Blame Smart Growth?
Okay, here’s a new one. This time the financial crisis isn’t the fault of the Community Reinvestment Act or Fannie Mae, instead “smart growth” is the problem. This argument depends on two ideas. One is that regulatory supply restrictions on housing were the main cause of the housing bubble, and the other is that smart growth is primarily about imposing new regulatory supply restrictions on housing. But as Ryan Avent observes, neither of those things is true. The first point is fairly obvious — look at Las Vegas and elsewhere and you’ll see that we had bubbles in all kinds of places.
The second point, however, is worth elaborating on. The idea of smart growth is that we shouldn’t have endless sprawl. That means that we should have less restrictions on housing supply in some places, but more restrictions in other places. For example, in the Washington DC area the dictates of smart growth indicate that we should let people build more densely in the places that are already developed. In particular we should be building much more densely within walking distance from our Metro, MARC, and VRE stations as well as creating new transit lines to serve currently developed areas that lack transit services. Then those areas, too, can become denser. But with greater density in our transit corridors, we won’t need to geographically expand the “built-up” portion of the area — allowing the fringe to remain full of farms and forests and what have you. Simply preventing people from adding to the housing supply anywhere would, clearly, create problems. But the idea is that instead of building new roads through currently undeveloped areas in order to turn the landscape into suburbs, we should focus more on developing the currently-developed parts of the country more intensively (and “smarter”). And one way or the other, the crux of our current predicament is that too many houses have been built, not too few.
44 Responses to “Blame Smart Growth?”
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October 8th, 2008 at 4:20 pm
First it was blacks, now its environmentalists. Can’t wait until the right looks at away to blame Gays for the housing bubble! Maybe “Letting Gays married increased demand for housing too much!”
October 8th, 2008 at 4:26 pm
The other obvious fallacy with this argument is that it suggests that prices blew up because supply was constrained. Obviously that is not the case. If it were, we wouldn’t be stuck with this huge housing inventory overhang. Nor, presumably, would prices have dropped so drastically. After all, there’s still be plenty of demand for all those foreclosed houses.
October 8th, 2008 at 4:27 pm
The idea of blaming smart growth is nonsensical because the case against any type of restrictions on growth is that, by constricting supply, price is driven up. Since the bubble has collapsed in part because the endless exurban frontier in most markets has made higher-end housing prices susceptible to collapse–because someone can always build something farther-out and cheaper–a more credible argument is that *more* restrictive policies against sprawl would have saved us from this mess.
October 8th, 2008 at 4:28 pm
Sure, I can believe “smart growth” advocates caused people to speculate on and overbuild shoddy homes in exurbs. Presumably out of pure spite.
October 8th, 2008 at 4:29 pm
If the leftists hadn’t been able to propagandize us into trying to teach children to read and whatnot, none of this would have happened.
October 8th, 2008 at 4:32 pm
To echo what you said about Las Vegas, it seems clear to me that areas with smart growth regulations in place were less likely to have bubbles than places that don’t. Houston, Atlanta, Jacksonville, the new sunbelt cities with very little in the way of land use policies at all were the ones that were worst hit. “Smart Growth” does restrict the ability of developers to build houses wherever and however they want, which obviously helps prevent supply bubbles. A large facet of “smart growth” is to take a long term look at estimated growth in a city, and target new housing very specifically to that estimate. Cities that already do this, like Portland, aren’t dealing with excess supply.
October 8th, 2008 at 4:38 pm
If we hadn’t allowed Gay people to live together openly, they’d all be living in tiny apartments, alone, making assignations in bath-houses and suchlike, instead of buying up houses. Thus driving up prices and fueling the bubble.
October 8th, 2008 at 5:06 pm
Actually, Houston has not experienced much of a housing bubble at all. Prices have cooled slightly, but it is hardly the utter collapse being witnessed in many areas of the country.
Houston is unique in the regard that there is no land-use zoning at all in the city (there are some form-based requirements but these are mild.) There has been a tremendous amount of infill development and denser redevelopment inside the 610 loop. Yet prices have been constrained to reasonable levels because there are so few restrictions on developers, who can easily purchase underused lots and build more supply. I recently bought a large townhouse half a mile from downtown, with easy access to light rail transit (that I use almost every day to go to work), for a price that would have bought me a tiny condo in almost any other large city (I paid approx. $100/sf.) This price is very typical for the high-density redevelopment that has been occurring here since the late 90s.
I believe very strongly in increases in transit spending. But I think that when it comes to rebuilding our cities to densities that can accommodate rail based transit, the Houston model provides a good example of how a minimum number of land-use codes can meet demand while keeping prices low.
