By William Walter Kay
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in conspiracy against the public, or in some contrivance to raise prices.
Adam Smith (1776)
Any politician who deliberately crashes house prices would probably be strung up from the nearest tree.
Zippy the Triumphant (2017)
Table of Contents
Hammering Home the Housing Plank
Land Economics 2.0 – Supply Management
The methodology underpinning this posting consisted of a representative survey of land-use and housing documents published by leading free market advocacy groups. Of the 100 groups investigated, 21 were found to have both prominence within the pro-market advocacy community, and to have devoted conspicuous resources to the land/housing issue. From these 21 groups (Cato Institute, Heartland Foundation, Fraser Institute, Frontier Centre, Institute for Public Affairs et al), 33 reports and 35 articles were dissected. To clarify certain statistics, several additional articles and reports from the mainstream media and from government agencies were summoned. A recent Harvard study on housing and a paper on commercial property from the Journal of Real Estate Management also proved helpful. To keep things germane, the canon was restricted to documents published during the last decade.
From the 2,000 pages of free market think tank literature perused, some preliminary observations can be made. The groups surveyed self-identify as advocates of: deregulation, privatization, free enterprise, limited government, property rights, individual liberty, lower taxes, and competitive entrepreneurialism. While some hold up this agenda as an end unto itself, most promote this agenda as a means to achieve: economic growth; poverty alleviation; efficient resource use; and the general enhancement of opportunity, innovation, and prosperity.
While this entire community could be categorized as “classical liberal,” only the UK’s Adam Smith Institute keeps the “liberal” flag flying. The word “liberal” has been anathematized across the English-speaking world’s pro-market community, especially in the USA. Despite this, surprisingly few of the surveyed groups embrace the term “conservative.” Most prefer epaulette collages wherein “free market” and “limited government” find salience.
The surveyed groups each address a variety of topics such as: taxation, education, insurance, energy, finance, privacy, environment, healthcare, climate, gambling, constitutional reform, criminal justice, foreign policy, and consumer products regulation. Judging from their overall output one can surmise that, with the possible exceptions of Australia’s Regulation Economics and the UK’s Institute of Economic Affairs, none of these groups devote more than 5% of their resources to the land/housing file. The scant attention given to this topic magnifies the revelations found in The Lacuna (see below). In short, the main social bastion of opposition to the pro-market movement receives less than 0.1% of the pro-market movement’s attention! They dare not name their devil.
To understand conservationism (land supply management) it helps to divide land into three categories: (a) urban, (b) agricultural, and (c) wilderness. Half of the conservationist project is directed at preventing the expansion of agricultural activity into wilderness areas and/or at rewilding existing farmland. Closely connected to this is the conservationists’ blocking of resource extraction, road building, and town formation near wilderness areas. The other half of the conservationist project is directed at preventing urbanization of farmland. Closely connected to this is the conservationists’ preventing development on any greenspace around cities; i.e. on parks, wilderness patches, heritage sites, or recreational areas. Thus, pro-development opponents of conservationism fight a two-front war.
Alas, across the English-speaking world pro-development forces are faring poorly. On the wilderness-agricultural frontier, the day of the bush-breaking homesteader is long gone. Now in retreat, pro-development forces resist the sprawling domain of parks and the intrusion of environmentalists into the management of privately owned rural land.
Around the cities the fighting is more intense. Conservationists have besieged scores of major centres with greenbelts, and have captured vast terrain within cities as well. However, large jurisdictions have resisted the conservationist agenda, notably Texas. Other regions, notably New Zealand, appear on the verge of throwing off the green yoke. The struggle over urban land-use policy forms the main focus of the articles below.
Here are 21 quotes about modern urban land-use economics. Authors include: New Zealand’s current Prime Minister; New Zealand’s long-serving former central banker; the former head of Australia’s Housing Industry Association; and fifteen prominent journalists, authors, and economics professors from across the English-speaking world. Their views are then juxtaposed with two quotes about land-use economics from two famous ecologists.
