Urban sprawl greenhouse myths

The Property Council of Australia (PCA) is one of those lobby groups with a blatant disregard of the facts and a history of political influence – the kind you love to hate.  For example, the PCA made a submission to the Queensland government outlining how planning laws that promote densification are likely to increase greenhouse gas emissions compared to planning for more urban sprawl.

They cite a 2007 Australian Conservation Foundation study to give their position merit.  But the study actually says is that environmental benefits from increased density are wiped away by wealth and consumption effects. Essentially, living in smaller dwellings closer to conveniences reduces households’ greenhouse gas emissions, but these households are generally wealthier, and thus have higher greenhouse gas emissions overall. No surprises really.

But when the PCA got wind of this study they conveniently neglected to mention this important fact, and commissioned a report that produced a number of pretty tables and graphs to show how urban sprawl has positive environmental benefits. They then used this report to lobby the Queensland government to change their Climate Change Management Plan.  No doubt it will be added to the arsenal of biased reports used to influence the development of the local and State planning instruments across the country.

I may as well start by stating the obvious. The group commissioned to produce the report are called Wendell Cox Consultancy – I assume it is the same Wendell Cox who wrote the book, War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.

Here is the great deception. Plotting one variable at a time against per capita or household greenhouse gas emissions (as shown below) neglects all the other variables that have an impact. This type of analysis suffers from omitted variable bias – that is, the key variable that explains the greenhouse gas emissions is left out.

When we do some actual statistical analysis on the same data we find that income is the main determinant of personal or household greenhouse emissions.

After controlling for age, persons per household, State, degree of urbanity (capital city or other), we find that dwelling type (a proxy for sprawl, proximity to CBD etc) is significantly correlated with total household greenhouse gas emissions from consumption – ceteris paribus, the smaller or more dense the housing type, the lower the household greenhouse gas emissions. The table below summarises the potential greenhouse gas benefits of densification when using this type of analysis (where separate house is the baseline).

All data is from the Integrated Sustainability Analysis group at the University of Sydney who also produced the figures for the Australian Conservation Foundation on which the Wendell Cox report is based.

Clearly, the arguments of the Property Council are based on a misrepresentation of the data, and we should take this as a lesson when dealing with interest groups in public policy debates.

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  1. In case anyone hasn’t made the connection, Wendell Cox is better known for the “Demographia report”. His co-author, Hugh Pavletich, frequently comments on MB.
    Hugh, any comments on this one? 🙂

    • Hugh PavletichMEMBER

      With all due respect to Cam, his arrticle is all over the place – lashing out at the Property Council and Wendell Cox for good measure.

      The reality is that forced density fails on all fronts. I do not have the expertise to comment on environmental matters and have been more than happy to leave this to the respected Sydney based environmental scientist Dr Tony Recsei.

      Tony kindly contributed the Introduction to the Annual Demographia Survey a few years back, which was followed up by a superb article on Planetizen “Dickensian Gloom”.

      Tony just demoed the old Malthusian environmentalists.

      I have known Wendell Cox for years and of course we got the Annual Demographia Surveys underway back early 2005. No one pays us to generate these – we do it for free, because we are not interested in being in the pay of others. I have put near 20,000 hours of voluntary time in to these issues since mid 2004. Damn it – Im suppose to be retired!

      Wendell Cox is a stickler for honesty – and if the data and research is not robust – he biffs it. We would like to cover more countries in the Annual Demographia Surveys for example – but wont until we are satisfied with the quality of the data,

      Cam is all over the place regarding the Property Council and its culture. Bear in mind I was President for the South Island Division of the NZ Property Council back during the first part of the 1990’s.

      There are massive ongoing conflicts within the lead property / construction organisations – between the open market types (me for example) and the protectionists (the Mall owners and landbankers etc on the other hand). Indeed the latter too often dominate (which should please Cam!).

      However – things are now so serious within our urban property markets, that even our protectionist rivals are hurting. Grossly excessive mortgage loads on households, dont exactly help the retail spend – as just one example.

      You are capable of much better than this Cam.

      Hugh Pavletich

      • reusachtigeMEMBER

        I understand that you are passionate about building more sprawl but twisting the facts to suit your angle weakens your argument when it all comes out in the wash.

        I actually think there is a paradigm shift happening where younger people actually want to live in dense neighbourhoods because of all the benefits within arms reach. I know, I’m one of them, and I’d hate to live out in lifeless sprawl land. I’d top myself for sure!!

        Even with a family I’d choose a nice apartment close to either where I work in the CBD or right near PT. I’d sacrifice the big house and mini-backyard of the McMansion lands for amenity and time with the kids rather than a long life-draining commute. I’d probably get more value time with them from visiting local parks etc anyway than dumping them in a 3x3m backyard.

        So, I’m going to twist this report my way to say that dense living is far better on the environment and we should be building much more dense suburbs near PT and we should shut down local nimby groups who continually oppose this wherever we can – for the greater good, and because it’s what people now demand!

        Make it far easier to build as in-fill (there’s the less-restrictive land policy we need) and stop wasting time trying to open up productive farmland for a sprawly lifestyle that less and less people actually want.

        • Hugh and Wendell are not opposed to densification per se, but FORCED DENSIFICATION. There is a world of difference. I know for a fact that both are opposed to NIMBY-style opposition to in-fill development (as I am) AS WELL AS regulatory barriers to fringe housing supply.

          All of us – Hugh, Wendell and I – want people to have the choice of where to live, be it in an inner city apartment, a large house in the burbs, or whatever. And we oppose blanket urban containment devices that remove this choice, hinder affordable housing, and saddle younger generations, in particular, with high levels of mortgage debt.

        • Reusachtige,

          I hope you realise that the PRICE of the inner city accomodation that YOU are happy to live in, is several times more expensive BECAUSE OF URBAN PLANNING, than under a free market. The era where the masses of people lived cheaply at high density in the inner city, is PAST. The urban planning era involves inner city living AT VERY HIGH PRICES, for the elites who can afford it. No lower class families at all – truly “exclusionary”.

          It is nice for you if you can AFFORD inner city living still in spite of that.

          It is actually BETTER by ALL measures, if urban land prices are LOW, and people can choose their “location” according to preference and transport costs, rather than have the price of land dictate INEFFICIENT locations that are “all they can afford”. In LOW land price cities that have dispersed employment and “planning” is not trying to re-impose “monocentricity”, “COST” is almost NEVER an obstacle to ANYONE “moving closer to work” – WHEREVER that work IS.

      • Well I have little time for Demographia, their conclusions are reached, and then the analysis is made to fit.

        However I don’t agree entirely with you on this one Cam. It’s a bit like that debate we had years ago when you maintained that stamp duty lowered house prices, I didn’t buy that either.

        However your heart is in the right place and you always make interesting reading, which is what it’s all about anyway – who wants to hear the words of yes men everyday, a little dissent is healthy.

        Cheers Cam.

  2. Cam, the next time you write an article like this, how about leaving the ad hominem attacks on people like Wendell Cox out of your ‘analysis’. And while you are at it, how about acknowledging the flaws in the ‘urban consolidation’ booster’s arguments, including: (1) the fact that Australia’s cities are pluricentric (not monocentric as assumed by most planners), which renders public transport next to useless for most people; and 2) that forcing-up urban land prices through urban consolidation policies forces many lower income people to ‘leap frog’ the regulatory constraint and settle into far flung exurban cities and towns where land is more affordable. This type of behaviour actually exacerbates ‘evil sprawl’ and increases average commute times and emissions.

    If you truly want to reduce green house gas emissions, why not argue for higher petrol taxes? This way, you might actually influence overall car use and emissions, rather than ignorantly attacking the tiny proportion of people that settle each year in ‘sprawling’ homes on the fringe (whilst leaving the rest of us to do as we please).

    • I agree ad hominem wasn’t necessary, but surely you can’t ignore Cox’s reckless manipulation of figures to suit his argument in favour of urban sprawl.
      Ignore the man and play the ball.

      • How is Cox’s ‘manipulation’ reckless? The fact remains that those living in the inner suburbs have a far higher carbon footprint than poorer people living further out. Yet the likes of Cam would rather use policy to attack the poorer segment rather than those that are actually causing the most damage. They also conveniently ignore the unintended side-effects of their ‘urban consolidation’ policies, such as significantly higher land/housing prices and pushing development further away into far flung exurban cities and towns (increasing sprawl in the process).

        In my view, Cam’s continued claims that regulatory constraints on land supply have NO IMPACT ON HOUSING AFFORDABILITY is far more reckless.

        • We can argue endlessly on who is more reckless, but that is not important.
          And IMHO, I think we need a planning policy that is right in the middle of your respective positions.

      • Mav in regard to ‘manipulation’ via these paid for report type groups – exists almost across the board. Think Australia Institute (strong left wing social agenda) anti-resources ‘reports’, recent polling commissioned by ALP showing support for MRRT, the outfit doing the polling having to date pretty much undertaken such intensive and indepth analysis of things such as Wearing of the Burkqa, Are Tattoos Attractive. Good Grief. Every one has a barrow to push.

        • You left out your friends at MCA, Deloitte Access and the various paid-for, but “independent” groups/bodies.. Obviously, you have a mining truck to push 🙂
          While acknowledging what you said, as long as the data and the polling questions/methodology is available to everyone, we can easily call them out. It is up to you to prove Australia Institute is wrong.

