I had the opportunity --- and pleasure --- to share views with Wendell Cox, a well known expert of transportation and land use policies in the Anglo-Saxon world, who co-authors every year a report on the evolution of housing affordability (PDF) throughout USA, UK, Canada, Australia, Ireland and New Zealand. Wendell is one of the most prominent advocates of market-based solutions for land development, although he doesn't reject state intervention dogmatically, but sees state as a complementary actor of private development, not a big orchestra director of all development operations.
Here's a free transcription of our interview. “Read different”!
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Note aux lecteurs non anglophones: traduction française disponible )
Vincent - Wendell, could you define yourself in a few words?
Wendell Cox – I'm a consultant in transportation and land use policies, generally advocating free market based solutions to development problems. I define myself as a liberal, according to the European meaning of this term. I'm happy to come back in France every year, so I can use for myself the word “liberal”, which has been stolen by the American left in the 1930s ! What makes me a liberal is not a philosophical commitment to a way of thinking, it is rather a passionate belief in maximizing the spread of affluence and minimizing poverty. If communism did that, I would be a communist. My principal interest is objectives, not means.
You've been publishing, since 4 years, an annual report analyzing the evolution of housing affordability in several Anglo-Saxon countries...
To be fair, Canada is partially a French speaking country!
That's right! Is housing affordability such an important concern today?
It's the most prominent economic problem of our times. Housing, in most western countries, is the first expenditure line in families’ budgets. Houses represent the main assets in individual wealth. In the whole USA, they can be valued at about 20 trillion dollars (approximately $7 trillion of which represents overvaluation due to the distortions of smart growth), which can be widely converted into borrowing abilities. If housing markets doesn't work fine, this can lead to huge economic disorders.
Can you say, today, that we're experiencing one of these disorders?
To put it simply, the big credit crunch we're experiencing today is the direct result of the recent inflation of housing prices that occurred in areas which implemented "smart growth" policies (urban containment policies) in the latest 30 years. Artificial housing price hikes, provoked by excessive land use restrictions (which raise the price of land inordinately), have given bad signals simultaneously to borrowers and lenders, leading to unsound investment decisions, either from unsophisticated home purchasers, or from big loan originators.
Are you saying that subprime crisis is a smart growth crisis? This is not a commonly heard explanation!
To be fair, let's say that smart growth is one of the causes of the current crisis, and dysfunctional mortgage finance system is the second cause. In terms of the extent of financial blame, there is no question that smart growth is by far the larger of the two influences. Let me explain further.
On the financial market side, you have in the USA a system where the bank often doesn't directly negotiate the loan with the borrower. Loans may be negotiated by brokers who are interested in concluding the more deals they can, even by encouraging borrowers to give incomplete or false information on their situation.
On the other side, banks have developed since the turn of the new millennium, new debt securitization techniques that you've perhaps heard of, under the acronym of CDO or collateralized debt obligations. By doing so, banks have completely disconnected the financial aspect of housing credit from the real value of the transactions that purchasers were doing. Even if prime and subprime defaulting loans don't represent that much of originated loans, the fact is that banks are unable to locate precisely the riskier parts of the CDOs they're detaining. This has lead to a bad evaluation of risks hidden behind many loans.
In France, banks are directly lending to people without broker’s intermediation, and our civil code mandates, for professionals, to be not only service providers, but advisors. This part of our legislation put responsibility on banks if they originate unreasonable loans. Do you think such regulation would have avoided the current US mess?
I'm a firm liberal, but I don't believe in a totally deregulated world. The regulation has to be written carefully, because the evil is in the details, but every regulation that makes easier, for people engaged in a deal, to identify further responsibility if the deal is broken, is good, as far as it doesn't becomes bloated and doesn’t give too much power to the regulator. Current regulations of bank system are cumbersome, but are clearly not working. They have to be rebuilt in a quest for greater responsibility, either from credit lenders, or borrowers. In that sense, for once, French legislation seems interesting.
Let's come to « smart growth crisis ». How, according to you, did smart growth policies play a huge role in the current bubble bust?
The data we’ve compiled for the Demographia report (PDF) show, in an undisputable manner that the current housing price bubble was born only in places that have put important restrictions on land use for building new homes, most of these restrictions being so called « smart growth policies ». When demand for new housing was low, in the middle of the 90's, prices in these areas were above, but not hugely above what they were in areas where land use policies are more liberal.