…the affordability of housing is overwhelmingly a function of just one thing, the extent to which governments place artificial restrictions on the supply of residential land. (1)
Housing policy in Australia and much of the rest of the world has become dominated by regulatory measures that constrict the supply of land for housing around major urban areas. The outcome is a massive increase in prices. (2)
The restrictions on land availability are man-made. They are due to a control system of baroque complexity that has not only constrained supply but, far worse, created a powerful vested interest in its containment. (3)
It is important to remember that the ‘scarcity’ that drove up land prices is wholly contrived – it is a matter of political choice, not geographic reality. It is a product of restrictions imposed through planning regulation and zoning. (4)
Where land is cheap, the homeownership rate is high and the rental proportion low. (5)
The more stringent the restrictions, the less is the housing market able to respond to increased demand and the more likely house prices are to increase. And when residential land is very difficult to come by, housing becomes unaffordable. (6)
…land-use regulations restrict the supply of land that is available for development. This is what we call the supply effect. Urban growth boundaries, for example, are explicitly intended to prevent development. Many people are concerned that land-use regulations affect land and housing prices by limiting the supply of residential and commercial land. (7)
The increasing demand for housing is putting pressure on our cities, the growth and prosperity of which is being strangled by urban containment policies that were introduced nearly 70 years ago. Greenbelts also have significant effects on human welfare, pushing up accommodation costs, reducing private space, increasing housing price volatility, and increasing the cost of business (and thus pushing up retail prices and reducing employment prospects). (8)
The reach of the zoning and land-use restrictions expanded during the 1970s when the growth control movement gained traction in much of the country. Existing homeowners, especially in the suburbs, began to limit growth in their towns through land-use restrictions such as minimum lot size requirements or open space preservation programs. Limiting growth can create an artificial housing shortage that benefits existing homeowners, but it can also make relatively poor people worse off when they are priced out of their traditional neighborhoods or find housing unattainable where job opportunities are best. (9)
Over the past 40 years town planning has morphed from facilitating urban expansion into preventing it. Instead of supporting consumers’ requirements by identifying what is needed in terms of trunk roads, mainline water and sewer facilities, etc., planners now seek to cannibalize urban development in directions preferred by the planners themselves and by politicians. (10)
The building component for new home prices has changed little in real terms over the past 30 years. However, over the same period, the land component has outpaced general inflation tenfold (Adelaide) and twofold (Melbourne). This has nothing to do with real land shortages – urban land comprises only 0.3% of the national land stock. It is caused by increasingly stringent zoning rules that have reduced the supply of land that can be developed and boosted prices in new and established houses. (11)
…anti-sprawl activists blame the suburbs for a host of environmental and social ills and push initiatives to limit housing growth to higher density levels. In fact, the heads of the Environmental Protection Agency and the Departments of Housing and Urban Development and of Energy have jointly issued a set of “livability principles” for “sustainable communities.” Such initiatives often end up in raising housing prices while exacerbating the very problems they claim to fix, such as traffic and pollution. (12)
The rapidly escalating prices of houses has been associated with wider adoption of urban containment policies. … (In) California where decades of restrictive land-use regulations including court decisions and far stronger environmental regulations than in the rest of the nation, have been associated with huge housing affordability losses. (13)
The physical expansion of cities, known as “urban sprawl,” has been a principal concern of urban planners for decades, which has led to the adoption of “urban containment.” The most important urban containment policies are restrictions on urban fringe development – by means of urban growth boundaries or similar land-rationing measures. (14)
Today urban planners often frame rules as tools to limit congestion, to facilitate easy transportation, and to protect the environment by requiring cities to become more compact and walkable. However, absent from the conversation is any mention of the costs of those rules or who will bear those costs. (15)
Green Belt policies impose a strict limit on the supply of developable land around major urban areas. This constrains development and thus puts upward pressure on the purchase and rental price of homes. This has a negative effect on people’s welfare. (16)
Housing is officially complex in the detail – governments intervene in many ways – but is conceptually simple. It costs too much and takes too long to build a house in New Zealand. Land has been made artificially scarce by regulation that locks up land for development. This has made land supply unresponsive to demand. (17)
Growth management results in a huge transfer of wealth from renters and future homebuyers to people who owned homes at the time the growth management rules were put into effect. It unnecessarily adds trillions of dollars to housing and other real estate costs even as it slows the economy by trillions of dollars a year. (18)
Land-use planning in Britain is not a joke; it’s a disgrace. The present system is grotesquely biased not so much in favour of opponents or proponents of development but in favour of delay and cost. (19)
Unfortunately, municipalities in many rapidly expanding cities often underestimate the amount of land needed to accommodate urban expansion. In the minority of cases where expansion is effectively contained by draconian laws, it typically results in land supply bottlenecks that render housing unaffordable to the great majority of residents. (20)
Unless we are vigilant, high-density zealots will do their best to reverse centuries of gains and drive us back towards a Dickensian gloom. (21)
To sample perspectives from the other side of the barricade, here are two quotes from leading ecologists. The first is from Wes Jackson (Ph.D.), the founder of the uber-eco The Land Institute and a key member of World Future Council. Jackson has written, or co-written, over a dozen environmentalist books and has received numerous honours from Big Green philanthropists, including a “genius” designation from the MacArthur Foundation:
I think it is inappropriate to call land a “resource” because that term is tied so closely to economics. We can call gold or chrome or coal a resource, but land and people transcend a one-dimensional economic consideration. (22)
The second quote is from Aldo Leopold (1887-1948) who, according to the foundation bearing his name, is the father of American ecology. Leopold joined the newly minted US Forest Service at age 22 and within two years became a supervisor. A prolific author, Leopold wrote the first American wildlife management textbook. He also sat in the first Chair of Wildlife Studies at a US university. This quote comes from his most famous work, The Land Ethic:
We abuse land because we regard it as a commodity. When we see land as a community to which we belong, we may begin to use it with love and respect. (23)
In the first camp we have persons inclined toward classical economics who believe land should function like any other commodity in a free market. They contend that if this were the case, then land supply would rise to meet land demand and the problem of unaffordable housing would be solved.
In the rival camp we have ecologists. Arguments in favour of urban containment such as: wilderness preservation, soil conservation, smart growth, and climate hygiene, are all ecological arguments. This political tendency has codified opposition to the commodification of land into a quasi-religious doctrine. The fact that urban containment policies lead to large increases in land values and rents is, we are to believe, merely collateral damage.
Increased demand does not necessarily increase price. If supply is elastic, then increased demand will summon more supply and price will stabilize. Only when supply is limited will increased demand increase price.
Housing markets blessed with elastic land supplies respond to increased demand with new homes built on newly developed land. Housing markets cursed with restricted land supplies respond to rising demand with rising prices.
Restricted land supplies result from government policies; usually prohibitions on building outside designated corridors. Urban containment policies starve markets of land.
While many profit from house price inflation, it is a policy failure. Upward spiraling prices arise from the suppression of real wealth creation. High land prices cause: poverty, overcrowding, unaffordable housing, restricted labour mobility, reduced discretionary spending, low homeownership rates, antiquated and ill-situated housing stock, and retarded economic growth.