    • reusachtigeMEMBER

      Although you have made it clear that you are very much in the pro-sprawl camp this is a very devisive issue and would probably split this forum down the middle. I agree that we need less restrictive policy on land but not just on the fringes, it needs to be within existing suburbs too, especially near transport hubs.

      Why? Because as I said above – less and less people want to live in sprawl. They see it as a lifeless and a draining existance. I’m sure those that live there love it but a lot of people nowadays want dense living and it should be much easier for this demand to be met, not just sprawl demand.

      I think your attack on one of your own team members was uncalled for and your bias has also been shown.

      • I actually agree with your comment – i.e. that we need constraints on all kinds of housing (infill, greenfield, etc) eased.

        As for my attack on Cameron being uncalled for, I disagree. I was merely pointing out his own biases and the hypocracy of his personal attack on Wendell [since removed from post]. Cam has a history of labelling analysis that he disagrees with as biased and untrustworthy, and I have picked him up on this point before. The same very arguments can be used against him and the research that he quotes to support his views.

        Play the ball not the man…

    • Pretty much agree with you UE. And a good point about petrol taxes (and/or removal of subsidies) if indeed all the ‘clean green’ environment stuff was really genuine intent on the part of politicians and green groups.

      Let people choose where they want to live commensurate with their lifestyle choice and ability to afford.

      • Academic papers comparing the cost of “Smart Growth” with the cost of road charging, find that “Smart Growth” is between 20 and 70 TIMES MORE COSTLY to society to achieve the same end result. In fact, some papers find that “Smart Growth” actually is “NOT a second best option” – it does NOT work as alleged, at all.

        Too busy to provide links right now, but the authors involved are Paul Cheshire (London School of Economics), Alex Anas (State University of New York), and Jan Breuckner (University of California).
        Access home pages and academic papers HERE:


  3. What almost everyone seems to miss in all this, but especially people like Cameron Murray, Todd Litman, and Jeff Kenworthy, is that inflated urban land prices, a legacy of “Smart Growth”, results in the location of households in the urban area, being strictly “sorted” by income anyway.

    In a way, who cares whether it is the incomes or the location that result in the higher CO2 emissions? The mere fact that location is “sorted by income” means that “Smart Growth” policies that force up the price of urban land, ESPECIALLY at the locations where planners WANT higher density, are self-defeating.

    It is a mystery to me why “green” totalitarians are not talking about the need to nationalise urban land so as to actually ACHIEVE their objectives. The only explanations to my mind, is that they are either so economically illiterate, they do not understand that real estate markets defeat their objectives anyway, OR they are simply part of a racket that is being run to the benefit of central city property owners.

      • Yep, classic “Baptists and bootleggers” situation.

        The classic book on this came out in the 1970’s and is truer than ever today: “The Environmental Hustle” by Prof Bernard Freidan (MIT)

  4. Good work, Cam. I’d long wondered about this ACF report.

    While it might be considered unconnected from a purely logical viewpoint, the relationship between individuals and lobby groups is, to my mind, highly relevant. In all matters of public discourse, reputation and trust matter; they provide a useful hueristic for estimating the amount of self-interest or bias in the way facts are presented.

    In the case of MacroBusiness, I find it ironic that some lobby groups (e.g., the HIA and REI) are regularly excoriated for distorion and deception, when the publications of other lobby groups (such as Demographia) are taken at face value, and not scrutinised with the same level of scepticism.

    • Well said.

      The reason for this is because the Demographia report tells the Macrobusiness bloggers what they want to hear – i.e. that Australian house prices are the most expensive in the world. Of course they aren’t going to challenge a report that says this.

      But if any report dares suggest Australian house prices might not be so unaffordable after all, the MB bloggers will spend as much time as possible ‘debunking’ it.

      • None of you seemingly sooooo clever anti-sprawl people bothering to engage with MY points about the real life EFFECTS of the regulations.

        Comparing “household A at location X” with “household B at location Y” is just missing the point that your favourite regulations do NOT produce an increase in the numbers of the “type” of household/location/lifestyle that you ALLEGE they should.

        Until proven otherwise, the contribution made to these arguments by the likes of “Shadow”, STINKS to high heaven of property-owning vested interests.

        If you were really about “saving the planet” rather than making fat capital gains, you would be suggesting “nationalisation” of the properties at the locations where increased density would allegedly create “planet-saving” efficiencies. Because just putting the properties concerned in some “grand plan” does NOT result in the shifts of urban population centre of gravity that the “planners” allege; all it does is deliver fat capital gains to the owners of that property.

        The urban economist Anthony Downs is uniquely advanced as an analyst and writer on this point. “Monocentric” transport policy ALSO delivers fat capital gains to inner city property owners.

        Also worth checking out: “Downtown: Its Rise and Fall.” by Robert Fogelson

        Once it rose, Downtown Inc. (which, BTW, was the actual name of the business alliance formed to promote development in Downtown Kansas City in the
        1950s) would act to prevent its fall. Which meant, as the 20th century progressed, shoring up its status as the preeminent retail and office
        center of a metropolis. Radial transit networks focused on the core were a popular tool for this purpose.

        The above book includes, for instance, an editorial cartoon from the 1920s in opposition to a plan to build a system of subways in Chicago; the cartoon depicted a businessman wielding a “Loop Tube Magnet” that drew all the wealth from
        the region towards it.

        That is not too much of an oversimplification of what the fight was about. That fight also took
        place in Los Angeles, BTW, with the Los Angeles Times twice taking the side of CBD interests who backed rail transit networks; both times – 1933 and 1944 – the CBD interests lost at the polls.

        Here is the famous deceased economist Colin Clark in “Regional and Urban Location” (1982)

        “…..If rail and subway services to the center of large cities were charged at full cost….two consequences would follow. The employers of the lower paid workers in the city center would have to raise their wages, reduce the level of service offered, or move to suburban locations…
        …Meanwhile the higher paid……would have an incentive to move their residences closer to the center…… .

        “……These movements would have their reflection in the price of land…….In net effect, the subsidies on rail and subway suburban transport are subsidies to the owners of certain types of land – for which there is no social
        justification. …..”

        This is why urban planning is so irredeemably mired today in pork barrelling by vested interests. Yes, “the market” CAN do a heck of a LOT BETTER JOB than this stinking and destructive racket. Houston and other cities with low, stable urban land prices, “OWN” the future of the first world urban economy. “Urban planning” as it has been tried in Britain since 1947, is responsible for 20% to 40% LOWER “productivity” in the British economy compared to Germany, France, the Netherlands, and the USA.

  5. This is an issue of causation and correlation here. Richer people who live in inner cities have higher carbon footprint not because they live in inner city, but because they are richer. If we move rich people in outer suburbs (as it is the case in most of USA) they would have higher carbon footprint as well (not much higher). Most of rich people’s extra carbon footprint comes from air travel and extra spending – so it is almost completely irrelevant where they live. It is true that, most of rich people from inner suburbs fill most of office type jobs in CBD – close by, while many people from poorer outer suburbs in those suburbs. It is also true that our current city development forces more outer city residents to commute into CBD or even further in other outer suburbs. This has little to do with the fact they live in outer suburb and more about our commercial planning.

    So, we will be hard to reduce carbon footprint by moving all people closer to the city. Much more effective and significantly cheaper way of achieving the same would be to move jobs into outer suburbs.

    This is why I think commercial projects like Barangaroo are bad. More jobs in CBD is the last thing Sydney needs – it will cause more congestion and poorer quality of life for both: people who live in the city and who commute to the city. Instead Barangaroo should be developed as residential area for people who already work in CBD. Big commercial area of this type is needed elsewhere (e.g. on north) where large number of office type people already lives. That would make life easier for large number of people who commute to CBD (especially from north where public transportation is poor); it would reduce infrastructure demand (less people working in CBD and more people living in CBD); and it would make city living more affordable and release funds needed for extra infrastructure for other improvements in outer suburbs.

    • EXACTLY.
      The era where the masses of people lived cheaply at high density in the inner city, is PAST. The urban planning era involves inner city living AT VERY HIGH PRICES, for the elites who can afford it. No lower class families at all – truly “exclusionary”.
      It is nice for you if you can AFFORD inner city living still in spite of that.
      It is actually BETTER by ALL measures, if urban land prices are LOW, and people can choose their “location” according to preference and transport costs, rather than have the price of land dictate INEFFICIENT locations that are “all they can afford”. In LOW land price cities that have dispersed employment and “planning” is not trying to re-impose “monocentricity”, “COST” is almost NEVER an obstacle to ANYONE “moving closer to work” – WHEREVER that work IS.
      The data is simply refusing to favour the “smart growth” people. Commuting times are NO SHORTER in cities where “smart growth” has been practised for a long time (in fact congestion is usually worse) – the inflated cost of property has NO countering “benefit”.

      Academic papers comparing the cost of “Smart Growth” with the cost of road charging, find that “Smart Growth” is between 20 and 70 TIMES MORE COSTLY to society to achieve the same end result. In fact, some papers find that “Smart Growth” actually is “NOT a second best option” – it does NOT work as alleged, at all.

  6. Some like high rise and some like the burbs.

    If the land use controls are reduced to the bare essentials only everyone can choose where they want to live and the value of land will reflect their choices.

    Land can be divided horizontally and vertically.

    When you allow that the supply in any location close or on the limits is enormous.

    Most of Sydney is low rise.

    Let people build up if they like density and convenience.

    If they dont they can pay less and live further out.

