Urban land supply and its effect on house prices

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Below is a guest post from MacroBusiness member, Phil Best:

Paul Egan and Philip Soos last week released an epic 800-page report entitled “Bubble Economics”.

Notwithstanding that parts of this report are excellent, I do hold deep reservations about their findings on urban growth containment policies and their distortionary effects. This paper contains a section 3.8 entitled “Examining the Urban Containment Hypothesis”, starting on page 657.

Below are my comments on their findings.

Egan and Soos claim that price volatility in urban land markets was a historical norm long before growth containment urban planning was invented. This is true; but they actually provide the reason why, and then “rebut” it:

“….an inability to build homes outside the immediate city centre given limited transport options; travelling by foot, horse, or carriage….”

Their “rebuttal” consists of the evidence of very high build rates for housing in the 1880’s cycle. But very high build rates on the limited amounts of land accessible by primitive transport systems would be a reason for price volatility, not a reason to expect it to be absent.

What Egan and Soos have missed, as have the important authors Harrison, Gaffney and Anderson who they cite, is the paradigm shift in land markets that occurred with automobile based development, which for the first time brought sufficient land within transport system reach, in the process diminishing economic land rent. Ed Glaeser gets it right in “Nation of Gamblers” (2013):

“…..The post-World War II era demonstrated exactly what textbook economics predicts should happen when robust demand meets relatively elastic supply. Quantities rose and prices stayed relatively flat. The relatively elastic supply owed much to the rise of automobile-based living on the urban fringe, which can be seen as either a shift in housing supply or a change in supply elasticity. For example, in an open-city formulation of the Alonso-Muth-Mills model, with supply costs that increase with density, lower transportation costs will increase supply but not change supply elasticity. Yet it is possible that the automobile made supply more elastic as well. On the urban fringe, lower cost, low density housing can be built in massive quantities, essentially using a constant returns-to-scale technology……

“……..The missing post-war price boom is not a problem for conventional economics, but it does present a challenge to those who seek to explain bubbles as the outcomes of a stable process where readily observable exogenous variables translate into the presence of a bubble. The 1950s had easier credit for homeowners than the 1920s and economic conditions were at least as good. Any model that suggests that there is a stable relationship between either of those variables and price bubbles has difficulties with this epoch……”

There was no lack of early authoritative literature theorising the coming fall of urban land rent from increased transport system flexibility. Robert Murray Haig (1926) “Towards an Understanding of the Metropolis” contained a sound and influential theoretical discussion. Michael Goldberg (1970) “Transportation, Urban Land Values, and Rents: A Synthesis” discusses Haig’s work and further refinements from Richard Ratcliffe, William Alonso, Lowden Wingo and other luminaries of urban economics.

Paradigmic changes to the system of transport, due to roads and automobility, interrupted the historical norm to that time, of urban land market cyclical volatility and systemic economic rent of an “extractive” nature. A new norm of cyclical stability in prices, the democratisation of home ownership and its amenities, and consumer surplus in housing rather than extractive economic rent, commenced and lasted for several decades in many first world countries. It was this “new norm” that was interrupted by centrally imposed planning to constrain the consumption of land in urban growth, eliminating the beneficial effect of competitive automobile-based land supply for urban economies.

Egan and Soos use the example of Texas in the 1980s to demonstrate the presence of price volatility in the presence of freedom to convert land between uses. But as with other author’s discussion of this example (eg Phillip J. Anderson), nominal dollar percentage price rises and falls are used to make the volatility look a lot more impressive than if real prices were used. There was strong income growth in TX at the time. It is also worth noting that California, with more hindrances to conversion of land to urban uses, had a far greater price inflation at the same time.

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The price falls in TX were significant due to overbuilding, which because it occurs without significant real price inflation, does not have to wreak the economic damage that happens when price volatility is high. And normality resumed within a few years as population growth caught back up to the quantity of housing. An occasional episode of overbuilding in conditions of explosive actual population and income growth is a small price to pay for urban land price stability.

In fact Phillip J. Anderson says of this episode:

“……In 1988 the comptroller of the currency, having surveyed all the recent banking and thrift failures, reported that less than 10 per cent of the failures had been caused solely by economic factors. Most were attributable to faulty lending practices or outright fraud…….” (Anderson, “The Secret History of Real Estate and Banking”, p284).

This contrasts with the highly destructive fallout from recent bubbles in which price movements have been far more volatile and even non-fraudulent loans to large numbers of borrowers have ended up in tragic negative equity situations – and with loan sizes that very much greater than a historically realistic assessment of the actual value of the property concerned.

Another crucial difference between this episode in Texas and the systemic changes in the markets in anti-sprawl regulated regions, is that in the latter, the volatility repeats and tends to worsen with each cycle, rather than disappear altogether (as it has in Texas); and furthermore the space per home in new development shrinks even as the median multiple trend entrenches at higher and higher levels.

Bear in mind, too, that there are plenty of cities outside of Texas with growth rates that leave the growth-phobic parts of the world for dead, that do have price stability. Charlotte, Raleigh, Nashville and Indianapolis, for example (compare charts below).

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There are analyses of housing supply elasticity by city in the USA that clearly show a major difference between the cities with freedom to sprawl and those without. (e.g. Green, Malpezzi and Mayo 2005; Albert Saiz 2010). The measured elasticity of supply in Texas’ cities are in fact not remarkable in the context of the elasticity that is the norm in the great majority of US cities. In Saiz’ study, none of the most elastic-supply cities are in Texas at all. Houston has a supply elasticity of 2.01; San Antonio is 2.26, Dallas 1.88, and Austin 2.41.

But Little Rock is 2.73, Kansas City 2.82, Omaha 2.83, Dayton-Springfield 2.91, Tulsa 3.02, Indianapolis 3.36, Fort Wayne 5.13, and Wichita 5.16……!

None of these cities have had the slightest tremor of real house price inflation in the automobile era.

Egan and Soos use the classification of Chicago as a “less restrictive” land supply regulation city in a chart in a referenced Demographia Report. Unfortunately, this was an error in that particular chart; other references to Chicago in that report and all other Demographia ones are to it being “more restrictive”. Wendell Cox regrets the error, which has been corrected in the online edition of that report (see below).

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Egan and Soos claim that prices and rents have an intrinsic relationship that should see them rise and fall in tandem if restrictions on housing supply play a role. But in real life, if amateur investors are cautioned about rental returns relative to the prices they are paying for houses, they will tell you that it is capital gains that they are chasing, not rental returns. Prices rising faster than rents is in fact one commonly acceptable piece of evidence that there is a bubble. The commonly understood price/earnings ratio on sharemarkets is a similar means of identifying bubble conditions.

A relative absence of institutional investors in the rental property market has been explained by the due diligence procedures of institutions, constraining them from taking risks. Amateur investors merely act on their own assumptions and wishes.

Egan and Soos point out, correctly, that leverage cannot be used to pay rents, but can be used to pay higher purchase prices. This is an argument against the necessity for rents and prices to move in tandem. They hypothesise that increased prices should be caused by increased rents, “capitalising into higher prices”, if supply constraints are the cause. As prices always rise ahead of rents when there are price inflation episodes, this, by their thesis, should mean that supply constraints are never responsible for the price inflation. This is an extraordinary position to take, given the range of severity of supply constraints in different housing markets around the world and the closely associated range of severity of economic land rent per unit of measurement of land.

If one takes the extreme example of London, UK, where the inflation of the value of a site gaining planning permission is fully 700-fold over rural values, (in contrast to a mere 20-fold in many cities with less strict rationing of land supply) and price inflation in every cycle has preceded eventual rent increases, how can one argue with a straight face that the supply constraints cannot be responsible for the price inflation? Yes, they will be and are responsible for inflation in real estate rents too, but these always lag the house price inflation.

In fact the only markets where rents and prices do remain in a stable long term relationship are the markets where significant price inflation and increases in economic rent per unit of land are absent. Both prices and rents tend to remain stable.

Soos and Egan’s central assumption, which is a common error, is that “there actually is an adequate supply of homes getting built, therefore the price inflation can’t be the result of inelastic supply”. The question I always ask such people is that if the supply of land for growing staple grains was strictly controlled in a lesser developed country, and “enough” bread was getting produced yet the price was so high that many people starved, and yet surpluses of it were going mouldy and getting dumped at sea; would the argument “but supply IS adequate” be regarded as a valid excuse that the controls on the land use were not responsible for a classic oligopoly price gouging ploy? The point here is that potential supply is not adequate – there is an absence of freedom for new entrants into the market other than by out-bidding existing actors, when in truly free markets it is possible to enter simply by “supplying” at a lower price, drawing on superabundant latent potential supply.

The glaring deficiency in mainstream economic analysis on this point concerns the market distortions caused by “quota” systems for the supply of anything. There is an added layer introduced into the market, or rather, an additional market introduced, between the factors of production and the consumer. This market is the market for share of quota. If government was auctioning the quota, government would capture the economic rent involved, as was the case for a short period with NZ’s car import license system in the early 1980s. But quotas can be created that give the private sector owners of the resource the power to extract zero-sum economic rent. This is the inherent problem with constraints on the conversion of land from one use to another.

In China, government actually is capturing the extractive economic rent created by strict control of the supply of land for urban development; in fact government is the “owner” of the land in the first place. They are deliberately maximising the “planning gain” (and ignoring housing affordability for now) because the revenue involved allows them to keep taxation of all kinds lower. The situation in the western world is similar only private sector rentiers are capturing all the gains, which are not helping the general interest by being a means of keeping taxes lower.