Back in the day, entrepreneurs bought scrubland around cities. They built roads, subdivided the land, and sold parcels to builders. No government planners required.
Zoning came to America in 1916 after well-heeled New Yorkers became perturbed by the advent of high-rise apartment blocks made possible by elevators. Until the 1960s, zoning advocates favoured single-family suburban houses. Urban plans had four zones: industrial, commercial, single-family residential, and multi-unit residential.
The British Urban Containment Model dates to the 1947 Town and Country Planning Act. This model besieges cities with greenbelts of parks and farms. In the USA, 13 (mostly coastal) state legislatures now enforce comprehensive containment regimes. In addition, some New England state legislatures delegate planning to city councils eager to impose their own restrictive plans. In states like Nevada, the federal government, being the main landowner, drives the restrictive agenda. Several non-coastal cities impose “growth management.” (Boulder, Colorado created a greenbelt with a series of land and easement purchases.) In total, about 100 US cities are now bottled-up, and containment theory dominates urban planning both academically and politically.
What environmentalists dubbed “smart growth” began as a campaign to eliminate bylaws banning high-rise apartment buildings, then morphed into a crusade against suburbia. Taking zoning authority away from elected officials is crucial to smart growth. Land-use decision-making has been appropriated by a jumble of planning commissions, park boards, and heritage panels who deploy lengthy semi-secret deliberations and pseudo-public hearings that invite maximum input from conservationists. Rationales for opposing “urban sprawl” include: saving the family farm; conserving green space; protecting heritage sites; reducing infrastructure costs; and more recently, combating Climate Change.
Farmland scarcity is a myth. The USA has 90 million acres of urbanized land and 900 million acres of agricultural land. The acreage required for cropland (362 million) is shrinking due to improved yields. Urbanizing 15 million acres of pasture would free up enough land to give every American household a modern suburban house and would not cause a blip in food prices. Urbanization poses zero threat to the nation’s food supply.
The same applies to forest land. American forests span 766 million acres; up from 720 million acres in 1920. The timber inventory grew even faster during these years. The USA is 97% open or rural land.
Both Canada and Australia are 99% open or rural land. One would never know this from looking at their cities. Four of the five densest cities in the US and Canada, are in Canada.
England’s land mass is only 9% urbanized, and half of that is garden. Environmentalist propaganda has a majority of England’s population believing that 25% of their country is under concrete. Ten percent believe England is 75% urbanized.
Anti-sprawl advocates claim that high-density cities minimize infrastructure and land costs. In reality, infrastructure (street and sewer) savings from densification amount to around $10,000 per housing unit – a pittance compared to the increased prices densification brings.
As regards land, per unit high-rise residential construction costs are double those of single-family wood frame houses. These costs are not recouped through the use of less land. Developable land on urban fringes cost $2,000 per lot. The city block of premium real estate required for a high-rise condo project costs millions. Per unit land costs can exceed those of suburban houses even when the project has 100-plus units.
Cities are labour and consumer markets. Cities are sprawling due to advances in transportation, mainly cars and pickup trucks. Contrary to smart growth propaganda, jobs do not concentrate in downtown cores but disperse across the metropolis. In US cities, 6% of commuters can get to work within 45 minutes using public transit. Sixty-six percent can get there by car. Transit is even less efficient for non-work trips. Cars and pickups allow for transporting kids, pets, tools, furniture, and groceries. Limiting the utility of small vehicles retards productivity, lowers living standards, and increases poverty.
Smart growth planners contend that inhabitants of their utopian compact city will not drive. The empirical basis for this lore comes from studies of slum dwellers who cannot afford cars. As high density programs roll out, an affluent, car-owning cohort will move downtown.
Even pro-densification studies concede that increased density yields only negligible reductions in fuel use (reductions smaller than the studies’ own margins of error). More importantly, blocking roadway expansion and concentrating people into downtown cores exacerbates traffic congestion. Fuel wasted in stop-and-go traffic overwhelms any efficiencies of densification, and concentrates exhaust fumes in the most populated areas. (1)
Economists measure housing affordability by dividing a city’s median house price by its median household income. A median multiple of 3 is deemed affordable. Over 5 is severely unaffordable.
Extreme housing unaffordability is curiously confined to the Anglosphere (USA, UK, Canada, Australia, and New Zealand). Twenty-six the world’s 29 severely unaffordable cities are in the Anglosphere. All five major cities in Australia, and Canada’s two biggest cities, are severely unaffordable. Thirteen of the USA’s 54 major cities are severely unaffordable as are seven of the largest 21 British cities. New Zealand’s only major city, Auckland, has a median multiple of 10. (2)
In the 1980s these cities were affordable. Change began in the 1990s. Prices exploded after 2000. For many Canadians, 2004 heralded the end of affordability.
Invariably, severely unaffordable housing accompanies draconian urban containment planning. Of course, urban planners never accept blame for unaffordable housing. They scapegoat low interest rates, vacant homes, etc. They blame excess demand – the “Chinese squeeze.” They boast that their exemplary planning has created cities so desirable that simply too many people want to live in them.
Vancouver, the world’s third least affordable city, has a median multiple of 11.8.
