New Geography

Author: Wendell Cox

  • Housing Price Bubble: Learning from California

    In a letter to The Wall Street Journal (February 6) defending California’s greenhouse gas (GHG) emissions policies, Governor Arnold Shwarzenegger’s Senior Economic Advisor David Crane noted that California’s high unemployment is the result of “a bust of the housing bubble fueled by easy money.” He is, at best, half right.

    The “bust of the housing bubble” occurred not only because of “easy money,” but also because of the very policies California has implemented for decades and is extending in its battle against GHG emissions.

    The nation has never had a housing bubble like occurred in California. The Median Multiple (median house price divided by median household income) in California’s coastal metropolitan areas had doubled and nearly tripled over a decade. Housing costs relative to incomes reached levels twice as high as those experienced in the early 1990s housing bubble, which was bad enough.

    This is all the more remarkable because even before the bubble the Median Multiple in the Los Angeles, San Francisco, San Diego and San Jose metropolitan areas was already elevated at 1.5 times the historic norm.

    “Easy money,” by itself, does not explain what caused the unprecedented housing bubble in California. If “easy money” were the sole cause, then similar house price escalation relative to incomes would have occurred throughout the country.

    Take, for example, Atlanta, Dallas-Fort Worth and Houston. These are the three fastest growing metropolitan areas in the developed world with more than 5,000,000 population. Since 2000, these metropolitan areas have grown from three to 15 times as fast as Los Angeles, San Francisco, San Diego and San Jose. While 1,800,000 people have moved out of the four coastal California metropolitan areas to other parts of the country, 700,000 have moved to Atlanta, Dallas-Fort Worth and Houston from other parts of the country. This is where the demand would have been expected to produce the bubble. But it did not. House prices remained at or near historic norms and average house prices rose one-tenth that of the California coastal metropolitan areas.

    These three metropolitan areas were not alone. Throughout much of the nation, in metropolitan areas growing both faster and slower in population than coastal California, house prices simply did not explode relative to household incomes.

    In touting “smart land use” as a strategy for greenhouse gas emissions, Crane misses the other half of the equation. Indeed, it is so-called “smart land use” (“smart growth”) that intensified the housing bubble in California. “Smart land use” involves planners telling the market where development will and will not occur. In the process it ignores the price signals of the market. Owners of land on which development is permitted naturally and rationally raise their asking prices, while owners of land not so favored can expect little more than agricultural value when they sell. The result is that the land element of housing prices exploded, fueling the unprecedented bubble. Restrictions on supply naturally lead to higher prices, whether in gasoline, housing or anything else.

    California has placed restrictions on development with a vengeance. For nearly four decades, California has woven a tangled web of land use restrictions that have made the state unaffordable. When the demand rose in response to the “easy money” the land use planning systems were unable to respond and a rapid escalation in housing prices followed. The same thing occurred in other areas with excessive land use regulation, such as Las Vegas, Phoenix, Seattle, Portland, New York, Washington and Miami, though the house price escalation was not so extreme as in coastal California.

    On the other hand, where land use still allowed a free interplay of buyers and seller (consistent with rational environmental requirements), the housing bubble was largely avoided. Average house prices in Atlanta, Dallas-Fort Worth and Houston rose only one-tenth that of Los Angeles, San Francisco, San Diego and San Jose.

    When the bubble burst, the far higher house prices naturally tumbled more than in other areas. The price was paid well beyond California and the other “smart land use” markets around the nation. From Washington to Wall Street to Vladimir Putin and Chinese Premier Wen at Davos, everyone knows that the international finance crisis was precipitated by the US mortgage meltdown.

    It all might not have occurred if there had been no “smart land use” markets with their exorbitant and concentrated losses. Overall, the “smart land use” markets represent little more than 30 percent of the nation’s owned housing stock, yet produce more than 85 percent of the housing bubble values at their peak. California style “smart land use” intensified the overall mortgage losses by more than five times. If the losses had been more modest, there might not have been anything like the current mortgage meltdown. With more modest losses, the world financial system might have been able to handle the damage without catastrophe, just as it did with the “dot-com” bubble earlier in the decade. The many households that have lost much of their life savings or retirement income would not be facing the future with fear. And even personally frugal taxpayers of the world would not be the principal stockholders in failing banks.

    California needs to wake up and face the reality. The intensity of the housing bubble was of its own making. More “smart land use” is just what California does not need. This is the lesson the rest of the nation needs to learn rather than repeat.

    Sources:
    David Crane letter to the editor: http://online.wsj.com/article/SB123381050690451313.html
    Domestic migration data: http://www.demographia.com/db-metmic2004.pdf
    Analysis of the housing bubble: http://www.heritage.org/Research/Economy/wm1906.cfm
    House price losses by peak Median Multiple: http://www.demographia.com/db-usahs2008y.pdf
    Las Vegas Land Market Analysis: http://www.demographia.com/db-lvland.pdf
    Phoenix Land Market Analysis: http://www.demographia.com/db-phxland.pdf

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • Housing Prices Will Continue to Fall, Especially in California

    The latest house price data indicates no respite in the continuing price declines, especially where the declines have been the most severe. But no place has seen the devastation that has occurred in California. As median house prices climbed to an unheard-of level – 10 or more times median household incomes – a sense of euphoria developed among many purchasers, analysts and business reporters who deluded themselves into believing that metaphysics or some such cause would propel prices into a more remote orbit.

    Yet gravity still held. A long-term supply of owned housing for a large population cannot be sustained at prices people cannot afford. Since World War II, median house prices in the United States have tended to be 3.0 times or less median household incomes. This fact should have been kept in mind before – and now as well.

    By abandoning this standard, California’s coastal markets skidded towards disaster. Just over the past year, house prices in the Los Angeles, San Francisco, San Diego and San Jose metropolitan areas have declined at more than three times the greatest national annual loss rate during the Great Depression as reported by economist Robert Schiller.

    But the re-entry into earthly prices is just beginning. In the four coastal markets, the Median Multiple has plummeted since our third quarter 2008 data just reported in our 5th Annual Demographia International Housing Affordability Survey. The most recent data from the California Association of Realtors would suggest that the Median Multiple has fallen from 8.0 to 6.7 in San Francisco, in just three months. In San Jose, the drop has been from 7.4 to 6.3. Los Angeles has fallen from 7.2 to 6.2 and San Diego has slipped from 5.9 to 5.2.

    Yet history suggests that there is a good distance yet to go. California’s prices will have to fall much further, particularly along the coast. Due largely to restrictive land use policies, California house prices had risen to well above the national Median Multiple by the early 1990s, an association identified by Dartmouth’s William Fischel. During the last trough, after the early 1990s bubble and before the 2000s bubble, the Median Multiple in the four coastal California markets fell to between 4.0 and 4.5. It would not be surprising for those levels to be seen again before there is price stability.

