How Urban Planners Caused the Housing Bubble. Response from a Planner

Could the good people from the libertarian Cato Institute have fallen for the oldest fallacy in the book of statistical analysis, by confusing correlation with cause and effect ? http://www.cato.org/pubs/pas/html/pa646/pa646index.html
Even if one were to accept that growth management increases the cost of land and thus of home prices, high prices of homes didn’t not in and of themselves create the housing bubble. High prices need to be present for a bubble to exist, but they are not the cause. Rather, the cause for the bubble was speculation which was enabled by the high prices but not caused by them.
In fact, if high prices are caused by inelastic land supply as the Cato study argues, the high prices themselves do not present a bubble because they are relying on a rationale cause. Not on what Greenspan had identified as “irrational exuberance”. The bubble is the extrapolation of the high prices beyond the point that can be justified by the lack of land supply. In fact, the “hot air” which makes a bubble a bubble comes entirely from the speculative element in which the financial system bet on questionable mortgages with the famous derivatives and other creative financial instruments. If, then, housing prices sink due to entirely rational market factors (such as a oversupply of expensive housing) the pyramide schemes of speculation collapse with devastating effects letting out the hot air in one big poof. Thus the prices do not shrink just by what is justified by the reduced demand but by much larger margins, in some areas in the range of 20-30%, way beyond the rational range of market swings.
What we see, then, is that speculation caused the housing bubble, not growth management. However, the correlation between growth management and high housing prices remains still unexplained and it is therefore necessary to delve into this corollary argument of the Cato study.
The common sense observation that land supply is finite (and, thus inelastic) is swiftly dismissed in the Cato study as realtor talk. The authors point to the huge size of the United States in comparison to the developed areas and therefore quickly declare land as elastic and the only reason they could find for inelastic land supply was growth management. Eo ipso, growth management is at fault. The fallacy of this argument becomes obvious right after it has been made when the authors compare the San Francisco Metro area with the Houston Metro area while pointing out how little houses cost in Texas where there is a huge supply unfettered by zoning and regulation whereas housing in San Francisco is hugely expensive and hard to come by. Wow, did these folks look at a map? Did they notice how San Francisco is hemmed in by the Pacific on one side and the Bay on the other, not to mention mountain ranges and deserts? Did they notice that this part of California is pretty built out, even if they had no growth management? Did they realize that the population density of California is about 2.5 times larger than the one of Texas? Indeed, the huge land mass of the US in total is not at all helpful in providing land supply in dense metro areas such as New York City, Washington DC or San Francisco where population densities have reached levels similar to European countries known being “crowded”. (And of course, as the Cato study doesn’t miss to mention, also known for growth management which allows Europeans to enjoy unfettered country side in spite of their crowdedness).
Another thing the Cato study entirely fails to address is that the mere presence of growth management policies has little to do with the actual land supply. In fact, the presence of growth management policies rarely means that available land is really severely curtailed. Let’s takeFlorida (with growth management policies) and Texas (mostly without “smart growth”) and two larger cities: the Tampa metropolitan area and the Austin metro area: These two have a lot in common. Both represent a liberal island in a sea of republican counties and state policies. Both grow a lot and both have experienced huge amounts of sprawl, liberal ideals of controlling growth notwithstanding. If, in the recent recession, housing prices in Tampa have fallen a lot more drastically than in Austin there are other reasons at play than Florida’s largely ineffectual growth management policies. As reasons one might point to speculation, the rather less healthy retirement economy of Tampa over the high tech economy of Austin (Dell in Round Rock) and again, geographic differences that limit Tampa’s expansion more than Austin’s.
Finally, the Cato study mows down the arguments that planners usually use to support growth management policies as casually as it declared land in the US an elastic commodity.
First it dismisses the quality of life argument with sheer growth numbers and compares Houston’s 20% growth with San Francisco’s anemic 0.4%. Here we have the classic confusion between quantity and quality. The fact that Houston as a relatively young City is massively growing can hardly attest that Houston has a better quality of life than San Francisco. Just on the face of it, the notion that Houston as a City could somehow be more attractive than San Francisco is rather laughable and would probably not even be attempted by diehard Houstonites themselves.
Then the Cato authors dismiss the cost of driving (“the effects of density on driving are also small”), one of the external costs of unfettered land supply. Aside from not even bothering to discuss the issue of such external costs in any significant way (what about environmental degradation, energy demand, water demand, air quality, fiscal impacts etc.etc.?), the assertion about the relationship between density and driving cost is plainly wrong. Study after study shows how much more money people have to spend on driving in sprawl areas versus denser urbanized areas with transit and it is this simple fact that explains why vehicle miles travelled (VMT) is about half in Europe than it is here.
In conclusion, unfettered land supply, i.e. unfettered sprawl is hardly an answer to the question of affordable housing and even less a plausible remedy against future housing bubbles.
Klaus Philipsen, AIA LEED AP