British Columbia’s Agricultural Land Reserve (ALR) sequesters 47,000 square kilometres of land east of Vancouver. The ALR’s original rationale was saving the small farmer. In 1973, when the ALR Act was passed, the lawns of BC’s legislature building beheld one of the largest, angriest demonstrations in the province’s history. The protestors were small farmers whose properties had been devalued, without compensation, through an arbitrary removal of their right to subdivide and sell. BC’s government, however, won lavish praise from the mainstream media. Farmland preservation was a hot issue in 1973. (3)
Since 1973 the ALR’s rationale shifted from rescuing the family farm to preserving green space and protecting the local food supply. It never saved BC’s small farmer. Only 25% to 50% of the ALR is actively farmed, and production continues to concentrate into fewer hands. Today defenders of the ALR (and other farmed greenbelts) implore consumers to reduce their “food miles” by enjoying locally grown produce. Locavorism is energy nonsense because small farmers transport their goods to market in small trucks which are far less fuel efficient than trains or ships. Despite bushels of locavore propaganda there is not a kernel of evidence supporting the claims that local food is any safer, tastier, or more nutritious than imported food. (4)
London’s median multiple is 8.5. British house prices have quadrupled since 1970 and are now among the world’s most expensive, yet housebuilding remains anemic. (5)
In 1979 England’s greenbelts covered 7,210 square kilometres. They now span 16,000 square kilometres (13% of England’s land base). Greenbelts dwarf the cities they surround. The Metropolitan London Green Belt, at 5,140 square kilometres, is 3 times the size of Greater London. Moreover, Greater London itself possesses a plethora of parks and golf courses; and half of its privately-owned residential land is garden. The Metro Greenbelt consists mostly of inaccessible, and aesthetically unremarkable, farmland. (6)
Greenbelts, despite their hype, perform economic, not environmental, functions as betrayed by their concentration along the London-Cambridge-Oxford-Bristol corridor. In southeastern England farmland costs $9,500 per hectare. Residential land costs $4,300,000 per hectare. (7)
About 4% of the Metropolitan London Green Belt is both: (a) intensively farmed, and (b) within a walkable 800 metres of a railway station. Eliminating greenbelt designation on just this 4% would provide enough land for one million houses (with gardens). (8)
Australia’s east coast hub, Sydney, has a median multiple of 12.2, making it the world’s second least affordable city. Agricultural land near Sydney costs $1,500 per lot. Infrastructure (utilities, water, streets, etc.) cost about $55,000 per new house. Construction costs for a standard single-family house are $115,000. Hence, a house could be profitably built on Sydney’s outskirts for $171,500. Average house prices in Sydney are $665,000. The difference between these two sums results from land price inflation caused by arbitrary land supply restrictions. (9)
Australia’s west coast hub, Perth, is surrounded on three sides by parks and agricultural land. The “Bush Forever” environmental initiative locked down 500 square kilometres around Perth. By 2007 these environmental regulations had driven up the price of an undeveloped residential lot to $80,000. A stones throw away the same lot zoned “agricultural” sold for $300. (10)
A 150 kilometre-wide strip of land running 800 kilometres along southern California’s coast encompasses the San Diego-Sacramento Megalopolis, population 35 million. Every city within this strip suffers severe housing unaffordability: Sacramento (5.1), San Diego (8.6), San Jose (9.8), Los Angeles (9.3), San Francisco (9.4), Santa Cruz (11.3), and Santa Barbara (11.6). Yet within this strip, vast tracts of land remain undeveloped. Two-thirds of the three-county Los Angeles area (Orange, Los Angeles, and Ventura counties) is rural. Eighty percent of San Diego County is rural. These rural areas are no-development zones. The nearest developable land outside San Francisco is 100 kilometres away.
A 100 kilometre-wide strip of land running south from Boston for 650 kilometres to Washington DC encompasses the BosWash Megalopolis, population 55 million. This region’s gentry are the continent’s masters of land sequestration. In 1891 Boston’s Trustee of Reservations began buying parks and easements. It now hordes 130 square kilometres of perpetual greenery. In the 1950s New Jersey’s lords invented “snob zoning”; i.e. prohibitively large minimum lot sizes along a city’s perimeter. In half of Prince William County, Virginia (the southern rim of the Washington-Baltimore metropolis) the smallest lots allowable are the size of nine football fields. Over a quarter of Manhattan (its most affluent neighborhoods) is zoned “heritage preservation.”
After Portland, Oregon became the poster-child for smart growth in the 1990s, its housing affordability plummeted. Portland’s 1,200 square kilometres of “urban” area contains vast parks and golf courses. Moreover, this area is hemmed in by 2,500 square kilometres of farmland upon which residential and commercial construction is prohibited. (11)
Texans don’t zone. Developers buy 10,000-acre parcels, build streets and waterworks, then sell the lots for houses and shops. Deed restrictions and neighborhood covenants prevent nuisance construction. Massive projects get approved in weeks. The result: a four-bedroom, two-bathroom 2,200 square foot house costs $1.5 million in San Francisco and $230,000 in Houston.
Houston and Dallas-Fort Worth, despite experiencing population explosions, have kept their median multiples in the affordable range (3.5 and 3.7 respectively).
Dallas-Fort Worth and Toronto both boast five million inhabitants. Toronto’s adjacent farmland presents no geographical impediment to expansion. However, 7,000 square kilometres of this land is dead-zone greenbelt. House prices in Toronto (inflation-adjusted) have tripled since 2004. Toronto houses are over four times more expensive than houses in Dallas. On top of this, Dallas wins accolades for its smooth-flowing traffic while Toronto endures debilitating congestion. Dallas did this without planning!
Free market think tanks contend that governments across the Anglosphere (US, UK, Canada, Australia, and New Zealand) restrict land availability and, by so doing, cause great harm. There is further consensus about who benefits from, and is responsible for, these restrictive land policies. This consensus, however, conceals a blind spot regarding who profits most from our contrived land famine.
In the free marketer’s universe, housing “haves” clash with housing “have-nots.” Governments favour the haves. Land-use regulations express the will of homeowners seeking to inflate the value of their assets. Homeowners dominate suburbia where low-density regs get entrenched by early arrivers and where wannabe residents have no voice.