Egan and Soos complain about the shortcomings of classic urban land rent models in the literature from earlier eras (Alonso-Muth-Mills); yet all their criticisms of where the models are most inadequate are caused by distortions to markets that the classic authors were not attempting to incorporate in their models and possibly did not even foresee. The assumptions made by the classic modellers were largely true of an urban economy with no urban growth boundary (UGB) or proxy for one and minimal zoning, but are completely violated by the distortions introduced by an UGB. The principal effect of the UGB is the elimination of consumer surplus in housing, the creation of extractive economic rent, and the creation of expectations of capital gains. The owners of sites, therefore, do cease to act like rational actors who allocate their sites to productive uses, and behave more like speculators in gold and bullion.

Houston is an interesting case of a free-to-sprawl city that does not lack tall buildings in its CBD, which is logical given that more Fortune 500 Company Head Offices are located there than any other city. Yet Houston’s land rent curve is far flatter, and far lower at the CBD itself, than any typical UGB-contained city. In the latter, upzoning always increases site rents, often regardless of whether the site is actually redeveloped or not. However, in a city like Houston, building “up” tends to decrease floor rents, leading to decisions to build “up” being made on purely functional grounds, and prices and rents in the CBD being determined by fundamentals like agglomeration/productivity-derived income levels, not zero-sum economic rent extraction.

Egan and Soos claim that greater regulatory burdens on developers have not stunted housing construction rates. Whatever data they are relying on, it is not the dwelling construction data presented by the ABS:

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In a normal functioning market, the massive rise in Australian house prices from the mid-1990s would have elicited a strong construction response. And yet, dwelling construction rates in Australia have fallen over that time, suggesting housing supply has become less elastic (responsive) to price.

Indeed, this recent study re elasticity of housing supply in Sydney, finds it to be below “unity”. Above unity means supply is elastic enough to stabilise prices. Most US cities elasticity in the above referenced Saiz study score around “2”. Studies for the UK find it to be indistinguishable from zero in many of their cities……!

Egan and Soos attempt to explain “land banking” and the withholding of sites from redevelopment to more efficient uses, in terms of the power of owners of land vested in them purely by location. That is, allegedly, this behaviour would be no different whether a UGB was present or absent. This completely ignores the role of “option values” in land in an urban economy. Travel cost can be traded off against location. Increasingly, travel cost has fallen in real terms, which is one of the factors that makes more sprawl inevitable (the other factor is that rural land has steadily fallen in price in real terms, enabling the conversion of more of it for the same amount of urban income). Communications have become an even cheaper substitute for travel, making location advantage less of a cause of premium pricing. Alan W. Evans (“Economics, Real Estate and the Supply of Land”, 2004) makes the distinction between economic “rent” that is due to location advantage, which he calls “differential rent”; and economic rent that is due to systemic scarcity, either real or induced by regulations. “Extractive” economic rent is the appropriate term for the latter.

It matters very much whether a site’s value embodies only differential economic rent or whether it has extractive economic rent in it as well. If the lowest cost land within functional driving distance of a site is rural land costing $30,000 per acre (entirely typical) then a site should not cost significantly more than the capitalised savings on travel on top of the $30,000 per acre. The fact that land just inside a UGB always sells for many times the rural value, while land in a comparable location in a city without a UGB always sells for a moderate percentage higher than rural value, should be conclusive for rational observers. The “option value” effect means that the value of all sites between the rural exurban land and the very city centre, are derived from capitalised travel cost savings relative to the rural land cost. There will be some price input from local agglomeration effects but these are still part of “differential” rent and can be quantified as an “add-on” to the lowest-cost land available to the urban economy – which is why those tall-building apartments in Houston CBD are so cheap.

Egan and Soos attempt to define a “more appropriate” approach to analysing whether a UGB causes housing unaffordability, than the allegedly crude identification of higher land selling prices (often 10 to 20 times higher; mostly over 100 times higher in the UK, and 700 times higher in London). They say:

“……..A study of the difference in land prices across the UGB must have two elements: a plot of land’s zoned use must be controlled for by rental income per square metre and measurement of the movement in the nominal rent to inflation and rents to income ratios over a specified period of time…… returns to residential land will always be greater. Land that is zoned for alternate purposes has different values, determined by the stream of capitalised income from the land’s highest allowable use, minus lot preparation and construction costs……..”

This is just at attempt to baffle readers with bunkum. Oh, we need to “control for the value of the stream of income in the highest-value allowable zoned use of the land”, to disprove that the zoning has an effect…….??? I would suggest this very same approach to prove that it does have an effect. The UGB creates extractive rent of an amount that seems to attach to each dwelling permitted; the higher the permitted densities, the higher the “planning gain” in the land. New fringe McMansions in growth-contained Boston, on mandated 1-acre minimum lot sizes, tend to be about the same price as new fringe row-houses in Manchester UK each on 1/20 of an acre of land; however, both are around double the price of the new fringe McMansion on 1 acre of land in a non-growth-contained city. The greater the permitted densities that go along with a UGB, the greater the “planning gain” to the site owner. Logically, this is why the rentier class likes UGB’s with upzoning even more than they like UGB’s without upzoning. The reason that affordable cities are affordable regardless of how low density they are (average lot size of 2/3 of an acre in new developments is common for median multiple 3 cities) is that the land value is anchored in “rural value plus cost of development and a modest profit in a competitive market”. When this means the developed land cost is under $100,000 per acre, then it obviously is not a make-or-break matter for affordability, to cram as many houses per acre as possible.

Egan and Soos quote literature from the US (Quigley and Rosenthal and others) regarding the complexity of land use regulation and how it is difficult to tease out the effect of each contributing factor, taking not merely UGB’s, but large lot mandates, height restrictions, set-backs, parking mandates, and so on, as “anti-growth” restrictions. This confusion by mainstream economists is common. But it does not require much time eyeballing data to see that the decisive factor is the ease with which rural land can be converted to urban use. As long as there are no restraints on this, it is indeed virtually impossible to tease out of the data, any effect on affordability from all the other “anti-growth regulations”. Median multiples seem to hover stubbornly around 3 in cities with freedom to convert rural land to urban use regardless of how much large lot zoning occurs. There is of course a limit to this – at some point in the “minimum lot size” scale, the effect must become literally a constraint on the conversion of rural land to urban use: for example, some US cities said to have “no UGB” are surrounded by rural municipalities who “do not disallow building of houses” but whose “minimum lot size” is 20 acres plus. This can be referred to as a “proxy for a UGB” or a “de facto UGB”.

Egan and Soos claim that private debt and property taxes are a glaring omission from land use policy studies, but in fact there is very little examples of urban land markets operating in either strict constraints on credit, or with land taxes. Both these policies are massively problematic politically. We do, however, have an example, South Korea, of severely unaffordable housing simultaneous with restrictions on credit that would make westerners squeal, such as LVR’s of 50%. All that this did was stimulate savings among young people, delaying marriage and childbearing until, in their mid to late 30’s, they could put down the 50% deposit, often with the assistance of parents. There is no evidence at all that house prices were constrained at all by the LVR policy. (See: Bank of International Settlements (2013): “Can non-interest rate policies stabilise housing markets? Evidence from a panel of 57 economies”).

There does not seem to be any correlation with the severity of property taxes, which have a land component, in US cities, and urban land price stability.

Egan and Soos refer to exurban “splatter” and “leapfrog” development in a couple of contexts; firstly in criticising the inability of the classical Alonso-Mills-Muth model to represent this reality and latterly in suggesting that urban growth boundaries are justified because they prevent this from happening. Actually, the classical Alonso-Mills-Muth model does somewhat include this reality because of the gentle slope of its land rent curve out into the surrounding rural land, from the urban centre. Splatter development tends to fit this curve reasonably well. It is a prohibition on splatter development that produces a curve with a serious discontinuity at the urban fringe.

Regarding the efficiency or otherwise, of splatter development patterns with later infill, this writer is aware of several specialist analyses that find this to be more efficient, not less efficient, and is unaware of any analyses that find the opposite, or of any rebuttals of this seemingly well-established principle. This is simply because later development of the fragmented land can have more efficient decisions made regarding its uses because of the existence of free-market evolution in the use of land around it already; new agglomerations can form that would not have formed otherwise, dependent on their need for affordable land, and indeed any spare sites at all where a nascent agglomeration might be forming (see Silicon Valley as the classic example); and because infrastructure planning and securing of rights of way is easier to do before areas are fully built out and yet while they are evolving. Growth containment policies are based on the assumption (that should have died with the former USSR) that central planners can anticipate the future needs of society and the economy better than what they would do if they follow the free market and act as enablers rather than prescribers.

Egan and Soos allege that critics of urban growth containment are possibly attempting to divert attention from the malfeasances of the finance sector and neo-liberal policies on immigration, globalisation and financial market freedom. But this charge could be reversed: it could well be finance sector rentiers as well as significant property rentiers, who are behind-the-scenes “bootleggers” to the growth-containment “Baptists” of the environmental movement. The crowning irony is that Egan and Soos claim that it is the “neo-classical economists” who are turning to blaming growth containment regulations, allegedly from lack of specialist knowledge on land economics, including a lack of understanding of “the private capture of geo-rent”…….! It is the contortions of theory regarding land values that Egan and Soos have presented, and the authors they quote in support, who truly lack this understanding in particular.

