, such as Dallas-Fort Worth and Houston) and grow the economy. There’s no point in spending more than 50 percent on the 1 percent.

(More at The Atlanta Transportation Tax: Too Much for Too Little.)

 

——

Note on Atlanta’s Superior Housing Affordability: Atlanta was most affordable major metropolitan area in the US, UK, Canada, Australia, Ireland, New Zealand and Hong Kong in the 8th Annual Demographia International Housing Affordability Survey.

 

Jul 14, 2012 | 2 comments | by

Smart Growth on Steriods: Sick Cities

Smart growth on steroids, or the radical densification policy of California,  was the subject of my recent commentary in The Wall Street Journal — “California Declares War on Suburbia”  (http://online.wsj.com/article/SB10001424052702303302504577323353434618474.html?mod=rss_com_mostcommentart). Regional transportation plans in the San Francisco Bay Area, the Los Angeles area and the San Diego area seek to force the vast majority of new residents in future decades into multi-family housing. Under the state’s greenhouse gas emissions reduction law (Assembly Bill 32) and its companion urban planning law (Senate Bill 375), it will be nearly impossible to build new detached housing. This is despite the fact that 80 percent additions to the housing stock in California’s major metropolitan areas was detached between 2000 and 2010.

It was bad enough when misnamed “smart-growth” policies simply sought to ban building beyond the urban fringe (where the city meets the country). The result was as predictable as the effects of an OPEC oil embargo. When developable land is embargoed, its price goes up. How much it goes up is anyone’s guess, because prices cannot be accurately predicted in a manipulated market. In the case of oil, it can be expected that speculators will enter the market seeking a quick profit. It is no different in residential land (and housing), where the was much more speculative activity in the bubble states of California, Florida, Arizona and Nevada (so designated by New York Federal Reserve Bank reserve), and of course there were substantial house price increases.

The amazing thing about this is that underlying housing demand was low in the worst of the bubble states, California. During the bubble, more than 1,000,000 residents moved to other states (California kept growing because of immigration and the excess of births over deaths). By comparison, in Atlanta, Dallas-Fort Worth and Houston (and for that matter Indianapolis, Columbus and Kansas City), there was net immigration, yet housing prices stayed within historic norms. By the time the peak hit, prices in California metropolitan areas were from double to nearly quadruple historic norms.

Now, however, the urban planners want to limit construction to areas that are close to rapid transit stops, and at densities five or more times consumer preferences. Rather than quarter or fifth of an acre lots, planners intend that nearly all new housing will be at 20, 30 or even 40 to the acre. Naively, they assume that this will encourage people to use transit more. Yet, even their own plans don’t show any such impact. In San Diego, the share of travel on transit would rise from less than 2 percent now to less than 4 percent in 2050, despite spending more than half of the highway and transit money on transit. Thus, spending up to 25 times transit’s share of the market returns only the most modest transit ridership increases.

The higher densities are likely to lead to more intense traffic congestion, consistent with the association between high densities and intense traffic congestion around the world. The irony is that the higher the share of travel on transit, the worse the traffic congestion. This is because transit ridership is high only where there is high density, but the transit use does not reduce demand enough to compensate for the larger density of cars.

Urban areas are justified by economics. People have moved to them to have better lives. Raising the price of housing (unnecessarily) and slowing down commuting (because transit is much slower) could work against urban areas that implement such policies and drive people elsewhere. This is evident, already, in the San Francisco Bay area, Los Angeles and San Diego, where growth has slowed to a trickle — places where the net-outmigration is greater even than that of former migration laggards Pittsburgh and St. Louis.

—–

Also see: California Declares War on Suburbia II: The Cost of Radical Densification

http://www.newgeography.com/content/002781-california-declares-war-suburbia-ii-the-cost-radical-densification

Apr 18, 2012 | 2 comments | by

Saving Lives and Time While Reducing Traffic Congestion

Traffic Congestion Solution in Offing

 

The driverless car is emerging as the most promising long term solution to traffic congestion. Up to this point, there have been few practical alternatives. The most obvious conventional alternative is expansion of roads, which is effective. However, expanding roads can be very difficult in urban environments. The other alternative, on which literally billions have been wasted, has be to entice drivers out of their cars into transit. This strategy is irrational, since few trips in urban areas can be made by transit in times that are remotely competitive with the car. Further, most trips in urban areas simply cannot be made by transit. A Brookings Institution report indicates that the average resident can reach 9 percent of the jobs in major metropolitan areas (those with more than 1,000,000 population) in 45 minutes. On the other hand, more than 75% of jobs are reached by car.

