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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”!
(
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!
Vincent
Bénard
Objectif Liberte.fr
Egalement par Vincent Bénard
Vincent Bénard, ingénieur
et auteur, est Président de l’institut Hayek (Bruxelles, www.fahayek.org) et Senior Fellow de Turgot (Paris, www.turgot.org), deux thinks tanks francophones
dédiés à la diffusion de la pensée
libérale. Spécialiste d'aménagement du territoire, Il
est l'auteur d'une analyse iconoclaste des politiques du logement en France,
"Logement,
crise publique, remèdes privés", ouvrage publié
fin 2007 et qui conserve toute son acuité (amazon), où il
montre que non seulement l'état déverse des milliards sur le
logement en pure perte, mais que de mauvais choix publics sont directement à
l'origine de la crise. Au pays de l'état tout puissant, il ose
proposer des remèdes fondés sur les mécanismes de
marché pour y remédier.
Il est l'auteur du blog "Objectif
Liberté" www.objectifliberte.fr
Publications :
"Logement: crise publique,
remèdes privés", dec 2007, Editions Romillat
Avec Pierre de la Coste : "Hyper-république,
bâtir l'administration en réseau autour du citoyen", 2003, La
doc française, avec Pierre de la Coste
Publié avec
l’aimable autorisation de Vincent Bénard – Tous droits
réservés par Vincent Bénard.
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