Home > Uncategorized > Reverberations between immoderate land-price cycles and banking cycles

Reverberations between immoderate land-price cycles and banking cycles

from Mason Gaffney (guest post)

Mason Gaffney is professor of economics at the University of California and has written extensively about land related issues. On January 8, 2012, he gave a paper at the Annual Meeting of the Association for Evolutionary Economics about the relation between banking cycles and land price cycles. It is mainly but surely not exclusively focused upon developments in the USA, but many of the aspects mentioned, like regular boom bust cycles spanning decades and fuelled by land related credit, are surely relevant for other nations like Japan after 1990, and China and much of Europe today.

Paper delivered at Annual Meetings, Association for Evolutionary Economics (AFEE), Chicago, January 8, 2012

1.    We begin with the Pecora Hearings of March 1933.  Ferdinand Pecora’s were another “ten days that shook the world”, but  Pecora’s ten days shook the very temple of capitalism, Wall Street itself.

2.    These were the dying days of Hoover’s Administration and the Republican Congress.  Herbert Hoover was desperate to find a scapegoat for the disasters he had overseen, yet holding back safely short of challenging the system, or the cartelization of American industry he had sponsored.  He focused on an alleged plot by short sellers who were “selling America short”.  Few bought this political play on words, so he pushed the lame duck Senate’s Banking and Currency Committee to investigate Wall Street and gin up some more scapegoats to save Hoover’s face and reputation.  Chair of the Committee, through Senate seniority rules, was Peter Norbeck of S.D., a residue of old prairie Populism via T.R.’s Bull Moose Party, and an unreconstructed Progressive .  Norbeck knew little of Banking and Currency – Wall Street Republicans stigmatized old prairie populists as “Sons of the Wild Jackass”.  Norbeck sought a savvy prosecutor for the hearings. Few wanted the job – two weeks working for a lame duck Congress , making powerful enemies.  Far down on his list Norbeck came to Ferdinand Pecora, a mere assistant D.A. for New York County.    Pecora likewise knew little of banking and currency, but was a quick study with remarkable energy, high ambition, lethal aim, and little awe of pedigreed bankers with  Ivy-League degrees, and intimidating miens. Pecora pushed his inquiries well beyond what Hoover or even Norbeck had dreamed, and forced so many famous bankers to disrobe under oath that the hearings made banner headlines and are still known by his name.

3.    Pecora had only ten days to put Wall Street under oath, but he seized the public spotlight with his sense of drama, his aim for big players and big issues, and his knockout punch.  Pecora’s ten days preceded FDR’s 100 days, and built a springboard for New Dealers to vault into reforms like the SEC, the FDIC, the RFC, Glass-Steagall, production credit for farmers, and federal intervention in credit markets through FHA, S&L subsidies, FNMA, and later the VA. Before Pecora bankers were already under fire for bad judgment; after Pecora they were “banksters”, disgraced for bad faith, breach of trust and self-dealing.  Several were to face criminal charges.  Pecora dislodged bankers from their economic, political and social pedestal atop high society and government bureaucrats, and turned the world of finance upside down.  FDR could not have asked for a better springboard. Not since the Pujo Committee revelations of 1912-13, and Louis Brandeis’ classic book thereon (Other People’s Money), both at the acme of the Progressive Era, had anyone penetrated so deeply through Wall Street’s opacity to publicize its villainies. And not, tragically, has anyone done so since.

4.    There was, however, a basic flaw and lacuna in Pecora’s brilliant and dominating performance.  He saw the Great Crash as mainly a matter of money and securities, the paper economy, if you will. This view has narrowed and confined reformers ever since, both in politics and academe.  Macroeconomics has become synonymous with Fiscal and Monetary Policy (FMP).  Y = C+I+G is the template.  Everything is expressed in its terms – it dominates the language, hence the thought.  “The Left” wants more C and G; “The Right” wants more “I” and its own kind of G.  Within “G”, “The Left” generally wants more welfare, and “The Right” more military.  Both lean more towards hardware than software.  Within those confines the same tired sermons echo back and forth endlessly.  This is its own kind of “reverberation”, but not the kind my title means. This is the long-term effect of Pecora’s lacuna.
One major change came along with Reagan-Cheney and their Laffer staffer after 1981.  “The Right”, long a bulwark against deficit finance, converted to it.  Instead of taxing the rich, the idea now is to borrow from them, and pay them interest, leading to an explosion of Gini Ratios in real estate, stocks, bonds, income (personal and corporate), estates, and nearly anything that gets measured.  Concentration has grown so extreme there is no longer much need for anything as nuanced and comprehensive as a Lorenz Curve or a Gini Ratio: it is now the 1% vs. the 99%.

5.    Meantime, other scholars published a distinguished body of research into topics equally or more important, matters of the real economy.  The academic clerisy has purged most of these from macro by compartmentalization.  One may study them at length, but only within accepted confines.  If one spills over the boundary lines of one’s compartment one is “overambitious” or “swellheaded” or “spreading himself too thin”.  When submitting work for publication one is required to self-classify it by pigeonhole, taken from a standard list we have all seen.  There is an implicit hierarchy of little boxes , with macro on the “commanding heights”.

Thus the clerisy sanitizes macro from contamination from at least the following:
a.    Real estate and its endogenous cycle of about 18 years, firmly documented from primary sources and established by Homer Hoyt in his classic, 100 years of Land Values in Chicago, 1833-1933. Other writers reinforced and replicated the findings: Ernest Fisher and John J. Holland in Michigan, Phillip Cornick in New York, H.D. Simpson in Chicago, Lewis Maverick on subdivision cycles, Arthur H. Cole on cycles in sales of public land, Harry Scherman on foreclosures, and others.  Hoyt carried this back no further than 100 years because there was no Chicago before 1833, but 18 years before Chicago’s and Andrew Jackson’s great crash of 1836-37 there was Monroe’s crash of 1819. 21 years before then was Hamilton’s crash of 1798, when Andrew Jackson lost his lands and William Morris and William Duer went to debtors’ prison. Before that one can find crash before crash before crash in the annals: the Mississippi Bubble crash of 1720; the Dutch crash of 1630 or so, synchronized with the reverse migration from New England after 1630; in the 15th Century it was the Fugger bank in Augsburg that went down with the fortunes of imperialistic Spain; the Florentine and Medici-banker bust of 1494 leading to Savonarola’s Bonfire of the Vanities; boom and bust around Orleans following its liberation by Joan of Arc in 1429; and so on back and back.
Apart from the endogenous 18-year cycle, major peace treaties can be shown to generate irrational exuberance for future land rents, and to release funds to the private sector where they are used again to bid up land prices.  The interplay of these two cycles explains much of cyclical economic history.
b.    Austrian economics, analyzing causes and effects of the time-structure of capital and the pace of capital turnover.  Oddly, many economists who should know better identify Hayek with the Chicago School because he once taught there, but he was never welcomed in the Department of Economics.  Frank Knight’s many learned articles attacking Hayek’s capital theory were an obsession, carrying on J.B. Clark’s vendetta against Eugen von Böhm-Bawerk.   Knight, like Clark, could not abide the Austrian’s concept of a “period of production” because it implies a sharp distinction of capital goods, which have one, and land, which does not.  Keynes, too, put down Hayek and von Mises and drove them from macro dominance in England. Hayek and fellow Austrians finally found happiness and support with libertarian foundations and other wealthy patrons, by attacking regulations and contra-cyclical fiscal policies of all kinds, to the applause of Chambers of Commerce, but they remain outliers In the profession.  Roger Garrison remains one of the few self-called “Austrians” who publishes on cycles, and even he attributes the bias to over-long periods of production exclusively to central bank policy, ignoring all the other causes inherent in tax policies and land policies.
c.    Institutional economics, the heritage of Veblen, Commons, Ayres, Montgomery, Means, Thurman Arnold,  Corcoran and Cohen, the TNEC investigations, and Senator Harry Truman’s  hearings on arms profiteering in the early 1940’s.  Dominant figures in the FMP camps, both Keynesian and Chicagoan, diss and dismiss such work by compartmentalizing it as mere “structural reform”, unworthy of attention in the greater world of Y = C+I+G.  Studies of Industrial Organization and cartelization and market power have dwindled to a shadow, although Joe Bain, Frederick Scherer and others produced excellent texts on the subject.

6.    The obvious link between FMP and real estate is the quality of credit.  Hoyt emphasized how subprime (which he called “shoestring”) financing had waxed in the boom phase of every one of the 5 major land cycles he documented in detail from 1833 to 1933. The commercial loan school of banking, dominant in the Progressive Era, helped save us from a crash that was due in or near 1911, following the 18-year cycle from 1893.  In the roaring 1920s such old fashioned caution was cast aside, and deposit expansion was again used freely to pump up land and stock prices.  These reverberated with deposit expansion, in the manner to be shown, leading to The Great Real Estate Crash starting from 1926, followed by the stock crash of 1929. And yet, Friedman and his school of “monetarism”, as they rose to dominance, ruled this out of consideration, both in theory and practice.  They damned Quality Control as bureaucratic “intervention” with private bankers.  Only Quantity Control was permissible.  Ignoring Pecora’s revelations, Friedman et al. knew that profit-seeking bankers, proven survivors in free markets, must possess sounder judgment than nosy governmental officers.  Pecora’s findings were not refuted or denied, which would remind people of them.  They were not even compartmentalized and buried in low-level pigeon holes, but just quietly ignored, thrust down the memory tubes of history.

