‘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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  • MarcWills

    Replace ‘US’ with NZ, and ‘Florida’ with Auckland, and this piece could have been written by a local journalist (if you could find one) and published in a reputable local MSM source. It should be required reading in Planning 101, and by any person thinking of standing in local body politics.

    • Heh, for a second there I thought you said “reputable local MSM source”. I must be still pissed from last night.

  • fastcompany

    it is misleading to say that smart growth per se leads to land price rises and market bubbles, although to date it clearly has. what im getting at is if it is implemented properly it could work. the catch is this is that would require an s load of potential new homes to be able to be built within the arbitrarily set city limits. and by s load I mean an s load. trouble is this would require that people don’t complain their local politician about new houses going in to their street. impossible? yes. still worth trying for? probably not as the chance for failure is too high and then your left with an idealistic plan that cant easily be reshaped to the new post ‘consultation’ reality. i’d say admit defeat a little earlier in the process and aim for a happy middle ground

    • philbest

      fastcompany, there is nowhere in the world that they have growth containment and have managed to restore affordability by any means. The UK has been growth contained for 6 decades and has only got worse and worse.

      You are right that one problem is that locals always protest about intensification and slow it down – the irony is that the same people, in some cities, elect growth-containment politicians. Where do they think the “housing” is going to be built? It’s always “someone else’s neighbourhood”, same as “everyone else is going to catch the new trains and leave the road less congested for me…..”

      • fastcompany

        of course they elect growth containment politicians, they don’t want to share their street or their city, why would you? except the problem is that in the long run the wheels fall off as residents become rent seekers rather than entrepreneurs, due to the easy money that is to be made, and the young decide its time to leave because the city is no longer a competitive option. smart growth is not to restore affordability, it is an attempt to have a more efficient city, it just comes at too great a cost if not implemented properly. but i don’t see why it wouldn’t work IF it could be properly implemented, however unlikely this may be given the various incentives that come into play. housing accords bill for intensification rather than inefficient urban sprawl perhaps? and note the ridiculous ultimate effect of this all in auckland, which is the next ten years growth now heading for small satellite towns, most of which are 30 minutes plus travel to work. so how is this at all sustainable on any level at all? forcing people to live in boring small towns with large transportation and pollution costs. time to break the mold

        • philbest

          Sorry, my original point wasn’t clear enough. I mean voters elect “anti sprawl” politicians, that’s what “growth containment” means to me. Viz; Auckland elects Len Brown; he wants to “contain growth” to within the current urban footprint, via intensification.
          The voters like to agree with the “compact city” idea in theory and elect a mayor like Len Brown, but none of them are prepared to walk the walk on the intensification that follows perfectly logically as the consequence. Just like none of them will actually ride on the train set that they stupidly voted for, instead of using their car.
          No-one gives the voters the facts about how much road space could be built with the bucks that will get wasted on the train set over the next century, and how much more actual travel in person-miles per dollar spent happens on roads. For the record, it is about 20 times as much. It is insane to spend the money on the mode that gets 1/20 the travel for the money, to “solve congestion”.
          Actually, smart growth does not result in more efficient cities at all. There is no supporting evidence for causation. The UK’s cities are the ideal data set because they have had “smart growth” for 60 years (even if called something else) and the result is a 30% productivity gap as well as much worse traffic congestion and unaffordable housing of lower quality.
          Here is some interesting data to chew on. Policy option models for Auckland. INRIX congestion scores are high=bad, low=good.
          UK cities:
          Pop. 2.2 million; density 4,000 per sq km; INRIX congestion score 25.3; House price median multiple 5.2

          Pop. 2.3 million; density 3,800 per sq. km; INRIX congestion score 20.5 ; House price median multiple 5.3

          Pop. 1.5 million; density 4,200 per sq. km; INRIX congestion score 14.9; House price median multiple 5.5

          US cities:
          Portland: (GROWTH CONTAINED and blowing money flat out on light rail) Pop. 1.9 million; density 1,400 per sq. km (and rising); INRIX congestion score 14.0; House price median multiple 5.1

