Categories

Archives

Demographia fails Urban Economics 101

Every year since 2005, pro-sprawl think-tank Demographia has published a new edition of its “International Housing Affordability Survey“. They report a “median multiple” measure of housing affordability that compares median house prices to median household incomes within a number of cities, mostly in the English-speaking world.

Demographia’s aim, in publishing this data, is to argue that “if housing exceeds 3.0 times annual household incomes, that there is institutional failure at the local level. The political and regulatory impediments with respect to land supply and infrastructure provision must be dealt with.” By this, they mean building car-dependent suburbs on the urban fringe – and nothing else.

Another Demographia-approved urban paradise.

A number of people, including Todd Litman and Stu Donovan (on Transportblog), have taken aim at Demographia’s empirical analysis and choice of metrics. Unfortunately, Demographia is unwilling to open up its analysis and methodology for an independent peer reviewed, so it’s difficult to referee those claims.

Here, I want to take a look at the issue from a different perspective. Basically, the urban economics literature suggests that Demographia’s chosen measures do not mean what they think they mean. And they almost certainly do not prove the case they’re trying to make.Before I explain why, let’s start out with a quick look at the data. According to Demographia’s 2015 report:

  • The most “affordable” cities included the likes of Detroit (median multiple of 2.1), Cleveland (2.6), and Houston (3.5)
  • The “unaffordable” cities included most large Australian cities, including Sydney (9.8) and Melbourne (8.7), many “coastal” North American cities, such as Los Angeles (8.0), San Francisco (9.2), Vancouver (10.6), New York (6.1), and Boston (5.4)
  • All New Zealand cities were on the “unaffordable” end of the spectrum, ranging from Palmerston North (4.1) and Dunedin (4.6) to Christchurch (6.1), Tauranga (6.8) and Auckland (8.2).

In other words, there’s a quite large range of median multiples. This raises a quite obvious question: Why are people willing to pay so much more to live in some places? Why live in “unaffordable” San Francisco when “affordable” Houston is just down the road? Why live in Auckland when housing is relatively cheaper in Dunedin?

IMG_3218

Why would anyone want to live in a large, multicultural city located between two beautiful harbours in a subtropical climate? Sheer madness.

Urban economists have studied this phenomenon in detail, and observed that there is an omitted variable in Demographia’s equation: the differing amenities offered by different cities. If a city offers good natural amenities or consumer amenities, people will be willing to pay more to live there. Conversely, if a place isn’t particularly nice, people won’t be willing to pay much for houses there. (Common sense, really.)

In his fantastic survey of the urban economics literature, Harvard economist Ed Glaeser goes so far as to say that ratio measures, such the median multiple popularised by Demographia, are useless for analysis:

It is quite common in discussions of housing affordability to focus on the share of income being spent on housing, as if this is a natural measure of the degree to which housing affordability is a problem within an area. The spatial equilibrium assumption suggests that this measure is not particularly meaningful or helpful.

In short, urban economics suggests that we should interpret a high median multiple as an indication that a city offers great amenity for its residents, rather than an indication of bad policies. I tested this hypothesis by looking at the correlation between the (2012) Demographia median multiple figures and two international quality of living rankings. I found that there was a positive correlation between median multiples and livability.

Here’s the correlation between the median multiple (X axis) and the Economist Intelligence Unit’s 2012 Best Cities Ranking (Y axis). I was only able to match up 12 cities, but there’s a fairly strong positive trend:

Demographia median multiple vs EIU livability index

Here’s the correlation between the median multiple (X axis) and Mercer’s 2012 Quality of Living Survey (Y axis; lower numbers indicate higher rankings). Once again, a positive correlation, with 31 data points:

Demographia median multiple vs Mercer livability ranking

In other words, high house prices relative to incomes are a good indicator that a city is a nice place to live. Rather than proving that Metropolitan Urban Limits inevitably push up house prices, Demographia’s median multiple seems to simply measure cities’ relative levels of amenity. When they argue that all cities should have a median multiple of under three, they are arguing for an absurdity: that all cities should offer the exact same level of amenity to their residents.

If we wanted to accomplish that, we’d have to destroy most of the things that make great cities great. This might make housing cheaper, but it wouldn’t make us any better off in a broader sense. That’s because it would require us to:

  • Bulldoze the Waitakere Ranges and use the spoil to fill in the Hauraki Gulf – to ensure that Auckland didn’t have any natural advantages over a flat, inland city like Hamilton
  • Dynamite the historic boulevards of Paris and replace them with American-style subdivisions and malls – to ensure that Paris didn’t offer anything that Houston doesn’t
  • Ban any venture capital or startup activity in San Francisco, to ensure that it doesn’t offer any agglomeration economies that don’t exist in Detroit
  • Build large screens over sunny cities like Tauranga and Brisbane – to ensure that they don’t have nicer weather than Moscow or Toronto.

But Demographia’s not aware of this. Their analysis is overly simplistic. The only thing it reveals is the authors’ grievous failure to understand the basics of urban economics. It’s no wonder that Demographia has never tried to have its studies peer reviewed or published in academic journals. Their claims aren’t supported by any valid conceptual model. But I guess that’s what happens when you get an urban planner and a former property developer to do an economist’s job…

127 comments to Demographia fails Urban Economics 101

  • Ari

    Nice post. Conveniently ignoring important variables is not a good look for a “think-tank”.

  • This sort of stuff is going to exist forever. The problem is journalism – the NZHerald, Stuff and papers elsewhere/everywhere will once again print the ‘results’ without any journalism attached and thus is is fact. It takes special interest blogs and forums to actually dig into this stuff to report on it – things that 99% of the population will never read.

    How do we change things with lazy journalism being what most people read, shaping their views? Demographia is an ‘institute’ and transportblog, gen0, planetizen etc are only ‘Public Transport/Environmental Interest groups/blogs’, after all.

    • Darius

      Easy – just transform Transport Blog into an “Urban Studies Think Tank” (with attached, prolific blog). You already are.

      • Peter Nunns

        I’d love to be able to do what SPUR does for the San Francisco Bay Area – they’re often at the forefront of urban analysis and urban activism. But they’re doing it with a staff of dozens and a pretty reasonable funding base: http://www.spur.org/

        The fact is that it’s quite hard to sustain nonprofit research and advocacy institutions in NZ. For example, the NZ Institute was quite good, but they ran out of funding after a while and had their brand equity cannibalised by the Business Roundtable. The fact that we’re volunteer-based means that we don’t face pressures around fundraising, but it also limits our ability to devote a lot of time and resource to some issues of importance.

        • Yes, New Zealand simply does not have the philanthropic base or tradition that the US has.

          The NZ Institute has been rendered a throughly neoliberal source since its absorption into the Roundtable – not that NZ’s media or politicians will address that development after years of breathlessly publishing anything uttered.

          As the Taxpayers Onion and Family Fist and Senseless Sentencing also get easy media mileage, maybe progressives need to set up similarly biased organisations. Suggested media-friendly names welcome..

          • Ari

            NZ has the highest rate of volunteer hours in the OECD. I think Kiwi’s readily get involved in things they value. I just don’t think they value handing money over to think tanks in attempts to influence politics.

          • We donate time, not money, compared with places like the US. And yes, we donate that to local community groups and sports organisations rather than national political or advocacy efforts. Still, new organising platforms like http://actionstation.org.nz show potential.

  • Not just journalists; our current minister of finance wrote an approving introduction to a recent Demographia publication… and the lazy conflation of dwelling supply with land supply that characterises all Demo pronouncements also runs through government policy.

    Although to be fair recently there are signs that they’re starting to acknowledge other constraints on dwelling supply other than bare ex-urban land, in particular urban density restrictions.

    A big flashing red light that Demo’s model is a crazy over-simplification is that Detroit comes out as ideal by their measure; essentially a failed place. I’m sure Homs, Grozny, and Tikrit do pretty well too for high site availability and low demand.

    • The FrontPage article(s) in the latest North & South claims that there is no housing supply problem in Auckland (since rents are not rising as they would if there was a real shortage). Instead Auckland House price growth is solely caused by easy finance and tax policies.

      I’m not really convinced by the article, one of the followups has a comment from a real-estate guy that people rapidly pounce on even bad homes when they come up for rent. I suspect the steady grow in rent just looks small because house prices have grown so obscenely. Renters don’t have the option of borrowing 105% of their rent in the hope that it will go up by 20% next year 🙂

      • nonsense

        unReal estate guys always say that. You actually contradict yourself. First you say you don’t think it’s due to lending and tax policies and then that renters can’t borrow to pay the rent… IT IS because of lending, tax policies and urban density limits.

        • I mean that the problem isn’t “solely” due to lending policies, which is what the article states.

          Regardless of Tax policies owning a house is always going to bit a form of investing using leverage which will always influence what people pay for houses. Renting is not like that at all.

  • Bobo the deflated pagliaccio

    That freeway pic looks like what they are doing with the NW motorway. West Auckland is turning into a repeat of Botany/Dannemora/Flat Bush, dominated by cars and wide streets. The Northern busway is proof that public transport alternatives will work. Build a dedicated busway to Westgate and it will relieve some congestion well into the future. Otherwise for many years it will be choked with traffic.

  • Chris O

    Another lacking from the Demographia studies is some extended longitudinal analysis. For example they cite a median multiple of 3 as being the threshold for “affordability”. But I suspect banks are much more relaxed in terms of how much they’re willing to lend. There’s one school of thought that the Basel III liquidity rules (which allowed banks to treat mortgages as “safer” investments in terms of capital adequacy) have done as much to increase house prices as land supply restrictions. The Demographia study shows that some places are less affordable than other places… but what if *all* cities have moved upwards in terms of median multiples. The LVR restrictions and the Reserve Bank’s mutterings about rules for property investors are focused on protecting the monetary system and reining in house inflation by tightening up the supply of money rather than increasing the supply of land.

    • stevenz

      Somewhere along the line, decades ago in the US, affordability of housing was defined as 30 or 33% of household income, after taxes I think. It was then used for decades as the foundation of research on affordability for social and economic indicators. I don’t know if there is an empirical basis for it, but that’s probably where Cox gets it and can point to any number of research papers and policies that embrace it, thus bestowing credibility to his analysis.

  • Stu Donovan

    I can forgive Demographia for being foolish; what I can’t forgive is Ministers like Bill English and Nic Smith using Demographia as evidence for policy decisions. That’s just not kosher.

    • Feijoa

      And yet I’ve never heard them use this measure as proof our incomes are too low.

      Come on politicians, I’d prefer a pay rise over taking an axe to the RMA.