But actual data, based on the ratio between median household revenues and median level of housing transactions in the same areas, show without doubt something that few observers are reporting: 10 years after, as the demand soared, due to the fall in interest rates, house prices have been widely inflated only in the places where land use restrictions were strongest. Urban areas with freer land use regulations were mostly spared by this housing price hike, even if they have known a huge demographic boom, like Houston, Dallas-Fort Worth or Atlanta. In fact, these urban areas have been kept dynamic due to their ability to provide low cost land to newcomers, even under very strong demographic pressure.
It is often argued that the housing price inflation has been caused by rising demand from low interest rates and profligate lending practices --- this is not true. The same arrangements have been available across the United States, yet only where there are strong smart growth regulations has there been material price escalation. Indeed, the three fastest growing metropolitan areas of more than 5 million in the first world --- Atlanta, Houston and Dallas-Fort Worth --- have liberal land use regulation and have, as a result, escaped the bubble.
In an atomized market, as housing market is, no speculator can « make the trend ». So the signals given by the early increase in house prices, in the places where it occurred, have been mostly misinterpreted by home purchasers and money lenders, because they only saw the « demand side » of the price equation, and didn't realize that prices were soaring not only because of higher demand, but because of the combination of higher demand and state-made struggling of housing supply in some places.
Had every US urban area had the type of land use regulation that was typical in the United States until the coming of smart growth , and the early signal of skyrocketing housing prices wouldn’t have been given to all these people. And we won't experience the current crisis, or at least not at the same level.
Some people could object that subprime crisis occurred in Texas too, even if this was in lowest proportions than in California.
That's right. But it didn't affect the same profiles of borrowers, and not in the same proportions. In Texas, bad credit practices have put in disarray poor families who wanted their share of the American dream by purchasing low cost homes and perhaps unsophisticated investors who thought that Houston prices would finally follow the same crazy curve of smart growth markets. In California, as in Texas, Georgia and most of the rest of the country, demand increased, but unlike the areas without smart growth, the planning system could not handle the increase and supply was constrained. Thus, house prices doubled or tripled relative to household incomes. This made the crisis all the more costly.
Are these Ideas widely accepted in the USA? Do the guys in Washington understand what's happening?
These ideas are gaining momentum since data supporting them become more and more available. People like Ed Glaeser, a prominent Harvard researcher, Randall O’Toole or Sam Staley, who are liberal economists share the same diagnosis. Central Bankers, such as Kate Barker, an economist on the Monetary Policy Committee of the the English central bank, Donald Brash, former governor of the Reserve Bank of New Zealand and Ian MacFarlane , former governor of the Reserve Bank of Australia, have expressed similar views. Mrs. Barker was commissioned by the Labour government to review housing and land use in the United Kingdom and her report was very criticial of the regulatory system, to which she attributes much of the current housing unaffordabiltiy in that nation. To his credit, leftist economist Paul Krugman of Princeton University and the New York Times has been a leader in pointing out this problem.
Of course, planners don't like the idea that the regulations they're advocating is the cause of so much of the current disorders. So most of them resist to what I say. Further, I am convinced that the US Federal Reserve Baord, with special mention to chairman Bernanke, do not have clear vision of what is really happening now. The same is true of many business economists, who are quite capable of analyzing macro-economic factors, but when it comes down to understanding (as Paul Krugman does) that the US has a two speed housing market --- that seems beyond them. .
If we put aside “public choice” and self-interest oriented explanations, planners generally advocate that these regulations avoid sprawl, considered as an evil way to develop land. What’s your opinion about sprawl?
First of all, sprawl is a pejorative term. To paraphrase the late Premier Deng of China, whatever urban planners don’t like they call sprawl. I have seen the world's two most densely populated urban areas --- Hong Kong and Mumbai (Bombay) called “sprawling”. Sprawl is nothing more than suburbanization. The comfortable way that the majority of urban Europeans (yes, Europeans), Americans, Canadians, Japanese and others live in suburbs is the envy of the world and does not deserve to be labeled as an inherent evil. But perhaps, with the demise of religion, many of our urban planning friends have to grasp onto something to believe in. Most arguments against sprawling urban areas are pure ideology and are not supported by facts, by actual data.
