Thursday, March 13, 2008
When one hasn’t visited a more traditional town in Europe for a while, the distinctions in land use seem remarkable. I was in the beautiful city of Granada, Spain, last week, where I was struck both by the increasing homogeneity of the globalized world, in aspects such as entertainment and attire, but also by the lingering differences in residential land use. Arriving by bus, the transition from rural area to city is of course far more abrupt than it would be heading towards a sprawling U.S. city of more than a quarter-million people. Walking from the bus station in the outer city, obviously built up only in the past 50 years, the two mile-walk to the center of town revealed a nearly unrelieved landscape of apartment buildings, with few parking lots, and no single-family houses. The city bus system is extensive, efficient, and busy. While of course there are many cars and motorcycles, the central city alleys are not clogged with vehicles as they might be in a bigger city, in which more travel must be accomplished by motor. And on Saturday afternoon, the central shopping street is alive with thousands of local shoppers, who travel downtown, unlike the phenomenon in the United States of shoppers driving out the latest exurban shopping mall.
An American such as me marvels at the sense of intimacy in such a city. Wandering around an originally Arab section called the Albaicn, where immaculately maintained whitewashed homes are both on top of each other and built into the steep south-facing hillside (in the bright early Spring sun, it was the most picturesque neighborhood I have even seen), one begins to lament the fact that most American cities lack anything like this kind of walkability and social structure. But after a couple of hours in the Albaicin, one longs for some large open space, and one questions the at-first-so-enticing lifestyle in the flower-bedecked but otherwise dark and small residences.
And on the bus heading out of town, I saw the future (?) -– a few miles removed from the city, there was a bona fide housing development. It was a well-defined and insular community of pleasant but not grand townhouses, complete with small balconies, tiled roofs, and parallel parking directly in front of each house on the newly paved streets. The scene easily could have been in Riverside County, California, or the outskirts of Phoenix, or in a new Broward County, Florida, development. Only the small sizes of the cars –- gasoline costs more than 6 dollars a gallon –- returned the mind back to Spain. But I couldn’t help thinking: Is this the future of European land use?
Monday, March 10, 2008
Are restrictive land use laws the real culprit in the housing bubble dilemma? Yes, according to Randall O’Toole of the libertarian-minded Cato Institute. He argues that laws inflated the price of housing –- mostly by restricting the supply –- which then caused borrowers to have to seek out risky loans in order to pay for them, and which many now cannot pay back. He cites the research by Harvard’s Edward Glaeser and others that concluded that land use laws were the major culprit in the recent housing price inflation. This effect is most prominent along the coasts, where there typically are more progressive-minded laws to protect “open space,” etc.
I have written favorably a number of times about the studies by Glaeser, et al. But the housing bust makes me pause. A number of questions remain unanswered in my mind. If restrictive development laws were the dominant factor in causing prices to rise, why did we experience great inflation only from 1995-2005, and not before? If tough development laws are the major factor in causing high prices, why do we now have a bust (in the Tampa Bay area where I live, for example, prices are falling)? And how does this supply-oriented theory explain examples such as Las Vegas, where prices rose as fast as any place (and are now falling) and which is not famous for its restrictive laws (just the opposite, of course).
In sum, I think that we should concede that greatly increased demand -- facilitated by easier credit than we were accustomed to –- played large role in the housing bust and boom. This is not to say that restrictive land use laws don’t cause prices to rise. A University of Washington economist argues that they add an additional $200,000 to the price of a typical home in the Seattle area (presumably as opposed a completely free market, which would of course place subdivisions on top of Mt. Rainier). My speculation (the kind in the mind, not the kind with cash) is that a combination of both tough development laws and easy credit together explains what has happened …