Markets, Design through regulations, and housing affordability By Alain Bertaud New York University, Stern School of Business abertaud@stern.nyu.edu http://alainbertaud.com NZ Initiative Auckland, July 28, Wellington, July 30, Christchurch, July 31 1
The role of markets and of government plans in the development of cities is often overlapping Markets are efficient in distributing land and floor space among users Government planning is indispensable to reduce negative externalities finance and plan primary infrastructure Allocate taxes to recover infrastructure costs
Real estate markets generate population densities
Urban densities reflect land supply constraints, history and culture
Land markets shape cities: the profile of densities.
The spatial distribution of jobs and population generate patterns of commuting trips
The shape of metropolitan areas are generated by labor and consumer markets
The distribution of firms and households reflects the operation of labor and land markets
The role of government
Planning of major roads and design of land use regulations Originally conceived to: Separate private land from public land Prevent negative externalities by separating incompatible uses
The original objective of urban planning: separating public space from private space (Miletus, 6 th century BC)
Urban planning mission creep Using planning to achieve other objectives: Reducing commuting distances Reducing CO2 emissions Preserving agricultural land Reducing obesity!!! These objectives are better achieved by using market tools: toll roads, gasoline or carbon tax, removing transport subsidies, etc 13
Smart growth, sustainable cities, livable cities Pretend to become urban development guiding principles very vague non quantifiable objectives Sound benign or even quite desirable Substitute legitimate constraints (save energy) for real objectives (mobility, affordability) All of these doctrines favor containment and as a consequence an increase in densities and land prices
Densities are determined by markets, they should not be the object of planners design There is nothing wrong with the progressive densification of an existing neighborhood, provided it is demand driven Densification should occur when many people want to live in a specific location and are ready to pay for it Low or high densities should not be a planner s design choice
Maintaining land supply elasticity should be one of the main urban planners tasks
Some US cities did better than others. Why? Removing constraints on land supply accelerating the building permit processes 17
Planners have an important responsibility in maintaining mobility and housing affordability. They should use indicators to monitor changing mobility and affordability They should take action when indicators show a deterioration of mobility or/and affordability: Manage congestion, Plan new investments in infrastructure to increase commuting speed Increase land supply (regulations and infrastructure investments) Review land use regulations Shorten time required to process land development and building permits 18
Nine Key Indicators of Housing Sector Performance 1. House price-to-income Ratio of the median free-market price of a dwelling unit and the median annual household income 2. Rent-to-income Ratio of the median annual rent of a dwelling unit and the median annual household income of renters 3. Housing production Total number of housing units (in both formal and informal sectors) produced last year per 1,000 people 4. Housing investment Total investment in housing (in both formal and informal sectors in the urban area) as a percentage of gross city product 5. Floor area per person Median usable living space per person (in square meters) 6. Unauthorized housing Percentage of the total housing stock in the urban area that is not in compliance with current regulations 7. Housing credit portfolio Ratio of total mortgage loans to all outstanding loans in both commercial and government financial institutions 8. Land development multiplier Average ratio between the median land price of a developed plot at the urban fringe in a typical subdivision and the median price of raw, undeveloped land in an area currently being developed 9. Infrastructure expenditures Ratio of the total expenditures (operations, maintenance, per capita and capital) by all levels of government on infrastructure services (roads, sewerage, drainage, water supply, electricity, and garbage collection) during the current year, and the urban population Source: University of Wisconsin Real Estate Department
Planners important role: Monitoring commuting time by transport mode 20
Mobility indicators tool developed to evaluate labor market accessibility in Buenos Aires http://wb-ba-analyst.dev.conveyal.com/ 21
Auckland densities profile
Auckland topography constrains land supply