  • doloras

    Yes, Detroit is very affordable to live at the moment. Of course, that’s because Detroit city outside the CBD is now a depopulated hell-hole with no public services and no jobs. Imagine if Auckland’s south-central suburbs, from Avondale over to Glen Innes, were all bulldozed down and deserted like the red zone in Christchurch: that’s what Detroit is like, due to economic collapse of the car industry and government mismanagement. You can buy a house for $50, I hear.

    AFFORDABLE!

  • wsomc

    They’re not foolish. They just know exactly what measures to support their lobbying.

    You know the joke, right?

    A company is interviewing three people, one with a degree in pure mathematics, another one in applied math, and one in statistics. The question is: What is one third plus two thirds?

    The pure mathematician: It’s 1.
    The applied mathematician (after using his calculator): It’s 0.999999999.
    The statistician: What do you want it to be?

  • mfwic

    A really good post Peter until you got carried away at the bullet points.

  • Frank McRae

    Demographia ignores many variables and jumps to conclusions not supported by the data. They ignore the effect of density restrictions on dwelling supply, geography, the health of a city’s economy, and the amenity of a city. Unsurprisingly most of the ‘affordable cities’ in these studies are unattractive cities with broken economies, unconstrained geography, and declining populations – like Detroit.

    But demographia are right on one thing – restricting dwelling supply makes housing more expensive than it would be otherwise. Auckland’s unaffordability can partly be explained by its geography, which limits developable land, and by its high quality of life. But this is not the whole story. The supply of dwellings in Auckland is severely constrained by restrictive planning regulations.

    Houston may have its problems but there is one thing about that city that should not be ignored. Houston has been able to provide affordable housing with a booming economy and ten years of rapid population growth. It has done this by allowing housing supply to respond to demand.

    Of course land supply and dwelling supply are not the same thing, and exurban sprawl is not the only way to add dwellings. Auckland’s geography and quality make it expensive, but it could be a whole lot cheaper if the supply of dwellings was not so constrained by restrictive planning rules.

  • Keir Leslie

    I’m not sure that the analysis in this post is quite convincing. Yes, place like San Francisco are more expensive to live because living in San Francisco is more valuable than living in Detroit – but by the same token, workers should be more productive, and earn more, in the Bay Area than in Detroit. (Similarly, London may be very expensive, but many very rich people live in London.)

    And we do in fact know through other measures that San Francisco is unaffordable – for one, the extent to which it’s a cause of significant social tension. It’s also the case that amenity may explain why some cities are more expensive, but it doesn’t mean any given city couldn’t maintain amenity value while still increasing affordability by increasing supply.

    So, while I don’t really buy either Demographia’s analysis, or their solutions, I’m not completely sure that this post offers a convincing counter argument.

    • That’s a curious argument: by your own statement SF is not ‘unaffordable’ because people living there ‘should be more productive, and earn more’.

      More expensive doesn’t not equal unaffordable. SF can be afforded for the very reasons you outline. Not, of course, by people trying to earn a living in Detroit.

      That’s exactly the point.

      • Keir Leslie

        Think – Demographia use a ratio, right? Prices/incomes. So we’re not talking about absolute prices, we’re talking about the relationship of prices to incomes. Now, if you think that there are major agglomeration benefits to cities that cause workers and capital to be more productive there and that this agglomeration benefit drives city growth, some of that productivity increase should flow through to workers and cause their incomes to rise. So the ratio of housing to income should stay stable-ish*, even if in absolute terms housing is more expensive, because workers’ incomes should rise with it.

        Much of the amenity of living in San Francisco is economic (there are other North California locations that aren’t as expensive, so the weather & the scenery can’t be everything, and Houston has art galleries too) – yes some of it will be pure consumption, but it’d be weird to assume that all of it is. And maybe a dollar is more valuable in SF than in Houston – i.e you can consume more for less money – but it would be surprising if it was ~50% more valuable, let alone the ~100% you’d need for the ratios to work (I think).

        * not absolutely the same, but you’d expect, surely, a 4-8x band, or something like that, not 4-12x at the high end!

        • Peter Nunns

          Glaeser observes that ratio measures are not useful because they ignore the fact that higher-income people have the ability to spend a greater share of their income on housing.

          For example, somebody earning $100,000 after tax and spending 40% of their disposable income on housing will have twice as much money left over for other spending than somebody earning $40,000 after tax and spending 25% of their disposable income on housing.

          “you’d expect, surely, a 4-8x band, or something like that, not 4-12x at the high end!”

          I wouldn’t expect _anything_ without undertaking a lot more detailed empirical analysis. That’s my point. Demographia gathered some data, excluded important variables, and leapt to conclusions without a sound theoretical framework. Not good practice.

          • Keir Leslie

            I agree that Demographia’s measure is flawed. But you then go on to make the claim that it’s basically impossible for cities to drive down housing costs as a multiple of average incomes without destroying amenity! That seems like a very big jump lacking empirical backing – isn’t it possible for a city to offers lots of amenity but also provide a supply of housing sufficient to keep prices down?

          • Peter Nunns

            More precisely, my point is that we should not expect cities to have the _same_ median multiple as long as they offer varying levels of amenity.

            Perhaps this is a bit wonky, but I’d suggest that the key measure should be the _flexibility_ of new housing supply in response to increased demand. In other words, when it becomes apparent that more people want to live in part of the city – e.g. through rising prices – people should be able to respond to that by building more dwellings.

          • No, Peters is using reductio ad absurdum to highlight the lunacy in Demographia’s argument. He is extrapolating their position to literally reduce it to absurdity. It is not a claim about what Auckland should do, but rather what Demographia’s methods logically call for. Used to show how limited and illogical their model is.

    • “workers should… earn more, in the Bay Area than in Detroit.” Should they, and why?

      Should I be paid twice as much if I choose to buy a car or a suit that costs twice as much as the next guy? The point is there is an element of consumption with housing. People are willing to pay more to live in better cities, and in the better parts of cities because of the opportunities they afford. Yes part of that is access to employment, but part is also access to facilities, culture, events, the outdoors etc. Me living in Auckland because I like the boating lifestyle doesn’t mean I am necessarily more productive, nor that I should get paid more. It just means I’m willing to pay more to rent or buy a house in a place where I can take day trips to the Hauraki Gulf.

    • stevenz

      A lot of commenters here are unwittingly pointing out the elephant in the room, and that is that the argument is circular. San Francisco is unaffordable because houses cost a lot, but people are well-paid and can afford the housing. Detroit is poorly paid so those people can’t afford a nice house. Therefore, housing in one city costs a lot, and in the other, not so much.

      Comparing Detroit with SF or any other city on the high-amenity list is unfair for a lot of reasons, but not totally illegitimate. I could live like a king in Detroit, but like a pauper in SF. But I still don’t want to live in Detroit. It does lack amenities, it is poor, it is crime-prone, it is going nowhere fast. Those are costs. Beaches, ski resorts, national parks, cool restaurants, safe streets are benefits.

      Let me take the opportunity to raise a somewhat related question. Does high cost of housing affect the cost of other goods like fresh vegetables, cars, shoes, tennis racquets, or bath tubs?

      • Peter Nunns

        “Does high cost of housing affect the cost of other goods like fresh vegetables, cars, shoes, tennis racquets, or bath tubs?”

        Only insofar as housing (or rather, non-residential buildings) are an input into the production of those goods. As buildings don’t account for the majority of input costs in the agricultural, manufacturing, and distribution sectors, I wouldn’t expect this to be the case.

    • Peter Nunns

      I agree that excessively restrictive planning policies can push up the cost of housing. However, I disagree that Demographia’s data provides a good indication of the degree to which that is occurring. A more sophisticated analysis is necessary – either of the impact of specific rules (as in this recent Motu report: http://www.motu.org.nz/publications/detail/impacts_of_planning_rules) or the gap between sale prices and new build costs (as in this fantastic Ed Glaeser paper: http://www.nber.org/papers/w10124).

      As far as your point about wages goes, no, I do not agree. People are willing to trade off lower wages (relative to housing costs) in exchange for higher amenity. Why else would people move to New Zealand when wages here are relatively low?

      • Frank McRae

        Isn’t Keir’s point that the median multiple takes account of higher wages already as it is a ratio of incomes to housing prices?

        • Peter Nunns

          Yes, but my point (supported by the urban economics literature) is that we should not expect the ratio of prices to incomes to be fixed between cities, because there is another variable in the mix.

          • Phil Hayward

            I would welcome some sort of estimate of how much higher a median multiple should be or more importantly, how much higher the price of land per square foot should be, for higher amenity.

            I would argue that a median multiple of around 4 could be an indicator of desirability and an absence of supply constraints. But 8+??? And land prices per square foot being tens or hundreds of times higher, necessitating crowding?

            California was affordable up till the 1970’s, far more so than the UK. Was the UK’s cities more desirable than CA’s, or did the UK have an urban land racket and CA didn’t (yet)?

    • conan

      “And we do in fact know through other measures that San Francisco is unaffordable – for one, the extent to which it’s a cause of significant social tension.”

      The question is who is it unaffordable for? I have some friends who have moved to SF (from Geneva) and find it okay. The reason for that is they have great jobs that pay very well. I think the unaffordable commenst comes from ‘the locals’ who don’t have high paying jobs and are slowly being pushed out of ‘their’ neighbourhoods. But that is something happening everywhere. The street I live in in Grey Lynn has the same effect, the ‘original’ polynesian families and a few hippies, the inbetweeners and those who can service a 7 figure mortgage.

      • stevenz

        There is a semantic element to this discussion and that is with the term affordable, and the question conan asks is the right one: affordable to who(m)? It is plain as day that San Francisco is eminently affordable. The huge number of people who live there are testament to that. It becomes a matter of priorities – what do you want to spend your money on? Private or public schools? Country club membership or municipal golf course? A boat, or having a picnic in a park on a Sunday afternoon and watch the boats?

        (Note how – inadvertently – government plays a role in those kinds of choices.)

        • Phil Hayward

          But a significant difference here is whether those attributes of location that people pay for, are the subject of bidding wars and speculation. There is such a thing as desirable and yet systemically affordable housing markets just as long as their land markets include the option of competitively provided ex-fringe housing on rural land that no land bankers have profiteered on. The term “differential rent” in economics refers to the differential between options in the market. If you have $30,000 per acre land as an option it keeps the cost of all other options lower – the differentials are added to the cheapest option, that is, what you save on transport costs and so on.

          I am arguing that markets are either working this way, or the prices are derived from speculation and “extractive” demands on household incomes.