7.    With such notions regaining ascendancy, what kept us out of serious trouble for so long?  After 1945, nearly everyone forecast a postwar depression.  The standard FMP line was (and  is) that only wartime spending had jolted us out of the Great Depression, and peace would spoil the party. This postwar gloom capped land prices.  Affordability of land ran high, e.g. for housing and farming.  Ambitious young entrepreneurs and home buyers could borrow to buy cheaply.  Loans were mostly for production and use; price/earnings ratios ran low, payoffs were fast.  All kinds of taxes remained high, stifling any kind of long-term irrational exuberance, and any “Reverberations” between land prices and bank expansion, á la 1920s. Soon came the Cold War, the Korean War (1950-53), the costly Interstate Highway Program, urban sprawl with need for new infrastructure,  the boom in airports, the Central Valley Project and the California Water Plan in California, huge new “Big Dam Foolishness” and reservoirs on the Colorado and Missouri and Tennessee and Saint Lawrence Rivers, all costing huge sums and presaging continued high taxes, meaning continued low land prices.  Politically and socially, the disgraces of Senator McCarthy, Spiro Agnew, and Richard Nixon, along with social programs supported by the Warren Court, presaged more social spending and continued high taxes of all kinds. The result was to keep stifling irrational exuberance and resulting high land prices. As to credit, S&Ls got favored access to housing lending, keeping banks of deposit in their proper place.  These banks were fed a steady diet of Treasuries, considered “non-defaultable”, keeping them out of real estate which had proven so unstable before.

8.    What are these “Reverberations” that led to the crashes of 1929 and 2008, with lesser ones in between, and earlier to the 18-year cycles of the 19th and earlier centuries?  The basic idea is simple:
a.    Something sparks recovery and growth.  “Something” is often a peace dividend following a major peace treaty, as for example the Mississippi Bubble followed the Peace of Utrecht, 1713; the first railroad boom followed the Treaty of Guadalupe-Hidalgo, 1848; the second such boom followed Lee’s surrender in 1865; or the boom of the 1920s followed the Peace of Versailles.  It also helps when a polity has “magnetic” institutions that attract people and capital, and/or a vast reservoir of empty lands to fill.
b.    Banks of deposit begin to shift from commercial loans, short-term and self-liquidating, to lending on real estate collateral for longer terms.
c.    This surge of new demand raises land prices.
d.    Rising land prices evoke prospects of further rises, and a new kind of demand for land – no longer just for early use, but for “investment”, i.e. for a “store of value”, for resale, for flipping, and for speculation of various kinds.  This new kind of demand is always a factor lurking in land prices, more than in other prices, because land lasts forever, and its quantity is fixed.  But in a rising market it evolves into a bigger element in demand, often surpassing and outweighing the discounted cash or service flow from the current use.
e.    With higher prices, buyers need bigger loans and longer terms to pay for the same land. Banks create new demand deposits, taking the higher-priced land as collateral, and so on back and forth: THIS IS REVERBERATING, with echoes bouncing back and forth many times.  Some also call it an upward spiral; or positive feedback.  By any name it is disequilibrating and unstable and a major factor in boom/bust cycles.
f.    It’s not only new buyers who use land as collateral.  Old owners borrow on the swollen collateral to spend more on consuming.
g.    There is no rise of production, just a rise of prices of the same land.
h.    With longer-term loans, loan turnover falls, making new loans harder to get. Credit ratings fall, regardless of recorded interest rates, so the pool of eligible borrowers falls even as the supply of loanable funds falls as well.
i.    The upward spiral turns downward. Reverberations become negative.  A cumulative crash follows.

9.    Why do land prices have to fall?
Land is fixed, leading to a belief that effective supply is fixed as demand rises.  This is illusory, because access to land for higher (more intensive) uses expands into wide open spaces.  There are dozens of stages of more intensive use: from hunting and fishing to trapping, from lumbering to tree farming, from that to sheeping to beef cattle, from grazing to feeding, to dry-farming, to plowing, to small grains to maize, to horticulture, to irrigation, from flood irrigation and irrigated pasturing  to salad crops and vegetables, to vines and groves and orchards, from deciduous fruits and nuts to citrus and olives and avocadoes, to country estates, to subdivisions and housing, to low-rise apartments, to commerce and industry, to high-rise condos and offices and hotels , with many stages of intensity along the way. J.S. Mill’s Principles has a chapter on “Influence of the Progress of Industry and Population on Rents, Profits and Wages”.  In Article 4 of this Mill stresses that progress may be land saving, not just labor-saving and land using.  Mill said that growth of population lowers wages, but progress in the arts may offset this, and may even raise wages. When labor is dear, capital goes into saving labor; when land is dear, capital goes into saving land, and developing new lands. Credit is due rather to the arts of architecture, construction, planning, and engineering that crafted the elevators, ventilators, pumps, central heating, load-bearing supports, plumbing and sanitation, etc.  Men taught themselves these arts, by the way, in deep mines before they used them to build skyscrapers – we learned to build up by building down into our home, The Earth. (May economic theorists profit by the example.) Thus the system is more self equilibrating than many later writers and investors have assumed, but this occurs over such a long cycle that rational perceptions often give way to irrational exuberance. Fully built-out towns like, say, the Milwaukee near-in suburbs of Shorewood and Whitefish Bay,  house  10,000 people per square mile in spacious comfort in single-family homes on tree-lined streets with curbs, gutters, parkways, and sidewalks, with parks and golf courses and even a band of mansions along the lake shore.  At that density the U.S. population of 300 million souls needs 30,000 square miles, an area contained in a circle with radius of 100 miles – do the math.  100 miles is the distance from downtown to the outlying suburbs of any major city today, and 30,000 square miles is just about the area of South Carolina, and 1% of the area of the U.S.A.  The posh upper east side of Manhattan has about 80,000 people per square mile, or 8 times the density of Shorewood or Whitefish Bay. The crowding may repel some people, but others prefer it as shown by their paying several million dollars for a “strata title” to a condo with 5,000 square feet of floor in a slab of space 50 stories up above 49 lower strata titles with which it shares the ground below.
a.    The U.S.A. is vast. It only seems crowded because of institutional biases that make us substitute land for labor and capital, and that gum up the land market.  John Stuart Mill perceived this 160 years ago in his Principles
b.    These biases lead to territorial expansion.  The kind most observed is urban sprawl, spreading cities and their infrastructure over many times more land than they need.  There is a kind of cartel price-umbrella effect where underuse of the best lands pushes settlement out to inferior lands, connected by capital tied up in infrastructure, premature in time and scattered over space.
c.    Even if there were well-oiled land markets and rational expectations lacking irrational exuberance, land pricing based on expected higher resale values cannot continue long, because land lasts forever and prices cannot reach, or even approach, infinity.
d.    Along with simple urban sprawl there is continental sprawl, urged on by works like the Interstate Highway System, interregional transfers of water, oil, gas, electric power, and the network of airlines and airports.
e.    The cartel price-umbrella effect dominates many other activities and industries, as documented in the literature of industrial organization which modern quants and abstract theorists, second-rate mathematicians posing as first-rate economists, lose and hide almost completely behind their complex equations with undefined terms and complex a priori theorizing untested by reality.  One proof of that pudding is the sensational  failure and bailout of Long Term Capital Management (LTCM), the brainchild of Nobel Laureates Robert  Merton and Myron Scholes.

10.    When did the 18-year endogenous cycle resume after 1945?
a.    The incipient peace dividend following the surrenders of Germany and Japan hardly got started when the Cold War intervened, plus a hot war in Korea, 1950-53. There was no scope for a peace movement like that of 1918-38 when Mellon could hold down tax rates and pay down the national debt at the same time, feeding capital into the private sector by a process of “reverse crowding-out”. New capital in the private sector might seem like a key to prosperity.  However, we saw above that in practice it triggers off the “Reverberation” process as described in #8 and #9 above, so prosperity carries the seeds of its own crash. The cycle is quicker than Marx the phrase-maker envisaged, or the slow cycles of Kondratieff, but well documented by Hoyt et al. After 1953 there was a bit of slack for a mild boomlet, damped, however, by gnawing fears of an inevitable nuclear holocaust .  Hard as it is to believe today, many people were sinking big money digging and lining and provisioning bomb shelters in their back yards. Following the damped ‘fifties, came a headier boom in the “soaring sixties” with JFK’s morale-lifting face-off with Krushchev  in the Cuban missile crisis.  Ike’s Interstate Highway program, intended to link cities, was used to facilitate white flight and urban sprawl. Heller’s form of “business Keynesianism” created a deficit by allowing fast write-offs on new investing rather than by raising spending.  LBJ promised a “Great Society” with Civil Rights and a War on Poverty, but it ended in a funk with Viet Nam, the OPEC embargo, gas lines, rampant environmentalism, Brown’s “Age of Limits”, urban riots, urban “removal” In lieu of renewal, Watergate, and The Phillips Curve. High tax rates tempered the amplitude of the cycle, but the period was about the same old 18 years.
b.    In about 1973 a new upsurge of land prices began.  Nixon had declared “We are all Keynesians now”, and Republicans, traditional budget-balancers,  faced about gradually to embrace both devaluation and deficit finance.  President Reagan, campaigning on Laffer’s Curve and Cheney’s military-industrial complex took deficit finance to new heights.  Cheney, embracing Robert Barro’s new theories and Sargent’s “rational expectations”, memorably declared that “Deficits don’t matter”.  Even Milton Friedman, the prime anti-Keynesian and monetarist guru, endorsed Barro’s new rationale for deficit spending.  It was Democrat Fritz Mondale, challenging Reagan in 1984, who urged balancing the budget – and lost. As the British band had played at Yorktown, the world turned upside down, although it has taken years for many to see it. This new upsurge, untempered and uncapped, led to the Crash of 1990, a big crash, reminiscent of Hoyt’s 19th Century Chicago history. With remarkable facility and amnesia, however, Americans promptly forgot its obvious lessons and launched eagerly into the next cycle, deregulating everything in sight by underfunding the regulatory agencies, and dismantling most of the New Deal reforms. President Clinton provided the cover of a Democrat in office, but his policy of “triangulation” and “reverse crowding-out” merely deferred the debt skyrocket that went wild from 2001-09.
c.    The period 1990-2008 saw a perfect 18-year cycle of peak, crash, recovery, boom and another bust in real estate, right out of Homer Hoyt’s playbook. Cause and effect reverberated back and forth between soaring land prices and expanding bank deposits. Congress repealed Glass-Steagall in 1998, and Clinton signed on.  Banks loaned loosely and freely on mortgages, and invented many new ways to securitize them, concealing the underlying collateral under pyramids of paper with misleading and confusing new names.  Capital flowed southwestwards from rustbelt regions to growth regions like California, where Prop 13 had removed the former tempering effect of property taxes on land booming.  In Riverside, California, land prices rose about 8-fold, 1990-2008 – heady stuff for householders and other landowners who could cash out without even selling, by using lines of credit, “living high on the old homestead”.  Where were leading economic forecasters and advisers during the runup to 2008? Most of them were chanting “This time is different!” The Washington Post’s main source on the housing market was David Lereah, chief economist for the National Association of Realtors, who also penned a 2006 bestseller Why The Real Estate Boom Will Not Bust and How You Can Profit From It.  Michael Mandel, Chief Economics Editor of Business Week, published Rational Exuberance, whose title telegraphed its message, but which he pounded home with the unsubtle subtitle Silencing the Enemies of Growth and Why the Future is Better than You Think.  The White House Budget Director, Jim Nussle, declared that the nation had “avoided a recession”.  Ben Bernanke said we had entered “The Great Moderation”.  “The troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system,” he said on June 5, 2007. Christina D. Romer, Obama’s first pick to chair his Council of Economic Advisers, proclaimed that we had “conquered the business cycle”.  Charles Ferguson, Director of Inside Job, said, “I found (Larry) Summers everywhere I turned” – that includes the repeal of Glass-Steagall, one of the many calamities he engineered.

