Sunday, April 12, 2015

Houston's general plan and the real source of wealth inequality: housing and land-use regulation

This week I have three items that all touch on the same theme: the risks of overly restrictive local land use regulation.  The first is an amazing paper by a 26-year-old MIT graduate turning heads over his theory that income inequality is actually all about housing (all summarized in one graph). (hat tips to Payton and Josh)
"Rognlie is attacking the idea that rich capitalists have an unfair ability to turn their current wealth into a lazy dynasty of self-reinforcing investments. This theory, made famous by French economist Thomas Piketty, argues that wealth is concentrating in the 1% because more money can be made by investing in machines and land (capital) than paying people to perform work (wages). Because capital is worth more than wages, those with an advantage to invest now in capital become the source of long-term dynasties of wealth and inequality. 
Rognlie’s blockbuster rebuttal to Piketty is that “recent trends in both capital wealth and income are driven almost entirely by housing.” Software, robots, and other modern investments all depreciate in price as fast as the iPod. Technology doesn’t hold value like it used to, so it’s misleading to believe that investments in capital now will give rich folks a long-term advantage. 
Land/housing is really one of the only investments that give wealthy people a long-term leg up. According to the Economist, this changes how we should rethink policy related to income inequality
Rather than taxing businesses and wealthy investors, “policy-makers should deal with the planning regulations and NIMBYism that inhibit housebuilding and which allow homeowners to capture super-normal returns on their investments.” In other words, the government should focus more on housing policy and less on taxing the wealthy, if it wants to properly deal with the inequality problem."
The second item is how Community Control Is Destroying America’s Cities.  Finally there is some recognition that excessive neighborhood NIBMY power is strangling the ability of cities to grow and spiraling housing costs out of control.  Houston gets mentioned as a good alternative model with our lack of zoning - thank goodness we haven't slipped down that slope of ever-expanding land use development controls... but are we about to?...

That leads to the third piece by Scott Beyer in Forbes about the general plan Houston is developing, which even gives me a short shout out.  There's a lot of good stuff in here, hence the long excerpts:
"Does Houston need this? For those who dislike messing with success, the answer should be no. 
As geographer Joel Kotkin has repeatedly noted here and in other publications, Houston’s pro-growth mentality—which is distinct from the “Smart Growth” ethos of government planners—is central to its success. While many highly-regulated cities have declined, Houston has in the last two decades fostered booming oil, health, housing and manufacturing sectors. Since 1990, its population has grown by 29%, five percentage points above the national average, and it has become the de facto Gulf Coast capital. 
Along with this growth has come increased quality of life. According to data from Praxis Strategy Group, a consultancy affiliated with Kotkin, Houston residents have the nation’s highest standard of living when combining average salary with cost of living, something attributed to its unregulated—and thus cheap—housing market.
...
If the plan’s point is really just to pursue these goals through more data and coordination, so that officials know, for example, where to build parks and fill potholes, then it should prove benign. But that is rarely the way master plans are interpreted. Instead, their lofty goals are used by officials to justify expanded government. What results is the generic list of Smart Growth measures that planners use to try converting automobile-oriented cities into dense, “sustainable,” European-style ones. 
...
The plan may also encourage expansion of the light rail system, which Tory Gattis, Kotkin’s colleague, believes is inadequate for the spread-out city, especially compared to the growing taxi and ride-sharing industries. If the plan adds an ambitious open-space preservation program, then Houston can kiss goodbye its pro-development climate. All these policies have been used in heavily-planned cities like San Francisco and Portland, contributing to their high taxes and lack of affordability. 
The ironic thing is that Houston’s outward growth and congestion has already created demand for development inside the I-610 loop, which encompasses downtown and surrounding neighborhoods. Given this organic urbanization, master plans may be unnecessary, or even counterproductive. The city’s lack of zoning, after all, has made it inviting for such infill projects. But if the plan creates a litany of new regulations, they could be used by neighborhood activists to discourage development, as happens in planning-oriented cities. If city officials are really interested in greater density—along with other urbanist goals like increasing wealth, job creation, and diversity—perhaps they should scrap the plan and keep Houston like it is."
I think he raises some good points about the risks of this plan, but I also know that there are people actively involved with the general plan development process that are making sure we don't make those mistakes.  Officials are more aware than ever before of Houston's strengths and are being careful not to compromise them as we continue to improve the city.  But vigilance will always be required...

More on Houston's new general plan here and my own thoughts here.

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8 Comments:

At 9:43 PM, April 12, 2015, Anonymous Anonymous said...

