Wendell Cox, Ladies and Gentlemen
This really is classic. And by classic I mean really, impressively stupid. It begins, rather charmingly, like this:
One way to see the federal rescue of the home mortgage market is to call it “the smart growth bailout”.
Yes, that is one way to see it! Albeit the wrong one. He then goes on to explain that smart growth policies ration land use, that rationed land use led to increased prices, which in turn gave us the housing boom and bust and subsequent crisis. I’m actually a little impressed with Cox for being able to connect this many dots.
But he’s wrong. One obvious problem is that land regulation is not anywhere and always (or even mostly) synonymous with smart growth. I couldn’t go out and build a high-rise apartment building on your average suburban cul-de-sac, but that has nothing to do with smart growth. Conversely, smart growthers in my neighborhood want to allow more residential construction near our Metro station, but local NIMBY groups are opposed. The sources of land-use regulation are manifold, but nine times out of ten restrictions are based on the principle that I’m here and so I’d like as little else to be here as possible. This isn’t smart growth. It’s just plain old NIMBYistic zoning.
Another point, however, is one that was made in an economic debate on this very subject months and months ago. Back in April, Mark Thoma cited Ed Glaeser and Economics of Contempt making this very same argument, though in more sophisticated and measured fashion. Back then, I wrote:
But on closer inspection, it may not hold up. One rather large problem that Mr Thoma notes is that fundamentals–like tight supply–were only one ingredient in the bubble mix. As such, plenty of places with very rapid housing supply growth (Las Vegas and Phoenix come to mind) also saw increases in prices.
Other questions arise, as well. There are markets with few land-use rules that have weathered the housing collapse fairly well. Prices in Dallas, for instance, have come down only about 3 to 5 percent, while prices nationally are off over 10 percent. But there are also places with few land-use regulations that have performed dismally. Inland southern California, Phoenix, Las Vegas, and southern Florida saw massive increases in housing stock, but nonetheless managed to cultivate price booms and are now experiencing some of the worst price collapses in the country. Meanwhile, places with tight land-use regulations (like Manhattan or Washington, D.C.) have been islands of stability, experiencing steady or increasing prices).
The explanation seems to be that prices are not the only thing which can overshoot. Inventory, too, can expand far beyond that which the market requires.
I also noted that places with elastic housing supply employed many more people in housing construction, making them more vulnerable to a housing downturn than one might anticipate from housing supply alone. But the main point was–prices can overshoot, but so can supply. Both excesses can be harmful. And in fact, Glaeser himself published a paper this year suggesting that excess inventory might actuall be more harmful:
Like many other assets, housing prices are quite volatile relative to observable changes in fundamentals. If we are going to understand boom-bust housing cycles, we must incorporate housing supply. In this paper, we present a simple model of housing bubbles which predicts that places with more elastic housing supply have fewer and shorter bubbles, with smaller price increases. However, the welfare consequences of bubbles may actually be higher in more elastic places because those places will overbuild more in response to a bubble.
Oops! But look, it is technically possible to make legitimate points about all of this. It is a real problem that it’s so difficult to increase housing supply in the most dynamic metropolitan economies in the country. But saying that smart growth caused the crisis is just monumentally stupid. Like, we should build a monument to the stupidity of Wendell Cox. It is a wonder.
October 8th, 2008 at 9:21 am
He’s not stupid; he’s just bought and paid for by car companies with a vested interest in making people drive more.
Wendell Cox is a cheat and a liar who sells his country out for money, but he’s not stupid.
October 8th, 2008 at 9:33 am
Thank you. I spend alot of time, in the name of understanding all sides of the issue, reading guys like Cox and Randall O’Toole. It’s been really frustrating how they call all land-use regulations “Smart Growth”, while at the same time only specifically referring to rare policies like Urban Growth Boundaries.
Glaeser, however, seems much more legitimate. Unlike Cox and O’Toole, he doesn’t seem to be twisting data to make political points. He wrote an interesting post on the NY Times Economix blog a week ago about the effect of regulation on housing prices:
http://economix.blogs.nytimes.com/2008/09/30/housing-prices-in-the-three-americas/
Essentially he says, the real boom and bust in housing will occur in mostly unregulated markets like Las Vegas, because supply could not keep up with demand. In more regulated markets like San Jose, prices rose, but they are unlikely to fall much.
There is no doubt that regulation increases housing cost, and planner should consider that as an effect of any new regulation. But, with most regulation, it seems the effect is mild. It would be interesting to know the effect of different types of regulation on housing prices.
October 8th, 2008 at 9:34 am
And I forgot to add, what would this monument look like? A sprawled suburb?
October 8th, 2008 at 9:38 am
BDC, I felt that the stupid charge was more likely to hurt his feelings.
Patrick, Glaeser is legitimate, and I have a great deal of respect for his work (though we often disagree). He would not make an argument as irresponsible as Cox’.
October 8th, 2008 at 12:53 pm
Wendell is definitely not stupid.
Craven and opportunistic by dint of using anything to conflate bad news with planning, surely.
He’s smart enough to convince enough credulous and gullible rubes that his ideological spouting gets some play with decision-makers. Fortunately, the ‘efficient development’ argument wins the day.
And I disagree with Patrick and agree with Ryan that Glaeser makes the same argument, albeit more sophisticated. He conveniently omits saying - most of the time - where and when regulations come from and when growth restrictions are usually enacted. Not dishonest in my view, but you can see dishonest from there.