Egan and Soos end up making a plethora of recommendations that would be unnecessary if they understood and recommended that the priority reform concerns supply of land for urban growth. Many of the policies we now regard as toxic, are only so in combination with distortions to process of this supply. The many US cities with elastic housing supply, due to an absence of a quota mechanism in the land supply, do not experience negative unintended consequences from basically well-meaning policies like stimulatory low interest rates, the subsidy of first home buyers, tax write-offs of rental property operating losses, the welcoming of good quality immigrants, and the absence of a CGT on housing.

When new house prices are anchored in market freedoms in the same way as the prices of cars and TV’s are, low interest rates actually do stimulate the real economy; first home buyer subsidies actually do benefit first home buyers and increase home ownership; tax write-offs of rental property operating losses actually do encourage the supply of rental housing and enhance rental affordability; the need of increased supply of homes and infrastructure for population growth merely feeds economies of scale; and property capital gains in the long term are unjust due to inflation being the main cause for the “gains” taxed, and in so far as they are due to productivity improvements, they act as a disincentive to productivity improvements.

One of Soos and Egan’s recommendations, is abolition of the ability to write off rental property losses against other income, and imposition of rent controls to ensure that this loss of write-off ability does not result in rents increasing. This is a classic example of “the king, the mice and the cheese” effect in regulations – a regulatory distortion requires another regulation to fix it, which introduces another distortion, which requires another regulation, and so on ad infinitum.

Comments

  1. Whew! A meaty read to start off the last day of the week. Well reasoned, as usual, Phil. To be picky, perhaps using the words ‘choice value’ rather than ‘option value’ in the text might be more appropriate – this being a financial site and all, where Option Value may convey a different meaning. Thx.

    • Strange Economics

      In Melbourne, they have even better – an artificial 3D urban boundary in the convenient areas of a donut with a vertical limit of 1-2 houses(e.g. $ 1million) per block in the inner 20km. Apart from tiny studio boxes (essentially for export sale as an export industry with 10% sales duties and contributions to the state) in the high rise in the CBD, apartments are essentially banned under Plan Melbourne and the councils for the innner 20 km.
      This is the real life “Under the Dome” if you try to buy here for a family.

      No 400k-600k townhouses that may be affordable to FHBs or families are permitted by the sherriff in these “unneighbourly zones” covering 95 % of the inner marginal electorates.
      Perfect retail price maintenance. The marketplace does not rule, the current owners (rentiers) do. Owners vote in marginal electorates, future owners apparently do not. (or they vote somewhere else)

      Then this very strictly limited supply of houses are then finally sold to foreign buyers, who see a 3 % yield, tax deductible losses, negative gearing, discount capital gains tax and “only” 10 times income as an absolute bargain, compared to 1% yields overseas in HK/Singapore.

  2. Hugh PavletichMEMBER

    Dispersing Millenials … Wendell Cox … New Geography

    http://www.newgeography.com/content/004410-dispersing-millennials

    The very centers of urban cores in many major metropolitan areas are experiencing a resurgence of residential development, including new construction in volumes not seen for decades. There is a general impression, put forward by retro–urbanists (Note 1) and various press outlets that the urban core resurgence reflects a change in the living preferences of younger people – today’s Millennials – who they claim are rejecting the suburban and exurban residential choices of their parents and grandparents.

    There is no question that the millennial population has risen in urban cores in recent years. Yet the growth in the younger population in urban cores masks far larger increases in the same population group in other parts of major metropolitan areas and in the nation in general … read more … hyperlink above …

    • “In our region the city of Cincinnati and its central business district are experiencing a grand rebirth. The marketplace has rediscovered the advantages of urban living. Private investment is driving residential and commercial growth. At the same time, suburban and exurban commercial and residential areas in all three states of our region are growing and thriving. At our regional council, we applaud these market-driven developments rather than condemn some of them because they run counter to someone’s definition of the public good. . . . [The] deep bench of local involvement protects our regional organization from being captured by the latest centralized effort by someone telling us exactly how we should live our lives. Planning is undeniably valuable to communities and regions. But it cannot take the place of democracy at the local level. After all, if planning were the sine qua non of a successful society, the Soviet Union would still be extant and thriving.”
      —Mark Policinski, CEO, Ohio Kentucky Indiana Regional Council of Governments, Letter to the Editor, The Wall Street Journal, May 28, 2014

  3. Hugh PavletichMEMBER

    Sir Peter Hall on Suburbs … h/t Wendell Cox …

    This from his essay in a book published by the Smith Institute (not Adam, but John, Labour leader whose death led to Tony Blair’s Ascendancy)…

    http://www.smith-institute.org.uk/file/HousingandGrowthinSuburbia.pdf
    (have not read beyond Hall)

    The single most important point about suburbia, underlined by every contribution to this
    symposium, is that most of us in Britain live in it.

    Though precise definitions present
    problems – as Jim Bennett’s contribution shows – and statistical results differ marginally, virtually every study shows that between 75% and 86% of us are suburbanites.

    Survey after survey shows consistently that three-quarters of us would never live in a flat, and that the great majority aspire to living in a detached house. In this respect we closely resemble the countries we once colonised, and to which we bequeathed our tradition of suburban living: the US, Canada, Australia, New Zealand and South
    Africa.

    The penchant for city-centre apartment life so evident across much of mainland Europe has passed us by. Periodic attempts by architects born in those countries or seduced by their lifestyles meet with stony resistance.

  4. Excellent work PhilBest,

    I have not had time to read Soos and Egan’s Opus.

    I shall now make the time with your commentary in mind.

    I must admit I am surprised that they appear to have worked hard to give UGB’s a free pass but then UGB’s tend to be holy writ for many – often for reasons that have little to do with land economics.

    • Pfh007, please now take the time. I believe it a rewarding study.

      PhilBest,Thank you for your analysis.

      Early on you play to one of your favorite themes, that the revolution in road transport transformed and democratized land use – an argument I heartily agree with. However, we did not leap from horse and cart to the T model Ford. Between the two there was rail, which spread like wildfire (UK 1836 and 1845-47, US 1830-60 culminating in the transcontinental railway 1869) and drove Melbourne’s 1888-92 boom and bust.

      Fortunes were made as rail links changed geography, transforming distance from miles to minutes traveled less the cost of a train ticket.

      Land in Australia is now expensive. This has many causes: planning restrictions, poor tax bases, infrastructure shortfalls, debt appetite and speculation. Genuine reform of the first three solves all.

      This is a national debate of major importance. Please continue.

      • David, you are an important part of this discussion because you are observant and open-minded.

        The phase of urban development between horses and cars, that was based on rails, did indeed produce remarkably long-distance sprawl, longer even than automobile based development did later. (See Robin Best, “Land Use and Living Space”). However, the land added to supply in the urban economy was in long narrow ribbons, which were ALWAYS captured by land rentier vested interests.

        I hold that the volatility of price cycles in this phase of urban development was increased on the downside by the fact that supplies of land were added to the urban economy faster than ever before, but the chasing of speculative gains in land prices was just as bad as ever on the upside. Exactly the same effect can be observed today in situations where the supply of land for very rapid automobile based development is nevertheless strictly controlled and land bankers make a killing even on the abundant quantities “released” by planners.

        I hold that the Great Depression was the last and worst of a historic series of urban land price bubbles and busts, partly because the way the cycle works (with increased credit during each phase) means each one will be worse than the last, but also because of the greater increase in land supply than previously, which land supply did not, however, lower land rent in the process of its being added to supply.

        The only additions of land to supply in the urban economy that have ever lowered land rent by the very nature of their addition to supply, without needing a bubble and bust to achieve it, have been automobile based development. This is because the amount of land contained within a radius beyond the existing edge of the urban area, that is functionally able to be included via car access, is exponentially greater than the amount of land contained within a small number of ribbons extending as far as a train trip can make sites functionally able to be included in the urban economy.

        It has always baffled me why this is so hard for so many people to grasp.

      • Catherine Cashmore

        Valuable comments David and excellent article Phil – there are few that can hold a light to your knowledge on land supply.

        It is essential we ensure land is used for need not greed.

        Urban boundaries, zoning, restrictive planning policies, are all converse to affordability and influenced by polices that encourage speculative rent seeking –

        Unfortunately we have become a nation of rent seekers where moral judgement is subverted by the unearned yields one can receive. Addressing these shortfalls is a vital step toward freeing up the supply of land and the creative capacity of the community,

    • disco stuMEMBER

      Very much agree – fabulous piece Phil. Chunky, detailed, but still accessible.

      I like much of Soos and Egan’s work, but their discounting of the UGB as a factor in escalating land prices is hard to fathom.

      The unfortunate part is that it suggests an inherent bias in their viewpoint as to the underlying cause behind land inflation, particularly when they go to such convoluted means to discredit UGB.

      They obviously favour the availability of credit much higher in their list of causes. This sadly plays into the hands of the FIRE industry allowing them to point out the bias and result in much of their good work simply being discounted for serious consideration.

      • Thanks, DiscoStu, it is always good to get confirmation from other clear thinkers. Egan and Soos demonstrate a prodigious capacity for research which I admire greatly and it distresses me very much that they are so far off the reservation on the supply side. So much of their data, and data collated by Soos in particular, posted on MB over the last couple of years, is massively valuable to the cause of intelligent analysis of these issues. Of all the people I would have expected to come down with the necessary clarity on supply issues, he would be the biggest disappointment to me so far.

  5. JunkyardMEMBER

    I just cant take Phil seriously any more, since he came out of climate change conspiracy closet.

    It undermined my confidence in his ability for critical thinking.

      • Imagine the furore if Junkyard deduced PhilBest was a VEGETARIAN! PB would be utterly humiliated and his reputation would be shredded.

        PB can be a nong on climate change and still make sense on land, Junkyard.