“Anti-suburbanites” generally say that sprawl is resource consuming, i.e. they put a lower value on urban land consumption than on agricultural or forest land uses. But real figures don’t back this assertion. In Europe, areas dedicated to agriculture have decreased by 50% more than in the last 30 years than the entire land area of all urban areas in Europe, as they have developed since the beginning of time. Yet, agricultural output has continually improved. Figures show the same thing in USA, in Canada, Australia, New Zealand and Japan. This has benefited to forest areas. This shows that urban expansion isn’t made at the expense of agriculture.
Smart growth advocates often say that sprawl increases road congestion. What's your answer to this argument ?
They say that sprawl increases congestion, and thus want to promote more compact development for existing urban areas. Once again, they’re wrong, plain wrong. Statistics about door to door transportation times for commuters show that the average trip lasts between 25 and 30 minutes in “sprawling” urban areas like Houston or DFW. These durations are generally lower than in denser urban areas with comparable populations. I’ve just released a comparison of Sydney and Dallas-Fort-Worth areas. These two urban areas had the same population in 1980. Since this time, Sydney’s population growth has been three times lower than Dallas-Fort Worth, which has more than doubled. Meanwhile, average two-way daily commuting time is 54 minutes in DFW, and 64 minutes in Sidney, despite Sidney’s intense land restrictions, Sydney’s higher density (twice as high as in Dallas-Fort Worth), and Sydney’s expensive and largely ineffective efforts to promote public transportation.
Hong Kong, for historical reasons, is the densest urban area in the world. They have developed perhaps one of the most successful public transport systems. Despite this, average commuting times approach 100 minutes, two ways, each day Clearly, actual data say that high density doesn’t reduce congestion. On the contrary, high density intensifies it (and as a consequence, air pollution).
How do you explain that sprawling cities are more “congestion efficient” than smart-growth cities?
There’s a simple fact that smart growth advocates always underestimate: When urban areas are expanding at their fringe, jobs tend to follow people, reducing the need for radial commutations.
Yes, we observe this phenomenon in France, too. Enterprises are looking for less expensive land at the fringe of the cities. But are you meaning that efforts to build effective railway based transportation are pointless?
No, I’m not so systematic, I refuse dogmatic approaches. Places with very high densities of population, like the ville de Paris, Manhattan, inner London, Tokyo, Hong-Kong, couldn’t breathe without their metro. In these urban cores, high densities result mostly from historic patterns they have to deal with. But the use of collective transports falls down dramatically as soon as distances from the central business oriented areas are increasing. Especially, virtually all experiments in tangential public transportation infrastructures have been ridership failures.
Capital intensive transportations infrastructures, like metros or suburban railways, are good at bringing people from inner rings and first suburban rings to high density’s job providing downtowns. But programs to extend these transportation modes to other markets is economical and practical nonsense.
Public transportation advocates often argue against that by promoting light rail (Note to French readers: "tramways") solutions. What’s your view about them?
I haven’t seen any single light rail project achieving goals that could not be better achieved by other modes, whether in economic terms, ridership terms, or in congestion terms. Light rail infrastructures are much costlier than roads, deprive lanes that would otherwise have been used by cars, and thus reduce overall transportation capacities: Anything light rail can do, buses can do as well. Buses, like light rail, can run in mixed traffic or in exclusive rights of way. They require less costly infrastructure, the vehicles are less expensive and a program of bus based public transport will provide far higher levels of service for the same cost. If the capacity of a route cannot be handled by buses, then a metro is needed. What I am saying is that there are two principal and legitimate forms of rapid transport --- buses on busways and metros. Light rail is not one of them.
More, light rail lines totally lack flexibility. So, only people living and working in immediate proximity of light rail stations can take benefit of it. From this perspective, efficient busing system is much more desirable than virtually any light rail investment.
When a private consortium proposed building an aerial rail (monorail) system in Las Vegas, they claimed it would carry 54,000 riders per day.. I predicted that there would be only 16 000 to 25 000 travelers per day, and that the consortium transportation agency would be in default on its bonds within a few years. I wasn’t that right: yes, the ridership were only 21.000 trips per day, but the company is now likely to default a few years after I had predicted.