11.    What are the prospects for another endogenous 18-year cycle, peaking and crashing in about 2026? “When will they ever learn?”.  Not yet, apparently, because now in 2012 politicians and bankers and land speculators are already seeking to start again on the same trajectory, the only route to “prosperity” they know.  Already The Rijksbank has awarded the latest “Nobel” in economics to Thomas Sargent, the “rational expectations” man.  Public policy at every level is bent to sustain and revive land prices, equated with recovery and prosperity.  Banks “too big to fail” are bailed out, and no bankers jailed.  Summers’ friend Tim Geithner remains Treasury Secretary. There are no signs of remorse, of lessons learned.
What are lacking and needed today are at least the following:
a.    A new Ferdinand Pecora
b.    A renewed sense of moral indignation á la FDR
c.    A new sense of the key role of land pricing in macro cycles, along with decompartmentalization and integration of land economics with macroeconomics, so establishmentarians can at last begin to connect the dots.

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  1. February 1, 2012 at 10:38 pm

    Pragmatically speaking, when capital runs out of options for credible investment, strange distortions start to show up in markets. Witness, for example, the extraordinary run on commodities, and how their prices are no longer grounded to supply and demand realities, thus the cause of synthetic inflation.

    As for land prices, this is also seen as another investment opportunity in a shrinking field of options, with investment houses such as Savills of London hosting specialized trading in such activity.

    • Alice
      February 3, 2012 at 10:32 am

      Too much capital chasing too few investments? = market distortions everywhere? Solution? – reduce the amount of free private capital ie raise taxes and take some of it away from those entrepreneurs doing the idle chasing of purely speculative investments. Cant play casino capitalism if you dont have the money.

      • February 3, 2012 at 10:52 am

        Capital is extremely mobile. Trying to nail it down in order to apply the tax is not proving easy. Tax land – it doesn’t move.

  2. February 2, 2012 at 11:27 pm

    I was interested to see someone else forecast a bust around 2026. That’s my guess too.

  3. February 3, 2012 at 3:04 pm

    @Carol – You can entertain a tax on land, but target land speculation, not productive uses for land such as farming.

    • February 3, 2012 at 3:49 pm

      @E.L.Beck – I don’t know about you, but where I live we have plenty of tenant farmers who have to pay rent to aristocrats whose ancestors were granted title by the monarch or just enclosed the common land. If they can afford to make a living out of farming whilst paying rent, surely those who own the land themselves can afford to pay the rent to the public purse. David Ricardo explained this a long time ago.

      • February 3, 2012 at 11:06 pm

        @Carol – My apologies for being so American centric without explanation. By far, most of the farmers here own the land they farm, so any taxes added to what they already pay would directly impact their revenues.

        If the landowners in the UK would be asked to pay taxes, my bet is they would simply pass the added costs on to the tenant farmers in the form of increased rents, in which case it doesn’t impact the landowners at all.

        Just a hunch.

      • February 4, 2012 at 10:08 am

        @E.L.Beck. If landowners could demand extra rent to pay their LVT bill why aren’t they demanding that extra rent now? Or are they just charities to enable the landless to farm?

        Agricultural land value is comparatively low, therefore the LVT would be low. If there were lots of vacant farms because the LVT was set too high, the land value would decrease, then the LVT would decrease.

        UK farmland is subject to the European Common Agricultural Policy subsidy, which is related to acreage. This subsidy goes straight into land value. I do not know how US farm subsidies work but they will also feed through to the land value ultimately.

        At full collection of land rent for public benefit, in the case of tenancies, the landowner would get no benefit and will either farm the land himself or sell to the tenant (for the cost of improvements only). Thus the owners of land would cease to be ‘rent seekers’ and would use it instead. This change in economic behaviour would apply to all land.

        The land market is dysfunctional. It does not allocate to best use. And this, Alice, is a fundamental reason why Mason, Fred, I and many others will keep banging on about land.

      • February 6, 2012 at 5:42 pm

        “If landowners could demand extra rent to pay their LVT bill why aren’t they demanding that extra rent now?” Because the market is relative to the going lease rate. I’ve seen this behavior in action here in the Midwest U.S. If no extra costs to landownership is incurred, lease rates rise -very- incrementally, if at all. If costs do incur, all landowners raise lease rates everywhere; it is unplanned collusion. One source here that is presently influencing lease rates is the precipitously rising cost of farmland (and landowners raise lease rates even if they did -not- pay the higher cost for land). Another would be rising property taxes, which are largely used to fund school districts in the U.S.

        As for your observation that “The land market is dysfunctional. It does not allocate to best use.” you will hear nary an argument form me on that point.

  4. Alice
    February 4, 2012 at 9:17 am

    Oh Carol…what makes you think land is the only speculative investment around town?
    And what makes you think targetting land would target those who need to be targetted. Its not my view that all that is ill resides in land.
    Free capital was a mistake – so was guaranteeing capital a super enriched protein drink for decades made of workers wages (superannuation).
    We do need a Ferdinand Pecaro as someone in another post suggested. If I was an economist Id suggest there have been some very serious mistakes made by Friedman and his offspring (Greenspan) giving capital its own way unfettered for three plus decades. They ate the world (of jobs and wages).
    My posts keep disappearing but I dont give up that easily.

    • February 4, 2012 at 10:15 am

      The land issue is easy to solve, Alice. Unlike the ‘georgists’ I want to see the transfer of the ownership of land and capital to those who use them. There are powerful vested interests in both those factors, but the transfer of capital is far more fraught.

      • February 6, 2012 at 5:51 pm

        “The land issue is easy to solve”

        I don’t think so. I’m a firm believer in seeing 100 sustainable farmers managing 50 acres each, rather than one commodity farmer unsustainably managing 5,000 acres. But making that a reality represents an unbelievably stiff threshold, and land cost is only one of numerous political and economic variables to consider… unless you’re referring to a forced redistribution, which could certainly make that happen, but only after a revolution flowing in blood. Sorry, I’m not signing up for that action.

  5. February 4, 2012 at 12:00 pm

    There is a disgusting article in the FT Money supplement today by Merryn Somerset Webb extolling the virtues of speculating on water resources.

    This is the link for those who have access: http://www.ft.com/cms/s/0/7816c9c6-4cfc-11e1-8741-00144feabdc0.html.

    I know that Mason is particularly concerned about the water issue.

  6. Bryan Kavanagh
    February 5, 2012 at 12:08 am

    What an all-seeing analysis! Some comments here are suggestive, though, of the exemption-seeking that acts sto destroy equitable administration of land value capture. E.L. Beck: would not greater capture of the farmer’s land rent which can’t increase his costs of production (because it’s in the nature of a rent, not a tax) be a good trade off for some of the many taxes which do add to his costs? Alice: what other form of speculation brings about the reverberations Gaffney shows bring economies to their knees every 18 years?

    • February 5, 2012 at 2:39 pm

      Nature? As in intrinsic? I guess you can state anything is “intrinsic” to support a perception, but in the end it’s all the same.

      I’m well aware of what neoclassical econ theory states but it’s far more simple: for the producer (farmer), money out of pocket is money out of pocket. Lose it, and it’s a cost.

  7. February 5, 2012 at 9:08 pm

    What. No mention of the fact that the big land price bubbles occured predominantly in states/cities where growth management (“smart growth”) laws were in effect, as well as in paces like Nevada & Arizona, where the government owned most of the developable land and rationed its release, helping to drive up prices in the process?

    By comparison, places like Texas, where the land market is largely deregulated and the transfer of land from rural to urban uses is cheap and painless, experienced no significant housing bubble and prices remained affordable throughout the whole sub-prime era.

    If you want to find a cause of land price bubbles, look no further than cheap and easy credit, COMBINED WITH constraints on land supply.

    • February 6, 2012 at 5:56 pm

      Leith – With the going rates of land consumption here in the Midwest as of the year 2000, all usable farmland will be consumed by development within 150 years. Certainly this rate has slowed due to the recent downturn in the real estate market, but this should be balanced against increases in population.

      Sorry, but I don’t want to contribute to my offspring’s starvation in the years ahead. There will have to be a point where the line is drawn and farmland consumption for housing and commercial real estate development must cease.

      • February 6, 2012 at 6:24 pm

        It is impossible to ‘consume’ land.

        You won’t find that in any economics textbook where the attributes of land are never defined.

      • February 6, 2012 at 6:25 pm

        “It is impossible to ‘consume’ land.” Actually it was Mason who taught me that many years ago.

      • February 6, 2012 at 6:29 pm

        If a three-bedroom ranch is dumped on a one-acre lot, that land is consumed, taken out of use for growing crops.

        I’m not here to argue semantics.

      • February 6, 2012 at 9:56 pm

        The issue of the balance between farmland and urbanisation, is easily taken care of by “the market”. I thought contributors to a blog like this would know a bit about economics, rather than hysterical Green propaganda.

