Monday, October 19, 2009

Free conference this Wed on the issues of smart growth

HRG is putting on a free conference this Wednesday afternoon at the GRB downtown: "The Truth About Smart Growth: Setting the Stage for the Housing Collapse - National Conference About What Works & What Hurts." I will be doing some speaking at the event, and look forward to seeing as many of you as possible there. Should be a lively discussion. We're even hoping for some of the mayoral candidates to come by for a briefing. Details and registration are here.

Experts from around the nation and world will be on hand in Houston, October 21st to discuss the advantages and pitfalls of “Smart Growth” approaches to urban development. Of national significance is the role that market distorting policies have had on the housing collapse and, by comparison, alternative growth strategies used by some cities that have avoided such pitfalls. We expect both local and national media attention to this timely topic.

The conference is set for the George R. Brown convention Center from 2 to 5 pm on October 21st and will feature speakers and topics including:

1. Ron Utt, The Heritage Foundation - Price Inflation Through Public Policy” “Housing Bubbles” evidence from UK study indicating price inflation as a direct result of the Town and Country Planning Act.

2. Wendell Cox, Demographia- How Texas’ regulatory environment helped us resist the economic downturn.

3. Sam Staley, The Reason Foundation - How Houston’s free market land use system is superior, the advantages of it, and how it compares to the traditional planning process.

4. Mike Inselmann, Metro Studies - Case study of national housing prices and trends - Which areas were most affected during recent housing bubble crisis and what types of regulations caused the problem.

5. Randal O’Toole, The Cato Institute - Present an alternative vision that achieves same goals. What are mild incentives to encourage market driven growth? The fiscal impacts on local governments.

6. Luis Vera, Pacific Legal Foundation, LULAC – “Protecting land owner/ home owner rights” in courts - will examine what smart growth policies do to affordability and the damaging effects that they have had on the middle and lower class.

7. Special Guest: Todd Staples, PAC! Off: It's My Land - Presentation of a new pro-Proposition 11 coalition comprised of associations and state leaders concerned about abusive takings of private property by government eminent domain.

As you can see, this respected group of scholars will be discussing the myths and the realities of centralized government growth and development controls, significantly, here in the largest American city without zoning—and in the city that has resisted the worst effects of the housing downturn.

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At 12:25 PM, October 19, 2009, Blogger Alon Levy said...

Okay, is there any speaker at this conference with real expertise? Say, someone with academic standing and peer-reviewed papers, rather than with a fellowship at a GM- and Exxon-Mobil-funded thinktank?

At 1:47 PM, October 19, 2009, Anonymous Appetitus Rationi Pareat said...

So, let me get this straight, smart growth is what contributed to the housing crash?

I'm sorry, but anyone who argues such a ridicules assessment obviously hasn't been to the epicenter of the housing collapse...Nevada, Arizona and parts of California. Sprawl communities out on the edge of the desert are where you see abandoned homes and underwater mortgages. These communities are not walkable, they are poorly planned and are certainly not "smart growth."

If anything, better planned "smart growth" communities and older, established neighborhoods are about the only bright spot in the current market.

At 3:35 PM, October 19, 2009, Blogger Tory Gattis said...

Smart growth restricted supply in many areas, driving up the bubble prices.

At 4:34 PM, October 19, 2009, Blogger Michael said...

>>Smart growth restricted supply in many areas, driving up the bubble prices.

But I'd say that in most areas, this was not the case at all. Miami, Las Vegas, Los Angeles, Phoenix etc. did not suffer from a lack of supply. If anything - too much supply and too much easy money came onto the market.

At 5:25 PM, October 19, 2009, Blogger Tory Gattis said...

Only at the end. Definitely too much easy money. But supply was restricted early, which contributed to the price run-ups. That got the speculators in, which both drove up prices more and stimulated more construction than there really was demand for. I'd say the root problem was financial, but some of the restrictions put in in the name of smart growth were contributors.

See the pages marked 16+ here (pdf p. 22+), esp. Figure 3:

At 8:31 PM, October 19, 2009, Anonymous Toronto condos said...

Hello. I appreciate that people are talking about the problem of housing "bubbles", but I am afraid that talking isn't enough. The economical crisis was somehow caused by a "housing bubble" and there are another ones to be expected. The major problem is that the whole country is living in debt and people continue taking another loans. I also appreciate Mr. Obama's attempt to deal with the problem, but unfortuntely I don't think he chose the right way.
Take care,

At 8:35 PM, October 19, 2009, Anonymous Keep Houston Houston said...

The instigating problem was that the economic situation changed overnight, which rendered the computer models crap.

A lot of these cities had "planned" for growth by figuring out how many people would be moving there and then extrapolating housing preferences based on current trends. What no one anticipated was that after the dot-bomb, everyone would move their cash laterally into real estate, which drove the demand for "investment" properties, house-flipping, and the like. This increased the per capita demand for real estate products.

Thus in cities like Portland, Miami, et al, the forecasts for population growth were actually right, but the change in housing demand per capita meant there was an undersupply.

Thus are the limits of master planning; even when the plan gets it "right," it still doesn't get it *right*.

On a flipside, it needs to be said that Randal O'Toole is absolutely for artificial restrictions in the housing supply. His blogs have at numerous times praised Florida cities which restricted high-rise development, since his ultimate allegiance is not to market-based urbanism but to the moral superiority of the large lot, single family residence.

At 9:02 PM, October 19, 2009, Blogger Alon Levy said...

This comment has been removed by the author.

At 9:04 PM, October 19, 2009, Blogger Alon Levy said...

Definitely too much easy money. But supply was restricted early, which contributed to the price run-ups.