A bitter Financial Times article blames overpriced land on homeowners (and their bankers), adding that the wealth accumulated by homeowners is both unproductive, and not due to thrift (as homeowners are wont to believe) but to an inflation jacked-up by an unfair political system corrupted by homeowners. (1)
Free marketers blame NIMBYism (Not in My Backyard) for blocking development. One pundit stresses that NIMBYism arises, not from conservationist scaremongering, but from rational responses to incentive situations. Homeowners have nothing to gain from developments in their neighborhoods; on the contrary, new developments lower their property values. (2)
Here are four quotes from four leading pro-market authors (emphasis added):
“Tight housing regulations on land use are one of the favorite goals of the predominantly middle class professionals who constitute an important base for the Democrats. For some it’s about the environment. For some it’s about NIMBYism and protecting their real estate investments.” (3)
“The reason for the government’s failure to tackle the housing crisis is its unwillingness to confront organised NIMBYism… everybody agrees that the UK needs more housing, but that nobody wants those houses near them.” (4)
“In fact, smart growth is often nothing more than a thinly-disguised attempt by well-heeled suburbanites to keep undesirable newcomers from their neighborhood. Through smart growth measures such as urban growth boundaries and restrictive zoning practices that inflate housing prices, environmentalists and smart growth advocates shamelessly exploit the selfish desire of some suburbanites to close the gate to less affluent families seeking the American Dream.” (5)
“Land-use regulations that drive up housing costs benefit current owners at the expense of renters, those who would like to purchase a home in a highly regulated city for the first time, and those who would like to move into a highly regulated city to pursue economic opportunities. Land-use regulations also have disparate effects across a city’s income distribution by taking a disproportionate bite out of the purchasing power of a city’s lowest income individuals.” (6)
The last quote is a case in point. While discussing winners and losers of inflated land prices, the authors note how lower income individuals suffer disproportionate monetary losses, yet they spare not a word for where the money goes.
Landlordism is the forbidden fruit on the tree of knowledge. In dozens of reports and articles dealing exclusively with the political economy of land-use regulation, the words “landlord” and “rent” never appear. One wonk brushes aside the subject because “regardless of forms of tenure,” land demand exceeds supply. True, tight land policies increase housing costs across the board; but when discussing who benefits from unaffordable housing, “forms of tenure” assume critical importance.
Of the USA’s 135 million households, 84 million (64%) are owner-occupied. Forty-nine million (36%) are rented. Monthly rents during the 2011-2015 period averaged $928. (7) The national rental vacancy rate is 7%. (8)
Such statistics cry out for adjustment. The countries of the Anglosphere all possess swathes of dying cities and towns where vacancy rates are in double digits and where houses can be had for a song. Pressing them into the mythical average warps the frame.
In New York, Los Angeles, and London most households are renters. By official counts New York households are 51% tenant. Los Angeles households are 52% tenant. Current trends continuing, 60% of London households will be renters in several years. (9).
Even these figures overstate homeownership rates. Illegal immigrants in illegal suites float far below the statistician’s radar. The very concept “household” becomes problematic amidst so much forced cohabitation and outright homelessness. The media abounds with tales of failure-to-launch adult children living with their parents, many of whom pay rent and should be considered distinct households, but are not.
US national average vacancy rates are far higher than the vacancy rates found in the San Diego-Sacramento or BosWash Megalopoli (where a quarter of Americans live). In Vancouver, Canada vacancy rates have been below 1% for years. Nor do national averages reflect big city rents. One-bedroom apartments cost over $3,300 per month in both San Francisco and New York. (10)
Do the math. (Remember, the question is: who benefits from unaffordable housing?) The San Diego-Sacramento Megalopolis alone has eight million renters paying around $2,000 per month. How much more are landlords raking in than they would be but for restrictive land-use policies?
The victims of restrictive land-use policies are: (a) renters, and (b) first-time buyers. The latter are transitioning from renter to homeowner. Until they complete this transition, they are premium tenants – an aspiring cohort with stable employment. Landlords hate to see them go. They are the battleground demographic. Containing growth means containing people.
In land-constrained cities, homeownership is not an option for most single people. Even two-income couples (absent parental subsidy) often confront insurmountable obstacles in raising deposits and securing financing. Those that do purchase become “cost burdened” (paying over 30% of income on housing) and subsist one marital dispute or one layoff away from dispossession.
In US cities suffering land containment, 25% of residential mortgages are non-current. (11) Between 2007 and 2015 almost ten million American homes were forfeited. Dispossessions continue at a rate of 700,000 per year. Ironically, the number of “cost burdened” homeowners is declining because so many have been shoved back into the rental pool. (12)
A myriad of zoning regs, density restrictions, minimum lot sizes, and parking requirements intentionally thwart multi-unit residential construction. Compliance with these regs, plus inflated land costs, results in unprecedentedly high rents for new apartments. Inability to build new rental units leads landlords to upgrade existing units, and to upgrade rents.
A recent Harvard study found over 20 million “cost burdened” renting households in the USA. Eleven million paid half their income in rent. Over two million had missed a rent payment in the preceding three months and half of them had been threatened with eviction. (13)
Across most of the Anglosphere probably 95% of tenants pay their rent to a private landlord. Britain is the exception because 20% of British housing is supplied by non-profits or government agencies. Nevertheless, Britain’s private landlord sector is growing, especially in big cities. London now has 898,000 households paying rent to private landlords. (14)
Restrictive land policies have shunted 1.8 million English households onto social housing waiting lists. Annual rent subsidies across Britain now cost taxpayers $25 billion. Private sector rents are soaring as are the numbers of “rogue landlords.” (15) These market bottom-feeders turn single-family homes into rabbit warrens. They rent out garages. Such practices are not unique to the UK; a million US rental units do not have full kitchen or plumbing facilities. (16) Converting single-family houses into multi-unit rentals is a growth industry across the Anglosphere.
