Housing Affordability’s “Killer App” Urban Containment: Housing Affordability’s “Killer App” American Dream Conference Washington Wendell Cox 7 August 2017

International Housing Affordability DEMOGRAPHIA SURVEY: ANNUALLY 2004 TO PRESENT MEDIAN MULTIPLE Median house price divided by Median household income 13th ANNUAL 9 Nations 92 Major Markets 406 Total Markets Typical of liberal regulation  10th ANNUAL Introduction by Alain Bertaud

The Housing Affordability Crisis PERSPECTIVE Not an advocate of sprawl “Sprawling Dhaka” 20x as dense as NY urban area Not an advocate of suburbs My interest: Preservation of the middle-class & poverty reduction Opportunities for younger & minority households Historical perspective: Rise of the middle-class (all in poverty 200 years ago)

The Housing Affordability Crisis THREAT TO MIDDLE-INCOME HOUSEHOLDS Housing is largest household expenditure 70%-100% of cost of living difference Higher costs mean less discretionary income Less household spending, less job creation Greater relative poverty California highest housing cost adjusted poverty rate Fuels the need for subsidized housing

A Geographically Constrained Threat HOUSING IS AFFORDABLE IN MANY MARKETS The housing affordability crisis is focused on a few areas. Much of the nation is still relatively affordable Yet, all of the nation is threatened Urban containment philosophy of Portland can be found across the nation

Why is San Jose 3x as Costly as Atlanta? WHY THE DIFFERENCE IN 2016 & NOT IN 1970? Median House Size Atlanta 2,300 SF San Jose 1,800 SF Median Lot Size Atlanta 0.50 Acres San Jose 0.15 Acres Atlanta MSA San Jose MSA Atlanta MSA Data from Census Bureau & Demographia

Measured at the Housing Market Level Housing Affordability HOW IS IT MEASURED? Measured at the Housing Market Level (Labor market, or metropolitan area) Compared to incomes (Need a metric, such as the median multiple) Compared to other markets (Metropolitan areas)

Housing Market: The Economic City EXAMPLE: NEW YORK METROPOLITAN AREA Distribution of Population (2016) Defined by U.S. Office of Management and Budget Also NAR house price reporting

Urban Containment Purpose & STRATEGIES PURPOSE: Restrict or prohibit suburban tract housing on or beyond the urban fringe (anti-sprawl policy) STRATEGIES Urban growth boundaries and other land rationing (green belts, “growth areas,” etc.) Infill mandates Contiguous development requirements Building permit caps

Land Value Gap Leads to Higher Prices URBAN GROWTH BOUNDARY (& RELATED POLICIES) LAND VALUE GAP AT UGB Peter Hall 5-10x (1970) Melbourne 12-20X (RBA) Auckland 8-13X (Grimes) UK up to 700 times (Cheshire) Portland 11 times (Cox) With Urban Growth Boundary Urban Growth Boundary (Land Value Gap) City Center Exurbs Adapted from Lincoln Institute of Land Use Policy

Consequences of Urban Containment LOWER STANDARD OF LIVING & MORE POVERTY Higher land and house prices Destroys competitive market for land Greater price volatility Largely outlaws suburban tract development Key to the advance of the US middle-class. Generates speculation Why are “foreigners” not buying in Atlanta?)

Deterioration & Urban Containment INTERNATIONAL RECORD: LAST THREE DECADES Source: Reserve Bank of Australia and Demographia

The Housing Affordability Crisis: US URBAN CONTAINMENT EXPLAINS MUCH OF IT 1970 is a long time ago Urban containment started in the 1970s Strong Urban Containment Markets Liberal Markets MEDIAN MULTIPLE Median house price divided by Median household income Derived from Census Bureau, Harvard University and Demographia.

Median Multiple 4.5 or Higher (All are urban containment markets) High Cost Markets Cost More Throughout MEDIAN MULTIPLE BY CITY SECTORS (53 MMSA’S) Median Multiple 4.5 or Higher (All are urban containment markets) MEDIAN MULTIPLE Median house price divided by Median household income Median Multiple 4.4 or Lower Derived from American Community Survey 2010-2014, City Sector Model.

Range: House Values & Rents: 2015 MAJOR METROPOLITAN AREAS Metropolitan areas (53) with over 1,000,000 population in 2015 Derived from ACS 2015 5

Comparing Between Housing Markets LIBERAL V. URBAN CONTAINMENT POLICY: 1990-2016 MEDIAN MULTIPLE Median house price divided by Median household income Portland Denver Kansas City Plenty of Land (Sq. Mi.) Portland: 2,500 Denver: 7,200 Kansas City: 8,000 Atlanta: 2,200 Atlanta Derived from Census Bureau, Dept of Agriculture, Harvard, Demographia.

Problem is Not Shortage of Land SAN FRANCISCO BAY AREA & NEW YORK COMPARED SF & SJ MSAs 2010 Urban 1,200 sq. mi. Available: 1,100 sq. mi. (Excludes wetlands & flood zones) Additional Developable Land All major US metropolitan areas have enough land Urbanization Urbanization Estimated from California Department of Housing & Community Development and Census data

Densification of Existing Areas-I URBAN CONTAINMENT WORSE THAT LARGE LOT ZONING Strong Urban Containment Large lot zoning 3.0: Historically affordable Sources: Brookings Institution, Demographia.

Densification of Existing Areas-II ELIMINATION OF HEIGHT LIMITS Positive effect in urban cores Such as city of San Francisco At housing market level: No research Would still be a land value gap with urban containment. Concerns: YIMBYs (Yes in My Backyard) Ignore urban growth boundaries (which must be removed to restore affordability) High rise living is not a substitute for detached housing for many (especially families)

Unaffordable v. Affordable Markets EXAMPLE: ATLANTA V SAN JOSE Major housing affordability differences between markets are not likely due to: Parking restrictions Historic preservation Zoning Height limits Large lot zoning Building codes (construction costs) Urban containment is the major issue

SUPPLY AGREED THE PROBLEM, CONTAINMENT IGNORED A Code of Silence? SUPPLY AGREED THE PROBLEM, CONTAINMENT IGNORED State of California Toronto & the Ryerson University report Need to build ground oriented detached & town homes to restore housing affordability There are serious attempts to spread urban containment policy to the rest of the country. Yet there is progress

"Suburbs rarely cease growing of their own accord. The only reliable way to stop them … is to stop them forcefully. But the consequences of doing that are severe."

A Question of Values Poverty is worse than sprawl. PEOPLE OR PLACE Poverty is worse than sprawl. Falling living standards are worse than sprawl. All barriers to housing affordability need to be addressed The most serious is urban containment

… the ultimate objective of urban policy is to improve outcomes for Distorted Priorities Require Changing PEOPLE RATHER THAN PLACES: CHESHIRE ET AL … the ultimate objective of urban policy is to improve outcomes for people rather than places

AVOID AND ELIMINATE URBAN CONTAINMENT Solutions AVOID AND ELIMINATE URBAN CONTAINMENT WHERE NO URBAN CONTAINMENT POLICY Avoid “like the plague” (This is the priority) WHERE THERE IS URBAN CONTAINMENT POLICY: REPEAL OR LIBERALIZE Annual median multiple improvement goals “Event triggered” greenfield land expansion Permit average sized lot greenfield expansion Municipal utility districts HOPE: NEW ZEALAND LABOUR PARTY Opposition to urban growth boundaries (as suggested earlier today by Andrew Thomas)

Urban containment is irreconcilable with housing affordability Paul Cheshire London School of Economics (paraphrased)