New Geography

Category: Policy

  • Fighting Spirit Lives On In Northern Montana

    On a hot July day in 1923 northern Montana served as the unlikely backdrop for a boxing extravaganza on the international stage. There on the plains right outside the City of Shelby, Jack Dempsey defended his World Heavyweight Boxing Championship against the hard-hitting Tommy Gibbons – the only world championship fight that Jack Dempsey ever fought that went the full fifteen rounds.

    The fight began as a real-estate stunt and a chance to get the recently oil-rich town’s name into the national media. As recounted in a 2004 Chicago Tribune story “The prestige and attention brought by a world-class sporting event could bring more money — perhaps even new residents and investment — into the community, or so thought town leaders at the time. Boomtown mentality had taken over.”

    Local boosters lauded the bustling town near the Canadian border as the Tulsa of the West and built a 40,208-seat stadium to host the match – the biggest outdoor arena in America at the time.

    But there on Champions Field the “gladiatorial battle” between Dempsey and Gibbons was fought amidst ticketing problems reminiscent of the modern day Woodstock Festival.

    Reports throughout the last days leading up to the fight cast doubt on the event. And even though Jack Dempsey stepped in to assure organizers that a bout would take place, the damage had been done. Rail services had been cancelled for special trains, advance reservations cancelled and fight fans stayed home. In the end, only 7,702 paying fans showed up. An estimated 13,000 people got to see the fight free.

    Today a local group of dedicated citizens are working hard to build a park on the original fight sight with a full size ring holding life size bronzes of Jack Dempsey, Tommy Gibbons and the referee. Kiosks throughout the park will depict pictures and audio highlights recounting fight events as well as feature the history of northern Montana homesteading, the oil and gas industry and the railroad.

    The fighting spirit lives on in other ways in Northern Montana as four-term Mayor Larry Bonderud (Shelby, Montana) and other civic leaders step into the ring of economic development on a daily basis.

    Shelby, the County seat of Toole County, is a small community that thinks and acts big. Led by Mayor Bonderud and supported by a strong cast of local and regional civic and business leaders, the city has set in play a diverse, aggressive and successful approach to economic development focusing on attracting young families by bringing new businesses, industries and family wage jobs to the community. This approach is paying off, with the city realizing a 6.31 percent population increase since 2000.

    Capitalizing on long-term vision and an entrepreneurial approach to economic development, Shelby has been successful in attracting and growing business and employment opportunities within the city and county. Going back ten years, in an effort to grow job opportunities in the region, the city worked to attract a private adult correctional center near the city. Fast forward to today, the Crossroads Correctional Facility is the top private employer within the county with over 150 employees.

    Always the promoter, Bonderud suggests that “We’re one of the safest counties anywhere,” noting some 230 correction officers, Border Patrol agents, local police and regional FBI and Montana Highway Patrol officers who work in the county with 5,100 residents.

    The community continues to work on growing its industrial base by expanding its industrial park, capitalizing on its growing wind energy developments and a concerted development effort to put together an innovative 25 million dollar intermodal facility and energy park that capitalizes on existing rail capacity, access to energy and a location adjacent to the Canadian border. The city, county and regional port authority are working and investing together to make this opportunity a reality.

    Working together seems to come naturally in these parts. Shelby and Toole County are part of the 5-county Sweetgrass Development region (Cascade, Glacier, Pondera, Teton and Toole counties) that is working collaboratively to diversify and grow the regional economy and capitalize on its competitive advantages. Nestled together adjacent to the I-15 corridor and along the Rocky Mountain front, the five county region is well positioned to meet growing needs for domestic energy consumption in the western United States. The region’s renewable energy sources including wind and hydro-electric based power, and its significant agricultural capacity (the backbone of the regional economy) have served as a buffer in the recent economic downturn.

    The Sweetgrass Development organization is spearheaded by Cascade County Commissioner Joe Briggs, an affable and effective leader who along with regional partners Corlene Martin, Cynthia Johnson, Cheryl Currie, Bill McCauley, Brett Doney and Mayor Bonderud are working to set aside parochial power plays and find economic development solutions that work for the region. A common refrain is “what is good for one is good for all”. This team spirit is exemplified by regional efforts to retain and expand value-added agriculture opportunities including milling operations and packing plants and assistance in growing the regional capacity for wind energy development and transmission.

    The region is not driven by wind and wheat alone. The area’s numerous high-tech, knowledge-based industries such as D.A. Davidson (financial consultants), Centene (healthcare services), AvMax (aviation support and management services), Intercontinental Truck Body (truck body manufacturing) exemplify the knowledge base and work ethic inherent in the region and speak of the natural appeal of the Sweetgrass region as one component in the race to attract and retain a quality work force.

    A combination of “can do” spirit and strategic investments to support growing local companies and new infrastructure to feed new industries fitting with the region’s strengths place the Shelby, MT region in a strong position to beat the recession.

    Doug McDonald is a Senior Associate with , a development firm specializing in economic development strategies and initiatives for small to medium-sized metropolitan areas and urbanizing rural regions. Delore Zimmerman is president and CEO of Praxis Strategy Group and publisher of Newgeography.com

    Photo by jimmywayne

  • The European Model Gets A Makeover

    Does the United States finally have its first European President in Barack Obama? Does he truly want to Europeanise the American health system and impose European-style socialism on the US? RealClearPolitics.com assures us that ‘his policies on government spending, taxation, health care and carbon emissions would all tend to bring America in line with European norms.’

    It is a powerful message – or it would be were the US not already in line with European norms in nearly every way that matters. In terms of social welfare expenditure, working hours, socialized health and even military spending, the US slips snugly in place among its European counterparts.

    So why the constant comparisons between the US and Europe? It’s all rather simple: people who refer to ‘Europe’ as an alternative to the United States rarely specify which European countries they mean. Europe is a continent consisting of around 50 countries (its borders are debatable) of which only 27 are in the EU and 26 in NATO. These countries run from Liechtenstein, with the highest GDP per capita in the world, to Kosovo, which is poorer than Nigeria. The idea that one common European policy or culture could exist in such a diverse environment is absurd.

    Europe, as a single economic system with a single culture simply doesn’t exist. It is a myth, pushed by some on the left as an egalitarian liberal alternative to the US, and by some on the right as an example of a socialist failure – neither side ever defining what Europe actually is.

    Perhaps this is all a little pedantic. After all, we know that when people talk about European socialism they mean France, Germany and Sweden, not the irrelevant, piddling little states like Ireland, Latvia and, eh, Russia. By far Europe’s largest and most populous country, with more than three quarters of its population living on the European side of the Urals, Russia is rarely counted as European at all. Commentators often ponder ‘Europe’s response to Russia,’ a nonsensical statement unless ‘Europe’ is clearly defined as the EU, or the European NATO members, or whoever.

    When Europe is left undefined in this way, it becomes a convenient catch-all tag to mislead, reinforce prejudices and polarise debates. Look no further than the present debate about health care in the US, where Obama has been criticized for wanting to Europeanise American health care, the implication being that there is a single European socialist alternative to the US. Glenn Beck pounced on this idea last July:

    America’s health care is much better than Europe’s…. Americans have a better survival rate for 13 of the 16 most common cancers than Europe. Take prostate cancer: 91.9 percent of men live through it, versus 73.7 percent in France and just 51.1 percent in Britain.

    These are shocking statistics, but puzzling. France and Britain are just two of Europe’s 50 countries, so why are they picked to represent the rest? In fact there is massive variation in cancer survival rates across Europe. Poland managed to save only 37.1% of prostate cancer victims. But Austria, with its heavily socialized health system, had a survival rate of 86.1%.

    Just days ago a study by the Israeli Health Ministry showed that the US has a total female survival rate of all cancers of 66%, with Finland managing 67%. Glenn Beck could avoid the fact that Finland’s socialized health care is a bit better at saving women from cancer than the American system, because he simply generalized about the entire European continent and cherry-picked two convenient statistics from it.

    This October, former Italian prime minister Romano Prodi told an audience at Brown University that the US should follow Europe’s lead in recognizing health care as a right. As a left-wing Italian, it’s understandable why Prodi would say this: in 2006, government expenditure on health made up 77.2% of total health spending in Italy, compared with only 45.8% in the US. The European region as a whole averaged at 75.6%, much higher than the US.

    Yet government health expenditure in Italy’s neighbour Albania made up only 37.3% of the total health spending. Cyprus was 44.8%. Switzerland 59.1%. Moldova 46.9%. Georgia was only 21.5%. Prodi seems to have ignored these countries because they were inconvenient for his generalization, yet they are crucial to the debate. If Obama is trying to ‘Europeanise’ the American health system, does it mean he wants to cut government expenditure to Albanian levels or increase it to Iceland’s?