    • From another forum (private email list I participate in), a few months ago:

      John F: “…..I am an intellectually inquisitive person and I enjoy intellectual puzzles. Not riddles, mind, but anything as deep as the extent to which a belief in gods is justified. And I have produced new results in several different fields of inquiry. I have a good ability to detect arguments that lack validity, I can write a pretty good paper, and I have served as referee. In transportation affairs, I have observed forty years of unscientific argumentation by anti-motoring ideologues, greens if you want to call them that. I have observed acceptance and publication of papers that served the green agenda without providing solid data and reasoning, even of papers that I, as a referee, had rejected. I have seen the rejection of letters that criticized unscientific statements in green transportation papers, simply because criticizing such was not part of the journal’s policy. The only two papers I have had published in the professional transportation press (Transportation Quarterly, Transportation Law Journal) really had to be accepted by the editors as corrections for previously published papers that provably had maligned my thought and my personal actions.

      Not only did I conclude that the green agenda for urban transportation was an ideological mess, but I came to realize that I was not alone. I found that the opinions that I had reached agreed with those of Phil, Tom, Wendell, and others. However, I still accepted the official announcements about global climate change, believing that those described as deniers constituted a small minority, often largely supported by financial interests in the status quo. But Phil’s last two presentations have provided me with a different perspective. I’m limited to abstracts (lost my academic connection in 1968, have little money or travel opportunity), but the list of authors, their subject matters, and abstracts persuades me that there is a great deal of scientific activity that not only creates doubt about the official hypothesis but is unlikely to have been subsidized by those financial interests.

      I am now quite willing to consider that the global climate change hypothesis is as much of a green ideological mess as is transportation, which is what Phil writes it to be……”

      • Excellent comment, David, that is a huge problem for the credibility of what I would call “the CAGW industry”. Another huge problem is bureaucratic empire-building – turkeys never write recommendations for Christmas, to their political paymasters. The third part of the triumvirate of problems is vested interests: crony capitalists – and nations seeking strategic advantage over those that are penalised first under the “global” strategy approach which ends up having the wrong consequences altogether. As does many of the policies enacted at least partly with “CAGW mitigation” as a pretext, ESPECIALLY in urban planning and transport planning. I would think it a safe bet that the vast majority of new rail-based public transport system “investments” since Kyoto and the Al Gore propaganda movie, has resulted in the emission of MORE CO2 per person km of added marginal PT travel than the average for private cars in the same city.

        The bureaucratic phenomenon, plus political interference, is what is primarily responsible for a “Summary for Policy Makers” not truthfully representing “the science” as contributed by the authors and reviewers of the main body of the IPCC report.

        People defending all this should be the ones regarded as not helping their own credibility, and as I said, most often they are true believers in the whole dogma, from the agitprop of Al Gore, to “science” written by bureaucrats, to emissions trading schemes designed by Goldman Sachs with future swindling of the public in mind, to Kyoto policies that increase global CO2 emissions, to “compact city” planning that causes increased average commute times, to rail based PT “investments” that are less efficient than cars.

      • Hi PB,

        As others do, I’ve seen you as one of a large number of commentators who really turned the light on when it came to economics especially RE, however again like others your anti GW stance and the links you put here made me wonder if my view of you was from a position of ignorance.

        My stance has been that the majority supported GW and until recently I’d not read anything to support a counter view to that until a few weeks ago (Duncan Steel). I would appreciate if you could provide the links that turned your friends view around.

  6. moderate mouse

    ‘This is just an attempt to baffle readers with bunkum.’

    You said it buddy!!

    All this ‘insight’ from the man who dismisses climate change by equating CO2 with water.

    Thanks for the laugh Phil. I really hope Egan and Soos get to read this and take you to task.

    • I have commented before that I have noted that most people who are true believers on compact city planning are also true believers on CAGW.

      Houses and Holes and one or two others on this site are rare exceptions in that they actually accept that the compact city planning thesis is non-objective, rigged by vested interests, and inimical to its claimed objectives let alone the wider interest – yet I have not been able to sway their faith in CAGW. This has been a disappointment to me. I think my most effective argument has been that the biggest exposure of the CAGW political machine, as with the compact city planning machine, is that the actual outcomes of favoured policy courses are more about unintended consequences than actual effective gains in the direction of the alleged objectives. If this were not so, I would not be quite so suspicious of the science too.

      If the scientists were sufficiently clever, objective, and sincere, they would be raising cain over the unintended consequences and the tokenist nature of the preferred policy courses. However, most of the time they seem to be lending their authority TO those tokenist policies and policies with unintended consequences. Such as the shutdown of industry in the first world and transferring of production to developing countries that emit MORE CO2 for the given amount of production. Of course the Railway Engineer Pachauri has indicated not concern about this state of affairs, but satisfaction with it, which tends to expose his underlying motives.

      • drsmithyMEMBER

        […] yet I have not been able to sway their faith in CAGW.

        It’s not faith, it’s science.

      • The greenhouse effect is science. That humans emit CO2 is science.

        “Catastrophic anthropogenic” is faith.

        “Catastrophic” might be science, and indeed I recall learning in primary school that the sun might cook humanity one day; but the assumption that any catastrophe in nature has to have been caused by humanity, is faith. It has been a basic human tendency since primitive times. The crops fail, a witch has to be found and burnt.

        Science as a principle would work out that fiscal incentives achieve the desired objectives in policy better than zoning. Science as a principle would note the evidence of unintended consequences of policy actions. Does it not distress the rare contributors to this forum who are more clear about things like urban and transport policy yet still accept the “C” “A” “G” “W” thesis, that so many of their fellow believers on CAGW are so thick when it comes to urban and transport policy? Or the unintended consequences of Kyoto policies? Or the sheer tokenism of carbon “pricing” schemes so far?

        It is almost as if people who inherently and ideologically despise automobility, consumerism, and the creation of wealth by entrepreneurs, are automatically going to be believers in even the least supportable aspects of the CAGW industry. Like many people on the left, they also tend to be blind to the way crony capitalists and rent-seekers exploit their useful idiocy. Despisal of crony capitalism and rent-seeking is what would mark an intelligent Left. I regard Ian Abley of AudaCity in the UK as being a rare example of that: he recently wrote:

        “…..If by “left” we mean someone interested in transcending the barriers, frustrations and stupidities of capitalist political economy to an industrialised future fit for a global humanity numbering 9,500,000,000 by 2050 – then count me in. Unfortunately many that still hold to being Left have an anti-industrial take on capitalism, and many that still hold to being Right are too keen to abandon the drive to raise productivity through investment in industry. In other words many of the old Left and Right meet in Green Philosophy, as articulated by the conservative philosopher Roger Scruton……”

      • drsmithyMEMBER

        “Catastrophic anthropogenic” is faith.

        Your fundamental and consistent dishonesty is in conflating “catastrophic” and “anthropogenic”, as if one cannot exist without the other.

        It’s science that human activity is the majority contributor to climate change. No serious science disagrees with this conclusion.

        Whether or not that climate change will be “catastrophic”, “bad” or “benign”, is a matter of estimating probability. It’s worth noting that the estimated probability of “catastrophic” and “benign” are essentially the same, yet you strongly argue for the former while ridiculing anyone who argues for the latter. Pretty much everyone agrees climate change is going to be at least “bad”, leaning further towards “really bad” the longer we wait before acting.

        “Catastrophic” might be science, and indeed I recall learning in primary school that the sun might cook humanity one day; but the assumption that any catastrophe in nature has to have been caused by humanity, is faith.

        The statement that anyone seriously argues this, let alone takes it as an assumption, is a lie.

        Now, the assumption that humanity cannot influence nature, the one your comment above hinges on, is most certainly “faith”. It is supported be neither evidence nor rational argument.

        It has been a basic human tendency since primitive times. The crops fail, a witch has to be found and burnt.
        No-one is pointing at witches. They’re pointing at people holding burning torches who have little respect for other people’s property.

        Science as a principle would work out that fiscal incentives achieve the desired objectives in policy better than zoning. Science as a principle would note the evidence of unintended consequences of policy actions.

        No, actually, that would be economics. Which is not science.

        The science describes the objective – reduce CO2 outputs. It’s not in a position to define how that is achieved in a politically acceptable fashion.

        Does it not distress the rare contributors to this forum who are more clear about things like urban and transport policy yet still accept the “C” “A” “G” “W” thesis, that so many of their fellow believers on CAGW are so thick when it comes to urban and transport policy? Or the unintended consequences of Kyoto policies? Or the sheer tokenism of carbon “pricing” schemes so far?

        Sure. But we respond to that by lamenting poor responses, not by asserting the science is wrong (or, even sillier, there’s a global conspiracy of corrupt and fraudulent science that’s been going on for 100+ years as part of some communist plot).

        It is almost as if people who inherently and ideologically despise automobility, consumerism, and the creation of wealth by entrepreneurs, are automatically going to be believers in even the least supportable aspects of the CAGW industry. Like many people on the left, they also tend to be blind to the way crony capitalists and rent-seekers exploit their useful idiocy. Despisal of crony capitalism and rent-seeking is what would mark an intelligent Left. I regard Ian Abley of AudaCity in the UK as being a rare example of that: he recently wrote:

        Now you’re just wandering off on ad-hominem against your own personal “witches”.

      • “….It’s science that human activity is the majority contributor to climate change. No serious science disagrees with this conclusion…..”

        That is where I am going to part company with you, Dr.

