New Geography

Category: housing

  • Urban Legend: Wei Ping Contemplates Motherhood

    Driving through the bustling Orchard Road in the heart of Singapore, Wei Ping stares at the shiny new Prada hoarding. Maybe she should ”invest” in a new Prada bag. She must watch out for the next big season sale. Her birthday is a distance away but ever since she and her husband had started talking about the baby, she needed some retail therapy to lift her mood.

    As she drives under the ERP (Electronic Road Pricing) barrier at Orchard Road at the heart of Singapore her mind shifts to the balance in her cash card and the fact that she should load it soon. Singapore, like many other cities trying to control car population, levies an entry tax every time you drive into the central business district. Every car comes fitted with a special electronic unit that can be read by the overhead ERP gantry. All that a car driver needs to do, is insert a cash card into the special unit and hope that the cash card has enough money in it to avoid being fined. The electronic gantry allows for manipulation of the ERP amount depending on the traffic. The amount to be deducted is prominently displayed on the gantry but once you are in the queue for entering the city, and realize that the balance in the cash card is lower than the entry tax you budgeted, you are in trouble with the LTA Local Transport Authority anyway in this “fine” city.

    The 30 year old prides herself in maintaining a smart yet frugal existence, the famous “kiasu” attitude of Singaporeans, which many outsiders interpret as “stinginess” but to Wei Peng is all about  getting the maximum out of a deal, the only way to go.

    Coming on top of inflated car and fuel prices as well as road tax, cost of living in one of the most modern cities in Asia tops the concerns for most people in Singapore. Worse, with rising prices, Singaporeans have to think twice before doing what they like best: upgrading housing and clothing to better housing and better clothing. In fact being kiasu, or looking out for the best deals in housing, clothing and food, is really the only smart way to survive in this expensive city. And that was the reason why Wei Peng had driven 45 minutes all the way from the heartlands (normally called suburbs) to the centre of town, braving the Friday evening crowds and struggling for 10 minutes for a parking slot, to check out the year-end deals in the shopping district.

    Wei Peng has a friend who had recently landed a job with a property developer. Fuelled by a real estate boom and resulting commissions, Diane has booked a swanky new condominium close to her current HDB (government provided) unit, significantly upgrading her lifestyle. Wei Peng would love to do the same, for that she would have loved to look for a job paying more than her current one of three years. However she knows it wouldn’t be possible, especially since her husband of two years had actively expressed interest in starting a family. The painful afterthought of financial implications of an expanding family was all she could think about lately.

    For years now, Singapore has been struggling with a declining birth rate. The government has tried to stem it with cash incentives, extended post-pregnancy leave and open immigration policies with limited success at best.

    The Singapore of today is faced with twin problems of slowing birth rate and ageing population. In 2000, 14% of women between age 30-39 chose to remain childless. By 2009, this figure has gone up to 20%. A similar trend was seen in the 40-49 year age group. In a country with a life expectancy of 81 years, the age support ratio or the ratio of working age population (15-64) to the elderly (65+) has declined from 9.9 in the year 2000 to 8.2 in 2009. (Source: Singstat.gov.sg)

    In human terms this translates into a no escape from cost of living even after retirement. There is no cheaper “hinterland” they can migrate to. The newspapers are full of stories of ungrateful children and abandoned elderly parents. A recent government campaign talks of family values and of children fulfilling their duties towards their parents. Wei Peng, who is an only child, knows she has to think of taking in her parents in to live with her someday. And for her husband, it means sharing the duties of “filial piety”, as the campaign calls it, with his younger siblings.

    Most of her friends were not keen to become parents anytime soon. The few who did relied on their retired mothers and fathers but she could not think of imposing on her parents’ lifestyle. She saw a close friend go through one child after another in quick succession and finally decided to quit her flourishing career in the private sector. Her friend’s life is now consumed with the tension of getting admissions into a reputed school, and hustling the children into “special classes” ranging from music to sports. They don’t talk on the topic but for Wei Peng the thought of giving up her own ambitions hurts. Not to mention the small sacrifices like giving up on the comforts of a car for the city’s clean, efficient but often very crowded public transport.

    After all, starting a family meant having to plan for one less income, at least for some time,  and additional expenses indefinitely. For instance, raising a child would mean hiring a full-time nanny. Finding a nanny is easy, thanks to Government policies that allow “domestic workers” to live and work in Singapore. However, keeping a nanny means paying the government two hundred odd dollars as tax, not including the worker’s salary and the cost of her upkeep. Having a baby would also drive a more disciplined lifestyle.

    Right now, she’s cooked in her kitchen precisely two times, once for Chinese New Year and the other when her husband’s parents had come over. It was simply more convenient and maybe even cheaper to eat out at the various hawker centers/food courts conveniently scattered across the city. Of course eating out came with the added attraction of hanging out with like-minded friends, especially over the weekend. She looked forward to scouring the papers for a new restaurant review that could potentially be the weekend outing.

    With a baby, the look of her pristine kitchen would definitely change. Was she ready to stop looking after that lovely coffee machine and the induction cooker which looked like it belonged in a show flat even after two years?

    No eating-out, no annual holiday, increased expenses, maybe missing that promotion she so wanted…where were the positives to motherhood?

    As she drove into the overcrowded car park filled with deal seeking crowd, her glance fell on the road tax sticker stuck to the windshield. The expiry date was within 15 days! Oh well, she sighs, another day, and another expense. Prada will have to wait for a while and the baby, a while longer.

    Note: Wei Peng is fictitious but Singapore’s baby problems are real.

    Vatsala Pant is a management graduate with several years of business leadership experience and a connoisseur of people, places and cultures. She currently lives in Singapore.

    Photo of Singapore ERP system by Flickr user choyaw99.

  • California’s Deficit: The Jerry Brown and ‘Think Long’ Debate

    California has three major problems: persistent high unemployment, persistent deficits, and persistently volatile state revenues. Unfortunately, the only one of these that gets any attention is the persistent deficit. It is even more unfortunate that many of the proposals to reduce the deficits are likely to make all three of the problems worse over the long run.

    Two major proposals to deal with the deficit will shape the coming debate. One is from the newly formed Think Long for California Committee; the other from the governor.

    Governor Jerry Brown’s plan would increase sales taxes, and would increase the tax rate on the portion of anyone’s income that is over $250,000 (the marginal rate). It is a general rule of tax analysis that if you want there to be less of something, tax it. Indeed, this proposal would result in some wealthier people leaving California, and it would accelerate the trend of substituting internet retail purchases for local retail purchases.

    It would also increase California’s tax receipt volatility. California’s tax base is dependent on the income of a relatively small group of wealthy people. It turns out that this income is more volatile than the economy. Increasing top marginal tax rates would only increase the volatility of the state’s revenue.

    So, why would the governor make such a silly proposal? I’ve heard a few reasons.

    • The government is starving and it needs the income now.

    This is nonsense. Combined national, state, and local government spending is now over 35 percent of gross product. This is highest it has ever been, including the peak spending years of World War II.

    We can disagree on the optimal size of government, but to argue that this is a time of scarce government spending is absurd.

    • The wealthy have too much money. We must increase the progressivity of California’s tax code.

    The governor’s proposal will do that. If implemented, the plan will give California the highest marginal tax rates in the United States. The problem is that people with high incomes often have more choices than most of us. They can move. They can reallocate earnings to other states or into less-taxed activities. They can just forego earnings if the return is too low.

    Most analysts agree that California’s tax structure should be broader based. The only way to do that is to make the system less progressive, not more progressive. Increasing taxes on the wealthy may feel good when the law is implemented, but it will eventually lead to lower tax revenues, increased revenue volatility, and slower economic growth.

    • There is nothing else we can do. The political situation does not allow a better fix.

    It never will be easy to implement comprehensive tax reform in California. There are too many groups with too much at stake. However, it is senseless to argue that we should therefore increase the distortions in an already distorted tax code. California has been doing this for years, and it just keeps making things worse. California’s governance is a mess precisely because it is the result of hundreds of ad-hoc decisions.

