Vanishing Automobile update #29a-HOUSING AFFORDABILITY LINKED TO LAND-USE REGULATION

The Thoreau Institute ^ | 09-04-02 | Randal O'Toole

[backhoe]

 

----- Original Message -----

From: "Randal O'Toole" <rot@ti.org>

To: <Recipient List Suppressed:>

Sent: Wednesday, September 04, 2002 3:34 PM

Subject: Vanishing Automobile update #29a

> HOUSING AFFORDABILITY LINKED TO LAND-USE REGULATION
>
> A recent (March 2002) study published by the Harvard Institute of
> Economic Research demonstrates the effects of zoning and other
> regulation on housing affordability. "The Impact of Zoning on Housing
> Affordability," by Edward Glaeser and Joseph Gyourko, uses census
> data to compare the effects of zoning on housing prices in twenty-six
> U.S. cities.
>
> Glaeser and Gyourko, who are with the Wharton Business School of the
> University of Pennsylvania, used data from the Census Bureau's
> American Housing Survey to estimate the value of a quarter acre of
> land in two different ways. First, they compared the sales prices of
> homes on quarter-acre lots with the prices of similar homes on
> half-acre lots. This represented the value of the extra quarter acre.
>
> Second, they subtracted the cost of constructing a home from the
> sales prices of homes on quarter-acre lots. This represented the
> value of a buildable quarter acre.
>
> In short, the first value is the amount people are willing to pay for
> an extra quarter-acre of land in their yard, while the second value
> is the amount that it costs to own a quarter-acre of land on which
> you can build a house.
>
> Without zoning and land-use regulation, the two values would be
> nearly identical. If someone had a house on a half acre, and the
> value of developing the extra quarter acre grew to be more than it
> was worth to the owner as a part of their yard, they would subdivide
> and develop it.
>
> However, zoning and regulation can prevent or increase the cost of
> such subdivisions. In this case, the second valuation will be more
> than the first, and the difference represents an "implicit tax on new
> construction."
>
> In some cities, the differences between these two values are small.
> In Kansas City, the first value is about $18,000 while the second is
> about $21,000. This suggests that it only costs about $3,000 to get a
> permit to subdivide your half acre and build in Kansas City. Other
> cities in which the difference was less than $30,000 include
> Baltimore, Cincinnati, Houston, Milwaukee, Philadelphia, Pittsburgh,
> and St. Louis.
>
> In many other cities, the differences are huge. In San Francisco,
> having an additional quarter acre in your yard is worth $85,000, but
> a buildable quarter-acre lot is worth nearly $700,000. The value of
> buildability on a quarter-acre lot is more than $200,000 in Anaheim,
> Los Angeles, New York City, San Diego, and Seattle. In these areas,
> only a small percentage "of the value of the lot comes from an
> intrinsically high land price"; the rest is due to restrictions on
> construction.
>
> Unfortunately, Portland (the nation's model for smart growth) and Las
> Vegas (the nation's fastest growing yet still affordable urban area)
> were not among the cities studied by the researchers. The cities
> studied and their implicit zoning taxes are listed in an appendix
> below.
>
> Glaeser and Gyourko checked to see if other factors, such as
> densities, incomes, and climate, could account for these differences
> in values. But density and income had little effect on the analysis,
> while warm winters did not raise the value of land "by much."
>
> In the previous Vanishing Auto update (#29), I suggested that someone
> should develop an index of land-use regulation. Glaeser and Gyourko
> relied on a 1989 "Wharton Land-Use Control Survey" to develop such an
> index for 45 urban areas.
>
> The index was the length of time required to get a permit to rezone
> an area of land for a subdivision of less than 50 homes. An index of
> 1 equaled less than three months, 2 = 4-6 months, 3 = 7-12 months, 4
> = 13-24 months, and 5 = more than 24 months.
>
> Even after controlling for regional growth and median incomes, they
> found a strong correlation between this index and the share of homes
> in an area selling for more than 140 percent of the construction cost
> of those homes. Increasing the index by 1 -- going from 1 to 2, 2 to
> 3, etc. -- increased the share of high-cost homes by 15 percent.
>
> The researchers admit that zoning may have some benefits, but say
> that if affordable housing is the goal, zoning reform is the place to
> start. "Building small numbers of subsidized housing units is likely
> to have a trivial impact on average housing prices," they say.
> "However, reducing the implied zoning tax on new construction could
> well have a massive impact on housing prices."
>
> Glaeser and Gyourko's paper can be downloaded from
> http://post.economics.harvard.edu/hier/2002papers/HIER1948.pdf.
>
> Appendix One: Implicit Zoning Tax on a Quarter-Acre Lot
> City                  Zoning Tax
> Anaheim                 385,942
> Atlanta                  38,115
> Baltimore                -8,494
> Boston                  137,323
> Chicago                 149,955
> Cincinnati               24,067
> Cleveland                42,362
> Dallas                   56,737
> Detroit                  50,639
> Houston                  29,948
> Kansas City               2,940
> Los Angeles             303,178
> Miami                   116,414
> Milwaukee                22,760
> Minneapolis              92,129
> New York City           334,432
> Newark                  191,664
> Philadelphia             26,463
> Phoenix                  54,450
> Pittsburgh               14,919
> Riverside                68,825
> San Diego               270,399
> San Francisco           608,533
> Seattle                 200,703
> St. Louis                18,186
> Tampa                    59,133
>
> Calculated from Glaeser and Gyourko, table 4, by taking the
> difference between the "imputed land cost from means data" and the
> "hedonic price of land log-log specification." The prices in table 4
> are in dollars per square foot, so for this appendix I multiplied
> them by 10,890 square feet (a quarter acre).
> _________________________________________________________
>
> Randal O'Toole                      The Thoreau Institute
> rot@ti.org                              http://www.ti.org
>
> Please feel free to forward or reprint this article with appropriate
> citation. If you would like to be added to or removed from the
> Thoreau Institute's urban mobility list, send an email to rot@ti.org.
>
> Housing affordability, congestion, and open space are just three of
> the issues raised in the Thoreau Institute's slide show, "The Costs
> of Smart Growth." This slide show is available in videotape format
> for $9.95 plus $3.85 for shipping. You can order by responding to
> this email with your name and address; we will send you the video
> with an invoice. For more information, see
> http://www.ti.org/vacd.html.
>
> Most back issues of Vanishing Automobile updates are posted at
> http://www.ti.org/vaupdates.html. Also see
> http://www.ti.org/urban.html for articles and op eds and
> http://www.ti.org/urbanmobility.html for other analyses of urban
> issues.
>