      • It is very encouraging to see people like Raveswei and Pfh007 on this forum, “getting it” about how COUNTER productive it is to force up the price of urban land. As Pfh007 says, the LOWER the land prices, the BETTER people’s location decisions will be, because things like transport costs will have a greater weight in the overall decision.

        Notice that there are NO “sand suburbs” with people commuting 100 kms, in the affordable cities of Southern USA. “Sand suburbs” are a phenomenon UNIQUE to INFLATED land price cities.

        • You misunderstood me. I was not commenting on prices but on sustainability.

          With few changes in our commercial planning we could achieve more in terms of carbon footprint than with extensive residential planning. If we continue with bad commercial planning (concentration of commercial developments in few areas only) nothing else will be able to reduce carbon footprint. If commercial areas are centralized, neither people nor government will be able to make good residential planning decisions. Whether we regulate or deregulate in that case, commuting will be issue and carbon footprint high. So, I’m for high density decentralized city, not low density centralized city that you prefer – US southern style urban sprawls with segregation of uses (residential and commercial).

          I lived in TX and in my life I never seen more remote suburbs and met more people who are commuting 100km or more every day. There are endless empty areas close to cities and numerous remote suburbs far away. Letting people to do whatever they want is not efficient and sustainable – especially when government is subsidizing price of fuel as US government does. Southern cities in USA are urban disasters: examples how not to built sustainable city, city in general. Those cities are not real cities, but rather conglomerates of huge number of empty dispersed suburbs with no commercial and cultural infrastructure and only few commercial areas that almost nobody is living in. If you insist on US examples I think NYC, Boston and San Francisco are much better examples how city should be planed.

          BTW. We agree that what government is doing is not good, but disagree on how to fix that. I still think that creation of a housing bubble is not significantly affected by urban planning regulation, but rather by psychology and easy credit (credit deregulation). At the same time I think that urban planning around the western world is not good. It’s not about whether we need more or less government, is about how government is doing its job.

          • You say: “…..So, I’m for high density decentralized city, not low density centralized city that you prefer – US southern style urban sprawls with segregation of uses (residential and commercial)….”

            I am not in favour of a centralized city at all, I have been saying this all along. Decentralized is better, regardless of high density or low density.

            If anyone in Texas IS commuting 100km, it is NOT because they cannot afford a house closer to work. It must be a matter of choice on their part. What I am protesting about is inflated urban land prices and “monocentric” planning that FORCE people to work close to the centre and also drives up the price of homes so that MOST people cannot afford to live nearer to jobs.

            Where I agree with you, is that it is stupid to have very large “minimum lot sizes” that enlarge the urban footprint unnecessarily. I agree with you that LA is actually GOOD in this regard.

            Where I say LA has gone wrong, is they have a serious deficit of road lane miles. Unfortunately a lot of people believe the opposite about LA, which is not true. LA has congestion because it is seriously under-provided with road lane-miles given the number of people per sq km.

            I appreciate discussing this with someone as intelligent as you.

    • not much more to add to this summary me thinks. Except perhaps to wonder about the effect this has on other environmental issues.

      I would be interested to see how this transfers to other areas such as (say) the Goldie where developers and development is and are different to the capital cities.

    • People don’t build high rise, developers do, and developers build whatever fits local and state government policy. So that is a circular argument.

      Surely in our quite sophisticated society there is a demand for both. It is clear that Sydney cannot eventually spead and merge with Broken Hill, so a trend towards higher density isn’t a left wing political dream, it either is or will become a necessity.

  7. Interesting post Cam.

    Leith, while I respect alot of your work, I think you missed the point here.

    “After controlling for age, persons per household, State, degree of urbanity (capital city or other), we find that dwelling type (a proxy for sprawl, proximity to CBD etc) is significantly correlated with total household greenhouse gas emissions from consumption – ceteris paribus, the smaller or more dense the housing type, the lower the household greenhouse gas emissions. The table below summarises the potential greenhouse gas benefits of densification when using this type of analysis (where separate house is the baseline).”

    Now I understand that you have proven that urban boundaries/constrained planning force up house prices. And all available evidence would suggest this.

    However you are still left with several problems:
    1) Movement of people within a city in the most efficient way.
    2) Access to infrastructure that doesn’t rely on a personal automobile (something that is already under threat throughout the developed world)
    3) Maintaining agricultural land close to cities
    4) Maintaining of biodiversity and key ecosystems e.g. wetlands, coastal areas.

    Urban planning/containment is one way of doing this. However, it is useless if population growth is allowed to continue unabated and there is huge amounts of easy credit/bad credit regulations.

    So essentially if you will only blame urban planning/boundaries for house price changes then you are implicity saying we OUGHT to have population growth, and that present credit arrangements are ok (or that the market knows best).

    I would argue we need a combination of all three.

    • “So essentially if you will only blame urban planning/boundaries for house price changes then you are implicity saying we OUGHT to have population growth, and that present credit arrangements are ok (or that the market knows best).
      I would argue we need a combination of all three.”

      As have I on multiple occasions.

          • Both the demand side (credit arrangements, FHB, government set interest rates, risk controls, bailouts of banks) and the supply side (UGBs, zoning, council restrictions, NIMBYism, stamp duty, etc) are all forms of government meddling.

            The one truth is that house prices are in total control by the Government. Every factor cited as the reason houses rise or fall is controlled by government currently in some manner or at least manipulated by government either at a state or federal level.

            The truth to me unfortunately is houses have risen because governments on all levels have failed – to provide an environment where most people can choose and have the opportunity to build a home for themselves.

          • sorry to ask, thought that was the case, but there was some ambiguity in there. I read a few blog posts and wasn’t 100% certain what your view was (and was too slack to do a background read)

        • But LOW central bank interest rates and easy credit terms have not done Texas any harm and STILL are not doing Texas any harm. In fact, Texas is ROCKING while stupid, stupid politicians and central bankers at the Federal level are focusing on trying to RE-INFLATE the Californian housing bubble….!

          I keep saying this – monetary policy and fiscal policy stability within the one political Union, is rendered next to impossible when you have these wide disparities in land use regulations between member States. Even OECD papers have started to point this out, so the mainstream econ profession MIGHT be waking up slowly.

          It is also cloud cuckoo land for urban growth constraint advocates to assume that the politicians position on monetary policy and “ease of credit” is ever going to change specifically to accomodate the distortions that urban growth constraints create in the economy. “Stimulating” the economy with loose money is simply a modern day political “given”. This has never caused a problem with the price of cars or appliances or clothing or food, because “supply” of all those things is sufficiently responsive.

          The issues DaveBD raises about population growth and how people should live, are religious and ethical questions. There is no “SCIENTIFIC” basis for restraining urban growth. The world is NOT short of farmland, the fact that farmland is so cheap proves that. Yes, “the market” DOES “know better” on this point. It is contrary to reason and science and rationality to say otherwise.

          “Smart Growth” planning is a disaster and imposes massive costs without achieving ANY benefit. We could achieve immediate significant results simply by changing the vehicle fleet. People DO still buy new V8’s.

          Mass public transit is so riddled with inefficiencies that ANY private car with an engine smaller than about 1.6 litre, is ALREADY more efficient. ANY private car with 2 or more people in it, is ALREADY more efficient.

          I was staggered to read recently that regulations against private motorists carrying fare-paying passengers go back to the 1920’s. EVEN THEN, with “urban form” favouring mass public transit, and motor vehicle technology much earlier in its development than trains and trams, mass public transit COULD NOT COMPETE with drivers of Model T Fords picking riders up on their own way to work…!!

          • Texas had housing bubble in 1980s when less planning regulation was around, so I doubt lack of planning regulation saved Texas from housing bubble this time.

            Texas economy is hardly booming as you said (high unemployment, slow growth,…). The same fact that economy is so weak while there was no housing bubble recently just shows weakness of Texas economy. In addition, many large companies in Texas are heavily subsidized by state government that is running huge deficit and federal government that is heavily subsidizing the largest sectors in Texas (oil, gas, defence, …)

          • “Texas had housing bubble in 1980s when less planning regulation was around, so I doubt lack of planning regulation saved Texas from housing bubble this time.”

            So you call a peak Median Multiple of 3.4, calculated by Harvard University, a bubble do you? Please explain?

          • House prices in Houston, for example, increased quickly in late 1970s and early 80s and than fell by 25% in nominal and more than 35% in real terms over the next few years. It took 10 years of relatively high inflation to reach same nominal levels again. In real terms house prices are still 10% below peak in 1983 although “real” income increased significantly since.

            Median Multiple of 3.5 is maybe low for Hong Kong or UK but it’s almost 40% over the long term trend in Texas. You will find claims that historical median multiple for Texas is 2.8 but that is the average median multiple for period 1980 to 2010. This period includes one big bubble in early 1980s and one small one in late 2000s. Median multiple for Texas outside bubble periods is close to 2.5.

            Texas is lucky to have Real estate Center at Texas A&M University, so data is available and accessible.

          • I still find it amazing that you call a Median Multiple (MM) of 3.3 – still highly affordable – a bubble. Yet LA and SF’s MM’s have been above this level for each and every year since 1980. I guess they have experienced a 30-year bubble then?

    • Dave, thanks for iterating some of the points I was thinking of but was not as able to succinctly put them as you have (so I gave up in the interests of brevity)

      • Will Cameron be allowed a response?

        Doesn’t look like. My bet is he is bound and gagged in the back of black van, with tinted windows, driving to some deserted location. The question is whether he simply cops a beating or ends up in a shallow grave.