          It is significant, I think, that Acemoglu and Robinson in “Why Nations Fail”, use the term “extractive culture” to describe WHY nations fail, and so many do not emerge into the first world. The reason, they find, is that there is a privileged class “extracting” economic rent from everyone else, which is a heavy burden on “producers” and their workforces. Every third world city has absurdly high urban land costs – is anyone arguing that inherent desirability in Lagos and Dhaka make it necessary for people there to outlay a far higher proportion of their income for a few square feet of living space compared to the rent of a family McMansion in an affordable city?

  • stevenz

    Generalising from one data point is likely – though not always – to be wrong. Even Houston, that darling of sprawl enthusiasts, is above the magic number of 3.0.

    So I completely agree with the conclusion of the post, and affirm that there are many factors in the price of housing, none of which exist in isolation.

    I was talking to a friend in San Francisco. She has a well-paying job and a small one bedroom apartment that costs a fortune. I asked her, is it worth it? She rattled off a long list of amenities, and when I added that the weather was good she affirmed with “Hello!” Still, it *is* hard to afford to live there and you have to take advantage of the amenities to make it worth the money. If you live in SF and never go to the beach or museums or Fisherman’s Wharf or Golden Gate Park or Muir Woods or the mountains, you’re throwing money away.

    I’m a little sceptical of quality of life lists, though. There is always an inherent bias, and I find the Mercer methodology to be particularly so. The Economist may have a better model but I haven’t looked at it in a while. Still, the correlations are interesting, and not surprising.

    I mean, Detroit? Really Wendell? The average (or median, I forget which) price for a house is about $10,000. Are people flocking there? Umm, no. Low housing cost is not an incentive, and high housing cost is not a total deterrent. Sure, it’s some, but people find a way.

    Finally, I object to the slap at urban planners, especially using Wendell Cox as an example. He’s as much of an urban planner as Vladimir Putin is a statesman.

    • Peter Nunns

      “I object to the slap at urban planners…”

      Apologies. My intention wasn’t to say that urban planners are useless – although Wendell Cox seems pretty useless. They do many fine things. However, economists have a comparative advantage when it comes to making sense of economic phenomena, such as wages and house prices.

      Incidentally, I wasn’t expecting to find such a consistent correlation between Demographia’s median multiple and both quality of life rankings. That came as a bit of a surprise.

  • Economic amenity is proportional to property price. Agreed.

    However for the same amount of money, do NZ get more livability compare to other cities, such as Australia, it is questionable. (Value for money)

  • aa

    Demographia is quite amusing if you look at their ranked density of cities (http://www.demographia.com/db-worldua.pdf table 4) then look at those cities on Google Earth at the same scale. Auckland is apparently 2500 people/sqkm. Look at Auckland in Google earth at same scale as say NY (which is apparently way less dense at 1500), or Nice at 1700, Boston at 800 – or cities that apparently have same density as Auckland like Hanover, Essen/Dussledorf.

    It’s obviously complete nonsense – lumping together areas of extremely different densities/typologies and then making conclusions about how typologies affect affordability.

    • Density is a tricky measure and TransportBlog looked at this one other time (http://transportblog.co.nz/2012/01/26/the-complexity-of-density/). You really have to decide what the “city” is and then look at the individual parts to really understand what that density means.

      This is why Los Angeles is officially the densest metropolitan area (not city – as that can be a very artificial construct) in the US – it has a high average density compared to the New York metropolitan area which has a lot of low density areas on the edges. LA’s constrained topography means that, despite its reputation, sprawl has been quite difficult, so a medium level of density over the whole city has happened.

      Similar thing in Auckland. There has been a lot of infill in recent decades but not much high rise. So it looks sprawling while actually achieving quite a high density. An older guy told me the other that Auckland was the 7th biggest city in the world. This would have been something he remembered from the pro-motorway, pro-sprawl propaganda of the past and is patently absurd. I looked it up and we are about the 181st biggest city by area in the world – but what is “Auckland”.

      Quite a few European cities have of course incredibly dense looking centres, but in many of them the density of people has actually been dropping. De Pijp in Amsterdam has seen its density half since the 1970s (http://caa.org.nz/where-do-the-children-play/) as small apartments were turned into large ones and people moved out to the suburbs. The outskirts of European cities can actually be quite low density villages – so an average over the whole metro area may yield a lower density than expected.

      Nothing is ever as simple as “common sense” tells us. That is why we need to make decisions based on evidence and peer reviewed research – not this dog’s breakfast Demographia serves up as information.

      • Phil Hayward

        Excellent insights, Goosoid. We need to consider two different aspects here. Vertical development versus coverage of the surface.

        The best-functioning cities have LESS surface coverage in buildings and MORE in roads, but it is a piece of cake to have far higher density because of vertical building. In fact Colin Clark argued decades ago that a good provision of street space was a pre-condition to evolution of a power-house local economy like Manhattan. The same argument is now being made by Alain Bertaud and Shlomo Angel et al. And the UN Habitat Program recent report , “Streets as Public Spaces and Drivers of Urban Prosperity” very revealingly shows Auckland as ranking down with Moscow and St Petersburg for LACK of street space relative to built space. Auckland is such an outlier in the first world that they devote a few paras to in in the Report. Amsterdam and New York and Tokyo and Hong Kong and Toronto have around 2.5 times as much of their surface area as street space.

        It is much harder for a city like Auckland to try and build “up” because where does the extra traffic go? And existing buildings needing to be knocked down, and minimal space in which to do the developments and difficulties in accessing trunk infrastructure for upgrading and so on. Plus the exorbitant, and rising, and speculation-driven cost of sites.

        Contrast this with Houston which is adding tall-building floor space faster than any other first world city today. The cost of sites is peanuts, because the urban land rent curve is low and flat, meaning that honest money is to be made simply building floor space where there is demand for it. The resulting rents are derived from the capital cost of building “up”, not from some kind of rationing racket; they are a fraction per square foot of Auckland’s now. Also there are under-utilised, easily accessible locations that can easily have tall buildings erected on them.

        Great point about European cities, the trend almost always is to population decentralisation over time, Europe just started with high density because of how old their cities are. Their suburbs are almost as abundant as the USA’s only nowhere near as low density. By the way, NZ suburbs are nowhere near as low density as the USA’s either, our suburbs are very similar to European ones in density. The USA’s legacy cities like New York and Philadelphia would be a match for European cities if they had European density suburbs instead of the ridiculously low density suburbs they do have. There are some stupid perverse incentives that have caused this.

        But there is a massive gap between good European planning of medium density growth, and our assumption-driven, almost cargo-cult approach that combines the worst of all worlds and is riddled with unintended consequences.

        • ‘The best-functioning cities have LESS surface coverage in buildings and MORE in roads’

          The writer of this sentence is clearly INSANE.

          • More like the best functioning roads have less surface wasted on city, right.

          • Brendon Harre

            Patrick if you take off your blinkered ‘Phil is a sprawling/single occupancy vehicle madman’ glasses you would understand the sentence makes perfect sense.

            An urban area that had no functioning public authority defending the public’s access to right of ways would be awful -it would be slum. So there must be some positive optimal amount of publicly allocated ROW, i.e less buildings more roads (or other types of ROWs -footpaths, bike lanes, bus lanes etc). Maybe Patrick you and Phil would differ on the exact number and nature of those ROWs but it is not insane to believe that ROWs are important.

            Note Phil here is praising Manhattan an urban area with its ROW planned well before the automobile era -in fact I think it was planned for the horse drawn omnibus. So Phil at least here is not necessarily promoting some single occupancy vehicle sprawling suburban utopia.

          • Phil is consistently incoherent. Nothing he writes makes any sense outside of whatever bizarre echo-chamber he exists in. So it goes.

            I am very disappointed in all the other responses however, not one addresses Peter’s central argument that Demographia omit key variables in their sweeping generalisations, one of which he outlines above. The post questions the entire metric of the median multitple; it is not sufficient to respond by simply repeating the use of the median multiple. Oh and please enough with comparing Houston and Liverpool, two very specific places with very specific histories and routes to their current urban forms; none of which are reducible simply to urban limit regulation or the lack thereof. Baby level over-simplification and enormous failure to understand the complex histories of place.

            So far all we have is rants from cultists. All of whom who suddenly swoop out of the woodwork when their church is analysed and start spouting nonsense, failing to engage in any kind of reasoned critique.

            All very Tea Party.

            And depressing.

          • Brendon Harre

            Patrick I do not believe Phil is incoherent. I understand where he is coming from. In my profession (psychiatric nursing) we would call it ‘logical and linear’. I don’t always agree with it and I wish he would try to simplify his argument at times. Stuff like differential rent loses 95% of readers.

            I also think he could lose the ‘anti PT’ theme. PT and in particular bikes can be just another ROW, an alternative to roads/SOV for accessing the large amounts of competitively available fringe land that keeps the whole urban land price curve affordable. Fringe development doesn’t have to be automobile based sprawl. It can be European type villages with good PT links that Goosoid has commented on in this thread.

            Once the whole urban land price curve is lower, flatter and less volatile/speculative and if density restrictions on CBD, inner suburbs are liberal then development will occur there in an increasingly and affordable way. This allows people to take advantage of agglomeration economic benefits without paying monopolistic extractive prices.

          • Phil Hayward

            Patrick, it is important that you think this particular point through until you get it. What is so antagonistic to you about having a smaller proportion of the SURFACE actually BUILT ON, but built SO MUCH HIGHER that there is a lot MORE floor space and a lot more workers/residents?? This is actually, factually, the case in Manhattan, Hong Kong, Tokyo and many of the most successful “urbanist” local economies. If you look at them on Google Earth compared to our cities, what you see is that the “city block” typically has 4 buildings on it. Each building has 2 frontages. I surmise that there is something magical about this – the “eyes on the street” effect? Compared to our blocks where there are numerous buildings each with a single frontage and completely locked in by adjacent buildings on the other 3 sides – apart from the few corner-site buildings, which oddly enough are worth more as real estate.

            Have you actually read the UN Habitat Report? They talk about the practicalities for foot traffic, illustrating that in Auckland someone wanting to visit someone or walk to a PT stop round the other side of the block, might have to walk 10 times further than if Auckland had Manhattan’s street network! Part of this is the discontinuities that exist in Auckland’s street network, a further black mark. Why doesn’t the bold Manhattan Plan of 1813 actually appeal to you? Why would you prefer the status quo in failed-nation cities where an inherent part of the problem is absence of rights of way and hence built-out congestion and confusion are the by-default permanent state of things? The leading edge of the urbanist profession is now seeing this as important. It is self-evident. I believe Colin Clark had insights on this decades ago but was ignored. What is it about entrenched thinking about streets that fails to see their essential enabling role, including as “public space”? I have never been so taken aback, today and the last time I referred to this report, a few weeks ago, by your reaction. I thought this an undeniably helpful piece of evolving understanding.

