Tag Archives: Urban Policy

Draconian California Water Restrictions

California has been plagued by a highly-politicized water crisis for months now, despite crisis warnings for years.

The state has fallen prey to the “tragedy of the (water) commons”, where each person feels their single contribution to the water crisis will not impact the overall situation. With this thought, each Californian uses water like it rained yesterday, with no regard to the desperate calls from Governor Jerry Brown for water conservation.

Until now, Californians have faced few real incentives to lower their water consumption levels. Past water infrastructure subsidies have kept the price of water down as political forces ensured a disastrously low price for California’s many residents. The result was a low water price of less than 0.7 cents per gallon in 2014 for San Diego and Los Angeles. In cities such as Irvine, next to the University of California, the price can be as low as 0.2 cents per gallon.

Economists believe simply raising the water price by 10 percent could cut consumption by 2 to 4 percent.

Not limited to simple price increases, however, new California laws are mandating significant decreases in water consumption. These policies include:

  • New cuts affect 276 rights held by 114 entities to pull water from the Delta, Sacramento, and San Joaquin watersheds. Each of these entities could be supplying water to dozens of additional users.
  • Farmers in the Central Valley have already had their surface water allotment lowered or erased in the last few years.
  • In May, about 200 farmers agreed to lower their water usage by 25 percent in exchange for a promise to face no deeper cuts during the growing season.
  • Other restrictions implemented in May limited yard watering to twice a week and between the hours of 9 a.m. and 6 p.m.
  • Owners of large farms will now have to hand over detailed reports of their water use to state regulators.
  • A recent executive order calls for the replacement of 50 million square feet of ornamental turf, such as municipality-owned lawns or private lawns.
  • For wealthy consumers, districts now reserve the right to install flow restrictors for private use.
  • Top water users are facing cuts up to 36 percent.

While these policies might lower water consumption, they may be a little too much too late. In the end, these draconian measures are sure to enrage those who can afford higher water prices, while also punishing farmers and low-income water consumers.

Simplify USDOT Regulations for Transportation Planning

Today, I want to offer the sixth of my recommendations to reform U.S. surface transportation policy. My colleague David Hartgen and I suggest simplifying Department of Transportation (DOT) regulations regarding transportation planning.

Since 1964, federal laws and amendments (23 USC 134 and 49 USC 5303) have required that states and urbanized areas exceeding 50,000 population carry out a short-term and long-range “continuing, cooperative and comprehensive multimodal transportation planning process” as a condition for federal aid. Sensible at first, the “3C” process now mandates a wide range of required assessments, including air quality, environmental justice, congestion management, safety, maintenance, efficiency, freight, pedestrian-bike, economic growth, fuel consumption, and other requirements. Although some requirements have been eased for smaller regions, recent regulations call for expanded time horizons and new “planning factors.” More rules for climate change, international trade, active transportation and sustainability are likely. These requirements and frequent updates have a negative impact on smaller regions with fewer staff.

For regions with fewer than 200,000 people, eliminate all long-range transportation planning mandates and require 10-year TIP (Transportation Incentive Program) updates. For regions greater than 200,000 population, eliminate or reduce regulations for air quality monitoring and conformity, environmental justice, congestion management, economic impact, safety, fuel consumption, and 40-year planning horizons. For the TIP, remove the option that projects come from a long-range transportation plan. Review other requirements for possible reduction or elimination.

Recent reviews of metropolitan transportation plans find that many are dense documents full of feel-good unachievable goals only marginally related to transportation. Frequent update cycles mean “planning never stops.” Worse, they generally ignore rising congestion and infrastructure maintenance, and depend heavily on federal/state resources for implementation. But the federal role is declining as local, state and private roles increase. After completion, most plans are ignored and shelved until the next update. The cost of this wasted and inefficient planning is substantial — about $500M annually. In short, transportation planning has become a convenient catch-all for pushing other local goals, and a hurdle for self-certification and funding continuation, not a sensible effort to establish future transportation visions.

These changes would bring federal requirements into line with the declining federal role in local transportation issues. Most projects are local in impact, not national. The cost of current planning, about $1B annually, could probably be halved, leaving more resources for implementation, which would speed project development and create jobs. Localities would have more control over essentially local transportation decisions.

China’s New Urbanization Plan

The Prime Minister of China, Li Keqiang, hopes to see 60 percent of the Chinese population living in cities by 2020 as a result of his “National Plan on New Urbanization.”

  • In 2013, 712 million Chinese residents were living in cities while 600 million were living in rural areas. The urbanization plan seeks to coordinate the development of cities and towns, expecting 100 million new urban residents by the end of the decade.
  • Because those living in China’s cities earn 3.23 times more than those living in rural areas, the state hopes that the plan will boost consumption spending, raising China’s consumption from 34 percent of GDP up to 45 to 50 percent by 2020.