    California desperately needs comprehensive tax reform, “if not now, when?”

    Which brings us to the proposal by the Think Long for California Committee . The Think Long committee is a subset of California’s political elite. You will recognize many of the names; for a start: Nicolas Berggruen, Eli Broad, Willie Brown, Gray Davis, Condoleeza Rice, Bob Hertzberg, Eric Schmidt, Terry Semel, Laura Tyson, and George Schultz. The proposal has three components:

    Empowering Local Governments and Regions: Here’s what it says about decentralizing decision-making: “While the committee embraces the principles of de-centralization, devolution and realignment of revenues and responsibilities, we have not endeavored to propose precisely how that should be accomplished.”

    That’s a bit like endorsing Mom and apple pie, isn’t it? The committee has not earned itself any honor or credibility by failing to have a proposal for one of the three major components of its plan, the first that it enunciates.

    Improving Accountability: “The Citizens Council For Government Accountability – an independent, impartial and non-partisan body – would be established to develop a vision encompassing long-term goals for California’s future.”

    Only, it is not a citizens group at all. It would be funded by the state, and it would have access to state agencies for support. Nine of the committee’s thirteen members would be appointed by the governor, two of whom could not be registered in either party. The Senate Rules Committee and the Speaker of the Assembly would each appoint two members, one from each major party. The committee would have four non-voting ex-officio members: the director of finance, the state treasurer, the state controller, and the attorney general.

    That sounds to me a lot like just another government agency. Not exactly; this would be a super-committee with broad powers. It would soon be involved in almost every aspect of California’s government. The committee would have subpoena power, and the ability to publish on the election ballot its comments and positions on proposed ballot initiatives and referendums, as well as to place initiatives directly on the ballot.

    Giving the committee the ability to place initiatives directly on the ballot is a nice touch in a document that elsewhere tries to make it more difficult for others to place initiatives on the ballot.

    Restructuring the Tax Code: California’s tax code needs restructuring, no doubt about that. This proposal doesn’t get us to where we need to be, though. It reduces sales tax rates, top marginal income and business tax rates, and deductions from personal income taxes, except for education and health care, and for taxing services.

    In general, these are steps in the right direction. However, exempting education and healthcare is a serious, perhaps fatal, flaw. It amounts to a huge subsidy for those industries, and places an extraordinary burden on the remaining service providers. The exempted industries are big, and exempting them means higher taxes on other service providers.

    Who would actually bear the tax burden? That depends on the elasticities of supply and demand. In general, when demand is less elastic than supply (when the consumer is relatively indifferent to price changes), the consumer bears the tax burden, which is what is desired. However, for many services, it would appear that demand is not that inelastic.

    Consumers can easily reduce the frequency of services such as haircuts, lawn maintenance, and the like. This would shift the burden of the tax from the consumer to the provider, that is, the hairdresser or landscape worker. In many cases, these are very low-income workers, making the tax extraordinarily regressive. California’s tax code needs to be less progressive, but this could be a huge regressive swing, one that would create extreme hardships for some of our least advantaged citizens.

    Economic theory is clear that there are fewer distortions in consumption taxes than in income and capital taxes. However, these models assume that the tax burden is squarely placed on the consumer. It appears that for many services this may be impossible. Perhaps that is why we don’t observe many service taxes.

    It is also the case that, in many services, taxes are avoided by the use of cash transactions. Estimates of the size of the “underground economy” vary, but most economists believe it is significant. A tax on services would likely increase its size dramatically.

    The Think Long proposal is not the solution to California’s challenges. It does, however, represent far more thought than went into the governor’s proposal. It provides a service, in that it provides a starting point for a conversation that California desperately needs.

    Photo by Randy Bayne; California Governor Jerry Brown

    Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org

  • Central Florida: On the Cusp of Recovery?

    Central Florida is poised at the cusp of a major turnaround, and its response to this condition will either propel the region forward, or drag it backward.  This cusp condition is brought about by a train and a road; neither of which have begun yet but both of which appear imminent.  Sunrail uses existing 19th century railroad tracks as a commuter spine through Orlando’s disperse, multipolar city.  The Wekiva Parkway completes a beltway around Orlando, placing it with Washington DC, Houston and other ringed cities.  Before either gets built, the region deserves some analysis on their combined effect, and how they can be nudged onto a pathway to make the region better.

    Sunrail brings with it mythology  about how trains affect cities.  In what has now become the standard, tired kabuki dance between developer interests and municipal ones.

    Not surprisingly, heavy regulation has entered the scene, with the avowed goal of creating dense urban pockets along even largely rural  train stops. This has sparked rising property values which may end up  frustrating the dream of transit-oriented development (TOD).  Affordable dwellings and meaningful employment within a half-mile of a train stop must be created in order to make this development work, but unless Central Florida can spark this, the new train will likely suffer from the same fate as the vast majority of its sunbelt counterparts:  low ridership and increasing tax subsidies.

    Inserting TOD into 17 locations in Central Florida is a bold experiment. In order for it to work, the rising costs of housing will need to be addressed, and Central Florida can take advantage of this ambition to succeed.  Orlando home sales are coming back, thanks to the mild climate and desirable lifestyle. That is very different, however, from guaranteeing that the economics of the rail commuter will make it worth discarding the single-family detached American Dream in favor of a relatively new model that has an unproven track record.

    Orlando also seems to be blithely going about the business of creating another ring of traffic around itself, descending into the same level where Atlanta’s Perimeter, the DC Beltway, and other like-kind roads live.  The Wekiva Parkway, long considered unneeded, is now being designed to complete the ring around Orlando, and will cross 25 miles of pristine wetlands that is a vestige of once-vast water resources of the region. 

    The Expressway Authority proposes this ring as an alternative to existing roads to serve the “growth needs of this area,” it conceded recently that this road segment made little economic sense except as a toll road accessing a new suburban single-family home development carved out of the swamps by one of the Governor’s chief fundraisers .  The asset value of this ring road may be more private than in the public interest.

    Traditionally agricultural land interlaced with wetlands, The Wekiva area to the northwest of Orlando has avoided large-scale Florida style bulldozing.  All this will change if the Governor is successful in eliminating water management regulations , freeing up much of Florida, including this corner of Orlando, for speculation.

    The local press, quick to criticize Alaska’s Bridge to Nowhere and always ready to jump on environmental issues, meekly ponders  the need for this $2 billion highway.  Maybe the elevated design, intended to be more ecologically friendly, makes it OK, despite the safety problems and high maintenance associated with this design.  Florida’s history is littered with the drawings of many other elevated highways eventually built on grade to save cost.  Once approved, the Wekiva Parkway may quickly be brought down to earth as well, displacing wetlands and agricultural land.

    The Wekiva Parkway will open up land supply which indeed will allow for more growth.  Done right, the asphalt will make land available that could be useful to the area’s economy.  It will bring traffic to historic, but presently lonely Sanford, potentially infusing the economy of this once-vibrant rail town.  Using principles of scarcity, land values could reflect people’s high desire to live in rural areas with all the services and guarantees that 21st century suburban life offers: fire and police protection, state-of-the-art infrastructure, and free pizza delivery.  It could invigorate neighboring towns that are currently struggling for survival.

    The risk is that such a road will simply allow more investment into Florida real estate without giving Florida much back in exchange.  Florida, already strained to meet its current population needs, should not simply trade another commercial strip for water resources that benefit many species and contribute to the region’s resilience. Rather, development models should emulate the best of America’s conservation development happening in states where water rights are scarce.  Connecting local employers with residential areas will enhance the value of both, and strategically keeping rural agricultural areas intact will preserve the region’s present land use diversity.

    Well managed development that conserves resources and balances broader needs with private interests will elevate the state’s prospects at this critical juncture.  One more bit of the original subtropical wilderness represents an asset for both present and future generations. With the right approach, the Wekiva Parkway can provide an enlightened model of low-density development that respects the value of open space.