      • Within the bounds of editorial respectability they do, of course. I edited the sentences in question.

        And, I have edited Leith’s comment where he stretched the rules a bit as well.

        Let that be the end of it.

        • As I commented above, there was nothing in the deleted article sentence that we haven’t seen before.

          Given this new found desire for editorial respectability I assume we will no longer be reading that Adam is “Mad”, the perjorative “bullhawks” will no longer be used as a term of ridicule, 3d1k will no longer be a mining PR bot for having different views to this blog and so on?

          • How is bullhawk a perjorative? It reflects the reality of their contradictory positions – Bullish on house prices and Hawkish on inflation/interest rates
            Do you also want to suffixes “!” after Gittins and “Meter” after Pascoe, to the list of perjoratives? AFAIAC, It is an endearing term, really 🙂
            PS: I am confused – are you the one who constantly changes his avatar (Walt Disney’s Frozen head)? or a new commentator here?

  8. Hugh PavletichMEMBER

    As Leith has made clear – it is FORCED DENSITY we object to.

    There is no way that strangling fringe land supply and driving raw land costs up from a few hundred / thousand dollars a hectare, through to hundreds of thousands and even millions of dollars per hectare, can be justified.

    All forms of development benefit, if land prices are allowed to be at their true market level.

    Go check out the Houston Association of Realtors http://www.har.com website. Whats so wrong with median house prices being at around the $US150,000 mark and condos / townhouses at the $US120,000 mark?

    And the environmental quality of the massive Woodland development north of Houston at http://www.thewoodlands.com , is well worth checking out as well. It is a world leader in environmental urban development.

    There is actually a glut of townhouses / condos in Houston, which are not included within the Associations Monthly Report on “Months of Supply”.

    Natural sprawl and urban consolidation is far better than “splatter” where excessively high urban land prices force people out to the outlying areas, in their quest for affordable land. To say nothing of the massive and unnecessary disruption costs involved.

    Just 0.13% of Australia is urbanised – 0.70% of New Zealand. The land area of Australia is about the same size as the USA (population about 310 million) – New Zealand’s land area is about the same size as the United Kingdom (population 62 million).

    • Hugh makes this 100% valid point:

      “…..Go check out the Houston Association of Realtors http://www.har.com website. Whats so wrong with median house prices being at around the $US150,000 mark and condos / townhouses at the $US120,000 mark?…”

      How are “Smart Growth” reguations that lead to inner city condos being $1,000,000 instead of $120,000 as well as fringe homes being $450,000 instead of $150,000; EVER going to do ANYTHING to “save the planet”?

      “…..And the environmental quality of the massive Woodland development north of Houston at http://www.thewoodlands.com , is well worth checking out as well. It is a world leader in environmental urban development….”

      EXACTLY. If the “save the planet” mob actually gave ANY thought at all to the POTENTIAL of planet-saving LOW density urban development, we would never have been in the mess we are today. I assume the “HIGH density” “save the planet” ideals are driven by vested agendas such as capital gains for inner city property owners, and anti-western civilisation totalitarian sympathisers.

      I was interested to read the 1970’s KGB defector Tomas Shuman’s list of fifth-column activities that the Communists were up to within the West – it included “urbanise the population, reduce their land ownership, and divide them into renter and landlord classes”. Hmmmmm, it seems to be working, doesn’t it?

    • But no one gets forced to buy if alternatives are available. People choose to buy, and that choice includes economic costs as well as lifestyle.

      Higher density doesn’t mean poor quality lifestyles. Many cities offer wonderful lifestyles, but don’t have 1000M2 block sizes.

      I think Cameron was just thinking outside the box, and look at the great debate he has encouraged.

  9. Hugh, you claim…

    “Wendell Cox is a stickler for honesty – and if the data and research is not robust – he biffs it. We would like to cover more countries in the Annual Demographia Surveys for example – but wont until we are satisfied with the quality of the data”

    However it has been demonstrated that the Demographia report substantially understates Australian income levels, and overstates dwelling costs by only considering freestanding houses, which together massively inflates the dwelling price to income ratios for Australia compared to the other countries you measure, where units and townhouses are also considered in the average dwelling cost.

    Google “Demographia Debunked” for more details.

    I have raised this with you guys many times but you never respond.



    • We will see what Wendell’s friends say to that. However, if what you are saying is true, consider the following.

      In inflated markets, units and townhouses will be considerably more expensive than units and townhouses in non-inflated markets. In fact, the price disparity will be far greater than the disparity in the prices of stand-alone houses. As Hugh pointed out above, Condos and townhouses in Houston cost LESS than stand alone suburban houses; typically $120,000 compared than $150,000, almost regardless of their location. Whereas in Sydney, many condos and townhouses are $1,000,000, and this is compared to fringe homes that are $450,000.

      My gut feeling is that leaving condos and townhouses OUT, will make Australian (and other inflated land price markets) look BETTER than they are, relative to non-inflated land price markets.

      • I’m not sure you get what I was saying.

        Demographia claims that the median gross household income for Sydney is $66,200. It is unclear how they derive this figure – it doesn’t exist in any of the official ABS statistics for Sydney. However the Demographia survey does state the following (on page 46 of their most recent report):

        “Median household income data is generally estimated using the most recent national statistics bureau (census) base for each metropolitan market and adjusted to a current estimate by the best available indicator of median income growth. In the United States, the United Kingdom, China, New Zealand and Ireland, specific metropolitan area interim adjustments are possible from data sources. However, in Canada and Australia, it is necessary to use more general provincial or state level data.”

        Is the Demographia survey using the median income for the whole of NSW, rather than for Sydney? And then comparing this to the median freestanding house price in Sydney itself? It’s really not clear how they derive their income figures, but the site here (http://www.abcdiamond.com/australia/australian-median-income-2006-and-2010/) suggests that the median gross household income figure for Sydney is likely to be closer to $82K for the Sydney Locality (rather than Demographia’s claimed $66K), or $107K for the Sydney LGA. Quite a difference.

        And various sources (RPData, Residex, APM) put the Sydney median dwelling price at around $525K (rather than the Demographia figure of $634K for freestanding houses only).

        So if we take the more accurate median home price to gross household income figures, we get a ratio of 525/82 = 6.4 for Sydney, rather than the 9.6 ratio claimed by Demographia.

        That’s just one example, there are lots more below…

        Demographia Debunked



        • Shadow: “Is the Demographia survey using the median income for the whole of NSW, rather than for Sydney?”

          No, they use “national statistics bureau (census) base” for Sydney and income growth for NSW median income growth to adjust Sydney income.

          According to ABS income growth in regional areas of NSW is higher than in Sydney so Demoghaphia likely overestimated income for Sydney in their report.

      • You cannot defend the Demographia report on the basis of Houston alone.
        The Demographia report computes the price/income ratio for Australia using detached housing prices only. It computes the UK price/income ratios using all dwelling prices. It then compares the ratios between Australia and the UK and makes conclusions based on a totally invalid comparison using apples and passion fruit.

        • Urban growth constraints are doing colossal harm. They are ruining economies, depriving younger generations of a future, tranferring wealth to a property owning class, and NOT achieving the “benefits” they are alleged to be all ABOUT. What “environmental benefits” ARE achieved, are strictly rationed on the basis of “income level”.

          This is why the defenders of urban growth constraints are the “baddies” and the critics of them are the “goodies”. Maybe Sydney’s median multiple IS “only” six point something instead of nine point something. But no-one else is taking the time and trouble on behalf of the ripped-off younger generation, that Wendell Cox and Hugh Pavletich are.

          One of the most sickening aspects of this, is that the urban land racketeers are responsible for wealth transfers on the scale of billions ongoing, and they have the CHUTZPAH to accuse people like Cox and Pavletich of being the ones with “vested interests” – because they want to see a return to the “Levittown” type phenomenon of urban development with honest profits on the building of houses and next to NO “planning gains”.

          I know how any intelligent prospective first home buyer would view these protagonists, in terms of WHO has “vested interests”.

          • > Urban growth constraints are
            > doing colossal harm. They are
            > ruining economies, depriving
            > younger generations of a
            > future, tranferring wealth to a
            > property owning class,

            The only question is whether it is stupidity or rort.

    • Google “Demographia Debunked” for more details.
      Shadow, didn’t we debunk your “Demographia Debunked” blog many moons ago?
      Do you want us to do it all over again??

      • Somehow I can’t bring myself to click on the Troll nest APF link again and re-read your blog post. Liam, do you have the blog hosted elsewhere?

      • No, you didn’t. Try this…

        1. Show how Demographia’s figure of $66K for Sydney median gross household income is correct.

        2. Show how Demographia’s figure of $634K for Sydney median dwelling price is correct.

        I have proved they are both incorrect.

        Over to you.

        • “Show how Demographia’s figure of $634K for Sydney median dwelling price is correct.”

          you are right on this one, Sydney prices are down so it is likely to be around $600k right now 🙂

  10. One question, the table that shows greenhouse gas reductions per dwelling type, the figures are in tonnes. Any figures in percentage terms? 3 or 4 tonnes sounds like a lot, but if it means say 96 tonnes v 100 tonnes, then it’s not so impressive a reduction.

  11. smart growth policies have been such an abysmal failure that only intellectuals or politicians (those that pay no price for being wrong) could ignore or evade it

  12. roylefamilyMEMBER

    I think this argument would go away if population growth was controlled to reflect the carrying capacity of Australia.