That was true in Los Angeles and Miami, mostly for geographical reasons - you can't build in the mountains or in the Everglades. But the biggest bubbles and crashes were in Las Vegas and Phoenix. And the old Northeastern cities - New York, Philly, Boston - had a relatively small price increase, and a small housing crash. And within each metro area, neighborhoods near transit have held their value better: San Francisco had a much smaller housing crash (I believe 5%) than the rest of the Bay Area (20% average).

The Eastern cities, especially New York, have a perennially high price-to-rent ratio, which makes it look like they're in a bubble, but in reality they're just perceived as a safer investment (this is part of why rail keeps property values high - developers figure that the infrastructure is there to stay). Manhattan is likely to remain desirable for a long time, so speculators are willing to pay more for a property that would rent for $5,000 a month there than they would in Houston or Phoenix.

The bubble occurred because speculators and developers thought that prices would only go up, so every investment was safe. They were clearly wrong. It's entirely possible that Manhattan will crash in the future - it just didn't happen in this round.

At 9:29 PM, October 19, 2009, Anonymous Keep Houston Houston said...

NYC isn't "Perennially High," it was affordable as early as the mid-90s.

The NYC housing supply (especially in the boroughs) has been over-restricted for perhaps 60 years, but because demand actually declined (first from the loss of WWII manufacturing jobs, then from the increasing crime of the 70's), it took that long for the demand to exceed the artificially locked-in supply.

Whenever I'm in NYC it amazes me how the boroughs (Brooklyn especially) can have such a top-notch transit system, yet all development is locked into two-and-three story brownstones when the *existing* transportation facilities would support intensities far higher.

At 9:41 PM, October 19, 2009, Blogger Alon Levy said...

KHH: the price-to-rent ratio was always high in Manhattan, I think. The rents have gone up together with the prices, especially now that rent stabilized units are converted to market rate.

And yes, Brooklyn is weird. Part of the problem there is that modern apartments are built to luxury standards and more stringent zoning laws, which require larger setbacks, off-street parking, and larger apartments. The current 3-story walk-up blocks in Brooklyn are dense, and the towers that would replace them wouldn't be much denser.

Another part of the problem is that the people who'd live in the new towers come from a different social class from the people who live in the buildings now. It creates friction, and leads to a lot of NIMBYism even against well-thought projects. In Monaco and Singapore and Hong Kong, the governments deal with those issues by building low-cost subsidized housing for everyone - I don't think any of the three has rent-stabilized rather than rent-subsidized housing. But in the US cities believe that public housing is for poor people only, so instead they try to regulate themselves into affordability. This hasn't worked in New York and San Francisco, but the day New Yorkers think that Singapore has something to teach them is the day they'll commute to work riding flying pigs.

At 1:34 PM, October 20, 2009, Anonymous kjb434 said...

Easy money was still the centerpiece of the problem. Most speculative investors wouldn't have went into real estate if the mortgages weren't so easy to get.

A little thing called Freddie and Fannie along with the Community Reinvestment Act (first passed in 1977, updated in 89, 92, and a few more times) is the primary source for our bubble.

Strict enforcement in the 90s and continued through the early 2000s pretty much held banks and mortgage lenders at gunpoint to lend to pretty much anybody. Nobody was turned down. Banks realizing that lending to anybody is stupid didn't want to go along which is why in the 90s that Freddie and Fannie pretty much started to buy the risky mortgages from the banks. The banks won't get in trouble for not lending, and pretty much anybody with $2 in the their pocket can get home.

The problem is that Freddie and Fannie have repackaged these mortgages into securities to be traded. Other large banking institutions also repackaged and started this too. As long as housing prices rose, the securities were a good concept. The bubble bursting just through everything into a talespin. People realized that these securities were pretty much garbage and the actual risk was enormous since many of the people getting these mortgages have no financial background to pay up.

Also through in the Fed keeping interest rates low and Freddie and Fannie being backed by the tax payer dime and very few if any lawmakers or administration officials (both parties) had any testicular fortitude to voice the problem and attempt to stop it. The few that tried (both parties) were shot down as uncaring and even racists (that's a whole other story I won't get into).

The US isn't the only country to do this. The United Kingdom also did pretty much the same thing and some argue it was worse than ours.

Prior to all the CRA mess, banks would pretty much only lend to buyers that had 20% down. This concept worked well and minimizing risk because the home value would have to drop 20% for the mortgage to be upside down. On top of that, by the time a home could drop that much in value, the owners would have been paying the mortgage off further reducing risk.

The newer mortgage packages with little or nothing down pretty much work for stable and very financially responsible buyers, but unexpected life occurrences also can mess the best buyer up. Of course, if 20% were put down, the risk wouldn't be as bad.

At 7:00 AM, October 22, 2009, Anonymous Keep Houston Houston said...

Now, now, kjb, don't go parroting the Beck/Limbaugh/Palin talking points about low-income borrowers being responsible for the crash.

It's pretty well documented that it's the middle- and upper-middle income homeowners (we're talking 65k to 150k here) that have the heaviest default rate. And the banks lose a lot more money when someone defaults on a McMansion then they do on a "starter home" in Pearland.

Forget the Community Reinvestment Act. Greenspan created this mess, pure and simple. Without the artificially low fed rates, Fannie and Freddie's mismanagement wouldn't have had nearly the same effect - regardless of what kind of pressure Frank and Dodd were applying back during the Clinton years.

At 3:22 AM, October 23, 2009, Blogger Alon Levy said...

KJB434: the CRA says two things:

1. Banks that open branches in a neighborhood must make a good-faith effort to lend to qualified borrowers in the neighborhood.

2. Banks must make loans to qualified applicants regardless of where they live. Prior to the CRA, banks would redline minority neighborhoods, denying even middle-class applicants mortgages there on the grounds that there was no point investing in slums.

How does a law saying those two things, passed in the 1970s, create a bubble in the 2000s?


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