    In town, Sunrail presents denser development as an alternative.  The normal pathway, however, seems to pit the profit-seeking real estate developer against ever higher regulatory burdens, which eventually make his product unaffordable to those coming here to escape high costs and regulations in other cities.  Keeping both employment and housing affordable are critical to achieving success with any of these projects.

    Moving product down the value chaindoes not do well current system, which leaves out the very people who Sunrail supposedly will benefit.  Density is one of those characteristics that seems to be about good timing: if you have it today, like San Francisco or New York, this is largely the result of history;  if you do not have it today, like Orlando, it is risky and probably a dubious proposition.

    The road and the train open up land that must be carefully stewarded to create opportunities for meaningful employment and affordable housing, both of which are presently scarce commodities.  The concept of transit-oriented development needs a success story, and Sunrail provides 17 opportunities to find one; meanwhile, the road presents a danger as well as an opportunity for Florida’s wetlands.  As the region slowly recovers from the recession, the two projects together should be carefully considered by the region’s citizens and leadership to truly redefine Central Florida’s identity for the 21st century.

    Richard Reep is an Architect and artist living in Winter Park, Florida. His practice has centered around hospitality-driven mixed use, and has contributed in various capacities to urban mixed-use projects, both nationally and internationally, for the last 25 years.

    Photo courtesy of BigStockPhoto.com.

  • California: Codes, Corruption And Consensus

    We Californians like collaboration. Before we do things here, we consult all of the “stakeholders.” We have hearings, studies, reviews, conferences, charrettes, neighborhood meetings, town halls, and who knows what else. Development in some California cities has become such a maze that some people make a fine living guiding developers through the process, helping them through the minefields and identifying the rings that need kissing.

    Here’s an example. This is a (partial?) list of the groups who will have a say on any proposed project in my city, Ventura:

    • City agencies (Planning, Engineering, Flood Control, Traffic, Building & Safety, Utilities, Police, Fire)
    • Historic Preservation Committee
    • Parks and Recreation Committee
    • Design Review Committee
    • Planning Commission
    • City Council
    • School District
    • Neighborhood and Community Councils
    • No-Growth Citizen Groups
    • Chamber of Commerce
    • Ventura Citizens for Hillside Preservation
    • California Department of Fish and Game
    • United States Department of Fish and Wildlife
    • Ventura County Local Agency Formation Committee (discretionary authority regarding annexations)
    • Los Angeles Regional Water Quality Control Board (new MS4 Stormwater Permit issues)
    • Ventura County Environmental Health
    • California Coastal Commission (for some projects within the Coastal Zone)
    • California Native American Heritage Commission and Designated Most Likely Descendant of local tribe
    • United States Army Corps of Engineers
    • Natural Resources Defense Council, Surfrider Foundation, Heal the Bay, other environmental groups
    • And all parties who have requested to be on notice, as well as the general public and other agencies, will be informed of any California Environmental Quality Act (CEQA) document.

    I didn’t pick Ventura because it is the most difficult. It’s not. I think Ventura is pretty typical for a coastal California city, actually.

    The result of having all these stakeholders is that, in many California communities, particularly those in coastal and upscale locations, everyone has a veto on everything. At the beginning of a project the developer faces a huge amount of uncertainty about what the project will look like once it gets past the gauntlet and about the cost of the development process. Add to that uncertainty about who will demand what, how long the approval process will take, market conditions and the regulatory environment when the project is completed, if it is completed.

    This is where the corruption connection comes in.

    In economics, we teach that there are two types of corruption, centralized and decentralized. Decentralized corruption is the more pernicious of the two.

    Think of a city where organized crime has a successful protection racket. This would be centralized corruption. The mob is going to collect from everyone, but it has an incentive not to collect too much. It doesn’t want to draw too much attention to itself or chase the business out of town.

    By contrast, decentralized corruption consists of a bunch of independent gangs, each trying to collect all they can before the next group of thugs comes along. Each gang of thugs will demand and collect too much, and chase the business out of town.

    Of course, if you want to develop a property in California no one will hold a gun to your head and demand money, and everyone is way too polite to call it extortion. Certainly, no group thinks of itself as a mob of corrupt gangsters. Instead, the members think of themselves as stakeholders, and they hold delays, lawsuits, or project denial to your head. The results are the same.

    First, you have to meet everyone, and everyone wants something in return for support, or for refraining from opposition. Groups will demand “mitigation fees,” delays, studies and more studies, and changes in the project. You will meet their demands, or you will be sued, or the project will be denied.

    Time spent on meetings, studies, and negotiations is expensive. The cost of the local “guide,” necessary to get through the local maze, is expensive. The “mitigation fees” are expensive. Delays are expensive. Studies are expensive. Changes in the project are expensive. Lawsuits are expensive. And risk is expensive.

    Eventually, the project is no longer profitable. No wonder California’s unemployment rate is 30 percent above the United States unemployment rate.

    The current climate provides California’s local governments with their best economic development opportunity: Eliminate the legal extortion by guaranteeing a project’s prompt approval if it meets existing general plans, specific plans, zoning, building codes, and adopted design criteria. Any community that did this would see immediate increased economic activity. To steal a phrase from a famous economist, it is the closest thing to a free lunch.

    A city does outreach before it develops its zoning and community design plans. It only adds to the cost of development to require builders to go through the entire process again, fighting the same battles, every time a project is proposed.

    The best thing about this idea is that it has been tried, and it works. The City of San Diego has seen an amazing-for-California energy since its redevelopment agency implemented such a plan several years ago. In the worst economy in 50 years, San Diego has been building and providing commercial and housing projects for all economic levels in its downtown area. It is time for the rest of California to get on with it.

    Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org

    Photo: Two Tree Hill, Ventura California by Joseph Liao (Chowee).

  • Let’s Level the Inter-generational Playing Field

    With President Obama’s speech in Osawatomie, Kansas decrying the growing economic inequality and lack of upward mobility in America, the issue has finally arrived at the center of this year’s campaign debates. While most discussions of this growing inequality focus on the gap between America’s poorest and richest citizens, a recent report by the Pew Foundation highlights how the same economic trends over the last two and a half decades have also widened the wealth gap between the oldest and youngest Americans to the highest levels in history.

    In a time of great political unrest and economic anxiety, this inter-generational wealth gap has the potential to throw gasoline on an already white hot fire. Only by understanding the sources of this increasing disparity can the country develop policies that will help to close the gap and create a fairer, less economically stratified society.

    Drawing on data provided by the U.S. Census Bureau’s Survey of Income and Program Participation (SIPP), Pew documents the tectonic shifts that have occurred in households’ net worth based upon age between 1985 and 2009. During this time, the average net worth of households headed by those under 35 fell from $11,521 to just $3,662, a drop of 68%.  During the same period, the net wealth of households, as measured by adding up the value of all assets owned minus liabilities such as mortgages or credit card debt associated with those assets, headed by those over 65 increased by 42%, from $120,457 to $170,494 (all figures are expressed in 2010 dollars).

    Of course younger households have always been less wealthy than older ones, since the heads of those households haven’t had a lifetime to acquire wealth. In 1984, this effect of age on household wealth meant that senior citizen households had, on average, ten times the wealth of those headed by people younger than 35. However, the enormous generational shift in household wealth that occurred in the intervening twenty-five years meant that, by 2009, the net worth of senior citizen households was 47 times greater than younger households. The resulting disparities in economic well-being are reflected in each generation’s perception of its own economic situation.  

    Those Americans over 65 in 2009 are members of what generational historians call the Silent Generation. Only 25% of Silents expressed any dissatisfaction with their personal financial situation that year, a percentage that did not increase in the next two years of the Great Recession.

    By contrast, 36% of people under 35 in 2009 – mostly members of the Millennial Generation – expressed dissatisfaction with their individual finances in 2009, a number that rose to 39% in 2011. But the biggest jump in dissatisfaction with personal finances between 2009 and 2011 occurred among the next older cohort, who are considered to be members of Generation X. In 2009, only 30% of Xers felt dissatisfied, a number that shot up to 42% in 2011.  Finally, 32% of the Baby Boom generation, born from 1946 to 1964 and approaching their retirement years in 2009, were dissatisfied with their personal financial situation, a number that rose only to 39% by 2011.

