Freddie Mae to road subsidies

    http://www.foxnews.com/us/2011/10/25/voters-with-housing-woes-giving-up-on-politicians/


    In light of the reading entitled:THE EFFECT OF TRANSPORTATION SUBSIDIES ON URBAN SPRAWL, I find it interesting that the above article featured in the Associated press discusses how people that took advantage of the lower cost of buying a home before the housing bubble burst are dealing with it now. Even as the confidence of individuals participating in what we call the American economy dwindles further, many people have the same mortgage and interest rate that they had before the recession, but have experienced personal hardship as the participants in the economy begin to trod through the slow correction to prices that had been held up by artificial means.
    I think that the ease with which many americans were able to get homes a few years ago because of government intervention, is very similar to how the road subsidies mentioned in our reading drove transportation costs down by quite a bit. Both of these government policies had noble ideas behind them, but it isn’t that hard to see where these pieces of legislation went awry. Though the errors manifest themselves in different manners, one can use either of these subsidies as case studies as to where bad policies can lead to even worse consequences.
    It is funny how highway subsidies were probably initially provided for a few reasons bootleggers undoubtedly were happy with how good roadways would provide a reliable infrastructure with which to build up the trucking industry which could be seen as a good by the baptists because it would eliminate an overland transportation monopoly that had been held by the railroads for nearly a century.
    Freddie Mac and Fannie Mae were most likely supported by bootleggers because of all of the money to be had in the constructing of new homes with the support of the government. Baptists, more than capable of hiding the ulterior motives under the thought that such subsidies would give housing to needy families just trying to live out the American dream.
    It is funny how both of these subsidies have at least incentivized if not contributed to sprawl in America. Cheap transport got americans out to cheap land on the outskirts of cities, and with the help of cheap loans houses were built on large lots away from the city causing vast outward expansion of the urban areas. It is ironic that many officials in government hate sprawl yet probably voted for these subsidies in some capacity whats more is a possible solution to transport based causes of sprawl proposed in the reading for this week is raising the taxes on things related to transportation in order to “coax consumers into driving less and relying less on motor transport so that they are less vulnerable to energy price based shocks to the economy” something tells me that this will not go exactly as planned.

Once upon a time...

I read a blog by Dan Conaway this week, who lives in Memphis and advocates for the use of New Urbanism principles within his community, which can be read by clicking on the title of this post. Conaway mentions Mixed Housing–having houses of different price ranges and size in closer proximity–as one of the principles he would like to see set in place. The problem is that, economically, the materialization of such concept is hardly feasible. If the neighborhood is a desirable place to live, the demand for it will increase, driving up the prices of the properties in the area. Give it enough time and the values of the many different houses will tend to not be so disparate.

He also argues that New Urbanism would bring more Sustainability to a community, and by that he means a low-impact development, eco-friendly technology, and energy efficiency. I would like to propose that there is little that is sustainable about these practices, as the recent happenings in California very well demonstrate. The push for these ideals have led many businesses to relocate their operations somewhere with lower taxes and fewer restrictions, taking the state's unemployment rate to the second highest in the nation.

The one thing Conaway says that I could see happening is Quality Architecture and Urban Design, if and only if this means that the government would remove restrictions on how buildings should look. An owner should be allowed to try whatever type of architecture he or she desires within his or her private property.

Finally, he argues that the concepts presented by New Urbanism proponents are ideal because they bring back the many wonderful things that modern society ruthlessly took away, like getting along with your neighbors, as if this was not an option within the framework of our modern world. The fact is that people organically developed and put in place the system we know today. An individual longing for deeper relationships with his or her neighbor can still take a step forward and put efforts into transforming a mere acquaintance into a friend, regardless of having a front yard or using a car as a main mode of transportation. Blaming society seems to have become the main way of justifying one's own complacency.