China’s economy is complicated, because it uses central planning along with free markets. Real estate is China’s most popular industry, and land developers lease land from the Chinese government for a leasing fee, then develop it privately. There have been problems, however, with such government involvement. For example, when the city of Ordos in Mongolia built 100,000 apartments with government support, 90 percent of the buildings remained entirely empty because the government misestimated demand for housing in the area.

As more people move to China’s cities, demand for government investment and development will increase. The government could limit its involvement and allow the free market to work.

Xinyuan Zou is a research associate at the National Center for Policy Analysis.

Bag Bans are Bad Business

This past year the NCPA published numerous studies on how both bag bans, and bag regulations were harming consumers. The details of the studies revealed that not only were the local governments cashing in on taxpayers, but that the environment would still be suffering as a result. How can this be? Wouldn’t a decrease in the plastic bags being sold help the environment? After all, ecosystems suffer from trash and pollution daily, this could be the next steps towards cleaning up the country. However, this is a free market, and unintended consequences from government interaction has been an issue since people started submitting themselves to others.

Paper Bags: Plastic bags were at one time our nation’s solution to paper. Deforestation was running rampant in the world, and environmentalists were demanding paper bag removal from stores. Plastic bags, which were more efficient, cheaper and did no harm to any forests or the ecosystems within. It is also extremely important to note that paper bags create a far bigger environmental footprint than plastic, and are not able to decompose in landfills. As we approach an alternative to plastic it seems that reusable bags are in. Despite numerous reports of E.coli collecting on them, and the fact that stores are able to sell them for a bigger profit than free plastic bags, our economy is not ready to suddenly change overnight.

Increasing Taxes: Many local governments decided that instead of a ban they would propose a tax on every plastic bag used. DC for example, utilized a 5 cent fee on every plastic bag sold to consumers. The more groceries you bought, the more you would be charged. While it seemed like a good idea at the time, other countries who did the same thing ended up having to raise the tax repeatedly over time. Their tax began at 15 cents in 2001 and jumped to 22 cents in 2007. The government was forced to raise the tax after they noticed that bag use was increasing as consumers began absorbing the cost of the bags. This exact identical situation also happened to Ireland.

The Social Costs of Smart Growth (Urban Containment)

“Soaring” land and house prices “certainly represent the biggest single failure” of smart growth, which has contributed to an increase in prices that is unprecedented in history. While this finding could well have been from our NCPA Policy Report, The Housing Crash and Smart Growth, they were actually from one of the world’s leading urbanologists, Sir Peter Hall, in the classic work he led on urban containment planning (a principal strategy of smart growth) 40 years ago. Hall led an evaluation of the effects of the British Town and Country Planning Act of 1947 (The Containment of Urban England) between 1966 and 1971. The principal purpose of the Act had been urban containment, using the land rationing strategies of today’s smart growth, such as urban growth boundaries and comprehensive plans that forbid development on large swaths of land that would otherwise be developable.

The Economics of Urban Containment (Smart Growth): The findings of Hall and his colleagues were just the beginning. A Labour Government report in the mid-2000s showed that housing affordability had been even further retarded by the policies. The author, Kate Barker was a member of the Monetary Policy Committee of the Bank of England, which like America’s Federal Reserve Board, is in charge of monetary policy. Among other things, the Barker Reports on housing and land use found that urban containment had driven the price of land with “planning permission” to 250 times (per acre) that of comparable land on which planning was prohibited. Under normal circumstances comparable land would have similar value.

The economic research is by no means limited to Hall and Barker, rather it is overwhelming. From left to right, economists have shown stronger land use regulation tends to raise land (and thus house) prices. Just like water tends to run downhill, prices tend to rise when supply is restricted, all things being equal. This is why the world so nervously watches OPEC fearing the supply constraints that generate higher oil prices. Moreover, there can be no other reason for the price differentials virtually across the street that occur in smart growth areas. Dr. Arthur Grimes, Chairman of the Board of New Zealand’s central bank (the Reserve Bank of New Zealand), found the differential on either side of Auckland’s urban growth boundary at 10 times, while we found an 11 times difference in Portland across the urban growth boundary.

House Prices in America: The Historical Norm: Since World War II, median house prices in US metropolitan areas have generally been between 2.0 and 3.0 times median household incomes (a measure called the Median Multiple). This included California until 1970 (Figure 1). After that, housing became unaffordable in California, averaging nearly 1.5 times that of the rest of the nation during the 1980s and 1990s (adjusted for incomes). Even after the huge price declines from the peak of the bubble, house prices remain artificially high in Los Angeles, San Francisco, San Diego and San Jose, at double historic norms.

