The way most people in Canada and the West live – in suburbs, pejoratively called sprawl – has become the target of urban planning. Strong, even draconian, land restrictions have been introduced in a number of metropolitan areas.
Toronto has been among the more recent. This has struck a chord, not least among beneficiaries who want to be the “last to move to the suburbs,” in the words of a Washington Post writer. The “spiffy” marketing name “smart growth” has been adopted for this campaign. Unfortunately, smart growth is mainly rooted in ideology that denies reality. This is to the great risk of people, cities and the future.
Take, for example, the policy objective of reducing greenhouse gas (GHG) emissions. Smart growth says people will have to live at higher densities and use transit instead of cars. The reality could not be more different. A recent University of Sydney (Australia) study, for example, associated higher per capita GHG emissions with the highrise condominiums planners love, and lower emissions with automobile-oriented suburbs. Unlike other studies, this one used a comprehensive review of consumption, rather than the let’s-pick-what-we-don’t-like approach, which focuses only on transport and land use.
The U.S. Department of Transportation agreed that a Seattle light rail line would take 45 years to “pay back” the GHG emissions from construction. Finally, if all Canadians were to give up all driving, the resulting GHG reduction would be only one-half the reduction required to meet the Kyoto Accord commitment. This may not be orthodoxy, but it is the reality.
The reality is that suburbanization and the car have been associated with an unprecedented expansion of wealth in high-income nations. Home ownership has risen from approximately 40 per cent before World War II to more than 65 per cent today. This has led to a virtual “democratization of prosperity,” that would not have occurred without the suburban development on cheap fringe land that the planners demonize. Further, the cars have provided mobility to rapidly access virtually the entire urban area, something impossible when cities had only transit.
The bottom line is that, despite all of their platitudes, no planning regime has ever proposed a workable transit plan that would replicate the mobility of the automobile or the urban economic productivity it has created. That is why car use will expand wherever people prefer more comfortable lives, whether in high-income Toronto or lower income cities such as Manila and Mumbai.
Smart growth claims to produce benefits such as less traffic congestion, less air pollution, lower housing prices and a better quality of life. Back to reality – Santa Claus is more likely to deliver the presents next Christmas.
Take, for example, lower housing prices. The U.S. government-funded Costs of Sprawl – 2000 predicted that smart growth would reduce average new house prices by more than $10,000 between 2000 and 2025 relative to “business as usual” (measured in constant 2000 dollars). In results that suggest that “Wrong Way” Corrigan may be the patron saint of planning, house prices have risen $120,000 relative to traditionally regulated markets just between 2000 and 2006.
The destruction of housing affordability is the most severe consequence of smart growth. As lower interest rates and permissive lending practices have spread, demand for housing has increased. In this environment, a two-tier housing market has developed – one that can supply the demand and one that cannot.
In the liberally regulated, non-smart growth markets, houses remain at approximately three times annual household incomes, not much different than 10 years ago. This includes the three highest- demand metropolitan areas with more than 5 million population in the high-income world – Atlanta, Dallas-Fort Worth and Houston.
It also includes Montreal and a number of other urban areas in Canada and the U. S. In each of these markets, liberal regulation has allowed the supply of housing to respond to the higher demand.
In the other tier, the hyperinflating markets share a single characteristic – smart-growth policies and related regulations. Smart growth rations land, through urban growth boundaries and other restrictions, all of which raises land prices. This is consistent with economic theory. When demand rose, the smart growth kept these markets from allowing supply to respond sufficiently and prices rose inordinately.
Nonetheless, smart-growth promoters are in denial on this effect. However, some of the world’s leading economists have recently reconfirmed that the law of supply and demand has not been repealed. This includes Kate Barker, a member of the Monetary Policy Committee of the Bank of England, and Arthur Grimes, chair of the board of the Reserve Bank of New Zealand.
The smart-growth plague has destroyed affordability throughout Australia, the United Kingdom, New Zealand and in some North American markets (such as Vancouver). Today five to 15 years of additional median household income are required to purchase the median-priced house in a number of markets, compared with just a decade ago. This converts to a household cost of between $500,000 and $1 million (including mortgage interest and inflation). This reverse-Robin Hood effect is redistributing wealth from younger to older and from less affluent to more affluent.
A report published by the U.S. Federal Reserve Bank concludes that markets with more restrictive land-use policies experience less economic growth than would otherwise be expected. Nearly 4 million people have moved from less affordable U.S. metropolitan areas to more affordable areas in just six years, according to U.S. Census Bureau data. Growth has become so stunted in unaffordable Sydney that both Brisbane and Melbourne could be larger by 2050. New South Wales, called the “first state” and the economic driver of Australia, now ranks last in economic growth.
All of Toronto’s future growth will be from among young households, most of whom see hopes of owning their own homes and climbing on the ladder of economic opportunity slipping away because of policies that pretend economics doesn’t matter. It is time to put an end to this nonsense.