Over at the New Geography, Joel Kotkin has an essay up on how the UK’s neglect of white poverty, and the lessons it may entail for the US. Particularly haunting:
Rising housing prices, driven in part by “green” restrictions on new suburban developments, have further depressed the prospects for upward mobility. The gap between the average London house and the ability of a Londoner to afford it now stands among the highest in the advanced world. Indeed, according to the most recent survey by demographia.com, it takes nearly 7.1 years at the median income to afford a median family home in greater London. Prices in the inner-ring communities often are even higher. According to estimates by the Centre for Social Justice, unaffordability for first-time London home buyers doubled between 1997 and 2007. This has led to a surge in waiting lists for “social housing”; soon there are expected by to be some 2 million households–5 million people–on the waiting list for such housing.
American Smart Growth researchers tell me that restrictions on the suburbs do not reduce the supply of housing, and thus do not raise house prices. Instead, housing gets supplied through more density and smaller units; the land consumption goes down, the housing supply goes up nonetheless; creative financing and better mortgage instruments enable home ownership among those whose finances would be strained by having a car or a house.
This is hard for me to believe past a certain level of metropolitan population.
First off, if banks or anybody else with money to lend actually believed in the location efficient mortgage, why haven’t they been all over LEMs by now? Every other riff on mortgage innovations that promised profits–no matter how ill-advised– took off like wildfire over the past 10 years. In an LEM-thriving world, people would be trying to cook their “I’m so close to transit score” the way they’d like to cook their credit scores. Yet for the most part, people with cars have more money than people who don’t. I have yet to see research that really convinces me that, expensive though cars are, they really aren’t better at enabling higher long-term returns to wealth for individuals than transit is, cheaper though it is. Saving yourself the on-average $8000 a year cost by not having car is financially dumb (for individuals) if the car would add more than $8000 to your productivity, including the marginal increase in the number of consumption and production possibilities you get and can trade against each other.
The endogeneity problems here are daunting. Do people have cars because as they get wealthy they buy more expensive things, or do people with cars see real returns in wealth from the spatial expansion of consumption and production opportunities made possible, unfortunately, with cars? Chances are, both, and it’s hard to suss those relationships out empirically.
Looking at the price differentials between cities, it seems pretty clear that high land values prompt densities through markets and politics, along with a political impulse to place restrictions on growth. Once some level of population gets surpassed, it has to put upward pressures on prices in a way that outpaces wage growth; island city-states are a good example.
How do we break open the cycle between affordability and growth controls once you reach 10 million in population, give all that entails for the land needed for both housing and economic production?