          Pop. 1.6 million; density 800 per sq. km; INRIX congestion score 6.1; House price median multiple 2.7

          Pop. 1.5 million; density 800 per sq. km; INRIX congestion score 5.0; House price median multiple 2.3

          St Louis: Pop.
          2.1 million; density 900 per sq. km; INRIX congestion score 4.3; House price median multiple 2.7

          Kansas City:
          Pop. 1.5 million; density 900 per sq. km; INRIX congestion score 2.8; House price M.M. 2.7

          I assure you that I am not cherry-picking data and the overwhelming correlation is between density and congestion and unaffordable housing. There is also no correlation between fiscal sustainability of infrastructure costs and density in the real world.
          It is also untrue that shorter trips on average, claw back any congestion disadvantage in the denser cities – for the reason you point out: people are “priced out” of efficient locations and end up driving many miles further on average.
          “Smart growth” is based, like CAGW, on GIGO computer models, and is another example of the same ideology-based fraud.

          • fastcompany

            my understanding is that there is evidence that for every doubling in density in a city their are productivity gains (incomes, etc) for residents of around 5%. glaeser has good data on this. is this not the basis for smart growth? i am not suggesting that there are not other factors that also need to be considered that my be more important

          • philbest

            Glaeser agrees with the following argument: he has been asked this. It is actually self evident: the findings of Glaeser and others on productivity and density has been grossly misused by planners.
            Free market evolution of urban economies has had the most significant role especially in the USA in spite of a more recent mania for central planning of cities. The fact that Manhattan is the “most productive” spot in the USA is nothing whatsoever to do with urban planning. Wherever the finance sector had ended up clustered in the USA, would have ended up 1) the “most productive” and 2) the densest location.
            BTW Silicon Valley and Hartford CT are massive outliers in the data, being up there with Manhattan, and yet much lower density. But this does not spoil the correlation that planners rely on for their argument. However, relying on these correlations is a classic “cargo cult” error of reasoning. The cargo cult error of reasoning among primitive people connected the wealth of civilisation to the airports, to which the gods sent down magic flying monsters with cargoes of wealth. Therefore, if they cleared “airports” in the jungle, the gods would send them the magic flying monsters too. Assuming productivity from imposed urban density is just as unreasonable.
            Detroit is where the automobile industry ended up clustered and in its golden days, would have been the “most productive” city – but this would not have been associated with density. Wolfsburg (Germany’s “Detroit”) is still Germany’s most productive city but it is far from the densest. This is partly because Germany has highly dispersed networks of many urban sector activities like finance, in contrast to a single major cluster like Manhattan. But these work well.
            I always find it ironic to hear Manhattan celebrated as the ultimate example of “clustering efficiencies” and the “sharing of ideas among the best and brightest” – after the 2007 crash????? Heck, the sort of ideas the finance sector wide boys have been sharing, we can do without.
            There is also the inconvenient reality that productivity measures that find Manhattan “productive”, leave out the nature of the income being earned; whether it is “primary” income to the national economy, or “transfers”. High incomes and high density tend to be associated with “transfers”, while low density cities tend to be based on “primary” income earning sectors like manufactured exports. It is no accident that Texas is the USA’s most significant “exporting” State by a wide margin. The USA as a whole could do without Manhattan far easier than it could do without Houston.
            The UK is the example that always should be recognised as a case study of having all its cities growth-contained for decades. And it is non-controversial in urban economics, that this is responsible for a “productivity gap” on the part of the UK, now of the order of around 30%. It is a loss of a small percentage every year, cumulating over time.
            This is because land costs are forced up; workforce cost of living pressures are forced up; economic competitiveness is lost and industry is lost; businesses cannot afford space for efficient processes (anyone who has worked for a business that lacked space and could not afford any more will understand this); there are “anti competitive” effects due to the high cost of market entry; “clustering” of complementary businesses is REDUCED due to sheer lack of spare land where they might have occurred; potential new clusters of the Silicon Valley type do not emerge; capital is massively diverted from productive investments to “sunk” costs of land acquisition; traffic congestion is a massive dis-economy; infrastructure falls into deficit because of the sheer costs of disruption for maintenance, renewal and expansion, and the sheer cost of land acquisition for expansion. There is more but this will suffice.
            The UK government is absolutely terrified of global Tobin taxes because the London finance sector just about “is” the UK economy now. Six decades of growth containment urban planning would have absolutely destroyed a national economy that was not so lucky as to have a “London” to keep it afloat. Of course NZ does not have this advantage. And our brightest economists are right now desperately trying to find the cause of our own “productivity gap”. Hmmmm…….