    One of the reasons behind this disparity of financial and economic concern among generations lies with the different impact the nation’s housing market has had on each generation between 1985 and 2009.  The great housing price collapse that began in 2008 had little impact on Millennials, only 18% of whom currently own their own home. By comparison, 57% of Gen Xers own their own home. Three-fourths of them bought after 2000 when housing prices began to soar. As a result, about one in five members of Gen X now say their home mortgage is under water, with the balance owed greater than the value of the house. By comparison, only 13% of Boomers and a miniscule 4% of Silents, most of whom bought homes well before the crash, report having under water mortgages. In fact, if it weren’t for the overall rise in housing prices since 1984 that Silents were able to take advantage of, that generation’s net worth would have fallen by a third in the twenty-five years since, instead of rising by 42%. Clearly, to improve Gen X’s attitudes toward the economy and reduce the inter-generational wealth gap, something must be done to fix the nation’s housing market.

    For older generations – Boomers facing retirement and Silents already enjoying their new life – housing is not an especially large concern. Retirement savings based on stock market valuations and/or interest rates and the certainty of pension payments are clearly a much bigger issue with these generations. Almost two-thirds of Boomers believe they may have to defer their retirement beyond 65 because of the decline in their savings and net worth, with about one in four now expecting to work until at least 70. While the stock market has almost fully recovered from the 2008 crash, for those counting on a more interest-oriented set of retirement payouts from bonds or CDs, years of rock bottom interest rates, designed by the Federal Reserve to stimulate the housing market and help the economy recover, have made these investments problematic at best. In some ways, economic policies that are designed to help Gen X with their housing challenges offer older generations scant comfort, and in certain instances actually exacerbate their concerns over their personal finances.

    Millennials diminished sense of economic opportunity remains focused almost entirely on the job market. About two-thirds of Millennials are employed but only slightly half of those are working full-time. Almost two-thirds of Millennials without a job are looking for work. Unemployment among 16-24 year olds rose to 19.1% by the fourth quarter of 2009, a full eight points higher than in 2007 before the crash. For all other generations, unemployment has gone up on average by only 5 points during the same time period. It seems too obvious to be worth stating, but the best way to increase Millennials’ wealth is to create an economy where they can all find jobs.

    Anxiety that the nation’s economy is only working for the wealthiest drives much of  the overall feeling of fear, uncertainty and doubt that pervades the nation’s political debate.  But an examination of household wealth suggests the remedy to this disease varies by generation.

    Senior citizens turned out in record numbers in the 2010 election to decry the policies of the Obama administration, but it would appear from both the economic and attitudinal data that most of them are more interested in fighting to hang on to what they have or in resisting other societal changes than in expressing any dissatisfaction with their own personal financial situation. Boomers complain about what has happened to their plans for retirement, but it is hard to see how fixing entitlements by raising the retirement age, or cutting the overly generous pensions of public employees will do anything to impact their own retirement prospects directly. To really close the generational wealth gap, policies should be adopted which raise the economic well being of America’s two youngest generations, rather than focusing on those who are already relatively better off. 

    To bring up the least wealthy of the nation’s households to levels closer to those more fortunate would require taking much more aggressive steps than Washington has so far been willing to consider.  This might require expanding the scope and size of government, something older generations especially are steadfastly resisting. This inter-generational debate over the nation’s “civic ethos,” driven by the differing economic circumstances of each generation, will be and ought to be the fundamental issue of the campaign – precisely where President Obama’s speech in Osawatomie, Kansas placed it.

    Morley Winograd and Michael D. Hais are co-authors of the newly published Millennial Momentum: How a New Generation is Remaking America and Millennial Makeover: MySpace, YouTube, and the Future of American Politics and fellows of NDN and the New Policy Institute.

  • Durban, Reducing Emissions and the Dimensions of Sustainability

    The Durban climate change conference has come to an end, with the nations of the world approving the "Durban Platform," (Note 1) an agreement to agree later on binding greenhouse gas (GHG) reduction targets by 2020. The New York Times reported: "Observers and delegates said that the actions taken at the meeting, while sufficient to keep the negotiating process alive, would not have a significant impact on climate change."

    Not surprisingly, not all are pleased by the largely toothless agreement. Nnimmo Bassey, chair of Friends of the Earth international, told The Guardian:"Delaying real action till 2020 is a crime of global proportions." Todd Stern, the United States representative, signed on to the deal but noted that "there is plenty the US is not thrilled about."

    There is general agreement that any program to reduce GHG emissions must do so in the most efficient (least expensive) manner. The United Nations Intergovernmental Panel on Climate Change (IPCC) has concluded that sufficient emissions reductions can be achieved for between $20 and $50 per ton. Any cost above that must be considered wasteful and likely to reduce economic growth, while increasing poverty.

    Yet, researchers often leap from identifying a strategy to reduce GHG emissions to recommending its implementation, without ever examining the cost.

    Often  missed for instance, is that reductions in some sectors may prove less expensive than in others. The European Conference of Ministers of Transport has noted that "It is important to achieve the required emissions reductions at the lowest overall cost to avoid damaging welfare and economic growth." Across-the-board targets would misallocate resources, unnecessarily reducing economic growth and increasing poverty. This is particularly important in transport, because IPCC data indicates the potential for cost effectively reducing GHG emissions from this sector is considerably less than its contribution to emissions.

    GHG Emissions from Automobiles: In the United States and other high income nations, however, mandates are being pursued that would impose far higher costs. Our new report, published by the Reason Foundation, Reducing Greenhouse Gas Emissions from Automobiles reviews two general approaches. The first is behavioral approaches, the favorite of policymakers, that would force people to leave the suburbs to live in higher densities ("compact city" or "smart growth" policies) and discourage personal mobility. The second is facilitative approaches, which would reduce GHG emissions through technological advances, minimizing the necessity for command and control mandates over people’s lives.

    Behavioral Approaches: In what passes for the conventional wisdom, current thinking would require densification for virtually all new development, while trying to force people out of cars to travel by transit, bicycle or walking, all characterized as "sustainable" transport modes. Further, these strategies would seriously impede personal mobility by increasing travel times and reducing access to employment. This reduction in accessibility to jobs would be a backward step for any nation interesting in longer term economic growth (Note 2).

    The behavioral strategies are described in two principal US reports: Driving and the Built Environment which was produced by the National Research Council and Moving Cooler, by a consortium of organizations led by the Urban Land Institute and Cambridge Systematics. Each of these reports provides detailed estimates of the GHG emission reductions to be expected from land-use and mass transit strategies by 2050 in the United States.

    The reductions are relatively modest, averaging less than 5% from the early 2000s to 2050 .  Driving and the Built Environment indicates that the drafters did not agree its most aggressive scenario was achievable. Moving Cooler was soundly criticized by the American Association of State Highway and Transportation Officials and on these pages by leading transport consultant Alan E. Pisarski (see: ULI Moving Cooler Report: Greenhouse Gases, Exaggerations and Misdirections).

    These proscriptive policies focus on housing and land use even thought nearly all of the improvement in GHG emissions would result from automobile fuel economy improvements, not compact city policies. Depending upon the scenario, between 89% and 99% of the reduction in GHG emissions from cars by 2050 (Figure 1) would be the result of fuel economy improvements, rather than from compact city policies (based on comparison base year, early 2000s, fuel economy).

    Moreover, even the modest 1% to 11% reduction (5% average) in GHG emissions due to compact city policies are likely high because of greater traffic congestion, which neither report considers. Higher density urban areas, such as compact city policies would require, would spark greater traffic congestion. This means that cars travel slower and in more erratic traffic conditions. This, ironically, increases fuel consumption and GHG emissions per mile or kilometer. Thus, as noted here before, under these policies, GHG emissions from cars could actually increase.