    As it happens, the US government under Bush spent more on health as a percentage of GDP than most European countries: 7% in 2005 compared with only 4.3% in Poland, 5.3% in Slovakia and 5.8% in ‘socialist’ Norway.

    Nobody would judge American policies – for example, its social protection or welfare programs — by averaging out policies in Cuba, Costa Rica, Canada, Nicaragua and any other countries that happen to share the continent with it, but this happens with Europe all the time. Donald Rumsfeld seemed to realize it was silly when, in 2003, he dismissed Germany and France as ‘old Europe’, pointing to NATO’s centre of gravity shift into eastern Europe. Rumsfeld had a point: many of the former Communist countries have distinctly different economic situations to some of those in ‘old Europe’.

    In 2005 the EU countries with the highest expenditure on social protection as a percentage of GDP were Sweden (32%), France (31.5%), Denmark (30.1%), Belgium (29.7%) and Germany (29.4%), all ‘old Europe’ nations. OECD statistics for 2005 show the US has a much lower expenditure on social protection, only 15.9%.

    How about new Europe? Latvia spent only 12.4% of its GDP on social protection in 2005. Estonia spent 12.5%, Ireland spent 18.2% and Romania spent 14.2%.

    Perhaps the strangest reference to Europe in recent times came after Obama won the Nobel Peace Prize. The Wall Street Journal had this to say:

    George W. Bush may have retired from American public life, but the Europeans want the Yanks to know they never want to see his likes again…. On one level, all of this represents the parochial European foreign policy agenda…. The Europeans are applauding that at long last there is an American President willing to let himself and his country mingle as equals with this amorphous global “majority.”

    The Nobel Peace Prize Laureate is chosen by five Norwegian committee members, who are, in turn, elected by the 169 members of the Norwegian parliament. Norway is not a member of the European Union.

    Yet somehow the Wall Street Journal managed to convince itself that five Scandinavians in a small non-EU country represent well over 700 million people and all fifty European countries’ foreign policies. This makes as much sense as phoning up Fidel Castro, Hugo Chavez and Evo Morales and dubbing their opinions as representative of ‘American foreign policy’.

    Let’s be clear. It’s not that there aren’t trends among European countries, especially among the ‘old’, wealthy, West European countries. But in terms of most socio-political indicators, the US sits quite comfortably inside the European group, rather than standing apart as a radical alternative to it. The US isn’t even the highest in military spending as a percentage of GDP: Turkey, Bosnia and Herzegovina and Greece all spend more.

    It would take little effort for journalists to point out what exactly they mean by Europe: EU members, NATO members, Western Europeans, etc. So let’s not talk about this non-existent Europe anymore. At best it is lazy and inaccurate; at worst it is misleading and divisive.

    Shane Leavy is a freelance journalist for hire. Born and raised in Ireland, he has lived on three continents and been published on four, made an award-winning radio documentary on the banned Chinese religious movement Falun Gong, and written about science, religion, travel, culture, politics, environment and business.

  • Growing Today’s Green Jobs Requires Solid Economic Development Policy

    I was hired for my first Green Job, thirty-four years ago, shoveling horse stalls for a barn full of Tennessee Walking Horses. The droppings and bedding that was removed from the stables was then composted and applied to my employer’s crops in lieu of chemical fertilizers. You don’t get much greener than that!

    Now don’t get me wrong, I am not bragging about holding such a lucrative job because the 75 cents an hour they paid me made this Ozark, Missouri boy feel rich. Actually, I am bragging that I learned the value of environmental stewardship and the interdependence of our economy at an early age. For our community, no horses meant no corn.

    My employer, a local auto dealer who owned the farm, created these value-added “green jobs” without any subsidy from the government or without a governmental policy forcing his customers to pay him a subsidy. But I guess that is the good old days. So much for market forces and producing a product that customers will pay for.

    I have spent more than 25 years in the profession of economic development serving at the community and state levels. I have worked with hundreds of companies to create tens of thousands of jobs. In that time, I have seen more “silver bullets” than the Lone Ranger ever gave away. These have included the following “you must have” edicts: four lanes/interstate highway; a new airport terminal; micro chips; nanotechnology; aqua culture; speculative buildings; a Super Bowl; a bohemian bastion; or a biotech cluster. Now, it’s environmentally friendly “green” businesses like wind farms and solar fields that are calling for precious public resources.

    Yet in reality, these silver bullets usually work only for a few places and certainly do not constitute a national strategy for job creation. Some places may benefit from the rush to wind and solar energy, although the benefits may well diminish if the panels or turbines are made elsewhere. There are not too many industries that have such a large profit margin that they can afford to pay double or triple their existing electric rates.

    In fact, the answer to job creation is definitely not financially supported and government-mandated green energy policy that focuses its efforts on wind and sun. The reasons why that policy won’t work include:

    1. A quick review of a recent issue of a national economic development trade publication featured ads by 32 states that claim to be the next green energy place, although they only focus on wind and solar. Maybe it is because the public is being coerced into subsidizing these industries. But at the end of the day there will NOT be 32 places nationwide that are green energy centers of excellence, but more likely a dozen or so globally.
    2. Most of these green initiatives rely on nature. Nature is not constant – that is what makes it “natural.” Wind may be a suitable form of power off the ocean on Monday, Tuesday and Wednesday evenings but what happens when it quits blowing? Not only are the resources stranded and not providing a return on investment but no power is being generated.
      Now don’t get me wrong, wind power has worked for years. Farmers have been using it to fill up water tanks for their animals for hundreds of years. But as all farmers know, if the wind quits for long enough, the animals die. Are we to bet our economies and our lives on the hope that maybe someone can develop a storage tank for electricity generated by the wind even if it quits?

    3. Solar power is great. But let’s be realistic. How are we ever going to get solar panels on the roof of every home – at a cost of $60,000 or more – in America when some people don’t even have cable television or broadband access yet? And what about the heat radiated from the panels themselves? And, solar power still has the same storage and reliability issues that come with wind power.

    Let’s be clear that here are two very clear outcomes we, as a nation, must strive to achieve: low cost, environmentally sensitive energy independence and job creation. These are not mutually exclusive goals.

    Energy independence will never come from wind and solar power; neither is dependable or manageable enough to meet our needs. Compound this with artificially mandated requirements and the hidden taxes that go with them and we are facing higher energy prices which will cripple the economy.

    When it comes to jobs, we must embrace the age-old adage: Be yourself but be great. We call this model Community Capitalism. In short, Community Capitalism is focused and organized philanthropy and business investment occurring simultaneously in five strategic areas based upon historical and geographical advantages in order to create jobs and wealth.

    I am blessed to live in a place, Kalamazoo, Michigan, that has embraced the fundamentals of Community Capitalism for more than 100 years. Kalamazoo is the place where the friable pill, a pill easily dissolved when ingested, was invented; where Dr. Homer Stryker invented the oscillating device that cuts casts off; where the yellow-checkered cab was invented; where most of the nation’s corsets and paper were once produced, and home of the Kalamazoo sled, the direct-to-you-from Kalamazoo Stove, Shakespeare Rod & Reel and Gibson Guitars.

    So what are we great at? We are one of only a few places globally where a drug can move from concept through trials to market. We are centrally located, a short drive to the logistical hub of Chicago. We can staff a call center or customer care center with the speed of light. We will leave the micro chips to Boise, the film industry to Hollywood, the Country music business to Nashville, the financial district to Manhattan; and telecommunications to Dallas. Not to say we won’t welcome a few of their companies. But they are great at those things; we will be good at best.

    So how do we create jobs using the five precepts of Community Capitalism: place, capital, infrastructure, talent and education? The same way communities have grown for hundreds of years.

    First is the concept of place. Great economic regions know who they are and that sense of identity ensures people are not only comfortable within the environment but can nurture their personal and professional growth. Think about places that do this really well and where place has become their brand – like Boise, Idaho; Austin, Texas; Melbourne, Australia and Gorongosa in Africa.

    Capital is critical to spur innovation and entrepreneurship. In the case of Kalamazoo, we established in 2005 a limited partnership venture fund to invest in early-stage life science companies. The $100 million Southwest Michigan First Life Science Fund is believed to be the largest sum of community-based private capital ever to be raised and managed by an economic development organization. Other communities have focused on angel networks, revolving loan funds or even micro lending. But whatever the source, we know that companies cannot grow without the capital to grow a business.

    Great communities understand that great minds need the right place to make things happen and are committed to providing the necessary infrastructure. For example, when we saw the need to create a place for local talent to incubate biotech concepts, we created a 69,000-square-foot accelerator to do just that. This same catalyst served the Palm Beach, Florida region’s desire to grow life science research when Scripps Research Institute decided to locate there and mix its DNA with the local biotech economy. It also worked for Corpus Christi, Texas when the Harte Research Institute was built to chart the future of the Gulf of Mexico.