          • “streets that fails to see their essential enabling role, including as “public space”” – I do agree with this and that is why we need to take more and more street space away from the movement of private passenger vehicles.

            First, so that the use motor vehicles is lowered in favour of commercial vehicles, cycling and public transport. This will also save cities a huge amount of money as we then considerably lower the current public subsidy from rates and general taxation in maintaining and “improving” (for cars only) local streets. Stockholm, London and Singapore have demonstrated that congestion charging is a great way to achieve this.

            Second, this will allow a lot more land to be used as public space, rather than space for the movement and (even worse) storage of private passenger vehicles. These attractive public spaces will then encourage more foot traffic and place making, something Auckland has only recently managed to start doing.

            Certainly higher buildings may free up space some space, but currently that space (like the ones on the corner of Victoria and Albert or the site of the old Star building) is just used to store cars, the very lowest value use of space.

  • Bob Lack

    Interesting … so does it follow that in striving to make Auckland “the world’s most liveable city” our council is implicitly striving to make it the most unaffordable??

    • Yes to som degree, but only in the sense that all successful places will attract more people and become ‘bid up’.

      • Phil Hayward

        It is interesting that you use that term “bid up”. This is why you end up with median multiples of 8, 9, 12, and higher when in fact a sensible “premium” for the amenity value might result in a median multiple of 4. California and New York were like this once – CA in the 1970’s and NY as recently as the 1990’s.

        If you don’t constrain fringe growth, you minimise the “bidding up” effect in the entire property market. Sure there will be small nodes that will be bid up higher, even the median multiple 3 cities have this, but it does not alter things for people at the median and in the bottom quintiles. This is really what we should be focusing on. It is the crying social injustice of our time, and in fact is the explanation for ALL the increase in inequality found by Piketty, that the poorest people have to compete in a wholly “bidded up” market for living space.

        Someone pointing out that “but there are affordable – i.e. $400,000 – houses to be found somewhere in greater Auckland” is missing the point that these should be <$100,000, the difference all being in bidded-up land prices. The absence of bidding up is assured by the option of circa-$30,000 per-acre land being developed for housing somewhere within driving distance. If there are other ways to replicate this effect, such as targeted land taxes, I would like to see advocates focus on them rather than clinging religiously to growth boundaries and massive denial operations regarding the consequences.

  • Kleefer

    This is a typical anti-Demographia piece from the density brigade.

    Step one: character assassination (“pro-sprawl think tank”, snarky comments about Pavletich being a former property developer). Step two: deny the laws of economics (restricting supply of a good increases prices, except for some reason when it comes to fringe land supply). Step three: use the “cities with affordable housing are all urban wastelands like Detroit” argument. Step four: ignore all examples that contradict your “unaffordable cities are expensive because they are amazing and everyone wants to live there” thesis.

    Here are some of the problems with your analysis:

    1. It fails to look at house prices in cities over time. What were the median multiples of these cities before they implemented growth restriction policies? Auckland’s median multiple was about 3 in the early 1990s before the MUL was implemented (it’s up to over 8 now). As far as I can remember, it had two harbours and a subtropical climate back then too.
    2. It doesn’t take account of house price volatility. This relates to the first point, but cities with unresponsive land markets tend to have not only higher prices overall but more volatility. This means they have bigger bubbles and bigger busts (think California or Ireland). This is incredibly damaging to the economy.
    3. It focuses on the struggling cities with affordable housing (e.g. Detroit) but neglects to mention the declining cities in the survey that are still saddled with high house prices. For example, Liverpool sits at 5.2 despite losing nearly half its population since the 1950s. How do you explain this discrepancy other than differences in land use policy?

    While there are obviously other factors involved, denying that urban containment is a big factor in unaffordable housing seriously hurts the credibility of this blog.

    • Peter Nunns

      “denying that urban containment is a big factor in unaffordable housing seriously hurts the credibility of this blog”

      I didn’t say that. Rather, I argued that Demographia had *failed to prove the case* that MULs are the sole factor driving housing unaffordability.

      As for your other points:

      “Step one: character assassination (“pro-sprawl think tank”, snarky comments about Pavletich being a former property developer).”

      I used those terms descriptively, rather than pejoratively. As I have previously written, I think property developers serve a useful function in society: http://transportblog.co.nz/2014/10/07/one-sentence-that-explains-whats-wrong-with-the-discussion-about-intensification/

      “Step two: deny the laws of economics”

      Err, no. I provided a specific reference to Ed Glaeser’s discussion of the Rosen-Roback spatial equilibrium model, which examines the relationship between house prices, incomes, and consumer amenities between cities.

      “Step three: use the “cities with affordable housing are all urban wastelands like Detroit” argument”

      I didn’t simply assert this – I provided some empirical evidence showing a consistent, positive relationship between two alternative measures of quality of life and Demographia’s median multiple. And, as mentioned above, this analysis was motivated by a formal economic model.

      “Step four: ignore all examples that contradict your “unaffordable cities are expensive because they are amazing and everyone wants to live there” thesis.”

      You’re the one that has cherry-picked the example of Liverpool. I made scatterplots that didn’t focus on a single city.

      • Kleefer

        Peter, I “cherry-picked” Liverpool because I didn’t want my comment to be 3000 words long. However, it is far from the only example of a city with little amenity value having high house prices due to urban containment. The same applies to any city in northern England and to most cities in New Zealand (think Hamilton and Palmerston North having multiples of well over 4). The problem with the correlation between amenity and price is that most of the high amenity cities also have strict land use regulation, so it’s a confounding variable. However, the difference between the basket case cities with growth restrictions and the basket case cities without them is obvious. In the UK these cities still have a multiple of 4.5 or higher, whereas in the US they are barely over 2.

        • conan

          Liverpool has no amenity value and is like Palmerston North and Hamilton? Really??

          • Phil Hayward

            In the overall scheme of things that is probably about right. Liverpool relative to London, Palmerston North relative to Auckland. I would also refer to the numerous US cities that have around 1 million people – Indianapolis, Nashville, St Louis, Raleigh, Salt Lake City. In the overall scheme of things, Americans regard these like we regard Palmerston North. But not only are they far more powerhouse-type economies than Palmerston North, they are more powerhouse economies than Liverpool or Auckland. We are kidding ourselves with small-man syndrome thinking we are a duplicate of “London, Liverpool, Manchester, Newcastle” etc or “New York, Boston, Philadelphia, Washington” etc

            And we are burdening ourselves economically and socially with massive excess-cost baggage by doing so – we should be utilising potential land cost advantages to stay competitive in the world, not putting ourselves under a de facto handicap to make things a bit fairer for the nations with scale-economy advantages already!

    • Brendon Harre

      Yes Kleefer I find this sort of article very depressing. I thought Transportblog was edging to the German/Northern Europe approach to transport and urban planning, basically a system that gives people a right to build (up or out) -thus affordable housing and choice about transport mode -PT, walk/bike or automobile. I thought the entrenched positions of the pro-sprawl camp versus the density crowd was being broken down to something more sensible. NZ cannot afford a endless war between these camps that this sort of article engenders. I know Demographia has its flaws but writing opposing flawed articles helps nobody.

      Peter trying to join two unrelated concepts -urban development limits and amenity values such as weather is just bizarre.

      Peter ignores a lot of evidence that is inconvenient. There is plenty of evidence that housing affordability is a factor in migration http://www.latimes.com/business/la-fi-california-migration-20150101-story.html.

      There is also evidence that affordable housing can be used to escape an economic depression as evidenced by the UK in the 1930s (note much of this housing was high density housing based around the tube and rail lines) http://www.voxeu.org/article/escaping-liquidity-traps-lessons-uk-s-1930s-escape.

      • Peter Nunns

        “Peter trying to join two unrelated concepts -urban development limits and amenity values such as weather is just bizarre.”

        I didn’t say any such thing. I pointed out that there was evidence for an alternative explanation of variations in the median multiple between cities that Demographia has completely ignored. And, if you read carefully, you will notice that I made no comments about the relative costs and benefits of loosening the MUL versus enabling more intensification.

        “NZ cannot afford a endless war between these camps that this sort of article engenders.”

        Demographia is welcome to take a look at Rosen-Roback, which is the standard urban economics model of house prices, incomes, and consumer amenities, and develop a more sophisticated analysis. Until then, I can’t take their analysis seriously.

        “Peter ignores a lot of evidence that is inconvenient. There is plenty of evidence that housing affordability is a factor in migration”

        I have previously written about this phenomenon and its macroeconomic consequences: http://transportblog.co.nz/2014/09/09/better-cities-mean-a-wealthier-new-zealand/

    • Auckland was a shithole in the early 90s. It’s got a lot better in the last twenty years.

      • Phil Hayward

        Got better in the last 20 years? A lot of people would disagree with that – the traffic congestion and the ghastly local cramming of “housing” for example.

        • nonsense

          For some people availability of good coffee is more important than traffic decongestion.

          • Yes, we should copy all those cities that have built roads until they had no more congestion. You know the ones.

          • Phil Hayward

            The improving availability of good coffee is a given these days and one of the pleasures of modernity. You have to be a snob or an ideologue to argue that the density of the locale where you get the coffee from is the biggest determinant of its quality. The Lonely Planet guides are talking highly of suburban and rural cafes these days.

    • But some kind of urban containment limit has been in place since the late 1980s if not before:
      http://www.edsconference.com/content/docs/papers/Hill,%20Greg.pdf

      In addition what is now the MUL has been expanded over time so that we are now on the 2010 MUL. It hasn’t stayed frozen.

      If the MUL was the sole contributing factor in increasing the multiples, why did the big increases only come during the 2004-2008 global boom? Prices in the early 2000s were still quite affordable. I would say the availability of cheap credit was a major contributing factor in driving up house prices in that period.

      Also, how can you only focus on the sprawl restrictions and not even mention the density restrictions? What kind of house prices would we have if there were no density controls and instead a “right to build” as Brendon has mentioned above exists in Germany. I think our housing would be a lot more affordable and of course denser.

      The MUL may well be a factor in housing affordability but I think it is your own ideological bias which makes you believe it is the sole reason. I personally would like to see all sprawl and density controls removed and let the best housing type dominate. I personally believe we would see a lot more density and an increased but lesser level of sprawl.

      After all, a search on realestate.co.nz today showed around 420 houses, townhouses and units at less than $400,000 – and yet people are adamant there is no cheap housing available. I suggest it is just housing in the areas they want to buy in that are not available – areas close to the centre with good amenities.

      • “Also, how can you only focus on the sprawl restrictions and not even mention the density restrictions?”