    Neither Driving and the Built Environment nor Moving Cooler report considers the economic impact of compact city land rationing, which drives up housing prices and could thus be expected to impose higher costs on households. The economic literature is virtually unanimous in associating higher land and thus house prices with smart growth type land rationing policies. The increased costs could be many times the IPCC $20 to $50 per ton of GHG emissions removed.

    Even the popular assumption that suburban housing produces materially greater GHG emissions is questionable. Most US research fails to capture the common GHG emissions from elevators, heating, air conditioning, lighting, etc. in larger multi-unit housing, which are costs attributed to the building itself (landlord or condominium building) as opposed to  household energy bills (simply because there are no data). Yet, research in Australia indicates that common GHG emissions render higher density multifamily housing more GHG intensive than either townhouses or detached housing. Also escaping many researchers is the fact that carbon neutral housing is being developed, which could remove any GHG emissions differences between housing types.

    Compact city or smart growth policies have little potential to reduce GHG emissions and would do so at exorbitant costs that are well beyond those identified by the IPCC. This is not surprising, since compact city and smart growth policies have been widely touted long before the general concern over climate change. Denser cities have been pushed as a means to improve “community,” spur economic efficiency,   reduce air pollution and deal with such ephemeral – given recent massive energy finds – notions of “peak oil”.

    Facilitative Approaches: Any achievable program to reduce GHG emissions must be multi-dimensional and focus primarily on achieving that goal in the most economically and socially beneficial manner and not be based upon tired policies designed long ago to serve other agendas. There is no need for expensive and draconian compact city approaches. A report by McKinsey and the Conference Board concluded that substantial and cost effective GHG emission reductions were possible, “while maintaining comparable levels of consumer utility,” which was defined as “no change in thermostat settings or appliance use, no downsizing of vehicles, home or commercial space and traveling the same mileage.” In other words, there is no need to interfere with people’s lives or preferences (Note 3).

    The most promising approaches involve improvements in fuel economy. For example, Volkswagen has developed a two-seater car that achieves 235 miles per gallon (US) of gasoline or petrol (1 liter per 100 kilometers). With current fuel economy averaging little over 20 miles per gallon (12 liters per 100 kilometers) in the United States, the frontiers of fuel economy improvement have barely been approached.

    Moreover, substantial GHG emissions reductions can be achieved at levels far below 235 miles per gallon. The United States Department of Energy, Energy Information Administration (EIA) forecasts that even if driving increases 29% from 2005 to 2025, GHG emissions from cars would be reduced by 7% (Note 4). If, as is demonstrably possible, the EIA forecast fuel efficiency improvements were to continue to 2050, the reduction would be 19%, despite an increase in driving of more than 60%. At a slower driving growth rate more consistent with more recent trends, the reduction could be 33% (Figure 2).

    Further, if the US light vehicle fleet (cars and sport utility vehicles) were to achieve the current fuel economy performance of the best hybrid vehicles, the reduction in GHG emissions would be between 55% and 64% by 2050. Matching European performance forecasts would reduce GHG emissions even more.

    A substantial increase in the fastest growing sector of commuting, working at home (often telecommuting), could also help. Nothing can cut emissions more thoroughly than working at home, which produces zero GHG emissions. Yet, this innovation – which already surpasses transit use in most American metropolitan areas – inexplicably receives little or no attention from planners intent on herding people into higher densities and travel modes that take longer.

    The great advantage of facilitative approaches is that, as the McKinsey-Conference Board report indicates, people are permitted to live their lives as they prefer even as emissions are reduced.

    The Dimensions of Sustainability: Perhaps the greatest problem with behavioral approaches is that they may not be sustainable at all. Sustainability is multi-dimensional. Compact city and smart growth policies lack financial sustainability because they spend far too much per ton of GHG emissions. They lack economic sustainability because they would impose substantially higher costs, especially on housing prices. Ultimately, unless humans radically change their demonstrated preferences, compact city and smart growth policies may not be politically sustainable because people are likely to resist them either at the ballot box, or by moving – as demonstrated in the latest census – even further out from the urban core or to smaller, less regulated and less dense regions. All three dimensions of sustainability, financial, economic and political, must be prerequisites to material GHG emissions reductions.

    Notes:

    (1) Reuters provides an early summary of the Durban Platform.

    (2) The strong connection between economic growth and minimizing urban travel times is identified in research such as by Prud’homme and Lee at the University of Paris and Hartgen and Fields at the University of North Carolina, Charlotte.

    (3) The McKinsey-Conference Board report was co-sponsored by Shell, National Grid, DTE Energy and Honeywell, as well as environmental advocacy organizations, the Environmental Defense Fund, the Natural Resources Defense Council (NRDC),

    (4) Proponents of compact city policies sometimes claim that fuel efficiency improvements cannot reduce GHG emissions because the increase in driving neutralizes their impact. EIA projections indicate otherwise, as is shown here.

    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”

    Photograph from BigStockPhoto.com

  • Is Suburbia Doomed? Not So Fast.

    This past weekend the New York Times devoted two big op-eds to the decline of the suburb. In one, new urban theorist Chris Leinberger said that Americans were increasingly abandoning “fringe suburbs” for dense, transit-oriented urban areas. In the other, UC Berkeley professor Louise Mozingo called for the demise of the “suburban office building” and the adoption of policies that will drive jobs away from the fringe and back to the urban core.

    Perhaps no theology more grips the nation’s mainstream media — and the planning community — more than the notion of inevitable suburban decline. The Obama administration’s housing secretary, Shaun Donavan, recently claimed, “We’ve reached the limits of suburban development: People are beginning to vote with their feet and come back to the central cities.”

    Yet repeating a mantra incessantly does not make it true. Indeed, any analysis of the 2010 U.S. Census would make perfectly clear that rather than heading for density, Americans are voting with their feet in the opposite direction: toward the outer sections of the metropolis and to smaller, less dense cities. During the 2000s, the Census shows, just 8.6% of the population growth in metropolitan areas with more than 1 million people took place in the core cities; the rest took place in the suburbs. That 8.6% represents a decline from the 1990s, when the figure was 15.4%.

    Nor are Americans abandoning their basic attraction for single-family dwellings or automobile commuting. Over the past decade, single-family houses grew far more than either multifamily or attached homes, accounting for nearly 80% of all the new households in the 51 largest cities. And — contrary to the image of suburban desolation — detached housing retains a significantly lower vacancy rate than the multi-unit sector, which has also suffered a higher growth in vacancies even the crash.

    Similarly, notes demographer Wendell Cox, despite a 45% boost in gas prices, the country gained almost 8 million lone auto commuters in the past 10 years. Transit ridership, while up slightly, is still stuck at the 1990 figure of 5%, while the number of home commuters grew roughly six times as quickly.

    In the past decade, suburbia extended its reach, even around the greatest, densest and most celebrated cities. New York grew faster than most older cities, with 29% of its growth taking place in five boroughs, but that’s still a lot lower than the 46% of growth they accounted for in the 1990s. In Chicago, the suburban trend was even greater. The outer suburbs and exurbs gained over a half million people while the inner suburbs stagnated and the urban core, the Windy City, lost some 200, 000 people.

    Rather than flee to density, the Census showed a population shift from more dense to less dense places. The top ten population gainers among metropolitan areas — growing by 20%, twice the national average, or more — are the low-density Las Vegas, Raleigh, Austin, Charlotte, Riverside–San Bernardino, Orlando, Phoenix, Houston, San Antonio and Atlanta. By contrast, many of the densest metropolitan areas — including San Francisco, Los Angeles, Philadelphia, Boston and New York — grew at rates half the national average or less.

    It turns out that while urban land owners, planners and pundits love density, people for the most part continue to prefer space, if they can afford it. No amount of spinmeistering can change that basic fact, at least according to trends of past decade.

    But what about the future? Some more reasoned new urbanists, like Leinberger, hope that the market will change the dynamic and spur the long-awaited shift into dense, more urban cores.

