Friday, January 06, 2006

Massachusetts housing paper now available 

The paper described below on the role regulations play in making housing unaffordable is now available. You can also download a PowerPoint show used to present the paper. The paper is 1.5 MB and the PowerPoint show is 0.6 MB.

Monday, January 02, 2006

Paul Krugman: 30 Percent of Americans Live in a Bubbly Housing Market 

According to economist Paul Krugman, slightly less than 30 percent of Americans live in what he calls "the Zoned Zone," where land-use regulation has made housing unaffordable. Because housing costs in this area are so different from the rest of the U.S., "data on the median house nationwide are irrelevant."

Krugman's latest column in the New York Times (which, unfortunately, you must now pay the Times to read) is responding to the housing affordability study I mention below. That study claimed that housing is actually more affordable today than it was thirty years ago. But, as Krugman notes, housing reached a "peak" of unaffordability at that time.

Moreover, Krugman says, housing was unaffordable in the early 1980s solely because of high interest rates. As soon as interest rates fell, the problem was corrected. That's not the case today; housing in the Zoned Zone is unaffordable in spite of extremely low interest rates. "Restoring affordability will require a big fall in housing prices," comments Krugman.

In the 1980s, the only regions of the country to have unaffordable housing were coastal California and the Northeast, mainly Massachusetts. Between 1989 and 1994, housing prices in these areas fell by 15 to 25 percent. Today, we can expect a much greater decline in housing prices in far more areas of the country, including much of Florida, the East Coast from Massachusetts to Northern Virginia, and almost the entire West Coast, plus to a smaller degree Denver and the Twin Cities.

Regulations impede home construction 

In a new study due to be released this Thursday, Harvard economics Professor Edward Glaeser blames high Boston housing prices on land-use regulations that are "significant barriers to housing construction." Such regulations include overly restrictive wetlands and septic rules, prohibitions on irregularly shaped lots, and growth caps that limit the number of permits that a city will grant each year.

Glaeser is the co-author of a previous report linking unaffordable housing to zoning regulations as well as many other fascinating reports. His new report will be published by the Rappaport Institute, a real estate think tank, and should be available on either Rappaport's web site or Glaeser's own web page if not both by this Friday. It may also be available from the Pioneer Institute, which apparently co-sponsored the research.

In the meantime, this Boston Globe article provides a preview of the report. According to the article, Glaeser surveyed 187 communities in the Boston area, not including Boston itself, and found that they granted more than 170,000 housing permits in the 1960s, but only 84,000 in the 1990s. If they had continued to grant the higher number of permits, Glaeser estimates that median housing costs today would be $276,000 rather than the actual cost of $432,000.

Glaeser is quick to say that he does not advocate "the Houston solution," which he erroneously describes as "unfettered growth with no attention to the environment." But aside from that perhaps politically necessary statement, it sounds like a good report.

Sierra Club attempts to extort $100 million from San Jose developers 

The Sierra Club wants San Jose developers to pony up $100 million for land acquisition to "compensate" for the loss of "prime agricultural land" if they develop Coyote Valley. When San Jose drew its urban-growth boundary in 1974, Coyote Valley was declared an "urban reserve" to be included within the boundary as soon as it was needed. Now, more than thirty years later, the idea of developing the valley is still controversial.

Since the urban-growth boundary has never been expanded since 1974, San Jose has some of the most unaffordable urban land in the nation. An acre of residential land typically sells for $1 to $3 million, while developers have paid as much as $8 million for an acre of commercial or industrial land.

From 1950 to 1970, San Jose developers were easily able to build housing, employment centers, and other services for 42,000 new residents in the urban area each year. Today, the growth boundary combined with an onerous planning process has made it next to impossible to meet demand, which is one reason why San Jose has gone from being the fastest growing urban area in America to one of the slowest.

Opening Coyote Valley to development is too little, too late to solve this problem. The valley includes just 3,500 acres, on which developers hope to build 26,000 homes plus 13 million square feet (that's 300 acres right there, not including the parking needed to support this space) of office and industrial space, not to mention roads and parks. Yet the city's planning process remains so difficult that construction cannot possibly begin before 2007.

The Sierra Club's demand for "compensation" is just one more monkey wrench in the plans. According to the print version of the article (but left out of the on-line version), at least some members of the Club are not happy with this demand, which they called "extortion." As farm land, the 3,500 acres in Coyote Valley is not worth anywhere near $100 million, so it is likely that the Sierra Club just picked this number out of its hat. Besides, according to the 2000 census (link goes to Excel data file showing urban populations and land area by state), 94 percent of the people in California live on just 5 percent of the state's land, so it is not like the state is running out of farm land or any kind of land except land available for urban development.

New plan for BART to San Jose 

The Valley Transportation Authority (VTA), which runs San Jose transit lines, has been in financial trouble since it built some of the worst-performing light-rail lines in the country. It wants to build a BART line to San Jose even though the regional transportation commission has predicted that this line will cost $100 for every new rider it attracts to transit.

After the BART line to the San Francisco airport went over budget and attracted only half as many riders as predicted, the Federal Transit Administration (FTA) got cold feet about providing federal tax dollars to the San Jose BART line. To get the FTA back on board, the VTA has to cut costs and boost its ridership predictions.

The headline of this article in the San Jose Business Journal is, "Can Private Enterprise Save BART?" But VTA's new plan can hardly be described as "private enterprise." Under the plan, VTA would use eminent domain to take all land within a quarter mile of proposed BART stations. It would then sell development rights to that land to developers on the condition that they also build the BART stations and parking garages. VTA could then tell the FTA that it saved taxpayers the cost of those stations and garages. The cost of condemning the land, meanwhile, would be covered by the property taxes that developers would pay on their new developments (i.e., tax-increment financing or TIFs). VTA hopes that the high-density developments that it expects developers to build by the stations will boost BART ridership.

California already has one of the nation's most abusive systems of eminent domain. Under this system, any California city can have a "redevelopment agency" that can take people's property and redevelop it using tax-increment financing. According to former Fullerton city councillor Chris Norby, more than 10 percent of the state's property taxes are currently diverted to such redevelopment, and Norby expects this share to increase to more than half by 2040.

But apparently that isn't enough, because the California Senate has passed a bill extending eminent domain and TIF authority to transit districts as well as cities. This bill would be needed for VTA to realize its BART dreams. Thanks in part to the debate over eminent domain that followed the Supreme Court's Kelo decision, the state assembly (i.e., house of representatives) has not yet passed the bill.

San Jose developers are enchanted by the opportunity to get land for development. Opposition to the BART eminent domain plan will have to come from taxpayers and property owners.

DC bus service stagnates 

While its rail system is popular with tourists and downtown workers, Washington DC's bus system has been left to stagnate. Though DC travel patterns have changed tremendously, bus routes have not changed since 1973. Though Metro's board of directors have promised to improve the bus system, none of them regularly use it and some can't remember the last time they were on a bus. Though bus riders say they are mainly concerned that the buses run on time, Metro does not even monitor on-time performance.

The bus system clearly shows signs of neglect. The average Metro bus is more than ten years old, nearly twice the average of most other bus systems. Though Metro buses carry fewer riders than the rail system, they generate twice as many complaints. One bus driver admits that drivers sometimes bunch together when they should run fifteen minutes apart so that they don't have to stop for as many passengers. Metro once had 24 monitors to make sure drivers stayed on schedule; now it has just sixteen.

"It's a management problem," complained one bus rider to the Washington Post. In fact, it is a financial problem. Once your transit agency is committed to run an expensive rail system, your bus system and bus riders almost always suffer.

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