    Using this standard, I expect median house prices could fall another $150,000 to $200,000 in the San Francisco and San Jose metropolitan areas. The Los Angeles area could see another $100,000 to $125,000 drop, while the San Diego area could be in store for a further decline of $50,000 to $75,000.

    Is there anything that can stop this? Yes there is – the government. This is the same force that caused much of the problem at the onset. Now with the passage of Senate Bill 375 and an over-zealous state Attorney General more intent on engaging in a misconceived anti-greenhouse gas jihad, it may become all but impossible to build the single-family homes that, according to a Public Policy Institute of California survey, are preferred by more than 80% of California. Instead we may see ever more dense housing adjacent to new transit stops – exactly the kind of housing that has flooded the market in recent years. Many of these units, once meant for sale, have been turned into rentals. Many others lay empty.

    In the short run, however, even Jerry Brown’s lunacy will have limited impact. The continuing recession will continue to reduce prices even though the supply remains steady. The surplus of dense condominium units will expand the swelling inventory of rentals, as prices continue to drop towards a 4.0 to 4.5 Median Multiple or below.

    The one place which may benefit from this will be some of the less glamorous inland markets, that are suddenly becoming far more affordable. Sacramento earns the honor of being the first major metropolitan area to reach a Median Multiple of 3.0, as a result of continuing declines. Riverside-San Bernardino is close behind, and should be in this territory within the next year.

    But many other overpriced markets have yet to experience this kind of pain. Prime candidates for big reductions include New York, Miami, Portland (Oregon), Boston and Seattle. These areas may not have suffered the extreme disequilibrium seen in California, but their prices have soared. As the economies of these regions – New York and Portland in particular – begin to unravel, prices will certainly fall, perhaps precipitously.

    This may not make Manhattan or Portland’s Pearl District affordable for the middle class but could drive prices to reasonable levels in the outer boroughs, Long Island or the Portland suburbs. This may be a disaster for the speculators, architects, developers and some local governments, but for many middle class families it may seem like the dawning of a new age of reason.

    HOUSING AFFORDABILITY RATINGS UNITED STATES METROPOLITAN MARKETS OVER 1,000,000
    Rank Metropolitan Area Median Multiple
    AFFORDABLE  
    1 Indianapolis 2.2
    2 Cleveland 2.3
    2 Detroit 2.3
    4 Rochester 2.4
    5 Buffalo 2.5
    5 Cincinnati 2.5
    7 Atlanta 2.6
    7 Pittsburgh 2.6
    7 St. Louis 2.6
    10 Columbus 2.7
    10 Dallas-Fort Worth 2.7
    10 Kansas City 2.7
    10 Mem[hios 2.7
    14 Oklahoma City 2.8
    15 Houston 2.9
    15 Louisville 2.9
    15 Nashville 2.9
    MODERATELY UNAFFORDABLE  
    18 Minneapolis-St. Paul 3.1
    18 New Orleans 3.1
    20 Birmingham 3.2
    20 San Antonio 3.2
    22 Austin 3.3
    22 Jacksonville 3.3
    24 Phoenix 3.4
    25 Sacramento 3.5
    26 Tampa-St. Petersburg 3.6
    27 Denver 3.7
    27 Hartford 3.7
    27 Las Vegas 3.7
    27 Raleigh 3.7
    27 Richmond 3.7
    32 Salt Lake City 3.8
    33 Charlotte 3.9
    33 Riverside-San Bernardino 3.9
    33 Washington (DC) 3.9
    36 Milwaukee 4.0
    36 Philadelphia 4.0
    SERIOUSLY UNAFFORDABLE  
    38 Chicago 4.1
    38 Orlando 4.1
    40 Baltimore 4.2
    41 Virginia Beach-Norfolk 4.3
    42 Providence 4.4
    43 Portland (OR) 4.9
    SEVERELY UNAFFORDABLE  
    44 Seattle 5.2
    45 Boston 5.3
    46 Miami-West Palm Beach 5.6
    47 San Diego 5.9
    48 New York 7.0
    49 Los Angeles 7.2
    50 San Jose 7.4
    51 San Francisco 8.0
    2008: 3rd Quarter  
    Median Multiple: Median House Price divided by Median Household Income
    Source: http://www.demographia.com/dhi.pdf

    Note: The Demographia International Housing Affordability Survey is a joint effort of Wendell Cox of Demographia (United States) and Hugh Pavletich of Performance Urban Planning (New Zealand).

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • New Survey: Improving Housing Affordability – But Still a Way to Go

    The 5th Annual Demographia International Housing Affordability Survey covers 265 metropolitan markets in six nations (US, UK, Canada, Australia, Ireland and New Zealand), up from 88 in 4 nations in the first edition (see note below). This year’s edition includes a preface by Dr. Shlomo Angel of Princeton University and New York University, one of the world’s leading urban planning experts. Needless to say, there have been significant developments in housing affordability and house prices over the past year. In some parts of the United States, the landscape has been radically changed by rapidly dropping house prices.

    Our measure of housing affordability is the “Median Multiple,” which is the annual pre-tax median house price divided by the median household income. Over the decades since World War II, this measure has typically been 3.0 or below in all of the surveyed nations and virtually all of their metropolitan areas, until at least the mid-1990s. There were bubbles before that time in some markets, but during the “troughs” most markets returned to the 3.0 or below norm.

    Unfortunately, the most recent bubble was and continues to be the most severe since records have been kept. The Demographia International Housing Affordability Survey rates housing affordability using five categories, indicated in the table below.

    Demographia
    Housing Affordability Ratings

    Rating

    Median Multiple

    Severely Unaffordable

    5.1 & Over

    Seriously Unaffordable

    4.1 to 5.0

    Moderately Unaffordable

    3.1 to 4.0

    Affordable

    3.0 or Less

    Median Multiple: Median House Price divided by Median Household Income

    At the height of the current bubble, some markets saw remarkable declines in housing affordability. In some Median Multiples exceeded three times the historic norm. Among major markets (metropolitan markets with more than 1,000,000 population), Los Angeles, San Francisco, San Jose and San Diego all reached or exceeded a Median Multiple of 10. Many other markets saw their Median Multiples rise to double the historic norm and beyond, such as New York, Miami, Boston, Seattle, Sacramento and Riverside-San Bernardino. Other major US markets – such as Portland, Orlando, Las Vegas, Providence and Washington, DC – rose to above 5, a figure rarely seen in any market before the currently deflating bubble.