 

Driverless cars would have advantages over conventional cars. Their computer technology makes it possible for them to avoid collisions more reliably. They are able to operate more closely together, because their technology responds more quickly than people. Driverless cars operate within mixed traffic — there is no need for all cars to be driverless or to have driverless technology. Thus, the conversion can take place over years as the automobile fleet is renewed.

 

In short, driverless cars will save lives and they will increase highway capacity, without building a single foot of new roadway. Google and others have undertaken significant testing and the state of Nevada has now made driverless cars legal.

 

Given the strong association between superior mobility (minimizing travel times) and economic growth, driverless cars could do much to improve the future of urban areas and their residents around the world.

 

Mar 01, 2012 | Leave a Comment | by

Preserving the Ideal of a Property Owning Democracy: The 8th Annual Demographia International Housing Affordability Survey

www.dhi.pdf

 

EXECUTIVE SUMMARY

Rating Housing Affordability

The 8th Annual Demographia International Housing Affordability Survey covers 325 metropolitan markets in Australia, Canada, Hong Kong, Ireland, New Zealand, the United Kingdom and the United States. The Demographia International Housing Affordability Survey employs the “Median Multiple” (median house price divided by gross [before tax] annual median household income) to rate housing affordability (Table ES-1). The Median Multiple is widely used for evaluating urban markets, and has been recommended by the World Bank and the United Nations and is used by the Harvard University Joint Center on Housing.

 

More elaborate indicators, which mix housing affordability and mortgage affordability can mask the structural elements of house pricing are often not well understood outside the financial sector. Moreover, they provide only a “snapshot,” because interest rates can vary over the term of a mortgage; however the price paid for the house does not. The reality is that, if house prices double or triple relative to incomes, as has occurred in many severely unaffordable markets, mortgage payments will also be double or triple, whatever the interest rate.

Historically, the Median Multiple has been remarkably similar in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, with median house prices having generally been from 2.0 to 3.0 times median household incomes (historical data has not been identified for Hong Kong), with 3.0 being the outer bound of affordability. This affordability relationship continues in many housing markets of the United States and Canada. However, the Median Multiple has escalated sharply in the past decade in Australia, Ireland, New Zealand, and the United Kingdom and in some markets of Canada and the United States.

The Demographia International Housing Affordability Survey is produced to contrast the deterioration in housing affordability in some metropolitan markets with the preservation of affordability in other metropolitan areas. It is dedicated to younger generations who have right to expect they will live as well or better than their parents, but may not, in large part due to the higher cost of housing.

Housing Affordability in 2011

Housing affordability was little changed in 2011, with the most affordable markets being in the United States, Canada and Ireland. The United Kingdom, Australia and New Zealand continue to experience pervasive unaffordability.

Major Metropolitan Markets: The 325 markets include 81 major metropolitan markets (those with more than 1,000,000 population).

Among these major metropolitan markets, there were 24 affordable major markets, 20 moderately unaffordable major markets, 13 seriously unaffordable major markets and 24 severely unaffordable major markets. All of the affordable major markets were in the United States while three of the moderately unaffordable markets were in Canada and one in Ireland with the other 16 in the United States. The severely unaffordable major markets were principally in the United Kingdom (8), the United States (6), and Australia (5). Hong Kong was severely unaffordable and there were three severely unaffordable major markets in Canada and one in New Zealand (Table ES-2).

 

The most affordable major market was Detroit, with a Median Multiple of 1.4, below the historic range of 2.0 to 3.0. Atlanta had a Median Multiple of 1.9. The other 22 affordable major markets had Median Multiples of from 2.0 to 3.0, with the most affordable being Phoenix, Rochester, Cincinnati, Cleveland and Las Vegas. The strong growth markets of Dallas-Fort Worth, Houston, Orlando, Jacksonville, Nashville, Oklahoma City, Sacramento and Indianapolis also achieved affordable ratings.

All major markets in Australia and New Zealand, as well as Hong Kong were severely unaffordable. Hong Kong was the least affordable major market (ranked 81st), with a median multiple of 12.6. Vancouver was second most unaffordable, at a Median Multiple of 10.6 (ranked 80th), which is even more severely unaffordable than last year. Sydney was the third most unaffordable, at 9.2 (ranked 79th). Melbourne and Plymouth & Devon all had Median Multiples of more than 7.0.