    Communities cannot be great if they lack a long-term, funded commitment to education and academic excellence. Our legacy in life science and manufacturing prominence has resulted in an indigenous cluster of highly educated people. And we realize that educated people seek out strong education for their families which in turn produces a high-performance workforce.

    We are home to the world-renowned Kalamazoo Promise college scholarship program which provides free scholarships to every child that graduates from the Kalamazoo Public school system. In fact, Southwest Michigan’s diversified workforce is highly educated and boasts one of the nation’s highest concentrations of Ph.D.’s (1.84%), more than two times the national average per capita (0.81 %).

    Other economic regions have used “education” to make a difference. For example, the African Children’s Choir uses its funds to build schools, provide medical care and fund community development projects in the villages from which its young members come from. Oprah Winfrey’s Leadership Academy for Girls in South Africa looks to instill change for young girls in a place where almost a third of all pregnant women are afflicted with HIV.

    Finally, we recognize that a community needs to embrace talent. Kalamazoo is home to the Stryker Corporation, which is the only publicly traded company to achieve double-digit growth every year over a twenty-year period due to its commitment to putting the right people in the right place at the right time.

    I understand that none of these five things is as easy as the Lone Ranger’s silver bullet. It is much harder to raise capital to grow companies than it is to get your congressman to earmark dollars for highways or build a speculative building in a corn field. But if we are to truly build a sustainable economy that grows jobs and wealth, we must invest in Community Capitalism while limiting artificial governmental manipulations of the economy.

    Ron Kitchens serves as the Chief Executive Officer of Southwest Michigan First, as well as the General Partner of the Southwest Michigan First Life Science Fund. Ron has worked with more than 200 Fortune 500 corporations as a Certified Economic Developer in addition to starting multiple privately held companies and serving as a city administrator, elected official and staff member to United States Senator John Danforth.

  • The Infrastructure Canard

    One of the principal arguments used against suburbanization is that its infrastructure is too expensive to provide. As a result, planners around the high income world have sought to draw boundaries around growing urban areas, claiming that this approach is less costly and that it allows current infrastructure to be more efficiently used.

    Like so many of the arguments (a more appropriate term would be “excuse”) used to frustrate the clear preferences about where people want to live and work, the infrastructure canard holds little water upon examination.

    Becoming Less Affordable as Demand Declines: Within the new world high-income nations, there was considerable urban growth between World War II and 1980. Nearly all of this growth was in the suburbs, where infrastructure was provided through borrowing, taxation and utility user fees. Yet, even as population growth has slowed, the diminished bill has been declared beyond the capability of governments which have often opted for what is seen as more affordable compact development (smart growth).

    Estimating the Cost of Suburban Infrastructure: The seminal volume Costs of Sprawl – 2000 projected a need for $225 billion more in costs from 2000 to 2025 for expanding suburban infrastructure than would be required for more compact development. This superficially large number melts down to $30 per capita on an annual basis. This is hardly the kind of expenditure increase that brings bankruptcy to local governments, even if it were not disputable.

    Higher Cost Infill Infrastructure: Costs of Sprawl – 2000 and other analyses generally rely upon a “build up” of infrastructure costs, which is then extrapolated to develop overall estimates. These estimates are rarely, if ever, calibrated for consistency with actual experience as reported in government financial sources. Moreover, they generally assume that the cost of building comparable lengths of sewer, water or roads are equal throughout the urban area. They are not. Generally, costs are far higher in infill areas, for a variety of reasons, especially higher labor costs.

    Public and Private Costs: Further, many of the infrastructure costs decried in Costs of Sprawl – 2000 and other sources, are not government costs at all but incurred by private companies. Virtually all local roads and some arterials are built and paid for by developers, with the costs passed on to homeowners. Sewer and water expenditures are usually financed by user fees, either paid to private companies or municipally owned utilities.

    Cost Differences are Minimal: Moreover, my analysis with Joshua Utt of municipal water and sewer user fees from all reporting jurisdictions in 2000 indicated a 1,000 increase in population per square mile is associated with a $10 reduction per capita, a figure that does not justify strong-armed land use regulation.

    The High Cost of Infill Infrastructure: Proponents fail to account for the fact that infill development also requires more infrastructure. The existing water and sewer systems in densifying areas are likely to require upgrades, now or later. In many older cities, these systems are older, even obsolete and may not have the capacity to meet the increased demand. Constructing these upgrades will generally be far more expensive in an already developed area than building new, state of the art facilities in greenfield areas.

    Building Gridlock: The proponents virtually never propose expansion of roads to deal with the increased traffic that occurs in densifying conditions. Yet, the national and international evidence is clear: higher densities produce more traffic. Without more capacity, this means slower speeds, more intense pollution and more greenhouse gas emissions.

    There is no point in imagining that it can be any different. For example, the most dense part of the nation is New York’s Manhattan. It is served by a rail system that is far more comprehensive than any other place in the nation. Yet, traffic volumes (total vehicle miles) per square mile in Manhattan are more than 3.5 times that of the nation’s most congested urban area, Los Angeles, and 12 times that of the nation’s least dense major urban area, Atlanta.

    Thus, any savings that might be obtained from not expanding roads to meet demand is achieved by retarding service levels. Further, the longer travel times would stunt economic growth.

    The Transit Infrastructure Canard in Australia: One of the more ludicrous features of the infrastructure canard in Australia is the fixation with rail transit, which planners frequently justify to ban or limit suburban expansion. This is a Neanderthal view that fails to recognize that only a small portion of urban fringe dwellers work in the downtown areas, which are the only employment centers effectively served by rail. The minute roads are opened, the infrastructure for transit is in place. Bus service can quickly and efficiently be established to downtown, local employment poles, or the nearest rail station for those few outer suburbanites who can get to work more conveniently by transit than by their cars. Overall, less than 20% of commuters work downtown in Australian urban areas, and the farther out they live, the less likely they are to commute downtown.

    Operating Costs are the Problem: Moreover, the focus on construction of new facilities is misplaced, because, construction costs are not the principal driver of public expenditures. Less than 20% of local government expenditures are for construction, while more than 80% covers day to day operations. New population, or the same population in a larger area will require similar government operating expenditures. It is likely that compact development will require just as many teachers and just as many public servants. Moreover, they will probably be paid more, since older, more dense communities have significantly higher government employee wages and salaries per capita than average.

    Cost Consequences of the Infrastructure Canard: More importantly, the infrastructure canard imposes far greater costs on society than any savings even its most ardent proponents can imagine. This is because compact development materially increases housing costs.

    Destroying Housing Affordability in Australia: There’s ample evidence of this down under. Planners have tied a noose around all Australian urban areas which virtually outlaws development on or beyond the urban fringe. As economics would predict, land for development has become scarce, which in turn has increased its price. Once known for its affordable housing, most Australian areas have seen the price of homes relative to incomes double or triple since the new policies were enacted. Nearly all of this increase has been in the price of the land, not in the house construction (inflation adjusted). Land for development is so scarce in this less than 0.5% developed nation that its urban areas are likely to be buried by blizzards before housing affordability returns.

    Destroying Housing Affordability in the United States: In the United States, compact development polices have also increased house prices. For example, even after hitting bottom earlier this year, house prices in compact development markets such as California, Seattle and Portland remained as much as twice as expensive related to income than in less strongly regulated markets. The annual US infrastructure savings suggested in the Costs of Sprawl – 2000 are so small that they would pay less than one-third of the excess higher annual mortgage payments in California attributable to compact development (Note).

    Fastest Growing Metropolitan Areas: Doing the Impossible: While planners in California, Portland, Seattle and elsewhere delude the public and elected officials into believing that suburban infrastructure is unaffordable, faster growing metropolitan areas found the opposite. Atlanta, Dallas-Fort Worth and Houston are the three fastest growing metropolitan areas with more than 5,000,000 population in the high income world. Rather than restraining suburbanization, these metropolitan areas allowed it to continue. Their reward was not only delightful communities (despite their being despised by the planners), but also the retention of housing affordability. None of this has slowed some positive inner-ring development, particularly in Houston, to meet that niche demand.

    A Matter of Will: The fast growing metropolitan areas demonstrate that suburban infrastructure can still be provided without a material financial burden to the community. Indeed, given the house price escalating effects of compact development, the cost of living will be lower where suburban expansion is allowed. It is not a matter of suburban infrastructure being too expensive but the resistance of planners and urban land autocrats to crafting policies that actually reflect the desires of the vast majority of people in most advanced countries.

    Note: Estimated based upon the approximate 50% house price premium compared to metropolitan areas without compact development, assuming the average house price, a mortgage of 90% of the house value, amortized over 30 years at 5% and applied to the approximately 75% of houses that are mortgaged.