In the throes of an epiphany, one think tank visionary notes:
“It is the combination of high demand and unresponsive supply which puts landlords, at least in some local markets, in the position of considerable market power.” (17)
Much is written about foreigners driving up land values. Their impact is exaggerated, and the topic conveniently diverts attention away from land supply. Most immigrants, being unable to buy, do not affect sale prices. They do, however, so profoundly overcrowd rental markets one must presume landlords are a prominent voice in the open-borders choir.
Residential landlords must be accepted as a separate group, alongside homeowners, profiting from restrictive land policies. There is, however, yet another interested player with even greater clout than the residential landlord – the commercial property landlord.
“Commercial property” has various meanings. Some definitions include farmland. Investors focus on urban realty but include residential apartment blocks. Commercial property always includes office towers, shopping malls, industrial parks, and warehouses – buildings used for retail stores, factories, hotels, motels, garages, gyms, pubs, cafes, restaurants, casinos, theatres, showrooms, medical centres, dental offices, wholesale storage and so on.
The European Public Real Estate Association estimates half of European commercial property is leased. (18) This is conceivable only if one counts every small town mom-and-pop shop. In the real world, probably 98% of urban business premises are leased.
A rare estimate of the US commercial property market’s size appears in a 2010 issue of Journal of Real Estate Management. This estimate includes major residential apartment buildings but excludes the millions of individual houses and condos in the rental pool. It also excludes parking lots. Although its 2009 data reflects prices at the bottom of a real estate cycle, gross US commercial property still tallied around $11 trillion at a time when the combined value of all companies listed on the New York Stock Exchange was $12.5 trillion. (19)
Despite its economic importance, and despite the fact that it relates to land supply in the same way other forms of real estate do, discussion of commercial property is almost entirely absent from free market think tank literature. One Cato Institute quote is telling:
Housing is not the only real estate that is made less affordable by growth management. Industrial, commercial, retail, and other real estate also become more expensive. However, the best data we have are for housing, so housing shall be read as a proxy for all real estate. (20)
A 60-page Fraser Institute report on land supply politics makes a single reference to a government created “shortage in commercial real estate,” and that is more coverage than the topic usually receives from this intellectual community. (21)
Britain’s Adam Smith Institute pays the most attention to commercial property, but their coverage totals a few pages. They note how tight land policies drive up business costs. Office space in London’s West End is 800% higher than it might be. Land-intensive manufacturing operations are fleeing England for countries with lower land prices. (22) The Institute then displays a wilful blindness in its discussion of what-a-wonderful-world-it-would-be if England’s greenbelts were open for development:
Populations and densities would grow rapidly in economically dynamic cities, making mass transit more efficient and viable across the cities, not to mention all other sorts of businesses: cafes, shops, restaurants, pubs, clubs, bars and service industries.” (23)
Nowhere do they consider that England’s nearly omnipotent commercial property magnates might not welcome a proliferation of shops and pubs on land they do not own.
Who drives the restrictive land-use agenda: homeowners or landlords?
The question is complicated because all landlords are homeowners and probably some 5% of homeowners own at least one rental property. Generally, however, homeowners are a vast unorganized, apolitical mass. Moreover, many homeowners are conflicted as regards land-use policy. Consider for example: (a) struggling first-time buyers, (b) homeowners employed in the construction industry, or (c) homeowners who pay exorbitant rents on their business premises.
Unlike most homeowners, landlords deal not purely with hypothetical potential sale values but rather with critical real-world monthly cash flows. In the landlords lair we find: the big money, the old money, blue-chip investment banks, and public sector pension funds. Such people employ professional lobbyists and public relations experts.
Matt Ridley makes a keen point about NIMBYism. While the media hypes “fierce local opposition” to this or that proposed development, closer inspection reveals the petitions, protests, and litigation to be the handiwork of operatives from well-funded environmentalist NGOs. (24) Landlords keep a low profile and employ professionals who marshal local homeowners to serve as the public face of urban containment.
Landlordism is the sphere around which conservationism revolves. Ingrained fears and prejudices shield this sphere from the view of the only intellectual community currently publicly criticizing our draconian rationing of land.
Every country has its “House of Lords” – its far-flung array of landlords’ associations, farmers’ unions, and commercial property lobbies. This milieu is not without its internal divisions, but a centripetal force encircles a shared aim of increasing land prices and rents. They shield from public view their common desire to ration land. They posture as champions of market forces only if that market is trapped in a terrarium of their design.
Conflict between the landed estate and the entrepreneurial class is centuries old. This basic polarity powered both American and French revolutions. Absent landlord vigilance, pioneers, pilgrims, and prospectors would pour forth towards the rugged frontiers. Absent vigilance, landlordism would go the way of serfdom. Hence the passion to “conserve” the hinterlands. Conservationism is a 19th century narrative designed to portray the self-interested confinement of tenants onto landlord-owned properties as a progressive political program aimed at the greater social good.
A pro-market think tank precept has it that conservationism is wholly separate and distinct from environmentalism. This myth arises from a desire to rescue from ridicule venerable traditions and personages, and its re-telling is usually accompanied by genuflections of faux empathy for our parched deserts and sloppy swamps.
