Live From Seattle, Part 3: Smart Growth and Housing Affordability

The afternoon plenary panel at the American Dream Coalition’s 7th annual conference focused on the relationship between land use, planning, and housing affordability.

Peter Gordon of the University of Southern California’s department of public policy, planning and development led off the panel with an insightful discussion of the relationship between wealth, cities and human progress. The central concept was that the human society progresses through “virtuous cycles.” This concept is well known to followers of F.A. Hayek, but Gordon’s talk focused on how cities are the result of these virtuous cycles where the emergence of private property rights resulted in unprecedented wealth creation. Cities are “spontaneous orders,” which are also virtuous cycles, citing my good friend Lawrence Lai’s pathbreaking book Property Rights, Planning and Markets: Managing Spontaneous Cities. Among the inisghts was the point that the way large metros accomodate their growth–get bigger–is by spreading out. Thus, decentralization is a good thing because it helps cities accomodate more dense develoment and higher levels of productivity. More importantly, Smart Growth proposals, which tend to look for prescriptive outcomes, ignore these spontaneous elements of urban development.

Peter was followed by an enlightening discussion by Vincent Bernard, president of the Hayek Institute in France, on the French housing bubble. The parallels to the U.S. situation are striking. The french bubble was not just focused in Paris; it was nationwide. housing prices increased 7-8 times faster than income. Credit interest rates fell from 8 percent to 4 percent, increasing demand, while supply did not expand. Construction costs did not increase either. So, most of the increase in price was in the land–five times faster overall and ten times faster on the coastal areas. The cost of serviced land increase dfrom 15-20 euros in 1997 to 120-180 euros in 2007.

Mr. Bernard argued that one of the biggest impact on housing prices was the regulatory burden–the difficulty of obtaining development permission. Zoning strictly controls development as part of an effort to control urban sprawl, and cities have taken up to seven years to change plans to accomodate new land development to meet demand. In short, the zoning laws, by virtue of the prescriptive application and failure to accomodate market dynamics, act like an effective growth boundary. Bernard estimates that regulatory costs account for as much as 30 percent of the sales price of a home in France.

Owen McShane, director of the Centre for Resource Management Studies in New Zealand. His main point was the we shouldn’t underestimate the power and intellectual history behind Smart Growth. The ideas are part of a long tradition of planning ideology that believes that people and cities should be planned by a central organizing authority for a collective purpose. Part of this planning approach is a return to “place-based planning.” Placed based planning includes a return to focusing regional urban growth on centers and increasing the emphasis on aesthetics. These become values that are are excluded from competition, consumer preferences, and market-based processes. The full paper can be found here.

The panel closed with Ron Utt from the Heritage Foundation. Ron gave a highly informative presentation on “Obama’s War on the American Dream.” The presentation is based on his new backgrounder (released on April 14th) on how the Obama Administration is renewing federal efforts to support regional planning (including support of mass transit) to limit suburban development. The full report, which should be widely read by anyone interested in planning and urban policy, can be found here. Federal policy is coordinating efforts between the U.S. Department of Housing and Urban Development and the U.S. Department of Transportation to achieve these goals. [This is yet additional evidence of another attack on Federalism, which I previously blogged here.]