    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.”

  • So Much for Evidence-Based Planning

    Has evidence-based planning fallen from grace in favour of catchy slogans and untested assumptions? In the case of urban planning, arguably that is just what’s happened. The evidence, in Australia at least, is worrying.

    “We must get people out of cars and onto public transport.” “We must stop urban sprawl and the consumption of valuable land.” “We must build higher density communities to achieve sustainable environmental outcomes.” Phrases like this are now de rigueur across many discussions about urban planning in the media, in politics and in regulatory circles in Australia. They are rarely challenged on the basis of what the actual social, economic or scientific evidence is really saying. It’s produced an Animal Farm like dogma: ‘Four legs good, two legs bad.’ Or ‘Napoleon is always right.’ Denial, followed by ‘pass the buck’ and ultimately ‘shoot the messenger’ are responses to legitimate questions.

    But given the far reaching social and economic changes which will invariably flow from some of the regulatory planning schemes now being legislated, we should at least ask whether the various policies will actually achieve their stated goals. After all, these regulatory planning schemes are intended to govern our urban growth over the next 20 years. It would be a shame to get it badly wrong, simply because assumptions weren’t tested.

    The rise of the big plan

    Since the late 1990s, there has been a raft of Australian regional planning schemes dealing with urban growth in our major centres. The common theme has been the creation of urban growth boundaries and increased density in established urban areas, with an emphasis on public transport as opposed to the private vehicle.

    Typical of these schemes is the recently released ‘South East Queensland Regional Plan 2009-2031’ (SEQRP) which aims to ‘manage growth and protect the region’s lifestyle and environment.’ The plan, like others of its type, is influenced by a desire to contain urban growth and implicitly assumes that we are at risk of reckless growth if we don’t. But Australia’s total population is currently around 24 million people, in a land mass roughly the size of continental USA. This puts us below Nepal and Uzbekistan but ahead of Madagascar in population rankings. Reports that Australia’s population may reach 35 million in another 40 years (the current population of Canada) have raised domestic fears that we might become over populated. (See my blog post ‘Australia Explodes’ for more on this).

    The State of Queensland is the second largest state by area, but contains only 4.4 million people in total. Its population growth rates have in the past been amongst the highest of any region in Australia, growing at up to 1500 people per week (close to 80,000 per annum). Much of this growth has occurred in the south east corner of the state, surrounding the capital city – Brisbane. While modest by global standards, this rate of growth has thrown governments and some sections of the community into apoplexy. How will we ever cope? The region of southeast Queensland (population 3 million) has even been compared to California (population 38 million) in terms of its growth rates and population pressures.

    Against this context, the SEQRP identifies the need to provide a further 750,000 dwellings in the period to 2031, with roughly 50% to be developed in established urban areas via infill, and the balance through new detached housing development on land within an urban growth boundary. The challenge for infill is greater in Brisbane, where 138,000 new dwellings are expected to be developed in established urban areas, especially around transit centres (typically rail).

    One of the many assumptions that underpin the core strategy of the SEQRP have to do with
    the risk of sprawl. This suggests that modest and manageable growth rates of 1500 people per week are somehow tipping the big end of the global scale. The region’s current population of 3 million shows obvious signs of urban expansion as a result of growth to date, yet, with some notable exceptions in recent years, infrastructure has generally kept pace with the growth. Even at the urban fringe, new housing development has been at higher rates of dwelling density than in years past (lot sizes are shrinking).

    There is also an assumption that we are running out of land. But South east Queensland has vast tracts of land suitable for urban expansion and has several established regional centres readily capable of servicing new expansion with infrastructure and town centres already in place and capable of upscaling. The urban growth boundary imposed by the SEQRP is approximately 300 kilometres in length as it curtains the urban area. An expansion of this boundary by as little as a kilometer (under a mile) would create a notional land supply suitable for an additional 500,000 detached homes at 15 to the hectare (or six to the acre).

    Behind the plan lies an accepted wisdom that demand for ‘the quarter acre block’ is driving excessive expansion. The evidence, however, suggests this is now ancient history: lot sizes have not been anywhere near a quarter acre since the 1960s. The typical lot size now is 400 square metres, or around one tenth of an acre, hardly an irresponsible over-consumption of land for housing.

    It is also assumed that all this growth imperils quality farm land. This assumption can only come from those with a vague understanding of farming practices. In the south east corner of Queensland, typically two types of land have been conserved for this reason. The first is land devoted to growing sugar cane which is no longer economically efficient. This agriculture produces a biodiversity desert and is far better suited to the more tropical north.

    The second type of land conserved under this rationale is land historically devoted to cattle grazing. This was always marginal grazing land in the main – dry, shallow soils that struggle to hold moisture or grow pasture. As technology improved and transport economics developed, more efficient grazing country has been opened up further from city markets. But as farmers are prevented from selling their land for housing, despite its logical location for that purpose, herds of bony cattle continue to roam the urban fringes of the metropolis.

    This assumption also seems to hold dear the notion that, for sustainability reasons, regions should source their food needs from within a nearby catchment, minimizing transport costs. Were this true, Queenslanders would not enjoy apples (grown in southern temperate zones) and neither would Tasmanians (our cool climate southern state residents) ever enjoy bananas (two thirds of Australia’s crop of which are grown in Queensland). It would also mean our agricultural industries, which rely heavily on export, would fail.

    The cost of infrastructure provision is a subject that preoccupies governments in growth regions. Perhaps for this reason, the suggestion that infrastructure is more economically deployed in established urban areas, as opposed to newly provided in outer growth areas, found much support in treasury corridors. However, the evidence suggests otherwise: established urban areas‘ essential services (electricity, water, sewerage, stormwater) are ageing and incapable of serving significantly higher demand loads. The replacement and upgrade cost of retrofitting these services is demonstrably higher than the cost of installing new services in new growth areas.

    It is also assumed outer suburban growth will mean worsening urban congestion. Yet relatively few residents of new outer suburban growth areas are employed in inner city areas: according to the Census and other official government data, most jobs are in suburban locations – 90% of all jobs in fact. The CBD (our downtown) is a high density focus area for many headquarter operations, but at 2 million square metres of office space, it cannot by any stretch of the imagination provide sufficient space for the majority of the region’s workers.

    There is the assumption that infill and higher density will get more people using public transport. Current public transport usage represents under 15% of all trips. With higher density housing in established areas, especially in and around transit nodes (TODs), that figure could theoretically increase. But even the most heroic of assumptions would put the future rate at little more than 30%. Meaning 70% of new residents will still be auto dependent. There is also an unanswered question on the capacity of existing rail and bus services to cope with additional demand (frequent reports mention chronic overcrowding) combined with the high level of public transit subsidies per passenger, which will somehow have to be funded.

    Finally, it’s assumed that high density housing is more ‘sustainable.’ But according to several Australian University studies, unit and townhouse dwellings actually consume more energy than equivalent detached dwellings. Common area lighting, lifts, clothes driers and airconditioning are all more commonplace in high density dwellings than detached (where natural light, cross flow ventilation and solar power for drying clothes are the norm). Factor in the higher number of persons per dwelling in detached housing, and the per person energy consumption of inner city, high density housing looks ordinary. No less an authority than the Australian Conservation Foundation actually proved this in their Consumption Atlas which revealed that inner city high density residents had much larger carbon footprints than their suburban cousins.

    On balance, many of the assumptions that underpin the central strategic intent of regulatory planning schemes such as The South East Queensland Regional Plan, just don’t stand the test of evidence. Indeed in many cases, the evidence suggests the opposite of what is assumed. But evidence, it seems, is out of favour and slogans are in.

    Four legs good, two legs bad. Napoleon is always right. Why consult the facts when the mantra will do?

    About the author: Ross Elliott has 20 years experience in the property and development field, including stints in research, advocacy and urban economics. He writes an occasional blog, which you can find here and works as a consultant in marketing, strategy and business development, specializing in the property sector.

  • Bangor or Bust: Navigating To Thanksgiving At Grandma’s

    Everything that is the matter with America’s transportation and energy policies can be understood by attempting to travel with a family from New York City to Bangor, Maine.

    I use Bangor for my example — although places like Louisville, Columbus, Lynchburg, and Wheeling would work just as well because — for better and for worse — I, (a New Yorker) married into a Maine family in the early 1980s. For the last twenty-five years I have devoted countless waking hours to plotting connections to family reunions, as I have once again done for this Thanksgiving.

    For a brief period in the 1980s, People Express flew from Newark to Portland, and for less than $50 my wife and I could fly there in an hour, and then cajole a relative to drive us the rest of the way. You paid for the ticket on board by handing the stewardess a wad of small bills.