    Density fans point to the very real high foreclosure rates in some peripheral communities such as those that surround Los Angeles or Las Vegas. Yet these areas also have been hard-hit by recession — in large part they consist of aspiring, working class people who bought late in the cycle. Yet, after every recession in the past, often after being written off for dead, areas like Riverside-San Bernardino, Calif., have tended to recover with the economy.

    Less friendly to the meme of density’s manifest destiny has been a simultaneous meltdown in the urban condo market. Massive reductions in condo prices of as much as 50% or more have particularly hurt the areas around Miami, Portland, Chicago and Atlanta. There are open holes, empty storefronts, and abandoned projects in downtowns across the country that, if laid flat, would appear as desperate as the foreclosure ravaged fringe areas.

    In many other cases, the prices never dropped because the owners gave up selling condos and started renting them, often to a far lower demographic (such as students) than the much anticipated “down-shifting” boomers. Contrary to one of the most oft-cited urban legends by Leinberger and his cohorts, demographics do not necessarily favor density. Most empty-nesters and retirees, notes former Del Webb Vice President of Development Peter Verdoon, prefer not just outer suburbs but increasingly “small towns and rural areas” Dense cities, he notes, are a relatively rare choice for those seeking a new locale for their golden years.

    Verdoon’s assertion is borne out by our own analysis of the 2010 Census. Generally speaking, aging boomers tended to move out of dense urban cores, and to a lesser extent, even the suburbs. If they moved anywhere, they were headed further out in metropolis towards the more rural area. Among cities the biggest beneficiaries have been low-density cities in the Southwest and southern locales such as Charlotte, Raleigh and Austin.

    What about the other big demographic, the millennials? Like previous generations of urbanists, the current crop mistake a totally understandable interest in cities among post-adolescents. Yet when the research firm Frank Magid asked millennials what made up their “ideal” locale, a strong plurality opted for suburbs — far more than was the case in earlier generations.

    Generational analysts Morley Winograd and Mike Hais note that older millennials — those now entering their 30s — are as interested in homeownership as previous generations. This works strongly in favor of suburbs since they tend to be more affordable and, for the most part, offer safer streets, better parks and schools.

    In the short run, suburbia’s future, like that of much of real estate market, depends on the economy. But even here trends may be different than the density lobby suggests. As housing prices fall, the much ballyhooed trend toward a “rentership” society may weaken. Already in many markets such as Atlanta, Las Vegas and Minneapolis and Phoenix it is cheaper to own than rent, something that favors lower-density suburban neighborhoods.

    Longer term, of course, suburbs, even on the fringe, will change as growth restarts. Cities here and around the world tend to expand outward, and over time the definition of the fringe changes. To be sure, some fringe communities, particularly in highly regulated and economically regressive areas, could indeed disappear; but many others, particularly in the faster growing parts of the country, will reboot themselves.

    They will become, as the inner suburbs already have, more diverse with many working at home or taking shorter trips to their place of work They will become less bedrooms of the core city but more self-contained and “village like,” with shopping streets and cultural amenities near what will still be a landscape dominated primarily by single-family houses.

    In fact the media reports about the “death” of fringe suburbs seem to be more a matter of wishful thinking than fact. If the new urbanists want to do something useful, they might apply themselves by helping these peripheral places of aspiration evolve successfully. That’s far more constructive than endlessly insisting on — or trying to legislate — their inevitable demise.

    This piece first appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and an adjunct fellow of the Legatum Institute in London. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo courtesy of BigStockPhoto.com.

  • Will You Still House Me When I’m 64?

    In the song by the Beatles, the worry was about being fed and needed at 64. Things have changed. If the Beatles wrote those lyrics today, the worry instead might be about housing.

    Australia’s aging population is an inevitability. As our replacement rate falls (we’re having fewer children per family) and life expectancy extends, the proportion of over 65s will double in 40 years. In raw numbers, there were 2.5 million over 65s in 2002, and this will rise by 6.2 million in 2042. That’s an extra 4 million in this demographic. Have we given enough thought to where they’re going to live, and what styles of housing they might prefer?

    There have been a number of developers who have understood the looming significance of Australia’s aging population, and who have sought to supply the ‘retirement living’ market with product that suits. At one end have been the glitzy apartment style residences in inner city locations, while at the other have been the aged care ‘homes’ provided for those in need of access to nursing care or medical assistance, or at least the reassurance of it being present.

    Running parallel with the provision of retirement living or seniors living projects has been an assumption that, once ready to abandon the family home of many years, seniors will be happy to move across town and relocate to the facilities that are available. Perhaps this is hangover from the days when retirement or aged care living was provided on Stalinist lines: our oldies were forcibly shuffled off to some retirement centre well away from the rest of the community they grew up in. A sort of gulag for grumpies?

    But what if seniors simply want a change of housing style within their community? What if they don’t want to move across town to the only available accommodation because they would prefer to continue to live in the neighbourhood and community they have spent a large part of their lives living in? They may want to continue to shop with ‘their’ local butcher, visit their local supermarket, newsagent, bank branch (if it still exists) and generally remain connected to the people and places that they’re familiar with – including (quite possibly) members of their family, children and grandchildren.

    Meeting that need in the future is going to be close to impossible unless planning schemes (old fashioned zoning laws) adopt a more flexible approach. Flexibility will be needed because most of the existing suburbs of our major population centres are largely built out and will require retrofits and redevelopment of existing stock to accommodate senior’s housing preferences. Generally, the only tracts of undeveloped land capable of meeting seniors housing needs tend to be on the outskirts and while there’s nothing wrong with fringe development, it seems unfair to expect seniors to relocate across town to regions they’re unfamiliar with and to alienate themselves from their community simply because supply side mechanisms (controlled by planning schemes) don’t permit choice.

    Further, the built out status of our ‘established’ suburbs – as they now stand – is something that much planning law seems to want to preserve for time immemorial. It’s a little bit like imagining that someone has declared the existing housing mix and styles a fixture of permanency: let’s put a giant glass dome over it all and call the city a museum – because we don’t (it seems) want anything to change.

    But if we are to allow Australia’s seniors to ‘age in place’ and to ensure our markets provide choice, it’s going to mean some things will need to change, given the likely levels of future demand. The fastest growth of aging populations will be around our ‘middle ring’ suburbs and given the overwhelming preference to ‘age in place’, it is these suburbs that are going to have to change if those needs are to be met.

    What will that change look like? The psychology of seniors in years to come – even today – is going to be different to those of previous generations. They’ll likely be more active rather than sedentary. The family home that’s served them to this point may now be simply too big for their needs, or contain too many stairs (the artificial hip or knee doesn’t like too many stairs). Their future housing needs will vary widely – some will be happy with apartments in high to medium density developments (elevators to their level of living means no stairs) while others (generally the majority) will prefer smaller, detached or semi-detached, single level dwellings. Many may want a small yard or garden (or at least a large balcony or terrace if in a unit), and perhaps want to keep a small pet dog or cat. They may want a spare bedroom for visitors or for babysitting grandchildren. They will probably prefer to be close to shops and near to public transport. And the majority will want to find something of that nature generally within the same community they’ve been living in. It is unlikely they’ll be searching for the ‘retirement home’ style of assisted care living until they’re well into their later years when their choices will be more limited.

    Their problem will be that developers will struggle under current planning schemes to get approval for semi-detached housing designed with seniors in mind, if it means amalgamating some detached residential dwellings near local shops, because that land use is highly protected. They will struggle to gain approval to convert a large single site into medium or high rise in areas near local shops or transport, because the community will likely object – particularly if it’s in a neighbourhood where low density prevails (typical of most of suburban Brisbane). Advocates of Transit Oriented Development (TOD) style development might now be shouting at this article that ‘TODs are the answer.’ That might be so, if only one single TOD had been delivered during the past 15 years we’ve been talking about them.

