Want Forward Thinkers On The Economy? Turn To Environmentalists…

Wendell Cox’s failed argument for why regulations against suburban sprawl created a false housing bubble.

I’ll have to admit, at first Cox’s argument looks convincing, the basic thesis being that suburban sprawl regulations created a false scarcity of land around metropolitan areas and rapid home price increases, contributing to the housing bubble. The people who forced these regulations were, for the most part, farmers tired of being taxed off of their home as suburban development encroachment blew their property taxes through the roof; environmentalists fighting suburban advancement into rural areas and small communities wishing to maintain small town culture in the face of metropolitan encroachment.

The faults in his argument, however, lie in his own argument.

He cites the fastest growing cities, Atlanta, Fort-Worth & Houston in saying:

from 2000 to 2007, 2,550,000 million people (domestic migrants) left the more restrictive metropolitan markets for elsewhere in the country. That pretty well dismisses the idea that demand was the primary cause of the price escalation.

Demand, in and of itself, does not increase price. But, when higher demand is experienced in an environment of limited supply, price increases occur. Where there were strong land use restrictions, there were strongly escalating house prices.

This, in and of itself, isn’t logical. If an increase in demand doesn’t exist, and regulations against (sprawl) exist, but none against current housing areas, then the curve remains constant, as both supply and demand have remained the same. The land area available to development has remained the same.

So there has to have been something else fueling suburban sprawl.

I’ll point to a city I’m more familiar with in order to make my case. Since 1970 the population of the Rochester Metropolitan Area has remained basically the same. Some years have seen 1% increases or decreases in growth, but since 1970 the metropolitan area has never seen even a 2% change in population in either direction. The city though, has seen dramatic decreases in population since 1970, and the outlying burrough’s and rural communities have seen dramatic increases in population, i.e. suburban sprawl as city-dwellers moved to suburban communities.

It’s no secret what happened here, the white flight which characterized so many American industrial cities hit Rochester hard in 1970, and many fled the inner city as it began to deteriorate, leaving only the poor in their wake. The dramatic changes in the metropolitan area can be scene via these two maps, including the more than 50% expansion of the metropolitan area as a result of sprawl.

Densely populated urban dwellers exploded out into the countryside filling up a land area much larger than they had previously required in the city, but as I said, there were no corresponding increases in population, all is attributable to migration.

So there was a false demand created by well, two things; the wide availability of the American automobile and the cheap fuel to run it and governmental incentives making new home ownership, versus old home ownership, renting, leasing, etc… cheaper.

I don’t think I have to spend to much time explaining how hard hit suburban commuters are by high gas prices, but the reality is that they wouldn’t have this problem had the federal government and metropolitan areas invested in their inner cities instead of subsidizing suburban home ownership in the first place. Cheap gas prices also subsidized those moves out of the city.

Fannie and Freddie, which have been around since the 70’s, subsidize home mortgages and the IRS allows you to deduct your mortgage interest, but not rent or lease expenses. Low interest rates from the Fed also made home ownership cheap, and while many like to blame the popping of the housing bubble on the last two administrations the reality is that the American government has obsessed with helping people obtain the American dream since WWII.

That dream, of course, has now been slammed back down to reality, the false demand created by subsidization has halted and now rapidly repeated and millions of American homeowners find themselves with mortgages worth more than their home and rising gas prices pinching them on their way to and from work.

And who can you thank for being a voice of sanity in all this? Farmers, Environmentalists and Urban Renewal Advocates, who (while coaching their arguments in decidedly different terms) were essential right about the housing bubble. It’s unhealthy; not only for our agriculture (death of the family farm? blame rising property costs due to suburbanization!), not only for our environment (millions of acres of wildlands developed each year) but also for our cities, which have trouble drawing business as workers move farther and farther out.

It’s odd that we’ve come to this I know.

-Marc-

Discussion.