    But failing that this is what should happen. We find an agreeable billionaire. He buys farms on the edge of Melbourne and Sydney at the current price. At the same time takes huge short positions on the banks. The farms are subdivided and sold off at $50,000 a block with a condition on the title to build in 2 years and hold for 5, otherwise the block is repossessed and sold again. About a 1000 blocks should do it. Billionaire states publicly that he will keep doing it.

    Australian property bubble over!!:-)

    • State and local government zoning laws would prevent this from happening. He would be flat out refused permission to do this.

      Still it would be fun to see someone attempt this to really highlight the problem, and how our state and federal governments are acting to keep prices inflated, paying only lip service to affordable housing.

      We don’t actually need a billionaire, as those same state and federal governments have substantial land holdings of their own, and could do what you are suggesting themselves…

      • roylefamilyMEMBER

        In the 60s and 70s that is what they did. My fantasy is possible (but unlikely). The Melbourne growth boundary has opened up recently and there is plenty of land. It’s the developer that wont up supply enough to drive prices down.

        • Actually, just because the boundary has been extended does not mean that supply will suddenly become available. Developers still need to navigate the lengthy planning process, which often takes a number of years. But the extention of Melbourne’s boundary is a good move in my view and, provided housing-related infrastructure is funded adequately, should lead to more supply coming onto line in the not too distant future (fingers crossed).

    • Why was my constructive response to Mav deleted? Here it is again… are you able to answer the questions yourself David?

      1. Show how Demographia’s figure of $66K for Sydney median gross household income is correct.

      2. Show how Demographia’s figure of $634K for Sydney median dwelling price is correct.

      I proved in my blog that they are both incorrect.

  13. So nobody (including Hugh) is able to explain where Demographia get their figures…

    $66K Sydney median gross household income?

    $634K Sydney median dwelling price?

    Didn’t think so…

    Why are Demographia’s dodgy figures taken at face value, and not subjected to any scrutiny?

    When will the Macrobusiness team display the same level of rigour in analysing the Demographia report, as they do in analysing reports from other lobby groups like HIA and REI who publish reports that don’t fit with the MB Doom&Gloom mantra?

      • Why are you avoiding the question?

        When will the Macrobusiness team display the same level of rigour in analysing the Demographia report, as they do in analysing reports from other lobby groups like HIA and REI who publish reports that don’t fit with your agenda?

        • I am sure that “Mav” is right and this has been addressed before.

          The Macrobusiness Team, which includes Cameron Murray by the way, does very useful work rigorously exposing the fraudulent “analysis” done in Australia by corrupt property bubble rent-seekers.

          Wendell Cox has not attempted to hide anything, as you have found, he has stated clearly how he has arrived at his findings, and that not every city in the world crunches data the same way.

          I am thinking that he is probably closer to the truth than you are. He analyses “complete urban areas”, not areas within municipal and political boundaries. Therefore, “Sydney” is not just the “city” that the “Mayor of Sydney” is the mayor of.

          It is probably close to valid, to use the median income for the wider region, because how many people are there in the region that are “rural” and not part of the urban area of “Sydney” at all? Not high, in proportion to the number of people that DO live in the “Sydney” “urban area”.

          Perhaps Wendell Cox has been asked for a comment? It would not surprise me at all if he has done so long since, and somehow the info just has not reached this forum. I will eat my hat if I ever see a response from Wendell Cox given fair space on YOUR site.

        • I’m not avoiding anything. I don’t use the Demo report.

          I’m getting pretty fed up with your rudeness though.

          Consider this an official warning to both you and Strindberg.

          Continue your abuse and kindergarten rhetoric and you’ll be banned. Life’s too short.

          • Consider it done. It’s no wonder nobody reads the APF. You seem to have no idea how obnoxious your style is.

            I apologise to regular readers for the trolling that slipped past me today.

          • *sigh*

            I think this is good … but quite a while back I posted a link about there link spamming/dubious content.

            And how to submit this – you guys deleted it… I can spot a scammer spammer and insidious media spin-a a mile off…

            OOh if only I was an IT phreak I would have helped more.

            Anyhoo, about time you stopped this nonsense with these guys. Well done.

            By the way – you ahould ask your admin to scrub all their links from your site/permalinks and proifiles they are leaching off your credibility.


      • Well to be fair, in a world where sovereign funds are falling over, the US economy is stalling, share values have fallen heavily globally, the USD$ now buys far less than it did pre GFC, and everything except gold appears very brittle, Australian house prices have held up marvellously by comparison, and yet much analyses would have it otherwise.

        Blogger here are generally expecting 40% falls by Xmas – so if the mantra “it’s not different here” is correct, then why is the outcome different, not just for a few days or weeks, but for almost 4 years.

        If I were to use predetermined ingredients to bake a sponge cake, but I got a Pavlova instead, I must have made a mistake. Perhaps the ingredients were not as described.

        Now I know the difference between a Pavlova and a sponge cake – so what was different in the recipe?

        I think it’s worth a look.

        • Let me guess..I’m on to these trick questions ,Peter…
          Your a sweet-tooth and didn’t cake anything at all,indifferent you couldn’t hold back and bought a Pavlova instead,

          • Well Jason, I salute you for having a go and using some humour in your reply.

            At least you bravely went where others chose not to.

            JR – HMmm – JC, JB, JR, so many J’s in my travels.

            Take care…

  14. Thanks all for the comments. I apologise for my lack of attendance in the comments thread but I have not had internet access at all today.

    First, the very real issue of lobby groups manipulating data to suit their agenda was the topic. I don’t think anyone has disputed that this is what occurred, given that the key finding of the ACF study is that reductions in GHG from consumption due to inner city locations and reduced housing size are usually offset by higher incomes. Essentially the study shows that a household with a given income would produce less gig emissions if they lived in smaller homes closer to the city. It mentions nothing about choices etc. It is a simple observation that has been manipulated for a property industry agenda.

    Second, the fact that residential location is sorted by income will not be solved by changes to planning schemes. Some areas will always be relatively more attractive, and hence more valuable, and accessible only to the wealthy. Thirty years ago we could have made the opposite arguments in many cities when the wealthy began moving out into the suburbs away from the urban slum. Now with gentrification of inner city areas, the wealthy are again willing to pay for better amenity and location of the inner city.

    Third, comments suggesting that MB only allows one-sided opinions to be expressed has been clearly debunked. It is rare to see an ongoing public debate on housing conducted with such rigour as that which has occurred between Leith and myself this past six months or so. We’ve both learnt a great deal from each other, but that doesn’t necessarily mean we have to agree on everything.

    Fourth, suggestions that Demographia research is accepted without criticism, and that there remain disputes over measures of household income appear to have been previously resolved. Both Leith and myself have interrogated the data and come up with objective methods for determining household incomes from national accounts data and I am happy to make the calculations available to whoever requests them by email.

    My post covering this matter is here

    I personally don’t believe comparisons of household income and price are good indicators of the housing market, and said so in an article back in September.

    “While I don’t believe household income and house price comparisons are the best indicator of the state of the housing market (preferring comparisons of rents to incomes and yields to other rates of return in the economy)”

    This is because prices are simply capitalized rents and a plethora of factors will influence the capitalization rate, including taxes (land and capital gains), interest rates, maintenance and letting costs, council rates etc.

    These are points I have made many times before

    If two identical houses in two areas rented for $300 per week, but were subject to different land taxes, interest rates, and council rates, we could not compare prices to incomes in a meaningful way without considering these factors. One of the houses might carry a $150/wk cost obligation (in the form of takes, rates, etc). If net income for this home is capitalized at the prevailing 8% interest rate, it gives a capital value of $97,500. The other house might only be subject to $50 a week in costs in an area with prevailing interest rates of 5%, giving a capital value of $260,000. But each would cost the same amount per week to buy or rent. If incomes in both areas were $50,000 per year, one would show up as a price to income ratio of 2x, while the other would be 5.2x.

    Fifth, Peter mentions an old debate about the impact of stamp duty on prices. Although I can’t recall off hand the conversation, it quite clearly does. Think of it as a negative home buyers grant. If a home buyers grant increases house prices, a negative home buyers grant, in the form of stamp duty, must decrease prices (but not overall cost. the price plus stamp duty will be the same).

    Finally, if my post was critical of the motivations of the Property Council and Wendell Cox, it seems an appropriate retort to suggest the same of my own. However, I am not paid for my opinion, which greatly reduces my motivation to distort the picture. Second, I spent a few years in the development industry trying to negotiate with councils the exact same lenient treatment that the PCA is lobbying for at the State level and am quite familiar with the antics of such groups.

    • Good reply Cameron.

      Actually I think it is healthy to have different opinions, that makes debates much more interesting, and it brings greater understanding of other points view, even though we each may not admit it at the time.

      I wasn’t trying to raise the stamp duty question again, and perhaps the lower transaction volumes will force states to place a heavier reliance on land taxes and less on stamp duties, which is my preferred option. Why heavily tax one small portion of Australians for the benefit of the wider community?

      I will read that article you referenced on income shortly. You may not consider it important, but almost every blogger does, and they all quote income multiples as the one true measure of importance, so a clear understanding of the true value of household income has become important. Anecdotally I can tell you that it isn’t as high as some quote, but it is well above the Demographia calculations – somewhere in the $85,000 to $95,000 region when you add back all of the social engineering benefits that everyone seems to forget about. Trust me I work in incomes every day so I have quite a good handle on that.