Aren't there any drawbacks in sprawling cities, that you couldn't find in smart growth ones ?
Simply said, there is absolutely no actual inconvenience to live in a so called “sprawling” urban area .
What about greenhouse gases? Doesn’t sprawl contribute to higher greenhouse gas emissions?
It is clear that public policy is committed to reducing greenhouse gases. As we say in USA, “the train left the station” and it is very important to ensure that any strategies employed do not interfere with economic growth or expand poverty. Note that I avoid the argument about whether greenhouse gases are a problem, because, frankly, that is beyond my expertise and the world is at risk of far greater poverty if some of the proposed policies are adopted.
In this context, we have to be very cautious of the way we choose to achieve real drop in greenhouse gases emissions. These choices must not undermine our growth. Some authors like Benjamin Friedman (in his book The Moral Consequences of Economic Growth) , have demonstrated that social cohesion was unachievable without growth. People lose faith in society if they don’t feel they can have better live than their parents ande see a brighter future.
So we have to choose way to reduce emissions that don’t undermine personal mobility, and are cost effective. The French are leaders in research on the relationship between opportunity, poverty alleviation and mobility. Remy Prud’homme of the University of Paris, with others, have proven that as the ability of people to reach a larger number of jobs increases, so does their ability to better themselves economically.
But if we promote costly and ineffective solutions, we will finally end up either with useless investments that will last for decades, or with a lack of resources to face future challenges when they’re facing us. In short, we will have a poorer world and one that cannot afford environmental protection.
Do you mean public transportations are not cost effective ways to decrease greenhouse gases emissions?
Public transportation lines have only limited value, because they’re unable to catch a significant part of travel, since they can’t be efficient for most point to point travel need. The modern, affluent urban area requires mobility from every square meter to every other square meter. More can be accomplished in greenhouse gases emission reduction by making traffic more fluid than by any other transport strategy.
Yet, in some places, like the ville de Paris, ideological programs take lanes out of use for cars, increasing traffic congestion at the same time that air pollution is intensified and greenhouse gases emissions are increased. Air pollution and greenhouse gases emissions are far higher where traffic is not fluid. Prud’homme estimates the annual loss to the ville de Paris economy from the unjustified bus lanes at approximately one billions euros annually.
Of course, in France, rail modes are particularly greenhouse gases friendly because so much of your electricity comes from nuclear power, unlike most countries. This give urban rail systems a considerable advantage. But you still have th problem that even the best designed public transport system can serve only a relatively small minority of trips outside the urban core.
You know, even in the New York metropolitan area, the market share for public transport is only 9 percent (this compared to almost 30 percent in the Ile-de-France). So even with the greatest faith in public transportation agencies, you can’t expect public transportation being something else than a niche player, except for the core urban markets, which every day lose share to more peripheral markets. Reducing gas emissions supposes creating the conditions for the cars to emit less of these gases. That means you have to direct your investments towards improvements of traffic fluidity.
In fact, much more progress is to be expected from technological advances by auto makers, than by energy producers or light rail engines makers. And if, in a near future, we can expect huge reductions in CO2 emissions for each car trip made. In those conditions, fighting individual mobility allowed by automobile is nonsense. Soon hybrid diesel cars will be marketed by several european car makers that produce less in greenhouse gases emissions per passenger kilometer than the public transport system in the New York metropolitan area. Outside New York in the USA, the average new car is as greenhouse gases friendly per passenger kilometer as public transport.
We take our life standards for granted, but we must remain aware of the role played individual mobility in the elevation of our wealth. Killing mobility will make us unable to get the best from local job markets, unable to find the best business opportunities… A falling down in individual mobility would be a quantum leap backwards.
How could a modern collective transportation system be conceived?
It has to be considered as a complement of auto-mobility, and not as a substitute. There are people who can’t drive, for any kind of reasons: collective transportation is, de facto, necessary for social life in big urban areas. But the best choice, for most urban areas, is to rely on a good bus system, supported by an infrastructure that helps fluidity of both collective and individual vehicles. And, finally, for very high density urban cores , underground or elevated railways may be appropriate --- but they must be justified as the most cost effective solution. Too often, there is ideology among planners that favors rail based solutions at any cost --- and the cost is the provision of less public transport service and lower public transport ridership. It is a paradox, but it is true.