        Great point, thanks.

        • Phil Hayward

          Yes, but only cities with absence of restrictions on sprawl, have affordable high density housing as well as affordable low density housing, if they have an absence of restrictions on high density.

          If you have sprawl with density restrictions, you still have affordability. There may be options of even greater affordability foregone, but the fact remains that trickle-down family homes are incredibly affordable in low density median multiple 3 cities – far more affordable than small condos in the growth contained cities.

          Houston has $200,000 new suburban McMansions; $120,000 condos inside the ring-road; and apartments in the CBD at a rent per square foot that are a fraction of Auckland’s or London’s or Hong Kong’s. There is absolutely no city in the world that has constrained fringe growth and has lower cost “housing” than an affordable city McMansion, no matter how crammed they have made their norm. The median multiple in Hong Kong with its 66,000 people per square km, is 17. Vancouver has been experimenting with upzoning and ramming through permissions over NIMBY opposition yet no apartment, even a single room one, can be found for under $200,000.

          • Kleefer

            Phil is right. You can have affordable housing in a density-restricted city but you can’t in a city where outward growth is restricted, regardless of how much density is allowed.

          • Frank McRae

            “You can have affordable housing in a density-restricted city but you can’t in a city where outward growth is restricted, regardless of how much density is allowed.”

            That’s not true. Most German cities have provided reasonably affordable homes by building up and without sprawling out too far. Affordability requires an abundant supply of dwellings and sprawling low density suburbia is not the only way to achieve that.

          • Brendon Harre

            Frank. Germany does not have Green belts and has a constitutional right to build. Germans are building a lot more houses on a lot more land compared to the UK where urban land supply restrictions are legendary.

            “The EU collects data for the housing markets of its 27 member states. According to their statistics, Germany’s rate of dwellings completions per 1,000 inhabitants was consistently higher than the UK’s. In some years the difference was only 10 per cent, in others more than 110 per cent.

            The differences in completions were also reflected in the land made available for development. The Cologne Institute for Economic Research calculated that last year there were 50 newly developed hectares of land per 100,000 population in Germany but only 15 hectares in the UK.” http://www.macrobusiness.com.au/2011/06/how-germany-achieved-stable-affordable-housing/

          • Frank McRae

            I don’t know enough about German land use policy to know the reason for this but if you look at google earth images of any German city you will see a compact city surrounded by large green spaces that appear to be the result of some kind of green belt protection. They certainly do not have the sprawling suburbs of American and Australasian cities, and the pattern of development has all the marks of carefully planned ex-urban growth.

            I have read the article you linked and have been unable to find any more information on Germany’s ‘right to build’ outside of that circularly linked series of articles all based on something by Oliver Harwitch. Can you point to any more information on the ‘right to build’? Is it a right to build anywhere or is it restricted to a right to build within urban areas?

            I don’t have good evidence on this but based on my experience in Germany and looking at google earth it seems Germany has provided an elastic housing supply within dense cities and without sprawling out into the countryside.

          • To repeat what Frank and Brendon have said above, one of your fundamental flaws (and one with Demographia) is that you pretty much only look at the Anglophone world (which would have to include Singapore and HK).

            I realise this is probably easier language wise for researchers with no foreign language skills, but anyone who has lived in Continental Europe can tell you what you are saying is not a general rule. There are many other ways of developing cities that work to supply affordable housing and delivers a wider variety of housing.

            They mostly revolve around great public transport and cycling facilities and state led development. This is exactly the model that the Wellington rail system was built on and it worked a treat. This was going to be rolled out to Chch and AKL until the 1949 National government put a stop to the whole thing and opted for a sprawling auto dependent model instead. We see the results all around us and it pretty much destroyed our cities as viable urban places. Instead we ended up with a whole lot of pseudo rural cities.
            http://www.thesustainabilitysociety.org.nz/conference/2007/papers/HARRIS-Lost%20City.pdf

            Problem is that it clashes with the current neo-liberal religion in most of the English speaking world and therefore won’t be tried, despite the evidence that it actually works. We need more planning, more variety of housing and more public transport.

          • Frank McRae

            goosoid

            Thanks but you provided a link to the article I already mentioned which is the only place I have seen anything about the ‘right to build’, and it doesn’t provide much detail.

            Looking further at google earth – every major German city has large areas of undeveloped greenfield land within about 10 km of the city centre. I can only conclude one of two things from this:

            1. Enough dense housing has been provided within the city to erode demand for housing on the fringe. or

            2. Some kind of policy is in place protecting that greenfield land from development.

          • Phil Hayward

            If you look at Germany’s urban areas densities in a good data set, around half of them are comparable to or LESS dense than Los Angeles and Auckland. They are certainly nowhere near as dense as the UK’s cities and the simple reason is that they do not deny most people the choice of a bit more living space by rigidly rationing the overall supply of land like the Poms do. I am the first to agree, and I state elsewhere on this thread that US suburban densities are often absurdly low and that is due to perverse incentives that have been avoided in Europe and NZ, especially surrounding School zoning, funding, and what tactics are legally allowed as “exclusionary” devices. Large lot zoning is allowed, so it ends up the default mechanism. Glaeser goes over this in “Triumph of the City”.

            German urban densities, and French urban densities outside of exceptional Paris, and even Dutch densities in some of their more modern cities, and New Zealand urban densities, represent approximately “the space people will choose for themselves when the incentives are about right” and they are not priced out of most options by the market being a “bidding war for space” market. Sadly the latter is what we have allowed urban planners to turn our markets into. I witnessed even Celia Wade-Brown recently telling Iona Pannett to “stop beating up on Wellington” – because it already is an outlier among first world cities its size for its non-car mode shares and is already comparable to all except the very best – all of which have advantages Wellington has never had, like having been there since around the time of the Caesars, having mature truly first-world economic sectors underpinning their local economies, and being located in a part of the globe where there are around 500 million high-income-economy people within trucking and bussing distance. But we ARE beating ourselves up with cargo-cult urban planning, a wealth gouge of the younger generation on housing costs, and dire traffic congestion that has to be a higher cost than the “gain” of the non-car mode share.

          • Phil Hayward

            I believe the reasons for relatively good housing affordability in Germany are multiple and together, they work well. Firstly, the powers of compulsory acquisition are ever-present and used often enough to keep land owners aware of it; there is none of this Anglo property rights hang-up. Secondly, their rural land holdings are small in size while in Anglo countries they tend to be large. A growth plan in Germany might include 1000 rural land owners small holdings while a comparable one here might be handing 4 land owners a nice price-gouge opportunity. Thirdly, the rental property market has a combination of subsidies to landlords that make left-tinged analysts like the MacroBusiness people in Aussie apoplectic with rage, plus rent controls. Fourthly, autobahns and the speeds you can drive on them, radiating away from a city, can literally mean that there is tens of times as much exurban “vent” living options. Imagine if you could get from Auckland to Maungaturoto or from Auckland to Ngaruwhahia in 40 minutes, AND there were equivalent options at all angles of departure from Auckland, not just North and South.

            And of course as Brendon points out, they have consistently built enough houses to stay ahead of demand, which the Poms have not, with obviously dire consequences, and it is the Poms mistakes we are emulating, not the Germans wisdom.

          • Dave B (Wellington)

            Wellington “already is an outlier among first world cities its size for its non-car mode shares and is already comparable to all except the very best”.

            This is probably true. In fact the recent GW Draft Regional Land Transport plan cited rail having a 45% peak-period mode-share of all journeys from the rest of the region into Wellington. This is astonishing tribute to what rail can do, quietly, unobtrusively and (compared to motorways) cheaply.

            But instead of then taking the logical step of expanding rail’s capability tp benefit other areas of the city not currently served, a perverse argument arises that “because Wellington has more non-car provision than other comparable cities, it already has more than its fair share and therefore should get no more. . .”
            In other words, instead of capitalising on what makes Wellington better than many cities, pour vast sums into more highways which will undermine this significant advantage and drag it down to a more ‘run-of-the-mill’ level.

            How idiotic is that?

          • Phil Hayward

            DaveB – bear with me, the explanation is simple. Commuter rail in Wellington already costs around 30 cents per person km of travel on them to subsidise. This is about typical of a city with Wellington’s population and rail mode share. Utilisation of the vehicles is already approximately as low as a car with one driver on board, because they have to start out empty, not fill up until well into their route (so riders at later stops are not left stranded outside an already full train) and then reposition to the start of their route again empty.

            If you were to expand the network to try to match what cars can do, the subsidy cost would certainly rise significantly. And it would be impossible to match what cars can do anyway. We make a major mistake to under-rate the role of the car in enabling much economic activity – the chaining of trips and the origins and destinations that are almost anywhere. If you were to take the travel currently done by car and multiply it by 30 cents per km to reflect the subsidy involved in providing trains instead (and it would certainly be more than $1 rather than a mere 30 cents) you will find that it is some major proportion of regional GDP let alone local and central government tax revenue. The fact is that car travel, for all the talk of how “subsidised” it is, is costing nowhere NEAR this much, because we are already doing it within our GDP and tax levels! Once the highways are built, ongoing costs of maintenance are less than 1 cent per person-km of car travel (trucks and buses need to be charged for most of this) and the upfront capital costs are amortised over near-infinite future travel on them. In contrast, PT subsidies after a century of them, mass up to more dollars, have only a whole lot of travel in the past to show for it, and the need to spend the same over the next century just moving people around! If riders would pay fares that actually covered the costs, it would be different.

            Then there is the reality that rail routes tend to involve concentration of economic land rent where they are, pricing out some percentage of people, whereas adding road network beyond the urban fringe and providing more development out there, lowers economic rent everywhere in the urban area. I don’t know of many examples of cities that manage to “price in” ridership on radial rail systems without direct government operation in the property market that is absent in all Anglo markets. By all means advocate integrated property and commuter rail publicly-owned corporations, I would support you. But it probably would not take on here, in contrast to Japan, Singapore and Hong Kong. Manhattan is probably the only exception, and you need to have Wall Street and global finance and related sectors to have Manhattan, it is cargo cultism to think you can turn your city into Manhattan by subsidising more commuter rail. And even Manhattan’s subway costs around 10 cents per person km in subsidies, which is effectively a subsidy to the owners of property in Manhattan. How socially just is that?

          • Dave B (Wellington)

            Phil, I realise that you are as entrenched in your pro-car view as I am in my pro-PT view, but please avoid making unfounded allegations.
            Who said anything about “expanding the rail network to try to match what cars can do”? As others have already commented, there is a role for the car and there is a role for the train. But what you are advocating is expanding the road network to supplant what the train can do better.