        I say that people who say that are either lying or deceived by the liars, possibly because they so badly want it to be true that they are unprepared to do the most basic fact-checking that anyone with an internet connection can do. This point is the crux of the argument – even the IPCC report, main body thereof, and reviewers comments even more so, indicates nothing like a consensus that human input is the “majority contributor” to climate change. Teasing out this signal is something that the cabal with their computer models has been unable to do, in spite of true believers claims to the contrary.

        I appreciate you as an honourable exception to the general rule that CAGW alarmists are also unable to be “scientific” in matters of actual policy outcomes (like in urban planning). I don’t dispute your point that some of these questions are economics, not science; some people hold economics to BE a science. Both things have two branches – hypotheses/surmise, and testing of hypotheses by analysis of evidence. I hold that analysis of evidence does not justify either the claim that UGB’s save the planet via increased efficiency in the urban economy, or that human input is of majority importance in climate patterns. I personally think the scientists who think it to be below 5% significance, to be the most convincing, and that it is entirely possible that it is undetectable.

        Even if the greater numbers of “experts” support the wrong position, that does not make it right, but it is quite possible for even the numbers of experts to be on the side of truth, but the important policy-influencing institutions to have been subverted. I hold that the IPCC was a fatally subverted institution from its inception, and that the actual hundreds of expert scientists that contribute to its climate science portions, are substantially misrepresented by the time the press releases are written.

        “I have never witnessed such a disturbing corruption of the scientific peer review process” – Dr Frederick Seitz

      • drsmithyMEMBER

        I say that people who say that are either lying or deceived by the liars, possibly because they so badly want it to be true that they are unprepared to do the most basic fact-checking that anyone with an internet connection can do.

        Right.

        So your argument is most of the world’s climate scientists haven’t done “the most basic fact-checking that anyone with an internet connection can do”.

        I don’t dispute your point that some of these questions are economics, not science; some people hold economics to BE a science. Both things have two branches – hypotheses/surmise, and testing of hypotheses by analysis of evidence.

        You forgot predictions of outcomes. Testability is kind of a key part of the scientific process.

        The nicest thing you could say about economics is it’s a social science.

        I hold that analysis of evidence does not justify either the claim that UGB’s save the planet via increased efficiency in the urban economy, or that human input is of majority importance in climate patterns. I personally think the scientists who think it to be below 5% significance, to be the most convincing, and that it is entirely possible that it is undetectable.

        I prefer to listen to what experts actually say, rather than make up bullshit figures about what I think they’d say if they agreed with me.

        Even if the greater numbers of “experts” support the wrong position, that does not make it right, but it is quite possible for even the numbers of experts to be on the side of truth, but the important policy-influencing institutions to have been subverted. I hold that the IPCC was a fatally subverted institution from its inception, and that the actual hundreds of expert scientists that contribute to its climate science portions, are substantially misrepresented by the time the press releases are written.

        Yet strangely the scientific literature to support your “there’s no such thing as anthropogenic climate change” position is remarkably thin on the ground. Unlike, say, the vast amounts of it supporting the consensus.

        “I have never witnessed such a disturbing corruption of the scientific peer review process” – Dr Frederick Seitz

        It’s illuminating doing a Google search for that quote. The only places it appears is in comments you have made on various blogs.

        EDIT: How unsurprising to find after a few more minutes on Google that Dr Frederick Seitz was involved with the tobacco and fossil fuel industries. So he may well have said it, but his credibility quotient is consequently rather low.

        http://www.desmogblog.com/frederick-seitz
        http://www.sourcewatch.org/index.php?title=Frederick_Seitz

  7. Rumplestatskin

    “nominal dollar percentage price rises and falls are used to make the volatility look a lot more impressive than if real prices were used”

    Not true. Nor did you present evidence to the contrary.

    Also, for someone to offer support for the Alonso-Mtuh-Mills model like you do suggests you don’t understand it.

    Lastly, I’m not sure you have grasped that private property itself is a regulatory decision. It is not a natural right or any such. So when you say a regulation to fix a regulation etc, you are merely revealing your own bias about what is morally the ‘right’ way to do things.

    • Was the lines on the graphs of real house prices not evidence to the contrary?

      I stand by my defence of the Alonso-Muth-Mills model; try and get hold of the absolute latest version of “The Spatial Distribution of Population in 57 World Cities: The Role of Markets, Planning and Topography” by Alain Bertaud and Stephen Malpezzi; presented in Tel Aviv just last month. This includes an excellent discussion of the AMM model and its validities and weaknesses, with which I concur. It is regulatory distortions (as well as some other distortions like geography in the case of a few cities) that are primarily responsible for rendering it a poor fit with many cities in the modern era.

      Criticising it because it does not fit cities with regulatory distortions that its authors were not trying to anticipate, is like blaming free market theories for not fitting reality in the former USSR.

      It is you showing your colours with your contempt for the concept of private property, just as much as I am showing mine in my respect for it. Your position is effectively that “aren’t these outcomes in land markets dreadful, regulatory interference can’t be responsible, and we need full-blown abolition of private property as the solution”. What about abolition of the regulatory distortions, and restoration of an earlier beneficial paradigm of the elimination of economic rent, the democratisation of property ownership, the creation of consumer surplus and steadily falling real cost of necessities?

      EDIT: your skepticism about private property, period, logically leads one to doubt the sincerity of the basis on which you excuse and support the regulatory distortions. Are they merely a handy means of undermining the long-standing public consensus on private property itself, to you?

      • Rumplestatskin

        No, those lines do not show real prices. They show nominal prices to incomes. They, by definition, ignore all the real costs of housing that are not capitalised into the price.

        I wouldn’t mind a comparison of the total annual cost of ownership compared to incomes – that would incorporate land taxes and fees, interest rates, etc. Perhaps even transport (after all, what good is cheap housing if everyone then spend that money commuting, which is KJUP’s point)

        I don’t show contempt for private property. I acknowledge that it is an institutional/regulatory setup like any other. I don’t blindly believe that there is some kind of objective baseline of ‘perfect private property markets’. We create markets to fulfil social purposes.

        I don’t criticise AMM because it is a poor fit to spatial price patterns. It is because it is complete bogus. You do know that in effect the model says that when a new person moves to a city all buildings are demolished and all and auctioned off by a Walrasian auctioneer, then all buildings are rebuilt to the optimum density in a particular location? That’s the interpretation. Once you consider any real feature of property markets the whole logical apparatus breaks down and it can’t say anything about anything.

        This is well known in many circles.

      • Oh, great, so making the analysis far more complex would lessen the evident stress of affordability in cities with a median multiple of 9, and show it to be worse in those with a median multiple of 3, to the extent that there really was not a problem to consider at all in the difference? Even when the city with a median multiple of 9 used to have one of 4, and the many cities with median multiples of 6 and 7 used to have one of 3, and the cities with a median multiple of 3 have many of the same factors external to the analysis as those with higher median multiples (eg super low interest rates)?

        I would not mind exactly the kind of exercise you are suggesting, in fact the lack of people stepping up to do it suggest to me that it might be even more damning than the blunt median multiple comparison. I would add that I would want to examine the effects on first home buyers, not incumbents; and I would want to see time series analysis, not cross-sectional.

        I am also saying the the transport cost angle in real life, is damning of compact city urban planning, not a supporting argument at all as you and others make it out to be.

        I would also love to see an analysis of the effects at each income quintile. In a housing market with a house price median multiple of 3, there tends to actually be a match between income earners at each level, and available properties. Even $90,000 homes for $30,000 income earners. But when the land cost is inflated, while the median multiple may rise to “only” 6, the shape of the curve of house price distribution is changed considerably, the tail at the bottom is eliminated completely. There will definitely not be any $180,000 homes for the $30,000 income earner. The bottom end of the housing market will tend to be at least “12 times” the bottom end of the income distribution.

        A “bottom quintile multiple” would be a far more damning statistic than the median multiple. Especially as people claim to really care about inequality and disparate impact of policies on poor people.

        The actual match-up of homes with purchasers across the income spectrum, is skewed completely, so that the home that would have been bought for $90,000 by a $30,000 income earner is now bought for $360,000 by a $60,000 income earning household; the home that would have been bought for $180,000 by the $60,000 income earning household is now bought for $600,000 by a $100,000 income earning household; the home that would have been bought for $300,000 by the $100,000 income earning household is now bought for $900,000 by a $150,000 income earning household, and so on. In fact up at the top of the distribution, you will find the people paying $4 million instead of $3 million for the same mansion. Because the inflation is all in the land, the impact is disparately greater at the bottom end and less in percentage terms (and “multiple” terms) at the top end. The people at the bottom end do not get to buy at all.

        The AMM model is like a description of a “force of gravity”; like a lot of economic theory, it accurately represents the direction of the effect of incentives in the urban economy. Land rent curves DO slope up from fringe to centre. Cities with relatively free land markets DO intensify at locations where this makes economic sense and this is generally at and nearer the centre. You are presenting a caricature, not the theory.

        The way different types of city, based on different types of primary income, evolve, does not contradict the basic theory. William Wheaton made a valuable contribution to the understanding of dispersion, with his 2002 paper “Commuting, Ricardian Rent and House Prices in Cities with Dispersed Employment and Mixed Land Use”. The peak of the land rent curve does tend to fall and the curve does tend to flatten, as largely free-market processes create dispersion. This is observable most of all in cities where the market is closer to “free”.

        If something different is happening, we need to work out why, and I suggest that regulatory distortions are the cause of discontinuities in the rent curve at the UGB, and distorted distributions of population density observed by Bertaud, Gordon, Troy, Hall and others, where density tends to be strangely higher immediately inside the UGB before plummeting down to nothing outside it.