    Since that happy interlude, Bangor has remained as inaccessible as parts of Albania, a place of stark beauty, served only by the automobile, a few buses, and expensive planes. From New York, the journey involves a nine-hour drive (without stops), a bus odyssey, or a bank-busting flight. With children in tow (and we have four), Bangor is best understood as a luxury destination, at least as far as the cost of admission is concerned.

    Herewith are the unhappy options to take a family of six from New York City to Bangor for five days during the Thanksgiving holiday:

    It’s Better On The Train (sort of): Not since Amtrak was conjured from bankrupt railways in 1971 has there been direct rail service from New York to Maine, a popular tourist destination. (It still has that super-sized statue of Paul Bunyon holding a huge axe, even though Bunyon was from Bear Lake, Michigan. I guess he couldn’t get home.)

    For most of Amtrak’s history, there were no trains at all in Maine. In 2001, thanks to state subsidies in Massachusetts and Maine, service was started between Boston’s North Station and what is called the Portland Transportation Center (read: “huge parking lot that is a long way from downtown”).

    To get from New York to Portland, however, means first a train to South Station in Boston, and then a cross-town taxi to North Station for the connection to Portland, which is, alas, 166 miles from Bangor. The one-way fare on the Wednesday before Thanksgiving, for a family of six, is $775. The trip starts at 8:30 AM and ends in Portland at 4:10 PM.

    The fare is the same for the return journey on the Sunday after Thanksgiving, and then the cost of renting a car, for five days in Maine, is about $80 a day. But here’s another catch: There are no car rental companies that I can find that have locations at the Transportation Center. So throw in a cab ride to Portland’s Jetport, add about an hour to the trip, and figure you will get to Bangor at 7:30 PM in time to miss dinner (which in Maine is earlier than in New York City).

    Total cost of the journey, without the tolls: $1,940. One reason Amtrak’s fares are so high is that the company fears being swamped with travelers if it encourages rail travel with family-friendly pricing. Its expensive fares are actually calculated to discourage travelers, as many routes lack sufficient rolling stock for more passengers.

    Go Greyhound, Or At Least Try To Take A Bus: For reasons my father attributes to the failure of Trailways some years ago and monopolistic bus practices (at 90 he worries about these things), there is no direct bus service between New York City and the state of Maine. All the bus trips involve a change at South Station in Boston.

    To get to Maine for Thanksgiving, it would be possible to load the family onto a Bolt Bus, the new low-cost carrier (owned by Greyhound) that connects West 34th Street in New York with Boston. The one-way fare is $22 per person or $132 for all, and Bolt has wifi. It’s a real bus and not the spiritual heir of the Gray Rabbit.

    From Boston, we would switch to Concord Coach Lines (one-way fare for six, $246) and take a 2:15 PM bus that gets to Bangor at 6:30 PM. Total bus fare for the round-trip adventure is $756, and each trip (safe, dependable, reliable, and very cramped) can be done in about ten hours.

    I am not even sure Clark Griswald would take his family to Maine on the bus, although I have done it many times, at least from Boston. Advantages? Concord has movies. Disadvantages? Most star Adam Sandler.

    Fly Me (remember the ad campaign of the racy Braniff Airlines?): There is direct air service from New York City to Bangor on U.S. Airways (well, okay, a turboprop operated by Piedmont Airlines), and it lumbers up the coast in two hours. But for a family of six, the roundtrip airfare is $1,998, although I am sure with advance booking, and changes in Cincinnati, that amount could be shaved to $1,700. Jet Blue ($1,488) does go to Portland, but then you need a $500 car. In winter months, if changing planes in Boston (to save money), expect delays and cancellations, and think about traveling with a sleeping bag.

    Try Less Hard And Rent A Car: Here we get to the essence of America’s mass transportation failures. By far the cheapest way to take a family from New York to Maine is to rent a car. Listings at Enterprise and Budget start around $270 a week for a full-size car. To be sure, there is insurance, those hidden travel taxes, tolls, and gas, so figure the cost of driving to Maine at about $500. Mapquest estimates the journey at 7 hours 33 minutes, as it never gets stuck on Interstate 495 going around Boston or stops at Denny’s.

    So the car is faster, door-to-door, than the train, the bus, and probably a plane (when airport strip searches are factored into the pleasures of traveling). But not calculated into the drive is the odd war in the Middle East, melting ice caps, road accidents, and the effects of listening to AM radio. And who wants to spend two Thanksgiving days “merging left” to “avoid congestion ahead?”

    How Do I Want To Get To Maine? In my mind, the journey should take place on a State of Maine Express (fine, call it the Paul Bunyon), which would miss Boston and track northeast through Hartford, Worcester, Portland, Brunswick, and get to Bangor in about six hours. (Average speed of 72 m.p.h.)

    For the trip, I would reserve, at a reasonable price, places in the restaurant observation car, and we would read and drink good coffee before sitting down for lunch. We would also talk, look out the window, play cards, and dally on our computers.

    Ideally the train would leave Grand Central at 9:40 AM, serve lunch after Worcester (where the fresh fish would be taken on board), and arrive in Bangor at 3:40 PM. Alternatively, we would watch a Broadway show, and then board a sleeper train that would leave Penn Station at 11:30 PM and arrive after the crew had served waffles, eggs, bacon, and coffee for breakfast.

    A Romantic Daydream? Perhaps, at least given America’s atrocious record with mass transportation in the last fifty years. It has killed off most passenger trains, subsidized air travel and then made it miserable, forced travelers into cars for all sorts of journeys, strip-mauled the suburbs, destroyed city neighborhoods with interstate highways, and even eviscerated bus service to many smaller towns. Other than that, it’s the greatest system in the world.

    But here is a list of countries where the journey that I am proposing — to a smaller regional city in an elegant dining car — would not be more complicated than buying tickets down at the station: England, France, Switzerland, Romania, Spain, China, Russia, Germany, Czech Republic, Italy, Hungary, Scotland, and Malaysia. Is not the United States at least as enlightened or wealthy as some of these nations? I know about these possibilities because in recent years I have taken excellent trains — and have eaten well en route — in each and every one of these countries.

    This does not mean that I only agree with Paul Theroux, author of The Great Railway Bazaar, who wrote that “it is better to go first class than to arrive.” But why have a public transportation system that costs a fortune…and goes nowhere?

    Matthew Stevenson was born in New York, but has lived in Switzerland since 1991. He is the author of, among other books, Letters of Transit: Essays on Travel, History, Politics, and Family Life Abroad. His most recent book is An April Across America. In addition to their availability on Amazon, they can be ordered at Odysseus Books, or located toll-free at 1-800-345-6665. He may be contacted at matthewstevenson@sunrise.ch

  • Housing Bubbles: Why are Americans Ignoring Reality?

    Dr. Housing Bubble (based in California), in “The comprehensive state of the US housing market”, asserts that of the 129 million residential units in the United States, some 15,950,000 are vacant, resulting in a huge oversupply of residential stock across the country.

    Other United States commentators are making the same assertions, such as Colin Barr of Fortune magazine with “Housing market still faces a big glut”.

    However – after a close read of the “US Census Residential Vacancies and Homeownership Report” released October 29, 2009, the figures are hardly cause for alarm.

    As of the 3rd Quarter 2009, Table 3 illustrates that there are an estimated 130.302 million housing units in the United States, of which 111.459 million (85.5%) are occupied, with 75.339 million (57.8%) owned and 36.119 million (27.7%) rented. The balance, being some 18.843 million (14.5%), is described as “vacant” (with a revised 3rd Qtr 2008 18.448 million units alongside). The “vacant” are loosely broken out in to year round, for rent, for sale only and seasonal. There has been no dramatic shift in these figures over the past 12 months.

    The US Census Population Clock states that the present US population is 308 million.

    The Census Bureau Residential Report illustrates that in the 3rd Quarter 2009, the estimated vacancy rate for usually occupied rentals was 11.1% (9.9% 3rd Quarter 2008) and 2.6% (2.8% 3rd Quarter 2008) for homeowner housing. There is nothing much to get excited about there, and in fact the somewhat elevated “rental vacancy” could prove a boon to the poor, particularly in regions with grossly excessive rents.

    The importance of “vacancy cushions” cannot be over emphasized, as they provide the necessary time for the construction industries to gear up, so that unnecessary property inflation does not occur.

    The US Census Quickfacts (Texas page – with US figures alongside) states that the 2008 US population for persons per occupied household in 2000 was 2.59.

    As societies become more affluent, people per household should fall (note: Texas persons per household is slightly higher on these 2000 figures at 2.74 per household, likely due to the higher Hispanic population with larger families).

    Conversely – through these economic downturns, it is likely that household sizes would also increase somewhat.