    America has hardly been an exception. Outside the United States, virtually all major markets in Australia were well over 6.0, as well as London and Auckland in New Zealand. Vancouver was the most unaffordable major market, with a Median Multiple of 8.4. Of particular note is barely growing Adelaide, which nonetheless has seen its Median Multiple rise to 7.1.
    But, at least in the US, the unaffordability wave has crested. Generally, the house prices peaked in the United States in mid-2007. Since then the markets with the biggest bubbles took the lead in bursting. By the third quarter of 2008 (the Survey reports on the third quarter each year), the Median Multiple in San Francisco had dropped to 8.0, San Jose to 7.4, Los Angeles to 7.2 and San Diego to 5.9. Of course, even at these levels, housing affordability in these metropolitan areas remained worse than ever before. History would suggest that housing prices in these markets have a long way to go before they hit bottom.

    Other markets have improved affordability more substantially. Inland California markets like Sacramento and Riverside-San Bernardino have gone from the “seriously” to only the “moderately unaffordable” category, with rates now in the mid-3.0s. Data for the fourth quarter is likely to indicate that Sacramento will be the first major housing market in California to return to a Median Multiple of 3.0, a rather large fall from its peak of 6.6 in 2005.

    Outside California, other markets have experienced significant price declines. But some, like Miami still at 5.6, have a long way to go before they reach the historic norm of 3.0. Las Vegas and Phoenix (which nearly reached 5) may be closer, falling to the “moderately unaffordable ” category with Median Multiples of between 3.1 and 4.0. Seattle and Portland have fallen 10 percent or more as of the third quarter but remain severely overpriced, suggesting they, like Miami, have more price declines in the offing.

    Much of the blame for the bubble has been placed at the feet of a mortgage finance industry that passed out money as if it was not its own. Not surprisingly, the ready availability of money had its effect on the market. Demand rose sharply and included many who couldn’t afford to pay.

    But profligate lending practices represent only a relatively minor cause of the bubble. This was missed by all but a few economists, notably Dr. Angel’s Princeton colleague and Nobel Laureate Paul Krugmann. He could see that there was not one “national bubble” but a series of localized ones. The real villain, he noted, lay in land use regulations.

    In reality the bubble missed much of the country – from Atlanta to El Paso to Omaha and Albany. There were house price increases, of course, but they were generally within the Median Multiple ceiling norm of 3.0. There were a few exceptions, but even they did not exceed 3.0 by much.

    Rising demand was not the big problem. Housing affordability remained at virtually the same Median Multiple level in Atlanta, Dallas-Fort Worth and Houston, the three fastest growing metropolitan areas of more than 5,000,000 population in the developed world. Many other major markets across the South and Midwest experienced little price increase and maintained their affordability. Indianapolis, which has a Median Multiple of 2.2, continued to gain domestic migration from other areas and has a near Sun Belt growth rate. Kansas City, Louisville and Columbus remain affordable and are attracting people from elsewhere.

    Although there are signs of a correction in parts of California, Nevada and Arizona, some bubbles in high-regulation markets are still in the early stage of deflating. New York, Boston, Portland and Seattle particularly may be in danger; the worst consequences of their bubbles lie ahead.

    The longer-term question remains whether these and other still highly over-valued markets in California, the Pacific Northwest, Florida and the Northeast will return to affordability, at or near a Median Multiple of 3.0. The necessary price drops would be bad news for regional economies because of the losses homeowners and financial institutions would sustain.

    At the same time maintenance of the currently elevated prices would also be bad news. In the past 7 years, 4.5 million people have moved from higher-cost markets to lower-cost markets in the United States. The formerly attractive markets of the California coast alone have seen more than two million people depart for other places since 2000. For these areas, a return to historic levels of housing affordability may be a prime pre-requisite to restoring economic health.

    HOUSING AFFORDABILITY RATINGS UNITED STATES METROPOLITAN MARKETS OVER 1,000,000
    Rank Metropolitan Area Median Multiple
    AFFORDABLE  
    1 Indianapolis 2.2
    2 Cleveland 2.3
    2 Detroit 2.3
    4 Rochester 2.4
    5 Buffalo 2.5
    5 Cincinnati 2.5
    7 Atlanta 2.6
    7 Pittsburgh 2.6
    7 St. Louis 2.6
    10 Columbus 2.7
    10 Dallas-Fort Worth 2.7
    10 Kansas City 2.7
    10 Mem[hios 2.7
    14 Oklahoma City 2.8
    15 Houston 2.9
    15 Louisville 2.9
    15 Nashville 2.9
    MODERATELY UNAFFORDABLE  
    18 Minneapolis-St. Paul 3.1
    18 New Orleans 3.1
    20 Birmingham 3.2
    20 San Antonio 3.2
    22 Austin 3.3
    22 Jacksonville 3.3
    24 Phoenix 3.4
    25 Sacramento 3.5
    26 Tampa-St. Petersburg 3.6
    27 Denver 3.7
    27 Hartford 3.7
    27 Las Vegas 3.7
    27 Raleigh 3.7
    27 Richmond 3.7
    32 Salt Lake City 3.8
    33 Charlotte 3.9
    33 Riverside-San Bernardino 3.9
    33 Washington (DC) 3.9
    36 Milwaukee 4.0
    36 Philadelphia 4.0
    SERIOUSLY UNAFFORDABLE  
    38 Chicago 4.1
    38 Orlando 4.1
    40 Baltimore 4.2
    41 Virginia Beach-Norfolk 4.3
    42 Providence 4.4
    43 Portland (OR) 4.9
    SEVERELY UNAFFORDABLE  
    44 Seattle 5.2
    45 Boston 5.3
    46 Miami-West Palm Beach 5.6
    47 San Diego 5.9
    48 New York 7.0
    49 Los Angeles 7.2
    50 San Jose 7.4
    51 San Francisco 8.0
    2008: 3rd Quarter  
    Median Multiple: Median House Price divided by Median Household Income
    Source: http://www.demographia.com/dhi.pdf

    Note: The Demographia International Housing Affordability Survey is a joint effort of Wendell Cox of Demographia (United States) and Hugh Pavletich of Performance Urban Planning (New Zealand).

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • Obama’s Friends: Enemies of the American Dream?

    President Barack Obama has rightly spoken positively about the American Dream, how it is becoming more expensive and how it needs to be reclaimed. But to do this, he may have to disregard many of those who have been among his strongest supporters and the dense urban centers which have been his strongest bastion of support.

    Indeed, the American Dream has been achieved by countless millions of households, though many have been left out of this expansion that began following World War II. Home ownership has risen from little above 40 percent to nearly 70 percent. Automobile ownership has become nearly universal, making it possible for urban areas to grown to unprecedented size. The Brookings Institution, the Progressive Policy Institute and others have published studies showing that people in low income households are far more likely to find and hold employment if they have access to cars.