  8. Urban land supply is important only when two very rare conditions are satisfied:

    – during non-bubble periods when speculative demand is low – buyers look at actual current value of the home and current alternatives

    and

    – only in places where people favour car culture, solitary family life, home based entertainment, no culture, and weak community life.

    Even in American South (eg. Texas – role model for the second condition), property bubbles formed in past during periods when speculative demand was high. In early 80s property prices increased by 50% in real terms and than crashed 30%.

    When people buy based on projected speculative future price, they do not care about present alternatives. In early 80s it was easy and cheaper to built new home on new unrestricted , but people chose to buy existing homes at higher prices because they “knew” price will go up anyway.

    • “..In early 80s it was easy and cheaper to built new home on new unrestricted , but people chose to buy existing homes at higher prices because they “knew” price will go up anyway….”

      That was not my experience growing up.

      Buying a new house was what most wanted to do as the house was new and generally affordable (without the need for rock bottom interest rates).

      Buying (or worse renting) a second hand standard house was what poorer people did.

      It is only over the last 20 years as new house prices have been jacked up with first user pays all charging and restricted supply to support prices and infrastructure has become user pays or non at all, that people have decided that if speculating on capital gains is the objective existing houses are a better bet.

    • Actually I agree that there are perfectly rational reasons that property always has gone up in value faster than general inflation. This relates to growth and “location”. Of course a site bought in 1950 on the fringe of a city, will now be halfway between the fringe and the CBD, and incomes will have grown as a result of the agglomeration economies in a larger city. The way this increased income affects property values “by location”, means that the real prices of property in the city centre and closer to the city centre, will have risen the most.

      Property prices AT THE FRINGE, in real terms, may well actually be lower now than then (in the absence of a UGB). But as long as the city keeps growing, the same gains can be anticipated.

      But this is NOT 1000% increase in the price of land per square foot in a single decade…….!!!!!

  9. In early 80s property prices increased by 50% in real terms and than crashed 30%…. In early 80s it was easy and cheaper to built new home on new unrestricted , but people chose to buy existing homes at higher prices

    So in the early 80s a young family could cheaply and easily build a new home, or could decide to buy existing and face a 50% boom and 30% bust*
    Please please please bring these conditions to Australia now.

    * They could also rent a decent place for 1/3 of an ordinary wage.

    • Touche, Claw.

      And as I pointed out, since that nominal 50% boom, 30% bust, real prices have not fluctuated much beyond around 15% either way. Again, please can we have this here instead of the status quo that certain people seem to have nil conscience at all in defending?

  10. I think it is useless to look at average housing costs without also looking at average transport costs and average income.

    http://htaindex.cnt.org/map/

    The link shows that the difference between Texas, california and New York isn’t as great as implied.

    • There is a classic breach of objective statistical method that underlies all indexes that allege to “prove” that there are savings on transport costs when there are inflated house prices through growth containment urban planning, allegedly leaving households no further behind in the inflated housing cost markets.

      This is, that these indexes always utilise the actual current housing costs of ALL households, including the many who bought onto the housing ladder decades ago and now have nil housing costs at all, or some pittance remaining to pay off. They never reflect the options facing first home buyers NOW.

      The options facing first home buyers NOW, are ALWAYS for severely inflated housing costs AND higher transport costs than the preceding generations. This is simply because the price of housing at all locations has been inflated, so that the more efficient the location, the less likely it is that the young household can afford it at all.

      Transport costs are neutral in the equation; savings due to efficient locations capitalise into the site values anyway. But because the inflation is in the land/site values, older depreciated structures at efficient locations always become LESS of an affordable option. Forcing up the price of urban land with growth constraints always has the unintended consequence of CAUSING monster commutes for younger people, adding insult to injury.

      Besides this, indexes that try and prove the opposite, usually use “estimates” of transport costs that are rigged against the allegedly more car-dependent cities. There is NO visible correlation between alleged car-dependence and transport costs “by city” in a collation of actual spending, like THIS one:

      http://www.comparebloomington.us/include/reportsmedia_157_2541343573.pdf

      In fact the higher housing cost cities tend to have higher costs for transport, as would be expected when you understand how the distortions work through the entire local property market. They also tend to have higher costs of everything else as well. Land cost pressures do filter through the entire local economy.

      • “In fact the higher housing cost cities tend to have higher costs for transport, as would be expected when you understand how the distortions work through the entire local property market. They also tend to have higher costs of everything else as well. Land cost pressures do filter through the entire local economy.”

        And higher incomes. Is there a correlation between car-dependence and transport costs as a percentage of income? If you remove the sunk cost required, this greatly enables you to put that money into something that will maintain its value in the long run, rather something that depreciates significantly and quickly. To put it into perspective, because of my environment, I average approximately $15-$20 per week on transport. Try doing that in a car-dependent suburb.

        Additionally, I am sure many of the low cost locations also have a high percentage of people who have either not paid off their housing or are still renting, so it is not just the high cost areas where this is the case.

      • KJUP – you are quite right that in low housing cost cities, there will also be people who have paid off their houses. In fact there will be MORE of them, all other things being equal. But one of the things that is not equal, in the USA in this equation, is that many young recent home buyers have in fact moved away from the high cost cities, to the low cost ones. Los Angeles has the highest incumbency of its population to go along with the highest house prices.

        But in all the cities where house prices have inflated significantly over the last 10 years, there will be a lot of middle aged and older people whose initial loan cost of entering the housing market, was in fact no different to that of their counterparts in cities where inflation has not occurred. The differences between cities that we need to look at, involve “what is happening since the inflation”, and whether this is beneficial or not.

        One of my main criticisms of the urban planning that forces land prices up, is that it is alleged to be in the cause of reducing commuting distances. Any young person who started saving in 1996, for a $180,000 bungalow near a CBD, which inflated in price at a rate of $100,000 per year over the next decade, will tell you pretty straight that you have NOT helped their options of buying somewhere that gives them a shorter commute. This is pretty much the reason I got involved in researching these issues in the first place, as I could see the planning advocates were utterly defrauding the next generation with a completely opposite outcome to their suave policy sales pitch. It has disgusted me that so many people are incapable of seeing the obvious, and worse, that some of the seemingly brightest people are continuing to push the con under the guise of genuine social concern……!

        All credit to the academic theorists who have dissented from the con – Bertaud, Evans, Cheshire, Gordon, Malpezzi, Anas, Mills, Troy, Neuman, etc. – only to be ignored by the political establishment and its puppets.

      • “One of my main criticisms of the urban planning that forces land prices up, is that it is alleged to be in the cause of reducing commuting distances. Any young person who started saving in 1996, for a $180,000 bungalow near a CBD, which inflated in price at a rate of $100,000 per year over the next decade, will tell you pretty straight that you have NOT helped their options of buying somewhere that gives them a shorter commute. This is pretty much the reason I got involved in researching these issues in the first place, as I could see the planning advocates were utterly defrauding the next generation with a completely opposite outcome to their suave policy sales pitch. It has disgusted me that so many people are incapable of seeing the obvious, and worse, that some of the seemingly brightest people are continuing to push the con under the guise of genuine social concern……!”

        From the sums I have done in my situation in an Australian capital city, to find accommodation near where I work in the CBD was still overall cheaper once my transport costs were included. You can get much more of a house when your transport costs have been reduced to $15-$20/week. A fairly standard car (let’s say a Hyundai i30) will set you back on average $173.71/week (http://www.racq.com.au/__data/assets/pdf_file/0015/129201/Vehicle-Running-Costs-2014.pdf). That’s not including any parking or PT fares over that time. That’s $150 extra per week to spend on accommodation purely from 1 area of costs. Add to that the social benefit of being able to spend more time with my family as I only have a 20min commute entirely on foot and I have more services than you could dream of (parks, 7 day banking, nightlife, etc.)

        I know you may want to live in the suburbs and pay more overall for the privilege, however I would rather be in a location with services, have a better social benefit and pay less. I also doubt there are very few suburbs in this country that have increased by $100,000/year over the past 10 years, purely on the fact there are very few suburbs where every house costs over $1,000,000.

      • KJUP, my comment about $100,000 per year inflation specifically referred to a bungalow NEAR a CBD. You are quite correct that suburban housing has not inflated that fast. In fact that IS my point. In 1996 I recall $180,000 bungalows NEAR the CBD in most Australasian cities, which was a definite option in comparison to a fringe McMansion that actually cost a bit more. Now the fringe McMansion is $450,000 but the bungalow near the CBD is indeed over a million dollars.

        “Map 3” in THIS article is worth 1000 words:

        http://www.macrobusiness.com.au/2014/02/housing-and-the-inequality-divide/

        As I have explained on this site many times, when it is the land prices that inflate, the unaffordability effect is spatially uneven; it is always worse at and near the centre. You may have achieved some trade-offs that satisfy you, regarding your living space, location, housing and transport costs – but the housing costs of your option at your current location COULD have been substantially LOWER, with exactly the same trade-offs. What makes you so happy to pay far too much for nothing just because you have some sort of satisfaction that evil fringe McMansion buyers have been hit with a penalty that is nonetheless lower than yours?

        Your whole analysis also assumes employment in the CBD, when 85% or so of employees don’t work there, so what is the point them living there? Presumably if you have a spouse they also work in the CBD, otherwise you probably would need a car for them to get to a suburban job. If you have kids, you have found schools for them in the CBD too? And there is safe and healthy activities for them that compare with suburban parks and playing fields?

