Canada - delusion and reality

Suburbs Still the Choice in Canada (Despite Urban Elite Delusions)
An article in the Globe and Mail, Canada's oldest national newspaper, trumpets the results of the just announced national census with: the 2006 census data say population growth is exploding around Toronto, Montreal, Vancouver, Ottawa-Gatineau, Calgary and Edmonton. For the first time the city of Toronto comprises less than half the population of its metropolitan population

Yet the message of the article is not the continuing suburbanzation of Canada, which mirrors the continuing suburbanization of virtually everywhere that governments allow people to live where they like. Rather, the story imagines a rejection of the suburban life style by the very residents who have moved to the suburbs. The Globe and Mail's proof? A few anecdotes here and there that say more about the urban elite preoccupation with autophobia than trends as they are really occurring.

The article mentions a suburbanite who has managed to add 80 minutes to his daily commute by riding a bicycle to a rail station in Vancouver rather than using the car. The Globe apparently misses the connection between time, productivity and economic growth. What if everyone in Canada spent an additional 80 minutes each day traveling to work? Our bicycling hero spends a total of 3 hours daily traveling to and from work --- more than three times the average American commute. Surely Canada would have among the world's highest gross domestic products per capita. China, which is trading its bikes in for cars could wave good-bye to Canada in not too many years.

Here is what the story should have said. Despite considerable efforts on the part of governments and planning officials, Canadians continue to choose the suburban lifestyle ( Data).

In the Toronto area, nearly 95 percent of growth was outside the core Municipality of Metropolitan Toronto, which itself includes vast expanses of suburban territory forced in by the provincial government in a 1997 amalgamation.
In Montreal, 80 percent of the growth was outside the ville de Montreal, which also includes considerable suburban territory as the result of a Quebec government forced amalgamation, some of which was undone by popular referenda.

Vancouver is the central city growth champion. Vancouverites "rejected" the suburban dream by locating at a rate of 75 percent in the suburbs.

In Canada's other large metropolitan areas, the story is similar, though sometimes masked by large central municipalities that incorporate most suburban development.

Reality never seems to get in the way of the urban elite, whose religious zeal demands nothing less than that all conform to their way of living. However, the facts speak louder than the "spin." People are moving to the suburbs; the modern urban area depends for its wealth, productivity and poverty reduction on the car. The urban elite may delude themselves in the Globe and Mail (or for that matter in the Sydney Morning Herald or Melbourne's Age), and a few naive readers may "buy" the line. The reality, however, is much different.


--
Wendell Cox
Demographia | Wendell Cox Consultancy - St. Louis Missouri-Illinois metropolitan region
Visiting Professor, Conservatoire National des Arts et Metiers, Paris

Excessive regulation & house prices in the USA

Regulation breeds seizure in a two-speed US housing market
Summary

Much has been written about the housing industry slowdown in the United States and the "housing bubble" evident in overvalued house prices. In fact, only part of the US market is experiencing overvalued housing prices, with the rest of the nation enjoying historic housing affordability ratios in what has become a two-speed housing market. National Association of Realtors data indicates substantial reductions in existing house sales year-to-year in a number of states, most of which are characterized by highly regulated land markets (principally so-called "smart growth" policies). These policies ration the land available for residential development and, not surprisingly inflate land and housing prices. The costs are substantial, with many years of housing expense (including mortgage interest) being added to the budgets of households now purchasing homes. In the longer run, it seems likely the "bubble" will deflate or even "burst" in the highly regulated markets. This could occur in various ways. Until the necessary correction occurs, the highly regulated markets can be expected to experience laggard population and economic growth (as is already occurring).

The Housing Slowdown

Perhaps the most covered economic story in the nation in recent months has been the housing slowdown. National Association of Realtors data indicates that in 2006, existing house sales fell 8.5 percent in the United States compared to 2005.

The Two-Speed Housing Economy

Much has been written in recent years about the "housing bubble." However, national data mask some very significant differences. Others are doing just fine. New York Times economic columnist Paul Krugman noted more than a year ago, that the "bubble" is concentrated --- in what he called the "zoned-zone" The "zoned-zone" is the highly regulated states in what has developed as a two-speed housing market. There is not a national housing slowdown, so much as there is a slowdown in some areas.