        Are any Japanese starving because Japan has 120 million people on much less land than California? What is the price of the farmland that remains in Japan?

        The price of all farmland in the world, even when there is “not enough” in a particular nation for “food security” in that nation, is kept down by the price at which food can be bought on international markets.

        It has actually not been a disadvantage to the people of land-poor nations, to have to import most of their food, as long as international peace reigns. Japan’s exporters have kept Japanese wealthy by ‘adding value” in spite of the fact that alomst all their resources are imported.

      • February 7, 2012 at 2:51 pm

        @wodehousel – If you think what I’m stating here is “hysterical Green propaganda,” then you don’t know a thing about my position, or the realities.

        The consumption of farmland is underway, in earnest. It is transpiring in two ways: a) land use by development, b) land consumption by over-farming commodity crops, which has rendered the soil dead, and the topsoil is getting thinner and thinner. But you wouldn’t know that because you don’t know a thing about crop production.

        Between demands for development and population, viable farmland is disappearing. On the horizon are not precipitous jumps in food or land prices, but bloody food riots. Get your nose out of the economic books, and get out here in farm country and see for yourself how it all works.

        Oh, I forgot, economic geeks are allergic to empirical evidence. But that’s okay, since it provides cover for your position. You simply don’t care because in your estimation, you won’t live to see the unraveling.

      • February 6, 2012 at 10:05 pm

        In wartime, Japan will be dependent on supply by sea. But the USA? Even China and India can now feed themselves thanks to the “Green revolution” and better politics than their failed socialism of the past; with more than 1 billion people each, and similar land area to the USA.

        If the world really ever did reach the point where there was a critical balance between land for food production and urbanisation, the price of farmland would be higher than the land would be worth when developed for housing, and it simply would not happen, for that logical free market reason. But food would be so expensive by then, that the world’s population would have been constrained by the ability of the poorest to pay.

        But it is economic lunacy to retain land in food production for low returns and low contribution to national wealth, so as to export cheap food to the workforces of countires that are selling you expensive manufactures. And in the process making your own manufacturers less competitive because of the price of urban land, including the workforce cost pressures of inflated housing prices.

      • February 7, 2012 at 4:09 pm

        With regard to the consumption of land, this is a problem of definition of land, which, as I have previously claimed, is ignored by economic textbooks. Land refers to geographical location and what lies above and below. Minerals, floral and fauna, once removed from their location by application of labour become capital which are consumable but land itself cannot be consumed. If the land has become denuded of these natural attributes it may still be used for other purposes, although its value will change – and hence the LVT to be applied.

        The most valuable land in the world retains little of its original natural attributes (water, climate and views excepted).

        Why does land appear to disappear once it is built upon?

      • February 7, 2012 at 4:54 pm

        It doesn’t disappear, but re-utilized, and when a structure is placed on it, the structure and the land becomes the property of the owner, recognized as such under contractual law. It retains the structure and a reasonable status of permanence for the foreseeable future, thus takes the land out of utilization for other purposes (farmland, for the discussion at hand). Certainly a bulldozer could make quick work of reclaiming the land, but this ignores the multitude of legal (and necessary) barriers that stand between switching land use from one status to another. For all considered purposes, the land becomes “consumed” for the short and mid term.

        And as you suggest, land can become literally consumed by the depletion of soil, again a real concern here in discussing farmland retention. Certainly building a factory, for example, on depleted soil still utilizes the land – the soil’s condition is irrelevant in this instance – but we can hardly afford to consider this as it removes the land from active farming, thus consumed.

        From first-hand experience working with depleted soils here in the Midwest U.S., it takes a minimum of three years to revitalize its use for sustainable crop production, which is a long time for land to be out of production.

        Commodity crop production relies on the soil only to hold a plant’s root system, with the plant completely reliant on the synthetic amendments added to the field for growth. The commodity-crop farmer using hybrids and GMO crops need not concern himself with a soil’s health. The problem with this production method is that it does not build nor maintain topsoil, which has been reduced to six to eight inches in depth (by comparison, in its natural state topsoil here in the Midwest is some 36 inches deep).

        Erosion will eventually claim the remaining topsoil, but that is assuming a severe drought and windstorms will not claim it before this occurs. Many fence lines with trees and brush acting as wind breaks have been removed here to accommodate the large ag equipment necessary to produce commodity crops on thousand-acre fields. There is nothing left to halt or slow this erosion.

        Yes, land can become consumed and lost to its needed purpose.

      • merijnknibbe
        February 7, 2012 at 4:45 pm

        We might also look at:

        A. Business economics. One of the golden rules is that you do not depreciate land – it’s used but not ‘çonsumed’, it stays. That’s the whole idea, I guess, business economist did not forget the lessons about the difference between ‘land’ and other unproduced assets (clean air, clean water!) and reproducible capital.

        B. Real estate brokers, who seem to hold the view that the main three factors influencing the value of land are: ‘location, location, location’. People can get rich because of an improvement in the ‘location’ of land due to investments of others. That’s an unearned rent income, comparable to the rise in income of land owners due to increases in rent caused by an increase in the prices of agricultural products. Should I get rich because of your investments?

        C. A kind of natural ‘experiment’ going on right now. Many houses on the Dutch islands are built on public land and the owners have to pay ‘erfpacht’, a kind of rent. The organisation owning the land (Staatsbosbeheer, something like the USA forest service) did not increase rents for about three to four decades (weird, yes). As a consequence, these houses are increasingly owned by rich absentee owners which live there about two or three weeks a year and see these houses as a kind of profitable ‘family investment’ which increased in value as real rents decreased…. Staatsbosbeheer, in need of money, now tries to increase rents (which in this case can be seen as a kind of land tax) with about 500 to 800% (yes, that’s quite sudden and quite a lot). We’ll see what happens: will they sell or rent the houses to tourists? In both cases, capital and land will be used more efficiently.

  8. Phil Hayward
    February 5, 2012 at 10:39 pm

    Gaffney’s breadth of analysis is breathtaking. He may remember a correspondence with me in August last year. “Point 7″ above is extremely important. What kept us out of trouble for so long following 1945? Gaffney says:

    “…..postwar gloom capped land prices. Affordability of land ran high, e.g. for housing and farming…….Loans were mostly for production and use; price/earnings ratios ran low……”

    I have a theory that also helps to explain this. Karl Marx and Henry George were right that rising incomes drive land rents up, leaving the renter class little or no better off. But this assumes that the rentier-land-owner class maintains an oligopoly grip on ‘land supply”. This was easy for them under conditions of urban growth dictated by the distances people could walk (few owned horses) or catch public transport (streetcars or trains). The process of urban development was usually “anti competitive”.

    I argue that “automobility” (from Henry Ford onwards) enabled a genuinely competitive process of urban development for the first time ever. Bill Leavitt was a kind of Henry Ford of suburban development. Gaffney’s point is very helpful, in point 9 above:

    “…..(there is) a belief that effective supply is fixed as demand rises. This is illusory, because access to land for higher (more intensive) uses expands into wide open spaces. There are dozens of stages of more intensive use……”

    There is always a substantial supply of very low cost (relative to urban land rents) land beyond urban fringes. If uplift in the price of this land is kept to a minimum during the process of development, due to genuine competition in the market between developers, then there is an effective “vent” to speculative pressures on the prices of ALL property within the urban area. “Location” premiums for urban land are additions to the price of the lowest cost (and less efficiently located) land in the urban area. Genuinely competitive fringe land development processes always result in fringe lot prices that relate not to urban incomes or demand pressures, but to the lowest possible uplift over and above RURAL land prices that a developer can bring the lots to market for.

    There is simply so much rural land adjacent to the (very long) fringe of a city, that it is impossible, or not worthwhile, for even an oligopoly to “corner” the “total supply”. The total amount of the land between the fringe and an imaginary new diameter only a few miles further out (and easily accessible by automobile) is a land quantity sufficient for literally decades or centuries worth of urban growth.

    However, a certain kind of government imposed urban planning and regulatory instruments, restore the oligopoly power of fringe land owners and land bankers. I argue that there was a period of low, stable urban land prices instituted through automobility and competitive fringe land development, which does not end unless government imposed urban planning provides conditions for the extraction of what I am going to call “oligopoly rent”. (Alan W. Evans calls it “quasi monopoly rent”). This is the reason that the USA’s urban land price bubbles have in fact been restricted to a few States and cities where there has been a combination of high demand and the capture of “planning gain” by the owners of raw land or land bankers.

    There are many non-supply-side factors blamed for these urban land price bubbles; however, if international evidence is considered, the relationships are much weaker than assumed. Britain literally never had the period of low, stable urban land prices enjoyed by the USA and many other countries after 1945, precisely because Britain in 1947 enacted the “Town and Country Planning Act”. South Korea in the 1980’s (after enacting legislation similar to Britain’s, in the 1970’s) experienced sustained inflation in urban land prices unaccompanied by expansion of credit. Credit markets were in fact undeveloped and historically, young Koreans saved most of the purchase price of their first home. National savings, not credit, boomed in South Korea as young people desperately saved towards an ever-rising target, delaying marriage and child bearing, with consequences for demographics.

    I look forward to further correspondence with Gaffney on these points.

  9. Phil Hayward
    February 5, 2012 at 10:43 pm

    I should also have commented that Gaffney was 100% in the right direction when he condemned blunt regulatory instruments of “negative” urban growth containment, way back in 1964 in this book chapter:

    http://www.masongaffney.org/publications/E3Containment_policies.CV.pdf

  10. Bryan Kavanagh
    February 6, 2012 at 5:11 am

    But he would NOT be out of pocket if part of the annual value of his land for revenue (which doesn’t add to his costs) reduces his taxes which DO add to his costs.

    • February 6, 2012 at 8:26 pm

      I’m assuming here you’re replying to my last comment above.

      Most land in the U.S. is purchased using credit, so any annual value of land is offset by the landowner’s principal + interest, which in any given year – dependent on what is or isn’t produced on the land and the applicable profits or losses – may be than the value, so yes, land can be a continuing cost to the landowner. I only see a sunk cost occurring if the land is paid for in cash, thus not a recurring cost.