        You need to get real about the circumstances most people WILL live in and be quite happy with. Car parking fees are irrelevant to most people who have a suburban job. Your stated weekly cost for a Hyundai i30 (fair enough choice of car, BTW) is for a NEW car bought on finance and with a whack of depreciation in the costs. The young people priced out to the fringe definitely will not be buying new cars and will probably be choosing something very economical. The required kms of travel will be HIGHER due to the “pricing out” effect than otherwise. This is one reason why US cities average commute to work time is 27 minutes but UK ones are 37 minutes in spite of them being 4 to 5 times more compact. A more dispersed city where there is maximum affordability of housing near to most potential jobs, is going to end up with more efficient commuting than any city where location is determined primarily by “ability to pay”.

      • “Map 3″ in THIS article is worth 1000 words:

        http://www.macrobusiness.com.au/2014/02/housing-and-the-inequality-divide/

        Not really. The map doesn’t show the Geographic size of Melbourne in 1981 compared to now, nor does it discuss the causes behind the increases. Nobody is denying that increases to property have been high.

        Why have houses approximately doubled in average size over that time yet the size of a family has reduced? Would this not also increase the price of a house? Many detached houses near the urban core generally get larger, not smaller over time.

        “As I have explained on this site many times, when it is the land prices that inflate, the unaffordability effect is spatially uneven; it is always worse at and near the centre. You may have achieved some trade-offs that satisfy you, regarding your living space, location, housing and transport costs – but the housing costs of your option at your current location COULD have been substantially LOWER, with exactly the same trade-offs. What makes you so happy to pay far too much for nothing just because you have some sort of satisfaction that evil fringe McMansion buyers have been hit with a penalty that is nonetheless lower than yours?”

        So what you are saying is, people are prepared to pay more for something that has a higher demand? Sounds fairly normal to me, no?

        “Your whole analysis also assumes employment in the CBD, when 85% or so of employees don’t work there, so what is the point them living there? Presumably if you have a spouse they also work in the CBD, otherwise you probably would need a car for them to get to a suburban job. If you have kids, you have found schools for them in the CBD too? And there is safe and healthy activities for them that compare with suburban parks and playing fields?”

        This whole chestnut again. I don’t think there is anyone on this site (nor anyone I have come into contact with) who believes that a majority of people work in the CBD. They don’t. However, other than Canberra, tell me a capital city where there is a suburb in that city that has more employees than the respective CBD and CBD fringe.

        Where I live, on the border of the CBD, is within 400m of a Primary School, 1km of a High School and within 200m of a small park and 500m of a very large park. In fact, the government schools in these areas are generally better performing than others in the city.

        You need to get real about the circumstances most people WILL live in and be quite happy with. Car parking fees are irrelevant to most people who have a suburban job. Your stated weekly cost for a Hyundai i30 (fair enough choice of car, BTW) is for a NEW car bought on finance and with a whack of depreciation in the costs. The young people priced out to the fringe definitely will not be buying new cars and will probably be choosing something very economical. The required kms of travel will be HIGHER due to the “pricing out” effect than otherwise. This is one reason why US cities average commute to work time is 27 minutes but UK ones are 37 minutes in spite of them being 4 to 5 times more compact. A more dispersed city where there is maximum affordability of housing near to most potential jobs, is going to end up with more efficient commuting than any city where location is determined primarily by “ability to pay”.

        Yet there are so many cars that are far more expensive than this driving around these suburbs also. It is also not uncommon for maintenance to catch up with you if you do not own a new car.

        Additionally, when you say housing near to jobs, I assume you mean time and not VKT? Also, the UK examples I would imagine would have a higher percentage of people walking and cycling to work, increasing the time, however reducing the need for this exercise to occur at another time of the day. Additionally, if you look at traffic deaths per capita, the USA is massively worse than Australia (twice as good) and the United Kingdom (three times as good). This places a massive strain on resources. In fact, in western countries there seems to be a fairly neat correlation between low density and high road tolls (untested).

        I have just tried to impress that this issue is far far greater than just the sticker price of the house. You need to look at every area of peoples lives. The efficiency of accessing jobs and services, the implication on health care, the cost of providing the transport infrastructure, the negative externalities of environmental degradation (which I know you couldn’t care less about), the cost of transporting food from further and further away, social interactions that are different in different environments (Koalas are on the verge of extinction for one reason only – urban development into their habitat), the health of the population (why is there a higher percentage of fast food outlets in the suburbs than the inner areas as one example) etc.

        I think it would be far greater at focusing on the demand side. LVR’s, why are people buying more house than they need, also looking at the regulation over real estate agents and how they are able to go about their business. Or you could just increase the crime rates like they have done in Houstan, Detroit etc. to have greater affordability in housing. Whatever works.

      • KJUP; the points you make applied perfectly well in 1996. Of course people pay more for better locations. I am talking about the price of EVERYTHING more than doubling relative to incomes.

        Your argument is like saying that because fillet steak has increased in price 1000% and bread has increased in price 1000% in a 10 year period, there is no problem with food prices, because “of course people pay more for fillet steak”.

        According to your argument, cities like Phoenix and Las Vegas, that before 2003 were said to be “cheap like Houston because no-one wants to live there anyway”, suddenly became a whole lot more desirable in 2003, to justify their prices doubling between then and 2006. According to your argument, there is no basis at all to look at “supply of land” as the cause of this sort of phenomenon.

        Your argument about “the CBD is the BIGGEST node of employment” is not a valid basis at all to claim that the choices off the 15% of people who work there, justify punitive policies because the other 85% end up living “less sustainably” just because EACH node of employment the other 85% work in, is smaller than 15% of the total. This is like saying everyone should have working conditions like bureaucrats because bureaucrats are the biggest employment segment and emit the least CO2 in the course of their jobs.

        Of course many people have cars that are more costly. It is called “discretionary” spending. Systemically inflated housing costs deprive all people who buy their first home after the inflation, of discretionary income. If this is the mechanism by which smart growth does reduce energy use, the smart growthers should say so, and we should discuss simply increasing taxes so that at least the revenue is “public” instead of to private sector rentiers.

        Focusing on the average house size versus average number of people in a house, is not helpful to the segment of the population suffering from increased costs to no useful end. If they could afford a house, maybe they would have more kids and the number of people per house would rise again. If the land costs were not so distorted that there is no longer any bottom end to the housing market, maybe the only stuff getting built would not be what the top income quintile and specufestors want. As far as new homes are concerned, it is not that the same number of houses is getting built and these have increased in size; it is that the same number of large homes is getting built but almost no smaller ones are getting built any more – unless you take CBD dogbox apartments in Melbourne into account.

        Crime didn’t suddenly halve in Phoenix and Las Vegas to make their housing suddenly go from affordable to unaffordable. Nor has it been a factor in California in the past as that market went from systemically affordable to systemically unaffordable and volatile. The fact that there are pockets of blighted, crime-ridden areas in many cities does not affect the validity of the MEDIAN price, which is why it is used. Averages would be dragged down by blighted pockets and up by pockets of very high amenity. It is basically a disgrace to the people running a city if it cannot provide an affordable median home.

        In fact systemically unaffordable cities increase segregation by income level, so all the talk from elites about the wonderful amenity they are creating, is little more than a smokescreen for exclusionary and inequality-increasing tactics, both in actual wealth and in the sharing of amenity. Gibbons, Overman and Resende, “Real Income Disparities in Great Britain” suggest that the level of unaffordability of housing is a MULTIPLIER of initial income disparities when it comes to health and other life outcomes.

      • Any young person working out where to buy their first home will not be impressed with peddlers of B.S. theory telling them their real life problems do not exist.

  11. “When new house prices are anchored in market freedoms in the same way as the prices of cars and TV’s are, low interest rates actually do stimulate the real economy; first home buyer subsidies actually do benefit first home buyers and increase home ownership; tax write-offs of rental property operating losses actually do encourage the supply of rental housing and enhance rental affordability”

    This is exactly the point that the CIS article from yesterday made, but UE refused to accept their premise that it is the supply side that matters; demand stimulation will not cause house price bubbles if supply is elastic.

    • I think UE was not thinking clearly enough in that – he has been good enough to publish my thoughts today and indicate that he agrees with them.

  12. Dale SmithMEMBER

    – a regulatory distortion requires another regulation to fix it, which introduces another distortion, which requires another regulation, and so on ad infinitum.

    And it is no coincidence that more regulations are needed, simply by the fact that what we would see as non-valued costs ie waste, are to many organisations like councils, revenue.

    Allowing these type of organisations to set procedure on how land is developed and houses are built is like asking a commissioned based real estate agent ‘Is it a good time to sell my house.’

    As the old saying goes, ‘it is hard for people to understand something when their income is dependent on them not understanding.’

  13. You need to be VERY careful when comparing Texas RE with other regions especially Texas RE from the 1980’s.

    The basic problem is within Texas cities the employment opportunities are not static CBD focused, rather they tend to be distributed and sensitive to the establishment costs hence focused on the city periphery. Housing also tends to follow business more or less in lock step.

    Another major factor effecting the late 1970’s and early 80’s was “bussing”. (black and Latino kids getting bussed from poor crime ridden suburbs to schools in wealthier white neighborhoods). Many families chose to move to the suburbs with new schools and leave the racial integration problem behind (schools are managed by the county so Dallas schools are a completely different organization to Plano schools, one is excellently run and the other is a complete disaster) . This resulted in School districts like Plano (north of Dallas) having some of the best schools in the country while previously white neighborhoods say Lakewood or Lake Highlands ended up with dreadful schools, today these areas are over 90% Latino / Black, and local house owners choose private schools ( if you need a verifiable statistic look at a primary school called Northlake (in Lake Highlands) there’s actually a local committee trying to take back the school because practically none of the districts house owners send their kids to this school.