History knows no Big Bangs. Not from nothing did environmentalism spring in the late-1960s. Conservationism entered the 1960s as a social movement comprising several thousand integrated non-government organizations spread across the western world, many of which were founded generations earlier by well-positioned men who enshrined conservationism into scores of government and academic departments. During the 1960s this powerful social movement embraced the term “environmentalism” to shed lingering affiliations with fascism and to better conceal its upper-class identity. Trendy NGOs like Friends of the Earth and Greenpeace popped up to give the movement a radical chic veneer. New beachheads were established within the state, but beyond that, it was land-centric corporatism as per before.
Conservationism’s most glaring hypocrisy is its simultaneous campaigning to both protect and erase farmland. Much of the hoopla surrounding urban greenbelts is predicated on a professed desire to save scarce farmland. Those preaching farmland scarcity, however, are also both blocking the expansion of farmland and actively converting productive farmland back into scrubland. A single obscure conservationist organization, Ducks Unlimited (est. 1937), boasts of keeping out of production 13 million acres of potentially prime farmland across the North American prairies. These mosquito-infested sloughs cover an area almost twice the size of all Britain’s cropland. Such a grand undertaking has profound, and intended, food price and land price consequences.
Finally, the Climate Change caper is roundly dabbed with Big Land’s fingerprints. Consider the proffered remedies: solar power, wind power, biofuels, retrofitted buildings, carbon sinks, and urban densification. Who benefits?
The prevailing renewable energy plan for the USA (pre-Trump) would sacrifice an area the combined size of Texas and Virginia to wind turbines, solar panels, and their transmission lines. Of course, these states won’t be cleared; rather, an equivalent area of privately-owned land in and around major urban areas will play host to the panels and turbines. Following current practices, local landowners will either rent their land to power producers or they will own the generators outright.
Biofuel use, we are told, results in less CO2 entering the atmosphere than conventional fuel use. This is disputable. What is indisputable is that biofuel programs occasion mountainous bonfires of food. Biofuel programs cause criminal increases in: food prices, farm revenues, and rural land prices.
Retrofitting commercial buildings is the rage in Europe. According to official narratives, the exorbitant amounts being squandered will reduce energy usage and atmospheric CO2. Retrofitting programs are financed by direct subsidies to, or tax breaks for, building owners; or by legislation shifting the cost of retrofitting to tenants. In all events, the owner gets an energy-saving building and taxpayers and/or tenants get the tab.
Another remedy for our imagined climate woes is to have the CO2 vacuumed up by backcountry brush land. Investors, major CO2 emitters, and entire countries receive carbon credits for preventing the clearances of dank jungles. Such objectives have been central to the conservationist agenda for two centuries. An even more egregious tactic in the “carbon sink” racket involves paying farmers to revert their land back into scraggle-bush.
Urban densification allegedly reduces a city’s fuel needs and thus helps spare the frozen tundra from warming. These programs do not deliver the fuel efficiencies as advertised; however, they do deliver astronomical boosts to the value of urban real estate.
Cities should sprawl guilt-free into their surrounding farmlands. Farms should sprawl purposively into the surrounding outback. Make land cheap again!
Footnotes for: Land Economics 2.0 – Supply Management
For hyperlinks, please see the bibliography. All dollar figures are in US currency.
Footnotes for: The Lacuna
The 21 most relied upon pro-market think tanks were:
Adam Smith Institute
Planning for Freedom
Papworth, Tom. A Garden of One’s Own: Suggestions for development in the metropolitan Green Belt. Adam Smith Institute, UK.
American Policy Center
DeWeese, Tom. National Heritage Areas: The Land Grabs Continue. October 11, 2012.
DeWeese, Tom. Listen this time or HUD will destroy your city. July 19, 2016.
O’Toole, Randal. How Urban Planners Caused the Housing Bubble. Cato Institute, Policy Analysis, October 1, 2009.
O’Toole, Randal. Managing federal lands. February 9, 2016.
O’Toole, Randal. The New Feudalism: Why States Must Repeal Growth-Management Laws. October 18, 2016.
Competitive Enterprise Institute
Liberate to Stimulate 2010
Avery, Dennis. The Massive Food and Land Costs of US Corn Ethanol: An Update. October 29, 2008 (8 pages).
Logomasini, Angela. Measuring the Scope of Federal Land Ownership. July 17, 2008.
Green, Kenneth P. et al. The Impact of Land-Use Regulation on Housing Supply in Canada. Fraser Institute, July 7, 2016 (52 pages).
Green, Kenneth P. et al. New Homes and Red Tape in Ontario: Residential Land-Use Regulation in the Greater Golden Horseshoe. Fraser Institute, October 2016.
Green, Kenneth P. et al. New Homes and Red Tape in Alberta: Residential Land-Use Regulation in the Calgary-Edmonton Corridor. Fraser Institute, October 2016.
Green, Kenneth P. et al. New Homes and Red Tape in British Columbia: Residential Land-Use Regulation in the Lower Mainland. Fraser Institute, July 2015.
Lafleur, Steve and Josef Filipowicz. Vancouver’s tax on vacant homes misses the point – we need to build more homes. November 25 2016
Stein, Kenny. Obama Administration and Radical Environmentalists Seeking Massive Utah land grab. August 16, 2016.
Moore, Stephen and Larry Kudlow. The Real Housing Market Crash Villains. May 29, 2016.
Cox, Wendell. Canada’s Urban Areas: Descent from Affordability. March 23, 2017.
Cox, Wendell et al. 13th Annual Demographia International Housing Affordability Survey: 2017.
Wolf, Martin. Britain’s self-perpetuating property racket. Financial Times, January 5, 2015.