Housing Policy--Social Housing in China

The Economist’s article from earlier this month about social housing in China (No way home: giving the urban poor a place to call home) piqued my interest about the economics of housing policy. Income, current housing prices and access to mortgage financing comprise just a few of the factors that influence people’s choices of residential location, and policy makers have long been attempting to expand social and economic opportunity for low-wealth individuals and families through a variety of housing options such as housing vouchers, mortgage interest subsidies, and public housing. Access to affordable housing for low wealth individuals and families promises more than just shelter; their quality of life is increased as they also gain access to better educational and employment opportunities. But what economic implications do policy makers face when trying to achieve “a decent home for all at a price within their means?” I would like to focus on two different policies- one that influences demand and one that affects supply.

The housing voucher program is a demand-side policy that gives rent certificates with a value based on household income and the fair market rent to low-income individuals or families to purchase housing that meets minimum quality standards. As the household’s budget line shifts to the right, there is a trade-off between housing and other goods. Granting households with a larger budget and the freedom to choose the utility maximizing consumption combination of housing and other goods causes an increase in both household consumption and household utility. However, the voucher program causes the demand curve for moderate quality housing to shift to the right as low-income households begin to demand less of low quality housing. As the demand for moderate quality housing increases, the equilibrium price also increases in order to compensate for the excess demand. Additionally, the increase in moderate quality housing prices decreases the supply of low quality housing by slowing the filtering process between housing levels, and consequently the decrease in supply of low quality housing increases the price. This increase in low quality housing prices hurts low-income families that do not receive housing vouchers.

Public housing is a supply-side policy in which the government builds housing units of minimum standards in large quantities specifically for eligible low-income individuals and families and charges a rent of no more that thirty percent of the household income. Similar to housing vouchers, public housing shifts the households’ budget line to the right by decreasing the cost of housing for the individual or family. Again, the ability to make trade-offs between housing and other goods increases the household consumption of goods and household utility. But in this case, the implication is that the cost of public housing significantly exceeds the cost of private housing. According to Green and Malpezzi in “A Primer on US Housing Markets and Housing Policy, the production cost of new low-income housing is twice the market value. A large supply of low quality housing already exists, which means that the least expensive new low quality housing costs more than existing used housing. Additionally, the private sector can build new low-income housing more efficiently than the public sector. Social housing yields low return rates, but the developer may be influenced by the low risk.

In China’s case, the social housing program appears to be more of a political strategy instead of an effort to benefit urban residents. The article states that the central government aims to complete 36 million social housing units by 2015. Zheng Siqi of Beijing’s Tsinghua University expressed her concern over the sustainability of the project; she estimated that the government is only paying for ten to twenty percent of the $204 billion construction costs. Furthermore, the central government declared that they would not allow local authorities to build new office buildings for themselves if they did not meet their social housing quotas. Considering the economic implications of social housing, it seems that there are other housing policies to best accommodate China’s rapidly growing population and to successfully provide affordable housing for the low wealth population. But with the supposed motives of the central government in mind, I would surmise that this housing policy might fail to make the necessary housing additions or changes that China needs.

Driving makes you fat

The article Driving Makes You Fat, Urban Sprawl Bankrupts You, Other Life-Saving New Urbanist Epiphanies undermines individual freedom and liberty. Greg Lindsay attempts to support his new urbanist heroes by sharing some of their ideas. Lindsay blames obesity, diabetes, asthma, and auto fatalities on increased amounts of urban sprawl and commuting done by many Americas. Lindsay and his ilk are creating a Bootleggers and Baptist scenario. Lindsay attempts to show the increase in commuting as an extremely dire situation. Lindsay is a dedicated disciple of the Bootleggers (who tend to be mostly politicians). These bootleggers will benefit their pocket books by ‘fixing’ whatever situation the Baptists like Lindsay were clamoring about. Lindsay claims that increased driving is harmful to “public health.” Issues such as obesity and asthma are not public health issues. They are private issues. Furthermore, if an individual is fat, it is their right to be fat as long as they are not impeding others liberties. Lindsay’s connection between commuting and obesity is weak as dietary changes, increased computer and game time, and television are logically more suspect as causes for obesity. One source Lindsay uses commented, “A [woman was] victim of lack of transportation alternatives.” This statement is flawed; unless the government was forcing an individual to live in a certain place, they were not a victim of transportation alternatives. The individual likely knew the risks when they moved to the area, if the risks exceed the benefits the individual will move to a new place. This is economic liberty in action. Perhaps Lindsay is implying that there are negative externalities. This cannot be the case, however, as the housing market is never at equilibrium; people are constantly moving, there is never a static model. The cost (if there was one) cannot ever be internalized. Therefore there is negative externality. One of Lindsay’s sources commented that urban planners wished to stop, “the causes of causes of death.” Urban planners by this admission want to guess the causes that might cause death in the future. This is not only impossible, but also, another Baptist and Bootleggers scheme. Obviously, Lindsay and his urban planning friends advocate a command control economy and government. Only through a command control economy could they successfully establish and prohibit what they wish, in effect killing private liberty.