    All of this has been associated with a democratization of prosperity that has never before occurred. Per capita income is now 3.5 times its 1950 level in the United States (see 1929-2007 inflation adjusted data).

    Yet, the American Dream is under serious threat – and this predates today’s faltering economy. A key component lies in the machinations of an urban policy and planning elite contemptuous of the comfortable lifestyles achieved by so many Americans. Instead they propose creating an environment in which households would have to pay more for their houses and spend more of their lives traveling from one place to another.

    Most of those who wish to create this situation come from the political left and consider themselves to be “friends of Obama.” They have achieved positions of power in some urban areas, such as throughout California, Portland, Seattle and a host of other areas. As early as 2007 some saw Obama as the dream candidate – what one called “a smart growth President”.

    This elite group starts by demonizing the very foundations of America’s inclusive prosperity. Having declared “urban sprawl” a scourge, they seek to stop further development on the urban fringe and want virtually all development to be within already developed urban footprints. These and other overly stringent regulations have served to strangle urban land markets, forcing land prices and housing prices higher, in those region where they have been imposed.

    Over fifteen years ago William Fischell at Dartmouth University demonstrated that California’s overly restrictive land use policies had made that state more expensive than elsewhere. Since 2000, with the wider availability of mortgage credit, the new demand drove prices to double or triple historic norms in areas with restrictive regulation. Price reductions have lowered prices, but they are still well above historic norms. This means that fewer households still are able to own their own homes in areas with restrictive land use regulations. Once normal prosperity is restored, the higher house prices of the restrictive land use areas can be expected to resume their increase relative to the rest of the nation.

    This is a problem for some regions now. But many planners are enthusiastic about Obama in part because he is thought to be sympathetic to recreating these conditions throughout the entire country.

    ###

    The automobile plays the role of the Great Satan in this morality play. The goal of many ‘progressive’ urbanists is to force people into transit and stop road building. Transit, of course, has its place. There is no better way to get to your job south of 59th Street in Manhattan, to Chicago’s Loop or to a few other of the nation’s largest downtown areas. But the stark reality is that transit can not substitute for the automobile for the overwhelming majority of trips, except for these niche markets. Further, failing to expand highways to keep up with traffic growth increases traffic congestion (and air pollution) and reduces economic productivity (read: “increases poverty”).

    Higher costs for home ownership and slower commutes to work – and they will be slower because transit commutes average twice as long as automobile – impose significant burdens on people. Fewer people will have houses and fewer will have jobs. Forcing a single parent to take longer to navigate from home to the day care center to the job, whether by transit or by car, makes life more difficult – and for no rational reason. It is the equivalent of forcing people to work harder for nothing.

    Of course, this way of thinking has been around some parts of the country for decades. The new drive to reduce greenhouse gas (GHG) emissions has extended its reach. The typical formulation now is that in order to reduce GHG emissions, Americans need to be crowded into dense urban areas and give up our cars.

    ###

    In reality, nothing of the kind is required. “Green” houses are being developed that can make it possible to substantially reduce GHG emissions while Americans continue their favored suburban life styles (the lifestyles, by the way, also favored by Europeans and Japanese). Hybrid and other advanced car and fuel technologies can make it possible for the personal transportation sector to achieve massive long term GHG reductions. The answer is regulating emissions, rather than people.

    But the planning and urbanist lobbies may not fundamentally be driven by the perceived need to reduce GHGs. They would rather regulate people, just as was the case well before climate change was even on the political agenda.

    Of course, the planners don’t see their strategies as nightmarish. They have worked them all out theoretically in their heads. The problem is that the theory is not and cannot be translated into reality. There is no more comfortable place to live in the world for people – particularly those past their youthful and single years – than the American suburb. There are no metropolitan areas of similar size in the world where people spend less time traveling to and from work than in America. Take Hong Kong, which is by far the world’s most dense large first-world urban area. No other metropolitan area of its size should have such theoretically short trips, because everything is so close together. Yet, average travel time to work is almost double that of Dallas-Fort Worth, with a similar population. Indeed, even in “gridlocked” Los Angeles, so often ridiculed for its automobile-oriented “sprawl,” work trip travel times average nearly 40 minutes less per day than in that ultimate of urbanization, Hong Kong. That adds up to about a week’s worth of extra commuting time each year.

    Rather than trying to constrict the dream, President Obama should work on ways to expand it. This will not be easy. Today, less than 50 percent of African-American and Latino households own their own homes. At the same time, Anglo home ownership is about 75 percent. No program to extend the American Dream can be based on policies that unnecessarily increase the price of housing.

    For the new President, there is a clear choice. He can cast his lot with those whose strategies would extinguish the aspirations of millions of Americans, or he could make it easier for more households in the nation to achieve the American Dream.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • In a Financial Crisis What Happens to the Dog Bakeries?

    What will happen to the dog bakeries? I ask this question, because this line of business (and perhaps many others) escaped my attention for so long. I saw my first one years ago in suburban St. Louis. As one interested in economics, poverty and history, it struck me that dog bakeries represented a perfect symbol for the many “discretionary” business lines that have been established in recent decades in what has been called the consumer economy.

    This discretionary economy consists of businesses for which do not exist in societies with little discretionary income. It includes in its ranks a host of businesses that did not even exist before the last couple of decades, from dog bakeries, to Starbucks, tony cafes, specialized clothing stores and personal fitness centers. While these businesses might have been attractive to the households of the 1940s, 1950s, 1960s, or 1970s, people just didn’t have enough discretionary income to support them.

    Stores specializing in accessories for the bathroom simply did not exist in the immediate post World War II years. There was little, if anything, akin to a Gap store, a Banana Republic or an Abercrombie and Fitch. Few people had either access to or membership in gyms or personal fitness centers. Gyms in those days were often barebones affairs for roughnecks as opposed to the fashionista hangouts of today.

    Even in the 1960s and 1970s, many of the businesses we take for granted today simply did not exist. There were no Starbucks coffee shops. If you wanted espresso, you looked near a college campus or found an Italian neighborhood. Big box stores specializing in pets had not proliferated. Instead there were small stores crowded with everything from hamsters and turtles to birds and bulldogs. I suspect there were no dog bakeries.

    It would be most difficult to reliably estimate the size of the discretionary economy. Much of the discretionary economy lies embedded in the larger service sector. By 2007, the share of private employment in the nation in services had reached 2.5 times the rate of 1947. Within that vast sector are companies which provide goods and services our forebears lived without like gyms, boutique coffee and dog bakeries.