Rognlie makes a very good point, but I think he misses the mark in his recommendations, at least for a houston.
.
He suggests that "Rather than taxing businesses and wealthy investors, “policy-makers should deal with the planning regulations and NIMBYism that inhibit housebuilding and which allow homeowners to capture super-normal returns on their investments.” HUD is actually already doing this - with their Moving to Opportunity Program, which started in 1994, and reasons that the poor and very poor do much better in middle and upper middle class neighborhoods.
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It has had some very serious downfalls. Affordable housing is seldom built in the really rich areas where, presumably, the poor and very poor would do best. Due to land cost, affordable housing is often built in lower middle class areas that are often not well equipped to provide for the poor and very poor. More importantly, it has created political nightmares and really nasty fights over affordable housing. Galveston. Westchester New York. New Orleans. They've all faced lawsuits by HUD over the site of affordable income housing.
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Let me propose an alternative: a two-prongued approach. First, encourage home ownership by the poor. They don't need to be expensive homes - in fact they shouldn't be, at least not at first. Then, enhance urban renewal and reinvigoration. Pour money and enforcement into addressing Urban Blight, fixing failing schools, enhancing crime fighting; and generally, doing everything possible to improve property values and thereby build wealth among those who bought those houses. This would essentially get the poor in on the ground floor, and let their houses grow wealth.
.
This approach won't work everywhere. Rognlie's approach is probably better for New York, Boston, Los Angeles, San Diego, and cities that have already seen tremendous increases in housing prices. But Houston is the kind of City where it could work. We are still fairly affordable, we don't have a shortage of housing, and we have a lot of undervalued neighborhoods where wealth could grow: Sharpstown, Greenspoint, Acres Homes to name three.

 
At 9:54 PM, April 12, 2015, Blogger Tory Gattis said...

I think you've got some good ideas here, but I have to point out that we tried encouraging home ownership by the poor with the subprime lending fiasco before 2008, and see what that got us? But agree about turning around those kinds of neighborhoods, which would benefit renters as well as owners.

 
At 3:23 AM, April 13, 2015, Anonymous Rich said...

MIT study or not, the notion that land can supposedly retain its market worth is admittedly a bit beyond my comprehension in light of robosourcing's displacing ever-increasing quantities of workers from nearly all sectors:


http://www.business-standard.com/article/pti-stories/50-of-occupations-today-will-no-longer-exist-in-2025-report-114110701279_1.html


https://www.youtube.com/watch?v=7Pq-S557XQU



http://www.computerworld.com/article/2691607/one-in-three-jobs-will-be-taken-by-software-or-robots-by-2025.html


Interesting times are on the horizon.

 
At 7:17 PM, April 13, 2015, Anonymous awp said...

Rich from 1880: "MIT study or not, the notion that land can supposedly retain its market worth is admittedly a bit beyond my comprehension in light of Mechanization displacing ever-increasing quantities of workers from nearly all Agricultural Sectors, which today makes up 85% of the Labor force."


I wish this is what everyone was singing from the rooftops.

"Given this organic urbanization, master plans may be unnecessary, or even counterproductive. The city’s lack of zoning, after all, has made it inviting for such infill projects."

 
At 11:26 AM, April 14, 2015, Anonymous Rich said...

AWP:
Previous technological revolutions displaced some folks but created openings for them elsewhere in relevant economies. The robosourcing technological revolution is predicted to be unlike any previous ones though. Robots and computers don't sue companies for alleged sexual harassment, racial discrimination & worker's comp., or demand other subsidies while nevertheless making supply chains vulnerable to human error. Again, this brief video is well-done and worth viewing:

https://www.youtube.com/watch?v=7Pq-S557XQU

 
At 1:06 PM, April 14, 2015, Anonymous awp said...

Rich from 1880: "Previous technological revolutions displaced some folks from hunting and gathering but created openings for them elsewhere in relevant economies. The Mechanical revolution is predicted to be unlike any previous ones though. Tractors and other Machinery don't get tired, complain about conditions,don't sue companies for alleged sexual harassment, racial discrimination & worker's comp., or demand other subsidies while nevertheless making supply chains vulnerable to human error.


People have been saying the same thing since the dawn of tools. I have yet to be convinced that it is still doesn't just boil down to the lump of labor fallacy and a lack of imagination.

 
At 5:25 PM, April 14, 2015, Anonymous Rich said...

Awp:
It would be very reassuring if you are right. Already merely 46% of people in the USA are working though.

Perhaps the future can be manageable if prices come down so much that folks can afford to get by without even needing to work 40 hour work weeks. I have been told that we could reduce the cost of food production through adopting better regulations, and using hydroponics and other technologies more prevalently and efficiently. I recently read that desalinization costs are coming down while our capabilities are improving too, by the way.

Perhaps we can bring down the cost of living so much that folks won't need to work as much, even as folks learn to intermingle *peacefully* (which is reportedly rare in regions of high unemployment). Having too much time on its hands can seemingly make for an unmanageable populace. At any rate, I draw some strength from your optimism even as I admittedly remain apprehensive.

 
At 2:36 AM, April 15, 2015, Anonymous Rich said...

Meanwhile, in further analyzing property values' long term future, isn't it noteworthy how the USA now owes nearly what all its land is worth?

http://www.chron.com/news/nation-world/article/New-federal-report-shows-land-value-estimates-6196822.php

"A paper from the U.S. Bureau of Economic Analysis estimates the total value of America's 1.8 billion acres of land is around the $23 trillion mark."

Our National debt: (not even including entitlement promises): is already at nearly $19 trillion:

http://www.USDebtClock.org

There's a solution that could rescue Texas though. To see it, just click on my name at the top of this latest post. :-)

 

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