‘Smart Growth’ causes bubbles

One of Len Brown’s catch-cries, apart from ‘Meet me in the Ngati Whatua Room’, is that Auckland must have ‘smart growth’.

This he tells us is why we must accept his unitary plan.

The only problem with that is the evidence the world over says otherwise.

In 1950, Florida had only 3 million residents, ranking 20th in population in the country. By the mid-2000s, it boasted about 19 million residents and had moved up to fourth in state population, behind only California, Texas, and New York. Recent years, though, have seen this upward arc broken. Florida was hard hit when its housing bubble burst in 2007—ahead of the national meltdown that triggered the financial crisis and subsequent recession. When its economy imploded in 2008 and 2009—unemployment eventually rose as high as 11.7 percent—Florida, long a haven of opportunity, became a less attractive place to stay in or to move to. The state’s six-decade run of positive annual net domestic migration (that is, more people arriving in the state than leaving it) came to an end.

Florida’s restrictive land-use policies (better known as “smart growth” or “urban containment”) helped inflate its property bubble to massive size, making its bursting all the more economically painful. Such growth policies limit urban expansion, prohibiting new housing except in small sections of already dense metropolitan areas. As Brookings Institution economist Anthony Downs argues, these policies can destroy the competitive supply of land, driving land prices up (other things being equal) as demand rises sharply in relation to supply. These higher prices get passed along to prospective homeowners in higher home costs—often made even pricier by various other regulations and fees. The rapidly escalating housing prices, in turn, create the potential for extraordinary profits for speculators—or property “flippers”—who, jumping into the real-estate market in considerable numbers, increase the excess of demand over supply, driving prices higher still, until a bubble begins to expand. It’s no surprise that markets with more restrictive land-use policies have much greater housing-price volatility, as research by economists Edward Glaeser and Joseph Gyourko has shown.  

Precisely the policies that Len Brown is pursuing, along with Labour…far from making housing affordable it will in fact make housing much more expensive.

Almost nowhere else in the U.S. did housing prices get more out of whack than in Florida. From 1995 to the bubble’s largest expansion, the median house price relative to median household income (the “median multiple”) in Florida’s four largest metro areas (Miami, Tampa–St. Petersburg, Orlando, and Jacksonville) rose a staggering 93 percent, to 5.2, way above the national postwar norm of 3.0. Only in California—another state with extensive smart-growth policies—did the multiple rise more, at 116 percent, reaching 8.7. In fact, restrictions have become even more severe in California, and the state’s median multiple remains higher than it was before the housing bust. By contrast, in Texas, which has avoided urban containment, the median multiple rose only 32 percent over the same period, to 3.2. Similar, more modest, increases were typical in other lightly regulated areas of the country. When Florida’s housing bubble burst, the damage was great.

Next time a politician mentions ‘smart growth’ policies, ask them in turn how that worked in California and Florida.

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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.