      As for your views on the enviroment – I support that strongly, however to achieve any real gains in the wider community where it really counts, we have to make the technology work for Joe average and his family in whatever habitat they choose to live in. That may be smaller cluster high rise which you referenced. The James St precinct comes to mind – is that working? You should have a very good handle on that – seriously I don’t know so I’m not judging. It looks OK to me but I don’t know about crime rates, suicide rates etc.

      For an existing house, it makes no enviromental sense to knock it down and build an enviromentally friendly building, but with the addition of rainwater storage and a 5KW solar system then that household will become 50% self sufficient for water and close to 100% self sufficient for electricity. Some are more than 100% with a 5KW system.

      Technically there is a synchronisation issue with solar, but technology will solve that if we put the right economic pressure (upward and downward)on the solar industry. Energy storage would largely solve it for example, but keep that issue in mind because it is becoming a big problem as more houses instal solar.

      Other than that, keep up the alternate points of view, it keeps everyone on their toes.

      • Ah – I’ve just read that article.

        as I assumed you forgot to add in the social engineering that simply didn’t exist some decades ago.

        When a states that his parents bought at 3 times multiple earnings, so why does he have to pay 8 times earnings, it becomes clear that the argument is compelling, although flawed.

        If you add back the Family allowance parts A and B plus what seem like generous handouts for pharmaceuticals, rent assistance, etc etc it probably adds up to about $15,000 or more par annum per household.

        Don’t you think that should be taken into account?

        I do…

        • The calculations using the national accounts data should include transfer payments (welfare in its various forms) in household income rather than government spending.

          • Cameron – your calculation of $76,449 bears no resemblence to what I see at the grass roots level.

            Most poor working class couples have a disposable income of $50,000 to $60,000 and many couples who still consider themselve battlers have a disposable income of $100,000 or more.

            I concede that income multiples are high, if we are going to use just one crude method of comparing house prices.

            But we are in a mining boom, so high multiples is exactly what I would expect.

            Ask yourself this question, where would house prices be if we were not importing a negative outlook from the rest of the world?

          • The $76k is after tax Peter and $90k before, and it is the nationwide average.

            It reconciles with the ABS household income survey, so I am pretty confident about it accuracy, insofar as being an accurate average.

            I’m not sure how involved you are with very low income household, or whether you experience is which a fairly select group, either by location, profession, or socio-economic status. I don’t doubt incomes have increased much more in some areas.

          • Thanks for replying Cameron. You make the point about very low wage earners. It is quite likely that there is a subset of very low wages earners who I don’t see, simply because they know that they will never own a home. That may also include older residents who may own their own home, and who receive only benefits to live on.

            Nevertheless I do see quite a few financially disadvanteged people.

            The $90,000 seems about right, as does the $76,000 after tax income. What it doesn’t tell me is whether that household receives family allowance parts A and B plus additional benefits such as child care subsidies that families decade ago didn’t receive.

            We could look at a childless couple on that income, and they won’t receive any more than that as a rule, although rental assistance, and benefits specifically relating to their situation may apply.

            But with one child the benefits that this family unit will receive push the household income above that of the childless couple. And if they have two children it increases, three children they receive more, etc etc.

            Benefits of $10,000 to $20,000 pa are not unusual. I know that it doesn’t suit your case, but it can be the case where an identical set of incomes in two families are $20,000 pa apart. I know that some child endowment and tax breaks were allowed previously, but they were not as generous as present arrangements.

            Therefore, I have less faith in the income multiple as an ACCURATE guide because we are likely to be comparing apples with oranges, especially if we factor interest rate differences into account.

            I’m not saying they are not useful as a quick measure, but I do shudder when every second blogger thinks of them as a definitive measure.

            Anyway thanks for your reply.

      • Changing technology makes it hard to make absolute statements about whether or not higher densities are better than detached houses.

        As you mention, the technology already exists to make a detached house self sufficient in electricity, and rainwater collection and recycling could do the same for water and sewerage. Multi story developments don’t have the same opportunities in this respect, and are dependent on external sources for power, water & waste. High density may be better now all other things being equal, but this sort of technology could change that in future.

        There is another way you could look at that report, if income is the bigger determinent of energy use, taxing the wealthy into poverty would be the way to reduce our greenhouse emissions. (I’m not seriously suggesting we do this)

    • And Cameron, I have made the point before, that the theory that “prices are capitalized rents” refers to “ECONOMIC RENTS” under theories of land economics, NOT “rents” charged by landlords in real estate markets!!!!!

      You are not the only person who has been confused ever since you were taught this theory in an economics class by a tutor who failed to emphasise this important distinction.

      “ECONOMIC RENT” includes capital gain and planning gain and monopoly gain, for example.

      In fact, the whole concept of “RENT-SEEKING” in an economy is a FAR broader concept than the relationship of landlords and tenants. A manufacturer or service provider granted a monopoly in their market, is an extractor of economic “rent”. This is the EXCESS of price they are able to charge in comparison with what they would have been able to charge if they had competition.

      ECONOMIC “rent” in the context of LAND markets, is simply the amount of gain that a property owner is able to extract OVER AND ABOVE what they would have been able to extract in a free market. “Planning gain” and inflation in urban land prices due to regulatory rationing, is the most classic, glaring, obvious example that students doing Econ 101 could be taught by way of illustration of the principle of “rent-seeking”.

    • Turn it up Brian. My response to Cam was because of his personal attack on Wendell (since removed), which was below the belt. My response to Cam (which I regret) was equally poor.

      While I strongly support broad-based land taxes, their implementation would have far less impact on urban land prices and preventing bubbles than less restrictive land-use policies.

      New Jersey in the US has extremely high property taxes (admitedly not as good as a land tax), yet it has highly unaffordable housing (when prices are measured against incomes) and has experienced two large housing bubbles/busts since the 1970s. By contrast, states with low property taxes AND more permissive land-use policies have not. Wonder why?

      In a similar vein, Hong Kong has one of the world’s best developed land tax systems, which earns the Government around 40% of its revenues. At the same time, it also operates a strict land-use regime that dictates that development must concentrate on only 25% of the land area, with the remaining 75% preserved as open space. Yet Hong Kong property has experienced wild booms and busts and has some of the most expensive housing in the world.

      You really need to expand your economic toolkit on these issues to also include the role of credit and planning. As long as you focus only on land taxation, you will never have the complete picture.

    • Bryan,

      I too wish for taxation burdens to be shifted onto “land”. But I am under no illusions that this would be a panacea for the price effects of rationed “supply” via zoning.

      You talk, on your blog, about “economic rent”. Can you not see that what are effectively quota systems for the supply of land for urban development, create quasi monopoly rent? Are you not aware that the concept of “planning gain” can easily be turned into a rent-seeking racket?

      How high would land taxes have to be, to stop this racket? Without stifling incentives for other genuinely productive uses of land?

      The author whose work you most need to engage with, is Alan W. Evans. 2 slim books were published in 2004: “Economics, Real Estate, and the Supply of Land”; and “Economics and Land Use Planning”.

      Have you followed my many arguments with Cameron Murray on Macrobusiness Blog, on this subject? I really don’t want to have to re-run them. But anyone who wants to claim expertise on these “land rent” issues, really has to engage with Evans’ books.

      • Phil,

        Evans book is a somewhat limited exercise, and I have highlighted the limitations in his analysis before http://ckmurray.blogspot.com/2011/05/economics-real-estate-and-supply-of.html

        Also, economic rent is a component of rent (as in the price paid to occupy a dwelling). It is the component of rent above and beyond the return on improvements to the land, and can be effectively described as the return on land. SInce land is costless to produce, economic principles of marginal cost pricing in efficient markets necessarily denote all of the return on land as economic rent.

        And of course, I strongly disagree that any Australian town planning scheme is currently, or has recently, acted as a quota system. I have explored this in more detail here http://www.macrobusiness.com.au/2011/09/the-housing-production-line/

        Can I ask Phil, what motivates sellers of land? How exactly does a competitive property market both outbid each other for development sites, and underbid each other on the sale price of new dwellings?

        • When the theory doesn’t explain reality, Cameron, you need to ditch the theory. You really do.

          I have explained the faults in the theory often enough. And your failure to acknowledge Evans as the best authority on these theoretical issues today, really says a lot about how persistent an ideological blind spot can be.

          I have been glad to argue this at such length on a great forum like Macrobusiness, with someone like you who is the very epitome of the faulty thinking that underlies our affordability and volatility problem. It means the strongest arguments get properly tested and the audience convinced.

          I have explained how economic rent can include a monopoly rent component, and how “planning gains” can become blatant “rent seeking”.

          You ask “….How exactly does a competitive property market both outbid each other for development sites, and underbid each other on the sale price of new dwellings?”

          I thought I had explained this, too. This is where looking at real life rather than ivory tower theory, comes in really, really helpful. So as not to lengthen this comment, I will say more in my reply to Mr Bryan Kavenagh below.

  15. Phil,

    The “quota system” as you call it becomes a problem long before town planners hatch over their green bits on the map with their lovely residential pink. I’ve seen one particular Melbourne family strike the jackpot twice over two generations by holding non-residential land on the urban fringe. Their land value escalated virtually to full residential value on both occasions before it was rezoned for residential living and sold to developers.