    . Most people wont talk openly about this its not PC, however their actions speak much louder than their words.

    What I’m saying may not make much sense to Australians however in the US church schools receive practically no tax based funding (separation of Church and state) So paying nearly over 1% land tax to fund schools that you dont attend is pretty galling

    • The racial segregation aspect you describe is a problem in pretty much all US cities, and is actually LESS of a problem in the Southern cities than in the grand old northern ones with legacy high density cores, more public transport, etc.

      Home ownership rates among minorities is considerably higher in the South, and spatial segregation lower. Both things are still far from ideal; it is just that cities that are more free market tend to help rather than worsen things for minorities.

      One of the reason that large minimum lot size mandates became less and less effective as an “exclusionary” tactic, is that the real cost of land steadily fell, and as structures depreciated and fell in value, all of a sudden upwardly mobile minorities found they could afford the suburbs adjacent to the city core.

      Nicole Garnett, a Professor at Notre Dame, has condemned the compact city planning fad as a means of “excluding from the benefits of suburbanisation, the minorities who were in the process of becoming the last beneficiaries of it” simply by “solving” the “problem” of suburbs with “too-affordable” housing by making it all unaffordable.

      Of course the problem is more one of income level than skin colour anyway – the UK has more of a problem with “white trash” and upwardly mobile hard-working immigrants of colour getting out of the locations with lousy schools as fast as they can. Even in the US, the “flight” was not so much “white”, as “anybody who can afford it, regardless of skin colour”.

    • I also say that employment being NOT CBD focused is a benefit, not a “problem”. A strong CBD everywhere one exists, is most often a manifestation of successful rent-seeking. A city without one, simply does not need one and is at no disadvantage. In so far as there are amenities associated with them, sharing these around multiple locations instead of one single one, is better, not worse, because those amenities can be participated in by more people that way.

      As I mentioned, splatter development with gradual infill is more efficient than mandated incremental carpet growth, not least because the availability of land and the low cost of land makes it EASIER for type specific agglomerations like Silicon Valley to form. The costs of land for infrastructure and public amenities is lower too.

  14. I don’t think there is a ‘one size fits all’ solution, and geography does matter. Singapore is in the middle of the pack because the government sells apartments to keep prices down. A ‘free market’ approach will not work for Singapore due to shortage of land.

    Australia, in contrast, have plenty of land. so the house price problem is totally self inflicted. What Australia don’t have a lot of is a reliable water supply.

    • Absolutely correct – I have used Singapore in the past as an example of what can be achieved if compact city planning is accompanied by the suspension of a land market. Median multiples tend to be around 7 to 9, instead of comparable Hong Kong’s 16+ and for slightly larger “housing” – but still a far cry from the median multiple of 3 in more free-market, abundant land supply cities, and that for far larger housing and land space per household.

  15. Hugh PavletichMEMBER

    Forty-somethings ‘too old to get a mortgage’ – UK Telegraph

    http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10959516/Forty-somethings-too-old-to-get-a-mortgage.html

    Middle-aged borrowers

    Securing a mortgage later in life is a growing problem. Many have delayed buying a home because of soaring house prices and stagnant wages during the financial crisis. The average age of first-time buyers is currently about 30, up from 25 in the early Seventies. It is expected to keep on rising – some expect it to reach about 40 by 2025 … read more … hyperlink above …

    Are the Banks waking up that artificial political / planner created housing inflation is no longer going to be around to save them ?

    Are the Banks exercising a reasonable degree of care in explaining to their customers the risks of purchasing houses in excess of 3.0 times their incomes, requiring sensible mortgage loads of about 2.5 times ? … refer http://www.demographia/com ..

    What are the consequences for the Bank if they fail to explain the risks of “bubble mortgages” to their customers ?

    • Depressing…….!

      I have actually commented there:

      If only it was as easy to get out of Britain and into Texas or affordable-housing parts of the USA, as it is to get out of California, Oregon, New York etc as young people are doing in their droves. Mind you, even France and Germany have far fairer housing options than Britain. But it would be nice to be able to stay in Britain and get a fairer deal on housing, the problem is the political will to tackle the way housing supply issues impact disparately on as-yet non-owners.

      I confess to entering the Green Card lottery on a regular basis, but seriously, young British should be trying to get a job in Texas or a typical affordable US city, on a work permit, and then try and find a nice American woman to get hitched to and get citizenship. Nothing to do with “marriages of convenience”, it is a question of having the option of marriage at all, or not, due to the housing costs.

  16. Find it hard to accept that urban growth boundaries are the cause of house price inflation when in Melbourne at least they are so easily thwarted – Diggers Rest, Sunbury, Avalon and Drouin all have developments marketed to people working in Melbourne. Give a couple of years after they have been developed, and there will be infill development between those towns and the existing fringe, and further developments in Kyneton and Traralgon for commuters to Diggers Rest and Warragul, and Geelong will be an outer western suburb.

    • Uranium GeoMEMBER

      The developers probably have it sewn up by incrementally releasing patches between the growth corridors. So it brings prices back down a bit but they manage to keep a floor under it by doing it in increments.

      • I thought the premise was that it was regulation forcing the prices up. Developers unconstrained by regulation acting as monopolists is kind of the antithesis of the argument.

        Yes, I think what you are saying is exactly what is happening, although my experience with some in the western side recently is that they have released somewhat more land than they can move at their desired pace.

      • The problem is that even though the “supply” is abundant, it is still “rationed”. In the US regions where prices are affordable, no-one bothers to land-bank, because someone else can always leapfrog their land banks. People are failing to understand the relationship between travel time in a car, and the volume of land needed for, say, “20 years growth” of a city. The volume of land needed for 20 years growth beyond an existing fringe can be traversed from fringe to outer edge in 5 minutes or less. It is not worth banking land holdings within larger and larger radiuses of distance beyond an urban fringe, to shut out competitors (and indeed ordinary households securing cheap sites). But a UGB, even with “20 years supply of land” inside it, makes it not just worthwhile to engage in bidding wars to the death to capture a share of it, but essential to do so to stay in business.

        This is all the more so because most developments take years, and most developers want to secure their next site before they finish their current one. So there is usually at least TEN years “supply of land” currently under development or secured for the next phase of development. In a market with no UGB, a lot of this land will in fact be outside what might have been the location of a “20 year” UGB. It is, after all, only 5 minutes drive by car.

        THIS was built over a period of about 20 years, 20 minutes drive from Houston:

        https://www.youtube.com/watch?v=imqWdNQOWGw

        Commercial development was present from the outset and most of the locals also work locally.

        Seeing this is the result for real estate prices, can you imagine what the option of doing developments like this one, does for the affordability of the nearest major city?

        http://www.realtor.com/realestateandhomes-search/The-Woodlands_TX/price-125000-250000?pgsz=50

      • The problem is that even though the “supply” is abundant, it is still “rationed”. In the US regions where prices are affordable, no-one bothers to land-bank, because someone else can always leapfrog their land banks. People are failing to understand the relationship between travel time in a car, and the volume of land needed for, say, “20 years growth” of a city. The volume of land needed for 20 years growth beyond an existing fringe can be traversed from fringe to outer edge in 5 minutes or less. It is not worth banking land holdings within larger and larger radiuses of distance beyond an urban fringe, to shut out competitors (and indeed ordinary households securing cheap sites). But a UGB, even with “20 years supply of land” inside it, makes it not just worthwhile to engage in bidding wars to the death to capture a share of it, but essential to do so to stay in business.

        This is all the more so because most developments take years, and most developers want to secure their next site before they finish their current one. So there is usually at least TEN years “supply of land” currently under development or secured for the next phase of development. In a market with no UGB, a lot of this land will in fact be outside what might have been the location of a “20 year” UGB. It is, after all, only 5 minutes drive by car.

  17. It’s very well known that price volatility on the edge of cities is the norm. The part missed by the “its all the fault of the planners” brigade is that fringe urban land has ALWAYS been limited and regulated.

    Take a look at Sydney, Chicago and other cities open to world trade. They grow in rings like trees – there is a burst of explosive activity with many houses of similar architectural type built.

    The rings are driven by the global Kuznetz trade or building cycle (15-25 years) and in the very long term by the Kondratieff cycle (= 3 trade cycles, ~53 years)

    • Yes, but there is nothing wrong with 10% of a nation’s housing stock being in a “global” city or cities, and the other 90% being in ordinary utilitarian cities that provide for ordinary people, including affordable house prices. If people want to live in a tiny flat in a global city so they can be an oil sheikhs gardener, a big bank’s cleaner, a shelf stocker or a waiter, they are welcome to do so. But there should be options of better housing in more mundane cities, at a lower cost.

  18. Do not disagree Phil. The peculiar Australian settlement system and Federal system is under-discussed as one of the causes of high house prices. Looking at it again, we were lucky to keep them down for so long.

    Federalism in Australia is odd in that the States are enormously powerful yet have little revenue -raising capacity, while local government has none of either.

    Now firstly the Commonwealth has chronically starved the States of infrastructure money in favour of demand-side programs that it controls. Then the states have given out almost none of what they have outside of the capital cities. As the smaller towns end up with almost none of the cake, they have failed to grow either in population or industry.

    As well, the States eventually got sick of it and started charging developers for our infrastructure – so that it was the purchasers of new homes who ended up paying for the nation’s infrastructure. A very warped system in which it is the new additions who pay all the costs while the existing residents collect all thebenefits.