LINK:
http://www.fastcompany.com/1650173/urban-sprawl-is-bankrupting-and-killing-us-building-walkable-places-is-the-answer

"Causes of Sprawl"

This is a commentary on an article written by Marcy Burchfield, Henry Overman, Diego Puga, and Matthew Turner entitled, “CAUSES OF SPRAWL: A PORTRAIT FROM SPACE. Within this article, one interesting piece of information comes from a poll result taken by the Pew Center. The poll stated that within the sample, people were almost equally divided on how to stop sprawl. Half wanted government involvement while the other half did not.

There is not much known about the “scattering patterns” of sprawl. So dealing with this type of problem can be hard to find a resolution to. One step to “fight back” sprawl is to determine what causes sprawl, but can be a problem in itself. The authors of this article suggest that cities will sprawl more if there is uncertainty about population growth, the type of terrain, and if the road system was built around a single rather than public transit system.

The data collected for this article suggests that from 1972-1992, there has been a constant growth pattern of sprawl in specific areas. Now the question becomes what should we do to limit this phenomenon? Involve Government (force) or look into other options of city planning such as letting the private sector (market forces) dictate the growth of cities? I’m a proponent for the non-governmental approach to solving sprawl; however zoning may be a problem. Meaning you may have a Wendy’s behind your house.

A look at "Compact or spread-out cities"

A brief commentary on the Gusdorf and Hallegatte article, “Compact or spread out cities: urban planning, taxation, and the vulnerability to transportation shocks.”

This article takes an interesting approach to the entire question of sprawl. It takes techniques that I think would work in reducing sprawl, and relates them to something that is arguably much bigger than the simple tug of war between the interests of the anti-sprawl people and the ones who see it as something that is not quire worth worrying about: saying that the reduction of sprawl can reduce one’s home’s vulnerability to economic shocks. It is something that strikes me as completely plausible, since the people who live three miles past the city limits and have to drive to work will pay a much higher cost than those who opt to live nearer work.

That being said, I can’t help but think that this is true anyway. Furthermore, it fails to account for the fact that people are not a homogenous group; some just want to live out in the countryside, just like there are those who would be perfectly happy to spend their entire lives in a Smart Growth community. If they can afford to, they will! Those who are more marginal will be persuaded by taxes and measures to keep population density high will be more likely to stay in the city, and they are welcome to do so.

Honestly, this is why I would be more likely to support taxes to mitigate what is seen as taking advantage of a common resource than zoning that requires people to do one thing: with the tax, those who still want to do what they will like to do will be able to do it. It preserves free choice; zoning is, effectively, imposing an absolute restriction on the people who have ideas.

Stinging Externalities

What do beekeeping and backyard farming have in common? They are both considered agricultural uses of land and are prohibited by zoning laws in many cities. In the case of Port Washington, Wisconsin one family has been told by the city they must remove the bees from their property because it violates local zoning laws. Those who support the cities verdict believe they are being protected from the possible danger that bees pose to the community. I think they've watched "Swarmed" one too many times; not only are honey bees generally non-aggressive, but they are absolutely necessary for pollination of everything ranging from crop fields to flower gardens.