    The years since World War II have seen an unprecedented democratization of prosperity in the United States. Poverty rates have fallen and people live a far better life style than before. This has led critics to complain about the consumer society. For some, this “consumerism” was declared a false god and some even looked forward to a day of reckoning when the nation’s sins of over-consumption would earn it a deserved eternal damnation.

    Generally, these critics lacked a decent understanding of economics. For one thing even the most frivolous types of consumption employ people. When households cancel the gym memberships or have no need of the dog bakery, people lose their jobs. Supporting a nation of 300 million people requires all of the consumption it can afford to provide employment, a decent standard of living, and yes, to reduce poverty.

    So what happens now? If the ‘bubble’ expanded the discretionary economy, what will a prolonged recession do? It could be a mistake to presume that the economic downturn will soon be reversed and that previous consumption rates will be restored. One of the factors different about this downturn is the extent to which it has reduced the wealth of households. The IRAs and investment portfolios that many had relied upon to provide a comfortable retirement have declined steeply in value. This is a particular problem for the millions of baby boomers, who have spearheaded the development of the discretionary economy.

    Now they seem less likely to consume with the abandon they showed before the prospect of running out of money became a realistic one. The coffee at home will be more attractive than the $5.00 latte at Starbucks. Rather than stopping at the canine bakery, people may now choose to buy more prosaic dog biscuits from a supercenter aisle. The recent decision by Starbucks to close 600 stores recently may be a harbinger of things to come.

    But there is more. Boomers and others who have seen their savings devastated could reduce their spending on other items not directly part of the discretionary economy. The wardrobe – you need clothes, but not necessarily new suits every season – may not be renewed quite as frequently. The car may be kept a couple of extra years. This could place the entire auto bailout in jeopardy.

    It would be a mistake to assume that there will be a quick and easy exit from the current economic difficulties. An affluent economy is necessarily a consuming society. Such an economy requires both necessities as well as the frills. It needs gyms, Starbucks, dog bakeries and the rest of the discretionary economy, just as it needs automobile manufacturing, information services and grocery stores. The destruction of the discretionary economy may not be as serious as the loss of homes in Detroit or jobs on Wall Street, but it can not take place without destroying the jobs and lives of people.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • Moving to Flyover Country

    As the international financial crisis and the US economy have worsened, there have been various reports about more people “staying put,” not moving from one part of the country to another. There is some truth in this, but the latest US Bureau of the Census estimates indicate the people are still moving, and in big numbers.

    In the year ended June 30, 2008, 670,000 people moved between states. This is down substantially from the peak years of 2005 to 2007, when housing prices in California and its suburbs of Nevada and Arizona, Florida, the Northeast and the Northwest reached record heights never seen before. In those years, people could elicit considerable and unprecedented financial gain by moving to parts of the country where the housing bubble had not visited or had done less damage. A household could buy in Indianapolis, Dallas-Fort Worth or Atlanta and save more than $1,000,000 in purchase price and mortgage payments compared to a comparable house in San Diego, Los Angeles or the San Francisco Bay area. In 2006, net domestic migration between states peaked at 1,200,000.

    Still, despite the reduction from the most extreme bubble years, last year’s interstate migration numbers still exceeded those of 2001, 2002 and 2003 and nearly equaled 2004. Lost in the discussions of the decline has been the continuation of a seemingly inexorable secular trend: the continued migration to the “Flyover County” that many of the coastal urban elites tend to dismiss as insignificant and even unlivable. What residents of Elitia reject, millions are embracing.

    Can 3,500,000 Movers be Wrong? The new data shows a strong trend of domestic migration to Flyover Country. Between 2000 and 2008, 3,500,000 residents moved to Flyover Country. This is roughly equal to the movement of the entire population of the City of Los Angeles. Moreover, the trend has been accelerating. In the last four years, the number of people relative to the population leaving Elitia’s promised lands has increased by 60 percent.

    The Lost Empire: New York has lost residents at a rate exceeding that of any other state or the District of Columbia. Not even the destructive winds of Katrina and Rita, the malfeasance of the Army Corps of Engineers or even mis-governance – from Washington to Baton Rouge and New Orleans itself – could drive people out as effectively as the Empire State. New York has lost 1,575,000 domestic migrants since 2000, nearly equal to the population of Manhattan.

    New York’s net domestic migration loss is equal to 8.1 percent of its 2000 population, compared to Louisiana’s 7.1 percent loss. New York has even outdone that perpetual exporter of residents, the District of Columbia, which lost a mere 7.6 percent through domestic migration.

    From Golden State to Fool’s Gold State: Then there is California, which has added more people over the past 50 years than live in Australia. How things have changed. Early in the decade, the Golden State was suffering somewhat modest domestic migration losses. But by 2005, with house prices escalating wildly relative to incomes, California won the race to the bottom. Each year since then, California has driven away more people than any other state.

    What’s Right with Pennsylvania: There are anomalies, however. One of the leading parlor games is “what’s wrong with Pennsylvania” stories. From the Philadelphia Inquirer to Washington’s Brookings Institution, there has probably been more hand wringing about Pennsylvania than about all other states combined. Yet things have changed materially, and largely for the better. Although Pennsylvania continues to lose domestic migrants, the rate has been far less than elsewhere in the Northeast. Between 2000 and 2008, Pennsylvania lost less than 50,000 domestic migrants. Its neighboring states – New York, New Jersey, Maryland and Ohio (Delaware and West Virginia have had small gains) – have lost more than 2,300,000 domestic migrants or nearly 50 domestic migrants for every one leaving Pennsylvania. Among states with more than 10,000,000 population, only Florida and Texas have done better in domestic migration than Pennsylvania.

    That’s pretty good company for a state so many have declared to be on life support. Indeed, it is time to ask “what’s right about Pennsylvania?” One answer might be that Pennsylvania home prices did not explode relative to incomes (a distortion avoided because of Pennsylvania’s generally more liberal land use regulations). The American Dream – at least for those who are aspiring to achieve it – has shifted from New York, New Jersey and Maryland to Pennsylvania. This is evident from the housing construction on the west bank of the Delaware River and just over the Maryland line in York, Adams and Franklin counties.

    Florida: A Changing Story: Flyover Country’s gains are impressive. Florida has attracted the largest number of residents from other states, at 1,250,000 since 2000. This amounts to a 7.6 percent increase compared to the state’s 2000 population. However, things are changing. As the state’s housing became unaffordable, domestic migration dropped and then stopped. By 2007, domestic migration fell more than 80 percent from average of earlier years. Then, Florida slipped into a loss of 9,000 domestic migrants in 2008.