William Fischel of Dartmouth University examined a variety of justifications for the disproportionate rise of California housing prices and dismissed all but more restrictive land use regulation. He noted that “growth controls (restrictive land use regulations) have the undesirable effect of raising housing prices.” Throughout the rest of the nation, more restrictive land use regulations have been present in every market where house prices rose substantially above the historic Median Multiple norm, even during the housing bubble. No market without smart growth has ever reached these price heights.

Setting Up for the Fall: Excessive Cost Increases in Smart Growth Markets: The Housing Crash and Smart Growth, published by the National Center for Policy Analysis, examined the causes of house price increase during the housing bubble. The analysis included all metropolitan areas with more than 1,000,000 population. It focused on 11 metropolitan areas in which the greatest cost increases occurred (the 11 “ground zero” markets, Los Angeles, San Francisco, San Diego, San Jose, Sacramento, Riverside – San Bernardino, Las Vegas, Phoenix, Tampa – St. Petersburg, Miami and the Washington, DC metropolitan areas), comparing them to cost increases in the 22 metropolitan areas with less restrictive land use regulation.

• Less Restrictively Regulated Markets: In the less restrictively regulated markets, the value of the housing stock rose approximately $560 billion, or 28 percent from 2000 to the peak of the bubble. In nearly all of these markets, the Median Multiple remained within the historical range of 2.0 to 3.0 and none approached the high Median Multiples that occurred in the “ground zero” markets.

• Ground Zero Markets The value of the housing stock rose $2.9 trillion from 2000 to the peak of the bubble in the “ground zero” markets, all of which have significant land use restrictions. The 112 percent increase in the “ground zero” markets was four times that of the less restrictively regulated markets. The Median Multiple rose to unprecedented levels in each of the “ground zero” markets, peaking at from 5.0 to more than 11.0, double to four times the historic norm.

The 28 percent increase in relative house value that occurred in the less restrictively regulated markets (those without smart growth) is attributed to the influence of loosened lending standards. The excess above 28 percent, which amounts to $2.2 in the “ground zero” markets is attributed to smart growth.

The underlying demand for housing was substantial in some of the less restrictively markets, which is illustrated by the strong net domestic migration to metropolitan areas such as Atlanta, Austin, Dallas – Fort Worth, Houston, Raleigh and San Antonio. At the same time, some more restrictive markets (smart growth) that hit historically experienced strong demand were experiencing huge domestic outmigration, indicating little in underlying demand. This includes Los Angeles, San Francisco, San Diego and San Jose. Demand, however is driven upward in more restrictively metropolitan areas by speculation which, according to the Federal Reserve Bank of Dallas is attracted by supply constraints.

The Fall: Smart Growth Losses

The largest house price drops occurred in the markets that had experienced the greatest cost escalation. This is not only to be expected from a perspective of probability, but is also indicative of the greater price volatility of more restrictively regulated markets as shown by economists Edward Glaeser and Joseph Gyourko. The “ground zero” markets, with only 28 percent of the owner occupied housing stock, accounted for 73 percent of the pre-crash losses ($1.8 trillion). Thus, much of the cause of the housing crash, which most analysts date from the Lehman Brothers bankruptcy (September 15, 2008), can be attributed to these 11 metropolitan areas.

By contrast, the 22 less restrictively regulated markets accounted for only six percent ($0.16 trillion) of the pre-crash losses. These 22 markets represented 35 percent of the owned housing stock (Figure 3).

If the losses in the ground zero markets had been limited to the rate in the less restrictively regulated markets (the estimated impact of cheap credit), lenders would have lost $1.6 trillion less. The Great Financial Crisis might not have been so “Great.”

Economic Denial and Acknowledgement: Dr. Hall noted that English planners denied the connection between the unprecedented house price increases and urban containment. The same economic denial is found among smart growth advocates today. This is perhaps to be expected, because, as Hall noted 40 years ago, an understanding of the longer term consequences could have undermined support for urban containment.

To their credit, some advocates recognize that smart growth raises house prices. The Costs of Sprawl – 2000¸ a volume largely sympathetic to smart growth, also indicates that urban containment strategies can raise housing prices. The only question is how much smart growth raises house prices. The presence of urban containment policy is the distinguishing characteristic of metropolitan markets where prices have escalated well beyond the historic norm.

The Social Costs of Smart Growth: Moreover, the social impacts of smart growth are by no means equitable. Peter Hall says that the “less affluent house – owner … has paid the greatest price for (urban) containment.” He continues: “there can be little doubt about the identity of the group that has got the poorest bargain. It is the really depressed class in the housing market: the poorer members of the privately – rented housing sector.” Finally, Hall laments the fact that the result contravenes the “ideal of a property owning democracy.”

Hall’s four decades old concern strikes a chord on this side of the Atlantic. Just last week, a New York Times/CBS News poll found that nine out of ten respondents associated property ownership in the form of a home with the American Dream.

Adapted from an article in newgeography.com