October 8th, 2008 at 5:08 pm
The DC area gives a pretty good refutation of the idea that ’smart growth’ policies had anything to do with the housing bust. Compare Northern Virginia with analogous areas in Maryland– it’s the less regulated areas in Virginia that have experienced the boom/bust real estate cycle and huge numbers of foreclosures while the ’smart growth’ areas in Maryland have been relatively stable.
October 8th, 2008 at 5:09 pm
I repeat: the blame clearly falls on the widespread adoption of agriculture.
If (sometime around 8000 BC) liberals hadn’t forced the domestication of plants on America, we’d now be a nation of strong, self-reliant hunter-gatherers. Instead, we’ve become sedentary weaklings who view food as some sort of entitlement.
October 8th, 2008 at 5:19 pm
Jason Says:
October 8th, 2008 at 4:32 pm
To echo what you said about Las Vegas, it seems clear to me that areas with smart growth regulations in place were less likely to have bubbles than places that don’t. Houston, Atlanta, Jacksonville, the new sunbelt cities with very little in the way of land use policies at all were the ones that were worst hit.
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Jason, you are quite wrong. Houston is one of the cities least affected by the housing downturn. High energy prices have kept the employment picture here strong, while tons of exurban building have helped to keep “starter” house prices low. Demand and supply have been mostly balanced here.
My feeling is that there is no relationship between zoning and land-use policy and the housing bubble. That is, there are parts of the country that had very sprawl-friendly land-use policies that were hit hard (Riverside County CA, Las Vegas NV, Florida), as well as parts of the country that had more sprawl-discouraging land-use policies (Detroit, Chicago area). On the other hand, some heavily zones places like Seattle have been mostly spared, as have places like barely-zoned Houston.
The point is, however you feel about land-use regulations (and I am against density-discouraging regulations, for the most part), you can’t point to any particular land-use regulations as culprits in this crisis.
October 8th, 2008 at 5:35 pm
The housing bubble (or, more accurately, the bursting of the housing bubble) is more complex than simply an excess of supply over demand. Take Tampa (my home for almost 30 years). While the population growth in the past 10-15 years has been been matched (or exceeded) by the addition of more new) housing units, the new units have been built (with the help of accommodating local politicians) in mostly undesirable areas. Developers chose the easy, least costly path, buying large tracts in the outlying areas and building inexpensive (and poorly constructed) homes on very small lots, most often in areas with roads built to accommodate farms not high density residential areas. I suspect similar patterns occurred in Phoenix and other high growth areas. If transferring the slums from the inner city to the suburbs was the goal, it was a job well done. Vast sums of the nation’s wealth went into constructing these (now blighted) areas. Much has been written about the transfer of wealth to oil-producing countries. What about the transfer (or, more accurately, the consumption) of the nation’s wealth to construct this blight on our landscape! And the irony is that after all this wasted development, our nation’s stock of housing still does not accommodate the population; if you don’t believe it, visit any poor, urban area (in Tampa or any other city).
October 8th, 2008 at 7:24 pm
Re #1 – the wingnuts did blame the gays a year or so ago, but somehow I’ve forgotten what their logic was.
This whole issue is one of the few where Krugman was wrong – he thought the Zoned Zone would get hit by a bubble more than Flatland Land.
October 8th, 2008 at 7:47 pm
Matt – Would you elaborate on that last line, “the crux of our current predicament is that too many houses have been built, not too few”? It is just not clear to me how this is the case.
It seems to me we have a housing shortage in this country, especially in places where people want to live (large city neighborhoods and walkable small towns). I’d have to look again, but hasn’t the proportion of income spent on housing been going up the last few decades. Too me, that indicates smaller supply relative to demand than existed before.
I think the bubble actually did occur because a lot of people were brought in to the home-ownership market by new loan programs, and that these people were added faster than supply increased, creating a short-term price spike. But even after the recent correction, I believe we still have a housing shortage.
October 8th, 2008 at 7:52 pm
The default crisis is largely driven by California, where about half the dollars in default are found. Spillover states for fleeing Southern Californians — Nevada, Arizona, and Colorado, probably add another 15 or 20% of the total dollar value. (The other main areas of this very regionalized crisis are Florida and the Rust Belt around Detroit.)
The subprime crisis has not so far hit hard the California affluent who live in the environmentally locked down prime neighborhoods along the coast. The people who were hit hard were the marginal folks, either speculating on slummy properties in long built-up parts of the LA Basin (e.g., paying $340k for a 500 square foot house in Compton), or fleeing to hot outer reaches of LA, such as the Inland Empire, Antelope Valley, and even the Central Valley (or even farther to Las Vegas and Phoenix).