    For example, in using the US Population Clock as a rough guide with the 308 million population figure (and deliberately ignoring, for the purpose of this discussion, those in institutional care etc), if the people per household overall increased from, say, 2.59 per household requiring 118.53 million residential units – to, say, 2.79 people per household (as economic conditions worsen), just 110.03 million residential units would be required for occupation. Around 8.5 million less were occupied during the peak of the boom.

    Furthermore, significant numbers of second/vacation homes would no longer be required, as households struggle to lower their expenses through this economic phase.

    As an example, during the decade of the 1990s in Australia – as people became more affluent and family sizes decreased – household sizes moved from around 2.8 per household to approximately 2.6 per household, which was a big driver of the residential construction industry in that country. As they became more affluent, they bought or built more second/vacation homes as well. Australia’s population increased by about 12% through this period, as its housing stock increased by in excess of 22% (access Australian Bureau of Statistics for further information).

    Property commentators’ “estimates” are always interesting of course, but as with my own, should be treated with greatest caution. The critical issue in terms of housing is not necessarily demographics but THE ONLY TRUE MEASURE OF SCARCITY AND ABUNDANCE: PRICE.

    Over the years, Dr. Housing Bubble and many other American commentators have persisted in ignoring the glaring contrasts of the California and Texas housing markets. They have treated all markets as the same, without looking into profound regional differences.

    The latest “Houston Association of Realtors Sept 09 Monthly Report” makes very interesting reading indeed. For the months of September 2008 and September 2009, the numbers are as follows: property sales from 4,336 to 5,654 (+30.4%), dollar volume from $0.877 billion to $1.102 billion (+25.7%) and median single family sales price $155,920 to $156,200 (+0.2%).

    This performance reflects the reality that Houston (as with Texas and most of American heartland) is a “normal market” where supply is not purposely constrained and politicized. I touched on these matters in an article in February this year.

    Now let’s turn to discussing some numbers about “abnormal markets” and what is accurately referred to as the “Failed State of California” (“Failed states: Washington Examiner”), where it appears the politicians are determined to wipe the residential construction industry off the map.

    The state of the residential construction market in California can only be described as “horrific”.

    On October 26 2009, the California Building Industry Association released its report on the residential construction permit activity for the month of September 2009, stating that there were just 2,920 permits issued for the month, and that they have lowered their permit estimates for 2009 to an appalling 37,700 units.

    These are unbelievable figures when one considers that the estimated population of this State is 37 million.

    The internationally recognized measure for housing production and permitting is the build/permit rate per thousand population. The California residential permit rate for 2009 is therefore a shocking one unit per thousand population. I cannot recall a permit rate this low in recorded history anywhere in the world.

    Yes – it’s that bad.

    If Texas was permitting at the same rate for 2009, just 24,000 permits would be issued (Houston 5,600). On an international basis at 1/1000 population the figures would be: the United States overall 307,000, Canada 37,000, Australia 21,000, the United Kingdom 61,000 and New Zealand and Ireland around 4,400 each.

    The reason of course for these unbelievably low California permit rates, is because the Governments at all levels in the State have essentially banned the construction of affordable housing. Essentially the planners have erected a Berlin Wall around the state, all but stopping the building of housing, particularly single family units vastly preferred by the population.

    Meanwhile, back in the normal market of Houston, they are merrily building starter homes of 235 square meters (2,529 square feet) for $140,000 on the fringes ($30,000 for the lot, $110,000 for actual house construction).

    The Annual Demographia Surveys (5th Annual Edition), the Harvard Median Multiples and many other income-to-house price studies (e.g. Randal O’Toole of Cato’s extensive work), clearly illustrate that when house prices exceed three times annual household income it causes inevitable supply constraint issues.

    It appears too that Dr. Housing Bubble is “baffled” why California had such an inordinate share of sub-prime, Option ARMs and other grossly distorted mortgage structures, and delights in blaming the Bankers (banksters as he sometimes refers to them) for the unholy mess that is California (the epicenter of the Global Financial Crisis).

    Households should not spend any more than three times their gross annual household income to house themselves, and importantly, not load themselves up with any more than two and a half times their gross annual household income in mortgage debt. As the California bubble inflated, financial institutions simply had to increasingly lend outside these historic norms, if they wished to maintain market share.

    The financial institutions – not all dumb, and no doubt acutely aware of the risks – were very keen to securitize it and off load the risks to others.

    The only mistake they made was not offloading the risks adequately or fast enough! Herb Greenberg outlines this financial circus in Straight Talk on the Mortgage Mess from an Insider on his MarketWatch blog. Professor Robert Shiller of Yale University noted he was “terribly conflicted” about what is happening in his recent extraordinary Fox Business television interview (Shiller on Housing: ‘I am Terribly Conflicted’ (Glick Report))

    What is really needed here is the understanding – as is being developed in Australia and New Zealand – that structural changes need to be put in place to ensure that these disastrous housing bubbles don’t get underway again (refer to Performance Urban Planning for access to New Zealand Government statements. For recent Australian news and reports: Bottlenecks choking recovery | The Australian, More houses, not taxes | The Australian, AdelaideNow… Home ownership dream fading, say Flinders University researchers).

    These issues are not “ideological” or “environmental”, but have much more to do with deliberately misleading information being generated by professionals in collusion often with political and commercial elites, who are keen to promote housing bubbles for their own ends.

    Yet most Americans seem to persist in ignoring the real structural issues – and instead are choosing to “paper over the cracks” by financially bailing out everything in sight. This is an exercise in futility if ever there was one, as the Japanese have learned to their cost, following the collapse of their property bubble in 1989.

    It is to be hoped that the Americans belatedly start getting the public conversation underway, in working together exploring real solutions – like unnecessary supply constraints – to these unnecessary housing bubbles. We have done this in Australia and New Zealand these past five years and it is beginning to work.

    Hugh Pavletich is a New Zealander with thirty years experience as a commercial property development practitioner. He served as President of the South Island Division of the Property Council during the early 1990’s. In 2004 he was elected a fellow with the Unban Development Institute of Australia for services to the property industry. He has been involved with changes to local government financial management, heritage and land supply. During 2004 he teamed up with Wendell Cox of Demographia to develop and co author the Annual Demographia International Housing Affordability Survey. The 5th Annual Edition of this Survey was released January this year. His website is www.PerformanceUrbanPlanning.org.

  • Think Globally, Regulate Locally

    It was during a recent tour of a sun-baked Los Angeles schoolyard that theories on state regulations developed by the latest Nobel Prize-winning economist came into focus. The Da Vinci Design Charter School is an oasis in an asphalt desert. Opened this year by the appropriately named Matt Wunder, the school draws 9th and 10th graders from some of the most difficult and dangerous learning environments in the country, and introduces them to a demanding, creative atmosphere.

    The school is located just south of Los Angeles Airport. Wunder is taking advantage of the area’s proliferation of aerospace companies, and is building relationships with the likes of Boeing and Northrop Grumman, which offer financial and educational assistance. This is not the standard thinking one finds in the mammoth Los Angeles Unified School District.

    As we walked the playground we came upon two dirt-spewing holes in the blacktop, spaced about 50-feet apart. We discovered an actual human being with a shovel digging what looked like the beginnings of a mine shaft. The reason?

    California State regulations, as established by the California Architects Board, require all basketball hoops on public school campuses to be cemented into 50-inch deep holes. That’s four-feet-two inches for a basketball hoop!

    Now I am sure some scientifically sound earthquake testing at a California university found that such precautions are necessary if we are ever struck with a 9.9-Richter scale disaster. Of course, if such a thing happened we would have bigger problems than basketball rims keeling over. But a larger point became clear: In a school where creative leadership is making life-long impacts on the lives of children, the “long arm” of Sacramento has reached into the very soil, regulating how deep to dig ditches for recreational equipment. In so doing the State not only increases “construction” costs, but also incurs our disenchantment, as we consider a government that “trusts” local decision-making on curriculum, but not on hole digging.

    The theories of Elinor Ostrom, one of this year’s two Nobel Prize-winners in economics, tie in here with stunning irony. Ostrom, a political scientist at Indiana University, won the prize for her historical and economic analysis concerning the “tragedy of the commons”: the theory that, without some form of regulation, when people fish or farm “common” (non-private) property they will tend to abuse the privilege and hurt all interests in the end.

    A major underpinning of this theory is how these rule sets are most effectively developed. Ostrom found, in studies dating back centuries, that local parties –- sometimes non-governmental ones — almost always determine the best regulations, based on deliberated self-interest as opposed to centralized (and, often, distant) institutions.

    As Vernon Smith, a past economics Nobel laureate himself, recently commented on Ostrom’s work, “A fatal source of disintegration is the inappropriate application of uninformed external authority, including intervention to prevent application of efficacious rules to political favorites.” As rule-making becomes more removed from the actual location of execution, there’s a loss of “local knowledge” regarding conditions. And “interests” that tend to gather around centralized institutions have a disproportionate influence on legislation.

