UGBs (Urban growth boundaries): Against Nature and Humanity

Illustrates a rightward shift in the demand curve.

Simple S&D econ, but avoided

Growth management is practiced by many cities, for many reasons. The benefits are illusory, and for the few that materialize, are for the existing residents. There are many negative outcomes. What influence, on other factors, does limiting growth, in the attempt to increase density? That lowers the vacancy rate, which pushes up prices, due to fewer choices and less competition.  

The Federal Reserve of New York commissioned a study in 2001 to research the real estate markets (Glaeser). The study was run by two economists. Yes it’s true that economists can disagree on conclusions, such as projections and people’s rationales; they also have differences of opinion on egalitarianism. Economics is not an exact social science, but PhDs are earned and there are many complicated principles. Since that research study, prices have risen much more than the 1999 prices. The basic conclusion is that a few markets have housing priced well above the construction costs, more than normal. And, even though there are higher land costs, those are not enough to explain the price difference. Government restriction and impositions were determined to be the main cause. The graph to the lower-left depicts housing prices for 1989 & 1999 by how much above construction costs they are—farther from origin (0-0). There are 4 CA cities in the upper-right portion of the graph, meaning they were priced the most above construction costs.

The correlation can be seen in the 2 charts below. Both have the same data; the one on the right is just simpler. The ACS data doesn’t include counties below 60,000 people. The housing prices for those counties are mostly below even the minimum for the counties above 60,000. The chart below breaks housing price into sextiles, by rank of housing price. The mean vacancy rate is then calculated for each group. Lower housing prices, for higher density is just not true. Within one market, it does have merits and can be lower per unit, but compared nationally, it’s just not true. With much higher housing prices, one would think that more developers would enter the market and build, resulting in more vacancies, but it doesn’t happen very often. Forces prevent that from happening, such as urban growth boundarys and excessive zoning restrictions and impact fees. It is understandable that certain costs for public infrastructure need to be met, but the impact fees are more than is necessary. Proportionally, they weren’t that much in the past, when there was more new development with more infrastructure needed.

Housing prices and income, for CA, are higher than the nation. Housing costs are considerably higher than the incomes should allow. Part of that reason is that is a big disparity in housing price and mortgage, meaning that there are many mortgages acquired when houses were less expensive. People think about demand leading to higher prices. That is only half of the equation. Supply is important too.  Some of limited is in geography. The high price for San Francisco can mostly be attributed to its small size and high desirability. The housing prices of many other CA cities have moved closer to that of SF, due to supply restrictions.

The urban growth boundary, stops new building, increasing prices, resulting from demand. Here’s an example: Consider a beer stand at a big event. First off, there’s no competition, so prices are higher than elsewhere. (That’s similar to there being fewer housing units offered.) _ Mainly, look at a limited supply. Suppose there are only 100 pints left, offered, by auction to the 500 people in line. Price can even go higher because people will “bid up”; 100 people will have to pay higher [above the lower 400] to get the scarce resources. Get it? Demand stayed, but supply was reduced. Takeaway: Price does not result solely from demand. Supply is 1/2 the equation. Change in either affects the price.

There is a fairly easy measure to look at, indicating a supply shortage or limitations on supply–the housing vacancy rate (see Census Factfinder) for each region. When the vacancy rate is below, roughly, 6% (US avg is 11%), prices will most likely be higher than avg. And if the rate drops even more, prices rise. That has to do with not enough supply. There are also factors preventing building sufficient supply to meet the demand.
More elaboration on vacancy: Consider the housing for sale in a market that has 5% vacancy. On avg, there will be more than double the offers for similar housing in a market at avg vacancy. So, more offers will command a higher price. Of course it’s not just simply offers, but it’s basic econ and common sense that scarcity leads to higher prices. Look at diamonds, gold, oil etc. There is more than just the cost of producing and/or extraction that lead to price. It’s a combination of amount available (supply) and the desire to have (demand).

Distance from CBD is a factor in price, as well as is limited supply. However, you should recognize that direct constructions costs are fairly constant, and the imbalance for supply and demand affects the land price. Good observation about “a strong presumption that a majority of people want to live in pre-WWII style neighborhood.” If that was true, more new developments would be modeled after them and developers would even make more money, because of less land, among other factors.

Many facets, obviously. The basics can include a rough “template” on where various land uses go, and the infrastructure necessary for the population (dwellers, workers and shoppers etc.) including roads (and transit, if dense enough). Within that, zoning is partially used to separate some uses, to prevent interfering or disturbing others. Are haphazard and random densities, uses, prices wanted? Distinction is needed for clarification: that currently happens for areas from [generally] 1/8 a sq.mi. to 2 sq.mi., within city limits, right? Sure, there is mixed use, in cores or clusters, and larger homogeneity in really low densities. To be without zoning, do people think that types and purposes will be vastly alternating for every few acres?

Look at the market process: Will a builder create something new, which is out of place? Sure, that happens to some degree, but customers/leasees/buyers are needed for a desirable product. Major point is: zoning does not discourage anarchy in land use; or there would not be be chaos otherwise. Gov is still needed (andwanted) for some basics. An overwhelming gov, w/an attitude and directive of: do this, there, only, like this, with my constraints, and behave my way is not really desired, right? Oh for others, once you are here. The drawbridge principle.

Another point, is that zoning does not have to be used for growth “restrictions,” driving up prices, via SandD, and going against persons’ wants). Zoning that “stops” land uses (urban growth boundarys) is not under original intent or the basic purpose [of zoning]. It prevents adjacent use, not separating, potentially incompatible uses. In many metros, UAs end at hillsides or farms. BTW, those markets, w/avg or lower housing prices, don’t just end, but trail off. (Get it?)

So, why should residential areas end at a higher elevation or agricultural use? Housing does not interfere w/what’s beyond. Keep in mind, that the land is privately owned and those owners would often like to sell, to provide more land for others (more value/usefulness). It is strange how that is dis-allowed; it is unConstitutional (eminent domain–taking land for public use, albeit partial).

Conclusion: it’s not a binary (one or other) choice, re: growth management. There are many aspects: where and how much. It should be obvious, the reasons for, the most restrictive and priciest market, the SF Bay Area. BTW, for its 9-County, 7,000 sq. mi. area, about only 10% is urbanized/built. Imagine if expansion was allowed: better prices. A rub is: existing homeowners will lose their illusory value (still, after the recent big drop) and realized that they should not have bought anyway. Some think that comprehensive planning and socialism has its advantages, until you run of others land & money and counter their desires.

There is plenty of space for the many urban areas.


About Randall
A contrarian, not for conflict, but because many decisions are made, without considering the full impact & consequences.

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