      • February 6, 2012 at 8:28 pm

        the mathematical symbols were dropped:

        “…may be less than, equal to, or greater than the value…”

  11. Dave Taylor
    February 7, 2012 at 1:16 pm

    Phil @ #23: “Britain literally never had the period of low, stable urban land prices enjoyed by the USA and many other countries after 1945, precisely because Britain in 1947 enacted the “Town and Country Planning Act”.”

    As I remember it didn’t work like that. Land was in fact bought at low prices by local and national government using compulsory purchase orders. That way there was no need for Carol’s land tax to collect rent (it had already been deducted) and developers buying it from the local council rather than absentee “land bankers” (interesting concept) at least contributed economic rent to the local community. I might add there was a lot of complaints about this, not least when this practice was used to buy up slum properties in which people were still living, and who inevitably had to pay more for better housing. prices.

    • Philip G. Hayward
      February 7, 2012 at 11:48 pm

      Dave Taylor,

      You need to read some comprehensive analyses of Britain’s regular urban land price cycles – Alan W Evans or Fred Harrison or Paul Cheshire. The “suspension” of this cycle that Mason Gaffney correctly says occurred in the USA, did not occur in Britain. The compulsory acquisition of land has been a short-lived phenomenon – some economists in Britain have been telling the government for years that if they wish to plan for urban growth containment, they need to use compulsory acquisition to prevent the land price bubbles from occurring. This is what the Netherlands has done for years, they are much more short of land than Britain. The London School of Economics has several Dutch academics working with it right now on these issues.
      The price and volatility of urban land prices has serious effects for an economy far beyond housing affordability – it affects productivity growth and reduces discreationary household income, for example. It also increases inequality and social exclusion and reduces social mobility.
      Even though councils and government in Britain “nationalise” a portion of “planning gain” via levies etc, they have for a long time acted as willing boosters of the amount of “planning gain” that can be extracted, in contrast to the authorities in the Netherlands, who use their powers to keep the price of urban land low and stable. Meanwhile, Britain’s housing affordability problem worsens and worsens in its effect, and each cycle results in a weaker “supply” response and a steeper “price” response. In spite of larger population and older housing stock, the “supply” response today is around a QUARTER of what it was in the 1960’s.

      • Dave Taylor
        February 9, 2012 at 4:37 pm

        Philip, you are conflating what has happened recently with the context of the 1947 act. I wrote “didn’t” not “doesn’t”. I’m well aware of the housing price cycles in Britain – I and my kids have lived through them, and my grandchildren’s prospects now don’t look that good. You can blame that on the cowardice of conservative (including mid and new labour) economics and arrogant bureaucracy, but not on the 1947 act, which was a product of the common-sense social responsibility of the post war Attlee government, which DID (and of course I agree rightly) eliminate housing price bubbles by using compulsory purchase at reasonable rather than market land prices, and what’s more, by building vast amounts of decent council housing for rent at prices labouring people could still afford. But that expansion had its costs. I know. I used to be able to walk out of the city and swim in country streams which are now ten miles within the urban boundary. That’s why it was vital not to let speculative builders build just anywhere, which to a large extent is what has happened since, not least, I believe, as a result of corruption and stupid bureaucracy within the planning system, and the post-Thatcher “boosting of planning gain”.

        Anyway, if compulsory purchase at reasonable prices is what the Dutch do, good for them.

      • Phil Hayward
        February 9, 2012 at 11:46 pm

        Dave Taylor@#34

        Appreciate your comments. There was a deliberate building boom under the Conservatives in the 1950’s, too.
        Here is how I frame the issue of urban growth containment. If it is necessary, then compulsory acquisition of land for development, is also necessary. Without this, real estate markets ensure that the regulatory restrictions merely maximise “planning gains” for a fortunate few, maximise wealth transfers to incumbent property owners, increase inequality, and so on, as I have already described; along with minimal actual beneficial change in urban form.
        If the issue was framed in this way, then most of the support for urban growth containment would miraculously vanish. I say urban growth containment has always been driven by the vested interests who stand to gain. The environmentalist excuses are pretexts, nothing more; unless the issue is framed as one requiring compulsory acquisition.
        “Council housing” is merely laying another layer of government intervention on top of the unintended consequences of their previous intervention in the market. Advocates of “government provided” affordable housing usually cannot get their heads around “market provided” affordable housing that results everywhere that “planning gain” is minimised under conditions of maximum competition and “freedom to build”.
        In approx 200 cities in the USA, new suburban lots are typically $30,000 to $50,000, which merely represents raw land costs absent “planning gain”, plus costs of development and a reasonable profit. This means new McMansions for well under $200,000, and this in turn means “trickle down” older housing for often well under $100,000. It is an absurdly simple matter under these conditions for any landlord (including charitable institutions) to provide rental accomodation of higher quality and prices at least as competitive as “council housing” in distorted markets like the UK.
        On your problem of vanishing green space and local enjoyment of nature, what good do “green belts” possibly do to help? The best of all worlds, is plenty of “reserves” of modest size spread throughout the urban area as it grows. These have no cyclical destabilising or inflatory effect as green belts and UGB’s do, AND they maximise the enjoyment of nature by everyone, not just the people who can afford the best located property. Furthermore, there is not a high opportunity cost involved in preserving “reserves”, unlike where urban land prices have been rendered high and volatile by boundaries. This is why, as you say, all that “planning” has ultimately NOT preserved local amenity at all. One reason why Dallas has one of the world’s greatest proportions of “Green Space” in any city, is that urban land prices have been kept LOW and there are plenty of EASY options for developers. When ALL the options, including “the fringe”, involve an expensive and protracted fight, of course developers are going to focus on locations where the fight is “most worthwhile”. That will be the bits of Green space still remaining inside the city.

  12. February 7, 2012 at 8:08 pm

    There is a reverse correlation between property tax rates and housing bubbles. In 2005, the peak year for housing, 23 out of the 25 least affordable cities were in California, which killed itself with Prop. 13. 4 of the six *most* affordable cities were in Texas, which taxes property heavily. The *least* affordable city in Texas (Austin) was far more affordable than the *most* affordable city in California (Bakersfield). See:

    http://www.savingcommunities.org/issues/taxes/property/affordabilitycharts.html and http://www.savingcommunities.org/issues/taxes/property/affordabilityrank.html

    • February 8, 2012 at 12:07 am

      E.L. Beck @#22, you need to also address my point at #23.

      You are like Paul Ehrlich, I am like Julian Simon. You are looking at the trees, and can’t see the wood for the trees, and I am looking at the PRICE OF wood.
      I understand markets and how price signals work, just as Julian Simon did and Paul Ehrlich did not. The price of food, the incomes generated through the production of food, and the price of rural land; versus the incomes generated through URBAN use of land, and the prices of urban land – says to me that the world is NOWHERE NEAR “running out of land to produce food”.
      For the past 6 decades, the international terms of trade for food exports versus manufactured imports, has moved 400% AGAINST the food exporters. ALL the growth in wealth in the world has occurred in URBAN economies. Exporters of primary produce like New Zealand have fallen from the top of the OECD to the bottom. Nations that export substantial amounts of food, including the USA, could take MOST of their rural land surplus over and above their own workforce’s food needs, OUT of production and it would make little or no difference to national wealth.
      Rural sectors have for decades received, in addition to explicit cash subsidies, subsidies of infrastructure, especially roads and rails, that urban economies have not. It is quite common for rural road network lane-miles per vehicle mile travelled on them and per unit of GDP produced in the surrounding region, to be literally hundreds or even thousands of times greater than the same ratio for urban economies.
      Abolish these rural transport subsidies (PRICE ROADS!!!!), and more “local” production of food will be logical. But this can involve not urban growth containment, but more MIXED use of land, with rural and urban MORE mixed, NOT LESS mixed. “Grow your own” on 1 acre lots is also more logical – currently most people still find it perfectly rational to just buy their food at the supermarket. There are dozens of other “sustainability” advantages to urban “spread” and LOW urban density.
      One of the worst contradictions in the advocacy of “urban growth constraint” today, is the assumption that the HIGH urban density economy (heavy on services and consumption and wealth transfer) will continue uninterrupted as resources “run out”, and happy apartment dwellers will catch trains to their office jobs. Surely I do not need to spell out on the blog like this one, just how stupid this is. Resource alarmism is surely only consistent with advocacy of LOW density living.

    • February 8, 2012 at 12:26 am

      Dan Sullivan @#33,

      That correlation is interesting, but it is difficult to disaggregate the effects when BOTH extremes apply to both factors – Texas has high land taxes and “freedom to build”, California has lower land taxes and strict urban development regulation.

      These correlations across many more markets in the USA was thoroughly analysed HERE:

      http://www.macrobusiness.com.au/2011/08/a-housing-whodunit/

      Leith Van Onselen, “The Unconventional Economist” is probably the world’s leading blogger on housing bubble issues. He is one of very few to have grasped the vital role of land supply regulation. As he says in that link, there is no correlation across the USA, between high land taxes and urban land price stability. The correlation is with the elasticity of “supply”.

      This issue is unfortunately mired in disagreements of analysis re which markets are “elastic supply” or not. One common error is to calculate elasticity over too LONG a run. It is possible to have “over-building” in an urban land market AFTER speculative pressures and “planning gains” have built up. This indicates a very steep supply curve, where “supply” is always unusually low below a certain price, but once the demand curve is shifted far enough (through speculative pressures), everything breaks loose – and when demand collapses, the PRICE drop back down that very steep supply curve, is dramatic. This is actually basic econ 101, but many experts seem to miss this.

      Malpezzi and Wachter in one paper, and Glaeser and Gyourko in another, show that the only way to provide a workable theory to explain the total lack of a house price bubble in markets with the same demand side factors that contribute to the size of price inflation in other markets, is to make a large proportion of “demand” ENDOGENOUS to a low elasticity of supply.

      It doesn’t help when the local government is a willing participant in the chasing of “planning gain” via fees and taxes and so on. They love the “bubble revenue” because it allows them to spend up big without raising regular local taxes. When the bubble bursts these governments are in the cart along with everyone else.