Oh, and what BeyondDC said.
October 8th, 2008 at 2:10 pm
I’ve never seen a good explanation why lightly regulated Phoenix and Las Vegas experienced bubbles while lightly regulated Dallas and Houston did not. Could it be that Phoenix and Las Vegas were more convenient for Californians looking to invest their winnings from the California housing lottery?
Tight California land regulations — which are mostly the anti-density, NIMBY variety — were a necessary condition for the California bubble. Tight regulations in one city can produce negative spillovers in another, or in the exurbs. But it’s silly to blame these regulations for the current financial crisis; these regulations have been around for decades. And the high prices these regulations induce aren’t necessarily irrational, as Ryan notes, while “bubble” prices, by definition, are.
October 8th, 2008 at 2:28 pm
Tight California land regulations — which are mostly the anti-density, NIMBY variety — were a necessary condition for the California bubble.
One might also argue that LU regs arise in CA due to resource constraints. Thus if one accepts this premise, the bubble has different origins than, say, PHX.
October 8th, 2008 at 2:36 pm
I think the PHX bubble has different origins than the California bubble regardless of the justification for the CA LU regs (except perhaps indirectly from spillovers from the California bubble). I disagree, though, that there are real resource constraints in CA. On the contrary, the anti-density regs in LA, SF and San Jose cause development to chew up more land than necessary. CA LU regs deplete resources, not the other way around.
October 8th, 2008 at 2:43 pm
I don’t have a satisfactory answer for you, AC. One possibility might be lending conditions, but I have no idea if that’s true. Another might be that there’s a regionalism to bubble psychology, and that the west caught it while the southeast (with the exception of southern Florida) did not. Or maybe, demand for housing in Texas was just really elastic.
I dunno, I’ll hunt for papers when I get a chance.
October 8th, 2008 at 3:21 pm
I disagree, though, that there are real resource constraints in CA. On the contrary, the anti-density regs in LA, SF and San Jose cause development to chew up more land than necessary. CA LU regs deplete resources, not the other way around.
Well, I could yap on about this all day, as I lived in the Sacto area and studied this stuff. Perhaps, AC, we can do a co-guest post here or at your place or something.
Anyway, certainly there are anti-density LU regs in CA and they constrain land supply (and waste absorption). There are also ~37M people in a largely semi-arid state that requires impoundment of surface water for cities and ag (and the SJV is increasingly saline due to ag).
But also we should discuss the carrying capacity of humans of the land within the CA borders. Also what that number is with higher densities (that is: is it higher or lower than 37M?). The question being: would higher densities make more air quality problems in the big basins - LA, Sacto-SJ valleys, Bay Area and push development outward anyways?
My contention is - quality of life for humans-wise - the carrying capacity is much, much lower, perhaps 10-15M with current technologies and better efficiencies. Meaning: when QOL began to decline, growth regs were enacted, causing supply shortages (and the first wave of Californication).
But, demand for natural and cultural amenities was far greater than supply constraints, raising equilibrium prices.
Bottom line IME: CA needs fewer people, not more.
I’m interested in your (and others’) thoughts.
October 8th, 2008 at 4:40 pm
Even if CA needs fewer people, exclusionary zoning is clearly not the answer. Land use regulations that limit population density simply push population further out, causing the population to use more resources per capita.
The carrying capacity of any area is higher if the population in that area operates at high efficiency. Exclusionary zoning regulations accomplish absolutely nothing except to lower efficiency, thus lowering the carrying capacity. They are utterly counterproductive.
Not that regulations themselves are bad, just regulations that push growth away from established urban centers and into the hinterlands.
October 9th, 2008 at 4:10 am
Geographical features reduce housing supply and raise values too. (Think San Fran, Manhattan). I propose that we dub this crisis the “mountain and ocean bailout”.
October 9th, 2008 at 9:27 am
I absolutely agree that Cox is not stupid. He’s brilliant. In fact, based on his successful model, I am right now thinking of choosing an issue, declaring myself an expert on it, and then whoring myself out to whichever deep-pocketed industry will bankroll me.
October 9th, 2008 at 10:54 am
Even if CA needs fewer people, exclusionary zoning is clearly not the answer. Land use regulations that limit population density simply push population further out, causing the population to use more resources per capita.
Yes.
The best answer is reducing human population growth. Other than that, people have to live somewhere, and as they do, they consume land and resources.
And as we know, it is more profitable to convert land than it is to preserve it.
Until we get population growth under control, these issues will continue unabated IMHO.
October 30th, 2008 at 2:41 pm
There is a free market, conservative approach to land use and transportation. Wendell Cox and Randall O’Toole aren’t it. Tools, the both of ‘em.
December 29th, 2008 at 9:55 pm
O’Toole and others regularly blame Oregon’s UGBs for raising land prices and thus housing costs. Yet these critics have a fundamental misunderstanding of how urban growth boundaries (UGB) function in Oregon. They don’t restrict development, they channel it. Oregon’s land-use laws actually require local governments to maintain a 20-year supply of land for residential housing (although none of the other things required for complete communities). The UGB determines where growth will occur on the edge not if growth will occur and Portland has plenty of sprawling communities within its UGB (that have- incidently- been hit hardest recent declines in housing prices). 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.
Trevor Stewart