You’ve been teaching in France for 7 years now (Ndt: Mr. Cox teaches two month every year at the “Conservatoire National des Arts et Métiers” in Paris). Are there good or bad lessons you can take from French experience in urban development?
I love France, and I don’t feel, with the French people I’m in touch with, the alleged anti-Americanism attributed to the French. For housing and land use questions, both the Americans and the French have their difficulties. You and we both built high-rise housing that has turned into prison like environments. We are committed to tearing ours down and many are now gone. Both in America and France these policies have created vast soviet style areas where there really is no law and no security. One of my good friends in French university told me that there were about 400 such areas in France --- I don’t know if it is true (ndt: alas, yes, it is...). But, four hundred!
At the same time, both nations have seen their successes. Many of the suburbs of Paris and other large urban areas are quite attractive, just as they are in the United States. These are models of the type of environments that people want to live in. We were particularly successful in the United States, after World War II, in using the private sector to solve the inevitable problem of the housing shortage. The post-war American suburb provided the impetus for expanding our home ownership rate from 40 percent to nearly 70 percent. The wealth that was created has changed millions of lives for the better, including those of many urban planners whose families would not have been able to send them to university if they had not been able to accumulate wealth through home ownership. Without sprawl, there are probably urban planners today in the United States who would be plumbers or truck drivers instead.
Both France and US history support the assumption that allowing private owners to develop suburban areas in the ways they choose results in greater wealth.
Thank you very much, Wendell!
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You can learn more about Wendell Cox on his three websites, www.demographia.com (housing issues), www.publicpurpose.com (transportation issues), and www.rentalcartours.net (travelogues on world urban areas, including all with more than 10,000,000 population).
This Interview was performed in Paris in March 2008, By Vincent Bénard.
Vincent Bénard is senior fellow at Hayek Institute (Brussels) and at Turgot Institute (Paris). He runs two blogs in French, www.objectifliberte.fr (general considerations about freedom, economics and society) and www.crisepublique.fr, dedicated to the promotion of his book about the great disaster of planned housing policies in France, “Le logement, crise publique, remèdes privés” (Housing, public crisis, private healing).
© Vincent Bénard, 2008 - Feel free to quote this interview, even totally. Just quote the author and provide at least one link to the original interview or to this blog's homepage. Let me know if you quote this text, ( vincent at benard dot com ), so I can advertise your work.
Passionnant. Ca change des insultes échangées sur les blogs des chefs d'Alternative Libérale (enfin, ceux qui ne sont pas censurés...).
Rédigé par : Robert Marchenoir | jeudi 20 mars 2008 à 13h03
Je me prosterne ;) Wendell a raison sur toute la ligne (sauf qu'il oublie de parler de vélo qui est le mode urbain le plus rapide, le moins cher et le moins polluant).
Exemple. Je reviens d'une semaine à Paris, pour retaper un appart dans le 17ème. Rue de Lévis, pour être précis. Allez vous promener dans cette rue, c'est très instructif.
La situation : une rue à sens unique, étroite. Les voitures stationnent des deux côtés de la rue (50% des places sont payantes, le reste est en desserte). Les trottoirs sont minuscules (80 cm de large), encombrés par les poteaux des panneaux de signalisation, il est impossible de se croiser sans se frotter.
Le lendemain du second tour des municipales, les bulldozers arrivent.
Que vont-ils faire ?
J'imaginais :
- mettre toutes les dessertes du même côté (disons à gauche) sur un trottoir demi-hauteur
- mettre tous les stationnements de l'autre côté (disons, à droite).
Comme les dessertes ne sont utilisées que le matin, on aurait un superbe trottoir et une meilleure circulation, gagnant-gagnant comme dirait bécassine.
Mais non, ils suppriment les places pour mettre des chicanes !!!!! C'est le perdant-perdant : les trottoirs restent minuscules, et les automobilistes sont emmerdés. C'est le perdant-perdant.
Rédigé par : Pierre | jeudi 20 mars 2008 à 14h04
Interview de Jean-Paul Fitoussi ce matin sur France-Culture, au sujet de la crise des subprime.