      • Alice
        February 9, 2012 at 8:32 am

        You say below
        “But rail transit is a bottomless pit for taxpayers money. At no point can the taxpayer be said to be recouping some part of their “investment” – the costs to taxpayers are simply far too great a proportion of the total costs, regardless of how much switch of mode share might be achieved, for its own sake and nothing else, as if this has a religious value like “absolution”.

        You know, its two dimensional flat arguments like this I just cant get my head around. For every rail user – you quote the costs of rolling stock, maintenance, running costs

        BUT I dont see you subtract the costs of running a single car with its pollution and negative externalities caused by a sole person sitting in a traffic jam. Have you ever heard the expression opportunity cost – yes we may subsidise public transport which is a mass transport form, with our taxes (income and other) in order to get a few more cares off the road and actually save ourselves some money (yes taxes).

        This business that neoclassical economists so specialise in – to reduce all costs for every policy initiative down to a microcosm of an individual user’s costs and work out the costs that way – ie how much damage does a single car do? How much does it cost to run? How much pollution cost per individual etc? Then compare it to a publicly funded train – how much does a train cost an individual to use? How much maintenance per individual? How much pollution per individual to ride a train (and that is much less than car emission rates btw).

        Yet you dont subtract the costs of an individual giving up his car to ride the train from the train costs. Doh! Dph!

        You are on the wrong track looking at costs per individual instead of net gains and losses per all individuals and the flow between different commuter choices. Its time the neoclassical arguments for user pays got shot down in flames. They dont stack up.

      • February 10, 2012 at 12:08 am

        Alice@#38,
        It is you who is failing to understand MY point. I am using figures from Todd Litman and C E Delft. You are assuming that the costs of automobility NOT paid for by motorists, mostly negative externalities, are HIGHER than than the costs of public transit NOT paid by “riders” – which is not merely negative externalities but MOST of the costs of public transit. This is simply nowhere NEAR the truth.
        What you are arguing, is that it is worth preventing $1 of automobility negative externalities by spending $8 of taxpayers money on subsidies of a “mode” that has less negative externalities.
        I realise that the passenger cost per km of private motor vehicle is higher than public transit but this cost is almost all assumed, entirely voluntarily, by car users. The public “subsidies” of car users is actually minimal. Transit users voluntary contribution to THEIR true costs, however, is minimal and the subsidies substantial.
        This is what you are getting at, and this is the crux of your argument, when you say, “…..Yet you dont subtract the costs of an individual giving up his car to ride the train, from the train costs…..”
        It’s not me and the neoclassical economists doing this, Alice, it is the individual choosing where to live and how to travel. There is ALREADY massive subsidies being paid to “encourage” the choice YOU wish them to make, and these subsidies already substantially outweigh at least the “costs” that are “not borne by motorists”, as well as quite a few of the costs that ARE.
        Anthony Downs has been pointing out for years that trying to get everyone to use fixed route public transport, which cannot possibly “go everywhere”, expects massive shifts of population to locations on public transport routes. Yet this can’t happen without massive real estate price increases once the first few percent of people have “moved in” (if not before), thus “pricing out” the remaining 90%+. This is the massive comprehension gap with our planning classes today.
        Automobility, in contrast, requires little premium to be paid for property, especially in cities with highly dispersed employment and other amenities. In fact, Anthony Downs and others calculated years ago that property prices always rise to higher prices closer to CBD’s, than what it would cost people to live further away and drive.

      • February 9, 2012 at 10:53 am

        All good public investment, including transport links, feed into land values. Take the oft quoted Jubilee Line Extension: cost to taxpayer £3.5bn; benefit to local landowners £13bn. The full collection of land rent for public benefit is the only way to create a virtuous circle of public spending => increased revenue to pay for it.

      • February 10, 2012 at 12:13 am

        Carol@#39,
        I agree that land taxes create a virtuous cycle of payback for infrastructure investment. But I doubt that fixed transit routes being paid for by the nearby property owners, has the possibilities that roads being paid for by “everyone”, has.
        One of the worst features of rail transit under the status quo, is that seeing the adjacent property owners are NOT the main sources of revenue to subsidise it, they are the beneficiaries of a wealth transfer. Colin Clark pointed this out in “Regional and Urban Location” (1982).

      • Phil Hayward
        February 10, 2012 at 12:44 am

        I raised the question on Yahoo Transport Policy blog, what percentage of transit costs is covered by fare revenue, and Thomas Rubin kindly responded:

        For the 2010 National Transit Database reporting year, here is the data for UTA:

        Farebox Revenues: $ 35,244,892

        Operating Expenses: 191,216,987
        Capital Expenditures: 624,469,173

        Total Expenditures: 815,686,160

        Fares as % of
        Expenditures: 4.3%

        In my experience, it is extraordinary for any transit operator to have capital expenditures over three times that of operating expenditures in any single year. In this case, light rail capital expenditures were $330.2 million, commuter rail $254.4 million, bus $38.1 million, and the rest ($1.7 million) split between vanpool and demand-responsive.

        All modal comparisons show UTA farebox operating ratios to well below industry averages, except for light rail.

  13. February 8, 2012 at 2:10 am

    The root cause of housing bubbles is the monopolization of and speculation on land. Certainly artificial restrictions and conditions exacerbate this, but it is easy to see that it is the speculators themselves who are behind these restrictive laws. Every unit must have parking spaces, because anyone who can’t afford a car would bring down property values. (Donald Shoup captures this beautifully in “The High Cost of Free Parking.”

    Certainly 5-acre zoning is snob zoning, but so is the requirement of detached homes where there is a market for town houses, town houses where there is a market for apartment buildings, etc. Then there are the special agricultural exemptions. Many an exempt “farm” is just a speculator with a cow, and development that should occur where that inner suburban farm is, leap-frogs out to where the farms should be.

    Prop 13 came after a rash of special exemptions for agricultural and “clean and green” land, coupled with a futile attempt to spare residents by taxing business activity. With the exemptions taking land off the tax roles, and business becoming less desirable, most assessment increases went to residential properties. Grandstanding on this, Howard Jarvis basically destroyed California. Within 18 months of the passage of Prop 13, California land ownership by non-US residents doubled. That wasn’t an explosion of restrictions, but an explosion of speculation looking for a property-tax-free haven.

    The myth that real estate would keep going up forced people to buy before they were ready, and to pay a price that makes no sense without accepting the myth itself.

    Aside from Texas, look at my home town of Pittsburgh, which is awash with arbitrary and sometimes downright stupid building and zoning restrictions, yet is one of the most affordable cities in the nation, and which missed *every* recession of the twentieth century. Why? Because Pittsburgh abolished special exemptions for farmland and then relied heavily on a land value tax from 1913 to the end of the century.

    While the world collapses, Pittsburgh is having such a building boom that the carpenter’s union put out an urgent call for 150 apprentice carpenters.

    See: http://savingcommunities.org/places/us/pa/al/pgh/nevercrashes.html

    • February 8, 2012 at 3:01 am

      The Wharton Regulatory Index includes Pittsburgh at No. 30 out of 47; i.e. towards the “freer” end of the spectrum for development.

      http://real.wharton.upenn.edu/~gyourko/WRLURI/The%20Wharton%20Zoning%20Regulation%20Index-July%202,%202007.pdf

      Notice what Phil Hayward said earlier:

      “…….There is simply so much rural land adjacent to the (very long) fringe of a city, that it is impossible, or not worthwhile, for even an oligopoly to “corner” the “total supply”. The total amount of the land between the fringe and an imaginary new diameter only a few miles further out (and easily accessible by automobile) is a land quantity sufficient for literally decades or centuries worth of urban growth…..”

      It requires artificial regulatory boundaries to make it worthwhile to “bank” land.

      You are partly right about “who is behind” the anti growth regulations. It is not so much raw land speculators, as investors in the higher value property in a city especially in the CBD. That is where the biggest capital gains of all are reaped. When the urban land value curve is pushed up at the fringe, it goes up along its entire length. And it slopes up towards the centre of a city.

      The “affordability” effects of “snob zoning” are minimal compared to the effects of blunt urban fringe constraint. One Glaeser paper estimates the effect of every extra half acre mandated in lot sizes, is to inflate “housing prices” by 4%. But the effect of urban growth boundaries is orders of magnitude more severe for affordability than that. Britain is the classic example. They pay approximately 8 times as much for a tenth of an acre lot, as Texans do for half an acre. Effects of this kind can already be seen creeping in in the fringe-growth constrained cities in the USA.

      “Level playing field” pricing of “transport” would work something like as follows. Motorists would pay more for parking. Roads are already roughly covered by the taxes motorists pay, not just on gas. More could be charged and more capacity could be provided. Parry et al in “Automobile Externalities and Policies” estimates that gas taxes are too low in the USA but too HIGH in Europe. C E Delft estimates in Europe (2004 paper: “The price of transport – Overview of the social costs of transport”) that the private motor vehicle is the ONLY mode that remotely covers all its costs including externalities. Commuter rail covers about 20%.

      It is public transport, especially rail, that would have to go up hugely in price to cover its true costs. So be careful what you wish for. The total cost of automobility is made up of (in order of significance) depreciation, other ownership costs, fuel, other running costs, parking, congestion, pollution externalities, crash externalities, fuel externalities, ROAD COSTS……and the “curve” is quite steep (i.e. depreciation is many times greater than parking and many times greater again than road costs). By far the greatest share of these total costs is borne by the motorist. But repeating the exercise for public transport, we find that public subsidies apply to all costs, including the biggest ones like depreciation, the cost of ownership of rolling stock, running costs, and so on down the scale. And anti car advocates seldom calculate the many and large externalities to public transport, not that this is necessary for the purposes of this exercise. The case re “who is subsidising who” is already settled in favour of the automobile long before we reach “externalities”.

      • Alice
        February 8, 2012 at 9:08 am

        I dont know where the exact argument becomes grounded with reference to research here. I dont see much evidence in this comment that public transport delivesr a much grander externality than private cars.Of course public subsidies apply to public transport (thats why its called public transport) but then you dont talk about the private “subsidies” provided to car manufacture do you? ie the shareholders investments….same thing..money investment ignoring its source.