    At a recent conference on sustainable planning at Pepperdine University, I sat in on a discussion of “natural resource management” and heard a relevant story of competing, predominantly left-leaning interests. In one corner were the “green” energy folks who had attempted to build a massive solar “farm” in the Mojave Desert. In the same, uh, other corner, were the defenders of the desert tortoise. Not wanting to get anyone in trouble, I will just say that officials from several State and Federal departments were present to talk about how, once again, centralized decision-making had sunk an impressive project.

    Apparently, when alerted to the possibility of frying turtles under the heat of these huge solar mirrors, local park authorities provided a proposal to mitigate the loss of these reptiles through a variety of measures from fencing along the highways to moving the turtles to non-developed areas. This was not good enough for State decision-makers who, from the exalted heights of Sacramento, determined that the only legitimate course of conservation would be to land-swap the entire 8,000+-acre land parcel for another similar and suitable section for these animals. As one local official recounted, “If the goal of the policy is to save tortoises, we had that plan, which also kept the solar project alive. But the goal of the policy was to do a land exchange, which is stopping the project, and not doing all that much better for the tortoises.”

    My point in raising these two of what could be thousands of examples of overreach by the administrative state is not to dismiss government’s central and important role in advising, and, at points, regulating the actions of citizens in areas ranging from public safety to sustainable planning. Rather, it’s to demonstrate what happens when policy goals are subsumed by prescriptive policy created at levels (such as Sacramento in a state the size of California) which cannot possibly allow for unique local conditions. The goal is not just child safety, or saving tortoises, but to accomplish these in a certain way that may, in fact, prevent these greater benefits to the public good.

    This style of governance exasperates the well-intentioned in both the private and public sector, as it prevents the liberty necessary for creative and customized policy-making. This common sense approach to policy-making is, apparently, what they give out Nobel Prizes for these days.

    It was Alexis De Tocqueville who most famously realized that the genius in American governance was decentralized administration , an aspect directly contrary to the European bureaucratic experience. In words that could have appeared in Professor Ostrom’s classic, Governing the Commons, De Tocqueville wrote over 150 years ago, “When the central administration claims to replace completely the free cooperation of those primarily interested, it deceives itself or wants to deceive you. A central power, however enlightened… cannot gather to itself alone all the details of the life of a great people.”

    Let us not be so deceived.

    Pete Peterson is Executive Director of Common Sense California, a multi-partisan non-profit organization that supports civic engagement in local/regional decision-making. His views here are not meant to represent CSC. Pete also teaches a course on civic participation at Pepperdine University’s School of Public Policy.

  • California: The Housing Bubble Returns?

    To read the periodic house price reports out of California, it would be easy to form the impression that house prices are continuing to decline. Most press reports highlight the fact that house prices are lower this year than they were at the same time last year. This masks the reality of robust house price increases that have been underway for nearly half a year. The state may have forfeited seven years of artificially induced house price escalation in just two years but has recovered about one-fifth of it since March.

    California Housing Market Since 2000: In 2000, the average median house price among California markets with more than 1,000,000 population was $291,000. The Median Multiple (median house price divided by median household income) was 4.5, making houses in California approximately 50% more costly relative to incomes than in the rest of the nation.

    According to the California Association of Realtors, the average median price peaked at $644,000 between 2005 and 2007, depending upon the particular market. This nearly 140% price increase translated into a more than doubling of the Median Multiple, to 9.2.

    Median prices fell rapidly from the peak, dropping at their low point to an average of $315,000. The average Median Multiple fell to 4.4, slightly below the 2000 level, but still well above the national level. All markets reached their low points in the first part of 2009.

    It is at this point that the business press lost track of what was going on. Of course, year on year price declines continued, but only because the price declines had been so severe early 2008. Since the bottoming out of house prices, there have been strong gains. As of September, the average median house price among the major metropolitan areas was $383,000, a nearly 20% increase from the low point. Moreover, in dollar terms, median house prices recovered nearly 20% of their loss from the peak to the low point.

    Major California Markets: Median House Prices: 2000 to Present
    Metropolitan Area (MSA) 2000 Peak Low Point 2009/09 Loss: Peak to Low Pt Change from Low-Pt
    Los Angeles: Los Ang. County  $ 215,900  $ 605,300  $  295,100  $  351,700 -51.2% 19.2%
    Los Angeles: Orange County  $ 316,200  $ 747,300  $  423,100  $  496,800 -43.4% 17.4%
    Riverside-San Bernardino  $ 144,000  $ 415,200  $  156,800  $  172,400 -62.2% 9.9%
    Sacramento  $ 172,000  $ 394,500  $  167,300  $  184,200 -57.6% 10.1%
    San Diego  $ 231,000  $ 622,400  $  321,000  $  386,100 -48.4% 20.3%
    San Francisco  $ 508,000  $ 853,900  $  399,000  $  536,100 -53.3% 34.3%
    San Jose  $ 448,000  $ 868,400  $  445,000  $  553,000 -48.8% 24.3%
    Average  $ 290,700  $ 643,800  $  315,300  $  382,900 -52.1% 19.4%
    Exhibit: Median Multiple            4.5            9.2            4.4            5.2
    Above Historic Norm (3.0) 50% 208% 46% 73%
    Derived from California Association of Realtors and National Association of Realtors data
    Note: California Association of Realtors divides the Los Angeles MSA into Los Angeles and Orange counties

    Profligate Lending: It is critical to note that the inflated house prices that existed two to three years ago were wholly artificial. Prices had been driven up by the special and hopefully never to be repeated conditions of profligate lending, which increased demand.

    California: Regulating Away Housing Affordability: But the increase in demand alone would not have been enough to produce the unprecedented house price increases had public officials and voters not established a veritable mish-mash of housing supply regulations. The house price increases were driven ever higher by these severe land use restrictions, which prevented housing markets state from meeting demand.

    Supply restrictions, which go under various names, such as compact development, urban containment and “smart growth,” have been a feature of California housing for some time. Examples of such policies are urban growth boundaries, building moratoria and expensive development impact fees which disproportionately tax new homes for the expanded community infrastructure a rising population requires.

    As more loose lending practices increased the demand for home ownership, the inability (and unwillingness) of the state’s land use regulations prevented the housing supply from increasing in a corresponding manner. With demand for housing far outstripping supply, prices had nowhere to go but up. The result was short term house price escalation that may have never occurred before in a first-world nation.

    Contrast with Healthy Housing Supply Markets: There was a stark contrast with house price increases in the liberally regulated markets around the nation. For example, in Atlanta, Dallas-Fort Worth and Houston, house prices remained near or below the historic Median Multiple norm of 3.0, as the supply vent was allowed to operate. This is despite the fact that there was a strong underlying increase in demand for home ownership (measured by domestic migration) in these and other liberally regulated markets. In the California markets, on the other hand, there was overall negative underlying demand, with significant domestic out-migration. Of course, speculation ran rampant in California, as could be expected in any market where asset values are responding to a severe shortage of supply relative to demand.

    By the 1990s, Dartmouth’s William Fischel had associated California’s high house prices relative to the nation with the intensity of its land use regulation. In 1970, as the more severe regulations were beginning, house prices in California were at approximately the same level relative to incomes as in metropolitan areas in the rest of the nation.

    California’s disproportionate losses are illustrated by the fact that its major metropolitan areas have less than twice as many total owned houses as those in Texas (Dallas-Fort Worth, Houston, San Antonio and Austin), yet experienced gross value losses 85 times as great as the Texas metropolitan areas by Meltdown Monday (September 15, 2008, when Lehman Brothers failed).

    Recent Price Increase Rate Exceeds the Bubble: While widely unnoticed, the post-bottom median house price has increased 20%. In six months or less, the average median price increase among California metropolitan areas exceeded the annual price increase for all of the bubble years except one, which was 22% in 2004. The 2009 price increase rate, annualized, is nearly double that. As a result, despite the widely reported bubble collapse, California’s housing affordability now is worsening relative to the rest of the nation. The prospect could be for further inflation of the bubble, with the passage of Senate Bill 375, which is likely to lead to even more intensive land use restrictions, on the false premise that higher densities will materially reduce greenhouse emissions. As governments increasingly force development to occur only where it prefers, the property owning winners can extract much higher prices than would occur if there were more competition.

    This of course will mean that the more dense housing units built will be even more expensive, even as the market is prohibited from supplying the larger detached homes that households overwhelmingly prefer. All this will make California less competitive, something the increasingly uncompetitive Golden State could do without.