Sales volumes have generally plummeted in markets where land use regulation is strongest, where zoning and restrictions are the most severe. Conversely, where land use regulation is less stringent, sales volumes are steady or even increasing.

Market Seizure in Highly Regulated Markets

Housing market seizure --- akin to heart seizure --- has hit the most regulated markets in the United States according to an analysis the state data by Demographia. The strong land use regulations include land rationing policies, such as so-called smart growth, large-lot zoning and insufficiently rapid government land sales where there is insufficient privately owned land left for development. All 19 states with strong land use regulations experienced sales declines, with a minimum loss of 4.5 percent between 2005 and 2006. The largest losses were in Nevada (minus 28.9 percent), Arizona (minus 28.2 percent), Florida (minus 27.6 percent) California (minus 23.5 percent and Virginia (minus 22.9 percent), all states where government policies have stood in the way of sufficient land supply. Overall, the highly regulated states experienced a housing sales decline of more than 17 percent from 2005 to 2006.

At the same time, median house prices in the metropolitan markets of the highly regulated states held steady. This is to be expected, given the artificial shortage of supply that land use policies have created in these states.

Market Strength in Liberally Regulated Markets

Conversely, in the states without excessive land use regulation, annual existing house sales rose nearly one percent. Gains of more than six percent were posted in Alaska, Arkansas, North Carolina, Texas, and Indiana. Existing house sales rose three percent in fast growing Georgia, home of the high-income world's fastest growing large metropolitan area, Atlanta.

It is the Law of Supply and Demand

Some analysts have blamed low interest rates and high demand for the bloated housing prices in some markets. This view is disproven, however, by the fact that the same interest rates have been available in markets that have experienced housing cost escalation and those that have not. Moreover, the unaffordable markets do not have the greatest demand. The fastest growing metropolitan areas with more than 4,000,000 in the high-income world are Atlanta, Dallas-Fort Worth and Houston, and each of these has remained affordable --- with Median Multiple (median house price relative to median household income) below 3.0. Economics is governed by the "law of supply and demand," not the "law of demand."

Uncharted Unaffordability Territory

Finally, virtually all of the unaffordable markets were nearly as affordable as the liberally regulated markets just a decade ago. In recent years, government policies have driven housing prices to unprecedented unaffordability in many highly regulated markets. In a number of highly regulated metropolitan areas, such as San Diego, Los Angeles and San Francisco, housing costs have escalated so rapidly in recent years that the Median Multiple is more than three times the historic standard of 3.0.

In highly regulated San Diego, the escalation in the median house price housing and financing (at today's low rates of interest) relative to incomes in just 10 years has been the equivalent of 14 years of median household income. This has imposed $800,000 more in costs for each household buying a median priced house and is making San Diego extraordinarily uncompetitive. The same is true, to a greater or lesser degree in other highly regulated markets.

These unnecessarily higher prices are likely to translate into lower rates of home ownership. This will disproportionately affect lower income households, which are minority to a larger degree. Today, African-American and Hispanic home ownership rates hover at or below 50 percent compared to the half-again higher 75 percent among White-Non-Hispanic households. The gap has been narrowing in recent years, but smart growth is likely to reverse that.

Irrelevant Solutions

There is no point in proposing the conventional housing affordability programs to solve the problem. "Inclusionary zoning" and home buyer give politicians the appearance of doing something, but their impact reaches little beyond headlines. Such programs are simply irrelevant to housing affordability. The depth of the housing affordability crisis in California, the Northeast and other highly regulated markets is far beyond the ability of any conventional housing affordability program to correct. The problem is that smart growth, urban planning and regional planning have manipulated the price of land so high that nothing short of a structural correction will solve the problem.

Regulation Associated with Less Economic Growth

However, the price of regulation is being paid in a housing market seizure that has seen sales volumes plummet. This is not surprising. United States Federal Reserve Board research indicates that metropolitan areas with more stringent land use regulation can expect to grow less quickly than would otherwise be expected.

Demographic Reversals

This research is validated by US Bureau of the Census migration data. The excessive over valuation of residential property appears to be a major factor in driving more than 2,500,000 residents from the high cost coastal markets to more affordable inland markets since 2000. This represents virtually a complete reversal from the demographic trends from World War II to the early 1990s. There is no reason for it to have occurred other than that housing affordability has been destroyed in the formerly strong but now highly regulated markets. Shockingly, previously fast growing San Diego is now losing domestic migrants at twice the rate of Pittsburgh.