    Plus, the majority of proposed ‘TOD’ style development areas largely surround inner city transport nodes. Not much use if you’re in Aspley and want to stay there. And of course there’s the reality that multi level apartments are much more costly to develop and construct than the cottage building industry’s approach to single level, small detached housing.

    The changes needed need not be dramatic, and subtle changes to land use surrounding existing retail or service centres in middle ring suburbs ought to be able to be achieved with minimal planning fuss. It is still possible to imagine something being done with minimal planning fuss, but very difficult to point to any actual examples. Still, hope springs eternal.

    The changes could allow (for example) for some amalgamations of larger lot, detached post war homes into higher density cottage-style dwellings on a group title, still single level and with low construction costs. A 2000 square metre amalgamation could in theory provide 10 such cottages, with private garden space and minimal likelihood of community objection. The key would be to keep regulatory costs down, so punitive development levies would be out of order. After all, the infrastructure already exists and seniors tend to be much less demanding on utilities or services than young households. (Have a think about how little garbage they generate, or how little water they use as an illustration. It would surely be unfair to tax seniors in this type of housing for infrastructure upgrades under the circumstances?).

    The traditional ‘retirement home’ or ‘aged care’ model of seniors housing is still going to be needed, especially as people require more frequent or acute care in their later years, and become less and less independent. But there will be a good 10 to 15 year period for people for whom the family home no longer suits, and who aren’t yet ready for ‘God’s waiting room.’ How we accommodate this coming bubble of seniors who want to age in place and continue to live independently, and how planning schemes will allow markets to provide choice and diversity, is something that perhaps should be a policy focus now.

    Ross Elliott has more than 20 years experience in property and public policy. His past roles have included stints in urban economics, national and state roles with the Property Council, and in destination marketing. He has written extensively on a range of public policy issues centering around urban issues, and continues to maintain his recreational interest in public policy through ongoing contributions such as this or via his monthly blog The Pulse.

    Photo by BigStockPhoto.com

  • Social Market Housing for the USA: Dream or Nightmare?

    Imagine a future America where the home ownership rate climbs from the current 65%1 to 87%2.  Libertarians as well as many social democrats would be cheering.  Imagine that this rate was achieved by the state itself acting as the builder of 88%3 of the housing.  Imagine also that the state imposes rules on home purchases to favor first time buyers and young families. “Progressives”, increasingly tilted towards the unmarried and childless, would bristile.  Imagine racial diversity rules that restrict who you can sell your home to. Time for libertarians to shudder.   

    Most Americans would probably say such a concept is “Utopian” but serious policy makers should reflect that the word “Utopia” literally means “nowhere”. But Social Market Housing is alive and well in Singapore. 

    For Americans living in the hottest real estate markets, the USA is very far from the ideal of a Property Owning Democracy.  At the time of the 2010 census three of New York City’s five boroughs had home ownership rates under 30% and in the Bronx it was under 20%4.   Though many US politicians support the concept of home ownership it has been declining since 1980 when it reached a peak of 68%5. 

    How have the Singaporeans achieved such high ownership rates despite having the richest economy in South East Asia?  Many factors come into play.  Singapore has an aggressive building program achieved through a public body – the Housing Development Board (HDB).   HDB apartments can only be sold to Singapore citizens and those with permanent resident status, so their prices cannot be inflated by foreign speculators. 

    The HDB also has eminent domain powers to claim land if it needs to.  Singapore’s version of social security is not inter-generational (unlike the USA where the current generation of workers pays for the last generation of retirees) but rather an elaborate system of forced saving by both workers and their employers.  Part of the compulsory savings can be used for a deposit on an HDB flat. Finally there is an elaborate system of price discounts on new HDB flats which is not only designed to favor first time buyers, but also young families and newlyweds. 

    There is even a category of ‘Executive Homes’ to retain managers in Singapore.  These may be larger apartments or semi-detached homes with gardens. 
    There is no problem with runaway maintenance fees.  HDB owners do not pay associations dues.  Their elevators are maintained through local real estate taxes so monthly costs are very predictable.  In the year 2010 the average Singaporean household paid $145 USD a month in property tax6
    .  This is less than the $216 average USD American Condo owners paid in condo fees at the time of the 2000 census.

    Some Americans might argue that this can only work because Asians are conformist and are culturally more receptive to rule-based systems.  I do find that South East Asians are reluctant to draw attention to themselves in public.  When I talk in a Starbucks with my normal New York speaking voice I sometimes look up and find myself orating to a group of open-mouthed onlookers (“I’m so sorry it’s the Tourette’s Syndrome – my shrink keeps forgetting to up my dosage.”)

    Many US politicians recoil against the state as a real estate developer largely because tenanted housing projects have been such a magnet for social problems.  The St. Louis public housing scheme, Pruitt-Igoe, was eventually dynamited (see photo right7).  The author of “The Death and Life of Great American Cities”, Jane Jacobs, famously complained that the public housing projects took some mixed income neighborhoods which could have been viable and sealed their doom by concentrating too many low income and unemployed people in the same buildings. 

    Singapore’s HDB does act as a direct landlord for a very small number of people who meet a strict income ceiling (about $1160 USD a month8), however the low income tenants are spread thinly among owner occupiers. Income ghettoization is limited. My realtor tells me that one of the blocks in my own HDB estate is for tenants rather than owners but from the outside I cannot tell which building it is.  Another form of deliberate social mixing takes the form of racial quotas intended to prevent the formation of ethnic enclaves.  If the percentage of people in a given racial group has already met the national quota you can be blocked from selling or renting to a person in that category. Access to the more attractive and less attractive neighborhoods is thus shared out more equally.  This looks like a policy American cities should consider given that the 14th amendment, busing and affirmative action have yet to produce full integration. 

    One aspect of America’s public housing projects that particularly angered Jane Jacobs was the wholesale removal of small retailers.   In theory “The Projects” could have included small commercial spaces at the ground floor but generally public rental buildings in most of the US are considered to be danger zones where retailers fear to tread. 

    Typically the ground floor of HDB buildings is a void space where retailers can create businesses. Often they are left empty but sometimes the policy works well.  Near Singapore’s Clementi MRT train station many dozens of “mom and pop” stores are now sheltering under the HDB apartments; late night street life is vibrant.  When I ask Singaporeans to name a neighborhood that would be dangerous to go at night, nobody can think of one.  The country’s homicide rate would pose an absolute disaster for TV script writers.  You could not have a CSI series or Law and Order because Singapore would not be able to supply the requirement of one murder per week.  The homicide rate is currently about one tenth of the USA’s9.

    If she were alive today Jacobs might also criticize the HDB apartment blocks for excessive architectural uniformity.  She loved communities to have buildings with different age profiles.  But most of Singapore’s buildings are so new the option of preserving the old simply does not exist. Greater architectural variety is an attractive goal.  One Singaporean architect commented that they will really have the styles right with you can build an HDB block next to a private condominium and you cannot tell which is which (a sort of urban planning version of the Turing Test).  Local architects are point to a new HDB building, the Pinnacle at Duxton, as an example of a new look more comparable with private designs (pictured right).

    But would greater variety cause costs to escalate?  Observing new HDB construction it is possible to discern a very advanced form of modular building; entire concrete rooms are hoisted into the air at the end of a crane.  Certainly a wider range of designs could be achieved using the same building blocks.  Kids can make a huge variety of things with Lego.  The same cuboids could also make homes with gardens which are America’s preferred form of housing— a gift of an expansiveness impossible to achieve, except in dreams or by immigration, in Singapore.

    Is Social Market Housing a good model for the USA? Certainly there would be many objections but the ideal of home ownership is too often an American Dream that disappears into a distant future. Are we doing enough to create a Commonwealth with “Liberty and Justice for All?” When they say the Pledge of Allegiance we force or children to use the words “Indivisible” and “One Nation”.  Are we enough to make those words a reality?