        At least compare oranges to oranges before you compare the externalities of public transport (for which you provide no data) to the externalities caused by a single car user in a traffic jam with their engine running

      • February 8, 2012 at 11:28 pm

        Alice@#39
        You have missed my point. (Not to mention the fact that I did refer to some analytical literature). On “amount of land” you could refer to Shlomo Angel et al, “Making Room for a Planet Full of Cities”, and the Lincoln Institute’s “Atlas of Global Urban Land Consumption”.

        Some of my argument, is simply me connecting dots that others seem to have failed to. The following rough estimates are based on Todd Litman’s work, ironically.
        Motorists are apparently expected to pay for:
        Their own rolling stock: approx 30% of the total costs of automobility
        Their own running costs: approx 25% of the total costs of automobility
        Their own parking costs: approx 15% of the total costs of automobility – this is the only factor so far that SOME motorists DON’T fully pay for
        Congestion – approx 10% of the total costs of automobility – but this cost is neutral – it is imposed by motorists AND BORNE by motorists. It is also a corollary to agglomeration efficiencies.
        Pollution externalities, crash externalities, fuel externalities – approx 15% of the total costs of automobility. MOST motorists – in the USA – do not “pay” for this, leaving aside the point that motorists are members of the society that bears the costs, and most members of the societies that bear the costs are motorists. In Europe, gas taxes are HIGHER than necessary to correct for ALL externalities.
        ROAD costs – approx 5% of the total costs of automobility. MOST of these costs are covered by taxes paid BY MOTORISTS.

        So in Europe, motorists DO pay ALL the total costs of automobility and then some. In the USA, motorists pay probably 75 to 80% of the total costs of automobility. And we haven’t even LOOKED at the “benefits”.

        Now lets repeat the exercise for rail transit.
        What proportion of the costs of the following, do riders pay for:
        Rolling stock?
        Maintenance?
        Running costs?
        “Parking” costs? (Rolling stock takes up space, too).
        “Congestion” – in the case of rail transit, the cost of providing ever more rolling stock that will not be utilised outside of the congestion period?
        Pollution externalities, crash externalities, fuel externalities (rail transit has these too)?
        The rail network?
        Community severance externalities?

        Do rail transit riders pay 20% – TWENTY PERCENT – of the total costs of the mobility provided by rail transit? Or 30% – if we (the rest of society) are lucky?

        AND we haven’t even LOOKED at the ratios of BENEFITS to costs.

        The so-called academic comparisons that anti-road advocates love to quote, commit egregious breaches of scientific method by failing to account for the TOTAL costs of automobility and what share of this is already borne by the motorist. They focus on the few costs NOT paid by motorists and argue that these constitute a “subsidy”, requiring “levelling of the playing field” by higher subsidies of rail transit as well as more punitive charges on motorists.

        “Automobility” is a BARGAIN for taxpayers. IF governments are in fact paying some of the costs of automobility and not recouping these from motorists, nevertheless the benefits in tax revenue from larger economies per se as well as the direct payments of tax from motorists and the entire “automobility” industry (car makers, dealers, repairers, tyre businesses, etc) FAR exceed the costs.

        But rail transit is a bottomless pit for taxpayers money. At no point can the taxpayer be said to be recouping some part of their “investment” – the costs to taxpayers are simply far too great a proportion of the total costs, regardless of how much switch of mode share might be achieved, for its own sake and nothing else, as if this has a religious value like “absolution”. It is a measure of our civilisation’s loss of reason, that obvious realities like this remain unrecognised by most.

  14. Dave Taylor
    February 10, 2012 at 11:57 am

    Phil @ #36: “On your problem of vanishing green space and local enjoyment of nature, what good do “green belts” possibly do to help? The best of all worlds, is plenty of “reserves” of modest size spread throughout the urban area as it grows.”

    So what is the difference between that and small towns with spaces in between? That in reserves kids play football and in green belts they can keep in touch with the real world by seeing where their food comes from. I do not think this sufficient for “the best of all worlds”, however. The Dutch have the concept of a “linear city” – not necessarily straight – which combines centralised and therefore efficiently mass transport with the ability to walk out sideways into the countryside. My ideal is to stuff all the heavy industry and its transport into a linear city (along with lodgings for those doing short-week shifts there), and string small market towns along railways which can take commuters one way and distribute produce the other. Of course I’m thinking England, but perhaps New England too?

    Wodehouselee @ #47: “But rail transit is a bottomless pit for taxpayers money.”

    What a lot of twaddle. When given half a chance, heritage rail is a source of endless satisfaction and delight for retired and otherwise unemployed people, who like the original pioneers, put their own efforts and money into it. Road transport has got so bad that even in our little town it can at times take ten minutes to cross the main road, to say nothing of the pervasive danger, noise, pollution, destruction of natural beauty and vegetative recycling and the irrecoverable waste of resources resulting from it. This issue is about comparison of real costs and benefits, not about whether supposedly responsible public authorities or self-serving financial interests are more adept at or entitled to rob people via the illusion that money has value.

    • Phil Hayward
      February 11, 2012 at 3:44 am

      Dave,

      I am not sure whether you have grasped the implications of my original comment February 5, 2012 at 10:39 pm. The crux of my argument is that certain types of urban growth lend themselves to capture by oligopolies. I do not believe there is any example in the world, of genuinely competitive supply of land for development, other than when there is a combination of automobility and “freedom to develop”.

      Your example of small towns with space in between, would fit my definition perfectly as long as there is “vent” space for genuinely competitive development beyond the extremities that the small towns have so far spread to. Or to put it another way, the process of development of NEW small towns should be competitive, not “monopolised”. Preserving “spaces in between” does not force land prices up – it is regulatory perimeters and outright quota-type regulation of development, that do force land prices up.

      The problem for social equity and economic stability and efficiency, when there is “ribbon” (your “linear city”) or “radial” type development only, along fixed rail routes, is that this development is always captured by land-banker oligopolies. I know of no system other than “compusory acquisition” or nationalisation, that will prevent massive “planning gain” becoming a normality. And I have every respect for advocates who know this and advocate for it, even though this makes their ideas less likely to be “bought” by the voters. Most advocates of urban growth constraint and rail-oriented development do NOT know this or advocate for it, which immediately raises questions of 1) how much they understand economics and markets or 2) whose useful idiot they are or 3) whose pocket they are in.

      The system that is practically ensuring low, stable urban land prices in probably 200 cities in the USA, is “freedom to build” beyond the existing urban fringe. As I explained in my original comment February 5, 2012 at 10:39 pm.

      I have an even better utopian suggestion than your “linear city”. A “ring city”. Think about this. The land inside it and outside it, fills the role of the land “on either side” of your linear city. The advantage over your linear city, is that one does not have to “go back” to the other end of it at any time – once one has gone its length, one is already at the start point again. This has consequences for “demand enabling”.

      One of the things anti-automobility activists do not grasp, is the almost-exponential demand enabling effect of a city organism with amorphous potential travel patterns within it. And the fact that this “demand enabling” does not concentrate land rents at a central node of radial transport networks. William Wheaton’s 2002 paper “Commuting, Ricardian Rent and Land Price Appreciation in Cities With Mixed Land Use and Dispersed Employment”, is a masterpiece of analysis on this. Many US cities do in fact comform to his theoretical observations – that is, the difference between the highest price and lowest price land in and around a city like Houston or Atlanta, is very much SMALLER than the difference in a highly planned, radial-network, enforced-monocentric city like London.

      Alex Anas of SUNY Buffalo has published several papers since Wheaton’s one, applying these principles to the development of a practical urban “economic model” that avoids the egregious irrelevancies of the 1974 Wheaton one that planners have been using (Wheaton repudiated the validity of this in his 2002 paper).

      I think that the demand enabling effect of the amorphous automobility city, is one reason the USA’s economy is the world’s most productive large economy. I also think the fact that the former USSR planned for everything to function along fixed rail routes, was one of the CAUSES of the endemic inefficiency of their economic system (not an advantage that was cancelled out by other problems). Within 20 years of the collapse of Communism, the rail system is used only by a similar minority of people and businesses as in any free country. This is in spite of the infrastructure for the new free market system to remain based on rails, “ALREADY BEING THERE”.

      Your comments on costs and benefits of rail versus road, is all anecdote and rhetoric and devoid of facts and figures, unlike Wodehousel’s very insightful postings. I am aware that advocates like Todd Litman and numerous others have analysed the externalities of automobility to death; and the most pessimistic figures they can come up with do not even begin to counterbalance the DIRECT costs of transit NOT covered by transit riders, let alone the externalities of transit – and there are plenty. The costs “not covered by motorists” are a tiny fraction of the costs “not covered by transit riders”.

      Your comment about “supposedly responsible public authorities or self-serving financial interests” is full of irony. Who and what drives the massive malinvestment in rail based systems? This is classic “public choice theory” stuff. A FEW who stand to benefit massively at the highly dispersed expense of the many – versus “automobility” which disperses benefits around literally thousand of times as many property owners as the equal amount of “transit” funding. There are nowhere near enough “audits” done of transport bureaucracies that forever boost rail based systems, but every single one finds manipulations of data and invalid comparisons, all of which are skewed in favour of a rail based system, rather than, say, more investment in buses, busways, and flexible bus routes.

      For example (thanks to Bob Poole for this), a planning effort from the mid-1970s involving the JFK Transitway, has recently come to light. It would have made use of bus lanes on the Long Island Expressway (LIE) from the Midtown Tunnel to the point where the LIE crosses the Long Island Railroad. From there, the remaining 8.5 miles would have followed the abandoned Rockaway Line and a stretch of the median of the Van Wyck Expressway to the Central Terminal Area of Kennedy Airport. Estimated travel time from Grand Central Station to the International Arrivals Building at JFK was 36 minutes for this one-seat ride. The transitway would have been open to all other buses, vans, and taxicabs (and had it been proposed within the past decade, would very likely have also included toll-paying cars, if there were excess capacity).