    Another View: The recent price escalation, however, may be illusory. The widely read California real estate blog, Dr. Housing Bubble suggests that the first wave of “sub-prime” loan failures that constituted the bubble burst could be followed by a second wave over the next few years, driven by “option arm” mortgage resets. The Doctor notes that these loans are concentrated in California and other ground zero states (Florida, Arizona and Nevada), unlike the previous wave, which was more evenly spread around the nation.

    In the End: Regulation Will Lose the Day: Thus, the “jury is still out.” The bubble may be re-inflating in California, or another bust could be on the horizon. However, in a state that has given new meaning to regulatory excess, the longer run prospects call for artificially higher housing prices, unaffordable to much of the state’s middle class. This means that California will continue to become an ever-more bifurcated state, between an aging, largely affluent coastal homeowning population and, well, just about everyone else.

    Photograph: Los Angeles (Porter Ranch in the San Fernando Valley)

    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.”

  • Hyper-Partisans on the Green Politics Battlefield

    America is more polarized today than at any time since Reconstruction. A major quantitative analysis by social scientists Nolan McCarty, Keith Poole and Howard Rosenthal found today to be the most polarized period in 130 years.

    If you want to understand how it is that the debate over — for example — global warming policies became so shrill, consider the recent pattern of behavior by the country’s second-most read climate blogger, Joe Romm. We will argue – against those who pooh-pooh his influence – that Joe Romm is, in fact, far more influential today than Joe McCarthy was in the 1950s, a fact that, unfortunately, has proven poisonous to creating the consensus needed for serious action on climate.

    Today’s fractured and polarized media environment has allowed Joe Romm to become the most influential liberal climate activist in the country, largely because he has convinced liberals and Democrats that he is an energy and climate science expert. This explains why Nobel Prize Winner and New York Times columnist Paul Krugman says “I trust Joe Romm,” Thomas Friedman calls ClimateProgress.org “the indispensable blog,” Al Gore relies on him for technical analysis, and the Center for American Progress makes him the organization’s chief spokesperson on climate and energy issues.

    Partisan Identity as a Mental Short-Cut
    It’s no coincidence that America’s Climate McCarthyite-in-chief is a blogger at the largest liberal think tank and not a U.S. Senator. Busy fundraising and campaigning, members of Congress have largely outsourced the deliberative process of legislating to partisan interest groups and think tanks.

    Much has been written about the ideological echo chamber conservatives like Sen. James Inhofe, Rush Limbaugh, and Glen Beck have created to enforce anti-environmental orthodoxy on the Right. Less remarked upon has been the creation of its analog on the Left – an accomplishment in which Romm has taken a leading role. Romm has mastered the echo chamber in its liberal expression and creates a reassuring green womb for his growing cadre of loyal readers.

    Most importantly Romm functions to inform his readers of the partisan identity of any given thing, whether it be a new technology, policy, or analysis. Thus, when it came time for Romm to criticize a rather technical piece on the rising carbon intensity of the global economy that appeared in the journal Nature he attacked it not as inaccurate or incorrect, but rather as Republican:

    It will be no surprise to learn the central point of their essay, ironically titled “Dangerous Assumptions” is “Enormous advances in energy technology will be needed to stabilize atmospheric carbon dioxide concentrations at acceptable levels,” which is otherwise known as the technology trap or the standard “Technology, technology, blah, blah, blah” delayer message developed by Frank Luntz and perfected by Bush/Lomborg/Gingrich.

    In other words, the Nature article was not what it claimed to be. It wasn’t an analysis suggesting that the United Nations Intergovernmental Panel on Climate Change should revisit its assumptions about decarbonization. It wasn’t an argument for stronger technology policies. No, it was a devious Republican message – one designed by Republican pollster Frank Luntz during the Bush years – to delay action.

    How then did Romm become convinced that, rather than being genuine, the “Dangerous Assumptions” analysis was, in fact, Republican propaganda? Because Romm’s Climate McCarthyism is, in large measure, the product of his Hyper-Partisan mind, one which sees everything through the gaze of Republican or Democratic, “climate denier” or “climate science advocate,” and “climate destroyer” or climate savior.

    Elsewhere Romm attacked Robert Mendelsohn, another leading environmental economist:

    When the global warming deniers and delayers at right wing think tanks like the Hoover Institute agree with your analysis, you should start to ask yourself whether you really know what you’re talking about.

    Get it? The economists in question should rethink their work not because their assumptions are wrong, or their findings invalid, but rather because a conservative think tank agrees with them.

    If You Do Not Agree Then You Must Be A Republican
    Romm does not simply enforce the existing Democratic discourse, he also seeks to narrow it, effectively reducing its appeal by making it more hysterical, shrill, and apocalyptic. Little surprise, then, that Romm felt the need to attack the views of environment writer Gregg Easterbrook for writing a critical review of Friedman’s book, which relied heavily on Romm’s apocalyptic interpretation of the climate science.

    Here’s Easterbrook:

    Why does the cocktail-party circuit embrace claims about a pending climate doomsday? Partly owing to our nation’s shaky grasp of science–many Americans lack basic understanding of chemicals, biology, and natural systems. Another reason is the belief that only exaggerated cries of crisis engage the public’s attention; but this makes greenhouse concern seem like just another wolf cry.

    Romm responded by calling Easterbrook – wait for it – Republican:

    Thanks to the Gregg Easterbrooks of the country — otherwise known as Reagan, Gingrich, Bush and McCain – the United States became only a bit player in a global industry it helped create and once dominated, a bit player in what will certainly be one of the largest job-creating industries in the world.

    Reading Romm, one would be hard pressed to conclude that Easterbrook was anything other than an opponent of action to reduce carbon emissions. In fact, Easterbrook is an advocate of the dominant Democratic and environmental approach to climate change, cap and trade. “Government should regulate greenhouse emissions,” he wrote in his review, “then let the free market sort out the details, including by funding the research.”

    Easterbrook’s policy agenda turns out to be closer to most national environmental groups than to Bush’s, Gingrich’s, or Luntz’s. If Easterbrook is recycling partisan talking points, they are mostly Democratic, not Republican ones, save for his view that global warming’s threat is real but not apocalyptic.

    McCarthyism in a Hyperpartisan Era
    Some readers have complained to us that Joe Romm is no Joe McCarthy. They are right. Joe Romm is far more influential. Others wonder why we criticize Romm, who believes passionately that global warming is occurring and that we must take action to address it, rather than Limbaugh or Inhofe, who reject climate science and oppose action.

    And yes, to be fair, McCarthy had the ability to get people fired and put on blacklists. In this way he was more powerful. But Romm shapes how a whole generation of Democratic leaders, liberals, and greens think about the most serious environmental problem in the world, climate change, and about the master resource, energy, in the most powerful economy humankind has ever created. In this way Romm is more influential. Those who wave away Romm’s influence are disconnected from our new hyper-partisan and fractured media reality.

    “The nation grows more politically segregated,” Nicholas Kristof quoted Bill Bishop, the author of the Big Sort, saying, “and the benefit that ought to come with having a variety of opinions is lost to the righteousness that is the special entitlement of homogeneous groups.”

    Joe Romm has the trust of liberals and Democrats, but not on the force of his arguments, the weight of his evidence, or the success of his agenda, for all are spectacular failures. As terrible as it may turn out to be, global warming is not “apocalypse now.” No, Joe Romm has won the trust of partisans because he tells them the story they want to hear better than anyone else. Unfortunately, hyper-partisans like Joe Romm are part of the problem, not the solution. Effective solutions to global warming cannot be enacted in our extremely divided political environment.

    Democratic partisans, liberals and greens have spent much of the last eight years tearing out our hair about all the ways the hyper-partisan it’s-all-a-hoax! Republicans have blocked action on climate. These complaints may have been cathartic, but they have not been productive. We have not had and cannot have any impact on Republicans, and our partisan apocalypse talk and our sacrifice-now agenda are obviously alienating the vast, moderate middle.

    The work of holding Republican obstructionists, anti-government extremists, and right-wing conspiracy mongers to task is work for principled conservatives, not liberals. The work of greens and liberals is to challenge the Democratic demagogues, the left-wing bullies, and the Climate McCarthyites who narrow and polarize the debate in ways that make effective policy action all but impossible. If we can hold our own hyper-partisans to account then fair-minded conservatives might do the same. For until the establishment and the grassroots on both left and right learn to say no to Joe Romm and to Glenn Beck, hyper-partisanship is here to stay.

    An earlier version of this article appeared at The Breakthrough Institute blog.

    Michael Shellenberger and Ted Nordhaus are co-founders of the Breakthrough Institute and authors of the seminal essay The Death of Environmentalism in 2004 and the controversial and critically acclaimed Break Through: Why We Can’t Leave Saving the Planet to Environmentalists in 2007. They are widely recognized experts on climate and energy policy and their work has deeply influenced a new generation of clean energy advocates.