Tuesday’s post, Why not copy Houston, has again attracted many interesting comments and ideas.
The intention of this post was to provide a case study of an alternative urban planning system – Houston – that appears to have achieved far superior outcomes to Australia’s highly prescriptive approach. In particular:
- high quality housing that is less than half the cost of equivalent Australian homes;
- price stability – since Houston’s homes never bubbled then busted, unlike the supply-restricted US states;
- low levels of household debt – due to the low cost of Houston housing; and
- macroeconomic stability – resulting from Houston’s price stability and low debt levels.
As expected, commentators varied in their views about Houston’s deregulated urban planning system and whether such an approach is, in fact, preferable to Australia’s.
Although all comments were constructive, two commentators, in particular, have caught my eye – one for his extensive knowledge of urban planning issues and the other for his inside knowledge of Houston. Since many readers might not have read these comments, I thought I’d share them via a separate post.
Thinking out loud:
First to Lorenzo, who runs a blog called Thinking out Loud. As it turns out, Lorenzo has written some excellent articles on restrictive land-use policies, their impacts on housing affordability, and their propensity to facilitate housing bubbles. All three articles are well worth reading. You can download them here, here and here.
Here is a sample of Lorenzo’s recent comments. The themes raised are discussed in greater detail on his blog.
…Credit and credit policies can aggravate a housing bubble, they can aggravate any bubble. But something must set up the expectations of capital gain, and the systematic discounting of downside risk, which is at the centre of a bubble.
Having planning policies that continually retard the ability of supply to respond to demand, creating a sustained pattern of rising prices, generate those expectations and discounting…
Such policies also generate rising revenue from land taxes and political donations from developers who have to “buy” access to the political system to get their needed approvals and who can them “game” the system…
In Australia, all States and Territories eventually adopted the British/Californian system of land-rationing, none of them retained the Texan/German system of open markets in land use. The result is housing price bubbles, as in the UK and California, not the much more even house prices of Texas and Germany.
Remembering that Texas has less land, more people, higher population growth, higher average incomes than Australia and crams a bigger proportion of its population into its five largest cities but both much lower (relative to income), and much more stable, house prices.
Credit and tax policies cannot explain these differences, no matter how much they may have aggravating effects. Land rationing does, whether that land rationing is done by regulation or, as in Ireland, by a land cartel [January 7, 2011 2:02 PM ].
…house prices are a supply and demand issue, and Texas has high demand, so if its housing prices are relatively low, then clearly supply is able to keep up with demand. It is not as if Texans have low average incomes: indeed, their average incomes are higher than Australians.
…The expectation of capital gains is created by the regulation. If we had the German situation of “the right to build” we would probably also have the German home ownership rates, which are much lower because there is no expectation of capital gain and people have long-term leases since landlords are not constantly re-assessing their rent/sell calculations.
Also, the various forms of price-increasing quantity controls retard the provision of infrastructure, because it makes purchase of land for infrastructure much more expensive, encourages government to sell land set aside for infrastructure for the revenue while NIMBY (not in my backyard) and BANANA (build absolutely nothing anywhere near anyone) become worse as people defend their expected capital gains much more strongly. California is worse at providing infrastructure than Texas (then again, there is a long list of x’s that California is worse at than Texas). [January 8, 2011 2:23 PM]
…California, the UK, Australia and New Zealand all use similar structures of requiring official approval for all building activity. The results are not pretty. However regulated Germany might be, restricting actual housing supply is not a feature, given the right-to-build in the Federal constitution….
More generally, the notion advanced in comments that some perfectly interacting set of planning and taxing rules will nicely cancel out all the ill effects of attempting to control supply is not supported by experience. One has to remember that the land use regulation being critiqued is regulatory power being used to serve particular interests. It is hard to stop that: and the more potential the regulations have to “create value”, the more likely that is to happen. “In the race of life, back self-interest, it is the only horse that is trying” is a principle that, if anything, is more applicable to regulatory and political structures not less.
There is also the difficulty in getting pervasive planning to use information effectively. One of the basic reasons controlled systems tend to be more chaotic is that the range and use of information is narrower than in more open systems.
As for planning on the basis of “peak oil” (i.e. predicting the future of technology), good luck with that. Equivalent urban planners in London in 1890 would no doubt have worried about projections about the likely level of horse manure the city would have to cope with by 1930, given its rate of expansion…
…regarding Texas and oil: yes, of course, the general health of an economy affects the housing market. The point to draw from the graph, however, is the lack of any great surge in housing prices, even though Texas was sharing in general prosperity (or even better), under the same monetary policy as other states and under the same federal US pushing-housing-credit policies.
The issue is not “planning”. It is not even “regulation”. It is control of supply via official discretions. That has a very bad track record around the planet, and not only in land use. [January 10, 2011 10:14 AM]
…paying for infrastructure up front is a nonsense: but the entire point is (as so often with regulation) to protect incumbents and raising entry costs (e.g. by upfront payment for infrastructure) does precisely that. Everything that slows down/increases the cost of adding land-for-housing acts to increase the value of land-already-with-housing.
Also, the more official discretions matter, the more people will pay for access to officials. Much of this is about generating political donations, getting developers and others to “pay” for access to decision-making officials.
…Making land more expensive makes it harder to provide infrastructure by raising the cost of the land, encouraging selling off land originally reserved for infrastructure because of its massively increased revenue value, and — because people have more expectations of capital gains to defend — increasing the NIMBY (not-in-my-backyard) and BANANA (build-absolutely-nothing-anywhere-near-anyone) effects. It is no accident that California — with its highly restrictive land use regulations — gave us BANANA politics. [
Sprawl is needed until you limit population growth. If you don’t limit population you should not limit sprawl.
I personally live in Texas which has a larger population and population growth than Australia and I am fine with its sprawl. Its sprawl is much more organised as the government has little involvement.
Infrastructure costs are too high in Australia, the argument is not who should pay but how to reduce [these costs].
The easiest way to reduce infrastructure costs would to get rid of Zoning and planning approvals should be between 1 and 30 days.
Get rid of most environmental regulations as they just encourage developers to do the minimum. [NOTE: The most environmental development that I have seen (received awards) is The Woodlands in Texas, The developer saved trees and promoted nature, he sold house and land packages from 100k and yes he made money he sold his portion of the development company for $600m!]
Each development (Estate) should be able to build its own sewerage treatment plant and water well, just like Texas, and the owner pays for this through MUD taxes [explained below].
This is why land is cheap in Texas, as demand increases supply increases in weeks not years. [
- The developer has to install the roads.
- Large subdivisions are allocated areas for parks and schools
- The developer installs the sewerage and water and gets it back from the Municipal Utility District (MUD)
- MUD is a special-purpose district that provides public utilities (such as electricity, natural gas, sewage treatment, water, and waste collection/management) to the residents of that district.
- MUDs are formed by a vote of the area, and represented by board of directors who are voted on by the local people.
- The MUD borrows money via the bond market to pay for building (via the developer) and operating (via the MUD) these services. The MUD bonds are then repaid via taxes on the home owners of around 1% of the home values per year.
- Schools are also built and funded via bonds and repaid via the same taxes on the homeowner.
Note that Texas does not levy infrastructure charges up-front. This is yet another reason why Texas is able to provide housing at far lower prices than in Australia.
Once again I’ll ask the question: why the hell aren’t Australia’s politicians, planners and policy makers conducting study tours to learn from the Texans?