    I’ve read (and known) someone even more compelling than Alan W Evans on this topic, another Phil, the late Phil Day http://thedepression.org.au/?p=5984, former head of the Town Planning Department at the University of Queensland. Read his “LAND” and “Hijacked Inheritance”, and you’ll see how people won’t be able to speculate on the urban fringe and how there will never again be a so-called “shortage of supply”. Phil is one of the few town planners who saw that land value capture is the only way to harness the public rent that flows from land and provide effective stewardship of our most precious resource.

    Zoning isn’t the main problem, Phil. Speculative sitting on extensive lands on the urban fringe is. And there’s only one way to solve that – land value capture.

    • “Zoning isn’t the main problem, Phil. Speculative sitting on extensive lands on the urban fringe is.”

      Allow open competition on the urban fringe by removing planning constraints (e.g. UGBs, restrictive zoning, slow development approval processes, etc) and these windfall gains will be reduced significantly as will the opportunity to profit from land-banking. Of course a broad-based land value tax will assist too – neither Phil or I dispute this. I would also like to see more regulation of lending as well. But it is naive of you to dismiss planning constraints altogether.

      Also Brian, explain to me why these speculative gains haven’t been possible in the open land markets of ‘middle USA’? There land values have remained relatively stable, despite easy access to credit and, in the case of Texas, Georgia and the Carolinas, high population growth. None of these markets have land taxes and only one – Texas – has any significant property tax.

      You also haven’t provided an explanation as to why Hong Kong has experienced numerous large housing bubbles and has some of the world’s most expensive housing? Surely its well established broad-based land value tax should have prevented this from happening?

      • You virtually answer your own question with the “middle America” qualifier, Leith. Where’s middle Australia? We live on the beach in big cities, and have tended therby to bid up our land prices ridiculously.

        As it’s not keeping their escalating land prices in check, Singapore and Hong Kong obviously need to up their land value capture and reduce their already low marginal income tax rates further. Easy!

        • That’s a weak response Bryan. ‘Middle America’ refers to the middle section of the USA – north to south – not the inland. This just happens to be where most of the US’ affordable housing markets are and where land-use policies are typically relaxed (Nevada, Arizona and Colorado notable exceptions. And yes, they all experienced bubbles).

          Houston, Texas is coastal – its metro area encroaches Galveston Bay – yet it has experienced stable land prices. Guess what, its population is also 6 million – much larger than ANY Australian city. Texas’ population is 25 million, compared to Australia’s 22.5 million. It has a higher concentration of its population in its major metros (Dallas-Fort Worth (6.4 million); Houston (6 million); San Antonio (2.1 million), and Austin (1.7m)) than Australia does. It also has had easier access to credit than Australia and has experienced higher population growth (Dallas and Houston each grew by 1.2 million over the past decade!). But guess what? Texas’ land/house prices have remained stable and affordable due predominantly to its relaxed planning system.

          “We live on the beach in big cities, and have tended therby to bid up our land prices ridiculously”.

          And yet land/house prices have escalated virtually across Australia – from the large coastal cities to inland regional centres (e.g. Canberra, Ballarat, Wagga). Check out the latest Demographia Survey and you will see that no Australian city is ranked ‘affordable’ compared with around half of the USA, which were affordable even at the height of the US housing bubble. Australia’s land-use policies are virtually identical across the nation, whereas they vary state-to-state in the US.

          You need to remove the blinkers and start seeing the bigger picture. Sure, keep arguing for a land values tax – I will support you all the way. But at the same time, accept that there are larger factors at play that need to be sorted out too. We are on the same team here. We both want the same thing. So let’s not fight against each other and attack the politico-housing complex head-on through a multi-pronged approach (e.g. an end to negative gearing, sensible mortgage lending rules, land taxes, AND more liberal land-use policies).

          You will note that I have never attacked LVRG’s stance on land taxes because I broadly agree with it. Yet you somehow feel the need to attack our stance on land-use, as shown in your blog attacking Wendell Cox.

          • Bizarre comment from Bryan Kavanagh. He appears to be another shortage-denier.
            Why is it that so many people will pick ONE SINGLE FACTOR to explain the problem and then attack anyone else who suggests anything else might also be a factor?
            Most shortage-deniers pick credit as the cause of the bubble and then figure they must attack anyone who suggests a shortage might be a factor.
            Bryan Kavanagh has picked absence of land tax as the cause and therefore attacks the planning-caused-shortage line.
            No Bryan, that is nonsense. Australia has not had a land tax for more than 100 years. The housing problem has only occurred within the last few decades. Open your eyes!

        • Leith, there is one very critical question not adequately answered by the group here claiming that removing zoning would reduce prices.

          Why would removing zoning, which in Brisbane for example might mean that 500,000 new detached homes could be built, rather than the 200,000 under current planning schemes, increase competition to supply land for development? Why isn’t 200,000 enough for competition, yet 500,000 is? I have not heard any theory that adequately explains this crucial requirement.

          • No, wait, Rumple-s, I think I can see things clearly now. The world is in meltdown because of planning laws. They need repealing!

          • “….I have not heard any theory that adequately explains this crucial requirement….”

            Yet you claim to have read Alan W. Evans’ books. Curious. You are obviously not much of a reader, or else your faculties automatically filter out any analysis that is inconvenient to your worldview.

            Evans points out (referencing a paper by Nelson, Knaap, Dawkins and Pendall) that when Portland introduced an urban growth boundary that had “20 years supply of land” inside it, just FOUR YEARS LATER, prices began to escalate. Evans therefore calculates and Shlomo Angel et al and Wendell Cox have also calculated, that commercial realities mean that “20 years supply” of land for urban growth is close to a bare minimum to prevent price escalations.

            The authors Nelson, Knaap, Dawkins and Pendall are pro-containment, and do their best to bury the reality in platitudes, but they are forced to admit that there is a correlation between “whether growth restraints make a difference at all to the amount of sprawl”, and “whether they force up land prices”. If they do not force up land prices, then they will not be containing growth either, in comparison to the absence of the regulations.

            I am sure I have explained this before, but here we go again. The reason why “16 years supply” of land for urban growth, will inflate in price.

            1) Approximately half the farmers within the boundary will not want to sell their land, period. That leaves us with 8 years supply, not 16.

            2) Suburban development projects typically take about 4 years, and developers typically like to have secured land for their “next development” well before they have finished their “current” one. The longer regulatory processes take, the stronger this commercial imperative becomes.

            3) Developers very quickly discover, when searching for their next piece of raw land for development, that there is a “shortage”. The bidding war begins against each other, and also higher and higher bids are placed in efforts to persuade the early farming holdouts to sell.

            4) The owners of the farmland within the regulatory boundary (or proxy for a boundary) “get wise”.

            WHY, WHY, WHY all the denial, Cameron? This is so SIMPLE.

          • To PhilBest – not sure if you’ll see this, but I will give it a go anyway. Do you know if the Portland studies you reference above factored in the trolley car system and massive “liveability” investment that was undertaken by the City as a contributer to the price growth? Even though a “UGB” was introduced in Portland, there was also a significant investment in infrastructure and regeneration works. Having not read the reports you reference, I was wondering if that was also considered by the authors in explaining the price growth?

          • LandDeveloper says: November 14, 2011 at 3:58 pm To PhilBest:

            “……Do you know if the Portland studies you reference above factored in the trolley car system and massive “liveability” investment that was undertaken by the City as a contributer to the price growth?….”

            Have you ever seen any study that found that the trolley car system and “smart growth” improvements themselves DID lead to rises in property values? I understand that the cost of subsidies of these things have ultimately far exceeded the “value” created – because without the subsidies, developments would not have happened.

            NIMBYism is a huge obstacle to the success of “transit oriented development” and so on. Planners need to address this and this alone and not bother with the boundaries.

          • To PhilBest – thanks for the response. Not sure it quite answered my question, as I was of the belief that many of the developers in Portland attributed much of the price growth to the improved “liveability” infrastructure that was implemented by the City. But I accept that this is purely anecdotal so I was interested if the authors had touched on whether the price growth could in part be attributed to “liveability” infrastructure rather than solely UGB’s causing 100% of the price growth.

          • Land Developer,

            Some Developers in Portland might like to rationalise things that way (and the planners might like them to too), but if these “livability enhancing” developments were so great, why have they needed such substantial subsidies and tax breaks to work at all?



            Another beautiful irony, look at the graph on page 12 of THIS paper:


            This is what urban growth boundaries do to a city. As the author of the paper points out, density is disproportionately increased FURTHER AWAY from the CBD, in contrast to the normal density profile of a city, where the density slopes steadily downwards from the centre to the fringe. This INCREASES average commuting distances if the planners assumption about employment being concentrated in the CBD was correct.

            The reason for this is that the inflation in the price of land renders homes closer to the CBD even MORE UNAFFORDABLE than homes near the fringe. Households “housing plus transport cost” options are ALL VERY MUCH WORSE under these conditions. There was a whole chapter in the famous “Costs of Sprawl 2000” paper on this subject – which has been ignored or misinterpreted by the advocates of “smart growth”.

            In any case, whatever is happening to inner city redevelopment and renewal, the mechanisms I describe with the market for land beyond the existing developed area but within a “20 years supply” growth boundary, are still valid. This would not happen of course, if there really WAS “no demand any more” for this kind of living. Note that the inner city renewal requires subsidy, while the “fringe” developments are milked for “impact fees”.

    • Here is the reality.