In these bizarrely distant exurbs of LA, everybody tried to buy their kids into a “good school” by buying huge house with enormous price tags in the hope that only the parents of good students could afford to be their neighbors. Of course, anybody with a pulse could get a no money down mortgage, and if speculative buyers ended up it a little short on their monthly payment, they would rent their houses to the construction workers putting up the next subdivision or to Section 8 tenants from housing projects being torn down in the city. So, you would end up with a giant house in a slum where its 110 degrees all the time.
But, you didn’t put any money down, so bye-bye!
The basic problem is that there isn’t enough human capital in these heavily immigrant states like California to afford all those expensive houses.
October 8th, 2008 at 8:13 pm
Matt,
The problem with all your real estate posts is that they make perfect sense from the perspective of a 26 year old man without any kids who wants to live near work and near all the sexy single girls.
But the people who actually buy houses in America are predominantly married women, typically either ones who have or who are looking forward to having children. You don’t seem to know any, but there are actually about 100 million of them in America and they are very important. Perhaps one of your friends might have an aunt you could talk to find out what is important to her when it comes to homes.
October 8th, 2008 at 8:36 pm
Houston actually does not have formalized zoning, it in fact does have land use regulations that have promoted sprawl. Google “houston zoning without zoning”
The fact is that the homes on the urban fringe, especially in exurban areas have decreased more than those in the center. The further – or more into sprawl-land a house, the more likely it has lost more value. That fact alone is enough to say that sprawl, not smart growth, has hastened our housing crisis.
October 8th, 2008 at 8:46 pm
Given Mr. Yglesias’ circle of friends, it’s unlikely any of their aunts have Mr. Sailer’s fear and hatred of the shiftless dusky-skinned ones and their parasitic ways. So he still wouldn’t end up hearing the justifications Mr. Sailer prefers for endless exurb creation, which he projects onto “married women.”
Perhaps Mr. Sailer can visit exurban Maricopa County some time, and drive admiringly through the vast swathes of cul-de-sacs out in the desert, with their few amenities, and in some cases even lacking high schools (even though schools are supposed to be so important to aunties). Yes, the only place the youth can spend their free time might be a supermarket, but at least virtually all the people living in such places are white. And that’s what Real America is all about.
October 8th, 2008 at 9:19 pm
Re: The basic problem is that there isn’t enough human capital in these heavily immigrant states like California to afford all those expensive houses.
If that’s true then the houses shouldn’t be that expensive. Up until the late 90s housing costs rose in tandem with median income. The real question is why they diverged. That has nothing to do with human capital: if there weren’t even high income individuals in California to afford pricey homes then there shouldn’t have been that many pricey homes.
October 8th, 2008 at 10:00 pm
Right, the current population of California can’t afford all those pricey homes.
The median income in California is the lowest in the country adjusted for the cost of living (except for Hawaii). California now comes in between 44th and 49th out of the 50 states on federal National Assessment of Educational Progress tests.
The financiers in Wall Street and London and Dubai had models showing that in years past, Californians always wound up making enough to pay back their expensive mortgages, so California real estate was a safe place to park their spare money.
Of course, they overlooked a few things, such as that the current residents of California aren’t all that closely related to the former residents who accomplished so many miracles over decades past.
October 8th, 2008 at 10:03 pm
There is some truth to the idea that “smart growth” has contributed to the problem. In some areas, such as Chesapeake Virginia, “smart growth” means a calculation meant to guarantee that the cost of new homes was sufficient to provided tax revenues adequate to support the increased infrastructure, schools, sewers, water, etc… that they require.
The result of that calculation is that homes are built within a narrow band of values. More simply they didn’t want low income housing, it is a net tax drain, so the “low end” became quite high, forcing everyone to build and buy in that market and ultimately inflating prices and flooding the market.
October 8th, 2008 at 10:05 pm
Certainly not the only cause of the housing bubble bursting, but something I think is probably important is that a lot of the bubble was driven by undesirable sprawl housing. One could probably test this empirically by charting the average house prices up and down based on the density of a given geographical unit. Something tells me that the dense areas would hold prices reasonably well while the lower density exurbs would see a steep decline (though rural areas would see no great change).
The problem is that, especially as traffic builds and gas prices rise, no one really wants to live in exurbs. They want to live in places with good development strategies featuring things like effective transit.
October 8th, 2008 at 10:56 pm
You’re more full of shit than normal. The banks had models that said as long as real estate kept going up in value, then repayment wouldn’t be an issue because the borrower could always sell the house in order to pay off the balance. Of course, once housing values stopped going up by insane percentages every year, then the models stopped working so well.
October 8th, 2008 at 11:25 pm
And it turned out, amazingly enough, that the value of California homes couldn’t forever continue increasing relative to the quite limited productive capacity of Californians! By 2005, the median home in the LA area cost 12.7 times the median income, while in the Dallas area, the median home cost only 2.8 times the median income.
