Stephen Rees's blog

Thoughts about the relationships between transport and the urban area it serves

“NIMBYs in the twenty-first century”

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The title comes from an article in The Economist (paywalled) which discusses the work of a graduate student who has challenged the very successful book by Thomas Piketty “Capital in the 21st Century”.

I have had to return the copy that I was reading to the library: the wait list is long and the number of copies limited. If you want a good summary then Cory Doctorow has done a very good job of that.

Matthew Rognlie

On March 20th Matthew Rognlie (pictured), a 26-year-old graduate student at the Massachusetts Institute of Technology, presented a new paper at the Brookings Papers on Economic Activity. Although the paper began its life as a 459-word online blog post comment, several reputable economists regard it as the most serious and substantive critique that Mr Piketty’s work has yet faced.

Without actually quoting the whole of the article, the point I want to tackle is this. “housing wealth is the biggest source of rising wealth”

Economist graph

“Policy-makers should deal with the planning regulations and NIMBYism that inhibit housebuilding and which allow homeowners to capture super-normal returns on their investments.”

Now this seems to me to be a very familiar assertion that I have read from the same gang of dealers in secondhand ideas who like to attack government spending on transit. They have asserted more than once that the ALR is responsible for unaffordable housing in Vancouver. For instance here’s the Fraser Institute – citing Wendell Cox (pdf)

The land scarcity created by the ALR has rendered Vancouver housing the most “severely unaffordable” of any major city in the 265 metropolitan markets across Canada, the United States, Australia, New Zealand, the United Kingdom, and Ireland, as analyzed by Wendell Cox and Hugh Pavletich (2009) in their fifth annual International Housing Affordability Survey

And the same thing in almost any city that imposes an urban growth boundary to limit sprawl.

Dr. Shlomo Ange of the Stern School of Business (NYU) Urban Expansion Project puts the issue simply in his introduction:where expansion is effectively contained by draconian laws, it typically results in land supply bottlenecks that render housing unaffordable to the great majority of residents.

The Economist of course does not have to reference these reports since, as we learned recently, the marketplace of ideas has adopted this notion unquestioningly. Or has it?

The argument stems from the idea that markets are better at determining everything than policy makers. Except that markets can only determine the level of use of those things that are priced. And most of the things that are of real value – breathable air and clean water for instance – are not priced. Land capable of producing food is priced far below what it would be as land designated as suitable for development. Smart Growth seeks to protect this land from development by ensuring that land within the growth boundary is better utilized.

Smart growth planning allows us to create new housing choices that are more affordable. We need to:

  • make better use of existing land and buildings (for example, by filling in vacant lots and allowing homes to be built over stores)

  • allow a mix of home types in every neighbourhood, like secondary suites, granny flats, and single- and multi-family dwellings

  • provide a mix of homes with commercial in the same neighbourhood

  • carefully add new homes in existing neighbourhoods, such as units in the basement or above the garage (to increase rental supply and provide extra income to help with the mortgage)

  • provide easy access to jobs and transportation choices, so households can save on transportation costs

In fact the very idea of “affordable housing” might be misleading because it fails to encompass travel costs. Indeed the old saw about buying a house was “drive until you qualify”. The amount you can borrow to buy a house is controlled (in our case by the rules of CHMC) but no-one controls the amount of time and money you spend commuting. This idea is encapsulated neatly in the last of those bullet points. It is also the case, of course, that in markets like Vancouver, many people cannot afford to buy and renting is increasing in popularity even if the supply of rental housing may not be responding as we might like.

It also ignores all the evidence that the conventional model is unsustainable. All the infrastructure that is needed to support sprawl makes it financially unaffordable – as Charles Marohn admirably demonstrates at Strong Towns. The US congress has been arguing for years how to patch up the crumbling interstate system, given their refusal to even contemplate raising the gas tax which funded its construction but not its maintenance. And the bits which are usable fill with traffic congestion which building more roads has never relieved. This makes for very unhappy commutes (see Charles Montgomery “The Happy City”) but again human happiness is another one of those externalities which markets ignore. Prices were supposed to be based on “utility” but every study shows that simply piling up more cash fails to make anyone happy.

Indeed the greatest failing is that the inequality puts more resources in the hands of those who pay politicians to adopt policies that are disastrous to human existence but are good for their short term profit.

What bothers me about the Economist piece  is the nonchalance which goes along with omniscience. It goes without qualification what policy makers must do. Because all we are talking about is inequality and where wealth comes from. So none of those dull externalities need get considered at all.

And all of this it seems to me has been covered by others more able and capable than I, but that work does not seem to get cited when I go looking for it. I am actually not too dissatisfied by this piece, but at one stage I was seriously considering crowdsourcing it. I am sure that my regular crew of commentators will be piling in but if you know of other articles which deal with this particular debate (“the impact of growth control on housing affordability” gets 54,700 hits) in particular with reference to either this region or the Pacific North West, by all means let me know.

Afterword

Just how unaffordable is Metro Vancouver – and how will that change? VanCity has this forecast

Of course, there is a policy that could deal effectively with affordability, just as there is a policy that would end Homelessness. It simply requires the provision of subsidised housing. Of course those who oppose taxes on the wealthy will howl with rage. But all that we have to do to free up some resources is stop subsidizing fossil fuels – and rethink our agricultural subsidies too, while we are at it. It is ridiculous that corn and sugar production is subsidized when we are dying from diabetes, obesity and heart disease. All of which are also strongly associated with sprawl. Utah – hardly a radical liberal sort of state – eliminated homelessness by simply housing the homeless, which turned out to be cheaper than making them stay on the streets.

Written by Stephen Rees

March 25, 2015 at 4:08 pm

One Response

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  1. Thanks for this post Stephen. I had read the article you refer to and there was something that was bugging me about it, something that felt too smug. “The nonchalance that goes with omniscience” is a very nice way to put it. Of course pundits love to see someone who can rebut Piketty, since his analysis is threatening, and their overwhelming endorsements doesn’t pass the sniff test, even if I couldn’t pinpoint why it seems wrong. Thanks for providing some thoughtful comments here, in particular the connection between “housing is the greatest source of wealth” and libertarian ideology. Well done.

    enviropaul

    March 25, 2015 at 4:29 pm


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