All Markets: Among all 325 markets surveyed, there were 128 affordable markets, 117 in the United States, 9 in Canada and 2 in Ireland. There were 87 moderately unaffordable markets, 64 in the United States, 19 in Canada, 3 in Ireland and 1 in the United Kingdom. There were 39 seriously unaffordable markets and 71 severely unaffordable markets. Australia had 25 severely unaffordable markets, followed by the United Kingdom with 20 and the United States with 14. Canada had 6 severely unaffordable markets, while New Zealand had 5. China’s one included market, Hong Kong, was also severely unaffordable (Table ES-3). Honolulu and Bournemouth & Dorsett were the most unaffordable markets outside the major metropolitan markets, with a Median Multiple of 8.7.

Housing Affordability: Incompatible with Restrictive Regulation

The deterioration of housing affordability in many of the markets rated in the Demographia International Housing Affordability Survey is unprecedented based upon the available historical data. Australia and New Zealand, for example, which had legendary housing affordability from after World War II to the 1980s and 1990s have seen house prices reach levels that are nearly double even nearly triple their historic ratio to household incomes.

The economic evidence indicates that this trend is strongly related to the implementation of more restrictive land use regulations, especially measures that create scarcity in land for housing. In creating scarcity, more restrictive land regulation increases land prices, which increases house prices. In considering this process, economist Anthony Downs, of The Brookings Institution in Washington. D.C., has indicated the importance of maintaining the “principle of competitive land supply.” This is particularly important because one of the most favored more restrictive land use policies is the “urban growth boundary,” which prohibits development on considerable amounts of land that would otherwise be developable, resulting in artificial and unnecessary scarcity values. The escalation of house prices relative to incomes, from Sydney and Vancouver to London and across California testify to the failure of planning to maintain a competitive land supply. The record shows that smart growth (urban consolidation and compact cities policies) is incompatible with housing affordability.

More restrictive regulation has led to situations where “across the road” values per hectare of raw, developable land vary by more than 10 times in Auckland and Portland, based upon whether they are inside or outside the urban growth boundary. And these “urban echo values” at these locations (pricing in anticipation of future urban zoning) are generally substantially higher than the true rural values, further out from the urban growth boundary. Even larger differences have been documented in the United Kingdom’s Barker Report and researchers at the London School of Economics.

Further, economic analyses have indicated that metropolitan areas with more restrictive land use regulation tend to perform less well economically than would have been otherwise expected.

Preserving the “Ideal of a Property Owning Democracy”

One of the principal accomplishments of high-income world societies has been the expansion of property ownership and home ownership to the majority of the population. At the same time, there are dark economic clouds on the horizon. Governments in high income nations are faced with some of the most challenging times in their history. In this environment, the property owning middle-class seems likely to have to face significant challenges in the longer run. Housing represents the largest share of household budgets and thus, housing affordability is a major determinant of both the cost of living and the standard of living.

There are important positive signs. The state of Florida repealed its more restrictive regulations (“smart growth” law) in 2011. A major report released in December 2011 in New Zealand documented the importance of a competitive land supply in restoring housing affordability to that nation.

These are important first steps. There are serious social risks to more restrictive regulation and unnecessarily denying households the opportunity to own their own homes. In writing on the issue 40 years ago, urbanologist Peter Hall expressed concern about the effect of such policies on the “ideal of a property owning democracy.”

Feb 02, 2012 | Leave a Comment | by

Why Housing is So Expensive in Metropolitan Washington

Anyone familiar with housing affordability in the Washington (DC-VA-MD-WV) metropolitan area is aware that prices have risen strongly relative to incomes in the last decade

However, a recent Washington Post commentary by Roger K. Lewis both exaggerates the contribution of higher construction costs and misses the principal factor that has driven up the price of housing — more restrictive land-use regulations.

Lewis compares construction costs in the early 1970s to current costs and finds that they are approximately 6 times as high. In fact, however, when the R. S. Means construction cost index for locations in the metropolitan area are adjusted for inflation, the increase is more like 15% (1970 to 2007).

Lewis also indicates that construction costs have risen faster than the “relatively flat income curve.” In contrast, Census Bureau data indicate that median household incomes in the Washington metropolitan area have increased more than 30% since the early 1970s, after adjustment for inflation. House construction costs are the flatter of the two, not incomes.

While Lewis’ focus is affordable housing, costs in this low income sector are impacted by many of the same factors that drive overall housing affordability (overall house prices relative to incomes).