            You rail against low utilisation of trains which I accept spend much of their time either stabled or running less-than fully-loaded, but what is so detrimental about this if they fulfil their function of moving a large number of people when needed? They have earned their subsidy several times over in performing this function; therefore additional running at lesser loadings is a marginal cost only. And you neglect the fact that the effects on the urban-environment of running less-that-full trains unobtrusively on their own right-of-way are far less than the effects of large numbers of single-occupant cars clogging the city streets.

            As far as comparative subsidies for cars and trains are concerned, you are slow to accept that your argument is baseless. In response to your claims in the Dominion Post a few weeks back that car-subsidies are less than 1c per person-km, Todd Littman responded that his research pointed to a figure of more like 44c and plainly stated that you were wrong. And I trust his assessment rather than yours. Your claim that cars run virtually free of subsidy providing only benefit, while good PT just gobbles up money and providing nothing for the future, indicates to me the same deliberately blinkered view to-suit-an-agenda that Demographia displays.

            And if rail routes automatically lead to the excessive concentration of economic land rents thereby pricing lower-income people out, why do suburbs like Naenae and Taita still exist as lower socio-economic housing areas, for which the train provides a valuable service for many lower-income residents? I would have less of a problem with further ‘greenfield’ affordable-housing developments if they were planned along the same lines as these suburbs. I.e. along the rail lines!

            But putting aside generalised arguments about what road or rail can or cannot do in Hong Kong, Manhattan or Houston, what we have in Wellington is an identified and established corridor between the CBD and the Airport. Everyone accepts that its current level of transport-provision is inadequate, but particularly its public-transport connectivity with the rest of the region. To invest heavily in duplication of roading to make already-easy motoring even easier, rather than properly joining up broken public-transport links to the same standard that Naenae and Taita enjoy, is as I said before, idiotic.

            Positive decisions by Wellington to invest in rail-based public transport in the past have enabled it to avoid falling into the same trap that Auckland is now desperately trying to get itself out of. Phil Hayward, your prescription, and that of our short-sighted government and regional council, will assuredly lead us directly into that trap. You will throw away the advantage that has helped make Wellington the special place that it is.

          • stu

            Hi phil. To what extent might cheaper construction prices in the US influence these low prices. I cant imagine building one of those mcmansions here for less than 500k, setting aside land costss

      • Donald Ellis

        Goosoid

        Beware simple searches on real estate web sites. Many properties are actually being auctioned and the listing price is only there for compliance with the listing rules.

        More importantly (and more fun):

        The big hike to look at is the post-2010 hike in Auckland house prices

        I have taken the median house price data from Demographia back to 2005 but applied the CPI deflator to it. What shows up is that the real price of the median Auckland house from 2005 through 2010 fluctuates gently around $400K. There is even a classical lag in median house price around 2006-7 following net migration trends (as a proxy for housing demand).

        Then the pattern changes. Median house prices in Auckland rise rapidly from 2010 onwards. The mechanism for higher prices is easy to understand; by then mortgage rates would have halved from where they were previously so servicing a higher mortgage was possible for many households. What is harder to understand is why people were willing to bid house prices up in the face of *negative* demand. You see, during 2010-11 the country experienced negative net migration. Had we had no visa-based migration at all Auckland’s population would have declined. As it was any increase in population was in the form of babies only.

        But where does that price rise happen? Basically in land prices. The Auckland Council report on Q1Y2 of the Housing Accord states clearly that the median section price has risen to $475K. You can buy an apartment on the harbour on a leasehold basis for an absolute song but you have to pay over $1m for an ex-state house (+land) in Grey Lynn.

        When I look at facts like that I have no doubt in my mind that any developer wanting to build denser housing would just end up paying more and more for the land, They will pay it because they know they can sell a few of these (now very expensive) units just not lots. And that’s pretty much what the last two years building data in Auckland tell us: steady building but no great upsurge since the SHA came in. Just building enough houses for those that can afford $700K+.

        • Phil Hayward

          Exactly, Donald – and in technical economics speak, seeing Peter Nunns is calling for good economics on this subject, that is:

          Inside a growth boundary, upzoning does not lower floor rents, it increases site rents.

          This is what all the evidence shows – even if the mainstream economics profession is a few decades behind with their theories.

        • conan

          “What is harder to understand is why people were willing to bid house prices up in the face of *negative* demand”

          Because they wanted to spend as much money as possible?

          What happened post GFC was supply dried up, so even ‘negative’ demand was still not been supplied fully. You can see the effect on page 2 of this report

          https://www.reinz.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=88AD8A17-18FE-7E88-4233-AC5AC04E7BAC&siteName=Reinz

          • Donald Ellis

            Sorry I am guilty of being a bit too clever. You are absolutely right that there is a chronic shortfall of supply of residential housing in Auckland and Auckland Council’s ‘Housing Action Plan’ (Dec 2012) is clear about that, plumping for a deficit of 20,000 dwellings at that time. And that deficit did not build to that level after 2010. It has been building for some time.

            The point I was trying to make was in response to the basic argument of this post: house prices are high in Auckland because its a great city and every one wants to live there. The data show that house prices rose when people were leaving in droves which kind of suggests that the simple explanation given by Len Brown and Peter Nunns is bunkum.

            The big question to ask is how come Auckland is not responding to the sharp rise in prices by churning out lots of new dwellings? There are plenty of cities around the world (and at least one country, Germany) that meet market demand without sharp rises in house prices. And these places have higher growth rates – i.e. are *more popular* – than Auckland yet their median house prices are about half of Auckland’s.

            We are into the 27th month of Auckland Council’s Housing Action Plan and the 16th month of the Housing Accord and yet there is no sign of any significant uptick in dwelling supply. How come?

          • Donald@5:39. Interesting question indeed. Why is supply not increasing when significantly increased consents are being issued through the SHA? Could it be that other forces are just as influential?

            Peter’s main point is that there is more than just Planning that explains housing costs. I think that still stands, and the observation that Demographia ignore other (important) market factors is entirely valid.

          • Off hand, I can think of a number of factors where Auckland stands out:

            – Fletchers and Carters have a duopoly on building materials. There was a piece on Radio NZ about someone who imported all his materials from Europe and saved a big mint on building his house.
            Speculators – and not just the ones from overseas – crowding out those who do actually want to buy a roof over their heads. This includes land-banking.
            – Auckland handles most of NZ’s long haul flights due to economy of scale and infrastructure issues, and limitations of current aerospace technology.
            – Auckland’s isthmus is a natural constraint on its topography, and it also means there’s a lot of coastal area which drives up values.
            – Bare-faced snobbery dressed up as ‘community character’ and ‘property rights’. The likes of David Seymour and Dick Quax want to see the back of the RMA, but any mention of ‘infill’ or ‘apartments’ will have them invoking it when it suits them.

          • @Kumara. Yup.

            And the rest. I’m thinking of how finance supply, the elephant in the room, clearly drives many of the “overpriced” city issues. The world is apparently awash with lots of money looking for a “safe” home, and Lo! it gravitates in a more focussed way to the highest amenity cities, where the perception of values, safety and returns (for better or worse) are located. Every time Demographia et al focus solely on the constraint of land supply they do the financiers and money supply sources a favour and let them off the hook….. But then, hey, that suits their motives after all, so no surprise there.

          • Donald Ellis

            @TimR – but AC is NOT consenting lots of new building through the Housing Accord. Read their reports, ignore the puffery about pre-application discussions and look at how many building consents are being issued. Numbers are only slowly rising since the depths of the GFC and the data do not suggest that the Housing Accord has had any impact at all.

            @TimR and @Kumara Republic. I totally agree that land-banking and speculation are the activities that are driving up house prices. But take the time one day to walk yourselves through the process by which that happens. Speculators want their capital back as well as their profits. Unlike, say, listed securities, property “investment” is completely unregulated so the speculator is on their own. The way to reduce the risk of such speculation is to only operate in markets where there is a guaranteed excess of demand over supply. The only legal way that can happen is when the regulator is the one restricting supply. Auckland Council handily have a long history of under-supplying development land and have made public commitments to continue restricting land availability via the Unitary Plan. Easy-peasy. Auckland is the speculator and rent-seekers paradise. But, and its a big ‘but’, those speculators cannot force prices up by themselves. They can find where the top of the market is more quickly than if they were kept out of the market but the prices would have gone there anyway.

            The only way to stop silliness in land pricing is to turn the land purchase part into a buyers market rather than the sellers market it currently is. There is a subtlety about the policy prescription of allowing unfettered fringe development that is lost on most people. It’s definitely not that fringe development ad infinitum is desirable in and of itself it is the *threat* of fringe development. Current landowners need to know that an offer of, say, 50% above the current value of some undeveloped land (minus the value of planning permissions) is generous and unlikely to be repeated soon because the developer will just keep walking down driveways until their offer is accepted. The landowner just inside the current MUL who is holding out for a 1,000% premium needs to know that the developer is going to bypass him and go the next property a little further out. So they do accept the 50% premium, the sections are reasonably priced and, what’s more, the land that the planners thought could be developed is developed but sooner rather than later.

            Under these conditions there is no such thing as land-banking or speculation in housing.

    • As said above, the reference to single cities, and Liverpool in particular is highly selective.

      In answer to your question, I suggest there are many possible reasons Liverpool prices rose while population was “lost”. Obvious ones are loss due to WWII bombing, construction of several New Towns and associated motorway links nearby under central government direction, long-term transition of the economy from low-earning logistics and manufacture to higher value services, the emergence of several major education institutes that add 50,000 to the city’s population (over 10%), reducing household sizes.

      Returning to Peter’s theme, Liverpool is a great place to live with loads of amenity depending how you look at it. Some of my family roots are there, and the majority of my immediate family still live nearby, but I’m happy to be biased in this respect. Strong culture and community, easy access to the northern belt of cities for employment, legacy architecture and infrastructure from being the UK’s largest port way back when, easy access to several outstanding countryside holiday areas (North Wales, Pennines, Welsh Borders, Lake District), great architecture, good transport links including fast rail access and the best-run + performing metro rail in the UK. It’s not all rose-tinted, but it has a heck of a lot going for it that you chose not to mention.

      I think you should references your statistics sources, to substantiate your claims, and clarify exactly what you are referencing as a geographic area. Looking at Merseyside as a metropolitan area shows a different picture to the one you claim- growing population, reflecting some of the dispersal dynamics I highlight above.

      http://www.visionofbritain.org.uk/unit/10056937/cube/TOT_POP

      Interestingly, analysing the various spatial areas and reports on the website above (e.g. comparing the old smaller boroughs as part of the larger current Merseyside boundaries) suggests Liverpool did of course spread out post-war – the ‘old city’ population declines, the overall metro area falls slightly but not by 50%. Given that picture, I am at a loss to see where the anti-density arguments work out. Post-war Liverpool had all the motorway, satellite town and suburban developments that get touted as the anti-density solution to Auckland’s “problems”, but they still saw climbing house price to income ratios. What gives?