    Philip Truscott is a Senior Lecturer at Singapore University of Technology and Design
    Notes:

    Lead photo of HDB flats courtesy of BigStockPhoto.com. Other photo image files from  http://commons.wikimedia.org

    ———————————

     1 US Census Bureau, (2011), “Housing Characteristics: 2010”, Washington DC: Bureau of the Census. Accessed on 19/11/2011 from http://www.census.gov/prod/cen2010/briefs/c2010br-07.pdf

    2 SINGSTAT, (2011), “Statistics Singapore: Key Annual Indicators”, Singapore: Department of Statistics. Accessed on 19/11/2011 from <http://www.singstat.gov.sg/stats/keyind.html#hhld>.

    3 SINGSTAT, (2008), “Key Indicators of Residential Households”, Singapore: Department of Statistics, Accessed on 19/11/2011 from <http://www.singstat.gov.sg/stats/themes/people/hhldindicators.pdf>.

    4 US Census Bureau, (2011), “Housing Characteristics: 2010”, Washington DC: Bureau of the Census. Accessed on 19/11/2011 from <http://www.census.gov/prod/cen2010/briefs/c2010br-07.pdf>

    5 This is based on a cross-tabulation of the variables “ownership” and “year” from the IPUMS online data analysis system at this URL http://sda.usa.ipums.org/cgi-bin/sdaweb/hsda?harcsda+1850-2009

    6 Singapore Gross Property Tax Revenue from SINGSTAT, “Public Finance” at http://www.singstat.gov.sg/pubn/reference/yos11/statsT-publicfinance.pdf  The number of resident households has been taken from the Census of Population 2010 at <http://www.singstat.gov.sg/pubn/popn/c2010sr2/t20-25.pdf>

    7 Photo public domain: http://commons.wikimedia.org/wiki/File:Pruitt-Igoe-collapses.jpg

    8 HDB, (2011), “Homes for All”, Singapore: Housing Development Board.  Accessed on 19/11/2011 from < http://www.hdb.gov.sg/fi10/fi10221p.nsf/Attachment/AR0405/$file/home5_frameset.html>.

    9 UNODC, (2011), “Homicide level for 2010, or latest available year”, Vienna: UN Office on Drugs and Crime, accessed on 17/11/2011 from < www.unodc.org/documents/data-and-analysis/statistics/Homicide/Homicide_level.xlsx >.

  • Is Industrial Strife a Sign of Housing Stress?

    Industrial disputes – including a spate of on and off again strikes at national carrier Qantas – are becoming once again a frequent feature of the Australian media. Unions are pushing for wage rises in the face of the falling buying power of the fixed wage (as costs of living rise). Those wage push pressures are being resisted by businesses trying to stay afloat in a very ordinary domestic economy and amidst rising global competition.  

    But instead of a conflict between labor and business, perhaps we may consider   lower living costs as a solution which benefits both? Fundamentally, this boils down to addressing our biggest cost burden: housing. 

    The rapid escalation of housing costs have occurred under the aegis of Labor dominated state governments. Whether in Queensland, New South Wales or Victoria – Australia’s three largest states – their imposition of artificial growth boundaries that limited land supply, the introduction of upfront taxes on new development, and ever more complex planning and development regulation have driven housing prices to unsustainable levels.

    This is ironic since the worst impacts of those policies have been most felt by the very working class constituency which Labor traditionally sought to represent. Having presided over and championed policy mechanisms which have driven up housing costs for workers, these same governments then resist attempts to recover that standard of living through wage growth.

    Now before you think I’ve gone all Marxian militant on you all (trust me, I haven’t), here’s an example of what I’m driving at.

    Much has been said about housing affordability and what it will mean to lock an entire generation out of the housing market.   Recently this story documents yet another report attesting to falling home ownership and the rise of a renting class.   Particularly hard hit are the people who are trying to buy a first home in which to raise a family. They could typically be around their mid to late 20s, biologically in their prime for having and raising children. At this stage of life, you are probably below the average income for your career or profession so the reality of the affordability problem is most acute.

    In Queensland, this might be a teacher in their mid 20s, with two or three years of training, married to a constable who together earn after tax income around $87,500 per annum. (This combined income would be much less of course if, for example, one of our young couple was a child care or retail worker).

    Now, take a modest new family home in an outer suburb like North Lakes or Springfield. Let’s assume they’ve saved a small deposit, and with a loan of $400,000, they buy something for around $450,000. That’s hardly McMansion territory. But that loan, over 30 years at 7.8%, will cost them close to $35,000 per annum in repayments, or 40% of their combined after tax incomes.

    This, of course, is before they even think about children, and the prospect (despite generous maternity and paternity pay and leave provisions) of enduring a significant household income reduction while one of them isn’t working. Even on returning to work, there would then be child care fees, which quickly erode their pre-child household budget.

    Buying a home and starting a family have become a huge financial consideration, instead of a fairly normal and unremarkable pattern of generational and social growth. And it is now absolutely dependent on a dual income family, with both of them preferably good incomes.

    This is a profound change over the last decade. As a result, fewer people are buying homes, people are postponing children (until they can afford them) and when they do, they’re having fewer children. A countless stream of statistical and demographic reports are now underlining this change on an all too frequent basis. Although some greens may celebrate it, this is very bad news long-term for the economy, for society and the community as a whole. 

    So is it any wonder we’re seeing wage push pressures?

    Consider the cost of the $450,000 modest home they’ve bought. Within that price is roughly a $50,000 up-front ‘developer levy’ (better called a new home buyer tax). There’s probably a similar cost of in inflated land costs, brought on by artificial land supply constraints in a country of abundant land. There would also be a raft of minor additional building costs introduced under the guise of ‘green’ or ‘sustainable’ building guidelines, in order   ‘to prevent the sea from rising’. Plus there’s a hard-to-quantify compliance cost because getting the approval to develop the land for new homes now takes 10 years instead of a few months, engaging teams of town planners, lawyers, and other hangers on.

    The total cost of all of these additions to the price paid by our young couple could easily be well over $100,000. If you don’t believe me, check out this old report which I commissioned some years ago.

    A quick bit of math’s now follows. That extra $100,000 (conservatively) has been funded via our young couple’s mortgage. That’s an extra hundred large they’ve borrowed, to cover the costs of additional taxes, fees and compliance introduced under the watch of a State Labor Government. That $100,000 is worth an extra $8,640 per annum out of their pockets. If their repayments fell by that amount, their mortgage costs would be around $26,000 per annum in total, or just under 30% of their combined household income – not 40% of it.

    There you have it. At 30% of household income, not only the home becomes more affordable, but so do children. But at 40%, it’s proving to be touch and go.

    There are two ways, simply put, to improve the cost of living equation faced by younger workers on largely fixed incomes. You can increase their wages (which the unions want and which businesses and governments resist), or you can reduce their costs of living.

    This has somehow eluded people working in state treasuries and planning departments. I haven’t even commented on the insanity of the carbon tax, which is only going to exacerbate basic costs for energy further and likely weaken Australian exports.

    The simple economics of what we’re talking about was summed up beautifully over 160 years ago, in Charles Dickens’ novel David Copperfield, when Mr Micawber lectured the young Copperfield on the perils of exceeding budgets:

    "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

    Mr Micawber, you’ll note, wasn’t implying the need for more income, he was highlighting the important role played by expenses.

    In the Australia (and Queensland) of 2011, the same still applies. Rather than push for more income, unions could do better to lobby their Labor Parties to reduce their living costs. Reducing the housing infrastructure levies, relaxing the rigidity and ideology of urban growth boundaries, reducing compliance costs, cutting green taxes would drive down the costs of housing.   

    In this era of globalization, fighting pitched industrial battles with employers for a few extra dollars a week in income seems futile compared to pressuring   governments over the induced inflation associated with the providing a family home you can afford and raise a new generation of Australians.

    Ross Elliott has more than 20 years experience in property and public policy. His past roles have included stints in urban economics, national and state roles with the Property Council, and in destination marketing. He has written extensively on a range of public policy issues centering around urban issues, and continues to maintain his recreational interest in public policy through ongoing contributions such as this or via his monthly blog The Pulse.

    Photo courtesy of BigStockPhoto.com.