Urban planning and housing affordability

By Alain Bertaud, Urbanist, Senior Research Scholar, Stern School of Business, New York University

Former Principal Planner – The World Bank. http://alainbertaud.com/

 This year, Demographia is publishing its 10th Annual International Housing Affordability Survey. It ranks 360 metropolitan markets in nine countries.

 Are planners in the worst performing cities paying any attention? And are they drawing any conclusions on how to improve the situation? Or do local governments conclude that the best way to increase the supply of affordable housing is to impose new regulations that will mandate developers to build housing units at prices, standards, and in locations selected by the government?

The last approach, under the name of inclusionary zoning is unfortunately the most common response, as recently seen, for instance, in New York and Mexico City.

Urban planners have been inventing all sorts of abstractly worded objectives to justify their plans for our future cities – smart growth, liveability, sustainability, are among the most recent fads.

There is nothing wrong, of course, for a city to try to be smart, liveable, or sustainable.

But for some reasons these vague and benign sounding objectives usually become a proxy for imposing planning regulations that severely limit the supply of buildable land and the number of housing units built, resulting in ever higher housing prices. In the name of smart growth or sustainability, planners decide that densities should be lower in some places and higher in others. Population densities are not a design parameter whose value depends on the whim of planners but are consumption indicators which are set by markets.

 Even the Communist Party of China recently declared that resource allocation is best achieved through markets; why can’t urban planners in so-called market economies reach the same conclusions and let markets decide how much land and floor space households and firms will consume in different locations?

 It is time for planners to abandon abstract objectives and to focus their efforts on two measurable outcomes that have always mattered since the growth of large cities during the 19th century’s industrial revolution: workers’ spatial mobility and housing affordability.

As a city develops, nothing is more important than maintaining mobility and housing affordability.

Mobility takes two forms: first, the ability to travel in less than an hour from one part of a city to another; and second, the ability to trade dwellings easily with low transactions costs.

Housing mobility allows households to move to the location that best maximise their welfare. Affordability is the ability for any urban household to be able to rent a dwelling for less than a 25% of its monthly income, or to buy one for less than about three time its yearly income.

The mobility and affordability objectives are tightly related. A residential location that only allows access to only a small segment of the job market in less than an hour commuting time has not much value to households, even if it is theoretically affordable.

For instance, the government of South Africa has been building several million units of heavily subsidised ‘affordable’ housing in areas that require long and expensive commute Ð transport costs representing in some cases more than 50% of a worker salary. In this case, affordability without mobility is only a poverty trap. Affordability and spatial mobility are therefore inseparable objectives.

 Urban planners should routinely monitor land and housing prices and rents by location in the metropolitan area in which they work. Monitoring the market supply side should be one of their main tasks. They should also monitor the changes in households’ income distribution, the demand side. That way, they may learn how markets work.

 How many urban planning departments publish annually variations in land and housing prices? If they did, they would be obliged to provide their own diagnostic to explain real estate price variations and propose remedial action when housing affordability decrease in an unacceptable manner.

Urban planning PIC 2 Land use regulations and the availability of trunk infrastructure heavily constrain the supply of developable land. Planners, therefore, have a key role to play in ensuring an elastic supply of land by auditing land use regulations and by planning new trunk infrastructure that would allow the development of new areas or faster travel time to already built-up areas.

A periodic regulatory audit should weed out obsolete regulations to allow an elastic land supply and to increase households’ ability to consume the amount of land and floor space that would maximize their welfare in the location of their choice. Part of the audit should concern the regulations, taxes, and administrative practices that unnecessarily increase transaction costs when building new housing units or selling or buying existing ones.

The twin objectives of maintaining mobility and housing affordability should drive the design, financing, and construction of trunk infrastructure.

Because the building of trunk infrastructure often requires the use of eminent domain, governments have a monopoly on its design and construction.

Here is a new simple job description for urban planners: plan the development of trunk infrastructure to maintain a steady supply of developable land for future development, but leave land and floor consumption per dwelling to the market.

 There is no silver bullet to increase the supply of affordable housing. But if planners abandoned abstracts and immeasurable objectives like smart growth, liveability and sustainability to focus on what really matters – mobility and affordability – we could see a rapidly improving situation in many cities.

 I am not implying that planners should not be concerned with urban environmental issues. To the contrary, those issues are extremely important, but they should be considered a constraint to be solved not an end in itself.

Urban development should remain the main objective of urban planning.

Until now, Demographia has focused its annual affordability survey on a limited number of OECD countries.

This is understandable as the data collection task is difficult enough in advanced economies. In many cities, the scarcity of credible data on affordability further demonstrates how little interest the planning profession has in the issue.

However, the housing affordability problem is even worse in emerging economies than the ones in the OECD cities covered by the Demographia survey. In emerging economies, rapidly increasing households income combined with severe constraints on the supply of developable land are putting an enormous pressure on housing prices.

The constraints on land supply are usually due to obsolete regulations, overzealous and predatory bureaucracies – and in deficiencies in timely trunk infrastructure investments.

In Mumbai, for instance, in spite of a spectacular increase in real households’ income through the last twenty years, the number of people living in slums has increased and includes now more than half of the population.

Paradoxically, a large part of the Mumbai population that has recently reached middle class status is now living in slums!

In the case of Mumbai, the severe housing deficiencies are not due to poverty, but to political and bureaucratic inertia.

It is hoped that the clear quantitative approach demonstrated by the Demographia survey would incite local think tanks in India, Brazil and China to develop the data base and the methodology to analyse the affordability problem and find a market solution to solve it.

 All Markets:

Among all 360 markets in the principal analysis, there were 95 affordable markets, 84 in the United States, seven in Canada and four in Ireland. There were 122 moderately unaffordable markets, 100 in the United States, 17 in Canada, three in the United Kingdom and one each in Japan and Ireland. There were 67 seriously unaffordable markets and 76 severely unaffordable markets.

Australia had 25 severely unaffordable markets, followed by the United States with 23 and the United Kingdom with 15. New Zealand had five severely unaffordable markets, while Canada had five.

 

 

 

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