    Southern Gains: The rest of the South generally avoided the worst of the housing bubble. Texas has added 700,000 domestic migrants since 2000. The state displaced Florida as the leading destination for domestic migrants and has held that position since 2006. North Carolina has added 580,000 domestic migrants; Georgia added 525,000, South Carolina 270,000 and Tennessee 240,000. Even Arkansas and Alabama, although held in low esteem on the coasts, gained more domestic migrants than any state in the Northeast.

    Escaping from California: Nevada has been a big draw for domestic migration, adding 365,000 new residents. This is 18.3 percent of its 2000 population, the highest rate in the nation. Arizona added 700,000, or 13.7 percent of its population. Much of this growth has been driven by Californians fleeing out of control housing prices, though their own more recently developing bubbles have probably contributed to somewhat reduced domestic migration gains In recent years.

    Basket Cases in Flyover Country: However, not all is well in Flyover Country. Michigan lost 109,000 residents to other states in 2008 alone, for the deepest percentage loss in the nation (1.1 percent). Since 2000, Michigan experienced a 4.7 percent domestic migration loss, equal to the decline in Massachusetts. Further, based upon current rates, Michigan next year will probably be the first state to ever drop from above to below 10,000,000 residents. Illinois and Ohio have also suffered substantial domestic migration losses, at 4.6 percent and 3.0 percent respectively.

    Where from Here? It is, of course, impossible to tell whether these trends will continue. Domestic migration could fall even more precipitously if economic times continue to worsen.

    We cannot predict whether seemingly unlikely trends, such as net in-migration to South Dakota and West Virginia, will continue in the longer run. Will Florida’s losses continue or intensify, or will it resume its position as a magnet for residents of other states? Has the magnet of California truly lost its attraction? Will the improving trends in the Midwest begin to make up for half a century of migration losses? Only time will tell.

    Resource: State Population & Migration: 2000-2008 (http://www.demographia.com/db-statemigra2008.pdf)

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • The Importance of Productivity in National Transportation Policy

    For years, transit funding advocates have claimed that national policy favors highways over transit. Consistent with that view, Congressman James Oberstar, chairman of the powerful House Transportation and Infrastructure Committee, wants to change the funding mix. He is looking for 40 percent of the transportation funding from the proposed stimulus package to be spent on transit, which is a substantial increase from present levels.

    This raises two important questions: The first question is that of “equity” – “what would be the appropriate level to spend on transit?” The second question relates to “productivity” – “what would be the effect of spending more on transit?”

    Equity: Equity consists of spending an amount that is proportionate to need or use. Thus, an equitable distribution would have the federal transportation spending reflect the shares that highways and transit carry of surface travel (highways plus transit). The most commonly used metric is passenger miles. Even with the recent, well publicized increases in transit ridership, transit’s share of surface travel is less than 1 percent. Non-transit highway modes, principally the automobile, account for 99 percent of travel.

    So if equity were a principal objective, transit would justify less than 1 percent of federal surface transportation expenditures. Right now, transit does much better than that, accounting for 21 percent of federal surface transportation funded expenditures in 2006. This is what passes for equity in Washington – spending more than 20 percent of the money on something that represents less than one percent of the output. Transit receives 27 times as much funding per passenger mile as highways. It is no wonder that the nation’s urban areas have experienced huge increases in traffic congestion, or that there’s increasing concern about the state of the nation’s highway bridges, the most recent of which occurred in Minneapolis, not far from Congressman Oberstar’s district.

    In addition, a substantial amount of federal highway user fees (principally the federal gasoline tax) are used to support transit. These revenues, which are only a part of the federal transit funding program, amounted to nearly $5 billion in 2006. Perhaps most amazingly, the federal government spends 15 times as much in highway user fees per transit passenger mile than it does on highways. Relationships such as these do not even vaguely resemble equity.

    Moreover, truckers would rightly argue against using passenger miles as the only measure of equity. Trucks, which also pay federal user fees, account for moving nearly 30 percent of the nation’s freight. Transit moves none. Taking money that would be used to expand and maintain the nation’s highways will lead to more traffic congestion and slower truck operations – which also boosts pollution and energy use. This also means higher product prices.

    Productivity: For a quarter of a century, federal funding has favored transit. A principal justification was the assumption that more money for transit would get people out of their cars. It hasn’t happened. Transit’s share of urban travel has declined more than 35 percent in the quarter century since highway user fee funding began. State and local governments have added even more money. Overall spending on transit has doubled (inflation adjusted) since 1982. Ridership is up only one third. This means that the nation’s riders and taxpayers have received just $0.33 in new value for each $1.00 they have paid. This is in stark contrast to the performance of commercial passenger and freight modes, which have generally improved their financial performance over the same period.

    It’s clear spending more on transit does not attract material numbers of people out of cars. Major metropolitan area plans are biased toward transit but to little overall effect. At least seven metropolitan areas are spending more than 100 times more on transit per passenger mile than highways and none is spending less than 25 times.

    The net effect of all this bias has barely influenced travel trends at all. Since 1982, per capita driving has increased 40 percent in the United States. Moreover, the increases in transit ridership (related to history’s highest gasoline prices) have been modest relative to overall travel demand. Transit captured little (3 percent) of the decline in automobile use, even in urban areas. Most of the decline appears to be a result of other factors like people working at home or simply choosing to drive less. It is notable that none of the transit-favoring metropolitan area plans even projects substantial longer term reductions in the share of travel by car.

    The reason for this is simple. Transit is about downtown. The nation’s largest downtown areas, such as New York, Chicago, San Francisco, Boston, Philadelphia, Boston and Washington, contain huge concentrations of employment that can be well served by rapid transit modes. Yet relatively few Americans either live or work downtown. More than 90 percent of trips are to other areas where transit takes, on average, twice as long to make a trip – if there is even service available. Few people are in the market for longer trip times.

    These policy distortions are not merely “anti-highway.” They are rather anti-productivity. This means they encourage greater poverty, because whatever retards productivity tends to increase levels of poverty. It would not be in the national interest for people to choose to take twice as much of their time traveling. By definition, wasting time retards productivity and international competitiveness. These are hardly the kinds of objectives appropriate for a nation facing perhaps its greatest financial challenges since the Great Depression.

    For years, national transportation policy has been grounded in hopeless fantasy about refashioning our metropolitan areas back to late 19th Century misconceptions. It’s time to turn the corner and start fashioning a transportation strategy – including more flexible forms of transit – that make sense in our contemporary metropolis.