          • fastcompany

            i think we agree on all of these things and thanks for the interesting data. going back to the initial question and my proposition however, I still believe it is possible to have smart growth IF there is sufficient potential for new housing development to occur within the city limits. most residential properties in auckland could have another 1-2 houses built on them if the planning rules didnt come with the standard long list of intentionally unachievable criteria. it is all probably of academic interest only however for the initial reasons given it is not able to be implemented.

          • philbest

            Thanks for the encouragement. It is a pleasure to discuss these things with someone intelligent.
            I believe Singapore illustrates the best that can be done by way of “intensification” rather than “sprawl”. There are no NIMBY rights, no long processes to go through; what the planners say, is what happens, and the land is all leasehold, so no-one makes any capital gains. Of course they simply do not have the space we do, and the people tolerate these conditions of governance.
            The result is a “housing” median multiple of around 6, which compares favourably with, say, Hong Kong at more than double that. But it does not compare favourably with cities with freedom to grow at the fringe, where the median multiple is anchored at around 3, for much larger housing and sections.
            I think the basic reasons for this is that intensification in a city like Singapore always has to involve the demolition of an existing structure before the new, taller one can be built. Also, building “up” is always more expensive than building “out” for the given floor space achieved. There is an incredibly helpful paper by W. D. Woodhead, entitled “The Economics of Higher Density Housing” that is unfortunately not available online. The only economic reason for building up rather than out, is to save on land cost when this cost goes above a certain level. Hence building up near the centre of a city including demolition of existing buildings, where the land is more expensive, and building single-level nearer the fringe.
            A UGB always inflates the land prices so much that it becomes “worthwhile” to build “up” everywhere. But less building, period, actually results because land costs swallow up so much available capital…!  It would be nice to find a better mechanism to encourage efficient churn of land uses. Do read “Containment Policies for Urban Sprawl” by Mason Gaffney, it is easily findable online.
            Prof. Alex Anas of SUNY-Buffalo says “smart growth” policies have been wrongly promoted; they are a perfect fit with new growth and “spare land”, not with mature, already-built areas. What a lot of people are completely missing, is that “smart growth” type nodes are to be found in places like Houston and Atlanta, at ridiculously cheap housing costs; whereas in any city with a UGB, the equivalent cost of housing is many times higher.
            The point is that in Houston and Atlanta, people have a choice of a condos in smart growth type locations for $50,000 to $150,000 and McMansions in automobile dependent suburbs for $100,000 to $300,000. And planning utopians dislike the choices people make under these conditions. Therefore, they seek to impose on people, what they call in Orwellian newspeak terms, “increased housing choice”, but which turns out to be smaller, lower quality condos in smart growth type locations for $300,000 to $900,000 and two-story (instead of single story) McMansions crammed in on postage stamp sections, for $450,000 to $1,000,000.
            And the “in between” choices, especially in more central locations, are made even worse. Like dilapidated old houses in more central suburbs being $1,000,000 to $3,000,000 instead of under $300,000. The reason for these horrific differences is that the cost of the land has been inflated tens of times. Who gains anything?