      ANY modern day Bill Leavitt could end am urban property price bubble in no time IF the local “planners” would allow them. ANY modern day Bill Leavitt could bring $180,000 new houses to market if the planners would let him. It wouldn’t matter if they were 5 minutes drive “further out” than the current “plans” allow for – the fact that $180,000 new houses were available 5 minutes drive further OUT, would prevent any developer 5 minutes further IN from asking $200,000 more just for the section; and the farmer who originally owned the land from asking $400,000 per acre for it instead of its farmland price of $15,000 per hectare.

      This is what keeps markets like Houston so extremely competitive. I am serious, they can get housing to market far cheaper than China, let alone Australia, because no-one even bothers trying to “flip” and gouge and rent-seek, because there will always be some other competitor undercutting them.

      The stupid thing is that the “planners” say they need to prevent the entire countryside being “paved over”, but this is irrational nonsense. There is literally dozens of times as much farmland as there is urban land, in Australia and the whole world. And the amount of land newly developed per year is a miniscule fraction of what is already developed. We are talking about restrictions that ensure that farmland is “only” reduced from, say, 29% of the total land mass to 28.99% over the next century, instead of 28.98% if we “allowed sprawl”. (Deserts and national parks and so on being assumed to be most of the rest – “urban” is way under 1% in Australia and under 2% worldwide).

      The amount of farmland within another 2 minutes, 4 minutes, 6 minutes drive from the urban fringe in any city, is actually sufficient for so many decades supply for urban growth, that provided it is freely allowed to be converted to urban use, it is simply not rational for anyone to try and “bank” the supply. The rational point at which developers do, and in fact HAVE to try and secure land by outbidding each other (simply to stay in business), is known by the BEST urban economists to be around 15 to 25 years supply.

      Urban planners like to claim that “our plan allows for 5 years supply” or “10 years supply” therefore we are not responsible for inflating prices. The boundary of this “supply” can be as little as 1 km or 1 minutes drive past the existing fringe – or even less. The planners are in denial about their dire culpability for the great rip-off of the young, the great wealth transfer, and the volatility that is bringing the whole first world to its knees today.

      Urban planners will also claim that “infill development” and redevelopment at higher densities in the existing urban area, can be taken to represent “5 more years supply” or even “30 more years supply”. This is nonsense. This land will inevitably be priced at an even higher level than the fringe sections that are $200,000 overpriced, and even fewer people will ever be able to afford to buy homes in the resulting development. This is why a plush inner city apartment in Sydney or Melbourne is $1,000,000, and in Houston it is $150,000. The “planning and permission racket” is also why crude small apartments in Chinese apartment blocks are still $50,000 when the millions of prospective buyers earn $4,000 per year, when the same thing could be done for under $20,000 in any genuinely free market in land and development. (It doesn’t need to be, when townhouses are $85,000 new, and older rundown houses in unpopular areas are $40,000).

    • BTW, Bryan,

      You have put your “reply” to me on your blog thread, but my own comment that I went to the trouble of posting, is not there. It looks a bit odd that you are addressing an invisible “Phil”.

      Did you mean to leave my comment out, and why?

      Mason Gaffney is a prominent advocate of land taxes, who nevertheless does not have any blind spot regarding the evil of urban growth containment (which he calls “Negative” urban growth containment in contrast to land taxes, which act as “Positive” urban growth containment without arbitrary boundaries and inflationary effects.

  16. Sorry, Phil Best, one minute I had 5 comments including yours up there on my site, now I see I’ve replied to you and still only got 5 comments. I’ve obviously deleted your piece by mistake to which I replied. I’m a dill, but not a big enough one to purposely delete a comment to which I’m replying! [I believe my ASUS N61JQ notebook with its notorious leaping cursor may be to blame.]

    Would you like to copy your comment from ‘Macro’ and drop it back into my site please? If you wouldn’t, I’ll do it myself, but it will look a bit like a rigged job, coming from me. Apologies again, Phil.

    Yes, Mase Gaffney is not a big fan of zoning, and I am. We Georgists are a very broad church and Gaffney remains one of my heroes.

    Look, I’ve been around in property since the Melbourne Metropolitan Board of Works Planning Scheme in the late 1960s, and all the subsequent planning scheme incarnations. Regardless of the various intents of all the zoning schemes, they’ve all had to give way to Melbourne’s development to a significant extent, but I’m pleased that some worthwhile planning concepts and green wedges have been able to be retained.

    Despite favouring strong planning schemes to offer a set of guidelines to developers after community consultation, I tear my hair out when town planners tell me they want to intensify residential development near transport nodes and attendant to shopping centres (which I happen to think is a worthy object), but when I tell them to let municipal site value rating do it for them – because that’s where the higher site values are – they say “No, we can’t do that, because that will put pressures on aged pensioners living in those areas!” (Winston Churchill himself noted that bureaucrats are always swayed by the speculators’ “poor widow” cat’s paw, when society will usually look after the genuine widow).

    Also, there’s an equivalent to whole new suburbs in properties being held speculatively out of use in Melbourne right now that might not be, were we to employ Ken Henry’s suggestion of a significant all-in land tax.

    Yes, zoning constraints will sometimes affect supply at the margins, Phil, but, gee, undersupply caused by zoning is no more the critical problem here than it was in southern California.

    • Bryan, I appreciate how much you already are acquainted with on this. You would benefit from reading the to-and-fro debates between Alan W. Evans and Fred Foldvary, on “monopoly rent”, if you are not familiar with these. Evans’ books are a “must read” regardless.

      But you say “…undersupply caused by zoning is no more the critical problem here than it was in southern California….”

      It was a HUGE problem in Southern California. It was a HUGE problem in Ireland. You have not been following “The Unconventional Economist” and his excellent analyses of bubble markets. Even if a lot of housing got built, the problem lies in excessive levels of “planning gain”. If “supply” responds only AFTER “planning gain” has escalated by a few dozen percent, then you have a “regulatory interference” problem, regardless of how many houses get built at inflated prices.

      Glad you know Mason Gaffney. He is right and you are wrong. I do believe that land taxes would act as a sufficient constraint of “sprawl”; if only the environmentalists had the economic literacy to understand this they would advocate land taxes and NOT boundaries and prescriptive planning.

      You are far too sanguine about “planning gain”. You seem to be saying that even WITH land taxes, a deliberate constraint of urban land is justified, to force taxation revenues up. In Britain, where the growth containment racket has been going on for decades already, “planning gain” (in the order of several HUNDRED percent) is the subject of sickening, lengthy, backroom negotiations between government, bureaucratic empires, incumbent landowners, “agents”, lawyers, consultants, developers, local special interest groups, etc etc. And the average age of a first home buyer in Britain is 39 years, and generation Y will reach the age of 65 having transferred some 25% of the wealth they would otherwise have, to the baby boomer generation.

      If you too do not find this sickening, then there is no point discussing this any more. The audience can tell for themselves who has the credible argument.

      I am pleased that you too see the lunacy of planners prescriptions for “intensified development” at whatever location. Anthony Downs has been pointing out for 20 years or more, that this will never work anyway because any “preferred” locations where increased numbers of people “buy in”, whether through voluntary demand or by subsidy or compulsion, the prices at those locations will quickly exclude all but the incumbents and the first few people to move in.

      “Inner city living” and “high density” at appropriate “nodes” have ONLY EVER been “affordable” during the decades of the evolution of urban form when the population “shift” was AWAY from them, NOT “towards” them.

      I have no problem with “green” wedges and parkland and heritage areas being designated. It is the presence or absence of a “game” in land at and beyond the urban fringe that decides whether the market will be “affordable” or not. In the markets (of which there are several in the USA) where there is NO “planning gain” associated with fringe development, the price of land throughout the urban area remains very low and the preservation of wedges etc have cost the government very little, both in initial compensation and “opportunity cost”. It is cities with inflated land prices, where the government is perpetually tempted to slice off bits of green space, sometimes for favoured constituencies, and sometimes purely to help balance their budget.

      By the way, my comment on your blog seems to have mysteriously re-appeared.

      • I’ve witnessed councillors removing themselves from council meetings on a zoning issue on which they have an interest, in the misbegotten belief that this ensures a fair decision is made, and I’ve seen many other rotten dealings related to re-zonings. There is much humbug.

        However, I re-iterate my main experiences: it is better the community keeps industry separated from residences; it is good that the community has input to proposals for future residential development and lands meriting preservation.

        To do away with, or unduly loosen, zoning controls has very little to do with the height to which property values will rise. Over my years as a valuer, I’ve seen the value of rural or conservation land abutting existing reserved living or residential lands willALWAYS rise, closely towards the residential value, notwithstanding what the planning scheme says, so the colour of town planners’ pencils, or when they change those colours, ultimately has ALMOST NOTHING to do with the price of a parcel of land – and this surely discredits the academic argument of those who believe that it has some great relevance? I repeat this truism: Land values will always rise speculatively in advance of re-zonings on the weight of the POSSIBLE potentialities at a given location!

        • [Further]

          The bureaucracy of town and country planning certainly does introduce problems, and, yes, planning schemes may sometimes delay necessary development, but this type of ‘undersupply’ is grossly exaggerated in my experience – as is the oft-perceived VAST difference in prices per acre on residential and rural lands sharing a common boundary. It’s NOT really the stroke of the town planner’s pen that turns land bankers into multi-millionaires, but rather the lack of land value capture.

          I consider speculative land banking, not planning schemes, to be the far greater culprit, and that certainly used to occur even in the days BEFORE planning schemes.