    Resources:

    Urban Transport Statistics: United States: A Compendium
    http://www.publicpurpose.com/ut-usa2007ann.pdf

    Regional Plan Spending on Highways and Transit
    http://www.publicpurpose.com/ut-rplantransit.pdf

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • Bailing out California, Again

    If many of the nation’s governors have their way, the next agenda item for the spendthrift federal government could be a bailout of state budgets. According to a report issued on December 10 by the Center on Budget and Policy Priorities, 37 states face mid-year 2009 budget deficits, totaling $31.7 billion. As would be expected from its size, California leads the pack at $8.4 billion. However, California’s shortage is well above its share, at more than one-quarter of the total which is double its share of the population.

    Yet it gets worse. Later, California Governor Arnold Schwarzenegger announced that the budget deficit had risen to $14.8 billion, which would take its share of the deficits to more than three times its share of the population. All of this is after a long and drawn out legislative process that was to have closed a previous $22 billion deficit earlier in the year.

    For years, California boasted a strong economy, with the world’s leading technology, entertainment and agricultural industries. The state’s Legislative Analyst claims that California would be the 7th largest economy in the world if it were a nation. California is rich not only in the aggregate, but at the ground level. Only eight of the 50 states have a higher gross state product per capita. This means that California is per capita the richest large economy in the world. Thus, any bailout would be disproportionately financed by parts of the country that are often far less affluent.

    How can it be that California stands in such tatters seeking a handout? Why are people from other states, at least 30 of which wouldn’t even rank in the top 50 economies of the world, being asked to prop up this dynamo?

    The problem starts in Sacramento. California has been pitifully served by its state government. After missing the June 30 statutory deadline for balancing the 2009 budget, the legislature and governor spent the better part of the next three months doing everything they could to finish the job. In the final analysis they pretended to balance the budget with math that virtually no-one believed. That’s probably why there has been so little outrage at the new $15 billion deficit that has developed so quickly.

    But the buck doesn’t stop with lawmakers. After all, California’s electorate has repeatedly sent the elected representatives to Sacramento that have produced this mess. In California the voters themselves seem oblivious to the financial status of the state.

    This is likely to get worse before getting better. In the past voters could be counted on to vote down expensive new projects in hard times. But not anymore. In November they approved more than $30 billion in additional bonded indebtedness when they should have been asking for either a draconian spending cut or the tax increases. Californians will not be stopped from living beyond their means.

    So how can this continue? One way is for the world’s richest largest economy to be bailed out by people in states that are generally poorer and have been more frugal than California. The state’s powerful congressional delegation, with such heavyweights as Speaker Nancy Pelosi and Henry Waxman, the new boss of the House Energy and Commerce Committee, are likely to see to it that the national interest is sacrificed on behalf of California.

    The final irony here is the nation and indeed the world is already paying a heavy price for another exercise in Californian excess. The state is ground zero for the mortgage meltdown. It was here that house prices exploded. State and local land use policies provided the fuel for much of the increase, so that when demand increased in response to the profligate lending, the housing supply market could not adequately respond (unlike other higher demand parts of the country).

    With the most bloated housing bubble in the nation, mortgage losses understandably were concentrated in California. California, which accounts for 12 percent of the national population has accounted for more than one-half of the aggregate loss in housing value. California house prices dropped at least 10 times as much as the national average since the peak of the bubble. When the people could not pay their mortgages, unprecedented losses occurred and house values plummeted from 25 percent to 50 percent in some areas. Enough people who had virtually no financial stake in their houses walked away.

    California’s ability to spend every dollar the nation can print on its behalf should not be underestimated. Boatloads of federal money for California are likely to postpone any genuine efforts to improve California’s long run financial picture. The often used line about fighting a fire with gasoline has few better applications. A state that has thrown financial caution to the wind is not likely to adopt the necessary frugality with a new, national source of revenue. The special interests that have driven California’s spending into the stratosphere will not be more inclined to moderate their demands or to spend less lobbying money in Sacramento’s corridors. California’s taxpayers, perhaps the most anti-tax in the nation, are not likely to accept higher taxes if Washington can be counted on to pay instead.

    There could be no worse signal to California’s dysfunctional governor and legislature than to bail them out. With the situation deteriorating daily, bailing out California could become a continuing national obligation – sort of like Iraq, but without the prospect of an exit date.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • China Should Send Western Planners Home

    For centuries, the West sent missionaries around the world to spread various gospels. It is no different now, though the clerics tend to hold degrees from planning schools rather than those overtly specializing in theology.

    This could also create tragic results as ideologies created in one context are imported into a totally foreign one.

    China, which is creating a new future, needs to forge its own path for urban development. For one thing China is experiencing unprecedented economic growth on a scale unimaginable in the contemporary West. Over the past two decades, living standards have risen at a rate that may be unprecedented in world history. Gross domestic product per capita still remains below high-income world standards, at one-sixth that of the US level. Nonetheless, there is great regional disparity, with incomes in east coast urban areas above that of urban areas in the central and western regions

    Yet in sharp contrast to the west, which has been heavily urban for over a century, China remains substantially more rural than urban. According to United Nations data, China’s population was only 40 percent urban in 2000. This compares to urban rates of over 70 percent in many high-income nations. But now people are moving in large numbers from rural areas to the urban areas, following the pattern of development that has occurred virtually wherever incomes have risen markedly.

    The reasons for the move are also the same as they have been through history: Urban areas offer great opportunities and generally higher standard of living than rural areas. The United Nations estimates that by 2030, 60 percent of the Chinese population will live in urban areas. This represents a staggering migration – the movement of 350,000,000 people – a population greater than that of the United States and Canada combined.

    Already, China has very large urban areas. Shanghai, Beijing, Shenzhen and Guangzhou have 10,000,000 or more residents. A number of other urban areas have more than 5,000,000 people. Dongguan, the world’s largest unknown urban area is nestled between Guangzhou and Shenzhen on the Pearl River Delta and no one seems to know what its population is – estimates range from 7.5 million to more than 10 million. See Demographia World Urban Areas.

    Western Planners Descend
    To a cadre of western urban planners, developers and architects, China represents the ultimate market. Like the Christian missionaries, they come to China with a sense of both rectitude and guilt about their own countries. They admonish Chinese officials “not to repeat our mistakes.” The primary mistakes, they explain, are urban sprawl (a pejorative term for suburbanization) and automobile use. To go to planner heaven, they must eschew these steps and go straight to the ideal state of smart growth, transit dependence and new urbanist principles.

    Chinese officials visiting the United States, Western Europe, Canada or Australia must wonder at the disconnect between the wasteland described by Western planners and the unparalleled quality of life enjoyed by people in the West. It is not without reason that the Chinese (and for that matter, the Indians, Indonesians, Nigerians, etc. ad nausea) would like to be rich like us. It is not without surprise that the hosts graciously listen, nod and, to their inestimable credit and good fortune of Chinese citizens, largely ignore the bankrupt advice.