Sans surprise, il met en cause l'avidité des spéculateurs qui veulent obtenir une rentabilité de leurs fonds supérieurs au taux de croissance (ce qui est en théorie impossible), etc.
Il parle de l'immoralité paradoxale du système, qui interdit aux Etats de laisser les banques s'écrouler et subir les conséquences de leurs mauvaises décisions, dans le but de ne pas entraîner les populations dans la catastrophe.
Il parle de la complexité ahurissante des produits financiers, qui interdit même à ceux qui les vendent de comprendre comment ils fonctionnent et d'apprécier leurs risques.
Toutes choses qui sont vraies.
Mais je constate qu'il ne dit pas un mot des lois qui ont imposé aux banques américaines de prêter à des emprunteurs peu fiables, par souci d'égalité et de justice sociale, et de la responsabilité de ces lois dans la crise.
Et puis, miracle, il finit par en parler. Mais c'est pour dire que, dans ce cas, le système s'est comporté de façon morale, puisqu'il a permis de prêter aux pauvres. Cette règle est une bonne chose. Elle est à ranger du côté positif du système.
Et Fitoussi ne percute pas. Il ne fait pas le lien. Il est là, sous son nez, mais il ne le voit pas. A aucun moment, il ne reconnaît que la régulation américaine socialiste, en faveur de l'égalité, en faveur de la justice sociale, a pu jouer un rôle dans le fait que les banques ont prêté sans espoir de retour.
Fascinant aveuglement de l'anti-libéralisme.
Rédigé par : Robert Marchenoir | samedi 29 mars 2008 à 13h23
Marchenoir a raison d'épingler l'interview de Fitoussi. Je viens juste de l'écouter ce matin. Lui et Monique Canto-Sperber dénoncent les comportements irrationnels et "immoraux" des banques. Ils vantent le rôle des banques centrales pour ramener la "confiance". Pour Monique Canto-Sperber tout ce qui est en cause est le comportement "mimétique" des agents financiers(bel effet de "mimétisme" et de comportement "moutonnier" intellectuel). Le "mimétisme" est un comportement naturel des êtres humains (cf les effets de mode, dans les vêtements, dans le language, dans les décisions d'achat, etc...) Il est présent dans tous nos achats, dans toutes nos décisions. Désigner le comportement mimétique comme responsable d'une situation, c'est désigner l'être humain lui-même. Le problème central c'est tout ce qui conduit à favoriser l'amplification de ces comportements, et donc l'amplification des mouvements de balancier qui les accompagnent inévitablement. En l'occurrence, à propos des banques, le comportement inflationniste des banques centrales, et notamment de la FED, dans le passé; et donc plus fondalement, l'existence même des banques centrales, et par là la notion des systèmes de monnaie fractionnaire qui conduisent nécessairement à des cycles économiques récurrents d'autant plus aggravés que la banque centrale s'en mêle. La FED, c'est le pompier pyromane : j'allume d'abord un feu que l'on me demande ensuite de combattre. Malheureusement, à court terme, c'est bien vers elle qu'il faut se tourner, quoi qu'on pense de sa légitimité. L'interview de Fitoussi est effectivement un bel exemple d'aveuglement.
Rédigé par : Henri LEPAGE | mercredi 02 avril 2008 à 10h17
On ne peut plus d'accord avec vous, monsieur Lepage (je constate avec plaisir que des économistes de renom tel que vous suivent le blog de Vincent).
Je ne cesse d'expliquer cette action néfaste des banques centrales au travers des blogs et je m'aperçois combien il est difficile de faire comprendre que l'action des banques centrales est nécessairement néfaste. La raison fondamentale étant qu'elles constituent un système centralisé voulant gérer une information éminemment diffuse en interdisant la liberté (monopole public accordé à des entreprises privées, obligation pour les banques d'être clientes des banques centrales, interdiction de création de monnaie, qu'elle soit dite "publique" ou privée etc.). C'est ce que j'appelle le socialisme appliqué au système monétaire…
Et vous qui connaissez bien l'oeuvre de Rothbard, vous savez qu'il considérait le système de réserve fractionnaire comme un "permis de vol" accordé aux banques, une violation pleine et directe des droits naturels et donc un système fondamentalement anti-libéral.
Rédigé par : Mateo | mercredi 02 avril 2008 à 11h03