      The original cost estimate, in 1976, was $62.5 million, not counting right of way costs. Given inflation since then, that’s about $250 million in today’s dollars. That still compares very favorably to the $900 million JFK Airtrain that was built many years later, and only goes from JFK to the LIRR station, requiring a transfer to either the LIRR or the subway—and considerably longer travel times to and from Manhattan.

      Why the project was torpedoed, was explained by a retired bureaucrat as a combination of NIMBYism along the rail corridor and anti-BRT/pro-rail prejudice among policymakers. The net effect was to eventually produce a far more costly and far less effective rail project that is used mostly by airport employees and by very few of those who might have used a one-seat ride from Manhattan to JFK.

      I also recommend the following very enlightening paper:

      Bent Flyvbjerg: “Survival of the Unfittest: Why the Worst Infrastructure Gets Built—and What We Can Do About It,” Oxford Review of Economic Policy, Vol. 25, No. 3, 2009.

      I quote: “[I]f informed decisions are the goal, then conventional ex ante cost-benefit analysis must be supplemented with empirical ex post risk analysis focused on documented uncertainties in the estimates of costs and benefits that enter into cost-benefit analysis. For a given major infrastructure project, this would constitute a kind of empirical due diligence of its cost-benefit analysis, something that is rarely carried out today. . . . [A] key recommendation for decision-makers, investors, and voters who care about what Williams (1998) calls ‘honest numbers’ is that they should not trust the budgets, patronage forecasts, and cost-benefit analysis produced by promoters of major infrastructure projects. Independent studies should be carried out, and such studies should be strong on empirically based risk assessment.”

  15. Dave Taylor
    February 11, 2012 at 8:37 am

    Phil, I respect your argument, and your comments on Russia in particular deserve answering. I HAD thought of the circular city, imagining London’s centre left as a cultural focus with its inner suburbs returned probably to forest and parkland as people migrated to market towns and business towards the accessibility of the M25 corridor. In general, of course, we are at cross purposes: you arguing for how the world is, I for how it logically should be; you for competition, I for freedom to learn to do what we should be doing and be what we should be.

    In effect you are ignoring the context and in particular the future (e.g. what happens when the oil runs out). In your thinking you are following in the factual and didactic traditions of Hume and Smith (lies, damn lies and statistics), I in the methodological traditions of Bayes and Feynman and the didactic methods of Christ and Chesterton.

    It may be a matter of fact that a 6 comes up unduly often when you throw the die, but that isn’t the issue. From the symmetry of the die you would expect all numbers to come up equally often at random, and indeed that’s the point of having it, so the skewed statistics point you back to questioning the causes of the assymmetry of the die and what can be done about it, which is what I’m doing with bent economics.

    Sure my arguments are anecdotal, but they are not other people’s anecdotes: they are my attempt to sum up my personal experience of BOTH the situation and its context, and to help others look at things in such a way that they can see what I’m seeing.

    Your arguments enrich my awareness of the present context, so thanks; but do please use your imagination about what’s about to happen in the future. The issue about the Russian railways then might come down as to whether (as happened in the US and UK in the face of one-size-fits-all advocacy of automobility and cornering/destruction of urban alternatives) they have been torn up and melted down; or whether they are still there: able (unlike roads) to be lifted and relocated to meet changing circumstances.

    • Phil Hayward
      February 12, 2012 at 6:20 am

      Dave, I am enjoying the respectful exchanges. If you want a foundation for my belief system, read “The Theme is Freedom” by M Stanton Evans. There is a difference between “Christian” traditions that come via Roman Catholic intellectuals, and those that come via anti-establishment Protestants; nowhere is this tradition stronger than in Southern and Bible belt USA (and it used to be stronger throughout the entire USA than it is today).

      Freedom and competition are the one and same thing in the context we are discussing – urban land development. In most cities in the USA, anyone can build themself almost any home they like on any legally bought land, which makes building something beyond existing urban fringes very cheap. But competition between developers is so fierce precisely because things are so free, that it is not worth the bother, for anyone trying to do themselves something “cheaper”. It is like trying to grow your own vegetables instead of buying weekly cut-price veges at the supermarket. There is simply not a lot to save.

      Even Matt Ridley early in “The Rational Optimist’ suggests that the reason housing in so many parts of the world has not followed food and clothing and manufactured goods DOWN in price in real terms, is because the housing sector is still so much interfered in by government.

      Think about the following possibility as oil and other energy sources “run out”. (Notwithstanding that I am a technology optimist like Ridley and Ausubel and Reisman and a few others). Assuming peak oil” is a real problem, I predict that the economies with the MOST resilience will be the economies that we currently criticise the most for their “wastefulness”. That is, low land cost, low density US cities where large and inefficient vehicles are the norm.

      These cities have a lot of large inefficient vehicles because they have the disposable income to do so. Who has the most resilience – these people, or the people who are being taxed to death and ripped off for housing costs and already can barely afford to run small cars, or survive within the “mobility” parameters of public transport including higher housing cost than ever for locations where public transport is concentrated? When oil goes up in price tenfold Texans can just downsize their cars; the others who are already struggling will be dead. By the way, mixed land use actually means that the US’s “sprawling” cities are NOT at any analyzable disadvantage re commute to work times. Furthermore, I predict that it is economies top-heavy on dense CBD OFFICE jobs that will suffer the worst collapses. And large lot sizes are also an advantage for self-sufficiency. Good luck surviving in high density inner cities, in a post-energy world.

  16. Phil Hayward
    February 16, 2012 at 5:04 am

    I am not sure that I have covered the “density – congestion – pollution” paradigm yet on here or the adjacent thread. By the way, a lot of what I am saying is excerpts from a book/paper I am writing.

    There is no foundation to the argument that low urban density is worse for the human environment. The data is totally non-conclusive.

    European cities also have “sprawl”, only not to the same extent that the US does; and that data on traffic congestion now tends to show US cities up as better performing than European ones.

    http://www.newgeography.com/content/002169-united-states-less-congestion-europe-inrix

    A Recent OECD study contained a graph that was published in the New York Times; which has aroused much controversy among those who regard the USA’s cities as the worst possible models of urban form:

    http://economix.blogs.nytimes.com/2011/10/14/world-of-commuters/

    Bob Poole points out in his newsletter “Surface Transportation Innovations”, October 2011:

    “……..The Census Bureau’s American Community Survey data on commuting in 2010 recently appeared. They put the average U.S. commute time at 25.3 minutes. Worst in the nation is the New York urbanized area at 34.6 minutes, with the Washington, DC region second at 33.9 and Chicago fourth at 30.7. The notorious Los Angeles/Orange County urbanized area—with the largest aggregate amount of congestion—didn’t even make the top 10 in commute time, coming in at #17 with 28.1 minutes. It’s worth noting that the longest trip times are in places with traditional central business districts and relatively high transit mode shares……” (emphasis added).

    Certain common points of critical comparison between Europe and the USA, such as fuel use, can easily be explained by the difference in the level of taxation of fuels. Specialists in urban and transport economics are overwhelmingly in favour of fuel taxes and road use charges as tools to achieve this result, not arbitrary regulations regarding urban form. The famous urban economist Anthony Downs, in his book “Still Stuck in Traffic”, likened the use of urban form regulations to achieve these objectives, to adjusting the position of a picture on a wall by shifting the wall rather than the picture!

    Planners might have hoped that mode shift to public transport would negate the effect of higher density on road congestion, but this has never happened anywhere in the world. The flawed assumption underlying our modern planning fashions is that increases in density might lead to linear reductions in car use. In fact, it perfectly logically leads to increases in car use per square mile/ square kilometer of the urban area, increased congestion, and increased pollution.

    http://www.heritage.org/Research/Reports/2011/09/How-Smart-Growth-and-Livability-Intensify-Air-Pollution

    http://www.publicpurpose.com/ut-tti2007dens.pdf

    http://americandreamcoalition.org/landuse/densityconge.pdf

    The consequences of Manhattan having very high population density, besides very high proportions and outright numbers of people using rail transit; is record-level outright numbers of vehicles per square km/mile and record-level air pollution.

    Recent “World Health Organization” data on air pollution is not flattering to the higher density cities beloved by planners:

    http://www.who.int/phe/health_topics/outdoorair/databases/en/index.html

    A study from Norway examines whether unaddressed congestion is a valid option as a tool to encourage reduced car use. The conclusions are negative:

    https://www.sintef.no/Sok-i-publikasjoner/E/2007/E/Miljomessige-konsekvenser-av-bedre-veier/

    The relevant PDF url is:

    https://www.sintef.no/upload/Teknologi_samfunn/5036/A07034_Milj%C3%B8konsekvenser-sluttrapport-ver6.pdf

    The “Summary in English” runs from pages 4 to 10 (5 to 11 in the PDF reader).

    Even more dramatic, is the findings of a very recent paper by Gilles Duranton and Matthew Turner;

    “The Fundamental Law of Road Congestion: Evidence From US Cities”

    Like the Norwegian authors, they conclude that only road pricing will control congestion, and specifically (from the abstract), they “……find no evidence that the provision of public transportation affects Vehicle Kilometers Travelled….”

    http://individual.utoronto.ca/gilles/Papers/Law.pdf

    The term “dense sprawl” has recently been coined to describe LA.

    http://www.uctc.net/access/37/access37_sprawl.shtml

    This also is an appropriate description for the cities of Australia and NZ. With all the successful infill development that has taken place, they have ended up with much higher traffic congestion, because their provision of road space has not kept up with the population increase. The catch to “densification” is that although we might avoid providing more road space at and beyond the fringe, we really should have provided extra capacity within the urban area where the growth occurred, instead. As this capacity has generally not been provided, we have congestion externalities that are comparable or worse than those of having had a bit more “sprawl”. If employment sprawls at the same rate as residences, congestion under conditions of “sprawl” tends to be “dispersed”; as well as the fact that the “sprawl”, of necessity would have contained extra road space that we have foregone.

    And low density suburbs include exponentially greater amounts of green surfaces and vegetation which acts as local air pollution absorbers and heat sinks. Children get to play in backyards and local parks. And leafy streets in low density suburbs are far preferable to cyclists and joggers excercising, than high density congested city streets, especially when cul-de-sac streets have walkway – cycleway connections (as they often do).

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