    You don’t have to be an American or European to realize that the automobile has created mobile urban areas in which employers and employees have far greater choices or that mobility makes labor markets more efficient. It is not a mistake that housing built on inexpensive land on the periphery of urban areas has made it possible for so many millions to build up financial equity in their own homes, or enjoy the kind of privacy that the more wealthy or well-connected have enjoyed. Nor is it a mistake that nearby inexpensive land has been developed by retailers and other businesses who are, as a result, able to provide lower prices than would otherwise be possible.

    The West has achieved its unparalleled affluence because planners were unable to impose their will to prevent suburbanization and the expansion of mobility. They could not hold back the democratization of prosperity.

    If planners had been in charge, mass low cost, relatively low density housing would not exist. Western nations would now be principally inhabited by renters rather than homeowners. Employees would be limited to those few places they could get on foot or public transport, rather than the whole urban area made accessible by the automobile.

    There would be less wealth and it would be less broadly distributed. “Big-box” stores on the urban fringe would not have emerged, resulting in people paying higher prices with their smaller incomes.

    Indeed, for any who might wish for China to stumble in its competition with the West, it is hard to imagine a more promising strategy than importing Western planning ideas and planners to China.

    China should continue to develop commercial and industrial land on the urban periphery, while expanding the already extensive freeway system to bring production and prosperity to every nook and cranny of the nation. China should continue down the road of allowing people to live how they like, whether it is in the new high-rise luxury condominiums or the lower rise town houses and detached housing (called villas in China) that can be found throughout its urban areas. It is clear that China will continue to become more mobile (and thereby richer and more productive) as car ownership explodes and those who cannot afford cars increasingly obtain the same level of mobility with electric motorbikes.

    The operative word here is “continue.” Generally, Chinese urban planning policies have been a substantial contributor to the nation’s rising wealth. It is to be hoped that the advice of the western planners will continue to be respectfully listened to and largely ignored. The people of China are entering an era of great new opportunity; they should not close the gates just as it arrives.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • From Rhetoric to Reality on Transit

    Rhetoric always seems to trump reality in the headline department. This has been evident as a fawning press and commentators have made the most of the decline in driving from high gas prices and the related increase in transit ridership. As gas prices rose to their above $4.00 peak, driving in the nation’s urban areas had declined 2.0 percent over a year. At the same time, transit ridership rose 3.3 percent, leading to the impression that transit ridership increases had accounted for most, if not more than the loss in driving.

    Now, as gas prices dip below $2.00 nationally, $1.50 in some places and to their lowest point since well before Hurricane Katrina in 2005, there are indications that the new riders are returning to their cars. Here in the St. Louis area, where I live, prices are now $1.39, the lowest in the nation.

    The Los Angeles Times, for example, notes lower transit ridership and increased freeway traffic volumes, while the Dallas Morning News notes that it is no longer a challenge to find parking places at DART rail stations.

    As gasoline prices have returned to reality, it is a good time also for the transit rhetoric to be transformed into reality.

    First, the increase in transit ridership was never significant in overall terms. Yes, ridership increases in some systems strained capacity on the already crowded buses and trains taking workers to downtown locations. But, since transit accounts for so little in urban mobility, the increases counted for little in the overall scheme of things. For example, the 10 percent increase in ridership that occurred in the Atlanta area could account, at a maximum, for only a 0.2 percent decline in automobile use.

    The reason is simple: less than two percent of travel in the Atlanta area is on transit. Atlanta was among the leaders. In most other urban areas, the impact of the transit increase was less than 0.1 percent. It is thus not surprising that the decrease in driving and increase in transit translated into a national urban market share increase somewhat greater than 0.1 percent over the last year – that is 1 out of 1,000.

    Second, as much as some commentators applauded the shift, it is important to understand why it occurred. The shift did not occur because people had been convinced that such a move would materially reduce greenhouse gas emissions (It would not – outside the New York City area, cars emit little more greenhouse gas emissions per passenger mile than transit). The shift occurred, purely and simply, because it was in the best interests of the shifters. It saved them money and worth the time lost (transit work trip travel times are double that of the car). Now that driving is no longer prohibitively expensive, it is rational to expect much of transit’s ridership gain to be lost.

    Third, the return to the car should not be considered a reflection of the much ballyhooed “love affair” with the automobile. Simply put, people use transit where it makes sense and do not where it does not.

    This can be illustrated by six households on a typical street in Long Island’s Nassau County, an inner suburb that borders the city of New York. One in 6 Nassau County workers was employed in Manhattan in 2000. For them, travel to Manhattan from Nassau County makes total economic and psychic sense. Crossing Queens and maybe Brooklyn – particularly at rush hour – on the way to Manhattan is an experience to be avoided. In addition, train and even bus travel into Manhattan is relatively fast and, once on the island, the subway can whisk you to a dazzling array of locations. No surprise that 75 percent of Mahnattan workers take transit to work.

    But what about the other five workers? Even in New York, transit services to work locations other than Manhattan tends to be sparse. As a result, the other five neighbors who do not work in Manhattan drive to work. It’s not those five have a love affair with the automobile, any more than the Manhattan commuter has romantic attachments to the subway. It simply indicates that for 5 of the workers, using a car makes sense, while for one, using transit does.

    Indeed, if one is looking for true love affairs, look to refrigerators or toilets. It can be expected that all six houses have them. Of course, such a characterization would be ludicrous. People tend to adopt those products and practices that make their lives better. For those few (in the national context) who work in the largest downtown areas, transit makes their lives better. For those working elsewhere, cars do. Finally, it can be expected that when all six workers go to a supermarket, the furniture store or Jones Beach, they use the car. Even Manhattanites abandon transit to motor on weekends to their second homes across New Jersey and into Pennsylvania in the Poconos.

    Some transit advocates believe the answer is to expand transit service so it can be as convenient and time-effective as an automobile. There are two difficulties with this. The first is that any such expansion would likely cost more to build and operate, each year, than the total personal income of any urban area attempting it. This is probably why no one has ever seriously proposed it. There is another issue: history shows that new money for transit does not produce a corresponding increase in transit ridership. From 1970 to 2006, US transit expenditures rose 270 percent, after adjustment for inflation. Over the same period, transit use rose less than 20 percent. The result – only 7 cents of new value (new transit ridership) was obtained for each new $1.00. So any infusion of new cash to expand transit service is likely to be largely wasted.

    Talk of auto eroticism or of a transit oriented future can capture the romantic sense in people and planners. But the reality remains that people will choose the mode of transport that makes their lives better, not those that make their lives more difficult.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”