Zoning puts limitations on the private use of land in order to promote the general welfare of the community, but in the case of prohibiting the agricultural use of land within the urban area of the city, is it really accomplishing this mission? Undoubtedly there are externalities associated with using land for agricultural purposes, from farming, to raising livestock (including bees), but that does not necessarily mean these activities should be prohibited. Using zoning to regulate bee keeping assumes the free market would not adequately regulate this sort of activity by itself and that the negative externalities exceed the positive ones.

First, I want to address bee keeping in terms of how I think the market would regulate it in the absence of zoning. In the absence of zoning, individual communities would be free to create their own covenants to regulate what sort of activity they found acceptable. Since it was a neighbor that brought the issue before city council, any neighbors of would-be-beekeepers could voice their opinions and concerns about a neighbor conducting those sort of activities. Each community would be unique and if there were people who objected to living near someone who kept bees, they would definitely have the option of living in a neighborhood where beekeeping was not allowed. If bees were considered a nuisance, it is likely that the property value around them would adjust accordingly downward; if they were considered beneficial by most people, it's possible that property values near the bees would increase. As it turns out, increases or decreases in property values surrounding beekeeping locations are considered externalities, and according to the third axiom of urban economics, externalities cause inefficiencies.

The number and type of externalities associated with beekeeping is the second topic I want to address. Bees can pose a danger to anyone who is allergic to them, a nuisance to those living near them, and a cause of distress to parents whose children may come in close contact with the hives. On the other hand, honey bees are generally docile, provide honey (a salable good and allergy preventative), and pollinate many plants withing a mile to two mile radius. With the natural honey bee population on the decline, privately maintained hives have become even more essential to pollination than they ever have been in the past. In the absence of their largest natural pollinator, it is likely that hundreds of plants would die off. Any externalities are considered inefficient regardless of whether they are positive or negative, but in order to determine how to internalize the externalities, it is necessary to determine whether the net effect is positive or negative.

Regardless of whether zoning remains in place or communities are left to determine what they feel are and are not acceptable practices, externalities still need to be internalized either through a tax or subsidy. It would be very difficult to determine without further research whether the net effect of bee keeping on the community is positive or negative, so I will address both possibilities. Assuming that it is negative, beekeepers should have a tax of some sort imposed upon them. Several options exist for taxing beekeeping. One option is to levy a one time tax at the time the bees are brought onto the property. Another option would be to charge a yearly tax based on the yearly peak bee population of a beekeeper's hive. However, if it were the case that the net effect was positive, it would be necessary to somehow subsidize the beekeepers, possibly paying a subsidy also based on the peak bee population.

It is hardly imaginable that banning bees completely from urban areas is the economically efficient way of managing beekeeping within city limits. Taking zoning out of the picture would likely result in communities instituting covenants that either allowed or disallowed beekeeping and individuals would adjust their housing decisions according to personal preference and weighing other factors like commuting cost of the location. In addition, beekeepers must either compensate the community for the external costs associated with the bees or be compensated by the community for the benefit of the bees through a tax or subsidy respectively. Hopefully, by privatizing zoning and internalizing the effects of externalities, cities like Port Washington will reach the economically efficient level of beekeeping.

New documentary shows failure of urban planning

Urban planners are very good at alluring people with their descriptions of fictional, utopia-like communities. They use colorful illustrations and lack of thought. It is at if they have watched one too many episodes of The Jetson’s, played SIMs one too many times. The truth is, forced urban planning fails.

This idea of wonderful housing for all, regardless of income, is not a new one. St. Louis began encouraging urban renewal projects with the Housing Act of 1949. This Act also encouraged moving to the suburbs via subsidies. The documentary, “The Pruitt-Igoe Myth”, explores the failures of the Pruitt-Igoe housing project and urban planning. According to Pruitt-Igoe.com, "At the film’s historical center is an analysis of the massive impact of the national urban renewal program of the 1950s and 1960s, which prompted the process of mass suburbanization and emptied American cities of their residents, businesses, and industries."