Cox, Wendell and Adrian Moore. Urban Containment: The Social and Economic Consequences of Limiting Housing and Travel Options. Reason Foundation Policy Study No. 449, March 2016.
Grantham, David and Latshaw, Joshua. The Housing Crash and Smart Growth National Center for Policy Analysis, September 18, 2015
Tyrell, Patrick. 11 million spent half their income on rent. Why the government is to blame. June 28, 2016
Tyrell, Patrick. Yes, land use regulations are a problem, but they need a real solution. November 23, 2015
Cox, Wendell. How Smart Growth Exacerbated the International Financial Crisis. August 29, 2008
Cox Wendell. How Smart Growth and Livability Intensify Air Pollution, September 15, 2011
Butler, Stuart. Dumping ‘Smart Growth’ is Wise May 13, 2009
Utt, Ronald. How Goldman Sachs Helped Paulson and Company Short Housing in Smart Growth States. May 4, 2010.
Mead, Walter. White House understands land use problems November 22, 2015
Stelzer, Irwin. There are two housing markets in America May 10, 2014
Timiroas, Nick. Why White House Economists Worry about Land Use Regulations, Wall Street Journal, November 20, 2015.
Institute of Economic Affairs
Niemietz, Kristian. The Housing Crisis: A Briefing. March 2, 2016.
Niemietz, Kristian. Abundance of land, shortage of housing. IEA Discussion Paper No 38, April 2012.
Institute of Public Affairs
Mulholland, Evan. Reducing Immigration Won’t Solve the Housing Crisis April 11, 2017
Moran, Alan and J. Novak. The great lock out: the impact of housing and land regulations in Western Australia. April 2009.
Moran, Alan. Access to Land the Root of Soaring House Prices March 4, 2011
Bryce, Robert. This land was your land: A closer Look at 80 by 50 October 12, 2016
Sanford, Ikeda and Washington, Emily. How Land-Use Regulation Undermines Affordable Housing. November 2015.
National Center for Policy Analysis
O’Toole, Randal. Land Use Regulation Increases Income Inequality July 30, 2012
Seasholes, Brian. Bad for Species, Bad for People: What’s wrong with the Endangered Species Act and How to Fix it. September 2007. National center for Policy Analysis.
National Centre for Public Policy
Carlisle, John. Suburban Snob Politics Fuels “Smart Growth” Land-Use Movement. October 2000.
Ridenour, Amy. Think Progress is wrong to Claim the Federal Government Should Own 28% or More of America’s Lands May 9, 2014.
Gattuso, Dana. Conservation easements and the Anti-farm Bill. December 2012
Ridenour, Amy. Weyrich: Congressional hearings on Land Trusts needed. June 17, 2008.
Gattuso, Dana. Conservation Easements: The Good, the Bad and the Ugly. May 2008
Property and Environment Research Centre
Regan, Shawn. The US Department of Land Hogging April 3, 2015
Turner, Matthew. The Economics of Land Use Regulations December 8, 2014
Anderson, Terry and Johnson, D. Sell Yosemite, Hold a Smithsonian Yard Sale? December 28, 2012
Regan, Shawn. Are National Parks more popular than Ever? February 20, 2015
Rational Optimist (Matt Ridley)
Ridley, Matt. More Food From Less Land. March 15, 2015.
Ridley, Matt. Britain’s Broken Land-Use Planning System. October 26, 2016.
Moore, Adrian. Affordable Housing Myths July 15, 2016
Cox, Wendell and Adrian Moore. Urban Containment: The Social and Economic Consequences of Limiting Housing and Travel Options. March 7, 2016.
Staley, Samuel R. Rejuvenating Urban America Through Land Use and Housing Policy Reform: The Case of Cleveland. March 2010 (pages 10)
Moore, Adrian. Privatize those golf courses already! September 26, 2016.
Moran, Alan. Land-based wealth is an illusion. August 3, 2006.
Moran, Alan. Australian housing’s regulatory price boost not about to end.
US Action News
DeWeese, Tom. Conservation Easements and the Urge to Rule. July 30, 2013.
DeWeese, Tom. The Smoking Gun – direct link between Agenda 21 and Local Planners! June 26, 2013.
Freedom Advocates. ICLEI Primer: Your Town and Freedom Threatened. March 21, 2011.
Harrison, Rick. The Truth about Sprawl. October 2, 2007.
Malkin, Michelle. How Obama is locking up our land. August 14, 2010.
Malkin, Michelle. How Obama is locking up our land, continued. August 16, 2010.
Additional Sources of Housing and Real Estate Data
Capps, Kriston. New York is a City of Renters. June 23, 2015, Citylab.
European Public Real Estate Association:
Federal Reserve Bank of St. Louis. Homeownership Rate for Los Angeles County, January 4, 2007.
Florance, Andrew, Norm Miller et al. Slicing, Dicing, and Scoping the Size of the U.S. Commercial Real Estate Market. Journal of Real Estate Portfolio Management: Volume 16, Number 2, 2010.
Fraser, Isabelle. Generation Rent: London to become a city of renters by 2025. February 16, 2016, The Telegraph.
The State of the Nation’s Housing 2016. Joint Center for Housing Studies of Harvard University.
O’Sullivan, Feargus. In London, Renters Now Outnumber Homeowners. February 25, 2016, Citylab.
Renzulli, Kerri Anne. 10 Most Expensive Cities to Be a Renter. April 8, 2016, Time.com Money.
Woo, Andrew. Apartment List National Rent Report. May 1, 2017.
Quotes of the two ecologists in Land Economics:
National Park Service’s Conservation Timeline
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