Deflating the Housing Bubble in the Highly Regulated Markets

Housing prices have reached uncharted territory relative to incomes. Some analysts have suggested that housing affordability was nearly as bad when interest rates were high, especially in the late 1980s. But those interest rates passed and nearly all high-interest rate mortgages were replaced with lower-rate loans. Thus, the affordability crisis was "transitional." This housing affordability crisis is "structural." Buyers are stuck with the high prices they paid and the costly mortgages. It seems likely that, in the longer run, the bloated prices in highly regulated markets will be subject to correction. This could occur in various ways. For example:

(1) Slower Economic Growth: Overvalued markets could experience stagnant population and economic growth (already evident in the domestic migration data, especially in California and the Northeast) as household incomes rise over a period of many years or decades in relation to housing prices. For example, San Francisco-San Jose, which had been one of the nation's fastest growing metropolitan areas from World War II to the early 1990s, is now growing at one-third the rate of rust belt St. Louis.
(2) Inflating Away Windfall Profits from Bloated House Prices: The overvalued prices could fuel higher inflation, which would in the longer run negate the higher house prices as the rise in overall prices in the economy discounts the bloated house prices. This may be unlikely in the United States, because liberal regulation remains in so much of the nation, including some of the fastest growing markets. However, inflation may well be the easiest way out for economies that have nearly lost the housing affordability battle, such as Australia and New Zealand (where smart growth is called "urban consolidation"). They do not have the outlet of affordable markets that allow US households to find reasonable prices outside of smart growth areas. In Australia and New Zealand, political pressure could build on central banks to allow higher inflation both to minimize foreclosures on households overburdened by high debt, principally in excessively large mortgages. (Already, major political parties in Australia are treating central bank interest rate decisions as a political matter.)

(3) The Bubble Bursts: The current housing market seizure in over-regulated markets could turn into a "bust" as the already weakening demand could be converted into a massive decline in demand, precipitating huge losses in the overvalued markets.



A correction could occur by other means as well and the future is always impossible to foresee. However, the overvalued prices in over-regulated markets are not likely to be sustainable. The price of smart growth and excessive regulation is already being paid by some households. The next question is the extent of damage that the increasingly expensive mortgages created by smart growth will inflict upon regional economies, if not the national economy.
----
Data
US Existing House Sales: 2005-2006.

Draft at 2007.03.07



--
Wendell Cox
Demographia | Wendell Cox Consultancy - St. Louis Missouri-Illinois metropolitan region
Visiting Professor, Conservatoire National des Arts et Metiers, Paris

Letters not published - March 2007

To Letters, Sydney Morning Herald, 6 March 2007


Simon Daley perpetuates the discredited myths promulgated by high-density advocates (letters 6 March 2007). The housing affordability crisis has resulted from the State Government throttling the release of housing land. Anything in short supply rises in price. Not only has the proliferation of units during the past 15 years not prevented the crisis - it is this high-density policy that is the root cause.
What is more, there is no shortage of farming land. Just ask the farmers about the prices they get for their produce. If our population has to increase, it is more responsible to slightly add to the current minuscule 0.25% of urbanised land in Australia than to preclude a large proportion of our young people from ever owning their own home. Also, it is far preferable for our physical and mental well-being to live surrounded by gardens and trees than in a congested heap of concrete and bitumen.

Tony Recsei

March letters published

The Daily Telegraph

Edition 1 - StateTHU 01 MAR 2007, Page 028
LETTERS TO THE EDITOR

Both sides of politics let the faithful down

Another bungle from the Labor Party (“Calamity Costa cut out of poll picture,” The Daily Telegraph, February 28). Is Morris Iemma trying to catch up with Peter Debnam?

Both major parties have shown themselves to be grossly incompetent. One way or another, both have betrayed and ignored their supporters at local, state and federal level and made a mockery of democracy. Both accept huge donations from developers and Sydney is turning into a slum.

So put Labor and Liberal last on your ballot paper. Vote for one of the minor parties or an independent. Make the major parties work for their mandate.

Hugh Knox, Gordon
(Hugh is a member of SOS).