[daviddennis]

I bought 'The Vanishing Automobile' from the TI folks, and it really is a fascinating glimpse at the liberal mindset. Their policies deliberately increase congestion, because it is thought to be essential to their social engineering objective of increasing use of public transport.

Despite this, the policies have consistently resulted in very low increases in public transport use. For instance, you can get about 5% of your population to use public transport if you make travel 25% more difficult than normal. In short, to get even minimal transit use, you have to make everyone else miserable.

I found some of his prescriptions, including road pricing initiatives and the like, to be somewhat dubious. Road pricing will generally increase the cost of running a car enormously. If we could simply take the revenues created by gas taxes and use them on roads instead of poorly thought out light rail systems and the like, I think we could do just fine with the money we are presently raising.

But the book's a great read, and I recommend it warmly. It does, however, have two major flaws. The first is that it takes a statistical approach which doesn't give you a real feel of what it's like to look at these problems from the ground up. For that, I recommend Joel Garreau's Edge City (which O'Toole also recommends). The second is that even before I finished reading it, the binding fell apart. Oops :-(. So you might want to buy the CD version instead, or as well, as the printed copy.

D

[backhoe]

Appreciate your comments, and the ping. I'm trying to take up a little of the slack with JohnHuang2 being absent for a few days by posting some of the e-letters I get here at home.