          • fastcompany

            so then the big question – is smart growth now really just a mechanism for the baby boomers to shift wealth to their generation, much in the same way as they are very happy for governments to rack up huge debts to be paid later by the younger generations (thinking of the US debt levels as an eg)

          • philbest

            That is the result whether the boomers mean it or not. The problem I have encountered everywhere including on WOBH in arguing this with boomers, is that they refuse to see anything specially unusual about the current conditions. Their argument is that “we ‘ad it tough in our day, now it is your turn, junior, suck it up and stop grizzling, you expect too much, lower your sights, cut out the hedonistic lifestyle, yadda, yadda, yadda……”

          • fastcompany

            this will unravel when genx/y realise they have been given an inter-generational beating and decide to start voting for hard line right wing policies

          • philbest

            The thing that scares me is that people are mostly so ignorant now (the more recently they went thru the education system the worse it is) especially about economics, that they might support more Statism rather than hard right wing policies. They do this in banana republics like Venezuela and Bolivia. The Anglo world has generally been more sensible, but there is no guarantee that this will always be the case.
            Online polling has shown that more people in NZ support Labour’s “affordable housing” proposals than National’s reforms in the direction of more free market “supply”. Not a very good sign.
            A lot of people also think the solution is “putting wages up so people can manage better”. I say tying wages to the price of housing under current conditions is not a lot different to tying wages to the price of gold; both would be pure employer-bashing and would result in mass closure of businesses.

          • fastcompany

            I think the ignorance is deliberate because it is hard to take the government seriously, too many vested interests as pointed out by Russell Brand . im not surpised people think labours policy is better as they percieve that the market has failed them, they probably would change their view if they realised what the council was up to with supply etc

          • philbest

            I think it is a tragedy that people can’t work out that “vested interests” often work THROUGH government interference in markets, and without the interference, there wouldn’t be the gouging that occurs. Housing is the classic example of this.
            The “trougher” class generally is unafraid of either Tory or socialist governments. While a lot of people like Sweden’s “equality”, there has been minimal “churn” among the top 1% of families by wealth, for decades now. These people have had no problem at all with the general lack of competition for their position, that has resulted from socialism.
            The top of the wealth rankings in the USA have been marked by “churn”; people dropping out of the segment and new risers coming up into it. But more lately, there is a massive problem with more and more of the wealth being in the hands of “finance” playboys rather than industrial magnates who have at least made stuff and provided jobs.
            People need to learn to make the distinction between zero-sum gougers and troughers, and “the employer/producer”.

  • hunk4hire .

    Whenever the gubmint attempts to manipulate the supply or control the price of an important commodity, be it housing, fuel, education or food, things always end badly. There isn’t a single sphere of human endeavour which is improved by government involvement. The market cannot be fooled or regulated by the whims of politicians. I don’t believe Brown understands basic economics and he appears to have delusions of grandeur as witnessed by his vacuous boast that he will make Auckland “the most liveable city in the world”.

    It’s clear that this vision is a “top down” socialist “Great Society” in which an all-knowing, benevolent state provides the perfect life for the stupid sheeple who are too clueless to work it out for themselves. If Brown truly wants to make Auckland the most liveable city, the first thing he should do is get the hell out of the housing industry and quit telling the hoi polloi how many houses they can build and where they can build them. His job description should be limited to making sure the garbage gets picked up and that we all have running water. Aside from that, he can butt out.

    • fastcompany

      so if there is no role for rules why do developers masterplan large projects? heres the thing, there are efficiency and value gains to be made with rules, planners just need to properly understand whether what they propose can work and also to have enough balance and contingency built in to the overall city plan. for auckland the solution was open up for intensification AND some well planned urban expansion on the city fringe

  • philbest

    Cam, really pleased you have started posting on this angle. Wendell Cox is a guru. But there is plenty of academics too, if the smart growth idiots say “but Cox is an advocate”. Tell them about genuine academic work, and suddenly they don’t care about genuine academic work either, after all.

    Good data base HERE:


  • Chancey

    a good dot joiner from Ann Bressington