  • Wendell Cox’s links with the Heritage Foundation and the Heartland Institute (known to be financed by Big Tobacco, Big Oil & the Koch Bros) are well documented. Unfortunately that fact goes un-noticed by local media.

    • Kleefer

      OMG Koch brothers! Of course, no big business interests have anything to gain from ratcheting up the price of urban land, right? Right?

      • Phil Hayward

        Not even the big finance sector and the derivatives traders and all the other layers of parasites on urban land rent either, eh? One of the most insightful books I have read is “The Secret Life of Real Estate and Banking” by Phillip J. Anderson (2009, Shepheard-Walwyn (Publishers) Ltd)

        P382 “…Banks do not lend money – they create credit……The process itself is actually desirable…..Fractional reserve banking is overwhelmingly beneficial to society. The process is compromised only by credit created on the enclosed rental value of the land. Banks own the earth not because they create credit but because we permit them to mortgage it….

        “…For example, in the downturn into 2010, governments around the world will be taking strenuous action to stop land prices from declining. Mortgage relief; debtor relief; shared equity schemes; government building more “affordable” homes; tax handouts; stamp duty offsets and reductions; bank bailouts; printing money – anything so long as that damned land price stops collapsing. These schemes are necessary only because land price was permitted to capitalise in the first place…”

  • Phil Hayward

    Peter Nunns – the whole economics profession is greatly lagging in their analysis of the way urban land prices are derived. I raise my concerns at length here:

    http://www.voxeu.org/comment/105244#comment-105244

    It is not merely a question of “amenity” – it is a question whether housing, a basic human right, is something for which people are forced to pay “the maximum they can stand”, or whether, like most goods and services these days, “supply” in a truly competitive market provides the product at the cost of resources plus cost of provision plus a modest profit.

    The difference between monopoly rent and differential rent was far better understood back when economists like Marx and George and Marshall were making their famous arguments.

    Furthermore, if supply is not working as it is capable of to stabilise prices, a speculative element enters into it, so that urban land markets act like gold markets. Actual market allocation of use of land becomes nearly irrelevant.

    These extractive and speculative effects work in every attribute of land – where differential rents could be expected to apply, that is, the small premium in value due to the advantage of a particular location in views, or local employment, or schools, or better transport access, or whatever, instead is “bidded up” by speculators and the few who are able to afford to be competing for the actual location as a place of residence for themselves.

    The median multiple actually obscures the very much vaster differences in per-square-foot land prices between affordable and unaffordable markets. It is not merely a question of Liverpool having a median multiple of 7.5 “therefore it is a far nicer place to live” than Nashville with a median multiple of 3 – what needs to be explained is why the price of land is 200 times higher in Liverpool and people are having to pack in like sardines to be able to afford any space to speak of for themselves – especially at the bottom end of the income distribution.

    And the respective population trends of Nashville and Liverpool for the past few decades seem to indicate that Liverpool is really not that desirable!

  • Phil Hayward

    Peter Nunns – did I include you among the people to whom I circulated an important analytical modeling paper that is pure genius in the way it accurately models “monopolistically derived” urban land rents, including those that should be expected to be “differential”? The paper is Dimitris Emmanuel: “Monopolistic Competition and the Myth of the Law of Differential Rent” (1985).

    We need to be asking, besides “who benefits from sprawl” and therefore who is funding activism against growth containment, who benefits from urban land prices and mortgage debt in land being tens or hundreds of times higher than otherwise. And who might be funding all the advocacy in favour of growth containment, when any economist with half a brain knows that targeted land taxes, road pricing, taxing energy, and correctly pricing infrastructure use will work far more effectively and not create all these wealth transfers and social injustices.

  • Phil Hayward

    Another challenge I like to pose in response to the “amenity does it” argument, along with how come Liverpool has lost half its population in 60 years yet has a median multiple of 7.5 and land prices around 200 times higher than an affordable US city:

    How come Phoenix AZ was always said to be another ghastly sprawlsville in the desert where no-one wants to live, “like Houston”, so of course it always had cheap land and housing – yet from 2002 to 2006 its median multiple went from 3 to 6.6 breaking pretty much all previous records for house price inflation? Did planning magicians suddenly create amazing amenity that people were prepared to pay through the nose for? Or did something happen with land supply to flip the whole market from “differential rent” to monopolistically derived/extractive/speculative?

  • mfwic

    I have reread this post and I think you are spot on with most of it. Too many people conflate costs with benefits. It is lazy economics but we see it all the time. I don’t mind paying more if I get more in return. I would far rather live in an expensive city and enjoy everything that good about the place that caused people to bid up prices in the first place. However that is different to a city being expensive because regulation squeezed up prices. The argument you advance here also applies to areas within a city. You cant say people pay more to live in outer suburbs (when you add in transport costs) so suburbs are bad. People pay more because they get higher levels of utility.

    • Brendon Harre

      There is a lot of cargo cult thinking about amenities. Eric Crampton discusses how planners and in the following example Treasury who advised Brownlee and CERA to buy up 14 hectares of CBD land and take it off the market to prevent a fall in property prices. Economists seem to be assuming that high property prices equals high amenity value therefor to improve amenities all one has to do is manipulate the market in such a way so that prices rise. Even when there is more obvious ways to improve amenities -like actually rebuilding earthquake damaged stuff…..

      “The government rightly took a lot of criticism for its initial attempts to artificially restrict downtown land supply to force a compact city form and encourage higher-valued development. The planners here exhibited basic cargo-cult thinking: because successful cities have high downtown property prices, they thought they could make Christchurch successful by forcing prices to be high. Well, that doesn’t work: high prices in successful cities reflect that people get a lot of value from being located in great downtowns, not the other way around.” http://www.nbr.co.nz/Christchurch

    • “You cant say people pay more to live in outer suburbs (when you add in transport costs) so suburbs are bad. People pay more because they get higher levels of utility.” – True. But the point is that not everyone has the same idea of “utility”.

      You might pay more for green space and low density. I would pay more for good cycling/PT infrastructure and dense busy neighbourhoods close to a beach.

      By restricting density, we are just as effectively influencing the structure of a city as we are by restricting sprawl.

      That is the big problem I have Phil Hayward’s approach. He sees sprawl as the panacea to all our housing woes but lots of people would hate to live in a city like Houston, Atlanta or Phoenix and it won’t alone deliver all the housing types needed.

      I have no problem removing the MUL as long as that is matched with widespread lifting of density restrictions. Then we will see what the magical market really wants. Considering the huge demand for dense housing in central areas of Auckland right now, I think it would be a pretty balanced growth in sprawl and density, which is a good thing.

      Plus even those pro-sprawl cities are starting to see the limits to their horizontal growth. They are freeing up density rules to encourage more density and investing in cycling and light rail. How could that be if the sprawl model is such an ideal solution to a city’s problems?
      http://caa.org.nz/post-sprawl-cycling/

      • Phil Hayward

        Goosoid, you very much mis-read me. I am advocating “sprawl” – really “dispersion” – as the essential ingredient to resolving housing woes, but I am most definitely not defending the overdoing of low density mandates and the restricting of heights. The problem is that there is some degree of actual demand for a certain local ambience and hence some privately contrived protections are likely to evolve. We need to stop beating up on ourselves as if we are Boston or Atlanta with their 700 people per square km. We are actually pretty comparable to Amsterdam, Brussels, Lille, Lyon, and the Ruhr Valley. I would say that in most European countries and in NZ during the phase of automobile based growth, we got it about right. We hardly have much 1/4 acre stuff, that always was a “dream” for most, and there is none of it left now after decades of infill. What reduces the density of US cities so much, is absurdities like an AVERAGE section size of 2/3 of an acre.

        I think that left to themselves with land priced fairly, most Kiwis will be perfectly happy with 1/8 of an acre or less; and with land priced fairly and higher density allowed where it should be we should also see, for those who want the choice, townhouses near the CBD for $200,000 instead of $1,000,000. Also CBD apartments at 50% or more below the current rentals per square foot. Who is all about “increasing choices”: me or the urban land racketeers? The resulting prices actually matter for choices. People who ignore this, I term “Marie Antoinette urban planners”.

      • Phil Hayward

        Bear in mind that “green space and low density” commands around $10,000 per acre outside the growth boundary! It is one “amenity” that is almost as costless as fresh air and sunshine. Anticipating the inevitable arguments that development cost “subsidies” and externalities are too severe if allowed, I would say “price the infrastructure and tax the externalities” and let all the actors in the market work out their own solutions. It is certain that the infrastructure pricing and the taxes on externalities would cost the younger generation getting into housing a LOT less than the status quo, which is like a many times higher tax levied by the property-rentier and finance classes. If we had no growth boundaries and we had low house prices, but we socked every young person a tax with a present value of $250,000 when they turned 25 “to pay for infrastructure”, there would be a public outcry at the injustice. Well, the status quo is every bit as bad, and it is not a tax collected by government and it is not a source of revenue for infrastructure!

        • Agreed as long as by “growth boundaries” you mean boundaries on density as well as sprawl.

          • Phil Hayward

            Yes, I don’t call them that, but I am constantly talking about low density mandates and height limits and how misguided they are to be applied everywhere indiscriminately like they are in Boston. I am merely trying to point out that unless you have a low, flat urban land rent curve due to freedom to disperse, the urban land market will be distorted to the effect that sites don’t actually GET developed even to the upzoned densities that have been passed. I had an interesting meeting a few weeks ago with an elderly planning expert from the UK who was out here on holiday and looked me up. He has seen it all over his lifetime and wanted an explanation – why does it never work, to calculate population growth, and upzone just the right amount so that “enough” new housing units will be provided? Why is there always a shortfall, and a housing crisis of affordability, social injustice and overcrowding?

            This problem is at the level of sites, their owners, and the incentives they have. If your city’s economy is evolving and growing in ways in which the market indicates that agglomeration economies are available to be captured by adding floor space, businesses and workers somewhere, then systemically low land and site prices are a powerful enabler of rapid intensification. Site owners will make more money (honestly, what is more) by adding floors and hence adding operating income. On the other hand, site owners in a city with a growth boundary are making money for nothing anyway and do not need to actually do anything, add floors or anything; to anticipate further gains. The value of their site is going up, and up, and up – and all they need to do is hang onto it. If it is upzoned, its value immediately increases to represent the development potential. Actually developing it is a mug’s game. The poor muggins developer, if one comes along, has to pay the entire capitalised value of the development potential, upfront, and carry the finance costs of it through the development, to get the site at all. The vendor runs off with the value; the operator of the new tall building will get to scratch out hopefully just enough return from tenants to cover the costs of the site and the new building.