When you’re population is down there with Alabama in NAEP scores, when 53% of the adult population of the LA area is functionally illiterate in English, the idea that they’ll be able to make so much money that they’ll be able to pay off these monster mortgages seems a little … optimistic.
Of course, nobody was allowed to write about the low human capital in California, because that would be racist, and would get companies in big trouble at discrimination trials when the emails came out in discovery. So, it turned out to be a big surprise to everybody when a mortgage on a Compton house at $680 per square foot didn’t get paid back!
October 9th, 2008 at 2:22 am
daveNYC said:
You’re more full of shit than normal. The banks had models that said as long as real estate kept going up in value, then repayment wouldn’t be an issue because the borrower could always sell the house in order to pay off the balance.
And real estate going up in value depended on a certain number of Californians being able to pay back their mortgages.
Re: The basic problem is that there isn’t enough human capital in these heavily immigrant states like California to afford all those expensive houses.
If that’s true then the houses shouldn’t be that expensive.
You’re right. There should not have been. The point is that the houses were expensive largley because there was so much credit available, so no one except the banks (or whoever owned the mortgage) actually paid the price for which they bought the house. There was not enough capital to afford the houses, but that would not become an issue until the banks started demanding that the loans be, you know, REPAID.
October 9th, 2008 at 6:56 am
Re: Of course, they overlooked a few things, such as that the current residents of California aren’t all that closely related to the former residents who accomplished so many miracles over decades past.
Irrelevant. The question is why supply and demand diverged so badly. Econ 101 teaches that this shouldn’t happen, at least not on a grand scale. Moreover the Hispanic landscapers and hotel maids are not the ones defaulting on mortgages because they tend to be renters. The defaults are heavily concentrated in the middle and working classes. Housing prices in CA and anywhere else should never have been able to go as high as they did. Rental prices did not do this. The culprit was the exotic mortgages being offered, which gave an illusion of affordability until the resets hit. That and the abandonment of prudent lending practices– insisting on documentaton of income, maintaining sensible LTV and debt to income standards etc. If those had been in place sellers would not have been able to ask outrageous prices for their homes. They would have had to content themselves with prices that the market could afford.
October 9th, 2008 at 8:01 am
Damn, I’m so old I can remember when people said a huge deficit would ruin the economy. Now we have a whole thread here where nobody has mentioned rising gas prices, stagnant wages, falling employment, or unaffordable health care.
Now, if everything else had been just fine, we would still have reached the limits of dumb growth. Suburbia is simply not a very productive form of effort. You replace your farmland with houses and poison your waterways with runoff from the roads. As the margins expand outwards the area encompassed increases in relation to the square of the radius.
As with the Great Depression, everyone has their reason du jour. Historically speaking, though, nations which bankrupt themselves with wars experience economic problems- of one sort or another.
October 9th, 2008 at 11:09 am
Here in Florida Jeb Bush gagged most regulatory oversight of new developments. The results led to a huge increase in the number of new developments on the fringe of urban/subruban areas with little state oversight. Now these developments are ghost towns with for sale signs. Had Jeb not messed with the growth management system and left state oversight intact, many of these developments would never have been approved (no justification of need and sprawl). The home builder’s and Jeb got what they wanted and now the state is floundering with too many houses, decreasing tax revenue from real estate transactions and a static population. How the republicans that control the state will be able to fix the situation w/o the usual couple of hundred thousand Yankee transplants will be interesting to watch (as long as you still have a job).
December 29th, 2008 at 8:38 pm
More evidence that smart growth policies didn’t caused the housing bubble can be found in the case of Portland Oregon, often heralded as a model for growth management. The bursting of the housing bubble led to relatively mild declines housing in the Portland region. A closer look reveals the same trend noted above in Houston, the declines in housing prices have been greatest in low-density areas on the edge. Housing prices in car-dependent suburbs like Happy Valley, Oregon and Clark County Washington plummeted farthest and fastest.
Land-use regulations in these same parts of the Portland-Metro region primarily favor low-density, car-dependent development, the very land-use regulations that many smart growth advocates aim to remove. Indeed the notion that urban growth boundaries (UGB) in Oregon restrict land supply is a bit of a misnomer. Oregon’s land-use laws actually require local governments to maintain a 20-year supply of land for residential housing. The UGB determines where growth will occur on the edge not if growth will occur. The UGB gets all sorts of press but it is the liberalization of zoning in centers and along transportation corridors (upzoning land for infill and redevelopment) that has led to higher densities and more transit-oriented development, not the UGB.
All this suggests the critics of smart growth who assert smart growth policies caused the housing bubble may have it backwards. There probably is a link between land-use regulations and the housing bubble but may be the policies and regulations encouraging not discouraging sprawl that are to blame.
Trevor Stewart
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