Unfortunately, screening of this film is only available at cities on their tour schedule or available for purchase ($295).

In the early 1950s, construction began on the Pruitt-Igoe housing project, which included 33 buildings, all towering 11 stories each. It covered 57 acres in the impoverished north side of St. Louis. The idea was that the poor living in undesirable living conditions in the downtown area would be relocated to “vertical neighborhoods for poor people.” Other urban planning idealism was also embraced in the construction. Elevators were designed to stop at only the 1st, 4th, 7th, and 10th floors. This was to encourage residence to socialize while walking between floors. Maybe play a game of chess with a neighbor while bringing up the groceries?

By 1957, there was a 91% occupancy rate. By the late 1960s, the buildings had been abandoned by most and held victim to vandalism. The residents remaining were held hostage to crime. The design of the elevators made it very conducive for robbery. In 1972, the towers were demolished.

Interestingly enough, the main architect of Pruitt-Igoe towers was also the same architect of the World Trade Center towers. The WTC towers were built right around the same time the Pruitt-Igoe towers were destroyed.

The Pruitt-Igoe Myth: an Urban History – Film Trailer from the Pruitt-Igoe Myth on Vimeo.

Commute Times

In this article the author shows the data collected by OECD about the time it takes for people to commute to work in different countries. The United States was 4th out of the 23 countries shown in the article's data. As we have learned in our readings the average person in the United States has far more open space to live on than people in most other countries. New Urbanists and people opposed to sprawl often point to an increase in pollution as a negative effect of sprawl. The sample of data given in the article seems to say that the New Urbanists do not have a valid point. If commuters in the United States have quicker commutes to work than their European counterparts who live in far more congested areas then I think something right is happening. To sum it up, citizens in the United States live in bigger houses on bigger properties and STILL have quicker commutes to work than people in Europe. My question is why would New Urbanists want to change what we have? Some data does point to increased pollution from the sprawl we have but data can be twisted to prove what it wants (as shown in the article I posted that have two completely different data sets after trying to capture the same data). European cities, even though more concentrated than the ones in the US are often viewed as dirty old cities that are full of pollution themselves. New Urbanists are trying to fix something that is not broken, so stop. This is just another example of people seeing something they view as a problem and trying to change people's behavior to achieve a desired outcome which in the end makes most people worse off.

Proposition 103

Last week, I got a little blue book in the mail talking about Propostion 103. This particular proposition seeks to increase state income tax from 4.63% to 5% and state sales tax from 2.9% to 3% in order to increase state funds for public education. For me, someone who is a big believer in education being the best way to ensure a "better tomorrow," I would at first look think this proposition was a good idea. More money for education can't possibly be negative, right? But then as I read further in to the booklet, and thought more about it, this actually seems really stupid to me. There is no plan as to how the money is going to be disbursed, so for all we know, the estimated $2.9 billion over the next 5 years could go to administration (which we have seen happen in the past, may I remind you) or union activity, or a number of other things that are never ever seen in the actual classroom. This got me thinking about the article we read for class a couple of weeks ago that considered a life without government and how this could relate... What is all education was privatized? I personally think this would be revolutionary and a great way to enhance our education system. I know it would be difficult to change, and I surely can't even begin to think of all the millions of details, but a voucher system seems like it would be the perfect way to start it so that gradually and eventually, privatization would be reasonable. People who don't have children or care about education (gasp!) would not be forced to fund it, but I still think there are enought people, like myself, who would still be willing to help pay that it would still be feasible. The increased competition would surely cause education to improve because schools would be forced to step up since parents would now have the choice as to which institution their child/ren attend. Creating a market for education seems kind of nuts because it's something we can't even really begin to imagine since we've never seen it before, but it does seem quite beneficial to me. Too bad I'm never going to be president ;-)