            This is why you can have a screaming shortage of homes, as in London, accompanied by accusations of “height restrictions” being responsible for the shortage; yet thousands of sites with permission to be redeveloped to greater heights, remaining undeveloped! This is why you can have a glorious “Ten Year Plan” with perfectly matched demographic projections and “housing development” potential, and after 10 years, have >50% too few homes actually built.

            Hugh Pavletich has been right all along – regulatory distortions of urban land markets, “bludgeon the development sector back to the Stone Age”.

            The Poms have been learning, and learning, and learning this the hard way, for decades. They still have not learnt. Will NZ not learn this, also, for the next few decades?

  • Phil – your faith in cars to effectively serve urban areas is very disappointing and in my opinion misguided.

    Bicycles and public transport are a far better way to provide transportation around cities. Having lived in many cities around Australasia, the UK and Europe, and travelling in them every day to work and play, I can never be convinced that a car can ever provide the majority of its citizens with the ease of travel that bicycle and PT can.

    That is not in any way to say that cars have no place in a modern city. But if every person in the city expects to make all their travel by car, you quickly end up with an ineffective and unhealthy transportation system that serves no one well (e.g. Auckland).

    Many of the countries in Europe with high cycling/PT mode shares also have high car ownership, so the two are not mutually exclusive. The difference is whether people feel they have a choice in how they travel and can choose their mode of transportation based on the journey.

    A car is just a travel tool and like any tool it has strengths and weaknesses. It is weaker and weaker as a tool the more urban an area gets. They work great in low density rural areas but are hopeless at even medium density. Sometimes using a car to travel in a city is like using a hammer to put in a screw but right now many people have no choice but to use the wrong tool for the job.

    On top of that, in relation to Auckland, our long thin shape is ideal for rail based PT but makes supplying sufficient high capacity roads difficult. This is in contrast to cities like Houston and Atlanta that can sprawl out on huge plains – though of course even now those cities are seeing the limits of that mono-modal transportation system and doing their best to supply PT and cycling options.

    • Phil Hayward

      That is why I prefer to use the term “automobility”. In most developing nation cities, motor scooters are the proxy for automobility. That is, a means of transport that takes the individual directly from anywhere, to anywhere, by whatever route the individual thinks best. I am actually a hard-core cycling nut myself, I did not own a car until the age of 27 and until then I would have ridden around 10,000 kms per year for absolutely all travel. But firstly I got fibromyalgia which greatly limited me physically, and other life requirements also meant a car was necessary. I have never had the slightest desire to be restricted to PT routes and times and a careful choice of car is beggar-all more expensive than PT fares. Besides referring to absurd overkill in low density in US cities, I say that many cars are absurd overkill – I am thinking of their role in the economy, not as status symbols and expressions of ego. If some economies evolve from motor scooters to comfortable electric tricycles the economic pragmatist in me will be satisfied. The potential cost of an automobility-style system beats mass PT hands down, even if the automobility-style system was based on cars of up to 1.5 litre engines. Technology can do a lot more than that. I see fixation on mass fixed-route PT as a failure of thinking that lacks systems analysis capabilities. People who want a new subway and are prepared to ban ride-sharing services – which are the no-brainer next stage of “public transport” on the way to something with even greater flexibility and utilisation rates – obviously have some deeply ideological make-up that is nothing to do with objective goals like social justice and enviro mitigation. They might genuinely THINK fixed route mass PT is the best of the best, but they are simply totally wrong about this.

      It is misguided to regard a city like Houston as “illustrating the limits”, as its congestion and trip to work times are about right in the middle of international data sets. This in the face of growth of something like 20% per decade! It is Auckland and Wellington that are outliers in the congestion data, far worse than Los Angeles, which is worse than Houston, and for the reason that it has significantly less lane-miles per capita, close to the bottom in US city data. Imagine any hip-urbanist city growing by 20% in a decade and still having congestion in the middle range of the international data?

      Atlanta’s problem is poor layout of its network – it needs ringroads like Houston has.

      • I see PT as complementary to ride-sharing services, cycling and suchlike. People deserve geniune options, and a private car will remain worthwhile for some of us even as the relative cost rises. But you can only fit so many cars and trucks per hour on a road and separated PT offers unparalleled capacity. Horses for courses.

      • “Atlanta’s problem is poor layout of its network – it needs ringroads like Houston has.”

        Tell that to the M25, Birmingham’s now-demolished concrete collar, and plenty of other ring-road systems that have demonstrated their propensity to grind to a halt regularly.

        I think what you meant to say was that it needs a decent grid of connections. Dendritic networks are one of the self-defeating aspects of post-war vehicle-based growth planning.

      • All I really see in that answer is “I don’t like using PT”.

        That isn’t really an argument. This is about what is best for the city, not for the individual. If we catered for every individuals personal preferences that would obviously be impossible.

        If you don’t like using the systems that make cities work well, then maybe big cities aren’t the place for you. Perhaps a small provincial town would suit you better.

        I personally enjoy big cities and have no problem using the systems, including transportation, provided to make it easier to live there. That does place some limitations on my lifestyle but so would living in a small town, so you take the good with the bad. What we have in Auckland are people who want to have all the benefits of a big city but the lifestyle of a small town – that is just not workable.

        • DAS

          Ah, the best for common good approach, which really means it’s also OK for the commons to subsidize those that ‘do like using PT.’ After all taking the common threat of this article, higher prices indicate better amenity, and therefore since you like using PT you should happily pay more for using it. How about we raise the price of PT, like we do with land, to extract as much as you are willing to bear. Of course we all know that the pricing of PT is not that elastic, ie no one likes it that much or at least to a level to willing to pay for its true cost. But if housing (all forms) was stripped of all its waste, the money saved would more than compensate for having to pay the true cost of all forms of transport. All the present system does is charge us far more than we need to pay for items like housing (which the benefits go to a very small % of society) which leaves many people unable to travel on certain forms of transport unless it is subsidized.

          • Dave B (Wellington)

            Don’t forget that local road provision is heavily subsidised from rates. Therefore car-travel is indirectly subsidised. And not only this, there are many other hidden subsidies also.
            If car-users were made to bear the full cost of this mode of transport it would have a significant effect on the amount of car-use undertaken, particularly the many trivial trips made which many would see as not justifying the user-charge that would be payable.
            The subsidisation of car-travel by various means greatly distorts the transport market. It artificially boosts traffic volumes, then leads to a false justification for more roading-capacity to accommodate this artificially-boosted traffic. Non-astute transport decision-makers have allowed the transport capital budget to be all-but captured by the roads-lobby, thus ensuring that choice of transport modes is further skewed in favour of cars, and thus compounding the distortion.
            Slowly, the devolped world is waking up to the rip-off that has occurred by this process, and forward-thinking administrations are intervening to right the balance in favour of good public transport, restored social-equity, mobility-choice, liveability and sustainability. For too long the car-lobby has sold us a lie and this lie is now being exposed. It just may take a while longer to filter through the 1960’s mindset of many New Zealanders.

          • DAS

            Yes you are right about rates subsidizing roading and so is Phil about it and others subsiding PT. but of course the roads are not just used for cars, but also cyclists, buses, taxis, trucks etc. And prior to all this they were for horses, carts, and shanks pony. Subsiding is great, using other peoples money, until you run out of it that is.

            What I am saying is stop the subsidising of all forms and let those that use it pay. And those that can afford to pay more, have to pay more. You mention the link to the airport. Good example, charge like airlines do. They charge by demand and benefits offered. For red eye specials to first class and bubbly.

            But the main point of my argument is,that if as the article says, high prices equal high amenity, and PT is a valuable amenity, then raise prices to what the market will bear, just like happens with real estate prices.

            With my real point being the high cost of housing in Auckland has very little to do with the ‘amenity’ value of Auckland, just as the low price of PT fares does not mean that it has a low amenity value for those that use it.

          • What is your basis for assuming that all subsidy is bad? I know it’s an easy line to take, who wants to pay taxes, and especially who wants to pay taxes for someone else’s benefit, where ones own is more indirect? But do you understand the theoretical underpinnings of society getting together to pay for things? Do you grasp the power of economies of scale, of the efficiencies of coordinated plans and actions? Have you got a rigorous analysis that shows if we dismantle all coordinated provision of infrastructure and services that society would function more efficiently, more equitably, be happier? What? Do you know the histories of Roads Boards, Power Boards, Hospital Boards, why our predecessors set them up, what they built?

            Or is it, like most who rail against subsidies and taxes, there is a huge unthought-through assumption that all the benefits of society will all just roll on without having to pay for it, that somehow the collective actions of our forebears can be drawn down on forever at no on going cost? For example this is the idea that roads, once built never cost a thing again, and nothing could be further from the truth. They cost a lot to maintain [which, incidentally is one reason we should duplicate them only after a lot of thought].

            Libertarianism tends to flourish in societies that are benefitting from previous generations collective investments. It’s the philosophy of the ungrateful and unthinking child. A wreckers charter.

            For example: PT fares are indeed low for one group, extremely low for the prime beneficiaries; road users. Without peak PT users, no driver in Auckland would be able to budge on the roads at peak. It is an interconnected system.

          • conan

            Another way to put what Patrick is saying is to ask ‘what would happen if we had no public transport and the 240,000 daily journeys currently undertaken on PT ended up being taken in SOV? How much would that cost?

  • The price to income ratio is a useful measure of *housing affordability*. IMO the blogger hasn’t really posted a decent criticism at all. Would the blogger like to post his own proposed measure of housing affordability?

    Yes, amenities matter in determining house prices. But it is still useful to know exactly how much you will be paying for them in a given city. And since you usually cannot take your income with you when choosing where to live, a ratio of property prices to incomes seems fairly useful.

    The property-income ratio has climbed from 4 to around 8 in Auckland: Does this reflect a huge increase in amenities in Auckland? Are the restaurants and theaters really that much better now? Enough to compensate for the crowded beaches and clogged roads?

    • Nick R

      The blogger hasn’t critiqued that measure at all, why would he have to propose an alternative? What Peter is critiquing is how demographia interprets the findings, I.e. Their I plicit assumption that all cities should have the same ratio regardless of other factors (or rather demographia ignoring that amenity has a large impact on how much people are willing to pay for housing).

      The increase in amenity in Auckland has been obvious, how ever it might be more a case of prices catching up with amenity we already had.

Leave a Reply