Monday, October 31, 2011
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.
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.
Saturday, October 29, 2011
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.
Tuesday, October 25, 2011
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.
Monday, October 24, 2011
Tuesday, October 18, 2011
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.