Lewis does not consider the huge cost increase in the non-construction costs of housing. In the Washington metropolitan area, we have estimated that the land and the regulatory costs for a new house have been driven to more than 5.5 times the level that would be expected in a normal regulatory environment (see the Demographia Residential Land & Regulation Cost Index). The problem is that the restrictive land-use policies, such as the Montgomery County agricultural reserve, similar regulations in other metropolitan area counties and the large lot building restrictions in Loudoun County have driven the price of land up substantially, and with it, the price of housing. We estimate that more restrictive land use regulations have driven the price of a new house up approximately $75,000.

Not surprisingly, Washington’s Median Multiple (median house price divided by median household income) remains more than a third above the 3.0 historic norm, at 4.0, even after the burst of the housing bubble. So long as governments in the Washington, DC area continue to strictly ration land for development, higher than necessary costs will continue to plague both housing affordability and affordable housing.

Jan 20, 2012 | Leave a Comment | by

The Urban Transportation Issue: Minimizing Travel Times

The Atlanta metropolitan region is plagued with some of the nation’s worst traffic congestion. The principal problem is that the roadway system is not sufficient to handle the traffic. Part of the problem is that the area is poorly served by a sparse network of freeways. However, the lack of a viable arterial street system is probably an even more significant barrier, as indicated in our report with Alan Pisarski (Blueprint 2030: Better Transportation for Atlanta).

A campaign is now underway to improve transportation in Atlanta. The plan, however, would provide disproportionately large amounts of funding to transit projects that would simply do nothing to reduce traffic congestion, while failing to provide for the added roadway capacity required to handle the traffic demand.

The Atlanta Journal-Constitution invited me to author a commentary piece, which was published on November 21. It is republished here, because the transportation problems in Atlanta are similar to those in other large metropolitan areas both in the United States and Canada.

The Real Issue is Travel Times

Those joining the chorus of criticism of the roundtable’s transportation plan have plenty of reason to be disappointed. At a time when metro Atlanta needs economic growth more than ever, the plan would spend little of the proposed higher taxes on programs that would better position the area competitively.

The principal benefits of transportation in an urban economy occur from minimizing travel times. Atlanta is one of only four major metropolitan areas with a one-way work trip travel time of more than 30 minutes. This is primarily the result of metro Atlanta’s less-than-robust freeway system and a low-capacity arterial street system. If Atlanta is to become more competitive, it will be necessary to speed up car travel.
Yet, transit has an important role, especially in providing mobility to the downtown area. Transit also provides mobility for low-income households, though most of their travel is by car. However, transit is incapable of providing competitive travel times to most of the metro area, which is why people travel by car. Few places make the case better than Atlanta.

For more than 30 years, Atlanta has been expanding its transit system and has built one of the largest new rail systems in the world. What’s more, MARTA is a world-class metro (subway) similar in design and capacity to the Paris Metro or the London Underground, rather than the lower-capacity trolley systems built in Portland, Dallas and elsewhere, using the catchy marketing name “light rail.” Yet, since 1970, transit’s share of travel to work has fallen nearly two-thirds in the metro area and by nearly one-half in the city of Atlanta.

A recent Brookings Institution report highlights the scarcity of competitive service. Only 3.4 percent of metropolitan area jobs can be reached by transit in 45 minutes by the average employee. “This is an astounding figure, since the average single occupant automobile commuter spends one-third less time traveling to work.”

Even the most effective transit systems — New York, San Francisco and Boston — provide access to only around 10 percent of jobs. And, unless transit agencies are permitted to print money, there never will be enough to do much more.

In Europe, where cars carry the largest share of commuting in major urban areas, the European Conference of Ministers of Transport has characterized attracting people out of cars to transit as comparatively ineffective. If it were possible to reduce travel times with transit, local planners would have long ago proposed such a system; they haven’t anywhere. The reality is that transit, on average, takes 70 percent longer than commuting by car in the metro area and the roundtable plan will not change that.

Transit accounts for barely 1 percent of metropolitan travel. Yet the roundtable plan would commit more than 30 times that on transit. Nearly a quarter of this would be spent on repairing the MARTA system which, if it were sustainable, would have no need of new taxes.
Metro Atlanta needs a vision that focuses on objectives. This means one that reduces peak-hour travel delays as much as possible per million dollars of new taxation. How much is spent on transit or highways is not the issue. The issue is reducing metro Atlanta’s travel times to encourage greater economic growth, job creation and poverty elimination.

Dec 01, 2011 | 1 comment | by
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